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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1995
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-15445
VIDEO JUKEBOX NETWORK, INC.
(Name of small business issuer in its charter)
FLORIDA 59-2605267
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1221 Collins Avenue, Miami Beach, Florida 33139
(Address of principal executive offices) (zip code)
Issuer's telephone number: (305) 674-5000
Securities registered under to Section 12(b) of the Exchange Act: NONE
Securities registered under to Section 12(g) of the Exchange Act:
(a) Common Stock, par value $.001 per share
(b) 8% Convertible Preferred Stock, par value $1.00 per share
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days. YES X NO
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Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB [ ]
The registrant's revenues for its most recent fiscal year: $24,158,735.
As of March 12, 1996, the aggregate market value of shares of the registrant's
voting stock (based upon the average bid and asked price of such stock as
reported by the NASDAQ System of $1.69) held by non-affiliates of the registrant
was approximately $10,131,293. For purposes of this computation, all executive
officers, directors and persons who beneficially own more than five percent of
the registrant's securities are deemed to be affiliates. Such determination
should not be deemed to be an admission that such directors, officers or
beneficial owners are, in fact, affiliates of the registrant.
As of March 12, 1996, there were 23,944,281 shares of the registrant's common
stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE: NONE
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TABLE OF CONTENTS
ITEM NUMBER AND CAPTION
<TABLE>
<S> <C>
PART I....................................................................................................... 1
ITEM 1 DESCRIPTION OF BUSINESS........................................................... 1
ITEM 2 DESCRIPTION OF PROPERTY........................................................... 15
ITEM 3 LEGAL PROCEEDINGS................................................................. 16
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS................................................................ 18
PART II...................................................................................................... 18
ITEM 5 MARKET FOR COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS............................................................. 18
ITEM 6 MANAGEMENT'S DISCUSSION AND ANALYSIS
OR PLAN OF OPERATION............................................................ 19
ITEM 7 FINANCIAL STATEMENTS.............................................................. 25
ITEM 8 CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE............................................................ 25
PART III..................................................................................................... 25
ITEM 9 DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS
AND CONTROL PERSONS; COMPLIANCE WITH
SECTION 16(a) OF THE EXCHANGE ACT............................................... 25
ITEM 10 EXECUTIVE COMPENSATION............................................................ 30
ITEM 11 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT........................................................... 36
ITEM 12 CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS.................................................................... 42
ITEM 13 EXHIBITS AND REPORTS ON FORM 8-K.................................................. 49
</TABLE>
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
INTRODUCTION
Video Jukebox Network, Inc. (the "Company") was incorporated in September 1985
in the State of Florida and has conducted operations since December 20, 1985,
when it leased one cable television channel on a cable system located in Miami,
Florida. Since the Company completed its initial public offering of securities
on January 20, 1987, it has been in the process of expanding the distribution of
its music video television programming, presently known as THE BOX. The Company
exhibits its television programming through the use of 89 box units installed in
cable television systems and 53 box units installed in low power television
stations. THE BOX is being aired to approximately 23 million subscribers in 140
cities located in 38 states, Washington, D.C., Puerto Rico, the United Kingdom,
Aruba and Holland. In 1993, the Company commenced national satellite
distribution of THE BOX via transponder 11 on Satcom C-4, a primary cable
satellite. Home owned satellite dishes were originally able to receive THE BOX
programming, however, during February 1995, the Company switched from an analog
signal to a digitally compressed signal, which prohibits home dish owners from
receiving the Company's programming until such owners purchase a digital
receiver for their satellite dish. Approximately 1,000,000 households are
presently receiving THE BOX through its digital satellite delivery. On a
temporary basis, from August 1995 through March 1996, the Company's satellite
provider made an analog signal available at the price of a digital transponder,
so the Company's programming was received by approximately 4,000,000 additional
households during such period. Beginning on April 1, 1996, the Company will
switch its satellite box service from the Satcom satellite to Hughes Satellite's
Galaxy 7, Transponder 13. Transponder and uplink service will be provided by
WTCI, a subsidiary of TeleCommunications, Inc. ("TCI"). The agreement with
StarNet, Inc. was terminated effective April 1996. See CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS, Transactions with StarNet/CEA.
THE BOX is a viewer interactive television service operating 24 hours per day,
seven days a week. Viewers of THE BOX can passively watch THE BOX programming or
can actively participate in determining THE BOX programming by selecting a
specific music video to be aired on THE BOX. Viewer selection is accomplished by
dialing a 900 telephone number or comparable telephone technology, and entering,
via touch-tone telephone, a three digit code assigned by the Company to the
music video. Through this procedure, the requesting viewer directly communicates
with the Company's computer. When the computer has received the viewer's
request, an acknowledgment of the request appears on all television screens
tuned to THE BOX. Viewers selecting music videos aired on THE BOX are charged a
fee. Viewers of THE BOX who do not request a specific music video are able to
watch THE BOX passively without paying any charges above their cost for cable
service. THE BOX presents approximately six minutes of advertising each hour
integrated between videos. Transmission of THE
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BOX programming can be accomplished through the use of only one cable television
channel, one broadcast television channel or through satellite delivery, none of
which require addressable technology. It is not necessary to install any
hardware in the viewers' homes to enable viewers to watch THE BOX or to select
music videos interactively. During 1995, the Company also aired a pre-
programmed music service on the satellite as a music programming alternative for
distributors. This service, known as THE BOX on Satellite, aired from May 1995
through January 26, 1996, when the satellite service returned to fully
interactive programming.
The Company formed a wholly-owned subsidiary, VJN LPTV CORP., in February 1994
to own and operate the low power television stations ("LPTV Stations")
previously owned by the Company. A total of 18 LPTV stations are currently owned
and operated by VJN LPTV CORP. and all are carrying THE BOX programming. The
Company's application with the Federal Communications Commission ("FCC") to
transfer the LPTV Stations from the Company to VJN LPTV CORP. was approved by
the FCC on March 22, 1994 and the assignment transfer to VJN LPTV CORP. took
place shortly thereafter. During 1994, VJN LPTV CORP. exercised an option to
purchase one of its affiliated LPTV stations which the Company then sold to
another LPTV affiliate on February 6, 1995. The Company recorded a gain of
approximately $60,000 in 1995 on the sale.
The Company has a 50% owned subsidiary, Video Jukebox Network International
Limited ("VJNIL"), a United Kingdom corporation, which commenced operations in
February 1992. Prior to June 30, 1995, the Company owned 91% of VJNIL. On June
30, 1995, the Company acquired the remaining nine percent ownership from VJNIL's
minority shareholder through the issuance of 225,000 newly issued shares of the
Company's common stock. The Company then sold a 50 percent equity interest in
VJNIL to Ticketmaster Corporation ("Ticketmaster") for $2,225,000 in cash.
Ticketmaster also matched the Company's outstanding advances in cash and
equipment to VJNIL by loaning $1.5 million to VJNIL. These two loans are secured
by all the assets of VJNIL and accrue interest at the prime rate of National
Westminster Bank (New York) plus one percent. No principal or interest payments
will be made until the third quarter 1997. Until such time, only interest
payments will be made on a quarterly basis for the next three years. Thereafter,
equal quarterly principal and interest payments will commence for the following
four years (through September 30, 2004), with a final payment of interest and
principal on October 1, 2005. The agreement also requires Ticketmaster to
provide VJNIL with strategic and marketing related services, primarily with
respect to sponsorship and promotional opportunities, advertising sales,
merchandising and other home shopping projects undertaken by VJNIL.
During 1995, the Company initiated further international expansion with the
startup of operations in Holland. As a result, in 1995 the Company formed two
new entities, The Box Worldwide - Europe, B.V. ("TBWE"), a Netherlands B.V.
holding company, and VJN Management Services, Inc. ("VJNMS"), a British Virgin
Islands corporation. TBWE will be the organization licensed to operate the
Company's business activities in
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Europe, including all European joint ventures, licensing arrangements and any
broadcasting of the Company's programming. VJNMS was formed to act as the
Company's representation on the Management Board of TBWE. The first interest
owned by TBWE is a 50% joint venture in The Box Holland ("TBH"), a Netherlands
B.V. company, which is distributing the Company's programming product in
Holland. Two boxes were launched on a test basis in Holland in August 1995, with
cable affiliate sales efforts continued through the remainder of 1995. During
February 1996, these two boxes were relaunched and three more boxes were
launched in March 1996. TBH has signed 8 cable affiliation agreements with a
potential of 590,000 subscribers for launch, although Management cannot be
assured that all operators will launch the Company's programming.
During 1996, the Company has formed an additional two companies, Video Jukebox
Network Europe, Ltd. ("VJNEL"), a United Kingdom corporation, and The Box
Worldwide - Latin America, Inc. ("TBWLA"), a British Virgin Islands corporation.
VJNEL will be the supporting service organization for all of TBWE's European
programming efforts, from obtaining the music product, producing discs and
tapes, distributing the music product to the various European affiliates,
supporting advertising sales and promotion and marketing of the programming
product. VJNEL will operate from an office in London. TBWLA will be the
licensing entity for all Latin America programming affiliations. To date,
license affiliation agreements have been completed with operators in Argentina
and Venezuela.
Unless otherwise specified, all references to the Company herein include Video
Jukebox Network, Inc., Video Jukebox Network International Limited, VJN LPTV
CORP., VJN Management Services, Inc., The Box Worldwide - Europe, B.V., Video
Jukebox Network Europe, Ltd. and The Box Worldwide - Latin America, Inc.
TRANSMISSION OF PROGRAMMING
The Company transmits its programming signal from operation centers in those
locations currently airing THE BOX. The Company's programming transmission is
effectuated by wire transmission to cable systems, low power television
stations, and full power television stations located in various geographical
areas throughout the United States, Puerto Rico, the United Kingdom, Aruba and
Holland. All cable systems and low power television stations located in the
United States, Puerto Rico, the United Kingdom, Aruba and Holland transmit their
television signals to subscribers who live within an area which has 900 or
comparable telephone service. In 1993, the Company began distribution of its
programming via satellite to provide service to cable systems too small to
economically support an individual box unit and to initially reach satellite
dish owners. While the Company transitioned to a digital signal from the
satellite transponder on February 28, 1995, the satellite dish owners who did
not own a digital receiver were not able to receive the Company's programming
service. However, from August 1995 through March 1996, the Company was able to
broadcast from an analog
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signal (at the price of a digital transponder) due to available space with the
Company's satellite transponder provider. From August 1993 through March 1996,
the Company's satellite transponder and service has been provided through a
service agreement with StarNet. See "CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS - Transactions with StarNet/CEA." The agreement between StarNet and
VJN for these services was mutually terminated effective April 1996. Beginning
in April 1996, the Company will be receiving these services from WTCI, a
subsidiary of TCI.
The Company's software and computer hardware systems have the capability of
receiving multiple requests for a particular music video. If multiple requests
for a particular music video are received before the video airs to completion,
the Company will provide a single airing of the video, but all viewers
requesting the video will be charged for the airing of the video. Accordingly,
the Company generates additional revenue when it receives multiple requests for
the same music video.
The current software and computer hardware systems in each box unit also have
the ability to monitor the number of viewer requests for all of the videos that
are available in that unit. This makes it possible for the Company to modify the
programming of each box unit in response to viewer tastes. By monitoring each
box unit and eliminating less popular videos, the Company can program each box
unit to reflect the current musical preferences of the viewers in each community
where THE BOX is being aired.
The Company currently monitors all of its installations through the use of a
central computer monitoring system (the "central system"). Utilizing the central
system, the Company has the ability to provide custom messages for each box. The
central system can schedule, transmit and verify the airing of local
commercials. The central system also allows THE BOX to maintain significant
consumer research information that has not yet been exploited by the Company.
The central system also monitors the status of certain individual components
contained in the Company's computerized hardware and software systems and has
the capability to conduct system updates and to correct certain malfunctions at
remote locations.
THE BOX currently operates on a technical platform which was designed and
implemented ten years ago with, what at the time was, state-of-the-art
equipment. The major components included a 286 computer controller with a
graphics card, patented software known as TADS (Telephone Access Display
System), Sony 3/4 inch VCRs and a Pioneer laser changer. This system has
performed well and continues to operate reliably in spite of the age and
condition of most of the machines. The Company, however, is planning a complete
technical overhaul of the box units for several reasons. First, most of the
equipment has already exceeded its reasonable operational life and unless the
Company would plan to spend considerable funds to refurbish the equipment,
breakdowns and malfunctions of the box units could be expected. Second, all of
the major hardware components of the system have been discontinued by their
manufacturers including the 286 computer and graphics card, the 3/4 tape decks
and the Pioneer laser player. Finally, the recent breakthroughs in digital video
distribution and storage will make it feasible for the first time to shift from
a mechanical system
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which relies on manual distribution of its product (tapes and laser discs sent
by Federal Express) to a fully automated, on-line system.
The next generation box unit, The Digital Box, will be used to deliver, store
and playback music videos and other video segments for the Company's music
service. The initial deployment of The Digital Box is intended to be integrated
with the existing operations as much as possible, and ultimately replace the
current video tape players and eliminate video tape distribution to digitally
equipped remote sites. The Digital Box has a distributed architecture that
comprises a centralized distribution and monitoring system and a system that is
located remotely at a cable service's head end. The key characteristics of the
new Digital Box will be the utilization of digital video to store, transport and
playback video segments, flexible database driven architecture for future growth
and software maintenance, improved and extended graphical overlay capabilities
and centralized maintenance, reporting and supervisory functions.
With this new Digital Box, the Company will realize benefits of improved
programming through digital audio and video, instantaneous playback of all
videos (replacing the queue time necessary with the old tape decks and laser
players) and facilitate localization of programming, which is difficult with the
present manual system. The ability to update the boxes on a near real- time
basis through downlink from a VSAT satellite will allow the Company to add any
new music product, advertising spots or promotional product at any time, while
previously the Company only changed tapes and laser discs which contained these
programming elements once a week and required at least five days lead time prior
to the weekly tape and disc changes. In addition to all of these important
programming elements, which management believes will assist the sales personnel
in obtaining more programming distribution and increased advertising sales,
expenses will be reduced as charges associated with maintaining the older
equipment previously in the field will be eliminated; tape and disc production,
shipping, and tape change expenses will be eliminated; and the
telecommunications required to and from the box will be via satellite for a flat
monthly charge, as opposed to the old technology's dial up through phone lines.
The Company's initial plans for 1996 are to replace all analog box units at
cable headends with the new Digital Box by the end of August 1996. Additionally,
the three New York City low power broadcast stations will also be switched from
analog to digital. Finally, any new cable systems signed on for distribution
during 1996 will be launched with the Digital Box. Due to cash constraints, with
the exception of the three New York City low power stations and the West Palm
Beach low power station, the low power stations currently carrying THE BOX, both
affiliated and owned and operated, plus any further low power stations added in
1996, will be switched from analog to digital in 1997. The Company is
negotiating with its current bank and other financial institutions for
asset-based financing of $3 million to provide for the cash outlay necessary to
perform the digital conversion planned for 1996. While the Company cannot be
certain of obtaining such financing or whether such technological overhaul will
result in increased distribution or revenues, the Company believes that it
currently has the funds necessary to complete the planned installations in 1996.
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PROGRAMMING
The Company's overall strategy for THE BOX is to develop and operate programming
that satisfies a broad range of musical tastes. THE BOX presently offers viewers
a wide variety of music video alternatives, such as hip-hop, rock, country, R&B,
pop, Latin, and other classifications of music. The Company provides viewers
with musical entertainment designed to satisfy targeted demographic sectors.
THE BOX, like other music video programs, relies on mood and emotion rather than
on the traditional television approach of story and plot. THE BOX programming
consists of music videos integrated into a unique viewer interactive programming
format. The Company may supplement its programming with other forms of viewer
interactive programming. In March 1995, the Company began development of a
compilation recording of some of the top songs on THE BOX and signed a
development and production agreement with Polygram Records for a series of four
compilations. The first, "The Big Phat Ones of HipHop", was released in June
1995 on the Company's new recording label, BOXtunes. For each compilation,
Polygram pays an up-front royalty of $10,000. Over 96,000 copies of this
recording have been sold to date. The second compilation, "The Big Ones of
Alternative", was released in March 1996. Additionally, the Company developed a
line of BOX clothing and music related merchandise that the Company has been
selling on air and in a new retail store opened September 1, 1995 at the
Company's corporate headquarters location in the South Beach area of Miami,
Florida. The store has not operated at a net profit to date and is not expected
to in the near future, rather the store is meant to be a marketing tool in
establishing the Company's branding of its trademarks.
The Company has negotiated license agreements with organizations that represent
the rights of composers of music videos aired on THE BOX. The Company currently
pays no fee to the distributors of the music videos it airs within the United
States, but is required to pay a video performance license fee with respect to
videos aired in the United Kingdom and Holland. There can be no assurance that
the Company will continue to obtain music videos for airing in the United States
at no charge or on terms deemed satisfactory to the Company.
SALES AND MARKETING
In 1995, the Company increased its advertising, marketing and promotional
efforts aimed at cable subscribers, THE BOX viewers and the advertising
community, in order to generate greater overall revenues per box unit. Some
consumer advertising was initiated in 1995 to promote viewership of THE BOX
programming and drive additional transactional revenue. These efforts will be
expanded in 1996, with the hiring of a Vice President - Marketing who will
coordinate the marketing of the Company, from its on-air and off-air promotions,
radio affiliations with stations nationwide, press relations and consumer
advertising.
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The Company increased its in-house advertising sales staff to five salespersons
in 1995 and has now employed an additional three employees in the first quarter
of 1996. In addition to continued building of national advertising sales and
consistent high demand from record labels for advertising, the Company has two
of the new salespersons focusing on expanding direct response advertising on a
national basis plus local advertising for the New York City LPTV stations. In
1995, the Company increased its promotional efforts towards organizations which
are potential advertisers on the Company's programming by coordinating special
on-air promotions with advertising buys. For example, Coors Light was a major
corporate sponsor of the Company's 14 week summer promotion, "95 Dayz of
Summer." Such advertising, marketing and promotional efforts have had a direct
value-added impact on advertising sales levels and this promotional emphasis
will continue in 1996, as the Company focuses on fewer, but more substantial
promotions. These efforts will also include advertisements on channels which air
the Company's programming, sweepstakes promotions, magazine advertisements,
direct mail solicitations and participation in industry trade shows. As part of
its effort to improve viewership, the Company has affiliations with radio
stations in all of the top twenty radio markets which provide for free
advertising time on the radio stations to promote THE BOX. In addition to local
promotions held jointly with the radio stations, many of the stations subsidize
the production and marketing costs through the payment of annual sponsorship
revenues of $10,000 to $50,000 per station.
COMPETITION
The business of distributing programming for television is highly competitive.
The Company competes in varying degrees with other television programming and
entertainment media. The primary competition is for available channel space with
other cable and low power television programming available. The extent of such
competition is dependent upon the channel capacity of each prospective cable
affiliate or the availability of low power stations in the market.
While there are numerous programming services available in all categories of
programming, there are several established music video programmers on cable,
network and local television stations that offer rock, country and other music
video formats. Such programs range in length from several minutes to 24 hours
per day. In addition, some of these companies have greater financial resources
and have a broader programming distribution base than the Company. Examples
include MTV Networks' channels: MTV Music Television and Video Hits- 1; Country
Music Television; Black Entertainment Television and The Nashville Network. In
addition, there are other smaller programmers such as MOR Music and Z Music.
However, the Company is not aware of any music programmer that currently
operates a service comparable to the interactive component of the Company's
programming.
The Company is aware of at least one music video programmer that has entered
into exclusive exhibition agreements with several record companies assuring the
programmer that the record companies' videos are not available for any other
television exhibition earlier than their availability to such programmer's
channels or programs and
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in some cases for exclusive periods of time. As a result of such agreements
entered into by other music video programmers, the Company may not be able to
obtain a competitive advantage over its competitors with regard to music videos
produced by certain record companies because the Company may be precluded from
exhibiting a particular music video before a competitor can exhibit the video
and because a competitor may have been granted an exclusive period of time to
air the video. Because the Company offers viewers a variety of music video
selections, with local customization, management does not believe the Company
will suffer a material reduction in revenues if a competitor obtains an
exclusive exhibition agreement for a particular music video.
REVENUES
The Company has two main operating revenue sources: transactional revenue from
the viewers requesting music videos through the 900 telephone service and
advertising revenue. While the Company has relied significantly upon
transactional revenue in the past, advertising sales have continued to grow
rapidly. In 1993, transactional revenue and advertising sales provided 72.7% and
27.3% of operating revenue, respectively. In 1994, the gap was reduced, with
transactional revenue totaling 67.3% of operating revenue and 32.7% of operating
revenue resulting from advertising sales. In 1995, the Company has seen the gap
between these two revenue sources narrow further, with 55.9% and 44.1% of the
operating revenue coming from transactional revenue and advertising revenue,
respectively. Due to the limited number of videos that can be played on any one
box in the course of a day, it has always been management's plan to increase
advertising revenue and it is anticipated that advertising revenue as a
percentage of total revenue will increase in future periods. As a result of the
Company's efforts to increase advertising revenue, playlists have been altered
to eliminate many of the controversial videos. Although these videos generated
significant transaction revenue, mainstream advertisers refrained from promoting
their products on the Company's network. By eliminating many of these videos,
advertising revenue increased but transactional revenue has decreased.
For the transactional revenue, the long distance and local telephone companies
servicing the Company's viewers provide all accounting, disbursement and
collection services relating to the viewers' use of the 900 telephone services.
The Company charges its viewers from $.93 to $6.00 for either single or multiple
video selections. The Company intends to continue its efforts to improve and
expand the distribution of its programming to increase viewer revenues. The
Digital BOX will also allow instantaneous play of videos, thereby increasing
potential transaction revenue that was previously lost while videos were being
queued up on the laser player or tape machines. The Company will continue to use
financing obtained during 1994 to increase viewer demand through its
advertising, marketing and promotional efforts. However, there can be no
assurances that the Company will be able to expand the distribution of its
programming or that the Company will be able to generate additional viewer
revenues from such expansion. In addition, future viewer revenues may vary
depending upon public acceptance of the Company's programming and the
contractual
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arrangements between the Company and owners of cable systems and low power and
high power television stations and the local and long distance telephone
companies servicing the areas where the Company desires to expand its
operations.
For the year ended December 31, 1995, the net viewer revenue from subscribers of
Satellite Services, Inc. and Time Warner Cable, two multiple cable system
operators, represented 20.8% and 13.8%, respectively, of the Company's total net
viewer revenue.
The Company experiences some seasonality in its viewer revenues, which tends to
be higher during the summer months due to the fact that the young viewer
audience is not in school. Viewer revenue also tends to increase during holiday
periods.
In 1995, the Company generated advertising and other revenue of approximately
$9,808,000. This total is composed of $9,623,000 in advertising and $185,000 in
miscellaneous revenue. The increase in advertising revenue was approximately 59%
above the revenue generated during 1994. In mid-1994, the Company brought its
national advertising sales in-house and after the first full year of such sales
effort, a 100% growth in sales results were noted from 1994 to 1995. Record
industry advertising remained strong, with an increase of 28.9% from 1994 to
1995. Potential and current advertisers on THE BOX consist of a diverse group of
organizations selling a variety of products and services. Some major categories
are movies, personal care products, apparel, records and tapes, audio and video
equipment and accessories, automobiles and motorcycles, soft drinks, alcoholic
and non-alcoholic beverages, fast foods, toys, computers, candy, breakfast
foods, telephone services, bicycles, sporting goods, oil and gas products and
dental products. The Company plans on increasing its promotional efforts towards
organizations which are potential advertisers on the Company's programming.
There can be no assurance, however, that the Company will generate significant
advertising revenues in the future. Miscellaneous revenues for 1995 included a
gain of approximately $60,000 recognized on the sale of an LPTV station, a gain
of $27,000 on the sales of other LPTV equipment, cable carriage fee revenue of
approximately $55,000, merchandise revenue from the Company's retail store
outlet of approximately $22,000 and miscellaneous other revenue of approximately
$21,000.
EXPENSES
The Company's expenses and capital costs are primarily attributable to the
design, assembly and installation of box units, revenue sharing arrangements
with cable systems and television stations, employee salaries, telephone access
charges, service charges for satellite delivery, and the operation of the
Company's satellite offices in New York City, Los Angeles, Philadelphia and the
corporate headquarters in the South Beach area of Miami, Florida. The new
digital box will cost approximately $40,000 to construct and install, however it
will provide significant operational savings as well as improvement in
programming performance. For a discussion of such savings, see "DESCRIPTION OF
BUSINESS - Transmission of Programming."
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The Company has arrangements with record companies pursuant to which the Company
has obtained the right to air music videos in the United States produced by
these record companies at no cost. In the future, there can be no assurance that
music videos will be available to the Company at no cost or on terms deemed
satisfactory to the Company.
The Company entered into an agreement in August 1993 for satellite transponder
and service with StarNet which provided for a monthly service fee of $200,000.
To conserve working capital during the period from September 1993 through July
1994, the Company elected to defer such monthly payments by issuing to StarNet
convertible notes. Commencing August 1994, the Company paid the monthly
transponder and service fee in cash. Upon the Company's election to prepay the
approximately $2,354,000 of outstanding principal and accrued interest under the
Notes, StarNet, in accordance with the terms of the Notes, elected to receive
such payment in shares of common stock rather than cash based upon a rate of
conversion equal to one share of common stock for each $1.25 of debt under the
Notes. On December 16, 1994, the Company issued 1,883,555 shares of its common
stock to StarNet and the Company's indebtedness to StarNet of approximately
$2,354,000 was canceled. In February 1995, the Company switched its satellite
transmission from an analog signal to a digital signal, which resulted in
monthly transponder and service fees being reduced to $110,000 per month for
February, March and April 1995. Beginning in May 1995, the fees were reduced
even further to a monthly total of $73,500. StarNet and the Company have agreed
to a termination of the services agreement effective April 1996. See "CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS - Transactions with StarNet/CEA."
Beginning April 1, 1996, the Company will receive its digital satellite
transponder and uplink service from WTCI, a subsidiary of TCI. The Company has
signed a three-month service agreement with a monthly charge of $42,000. A
long-term agreement for services is currently under negotiation.
PROPRIETARY PROTECTION
The Company owns two United States copyrights on certain software. Since a
copyright primarily protects written expression but not ideas, concepts or
principles, the Company's copyrights may not afford protection against
competitors who independently develop comparable software. In addition, the
Company has obtained United States registrations for its trademarks "THE BOX
(with design)", "Music Television You Control", "The Jukebox Network", "The
Jukebox Network (with design)" and THE BOX - Music Television You Control (with
design)." Applications have been filed for registration in the United States of
its trademarks "Xposure", "Big Phat Ones", "P.O. BOX - Personal Objects",
"BOXtalk", "BOXtunes" and "The Box Worldwide". The Company has also filed or is
in the process of filing for trademark registration of "THE BOX (with design)",
"THE BOX - Music Television You Control (with design)", in the following
countries: Argentina, Australia, Benelux, Brazil, Canada, Chile, Finland,
France, Germany, Ireland, Italy, Japan, Mexico, New Zealand, Norway, Peru,
Portugal, Spain, Sweden, Switzerland, the United Kingdom and Venezuela.
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The Company also holds three United States patents relating to its telephone
access display systems, which enable viewers to telephonically select music
videos. The systems may also have other interactive television applications such
as shopping, trivia, comedy, sports and general information. The Company has
also received patents for its telephone access display system in Italy and
Canada and has a pending application in France. On May 8, 1995, the Company
filed a new patent application for the interactive video system, The Digital
Box. The Company plans on filing additional applications for patents in other
foreign countries. There can be no assurance as to the breadth or degree of
protection which such copyrights, trademarks and patents may afford the Company.
The Company has entered into employment agreements with three key employees. See
"EXECUTIVE COMPENSATION - Employment Agreements." However, Paul Sartain, the
Vice President -- Operations, is currently serving without an employment
agreement. The agreements provide that, during the term of each agreement, the
employee may not engage in any activity competitive with the Company's business.
The agreements also impose prohibitions against an employee's disclosure of
certain confidential trade secret information proprietary to the Company and
contain certain covenants not to compete with the Company, for a period of years
from the termination of their employment, in the United States, Canada, or any
geographical area where the Company is transacting business. There can be no
assurance that these agreements will protect the Company from unauthorized
disclosure or use of its proprietary information, nor can there be any assurance
that these agreements will be held to be enforceable if they are contested by an
employee of the Company.
EMPLOYEES
The Company currently has a total of 105 full-time and 3 part-time employees.
None of these employees is represented by a labor union. The Company
considers its employee relations to be good.
GOVERNMENT REGULATION
The Company, through its wholly-owned subsidiary VJN LPTV CORP., is authorized
by the Federal Communication Commission ("FCC") to operate 19 low power
television stations (the "LPTV Stations"), of which the Company is currently
operating 18 LPTV stations. An FCC license for the ownership or operation of a
low power television station is effective for a maximum period of five years.
These licenses are renewable for another five years if the licensee is in
compliance with FCC rules. FCC regulations require the Company to obtain
approval from the FCC prior to acquiring or selling a low power television
station. Additionally, the Company is subject to certain FCC regulations and
policies regulating the content of its programming and the operation of its
stations. FCC licensed television stations are required to be equal employment
opportunity employers and to meet certain requirements when advertising or
airing political broadcasts.
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In 1995, VJN LPTV CORP. built and begin operating THE BOX programming on new low
power television stations in Tuscaloosa, Alabama and Champaign/Urbana, Illinois.
Additionally, a construction permit for Tallahassee, Florida was also granted by
the FCC and the station is currently being built and should be operational in
1996.
The Company is subject to certain rules adopted by the FCC with respect to
interstate 900 telecommunications services. The rules require that (a) certain
price and product identification information be given before a consumer incurs a
charge in excess of $2.00 for a 900 call, (b) local exchange carriers provide
customers with the option of blocking all 900 calls at no charge to the
customer, and (c) a subscriber's basic telephone service cannot be disconnected
for failure to pay interstate 900 service charges. Certain states are
considering legislation similar to the rules adopted by the FCC. Because the
Company has taken steps to reduce chargebacks by instituting certain credit
limits and call blocking of non-paying customers, the Company believes that the
FCC rules presently do not have a material adverse effect on the Company's
business.
On February 8, 1996, a new telecommunications law, the Telecommunications Act of
1996, was signed into law. This Act is the most thorough rewrite of
communication law since the passage of the Communications Act of 1934. It opens
up the video, local telephone and long distance markets to competition while
giving the telecommunications industries the flexibility they need to invest in
new technology and services. The main components which would seem to directly
impact the Company are: (1) mergers and joint ventures are allowed between cable
and telephone companies under certain conditions, such as low density or rural
markets where two or more expensive telecommunications infrastructures could not
be supported; (2) regulatory relief is provided for cable companies by
deregulating small systems immediately and deregulating by March 31, 1996 the
cable programming tiers of larger cable companies; (3) allows telephone
companies to offer video programming directly to customers in their service
areas immediately. While the affect this new law will have on the Company cannot
be assured, management believes the potential of new telephone distributors and
the rate relief on cable operators should provide for expanded distribution
systems and overall channel capacity which should assist the Company in gaining
new domestic distribution of its programming.
PROGRAMMING DISTRIBUTION
The Company exhibits its television programming, presently known as THE BOX,
through the use of a satellite transponder and 143 box units in service as of
March 25, 1995. Of the 143 box units, 89 box units are installed in cable
television systems, 53 box units are installed in low power television stations
and one box unit is utilized for the satellite distribution. Through March 1996,
the Company has distributed its programming via satellite on Satcom C-4,
Transponder 11. Beginning April 1, 1996, the Company will be broadcasting from
Hughes Satellite's Galaxy 7, transponder 13, a major cable satellite.
Approximately 941,000 households currently receive the Satcom satellite
transmission signal nationwide and the same number will receive their signal
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from the new satellite effective April 1, 1996. The Company's locally initiated
programming presently reaches approximately 22,443,000 households, of which
18,298,000 and 4,145,000 households are reached by programming aired on low
power television stations and cable systems with local box technology,
respectively. This estimate is based upon demographic research prepared by an
independent market research firm and from information obtained by the Company
from cable companies. THE BOX is being aired utilizing local box technology and
the digital satellite signal in 140 cities located in 38 states, Washington,
D.C., Puerto Rico, the United Kingdom, Aruba and Holland. The Company has
reorganized its efforts to expand the distribution of its programming in the
United States by consolidating its affiliate sales staff into two offices: Miami
and Los Angeles, under the direction of two regional vice presidents, one
regional director, four regional managers and one affiliate relations marketing
manager, all of which report to the Vice President - Affiliate Relations.
Additionally, a Vice President - Business Development has been assigned to
develop the distribution of the Company's programming by telcos, wireless
distributors, DBS programmers, LPTV and other broadcasters. He is assisted in
this development by a Director - Broadcast Sales.
Twenty-nine of the box units airing the Company's programming on cable systems
are operating under program affiliation agreements with the Company. The
remaining sixty box units on cable systems (twenty-seven of which are in the
United Kingdom) operate under approval from the cable systems to air the
Company's programming on their channels. The Company is presently negotiating
written agreements with these cable systems.
In the past, the Company operated under program affiliation agreements with
cable systems which provided for a term of three years and were automatically
renewable for successive one-year periods unless either party gave notice not to
renew. Pursuant to such agreements, the Company paid cable systems the greater
of a guaranteed minimum monthly fee per subscriber or a specified percentage of
the gross revenues generated by each cable system. Prior to 1993, due to the
fact that the box units were not generating sufficient gross revenues, the
Company paid the guaranteed minimum monthly fee to all cable systems. Such fee
bore no relationship to the revenues generated by the box units.
During 1993, approximately fifty percent of the cable systems carrying the
Company's programming agreed to a new compensation arrangement which provides
for affiliation fees based upon a percentage of the net viewer revenues
generated by the system. In February 1995, the remaining fifty percent agreed to
new compensation through the reduction of the guaranteed monthly minimum per
subscriber of $.05 (no marketing reimbursement) versus the previous $.09 ($.07
revenue share and $.02 marketing monies per subscriber per month). As a result,
the fees paid to cable affiliates has been significantly reduced from the levels
experienced in 1993 and 1994.
Pursuant to certain of the Company's current program affiliation agreements, the
Company also reimburses each cable system, on a monthly basis, up to $.02 per
subscriber, for the cost of distributing promotional materials about the
Company's
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<PAGE> 17
programming to subscribers and for airing cross-promotional announcements on
other cable channels in the cable system.
The Company, through its wholly-owned subsidiary VJN LPTV Corp., owns 19 low
power television stations, 9 of which utilize local box installations, 9 of
which utilize satellite transmission in order to air the Company's programming
and one in Tallahassee, Florida which is currently being built. See "DESCRIPTION
OF BUSINESS -- Government Regulations." The Company has entered into programming
affiliation agreements with 42 other low power television stations. The Company
has options to purchase one of such low power television stations. Management is
presently negotiating written programming agreements with an additional seven
low power television stations currently airing the Company's programming.
Domestically, the Company targets its expansion on systems which have at least
20,000 subscribers. There are over 1,000 cable television systems in the U.S.
that fall within this target range. Additionally, the Company is focusing on
cable systems which are in the process of expanding their channel capacity
through rebuilds. In order to expand, the Company is attempting to obtain rights
to exhibit its programming by entering into program affiliation agreements with
cable television systems and low power television stations located in portions
of the United States having 900 telephone service. The Company is in various
stages of negotiation with several cable systems and low power television
stations to air the Company's programming. The Company is also addressing
alternative distribution sources such as direct-to-home satellite (DirecTv,
EchoStar, AlphaStar, PrimeStar and others) and wireless systems that are
overbuilding their service in existing cable markets. As part of the expansion
of the distribution of the Company's programming, the Company had been
relocating certain box units which were performing below certain revenue levels
from their present locations to new locations, rather than constructing new box
units for installation. With the digital conversion process, low performing
boxes will be converted last, with the focus on high performers, and new markets
being serviced through The Digital Box. If the locations do not appear
financially capable of supporting these new Digital Boxes, then any locations
from which box units are removed will then be serviced through the satellite
transmitted box.
In February 1992, the Company began distributing its music video television
programming in the United Kingdom through VJNIL with the launch of three box
units in the London and Bristol areas. By the end of 1992, the Company had six
box units operating in the United Kingdom. In 1993 and 1994, respectively, the
Company added nine and four boxes to the programming distribution in the United
Kingdom. During 1995, the Company relocated eight box units from the United
States to the United Kingdom. The Company currently distributes its programming
through 27 box units in the United Kingdom to nearly one million subscribers and
plans to expand such distribution pending continued interest in the Company's
programming by the cable operators of the United Kingdom.
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The Company has been seeking other foreign distribution of its programming in
several European, Latin American and Pacific Rim countries. The Company has
allocated $1,500,000 of the financing funds received in 1994 towards its
international expansion. To date, the Company has invested this money in new
operations in Holland and Argentina, as well as corporate departmental expenses
such as salaries, travel, trade advertising and international cable industry
events. At this time, the Company has determined that no further international
expansion can occur until additional financing is obtained. See "DESCRIPTION OF
BUSINESS - Introduction."
ITEM 2. DESCRIPTION OF PROPERTY
In February 1995, the Company's principal executive offices were relocated to
1221 Collins Avenue, Miami Beach, Florida. The Company currently occupies
approximately 16,000 square feet of space at this location pursuant to a lease
with Island Trading Company, Inc. which expires February 1, 2002. Payment of
rent at this new location commenced on July 15, 1995 at a base rental of $22.00
per square foot for the first year of the lease term, increasing to $39.00 per
square foot for the seventh and final year of the lease term. The base rental
rate does not include certain operating expenses to be borne by the Company for
the entire term of the lease and capped for the first three years of the lease
term. Beginning in September 1995, the Company agreed to lease an additional
1,800 square feet in one of the premises at a base rental rate of $13.00 per
square foot (not including the operating expenses referred to above) with a $.50
per square foot escalation each year thereafter. The Company has the right to
renew the lease subject to the negotiation of a new rental rate, based upon the
then-current market rate.
The Company has expanded its office space in the Miami Beach corporate
headquarters by leasing approximately 9,000 square feet of additional space at
1205 Washington Avenue. This space will mainly be used to house the Company's
cable and broadcast affiliate sales staff and will provide the Company with an
assembly point for digital box deployment. The five year lease, which expires on
December 31, 2000, provides for lease payments of approximately $8,000 per month
for the first year of the term, increasing to $9,724 per month for the fifth and
last year of the lease. The Company has the right to renew the lease for an
additional three years subject to the negotiation of a new rental rate, based
upon the then-current market rate.
On March 1, 1996, the Company signed a new three year lease for a larger office
space in New York City which houses the national and New York local advertising
sales team. The lease expires on February 28, 1999 and provides for rent of
$6,716 per month, with inflationary adjustments annually.
A Los Angeles sales office location which has housed the Western Region of
affiliate sales, the Western national advertising sales staff, Radio
affiliations staff and the international operations staff is currently operating
under a 42 month lease which expires in September 1997, with annual rent of
approximately $57,000.
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The Company had previously leased office space for its affiliate sales and
marketing department in Philadelphia, Pennsylvania, pursuant to a lease expiring
February 28, 1997 with annual rent of $42,786. Annual increases of 2.8% per
square foot are included for each year of this lease term. Beginning in November
1995, the Company left the space, with the existing employees relocating to a
consolidated Eastern region office in Miami. On November 20, 1995, the Company
began a sublease of the space to a local telecommunications company at a rent
which is approximately 60% of the Company's monthly obligation under the lease.
The sub-lease agreement terminates on the last day of the Company's original
lease.
An additional sales office location in Denver was opened in 1994 under a three
year lease which expires in January 1997, with an annual rental of $11,418. The
Company decided to close its Denver office and began on August 1, 1995 to
sub-lease the office space through the remainder of the term at a rent which
approximates the Company's obligation under the original lease.
The Company also leases small facilities or equipment sites in Gainesville,
Florida; Montgomery, Tuscaloosa and Birmingham, Alabama; Savannah, Georgia; Des
Moines, Iowa; Indianapolis, Indiana; New Orleans, Louisiana; Detroit, Michigan;
Jackson, Mississippi; Durham and Raleigh, North Carolina; and Memphis,
Tennessee, Minneapolis, Minnesota, Louisville, Kentucky and Champaign, Illinois.
These leases expire at various times ranging from one to three years.
ITEM 3. LEGAL PROCEEDINGS
On August 30, 1991, the Company filed a complaint (the "Complaint") against
Donald L. Barone, Jr. ("Barone"), Kenneth Trzecki, Harry Griendling and
Healthcare Communications, Incorporated (collectively, "HCI") in the Circuit
Court of the Seventeenth Judicial Circuit in and for Broward County, Florida.
Harry Griendling has been dismissed from the action with prejudice. The
Complaint alleges that: (I) in or about August 1991, Barone, while an employee
of the Company, wrongfully and intentionally removed certain proprietary
materials used in connection with the development and marketing of an
interactive employment television program owned by the Company, as well as
certain other property owned by and entrusted to the Company by third parties
which was used in connection with the development of the interactive employment
television program (collectively, the "Property"); and (ii) HCI fraudulently
induced the Company to enter into a business relationship with HCI for the
purpose of financially exploiting the Company. The Complaint sought the issuance
of a prejudgment writ of replevin and a temporary and permanent injunction,
compensatory damages and other relief.
On September 3, 1991, the Court granted the Company's motions, issued a
prejudgment writ of replevin requiring return of the Property to the Company
during the
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<PAGE> 20
pendency of the case, and issued a temporary injunction precluding third parties
from possessing, using and/or enjoying the benefits of the Property.
On October 31, 1991, HCI filed an answer, affirmative defenses and counterclaim
against the Company for breach of contract and fraudulent inducement. HCI also
filed a third party summons and complaint against the then President of the
Company, alleging fraudulent inducement by him. HCI denied all the material
allegations contained in the Complaint and alleged that: (I) the Company
fraudulently induced HCI to enter into a business relationship with the Company;
(ii) the Company had no right of possession and no ownership interest in the
Property; and (iii) Barone had no authority to transfer the Property owned by
HCI to the Company. HCI also alleged that the Property was developed pursuant to
a joint venture agreement between HCI and the Company and that the Company
breached such agreement. The counterclaim seeks compensatory damages and other
relief from the Company, and the third party complaint seeks compensatory
damages and other relief from the then President of the Company. The Company and
its former President believe the claims asserted by HCI are without merit. The
Company and its former President have denied HCI's allegations, moved to dismiss
the claims and have been vigorously defending the action while pursuing the
Company's claims against HCI. The Company has agreed to indemnify and hold
harmless the former President of the Company for any costs and liability
incurred by him in this litigation.
HCI subsequently filed a motion to dissolve the orders granting the Company the
writ of replevin and temporary injunction. On October 8, 1991, the Circuit Court
dissolved the writ of replevin and temporary injunction. On October 31, 1994,
the Circuit Court determined that HCI was entitled to attorneys fees in the
amount of $22,665 and costs of $2,490. The Company paid such sum from the
$35,000 bond amount which had been deposited with the Circuit Court in 1991. In
the claim for damages for the wrongful replevin, Barone was seeking damages for
his claim of mental pain and suffering as a result of the Company seeking the
writ of replevin and executing such writ through the lawful means of the Sheriff
of Broward County. HCI was seeking: (I) attorneys' fees in excess of $100,000
concerning the dissolution of the writ and for the proceedings related to the
issue of damages; and (ii) damages for loss of the use of the property seized.
The Circuit Court has determined that additional damages, if any, as a result of
the wrongful issuance of the prejudgment writ of replevin and temporary
injunction could not be determined until a final judgement is rendered on the
merits of the case. The Company filed a motion in July 1995 for partial summary
judgment seeking a Circuit Court order that Barone is not entitled to any
damages for mental pain and suffering. The Circuit Court has not yet set a
hearing date for the motion.
On August 30, 1991, HCI filed a summons with notice (the "Summons") in the State
of New York Supreme Court in the County of Erie. In the Summons, HCI threatened
to file a complaint against the Company for purported damages of $100 million
for alleged tortious interference with contractual relations between HCI and
unidentified third parties, for negligent and intentional misrepresentation and
for breach of express and implied contract. The Summons also states that HCI
will seek a declaratory judgment
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<PAGE> 21
to determine ownership rights to the Property. However, since August 30, 1991,
HCI has neither filed a complaint against the Company nor taken any further
action. The Company believes that the allegations of HCI as stated in the
Summons are without merit. The Company will fully and vigorously respond to such
allegations if a formal complaint is filed against it by HCI.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's annual meeting of stockholders was held on September 14, 1995. At
the meeting, the following persons were elected to serve as directors of the
Company until the next annual meeting of stockholders and until a successor is
elected and qualified or until the earlier resignation, removal, death or
incapacity of the director: H. F. Lenfest (by a vote of 20,047,427 in favor, 0
against and with 74,660 abstentions and no broker non-votes); Alan McGlade (by a
vote of 20,047,227 in favor, 0 against and with 74,860 abstentions and no broker
non-votes); Chris Blackwell (by a vote of 20,047,227 in favor, 0 against and
with 74,860 abstentions and no broker non-votes); David Burns (by a vote of
20,047,327 in favor, 0 against and with 74,760 abstentions and no broker
non-votes); J. Patrick Michaels, Jr. (by a vote of 20,047,427 in favor, 0
against and with 74,660 abstentions and no broker non- votes); Joel Rudich (by a
vote of 20,047,327 in favor, 0 against and with 74,760 abstentions and no broker
non-votes) and Leonard J. Sokolow (by a vote of 20,047,327 in favor, 0 against
and with 74,760 abstentions and no broker non-votes).
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock is included in the automated quotation system of the
National Association of Securities Dealers, Inc. (the "NASDAQ System") on the
over-the-counter market under the symbol "JUKE." The following table sets forth
the high and low bid prices in U.S. Dollars of the common stock as reported by
the NASDAQ System for each quarter during the 1995 and 1994 calendar years:
<TABLE>
<CAPTION>
Market Price (1)
----------------
1995 Quarters 1994 Quarters
-------------------- --------------------
High Low High Low
---- --- ---- ---
<S> <C> <C> <C> <C>
Fourth 2-7/16 1 2-1/8 1-1/4
Third 2-1/8 1-1/8 2-1/4 1-5/8
Second 1-9/16 1 2-3/8 1-1/2
First 2 1-3/8 3-3/4 2-3/8
</TABLE>
- ---------------
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<PAGE> 22
(1) The quotations reflect interdealer prices without retail mark-up,
markdown or commission and may not necessarily represent actual
transactions.
On March 12, 1996, there were 294 holders of record of the Company's common
stock. This number does not include any adjustment for stockholders owning
common stock in "street" name, which the Company believes represents at least an
additional 2,000 stockholders.
The Company has not paid any cash dividends since its inception, does not
anticipate paying any cash dividends in the foreseeable future and intends to
retain earnings, if any, to provide funds for general corporate purposes and the
proposed expansion of the Company's business. Any future dividends will be
dependent upon the earnings of the Company, its financial requirements and other
relevant factors.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995 COMPARED TO THE YEAR ENDED DECEMBER 31, 1994.
For the year ended December 31, 1995, the Company realized a consolidated net
income of $485,058 compared to a consolidated net loss of $(4,493,094) for the
year ended December 31, 1994. During 1995 the Company realized a gain from the
sale of 50% of its interest in the United Kingdom subsidiary, Video Jukebox
Network International Limited, of $1,376,899. Domestic net income exclusive of
international developmental costs, charges for any international operations and
the one-time gain on sale of fifty percent of the Company's United Kingdom
interest for the year ended December 31, 1995 was approximately $730,000 as
compared with a domestic net loss of ($4,253,000) for the same prior year
period. In the consolidated financial statements for the year ended December 31,
1995, the Company recognized $1,622,000 in losses from corporate international
departmental and subsidiary international operations ($1,324,000 in consolidated
operations and $298,000 through the equity method), while the Company recognized
$240,000 in losses from international operations (all consolidated) for the same
prior year period.
All viewer, advertising and other call revenues resulted from the distribution
of THE BOX. The Company has continued to improve the domestic viewer revenue
generated per box from an average monthly gross viewer revenue of $9,835 per box
in 1994 to an average monthly gross viewer revenue of $9,967 per box in 1995.
Management believes that this improvement is due primarily to broadening the
type of music videos available and the consolidation of underperforming boxes.
In January 1996, a cable company removed the Company's programming from its New
York City systems. The Company had installed 10 box units to serve that market,
which totaled approximately 927,000 cable subscribers. The New York City systems
produced approximately $1.1 million in net viewer revenue and a gross margin
contribution after affiliate fees and direct costs
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<PAGE> 23
associated with operating the 10 boxes of approximately $574,000. In February
1996, in order to replace the lost cable subscribers, the Company began
additional transmission of its programming by adding a third low power broadcast
station in the New York City area to the two that were already broadcasting the
Company's programming. The Company believes that the low power television
stations reach approximately 3.8 million households. At this time, the Company
is unable to determine the net impact of net viewer revenue generated from the
low power television stations as compared to the net viewer revenue generated
from the cable systems in New York City previously airing the Company's
programming.
Gross viewer revenue generated from the United Kingdom were consolidated for
only the first half of the year, while the United Kingdom subsidiary was
majority owned. When the Company became a 50% owner of this United Kingdom
subsidiary on June 30, 1995, it began to account for all financial results from
United Kingdom operations utilizing the equity method of accounting. As a
result, twelve months of United Kingdom viewer revenue was included in the
Company's 1994 financial statements, totaling $1.2 million, while in 1995, the
six months total of viewer revenue was approximately $645,000. See Footnote
Number 7 in the Notes to the Financial Statements for the comparative results
for 1995 and 1994.
Viewer revenues are adversely affected by customers who deny having made music
video requests on THE BOX. In an effort to reduce chargebacks from telephone
companies due to such customers, the Company is in the second year of
implementation of call blocking for previous non-paying customers and credit
limitations for all participants in the Company's interactive process. The
information necessary to institute these procedures had not been previously
available from the Company's telephone service provider. With nearly two years
of these procedures undertaken, the Company has seen the chargeback rate reduced
from over 16.7% in 1994 to under 12% for 1995. Chargebacks for the year ended
December 31, 1995 totaled approximately $1.6 million as compared to $2.5 million
for the same prior year period. Due to the continued improved levels of
chargebacks, the Company reduced the reserve outstanding for future chargebacks,
resulting in a credit of approximately $210,000 to the reserve account in the
fourth quarter 1995.
Advertising and other revenues increased by approximately $3.6 million or 58%
for the year ended December 31, 1995 as compared with the same prior year
period. This increase resulted from continued improvement in record industry
advertising, plus significant results from the first full year of an established
in-house national advertising sales staff. The Company's continued support from
the record industry is indicated by the increase in the industry's already
significant levels of advertising purchases, from $3.4 million in 1994 to nearly
$4.4 million in 1995. National advertising sales experienced increased revenues
of 100%, with revenues totaling $1.9 million in 1994 as compared with $3.8
million for 1995. During 1995, the Company added such prestigious national
advertisers as Pepsi, Coors Light, Reebok and Calvin Klein. Additionally, direct
response advertising, which usually represents overnight advertising buys, also
increased from $800,000 in 1994 to nearly $1.3 million in 1995. In an effort to
continue
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<PAGE> 24
the improvement in national advertising sales results, the Company has hired two
additional national advertising sales managers for its New York office, one
focusing on direct response advertising and one on selling local advertising on
the Company's New York City low power broadcast stations. An additional national
salesperson has also been added. While advertising revenue improved overall in
1995, the Company is only starting to realize the impact of initiating an
internal national sales effort. Strong advance bookings of nearly $5 million
have been placed for 1996 which could result in significantly increased
advertising sales for 1996 as compared with record 1995 levels. While there can
be no assurance that all of these non-binding advertising commitments will be
honored, the bookings demonstrate an increased interest in the Company's
programming service as an advertising vehicle.
The United Kingdom operation is building its advertising sales, but as described
previously, only six months of results in 1995 are included in the consolidated
statements, as compared to a full year of results included in the 1994 financial
statements. Therefore, since advertising results have improved from $89,000 for
the entire year of 1994 to over $98,000 for the first six months of 1995, the
improvement in the United Kingdom results is clear.
Miscellaneous revenues for 1995 included a gain of approximately $60,000
recognized on the sale of an LPTV station, a gain of $27,000 on the sales of
other LPTV equipment, cable carriage fee revenue of approximately $55,000,
merchandise revenue from the Company's retail store outlet of approximately
$22,000 and miscellaneous other revenue of approximately $21,000.
Domestic expenses for affiliate fees, site costs and telephone services were
48.9% and 53% of net viewer revenue for the years ended December 31, 1995 and
1994, respectively. The decrease in expenses between the years ended December
31, 1995 and 1994 of approximately $636,000 was primarily due to a decrease in
cable affiliation fees of approximately $709,000 due to the effects of
renegotiation of the cable agreements for the Company's two largest multiple
system operators. This decrease was offset by an increase in low power
television affiliation and site cost fees of approximately $125,000 due to new
launches of LPTV affiliated boxes. Another portion of the net decrease resulted
from decreased transport and telecommunications charges of approximately $52,000
related to the improved rates of this transaction related expenditure.
Distribution, general and administrative expenses for the year ended December
31, 1995 increased by approximately $2.5 million from $11,493,000 in 1994 to
$13,993,000 in 1995. A majority of the increase, $1,241,000, resulted from
additional staffing for affiliate sales, advertising sales, marketing (both
consumer and radio affiliation) and production departments. In order to develop
additional transactional and advertising revenues, personnel who could produce
sales, develop marketing and promotional tie-ins, create the related programming
requirements and support expanded programming distribution were added in late
1994 and 1995. In order to increase industry awareness of the Company's
programming, industry trade event participation was increased, resulting in
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<PAGE> 25
increased travel and entertainment expenses and related sales premiums and
materials production, on-air promotions and marketing expenditures were
undertaken to increase consumer viewing levels, in total increasing these costs
by approximately $416,000 in 1995 as compared with the same prior year period.
Costs related to production, disc and tape preparation and related shipping
expenditures were higher in 1995 as compared with 1994 by approximately $92,000
due to the increased production efforts for improved graphic presentation of the
Company's programming, increased BOX TALK interview productions and on-air
promotion production expenditures.
The increased national and direct response advertising sales revenues for 1995
as compared with 1994 resulted in higher agency commissions of approximately
$320,000 in 1995. With the Company's box units aging, repairs and maintenance
increased by $20,000 for the year ended December 31, 1995 as compared with the
same prior year period. Due to the expanded satellite office locations of the
Company's operations, insurance, equipment rentals, office rentals, office
supplies and other administrative expenses increased by $110,000 for the year
ended December 31, 1995 as compared with the same prior year period. Investment
spending for the development of international operations totaled approximately
$817,000 for the year ended December 31, 1995 as compared to no such
expenditures for the same prior year period.
Legal expenses decreased $185,000 for the year ended December 31, 1995 as
compared with the year ended December 31, 1994 primarily due to costs incurred
in 1994 for the HCI litigation and other miscellaneous legal expenses which did
not recur in 1995. Due to another year that licensing of music product used by
the Company was under license, with no prior year assessments, the Company was
able to reduce its music costs by approximately $121,000. Since the Company
produced all of its advertising sales from its in-house operations during 1995
as compared with a small portion of sales in calendar 1994 from an outside sales
representation agency, commissions paid to outside services was approximately
$152,000 lower in 1995 as compared with the prior year. As discussed previously,
since only six months of expenditures for United Kingdom operations are included
in the consolidated operations of the year ended December 31, 1995 as compared
with twelve months in the same prior year period, a decrease of $58,000 in
distribution, general and administrative expenses associated with United Kingdom
operations was realized.
The Company's satellite distributed programming resulted in $1,163,000 and
$2,400,000 in satellite transponder and service fees for the years ended
December 31, 1995 and 1994, respectively. During February 1995, the Company
switched its satellite signal from analog to digital, thereby reducing the
monthly charge from $200,000 for January 1995 (and all of 1994) to $110,000 for
February, March and April 1995. Then, beginning May 1, 1995, the Company paid
$73,500 per month for transponder and uplink services. The Company has
terminated its satellite agreement with StarNet effective April 1996. A new
three-month transitional agreement has been signed with WTCI, a subsidiary of
Tele-Communications, Inc. The Company will now broadcast from
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<PAGE> 26
Hughes Satellite's Galaxy 7, transponder 13 at a transponder and uplink
service charge of $42,000 per month.
Consulting fees of approximately $771,000 were incurred in 1994 related to
payments made to one of the Company's principal shareholders for management of
the domestic operations, to another of the Company's principal shareholders for
the management and development of the international operations and to a third
related party for consulting on record industry and merchandising operations.
See "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS." In 1995 these contracts
were eliminated with the exception of reimbursement of the salary and benefits
of an Island Trading Company, Inc. ("Island") employee utilized by the Company
during 1995 which totaled approximately $161,000. During 1995, the Company also
incurred rental expense payable to Island for its new corporate headquarters of
approximately $509,000, with no comparable prior year related party expenditure.
Depreciation and amortization expenses for the year ended December 31, 1995
decreased by approximately $610,000 or 33% from the comparable prior year due to
a significant amount of the Company's box units becoming fully depreciated.
Stock and warrant compensation, a non-cash expenditure, decreased by
approximately $16,000 for the year ended December 31, 1995 as compared to the
same prior year period. This decrease was due to no new issuance of stock
options at an exercise price lower than the market price on the date of grant.
Interest expense decreased from approximately $146,000 for the year ended
December 31, 1994 to less than $2,000 for the year ended December 31, 1995 due
to the conversion of two different outstanding debts into the Company's common
stock during 1995. See "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS."
Despite significant net loss carryforwards, due to the gain realized on the sale
of the 50% interest in its United Kingdom subsidiary and the net income
recognized for 1995, the Company will be required to pay approximately $40,000
in alternative minimum taxes for 1995.
LIQUIDITY AND CAPITAL RESOURCES
The Company's current ratio (current assets to current liabilities) was 2.97 to
1.00 at December 31, 1995 as compared to 2.99 to 1.00 at December 31, 1994. At
December 31, 1995, the Company's current assets exceeded its current liabilities
by approximately $6,505,000.
The Company is using the proceeds of 1994 financing transactions which provided
the Company with $9 million in gross proceeds before transactional expenses to:
(i) expand the distribution of the Company's programming by constructing and
installing additional
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<PAGE> 27
box units; (ii) advertise, market and promote the Company's programming; (iii)
research, develop, maintain and improve the Company's software and equipment;
(iv) fund working capital; and (v) purchase technical equipment for programming
production. In order to expand distribution, the Company is considering up-front
cash payments to cable systems operators in the aggregate amount of up to
approximately $2,500,000 which would be made for guaranteed long-term cable
affiliation agreements. Although there can be no assurances, management believes
that expansion of the distribution of the Company's programming will lead to
increased advertising and viewer revenues and will enable the Company to more
efficiently utilize fixed cost expenditures. The Company will additionally
continue its efforts to relocate existing box units to more profitable locations
in order to attempt to improve the revenues generated by the Company's existing
box units. Additional financing may be needed in order for the Company to
achieve its goal of significantly expanding the distribution of its programming
to a level which will allow the Company to operate profitably.
Management has and will continue to undertake several operational measures in an
effort to continue to improve the Company's liquidity and cash flow position. In
1995, the Company completed the renegotiation of affiliation agreements with the
two largest multiple system operators which was the major reason that the
Company spent $700,000 less on carriage fees in the year ended December 31, 1995
as compared with the same prior year. Upon full implementation of the digital
box, the Company will save approximately $82,000 in operating costs per month,
or annual savings of $984,000.
In conjunction with the digital box software development, new phone interaction
software is also being written which will improve the viewer's interaction
through multiple selections available on each phone call; from concert
information, music related merchandise offers and music product offers.
Chargebacks of the Company's phone call revenue have been significantly reduced
by blocking requests of viewers who have a history of denying having made music
video requests and applying credit limits on customer accounts. As the Company
obtains additional information about its customer base and improves upon the
time taken by the Company's phone provider, the Company believes it will be able
to continue to reduce chargebacks further. Advertising revenues have been
increasing every quarter over the previous year's quarter since the Company's
sales efforts began. To continue this trend, the Company has been developing new
record label promotions, national advertising account value added promotions.
With increased distribution and the overall impact of the Company's programming,
rates for all time segments, including prime time, have increased as a response
to demand.
During 1995, the Company spent nearly $2.3 million on the purchase of a new
production edit suite, enhancements to its in-house computer system, new
equipment, furniture and tenant improvements for the new corporate office
location, and development costs for the Digital Box. The Company believes that
the newly developed technology known as The Digital Box is a critical element of
the Company's future. In
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<PAGE> 28
order to provide programming improvement through enhanced audio and video
quality, superior graphic quality, consumer friendly responsiveness (such as
nearly immediate video play), plus provide operational efficiencies such as
reduction of expenses associated with the manual process of tapes, discs, weekly
change outs of music product and limited availability for advertising, the
Company has decided to deploy The Digital Box in replacement of all boxes.
Initially, the Company plans to replace all current analog boxes at cable
installations, four low power stations including the three New York City low
power stations, plus launch all new cable distribution with the Digital Box. It
is expected that this deployment will cost the Company approximately $3 million.
While the Company believes that it has enough cash funds to build and install
these boxes, new asset based financing is being sought from the Company's
current bank and other financing institutions. It cannot be assured that
financing will be available on terms satisfactory to the Company nor that this
new technology will result in additional distribution, additional advertising
sales or higher viewership.
In February 1996, the Company entered into a five-year agreement with an
unaffiliated party to purchase satellite receiving equipment and satellite
transponder time for sending digitized video segments from the Company's
headquarters to the various box unit locations at cable head end and broadcast
station sites. The minimum cash commitments of the Company under this agreement
is approximately $1.9 million.
In 1995, the Company spent approximately $817,000 in the development of an
international expansion program along with $330,000 and $52,000 spent directly
on the newly launched Holland and Box Worldwide - Europe operations and the
initiation of a licensing affiliation in Argentina, respectively. The Company
has determined that unless additional financing is obtained, no further
international expansion beyond the United Kingdom, Aruba, Holland and Argentina
will be possible.
ITEM 7. FINANCIAL STATEMENTS
The financial statements and notes thereto are included herein beginning at page
F-1.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(a) OF THE EXCHANGE ACT
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<PAGE> 29
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information with respect to the executive
officers and directors of the Company and a key employee of VJNIL:
<TABLE>
<CAPTION>
NAME AGE POSITION WITH COMPANY
---- --- ---------------------
<S> <C> <C>
H. F. Lenfest 65 Chairman of the Board of Directors
Alan R. McGlade 41 President, Chief Executive Officer
and Director
J. Patrick Michaels, Jr. 51 Vice Chairman of the Board of
Directors and Acting Chief Operating
Officer
Les Garland 48 Executive Vice President
Luann M. Hoffman 39 Chief Financial and Administrative
Officer and Secretary
E. Paul Sartain 33 Vice President -- Operations
Chris Blackwell 58 Director
David Burns 35 Director
Stanley H. Greene 39 Director
Joel S. Rudich 59 Director
Leonard J. Sokolow 39 Director
</TABLE>
H.F. Lenfest has served as a director and Chairman of the Board of Directors of
the Company since December 16, 1993. Mr. Lenfest is also the President and Chief
Executive Officer and a director of Lenfest Communications, Inc. ("LCI"). LCI,
through its subsidiaries, including StarNet, Inc. and StarNet Interactive
Entertainment, Inc. (collectively, the "Lenfest Group"), is engaged in operating
cable television systems and providing cable advertising, programming and
message services. See "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT" and "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS." Mr. Lenfest is
also
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<PAGE> 30
the majority stockholder of TelVue Corporation, a company engaged in providing
ANI telecommunications services to the cable television industry for the
automated ordering of pay-per-view features and events. Mr. Lenfest's principal
occupation since 1974 has been serving as the President and Chief Executive
Officer of LCI and the Lenfest Group. In addition, Mr. Lenfest has been a
director of TelVue Corporation since November 1989 and a director of Liberty
Media Corporation since October 1990.
Alan R. McGlade has served as a director since December 16, 1993 and was the
Acting Chief Executive Officer of the Company from December 16, 1993 through
December 31,1994. Since January 1, 1995, Mr. McGlade has been serving as
President and Chief Executive Officer of the Company. Mr. McGlade was the
President of StarNet, Inc. from August 1, 1991 through December 31, 1994. From
August 7, 1993 through December 31, 1994, Mr. McGlade also served as the
President of StarNet Interactive Entertainment, Inc. In August 1987, Mr. McGlade
founded and served as President of Cable Advertising Partners, operating under
the name Adlink, a company which provided advertising services to a group of
major multiple cable system operators ("MSOs") and which was the first to use
satellite for the interconnection of MSOs. Prior thereto, Mr. McGlade was Vice
President, Programming at Falcon Communications, Inc., a Los Angeles,
California-based MSO.
J. Patrick Michaels, Jr. has been serving as a director since June 8, 1992 and
Vice Chairman of the Board of Directors since December 16, 1993 and as a
director of VJNIL since September 30, 1993. Mr. Michaels has been serving the
Company as Acting Chief Operating Officer since August 30, 1993 and from that
date through December 31, 1994, served as the Company's Acting President.
Previously, he was Chairman of the Board of Directors of the Company from June
8, 1992 until December 15, 1993. Mr. Michaels served the Company in a temporary
capacity as Acting Chief Executive Officer from August 17, 1992 through December
15, 1993 and served as Acting President of the Company from August 31, 1992 to
November 2, 1992. Mr. Michaels is also a controlling person of a limited
partnership which beneficially owns more than 5 percent of the Company's common
stock. See "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT." Mr.
Michaels founded and since 1973 has been the Chairman of the Board of Directors
and Chief Executive Officer of Communications Equity Associates, Inc., a firm
that specializes in providing a full array of financial services to a variety of
organizations in the media, communications and entertainment industries. During
1973, Mr. Michaels was Vice President of Cable Funding Corporation, a
specialized finance company lending to the cable television industry. From
October 1968 through December 1972, Mr. Michaels served as one of the original
employees and Vice President of TM Communications, the cable subsidiary of The
Times Mirror Company. Mr. Michaels is a member of the Cable TV Pioneers, the
Institute of Directors (U.K.), the International Radio and Television Society,
the National Cable Television Association and the Community Antenna Television
Association. Mr. Michaels holds equity interests in a number of media companies,
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<PAGE> 31
some of which may be deemed competitive with the Company. In 1995, he was
elected to the Board of Directors of Paxson Communications Corporation.
Les Garland joined the Company in March 1990 as Vice President -- Programming
and on January 1, 1994 was named Executive Vice President. From October 1988 to
March 1990, Mr. Garland was President of Les Garland Productions, a company
specializing in consulting to firms in the video, radio and recording
industries. From January 1987 to December 1988, Mr. Garland was executive Vice
President of Quantum Media, Inc., a joint venture with former MTV: Music
Television President Bob Pittman. Prior to forming the joint venture, Mr.
Garland was Senior Vice President of Programming of MTV and its sister network,
Video Hits-1, from January 1982 to December 1986. Prior thereto, Mr. Garland was
an executive officer at Atlantic Records.
Luann M. Hoffman has been serving as Chief Financial and Administrative Officer
of the Company since January 1, 1992 and as Secretary of the Company since
January 17, 1992. Prior to joining the Company, she served from September 1987
through December 1991 as Vice President -- Finance, Treasurer and Corporate
Secretary for The Travel Channel, Inc., which was a majority-owned subsidiary of
Trans World Airlines, Inc., an international airline carrier. Additionally, Ms.
Hoffman served as President of The Travel Channel from August 1989 through
September 1990. From January 1984 through August 1987, Ms. Hoffman was a manager
in the Internal Audit Department of Trans World Airlines, Inc. In 1983, Ms.
Hoffman was a Supervisor in a regional public accounting firm, Breen, Brehmer &
Co. Prior to that, from June 1978 through December 1982, Ms. Hoffman was a
senior auditor with Arthur Andersen & Co., an international public accounting
firm. Ms. Hoffman is a Certified Public Accountant.
E. Paul Sartain was appointed Vice President -- Operations of the Company on
September 27, 1993. Mr. Sartain served the Company as Director of Operations
and Information Systems from June 26, 1989 through September 27, 1993 and as
Manager of Operations and Information Systems from January 9, 1988 through
June 26, 1989. Mr. Sartain joined the Company as a systems analyst in August
1986, to assist in the development of the Company's computerized interactive
video jukebox network. Mr. Sartain also served the Company as Treasurer from
September 1986 through September 1989.
Chris Blackwell has been serving as a director of the Company since April 21,
1994. Since July 1989, Mr. Blackwell has been Chief Executive Officer of
Island Records, Inc. Prior thereto, he was a record producer. Mr. Blackwell
has served on the Board of Management of Polygram N.V. since July 1989. Mr.
Blackwell is a consultant to Island Trading Company, Inc. See "SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT" and "CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS -- Transactions with Island."
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<PAGE> 32
David Burns has been serving as a director of the Company since September 14,
1995. Mr. Burns is the Executive Vice President and Chief Operating Officer of
Communications Equity Associates, Inc., and investment and merchant banking firm
specializing in the media, communications and entertainment industries. Mr.
Burns joined Communications Equity Associates, Inc. in 1990 as Controller and
served as Vice President in the entertainment division from January 1992 to July
1995, at which time he was promoted to his present positions as Executive Vice
President and Chief Operating Officer. From 1984 to 1990, Mr. Burns was an
accountant in the tax department of Arthur Andersen & Co. Mr. Burns is a
certified public accountant and a registered representative with the National
Association of Securities Dealers, Inc.
Stanley H. Greene has been serving as a director of the Company since February
1996. Since February 1994, Mr. Greene has served as a Vice President of Bell
Atlantic Corporation in charge of various projects, including total quality
management and competitive response initiatives. In June 1995, Mr. Greene was
appointed to his present position overseeing the rollout of Bell Atlantic's
wireline and wireless video service in specific markets. Prior to joining Bell
Atlantic, Mr. Greene was the Vice President and General Manager of Greater
Media's Philadelphia, Pennsylvania cable system, where, in 1993, he launched an
"a-la-carte" cable programming package. From 1990 to 1993, Mr. Greene was a
General Manager and later a Vice President with Lenfest Communications. Mr.
Greene is a graduate of the University of Pennsylvania and has been inducted
into the Hall of Fame of the National Association for Minorities in Cable.
Joel S. Rudich has been serving as a director of the Company since September 30,
1992. Mr. Rudich has been President and Chief Executive Officer of Coaxial
Communications ("Coaxial") since 1990 and was President and Chief Operating
Officer of Coaxial from 1984 to 1990. Coaxial is a regional multiple cable
system operator.
Leonard J. Sokolow has been serving as a director of the Company and as a
director of VJNIL since September 30, 1992. Since August 1993, Mr. Sokolow has
been President and Chief Executive Officer of Genesis Partners, Inc., a Florida
corporation which provides domestic and international investment banking and
financial advisory services to a variety of organizations. Since June 1994, Mr.
Sokolow has served as Chairman of the Board and President of The Americas Growth
Fund, Inc., a closed-end management company investing in equity and debt
securities of emerging and established companies which are strategically linked
to the Caribbean and Latin America. Since September 1995, Mr. Sokolow has been
of counsel to the law firm of Lucio, Mandler, Croland, Steele, Bronstein &
Garbett, P.A., which serves as the Company's general counsel. From March 1990 to
July 1993, he served as Executive Vice President-Operations, Administration and
Finance of Windmere Corporation ("Windmere"). From February 1989 to March 1990,
he was Senior Vice President of Windmere and from May 1988 to February 1989, he
served as Vice President. Mr. Sokolow was Windmere's Corporate Counsel from May
1988 to December 1988
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<PAGE> 33
and served as General Counsel from December 1988 to March 1990. Since March
1990, Mr. Sokolow has served as a director for Catalina Lighting, Inc. For more
than five years prior to joining Windmere, Mr. Sokolow was associated with
Hornsby & Whisenand, P.A., a Miami, Florida law firm, and for one year he was a
partner of such firm. Mr. Sokolow is a Certified Public Accountant.
All directors hold office until the next annual meeting of stockholders and
until their successors are elected and qualified. Messrs. Lenfest, Michaels,
Blackwell, Burns and McGlade do not receive any additional compensation for
serving as a director or committee member. Non-employee directors of the Company
receive $10,000 per year for serving as a director. In addition, three
non-employee directors were granted certain options in 1995 to purchase shares
of the Company's common stock pursuant to the Company's Non-Employee Director
Plan. See "EXECUTIVE COMPENSATION - Option Grants to Non-Employee Directors."
All directors, whether salaried or non-salaried employees, are reimbursed for
their expenses incurred in connection with their duties as directors of the
Company.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors, executive officers and persons who own more than 10% of a registered
class of the Company's equity securities to file with the Securities and
Exchange Commission (the "SEC") initial reports of ownership and reports of
changes in ownership in the Company's common stock and other equity securities
of the Company. Executive officers, directors and persons who own more than 10%
of a registered class of the Company's equity securities are required by the SEC
regulation to furnish the Company with copies of all Section 16(a) forms they
file with the SEC.
To the Company's knowledge, based solely on review of the copies of such reports
furnished to the Company and written representations that no other reports were
required, during the fiscal year ended December 31, 1995, all of such executive
officers, directors and persons who own more than 10% of a registered class of
the Company's equity securities complied with all Section 16(a) filing
requirements, with the exception of one report covering one transaction not
timely filed by Mr. McGlade.
ITEM 10. EXECUTIVE COMPENSATION
The following three tables provide certain information concerning the
compensation paid to persons who served as the Company's chief executive officer
during the 1995 fiscal year and other executive officers of the Company who
received salary and bonus in excess of $100,000 for the 1995 fiscal year
(collectively referred to as the "Named Executive Officers").
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<PAGE> 34
SUMMARY COMPENSATION TABLE
The following table sets forth the cash and other compensation paid or accrued
by the Company and its subsidiaries to the Named Executive Officers for the
fiscal years ended December 31, 1995, 1994 and 1993:
<TABLE>
<CAPTION>
Annual Compensation Long Term Compensation
------------------- ----------------------
Securities
Underlying
Other Annual Restricted Stock LTIP All Other
Name/Position Year Salary Bonus Compensation Stock Awards Options Payouts Compensation
- ------------- ---- ------ ----- ------------ ------------ ------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Alan McGlade/ 1995 $207,200 0 $0 0 300,000(2) 0 0
Chief 1994 0 0 0 0 0 0 0
Executive Officer(1) 1993 N/A N/A N/A N/A N/A N/A N/A
Les Garland/ 1995 $220,000 $117,808 0 0 0 0 0
Executive Vice President 1994 $200,000 $ 65,374 0 0 230,000(3) 0 0
1993 $165,900 $ 52,500 0 0 120,000(3) 0 0
Luann M. Hoffman/ 1995 $132,000 0 0 0 0 0 0
Chief Financial and 1994 $120,000 $ 9,615 0 0 0 0 0
Administrative Officer 1993 $110,000 $ 22,500 0 0 75,000(3) 0 0
and Secretary
Scott Bonn/ 1995 $125,000 $ 39,280 0 0 15,000(2) 0 0
Vice President - 1994 $ 75,200 $ 1,765 0 0 0 0 0
Advertising Sales 1993 N/A N/A N/A N/A N/A N/A N/A
Gino Natalicchio/ 1995 $ 99,185 $ 20,000 0 0 75,000(2) 0 0
Vice President - 1994 N/A N/A N/A N/A N/A N/A N/A
International Development 1993 N/A N/A N/A N/A N/A N/A N/A
</TABLE>
(1) Mr. McGlade served as Acting Chief Executive Officer from December 16, 1993
through December 31, 1994 and has been serving as President and Chief
Executive Officer since January 1, 1995. For a description of Mr. McGlade's
current employment agreement with the Company, see "EXECUTIVE COMPENSATION
- Employment Agreements."
(2) For a description of such stock options, see "EXECUTIVE COMPENSATION - 1995
Stock Option Grants" and the notes thereto.
(3) For a description of such stock options, see "EXECUTIVE COMPENSATION
Employment Agreements".
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<PAGE> 35
1995 STOCK OPTION GRANTS
The following table provides information regarding stock options granted to the
Named Executive Officers during the year ended December 31, 1995.
<TABLE>
<CAPTION>
Percentage of Market Price
Options 1995 Option Grants Exercise on Expiration
Name Granted to Employees(1) Price Grant Date Date
---- ------- ------------------ -------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Alan McGlade 300,000(2) 71% $2.00 $1.12 January 2, 2000
Gino Natalicchio 75,000(3) 18% $2.00 $1.38 May 6, 2000
Scott Bonn 15,000(4) 4% $2.00 $1.38 May 6, 2000
</TABLE>
(1) The Company granted an aggregate of 425,000 options to employees during the
year ended December 31, 1995.
(2) For additional information with respect to such stock options, see
"EXECUTIVE COMPENSATION - Employment Agreements."
(3) One-third of such options vested on March 1, 1996. An additional one-third
of such options vests on March 1, 1997 and the remaining one-third vests on
March 1, 1998.
(4) Two-thirds of such options were vested as of December 31, 1995. The
remaining one-third vests on December 31, 1996.
1995 STOCK OPTION EXERCISES AND HOLDINGS
The following table sets forth the (i) stock option exercises by Named Executive
Officers during 1995; (ii) number of shares underlying both exercisable and non-
exercisable stock options as of December 31, 1995; and (iii) value for
"in-the-money" options which represents the positive spread between the exercise
price of any such existing stock options and the year-end price of Common Stock.
<TABLE>
<CAPTION>
Number of Shares Underlying Value of In-The-Money
Shares Acquired By Value Outstanding Stock Options at Year End Outstanding Stock Options
Name Exercises in 1995 Realized Exercisable Not Exercisable Exercisable Not Exercisable
- ---- ------------------ -------- ----------- --------------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C>
ALAN MCGLADE 0 0 0 300,000 0 0
LES GARLAND 0 0 210,000 140,000 $10,000 $5,000
LUANN HOFFMAN 0 0 50,000 25,000 $6,250 $3,125
SCOT BONN 0 0 10,000 5,000 0 0
GINO NATALICCHIO 0 0 0 75,000 0 0
</TABLE>
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<PAGE> 36
1988 STOCK OPTION PLAN
In 1988, the Board of Directors and the stockholders of the Company adopted the
1988 Stock Option Plan to attract and retain the services of officers and other
key employees by providing the opportunity for such persons to acquire a
proprietary interest in the Company (the "Plan"). This Plan was amended by Board
of Directors and approved by the stockholders on November 1, 1993.
Under the terms of the amended Plan, which is administered by the Compensation
Committee of the Board of Directors, options to purchase an aggregate of
1,000,000 shares of the Company's common stock may be issued to officers and
other key employees of the Company and non-employee directors of the Company.
The exercise price of each option granted under the Plan may not be less than
$1.00. Options granted under the Plan are not transferable other than by will or
the laws of descent and distribution. The Committee has the authority to select
the officers and other key employees to whom options may be granted, the number
of shares of common stock underlying any option granted, and all other terms and
conditions relating to any option granted under the Plan. The Company, at its
expense, has registered with the Securities and Exchange Commission all of the
shares of common stock underlying the options which have been granted and are
reserved for grant to all of the officers and other key employees of the Company
and non-employee directors of the Company.
WARRANTS
The Company has authorized the issuance of warrants to purchase up to 300,000
shares of Common Stock to be used as an inducement for persons to serve as
directors or employees of the Company. The warrants are exercisable at a price
of $1.75 per share. Generally, the warrants are exercisable for five years from
the date they are granted.
As of March 12, 1996, an aggregate of 299,000 warrants had been issued to
present and former directors, officers and employees of the Company, of which
11,000 warrants remain outstanding. The Company, at its expense, has registered
with the Securities and Exchange Commission an aggregate of 121,500 shares of
Common Stock underlying such warrants.
OPTION GRANTS TO NON-EMPLOYEE DIRECTORS
On May 7, 1995, the Board approved the grant of options to purchase 10,000
shares of Common Stock at an exercise price of $2.00 per share to each of
Messrs. Jules Haimovitz (a former director), Rudich and Sokolow under the 1995
Non-Employee Director Plan. Such options are exercisable for a three year period
commencing December 31, 1995. The Board also approved the extension of options
granted to Messrs. Haimovitz, Rudich and Sokolow under the Company's 1993 and
1994 Non-Employee Director Plans to December 31, 1998. The grant of the options
under the 1995 Non-Employee Director Plan and the extension of the exercise
period of the options granted under the 1993 and 1994 Non- Employee Director
Plans are subject to the Company obtaining the approval of Liberty VJN, Inc.
("Liberty VJN") under a letter agreement,
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dated November 21, 1990, between TCI Liberty, Inc ("TCI Liberty") and the
Company and subject to certain preemptive rights of Liberty VJN under a stock
purchase agreement, dated November 21, 1990. The Company, at its expense, has
registered with the Securities and Exchange Commission 100,000 shares of Common
Stock under the 1993 Non-Employee Director Plan, but has not registered this
most recent grant of 30,000 shares at this time.
EMPLOYMENT AGREEMENTS
Effective January 1, 1995, Alan McGlade entered into a three-year employment
agreement with the Company pursuant to which Mr. McGlade will be paid a base
salary of $207,200 for the first year of the agreement, $217,200 for the second
year of the agreement and $232,200 for the third year of the agreement. If the
agreement is extended beyond the third year, Mr. McGlade's salary would be
$247,200. Under the agreement, the Company also will reimburse Mr. McGlade for
up to $50,000 of the cost to move him and his family from his residence in
Pennsylvania to the Miami, Florida metropolitan area. Since Mr. McGlade has not
been able to sell his present residence in Pennsylvania and complete his move to
the Miami, Florida metropolitan area prior to January 1, 1995, the Company
reimbursed him $2,500 per month of temporary housing expenses for six months
that Mr. McGlade had not taken occupancy of his new residence in the Miami,
Florida metropolitan area. The Company has loaned Mr. McGlade $100,000, which
was used for the purpose of purchasing his primary residence in the Miami,
Florida metropolitan area. The loan is secured by a second mortgage on the
residence. See "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS - Certain Other
Transactions." In accordance with Mr. McGlade's employment agreement, the
Company on January 1, 1995 granted Mr. McGlade an option to purchase 300,000
shares of common stock at an exercise price of $2.00 per share. Mr. McGlade's
right to acquire the shares vests as to 100,000 shares for each 12-month period
from January 1, 1995. If Mr. McGlade's employment with the Company is terminated
for "cause" as defined in the employment agreement, Mr. McGlade will forfeit the
right to exercise all non-vested options and payment for the exercise of all
vested options must be made to the Company within the earlier of 10 days after
such termination or the date by which the vested option expires by its terms. In
addition, if Mr. McGlade terminates his employment with the Company at any time
prior to three years from January 1, 1995 without the prior written consent of
the Company, Mr. McGlade will forfeit the right to exercise the vested and
non-vested portions of the option.
On January 1, 1994, Les Garland entered into a three year employment agreement
with the Company pursuant to which Mr. Garland is paid a base salary of $200,000
for the first year of the agreement, $220,000 for the second year of the
agreement and $240,000 for the third year of the agreement. Mr. Garland is
additionally paid a performance bonus equal to: (I) 2-1/2% of all record company
gross revenues collected by the Company, which performance bonus may not exceed
in any year 50 percent of his then current year's base salary; and (ii) 2-1/2%
of non-record company advertising revenues collected by the Company if the
President of the Company has pre-authorized the payment of the performance bonus
for such advertising revenues. As of December 31, 1995, the Company has advanced
Mr. Garland $92,594 of such performance bonus. Approximately $26,221 of such
advance was repaid on February 2, 1996, with the remaining $73,867 ($66,373 plus
$7,494 in accrued interest) to be paid prior to the end of
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<PAGE> 38
calendar year 1996. See "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS -
Certain Other Transactions." In accordance with Mr. Garland's employment
agreement, the Company on December 16, 1993 canceled an aggregate of 160,000
stock options having an exercise price of $5.00 per share and granted Mr.
Garland an option to purchase 120,000 shares of Common Stock at an exercise
price of $1.00 per share. As of January 28, 1996, Mr. Garland was vested in all
such options. On January 18, 1994, the Company granted Mr. Garland a three-year
option to purchase 200,000 shares of common stock at an exercise price of $3.00
per share, a price equal to the closing price of the common stock on January 18,
1994 as reported by NASDAQ. One-fourth of such option vested on December 1,
1994; one-fourth of such option vested on December 1, 1995; and the remaining
one-half vests on December 1, 1996. In addition, pursuant to the terms of Mr.
Garland's employment agreement, an immediately exercisable option to purchase
30,000 shares of common stock was granted to Mr. Garland at an exercise price of
$2.00 per share. If Mr. Garland's employment with the Company is terminated with
"cause" as defined in his employment agreement or if Mr. Garland terminates the
agreement, Mr. Garland forfeits the right to exercise all such options. If Mr.
Garland's employment is terminated without cause, he forfeits the right to
exercise all options which are not vested within six months of such termination.
On December 16, 1991, Luann M. Hoffman entered into a five-year employment
agreement with the Company pursuant to which she is employed as Chief Financial
and Administrative Officer. Under the agreement, Ms. Hoffman will receive a base
salary of $110,000 per year and is eligible to receive an annual bonus in an
amount up to $30,000 per year. Effective December 16, 1993, the Company canceled
a stock option to purchase 100,000 shares of common stock, which had been issued
to Ms. Hoffman under the employment agreement, and granted her options to
purchase 75,000 shares at an exercise price of $1.00 per share. As of January
28, 1996, Ms. Hoffman was vested in all such options. If Ms. Hoffman's
employment agreement is terminated for "cause" as defined in the agreement, Ms.
Hoffman will forfeit the right to exercise all such options. If the employment
agreement is terminated without cause, Ms. Hoffman will forfeit the right to
exercise all non-vested options.
All of the above employment agreements include provisions which prohibit the
disclosure of certain confidential information relating to the Company and
contain covenants not to compete with the Company during employment and for
periods of one to three years thereafter.
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ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information with respect to the beneficial
ownership of common stock as of March 12, 1996 by: (I) each of the Company's
directors and Named Executive Officers; (ii) each person who is known by the
Company to be the beneficial owner of 5% or more of the outstanding shares of
common stock; and (iii) all of the Company's directors and Named Executive
Officers as a group:
<TABLE>
<CAPTION>
NAME AND ADDRESS AMOUNT AND NATURE PERCENT OF
OF BENEFICIAL OWNER OF BENEFICIAL OWNER CLASS (1)
- ------------------- ------------------- -----------------
<S> <C> <C>
H. F. Lenfest 14,210,419(2) 59.4%
c/o The Lenfest Group
202 Shoemaker Road
Pottstown, PA 19464
J. Patrick Michaels, Jr. 14,210,419(2) 59.4%
c/o Video Jukebox Network, Inc.
1221 Collins Avenue
Miami Beach, Fla. 33139
Alan R. McGlade 301,000(3) 1.2%
c/o Video Jukebox Network, Inc.
1221 Collins Avenue
Miami Beach, Fla. 33139
Les Garland 250,000(4) 1.0%
c/o Video Jukebox Network, Inc.
1221 Collins Avenue
Miami Beach, Fla. 33139
Luann M. Hoffman 75,000(5) *
c/o Video Jukebox Network, Inc.
1221 Collins Avenue
Miami Beach, Fla. 33139
</TABLE>
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<PAGE> 40
<TABLE>
<S> <C> <C>
E. Paul Sartain 40,000(6) *
c/o Video Jukebox Network, Inc.
1221 Collins Avenue
Miami Beach, Fla. 33139
David Burns 10,000 *
c/o Video Jukebox Network, Inc.
1221 Collins Avenue
Miami Beach, Florida 33139
Stanley H. Greene 550 *
c/o Video Jukebox Network, Inc.
1221 Collins Avenue
Miami Beach, Florida 33139
Joel S. Rudich 35,000(7) *
c/o Coaxial Communications
3770 E. Livingston Avenue
Columbus, Ohio 43227
Leonard J. Sokolow 70,000(8) *
c/o Genesis Partners, Inc.
6301 N.W. 5th Way
Suite 5000
Fort Lauderdale, Fla. 33309
Chris Blackwell 0(9) *
c/o Island Trading Company, Inc.
825 Eighth Avenue
New York, New York 10019
StarNet/CEA II Partners 14,210,419(2) 59.4%
c/o Communications Equity Associates
101 E. Kennedy Boulevard, Suite 3300
Tampa, Florida 33602
CEA Investors Partnership II, Ltd. 14,210,419(2) 59.4%
c/o Communications Equity Associates
101 E. Kennedy Boulevard, Suite 3300
Tampa, Florida 33602
</TABLE>
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<PAGE> 41
<TABLE>
<S> <C> <C>
CEA Investors, Inc. 14,210,419(2) 59.4%
c/o Communications Equity Associates
101 E. Kennedy Boulevard, Suite 3300
Tampa, Florida 33602
StarNet Interactive Entertainment, Inc. 14,210,419(2) 59.4%
1332 Enterprise Drive, Suite 200
West Chester, Pennsylvania 19380
StarNet, Inc. 14,210,419(2) 59.4%
1332 Enterprise Drive, Suite 200
West Chester, Pennsylvania 19380
Lenfest Communications, Inc. 14,210,419(2) 59.4%
202 Shoemaker Road
Pottstown, Pennsylvania 19464
Island Trading Company, Inc. 4,500,000(9) 17.3%
400 Lafayette Street
New York, New York 10003
Louis Wolfson, III 1,816,131(11) 7.5%
9350 South Dixie Highway, Suite 900
Miami, Florida 33156-2945
Video Holdings Corporation 1,270,969(10)(11) 5.3%
9350 South Dixie Highway, Suite 900
Miami, Florida 33156-2945
Andrew Blank 1,367,700(12) 5.7%
9350 South Dixie Highway, Suite 900
Miami, Florida 33156-2945
Mark Blank 1,381,701(12) 5.7%
9350 South Dixie Highway, Suite 900
Miami, Florida 33156-2945
Tony Blank 1,367,700(12) 5.7%
9350 South Dixie Highway, Suite 900
Miami, Florida 33156-2945
</TABLE>
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<PAGE> 42
<TABLE>
<S> <C> <C>
Liberty VJN, Inc. 1,203,464(13) 5.0%
8101 East Prentice Avenue
Englewood, Colorado 80111
All directors and executive officers as a 14,981,969 61.2%
group (10 persons) (2) through (10)
</TABLE>
- ---------------
* Indicates a percentage ownership of less than one percent.
** The information contained in the preceding table and the footnotes thereto
is derived in part from Statements on Schedule 13D filed with the
Securities and Exchange Commission by the following persons: H.F. Lenfest,
J. Patrick Michaels, Jr., StarNet/CEA II Partners, CEA Investor Partnership
II, Ltd., CEA Investors, Inc., StarNet Interactive Entertainment, Inc.,
StarNet, Inc., Lenfest Communications, Inc., Venture LW Corporation, Louis
Wolfson, III, Video Holdings Corporation, Andrew Blank, Mark Blank, Tony
Blank and Liberty VJN, Inc. The Company expresses no opinion as to the
completeness or accuracy of the information contained in such documents or
as to such reporting persons' compliance with the Securities Exchange Act
of 1934 and the rules and regulations promulgated thereunder.
(1) On March 12, 1996, the Company had 23,944,281 shares of common stock issued
and outstanding. As of such date, the Company had no other capital stock
issued and outstanding. Any shares of common stock that a person or entity
had the right to acquire within 60 days upon exercise of options, warrants,
conversion privileges or other rights will be deemed outstanding for the
purpose of computing the percentage ownership of the person or entity
holding such options, warrants, conversion privileges or other rights, but
will not be deemed outstanding for the purpose of computing the percentage
ownership of any other person or entity.
(2) StarNet/CEA II Partners ("StarNet/CEA") is a Delaware general partnership,
consisting of CEA Investors Partnership II, Ltd., a Florida limited
partnership ("CEA Investors II"), and StarNet Interactive Entertainment,
Inc., a Delaware corporation ("StarNet Interactive"). J. Patrick Michaels,
Jr., the Company's Acting Chief Operating Officer, is the sole director,
President and sole stockholder of CEA Investors, Inc. ("CEA Investors"),
which is the sole general partner of CEA Investors II. StarNet Interactive
is
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<PAGE> 43
a wholly-owned subsidiary of StarNet, Inc. ("StarNet"), which is a
wholly-owned subsidiary of Lenfest Communications, Inc. ("LCI"). H. F.
Lenfest (together with his children) and Liberty Cable, Inc. ("Liberty
Cable"), an affiliate of Liberty Program Investments, Inc. ("Liberty
Program") and Liberty Media Corporation ("Liberty Media"), each
beneficially owns 50% of the common stock of LCI. Mr. Lenfest is the sole
director of StarNet and StarNet Interactive and President, Chief Executive
Officer and a director of LCI. Through contractual arrangements among the
stockholders of LCI, Mr. Lenfest has the exclusive right to control a
majority of the Board of Directors of LCI and the management and business
affairs of LCI, StarNet and StarNet Interactive. J. Patrick Michaels, Jr.
has sole voting power as to 71,584 shares of common stock, shared voting
power as to 12,255,280 shares, sole dispositive power as to 71,584 shares,
and shared dispositive power as to 9,026,470 shares. StarNet/CEA, CEA
Investors II, CEA Investors and StarNet Interactive each has sole voting
power as to no shares, shared voting power as to 12,242,655 shares, sole
dispositive power as to no shares and shared dispositive power as to
9,013,845 shares. StarNet, LCI and Mr. Lenfest each has sole voting power
as to 1,883,555 shares of common stock, shared voting power as to
12,242,655 shares, sole dispositive power as to 1,883,555 shares, and
shared dispositive power as to 9,013,845 shares. Liberty Cable, Liberty
Program and Liberty Media (the "Liberty Group") have disclaimed any
beneficial interest in the shares of the Company's common stock
beneficially owned by StarNet/CEA, CEA Investors II, CEA Investors, StarNet
Interactive, StarNet, LCI, Mr. Michaels and Mr. Lenfest (the "StarNet/CEA
Group"). The StarNet/CEA Group have disclaimed any beneficial interest in
the shares of common stock beneficially owned by The Liberty Group. The
shares beneficially owned by the StarNet/CEA Group includes: 2,834,908
shares transferred by CEA Investors II to StarNet/CEA as a capital
contribution, 2,014,520 shares acquired by StarNet/CEA from New Vision
Music, 5,967,972 shares acquired by StarNet/CEA from the Company, voting
rights with respect to 1,647,647 shares acquired by CEA Investors II from
the VLW Group, voting rights with respect to 1,581,163 shares acquired by
CEA Investors II from the VHC Group, 80,000 shares acquired from VLW Group
and 84,209 shares beneficially owned by Mr. Michaels. See "CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS - Transactions with StarNet/CEA."
(3) Includes an option granted by StarNet to purchase 200,000 shares of the
Company's common stock and presently exercisable options to purchase
100,000 shares of common stock. Does not include an option to purchase
200,000 shares of common stock, which vest more than 60 days from March 12,
1996.
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<PAGE> 44
(4) Represents presently exercisable options to purchase 250,000 shares of
common stock. Does not include options to purchase 100,000 shares of common
stock which vest more than 60 days from March 12, 1996.
(5) Represents presently exercisable options to purchase 75,000 shares of
common stock.
(6) Represents presently exercisable options to purchase 40,000 shares of
common stock.
(7) Represents presently exercisable options to purchase 35,000 shares of
common stock. Does not include options to purchase 10,000 shares of common
stock under the 1995 Non-Employee Director Plan which are subject to the
approval of Liberty VJN. See "EXECUTIVE COMPENSATION - Option Grants to
Non-Employee Directors."
(8) Includes 35,000 shares of common stock and presently exercisable options to
purchase 35,000 shares of common stock. Does not include options to
purchase 10,000 shares of common stock under the 1995 Non-Employee Director
Plan which are subject to the approval of Liberty VJN. See "EXECUTIVE
COMPENSATION Option Grants to Non-Employee Directors."
(9) Island Trading Company, Inc. ("Island") owns 2,500,000 shares of common
stock and immediately exercisable options to purchase 2,000,000 shares of
common stock. See "CERTAIN RELATIONSHIPS, AND RELATED TRANSACTIONS --
Transactions with Island." Island is a wholly-owned subsidiary of Island
International Limited ("Island International"), the capital stock of which
is held in trust by The Island Settlement ("Island Trust"). Island
International and Island Trust have disclaimed beneficial ownership of the
shares of common stock beneficially owned by Island. Mr. Blackwell is a
consultant to Island.
(10) On December 7, 1992, VJN Partners dissolved and distributed its assets and
liabilities to its former partners in proportion to their respective
partnership interests in VJN Partners. The former partners of VJN Partners,
CEA Investors Partnership II, Ltd., New Vision Music, Venture LW
Corporation and Video Holdings Corporation, had a 33 1/3%, 33 1/3%, 16 2/3%
and 16 2/3% interest in VJN Partners, respectively. VJN Partners
distributed 4,322,323 shares of common stock, of which 3,500,000 shares
were acquired by VJN Partners from Steven A. Peters, on June 3, 1988. VJN
Partners also distributed two notes in the aggregate principal amount of
$3,000,000 made by the Company payable to VJN Partners pursuant to a credit
agreement between the Company and VJN Partners. The credit agreement
provided, among other things, that VJN Partners may convert all or a
portion of the principal and accrued and unpaid interest outstanding
thereunder into shares of common stock at the conversion rate of the market
price per share of the common stock on the date of conversion. On May 24,
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<PAGE> 45
1993, CEA Investors Partnership II, Ltd., New Vision Music and Venture LW
Corporation each converted their respective proportionate interest in the
principal and accrued and unpaid interest outstanding under the notes into
1,394,133, 1,394,133 and 697,067 shares of common stock, respectively. On
July 30, 1993, Video Holdings Corporation converted the remaining principal
and accrued and unpaid interest under the notes into 550,582 shares of
Common Stock. See "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS." In
1995, Venture LW Corporation transferred its holdings to Louis Wolfson,
III.
(11) Mr. Wolfson has sole voting power as to 4,574 shares of common stock,
shared voting power as to 83,910 shares, sole dispositive power as to
314,768 shares, and shared dispositive power as to 1,421,363 shares.
(12) Video Holdings Corporation, a Florida corporation, which is a former
general partner of VJN Partners and wholly-owned in equal shares by Mark
Blank and his brothers, Andrew Blank and Tony Blank, has sole voting power
as to no shares of common stock, shared voting power as to no shares, sole
dispositive power as to no shares, and shared dispositive power as to
1,270,969 shares. Andrew Blank and Tony Blank each has sole voting power as
to no shares of Common Stock, shared voting power as to no shares, sole
dispositive power as to 96,731 shares, and shared dispositive power as to
1,270,969 shares. Mark Blank has sole voting power as to no shares of
common stock, shared voting power as to 581,163 shares, sole dispositive
power as to 110,732 shares, and shared dispositive power as to 1,270,969
shares.
(13) Liberty VJN, Inc. has sole voting power as to 1,203,464 shares of common
stock, shared voting power as to no shares, sole dispositive power as to
1,203,464 shares, and shared dispositive power as to no shares. The amount
does not include shares of common stock which may be purchased pursuant to
preemptive rights set forth in the stock purchase agreement, dated November
21, 1990, between the Company and TCI Liberty, Inc., the number of which is
indeterminable at this time. All of the rights and benefits of TCI Liberty,
Inc. under such agreement have been assigned to Liberty VJN, Inc.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
TRANSACTIONS RELATING TO VJNIL
Video Jukebox Network International Limited ("VJNIL") was organized in the
United Kingdom in September 1991 to develop and launch a United Kingdom version
of the Company's music video television programming. The Company had
beneficially owned
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<PAGE> 46
91% of the outstanding common stock of VJNIL from inception to June 29, 1995.
Vincent P. Monsey, the Managing Director of VJNIL and a former director of the
Company, owned nine percent of the outstanding shares of VJNIL for the same time
period.
On June 30, 1995, the Company purchased Mr. Monsey's nine percent interest in
VJNIL in exchange for 225,000 shares of the Company's common stock, which was
valued at $267,187 on that day. Also, on June 30, 1995, the Company completed
the sale of a 50% equity interest in VJNIL to a wholly-owned subsidiary of
Ticketmaster Corporation ("Ticketmaster") for $2,225,000 in cash. Legal and
investment banking expenses related to this transaction totaled approximately
$429,000. As part of such transaction, Ticketmaster loaned to VJNIL $1,500,000
which approximated the aggregate amount of the advances that have been made from
time to time by the Company to VJNIL. Such loan from Ticketmaster and advances
by the Company are secured by all the assets of VJNIL and will accrue interest
at the rate of prime plus one percent. Simultaneously, an administrative
services agreement was executed among the Company, VJNIL and Ticketmaster
through which Ticketmaster purchased a portion of its 50% equity interest in
VJNIL by issuing to VJNIL a promissory note payable in the amount of 625,400
pounds sterling (the equivalent of U.S. $1 million). This administrative
services agreement, which expires June 30, 2000, requires Ticketmaster to
provide VJNIL with strategic and marketing related services, particularly with
respect to sponsorship and promotional opportunities, advertising sales,
merchandising and other home shopping projects undertaken by VJNIL. Principal
amounts due under the promissory note will not accrue interest and monthly
payments of principal will be forgiven in full so long as Ticketmaster is
providing services to VJNIL under the administrative agreement.
On March 4, 1992, Vincent P. Monsey entered into a five-year Director's Service
Agreement with VJNIL, pursuant to which he is employed as Managing Director.
Under the agreement, Mr. Monsey is to be paid (pound)60,000 Sterling per annum.
Mr. Monsey's Director's Service Agreement with VJNIL can be terminated
immediately by VJNIL if termination is with cause (as defined in the agreement)
or upon providing a period of notice if termination is without cause. Mr. Monsey
has also been a director of VJNIL since September 1991. Mr. Monsey entered into
a new three-year employment agreement with VJNIL on June 30, 1995. Under the new
agreement, Mr. Monsey will be paid a salary for serving as Managing Director of
(pound)90,000, (pound)95,000 and (pound)100,000 Sterling in each successive
12-month period under the agreement. If VJNIL's annual earnings before income
taxes, depreciation and amortization are at least (pound)500,000,
(pound)1,000,000, (pound)1,250,000 or (pound)1,500,000 Sterling, Mr. Monsey will
receive a performance bonus of 10%, 20%, 22.5% or 25%, respectively, of his
then-current annual salary.
Since February 1992, Liz Laskowski, the wife of Vincent P. Monsey, has been
employed as Director of Administration and Programming of VJNIL. In such
capacity, she is responsible
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<PAGE> 47
for establishing relationships with record companies in the United Kingdom and
manages the Network Customer Service Department. Ms. Laskowski is being paid
(pound)45,000 Sterling per annum for her services to VJNIL. For more than 10
years prior to joining VJNIL, Ms. Laskowski held various positions with firms in
the radio and cable television industry. Ms. Laskowski entered into a new
three-year employment agreement with VJNIL on June 30, 1995. Under the new
agreement, Ms. Laskowski will be paid a salary of (pound)55,000, (pound)60,000
and (pound)65,000 Sterling in each successive 12-month period under the
agreement.
TRANSACTIONS WITH STARNET/CEA
On August 30, 1993, the Company and StarNet/CEA II Partners ("StarNet/CEA")
closed a Stock and Note Purchase Agreement, dated as of August 24, 1993,
pursuant to which StarNet/CEA purchased 687,500 newly issued shares of the
Company's common stock and was issued a convertible promissory note (the
"Convertible Note") made payable to StarNet/CEA in the principal amount of
$1,200,000 in exchange for an aggregate cash payment to the Company of
$1,750,000. The principal amount of the note and accrued interest thereon was
converted into 1,519,884 shares of common stock on December 16, 1993.
StarNet/CEA has demand registration rights with respect to the 2,207,384 newly
issued shares of common stock and the shares of common stock underlying the
convertible note, pursuant to a Registration Rights Agreement, dated as of
August 24, 1993, between StarNet/CEA and the Company.
On December 7, 1993, the Company obtained approval from the Federal
Communications Commission ("FCC") to transfer control of the Company's low power
television stations, which allowed StarNet/CEA to obtain a controlling equity
interest in the Company ("FCC Approval"). On December 16, 1993, the Convertible
Note was automatically converted into 1,519,884 shares of the Company's common
stock. In addition, proxies to vote 1,308,810 shares of the Company's common
stock, which were acquired by CEA Investors II from other stockholders of the
Company, became effective on December 16, 1993.
Simultaneously with the execution of the Stock and Note Purchase Agreement, the
Company closed a Consulting Agreement and a Management Agreement with StarNet.
Under the Consulting Agreement, which became effective August 30, 1993, StarNet
advised and consulted the management and the Board of Directors of the Company
with respect to the development of the Company's business. StarNet received a
fee of $25,000 per month and also was reimbursed for reasonable expenses and
costs it incurred in the performance of its duties under the agreement. Upon
receiving FCC Approval, the Consulting Agreement was terminated on December 15,
1993 and the Management Agreement commenced on December 16, 1993. Under the
Management Agreement, StarNet was to provide management services for the
domestic operations of the Company through August 30, 1996. StarNet received a
management fee of $300,000 per annum for
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<PAGE> 48
the first 12 month period of the agreement, payable in equal monthly
installments. In December 1994, the management fee was reduced to $150,000 per
annum. The Management Agreement was terminated effective January 1, 1995.
Simultaneously with the execution of the Stock and Note Purchase Agreement, the
Company closed a Service Agreement with StarNet which enables the Company to
deliver its programming by satellite. Under the Service Agreement, StarNet is
providing the Company with uplink service and satellite capacity on Satcom C-4
on a preemptable basis. The Company was required to pay StarNet $200,000 per
month for analog signal delivery, which payment was reduced to $110,000 per
month when the Company converted from analog to digital satellite transmission
on February 28, 1995. As of May 1, 1995, the monthly fee was reduced to $73,500.
The Company has the right to receive a credit for interruptions, outages or
preemption with respect to the satellite delivery of its programming. Under this
agreement, the Company had the option of deferring the first 12 months'
transponder and uplink payments. The Company exercised its option and deferred
the first 11 months' transponder and uplink payments by issuing 11 promissory
notes to StarNet. Each note accrued interest at the prime rate as listed in The
Wall Street Journal on the first of the month in which each note was issued plus
one percent per annum. Payment of the outstanding balance of each note was to
commence on September 1, 1996 and was payable ratably in 30 equal monthly
installments. At any time prior to September 1, 1996, StarNet had the right to
convert all or any part of the principal and accrued interest under each note
into the Company's common stock at the rate of $1.25 per share. The Company had
the right to pay any portion of the principal and accrued interest prior to
September 1, 1996, upon five days prior notice to StarNet. Upon receipt of such
notice, StarNet had the option to receive such payments in cash or in the
Company's common stock at the rate of $1.25 per share. In December 1994, the
Company elected to pay the total principal and accrued interest of $2,354,444
and StarNet exercised its option to receive payment in 1,883,555 shares of the
Company's common stock. The Service Agreement was scheduled to terminate on
March 31, 1999, but was mutually terminated effective April 1996.
TRANSACTIONS WITH CEA
On December 31, 1993, the Company and CEA entered into an international
management agreement, pursuant to which CEA is responsible for the supervision
and management of VJNIL and other Company operations outside the United States
as well as the expansion of such international operations. Such agreement was
extended and amended as of July 1, 1994. Under such agreement, as amended, the
Company was obligated to pay CEA a management fee of $25,000 per month for the
12-month period ending June 30, 1995. The Company agreed to reimburse CEA up to
$25,000 for the expenses and costs incurred in the performance of its duties
under such agreement, as well as expenses and costs above
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<PAGE> 49
$25,000 if approved by StarNet, Inc. In 1994, the Company paid CEA $300,000 for
services provided under the agreement. In addition, CEA will receive a
performance fee for each completed international joint venture or license
agreement negotiated by CEA on behalf of the Company in connection with the
international expansion of the Company's programming. The performance fee will
range from $75,000 to $600,000 per transaction. This agreement with CEA was
terminated effective January 1, 1995.
On September 14, 1995, the Company and CEA entered into an international
representation agreement, pursuant to which CEA is acting as the Company's
exclusive representative for purposes of: (a) arranging financing for the
Company to expand the international distribution of the Company's programming
outside of the United States, the United Kingdom and Puerto Rico, and (b)
assisting the Company in entering into certain foreign countries. Under the
agreement, CEA will be paid a fee equal to 5% of the proceeds from any financing
obtained by the Company through CEA's efforts and will reimburse CEA for its
reasonable expenses incurred in connection with the agreement. In addition, the
Company, in recognition of the substantial effort and time that CEA has spent in
assisting the Company in expanding the distribution of its programming to
certain foreign countries, has agreed to pay CEA a fee ranging from $75,000 to
$175,000, if the Company consummates a joint venture or affiliation agreement
with a third party in certain specified countries. As a result, the Company paid
CEA a fee of $87,500 in association with a joint venture established with a
Netherlands company to fund The Box Holland.
Pursuant to an agreement among the Company, CEA and Moran & Associates
("Moran"), the Company paid $137,500 to CEA and $112,500 to Moran for their
investment banking services to the Company in connection with the Island
transaction. See "Transactions with Island." If Island exercises the stock
options granted to it in the transaction, CEA and Moran will additionally
receive a fee equal to 5% of the funds received upon such exercise with 78% of
such fee payable to CEA and 22% payable to Moran.
TRANSACTIONS WITH ISLAND
On April 21, 1994, the Company consummated a Stock Purchase Agreement with
Island Trading Company, Inc. ("Island"), pursuant to which Island purchased
2,500,000 newly-issued shares of the Company's common stock and three options
("Options") to purchase an additional 2,500,000 shares of common stock in
exchange for the cash payment to the Company of $5,000,000.
The Options include: (i) an immediately exercisable option to purchase 500,000
shares of the Company's common stock at an exercise price of $2.00 per share
which expired April 20, 1995; (ii) an immediately exercisable option to purchase
1,000,000 shares of common
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<PAGE> 50
stock at an exercise price of $5.00 per share until April 20, 1996; and (iii) an
immediately exercisable option to purchase 1,000,000 shares of common stock at
an exercise price of $6.00 per share until April 20, 1997. If all the remaining
unexpired options are exercised by Island, the Company will receive an
additional $11,000,000. On March 22, 1996, the average closing bid and ask price
of the Company's common stock on the NASDAQ SmallCap Market was $1.63.
Island was granted certain demand and piggyback registration rights with respect
to the 2,500,000 shares purchased as well as certain piggyback registration
rights with respect to the 2,000,000 shares of common stock underlying the $5.00
and $6.00 Options, pursuant to a Registration Rights Agreement, dated April 21,
1994, between the Company and Island.
Simultaneously with the execution with the Stock Purchase Agreement, the Company
entered into a two-year Consulting Agreement with Island, whereby Island agreed
to provide the Company with music and merchandising consulting services as well
as to assist the Company in developing its programming and on-air look. In
exchange for Island's services, the Company agreed to pay Island a monthly fee
of $20,833, payable in three-month installments either in cash or shares of
common stock at the discretion of the Company. This Agreement was terminated
effective January 1, 1995.
Pursuant to and as a condition of the Stock Purchase Agreement, Chris Blackwell,
the founder of Island, was appointed to the Company's Board of Directors on
April 21, 1994. In order to comply with certain regulations of the Federal
Communications Commission regarding foreign ownership and management of FCC
licensed entities, the Company transferred its low power television stations to
VJN LPTV CORP., a wholly-owned subsidiary of the Company, prior to Mr. Blackwell
joining the Board. To make a vacancy for Mr. Blackwell on the Board, Joseph V.
Furfaro, an employee of Moran, resigned from the Board effective April 21, 1994.
Mr. Blackwell was also appointed to the Management Committee of the Board, which
committee includes Messrs. Lenfest, Michaels, Garland and McGlade.
Simultaneously with the execution of the Stock Purchase Agreement, Island
entered into a Tag-Along Agreement with StarNet/CEA, CEA Investors II and
StarNet Interactive. Pursuant to the Tag-Along Agreement, Island was granted
certain rights to participate on a pro rata basis in certain transactions
involving the sale of the Company's common stock and other transfers by
StarNet/CEA (and CEA Investors II and StarNet Interactive) and StarNet/CEA was
granted certain rights to participate on a pro rata basis in certain
transactions involving the sale of common stock and other transfers by Island.
In addition, StarNet/CEA has agreed to use its best efforts to cause Mr.
Blackwell (or a designee of Island acceptable to StarNet/CEA) to be nominated
and elected to the Board for so long as Island owns more than 2,000,000 shares
or 10% of the Company's outstanding common stock.
On April 21, 1994, the Company also entered into a Lease Agreement with Island,
pursuant to which the Company leased from Island approximately 16,000 square
feet of space in two adjoining premises in South Beach, Miami Beach, Florida.
The Company will use the new premises -- located at 1221 Collins Avenue -- to
house its principal executive offices. For a description of the terms of the
lease, see "DESCRIPTION OF PROPERTY."
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<PAGE> 51
CERTAIN OTHER TRANSACTIONS
As an inducement to cause Alan McGlade, the President and Chief Executive
Officer of the Company, to move to the Miami, Florida metropolitan area, the
Company agreed as part of its employment agreement with Mr. McGlade to loan him
$100,000, which was used for the purpose of purchasing his primary residence in
the Miami, Florida metropolitan area. The Company will charge Mr. McGlade
interest on the outstanding principal amount of the loan at the prime rate
charged from time to time by the Company's bank beginning June 1, 1996. Interest
on the outstanding principal amount of the loan will be paid in consecutive
monthly installments beginning June 30, 1996. Additionally, the Company will
reimburse Mr. McGlade for the mortgage cost of his Philadelphia home for a three
month period, March May 1996 at a total cost to the Company of approximately
$10,800. Unless Mr. McGlade's obligation to repay all outstanding principal and
interest is accelerated, he is not obligated to make any repayments of principal
on the loan until January 1, 1999, at which time consecutive monthly installment
payments of principal and accrued interest are to be paid by Mr. McGlade on the
basis of a 15-year amortization rate. All outstanding principal and accrued
interest on the loan, however, must be paid by Mr. McGlade upon the earlier to
occur of: (a) the termination of his employment agreement under certain
circumstances, in which case all outstanding principal and accrued interest
shall be due and payable within 12 months after such termination, or (b) the
sale of Mr. McGlade's primary residence in the Miami, Florida metropolitan area,
in which case all outstanding principal and accrued interest must be paid to the
Company within five business days of the closing of such sale. The Company's
loan is secured by a second mortgage on Mr. McGlade's primary residence in the
Miami, Florida metropolitan area.
On January 1, 1994, Les Garland, the Executive Vice President of the Company,
entered into a three-year employment agreement with the Company. For a
description of such agreement, see "EXECUTIVE COMPENSATION - Employment
Agreements." On March 6, 1995, the Company advanced to Mr. Garland $92,574, of
which $22,735 represented a performance bonus earned by Mr. Garland as of March
6, 1995 and $69,839 represented an advance to Mr. Garland for the portion of his
performance bonus expected to be paid to him at the end of 1995 under his
employment agreement. The unpaid balance of his loan at December 31, 1995 is
$100,088, including accrued interest of $7,494. The Company and Mr. Garland
agreed that the funds advanced to Mr. Garland would accrue interest at the prime
rate charged borrowing customers of the Company's bank, which is published or
announced by such bank from time to time as its prime rate. Upon the earlier to
occur of the date that Mr. Garland's employment agreement is terminated for
"cause," as such term is defined in the agreement or December 31, 1996, the
Company has the right to offset against any performance bonus or other funds due
to Mr. Garland under the agreement on the date of such termination or December
31, 1996, as the case may be, in an amount equal to the then-outstanding and
unpaid principal amount of the advance, plus accrued and unpaid interest
thereon. If such offset does not equal the outstanding and unpaid principal
amount and accrued interest due to the Company, Mr. Garland has agreed to pay
such amount to the Company on the earlier to occur of the date of such
termination or December 31, 1996. Such funds were advanced to Mr. Garland in
order to assist him in purchasing his primary residence in the Miami, Florida
metropolitan area.
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<PAGE> 52
The Company has entered into an agreement with TelVue Corporation ("TelVue"), a
company controlled by Mr. Lenfest. Under such agreement, TelVue would provide
telephone transactions services on terms and rates which are no less favorable
to the Company than those available to the Company from its present telephone
transaction service provider for similar services.
Pursuant to a program affiliation agreement with Satellite Services, Inc., an
affiliate of Liberty VJN, Inc., the Company incurred expenses of $519,000 and
$788,000 for affiliate fees during the fiscal years ended December 31, 1995 and
1994, respectively. The Company expects to incur expenses of approximately
$606,000 for affiliate fees during the fiscal year ending December 31, 1996.
Pursuant to a program affiliation agreement with LCI's operating cable
companies, affiliates of the StarNet/CEA Group, the Company incurred expenses of
$92,000 and $53,000 for affiliate fees for the years ended December 31, 1995 and
1994, respectively, and expects to incur expenses of approximately $131,000 for
affiliate fees during the fiscal year ending December 31, 1996.
The agreements with affiliates of the Company described in this section were
approved by a majority of the disinterested members of the Company's Board of
Directors. The Company believes that the terms of such agreements are comparable
to the terms that could have been negotiated with unaffiliated parties.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
The financial statements and notes thereto are included herein beginning at page
F-1.
<TABLE>
<CAPTION>
(a) 1. INDEX TO FINANCIAL STATEMENTS Page
----------------------------- ----
<S> <C>
Report of Independent Certified Public Accountants F-1
Consolidated Balance Sheet as of December 31, 1995 F-2
Consolidated Statements of Operations for the years
ended December 31, 1995 and 1994 F-3
Consolidated Statements of Stockholders' Equity for
the years ended December 31, 1995 and 1994 F-4
Consolidated Statements of Cash Flows for
the years December 31, 1995 and 1994 F-5
Notes to Consolidated Financial Statements F-6 through F-17
</TABLE>
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<PAGE> 53
2. EXHIBITS
Articles of Incorporation and Bylaws
3.1 Articles of Amendment and Restatement and the Third Amended
and Restated Articles of Incorporation of the Company, as
filed with the Secretary of State of the State of Florida on
November 8, 1993.
3.2 The Bylaws of the Company, as amended on May 7, 1995.
Material Contracts
10.1 Stock Purchase Agreement, dated November 21, 1990, between the
Company and TCI Liberty, Inc. ("TCI"). Incorporated herein by
reference to Exhibit A to the Company's Form 8-K, dated
November 21, 1990 (the "November Form 8-K").
10.2 Side Letter Agreement, dated November 21, 1990, between the
Company and TCI. Incorporated herein by reference to Exhibit B
to the November Form 8-K.
10.3 Indemnification Agreement, dated as of August 24, 1990,
between the Company and Jules Haimovitz. Incorporated herein
by reference to Exhibit 19.6 to the 1990 Form 10-K.
10.4 Indemnification Agreement, dated as of May 1, 1990, between
the Company and Les Garland. Incorporated herein by reference
to Exhibit 19.8 to the 1990 Form 10-K.
10.5 Employment Agreement, dated as of January 1, 1994, between Les
Garland and the Company. Incorporated herein by reference to
Exhibit 10.11 to the 1993 Form 10-KSB.*
10.6 Stock Option and Agreement, dated as of December 16, 1993,
between Les Garland and the Company. Incorporated herein by
reference to Exhibit 10.12 to the 1993 Form 10-KSB.*
10.7 Stock Option and Agreement, dated as of January 18, 1994,
between Les Garland and the Company. Incorporated herein by
reference to Exhibit 10.13 to the 1993 Form 10-KSB.*
10.8 Employment Agreement, dated December 16, 1991, between Luann
M. Simpson and the Company. Incorporated herein by reference
to Exhibit 19.6 to the 1991 Form 10-K.*
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<PAGE> 54
10.9 Stock Option and Agreement, dated as of December 16, 1993,
between Luann M. Simpson and the Company. Incorporated herein
by reference to Exhibit 10.15 to the 1993 Form 10- KSB.*
10.10 Indemnification Agreement, dated as of March 6, 1992, between
Luann M. Simpson and the Company. Incorporated herein by
reference to Exhibit 19.13 to the 1991 Form 10-K.
10.11 Standard Affiliation Agreement with all cable system
operators. Incorporated herein by reference to Exhibit 19.16
to the 1991 Form 10-K.
10.12 Employment Agreement, dated November 21, 1994, between Alan
McGlade and the Company.*
10.13 Stock Option and Agreement, dated January 1, 1995, between
Alan McGlade and the Company.*
10.14 Indemnification Agreement, dated August 24, 1992, between
Vincent P. Monsey and VJN. Incorporated herein by reference to
Exhibit 19.8 to the 1992 Form 10-KSB.
10.15 Indemnification Agreement, dated August 24, 1992, between J.
Patrick Michaels, Jr. and VJN. Incorporated herein by
reference to Exhibit 19.9 to the 1992 Form 10-KSB.
10.16 Indemnification Agreement, dated September 30, 1992, between
Joel S. Rudich and VJN. Incorporated herein by reference to
Exhibit 19.10 to the 1992 Form 10-KSB.
10.17 Indemnification Agreement, dated September 30, 1992, between
Leonard J. Sokolow and VJN. Incorporated herein by reference
to Exhibit 19.11 to the 1992 Form 10-KSB.
10.18 Service Agreement, dated July 31, 1992, between the Company
and West Interactive Corporation. Incorporated herein by
reference to Exhibit 19.18 to the 1992 Form 10-KSB.
10.19 Collateral Note and Security Agreement, dated July 31, 1992,
between VJN and West Interactive Corporation. Incorporated
herein by reference to Exhibit 19.19 to the 1992 Form 10-KSB.
10.20 Stock and Note Purchase Agreement, dated as of August 24,1993,
between the Company and StarNet/CEA II partners
("StarNet/CEA"). Incorporated herein by reference to the
Company's Form 10-QSB for the period ended September 30, 1993.
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<PAGE> 55
10.21 Registration Rights Agreement, dated as of August 24, 1993,
between the Company and StarNet/CEA. Incorporated herein by
reference to the Company's Form 10-QSB for the period ended
September 30, 1993.
10.22 Service Agreement, dated August 24,1993, between the Company
and StarNet, Inc. ("StarNet"). Incorporated herein by
reference to the Company's Form 10-QSB for the period ended
September 30, 1993.
10.23 Consulting Agreement, dated August 24, 1993, between the
Company and StarNet. Incorporated herein by reference to the
Company's Form 10-QSB for the period ended September 30,
1993.*
10.24 Management Agreement, dated August 24, 1993, between the
Company and StarNet. Incorporated herein by reference to the
Company's Form 10-QSB for the period ended September 30,
1993.*
10.25 Form of Letter Agreement, dated March 23, 1994, among CEA,
Moran & Associates and the Company. Incorporated herein by
reference to Exhibit 10.41 to the 1993 Form 10-KSB.
10.26 Lease Agreement, dated April 21, 1994, between the Company and
Island Trading Company, Inc. Incorporated herein by reference
to Exhibit 10.37 to the Company's Form 10-KSB for the fiscal
year ended December 31, 1994 (the "1994 Form 10- KSB").
10.27 Letter Agreement, dated March 6, 1995, between Les Garland and
the Company. Incorporated herein by reference to Exhibit 10.38
to the 1994 Form 10-KSB.*
10.28 Stock Purchase Agreement, dated June 30, 1995, among the
Company, Video Jukebox Network International Limited ("VJNIL")
and Vincent Paul Monsey. Incorporated herein by reference to
Exhibit 99.1 to the Company's Form 8-K/A-1 dated August 10,
1995.
10.29 Secured Loan Agreement, dated June 30, 1995, between VJNIL and
TM/Video International, Inc. ("TM/Video"). Incorporated herein
by reference to Exhibit 99.2 to the Company's Form 8- K/A-1
dated August 10, 1995.
10.30 Secured Promissory Note of VJNIL, with TM/Video as Payee.
Incorporated herein by reference to Exhibit 99.3 to the
Company's Form 8-K/A-1 dated August 10, 1995.
10.31 Secured Loan Agreement, dated June 30, 1995, between VJNIL and
the Company. Incorporated herein by reference to Exhibit 99.4
to the Company's Form 8-K/A-1 dated August 10, 1995.
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<PAGE> 56
10.32 Secured Promissory Note of VJNIL, with the Company as Payee.
Incorporated herein by reference to Exhibit 99.5 to the
Company's Form 8-K/A-1 dated August 10, 1995.
10.33 Debenture, dated June 30, 1995, between VJNIL and the Company.
Incorporated herein by reference to Exhibit 99.6 to the
Company's Form 8-K/A-1 dated August 10, 1995.
10.34 Debenture, dated June 30, 1995, between VJNIL and TM/Video.
Incorporated herein by reference to Exhibit 99.7 to the
Company's Form 8-K/A-1 dated August 10, 1995.
10.35 Intercreditor Agreement, dated June 30, 1995, among the
Company, TM No.2 Limited ("TM No.2"). Incorporated herein by
reference to Exhibit 99.8 to the Company's Form 8-K/A-1 dated
August 10, 1995.
10.36 Stock Purchase Agreement, dated June 30, 1995, among the
Company, TM No. 2 and VJNIL. Incorporated herein by reference
to Exhibit 99.9 to the Company's Form 8-K/A-1 dated August 10,
1995.
10.37 License Agreement, dated June 30, 1995, between the Company
and VJNIL. Incorporated herein by reference to Exhibit 99.10
to the Company's Form 8-K/A-1 dated August 10, 1995.
10.38 Administrative Services Agreement, dated June 30, 1995, among
the Company, VJNIL and TM No. 2. Incorporated herein by
reference to Exhibit 99.11 to the Company's Form 8-K/A-1 dated
August 10, 1995.
10.39 Secured Promissory Note of TM No. 2, with VJNIL as Payee.
Incorporated herein by reference to Exhibit 99.12 to the
Company's Form 8-K/A-1 dated August 10, 1995.
10.40 Stockholders Agreement, dated June 30, 1995, among the
Company, VJNIL and TM No. 2. Incorporated herein by reference
to Exhibit 99.13 to the Company's Form 8-K/A-1 dated August
10, 1995.
10.41 Letter Agreement, dated June 30, 1995, among the Company,
VJNIL and TM No. 2. Incorporated herein by reference to
Exhibit 99.14 to the Company's Form 8-K/A-1 dated August 10,
1995.
10.42 Letter Agreement, dated June 30, 1995, among the Company and
TM/TMVideo. Incorporated herein by reference to Exhibit 99.15
to the Company's Form 8-K/A-1 dated August 10, 1995.
10.43 Equipment and Service Agreement, dated February 27, 1996,
between Hughes Network Systems, Inc. and the Company.
10.44 International Representation Agreement, dated September 14,
1995, between the Company and Communications Equity
Associates, Inc.
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<PAGE> 57
10.45 Commercial Lease Agreement, dated December 5, 1995, between
Goldkress Associates, Ltd. and the Company.
10.46 Lease Agreement, dated February 26, 1996 between Flatiron
Associates and the Company.
21 The following table sets forth, as of March 15, 1996, the name
of each subsidiary of the Company, the Company's percentage
ownership and each jurisdiction of incorporation of the
subsidiary:
<TABLE>
<CAPTION>
Percentage Jurisdiction
Name of Subsidiary Ownership of Incorporation
------------------ ---------- -----------------
<S> <C> <C>
Video Jukebox Network
International Limited 50% United Kingdom
VJN LPTV CORP. 100% Delaware
The Box Worldwide Europe, B.V. 100% Netherlands
The Box Worldwide - Latin
America, Inc. 100% British Virgin Islands
VJN Management Services, Inc. 100% British Virgin Islands
Video Jukebox Network
Europe, Ltd. 100% United Kingdom
(Subsidiary of The Box
Worldwide Europe, B.V.)
The Box Holland 50% Netherlands
(Subsidiary of The Box
Worldwide Europe, B.V.)
</TABLE>
23 Consent of Ernst & Young LLP
27 Financial Data Schedule (for SEC purposes only)
- ---------------
*Denotes a management contract or compensatory plan or arrangement.
(b) REPORTS ON FORM 8-K
The Company did not file with the Securities and Exchange Commission
any Reports on Form 8-K during the last quarter of the period covered
by this Report.
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<PAGE> 58
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors and Shareholders
Video Jukebox Network, Inc.
We have audited the consolidated financial statements of Video Jukebox Network,
Inc. and subsidiaries listed in the accompanying Index to Financial Statements
(Item 13(a)). These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements listed in the
accompanying Index to Financial Statements (Item 13(a)) present fairly, in all
material respects, the consolidated financial position of Video Jukebox
Network, Inc. and subsidiaries at December 31, 1995 and the results of their
operations and cash flows for each of the two years in the period ended
December 31, 1995, in conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
Miami, Florida
March 12, 1996
F1
<PAGE> 59
VIDEO JUKEBOX NETWORK, INC.
BALANCE SHEET
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
DECEMBER 31,
1995
-------------
ASSETS:
CURRENT ASSETS
<S> <C>
Cash and cash equivalents $ 6,712,402
Accounts receivable, less allowances for chargebacks
and doubtful accounts of $981,079 2,621,936
Receivable from officer 100,088
Prepaid expenses and other 375,907
------------
TOTAL CURRENT ASSETS 9,810,333
------------
RECEIVABLE FROM OFFICER - LONG TERM 103,740
PROPERTY AND EQUIPMENT, NET 3,006,884
DEFERRED COSTS AND OTHER ASSETS, NET 993,610
INVESTMENT IN AND ADVANCES TO UNCONSOLIDATED SUBSIDIARIES 746,770
------------
TOTAL ASSETS $ 14,661,337
============
LIABILITIES AND STOCKHOLDERS' EQUITY:
CURRENT LIABILITIES
Accounts payable $ 903,761
Accrued expenses 2,401,297
------------
TOTAL CURRENT LIABILITIES 3,305,058
------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
8% Cumulative convertible preferred
stock, $1.00 par value, 200,000 shares
authorized, none issued --
Common stock, $.001 par value,
40,000,000 shares authorized, 23,944,281
shares issued and outstanding 23,944
Additional paid in capital 30,190,104
Accumulated deficit (18,848,176)
Cummulative foreign currency translation loss (9,593)
------------
TOTAL STOCKHOLDERS' EQUITY 11,356,279
------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 14,661,337
============
</TABLE>
See Notes to Financial Statements
F2
<PAGE> 60
VIDEO JUKEBOX NETWORK, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31, DECEMBER 31,
1995 1994
------------ ------------
REVENUES
<S> <C> <C>
Net viewer revenues $ 12,435,709 $ 12,687,003
Advertising and other revenues 9,808,181 6,165,222
------------ ------------
22,243,890 18,852,225
Gain on sale of interest in subsidiary 1,376,899 0
Interest income 537,946 261,788
------------ ------------
24,158,735 19,114,013
------------ ------------
COSTS AND EXPENSES
Affiliate fees, site costs and
telephone service 6,083,275 6,718,954
Distribution, general and
administrative 13,992,916 11,492,739
Satellite transponder, rent and management
fees paid to related parties 1,832,971 3,170,595
Depreciation and amortization 1,221,996 1,832,393
Stock and warrant compensation 254,154 270,781
Interest 1,677 146,014
------------ ------------
23,386,989 23,631,476
------------ ------------
INCOME (LOSS) BEFORE INCOME TAXES, MINORITY
INTEREST IN LOSS OF SUBSIDIARY AND INTEREST IN LOSS OF
UNCONSOLIDATED SUBSIDIARIES 771,746 (4,517,463)
INCOME TAX EXPENSE 40,000 0
------------ ------------
INCOME (LOSS) BEFORE MINORITY INTEREST IN LOSS OF SUBSIDIARY
AND INTEREST IN LOSS OF UNCONSOLIDATED SUBSIDIARIES 731,746 (4,517,463)
MINORITY INTEREST IN LOSS OF SUBSIDIARY 0 24,369
INTEREST IN LOSS OF UNCONSOLIDATED
SUBSIDIARIES (246,688) 0
------------ ------------
NET INCOME (LOSS) $ 485,058 $ (4,493,094)
============ ============
Net income (loss) per common share $0.02 ($0.23)
============ ============
Weighted average number of
common shares outstanding 23,798,557 19,921,505
============ ============
</TABLE>
See Notes to Financial Statements
F3
<PAGE> 61
VIDEO JUKEBOX NETWORK, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CUMMULATIVE
FOREIGN
ADDITIONAL DEFERRED ACCUM- CURRENCY
PREFERRED COMMON PAID IN COMPEN- ULATED TRANSLATION
STOCK STOCK CAPITAL SATION DEFICIT LOSS TOTAL
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1993 $ 0 $17,214 $18,843,279 $(523,372) $(14,840,140) $(81,583) $3,415,398
ISSUANCE OF COMMON STOCK
Cash 4,572 9,088,425 9,092,997
Conversion of debt 1,884 2,352,560 2,354,444
Other 2 3,094 3,096
AMORTIZATION OF DEFERRED
COMPENSATION 1,563 269,218 270,781
EXPENSES RELATED TO PRIVATE
PLACEMENT OF STOCK (431,815) (431,815)
FOREIGN CURRENCY TRANSLATION GAIN 23,231 23,231
NET LOSS (4,493,094) (4,493,094)
-------- ------- ----------- --------- ------------ -------- -----------
BALANCE, DECEMBER 31, 1994 $ 0 $23,672 $29,857,106 $(254,154) $(19,333,234) $(58,352) $10,235,038
ISSUANCE OF COMMON STOCK
Cash 47 73,536 73,583
Purchase of minority shares
in subsidiary 225 266,962 267,187
AMORTIZATION OF DEFERRED
COMPENSATION 254,154 254,154
EXPENSES RELATED TO CONVERSION
OF DEBT IN 1994 (7,500) (7,500)
FOREIGN CURRENCY TRANSLATION GAIN 48,759 48,759
NET INCOME 485,058 485,058
-------- ------- ----------- --------- ------------ -------- -----------
BALANCE,DECEMBER 31, 1995 $ 0 $23,944 $30,190,104 $ 0 $(18,848,176) $ (9,593) $11,356,279
========= ======= =========== ========= ============ ======== ===========
</TABLE>
See Notes to Financial Statements
F4
<PAGE> 62
VIDEO JUKEBOX NETWORK, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31, DECEMBER 31,
1995 1994
-----------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 485,058 $(4,493,094)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization 1,221,996 1,832,393
Gain on sale of interest in subsidiary (1,376,899) 0
Interest in loss of unconsolidated subsidiary 246,688 0
Related party debt issued for services 0 1,400,000
Provision for bad debts and estimated chargebacks 93,655 90,000
Stock and warrant compensation and amortization 254,154 270,781
Change in assets and liabilities:
(Increase) in accounts receivable (936,853) (905,490)
(Increase) in prepaid expenses, deferred costs and
other assets (433,132) (533,231)
Increase in accounts payable and accrued expenses 198,916 995,934
Increase in interest payable due to related parties 0 142,707
(Increase) in amount due from subsidiaries (226,406) 0
Minority interest in loss of subsidiary 84,670 (19,272)
---------- -----------
NET CASH (USED IN) OPERATING ACTIVITIES (388,153) (1,219,272)
---------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net cash received from sale of interest in subsidiary 1,795,617 0
Capital expenditures (2,278,956) (1,015,334)
Increase in investment in and advances to unconsolidated subsidiaries (583,801) 0
---------- -----------
NET CASH (USED IN) INVESTING ACTIVITIES (1,067,140) (1,015,334)
---------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock, net 73,582 8,664,278
Payments of short-term borrowings (865) (120,882)
---------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 72,717 8,543,396
---------- -----------
EFFECT OF EXCHANGE RATE CHANGES ON CASH 76,968 6,687
---------- -----------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (1,305,608) 6,315,477
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 8,018,010 1,702,533
---------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $6,712,402 $ 8,018,010
========== ===========
SCHEDULE OF NON-CASH INVESTING AND
FINANCING ACTIVITIES:
Stock issued for purchase of minority interest in subsidiary $ 267,188 $ 0
========== ===========
Stock issued for conversion of related party debt $ 0 $ 2,354,444
========== ===========
</TABLE>
See Notes to Financial Statements
F5
<PAGE> 63
VIDEO JUKEBOX NETWORK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
General -- Video Jukebox Network, Inc. (the "Company"), a Florida corporation,
operates an interactive television channel serving subscribers on various cable
systems and broadcast stations throughout the United States and the United
Kingdom.
As of December 31, 1995, the Company exhibited its programming over 150 box
units installed in cable television systems and low power television stations
(121 box units in the U.S., 27 box units in the United Kingdom and 1 box unit in
Holland) and via one satellite box unit on transponder 11, Satcom C-4 in the
U.S. Viewers activate the box units through the telephone and are charged from
$0.93 to $6.00 for single and multiple video selections. The Company generates
approximately 56% of its operating revenues from telephone requests.
Subscribers of two multiple cable system operators each represented 20.8% and
13.8%, respectively, of the Company's viewer revenues in 1995.
Consolidation -- The consolidated financial statements include the balance sheet
and operating results of the Company's wholly-owned subsidiaries, VJN LPTV CORP.
and The Box Worldwide Europe, B.V., (incorporated on August 22, 1995) and
include the operating results of Video Jukebox Network International, Limited
("VJNIL"), through June 30, 1995. (See Note 7). Effective July 1, 1995, the
Company's interest in VJNIL was reduced to 50% and the Company began to account
for VJNIL on the equity method. (See Note 7). The Company also accounts for its
50% owned subsidiary, The Box Holland (incorporated on October 10, 1995) on the
equity method of accounting. (See Note 7). Two new wholly-owned subsidiaries,
Video Jukebox Network Europe, Ltd. and The Box Worldwide - Latin America, Inc.
were formed in 1996. All significant consolidating and eliminating entries have
been included.
Revenue Recognition -- Income is earned when the viewer-requested music video
has aired, and is recorded net of estimated, potential denial calls and other
billing charges. Advertising revenue is recognized when the commercials have
aired, while production and promotional revenues are recognized when the
produced spots are delivered or the promotions aired.
Receivables -- The Company's trade receivables result from advertising sales for
commercials aired on the Company's programming service, THE BOX, plus the
revenues from the telephone company providers related to video selections
purchased by consumers. Consideration is given to the nature of these
receivables plus the financial position of customers in determining the
appropriate allowance for potential viewer chargebacks and doubtful collections.
Reserves are established for doubtful
F6
<PAGE> 64
accounts and for estimated future call denials and other chargebacks based upon
historical data provided by the telephone company and such other factors as
management considers appropriate in the circumstances.
Property and Equipment -- Property and equipment is stated at cost and is
depreciated using the straight-line method over the estimated useful lives of
the assets, which range from five to ten years. Equipment with no continuing
value is written off.
Software -- The Company has internally developed certain software programs
necessary for the operation of the business and has capitalized these costs as
software costs. During the years ended December 31, 1995 and 1994, respectively,
approximately $141,000 and $50,000 in charges related to the development,
enhancement and improvement of the software were capitalized. Software costs are
included in property and equipment in the accompanying balance sheets and are
amortized over the estimated useful life of the software, not to exceed five
years.
Deferred Costs -- Deferred costs consist primarily of legal and accounting costs
related to obtaining copyrights, patents and trademarks, and costs relating to
the acquisition of low power television stations. These costs are amortized
using the straight-line method over a period not to exceed ten years.
Research and Development Expenses -- Costs associated with the research and
development of new services are expenses as incurred. No such expenses were
incurred for either year ended December 31, 1995 and 1994, respectively.
Income Taxes -- The Company accounts for income taxes under the liability method
required by FASB Statement No. 109, "Accounting for Income Taxes." Under this
method, deferred tax assets and liabilities are determined based on differences
between financial reporting and tax bases of assets and liabilities and are
measured using the enacted tax rates and laws that will be in effect when the
differences are expected to reverse.
Income (Loss) Per Share -- Net income and net loss per share are computed based
on the weighted average number of shares of Common Stock outstanding during the
year. Common Stock equivalents were not considered in the computation of net
income or loss per share as their effect was less than 3% of net income per
share or resulted in a decrease in net loss per share.
Cash and Cash Equivalents -- For purposes of the statements of cash flows, the
Company considers all highly liquid investments with maturities of less than
three months to be cash equivalents.
Long-Lived Assets -- In 1996, the Company will adopt the provisions of FASB
Statement No. 121, "Accounting for the Impairment of Long-Lived Assets."
Statement No. 121 requires impairment losses to be recorded on long-lived assets
when indicators of impairment are present and the undiscounted cash flows
estimated to be generated by those assets are less than the assets' carrying
amount. Based on current circumstances, the Company does not believe the effect
of adoption will be material.
F7
<PAGE> 65
Stock-Based Compensation -- In 1996, the Company plans to adopt the provisions
of FASB Statement No. 123, "Accounting for Stock-Based Compensation." The
Company will continue to account for stock-based compensation plans under the
provisions of APB Statement No. 25, "Accounting for Stock Issued to Employees."
The Company will disclose the pro forma information required for stock-based
compensation plans in accordance with Statement No. 123.
Estimates -- The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
2. PROPERTY AND EQUIPMENT
A summary of property and equipment at December 31, 1995 follows:
<TABLE>
<S> <C>
Machinery and equipment $ 9,765,513
Capitalized software 353,419
Furniture and office equipment 1,241,266
Leasehold improvements 319,345
-----------
11,679,543
Less accumulated depreciation
and amortization (8,672,659)
-----------
Property and equipment, net $ 3,006,884
===========
</TABLE>
3. DEFERRED COSTS AND OTHER ASSETS
A summary of deferred costs and other assets at December 31, 1995 follows:
<TABLE>
<S> <C>
Channel acquisition costs $ 680,502
Patent, copyright and logo costs 323,325
Cable affiliation prepaid fees 316,076
International organization costs 97,104
Other 160,507
---------
1,577,514
Less accumulated amortization (583,904)
---------
$ 993,610
==========
</TABLE>
4. ACCRUED EXPENSES
Accrued expenses at December 31, 1995 consist of the following:
<TABLE>
<S> <C>
Marketing support costs $ 112,854
Music costs 179,557
State and local taxes 208,881
Affiliate fees 666,855
Payroll, bonuses and sales commissions 515,906
Accrued lease commitment 284,429
Other 432,815
----------
$2,401,297
==========
</TABLE>
F8
<PAGE> 66
5. INCOME TAXES
At December 31, 1995, the Company has net operating loss carryforwards of
approximately $16.5 million for income tax purposes that expire in years 2002 to
2008. Under Statement 109, deferred tax assets and liabilities reflect the net
tax effects of temporary differences between the carrying amounts of assets and
liabilities for financial reporting amounts and amounts used for income tax
purposes and of net operating loss carryforwards. The deferred tax liability has
been reduced by the net operating loss carryforwards and a valuation allowance
equal to the net deferred tax asset has been established. Consequently, there is
no deferred income tax charge or credit provided in the accompanying financial
statements. A change in the valuation account of $299,000 occurred. The
provision for income taxes of $40,000 in 1995 consists of alternative minimum
taxes currently due. This amount is available to reduce any future regular
income taxes. Because of the Company's net operating loss carryforward position,
there was no provision for regular income tax in 1995 and 1994. Significant
components of the Company's deferred tax assets and liabilities as of December
31, 1995 are as follows:
<TABLE>
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $6,268,000
Stock options compensation 664,000
Other 456,000
----------
Total deferred tax assets $7,388,000
Deferred tax liability:
Depreciation & Amortization $ 902,000
Other 15,000 917,000
---------- ----------
Net deferred tax asset $6,471,000
Valuation allowance for net deferred
tax asset
Net deferred tax asset $6,471,000
----------
$ 0
==========
</TABLE>
6. RELATED PARTY TRANSACTIONS
On August 27, 1993, the Company entered into a financing representation
agreement with Communications Equity Associates, Inc. ("CEA"), a consulting firm
owned by the principal shareholder of the Company, pursuant to which CEA has
agreed to advise and assist the Company in arranging equity, debt and/or hybrid
financing and to further develop the domestic interactive music television
network. This agreement provided for the Company to pay a fee of five percent
(5%) of the proceeds from any financing obtained by the Company from an investor
identified by CEA. This agreement commenced on January 1, 1994 and terminated
June 30, 1995. CEA and Moran Associates, Inc. ("Moran") acted as investment
bankers for the agreement in principle between the Company and Island Trading
Company, Inc. ("Island") for which they were paid fees of $137,500 and $112,500,
respectively in 1994. For any and all options exercised in conjunction with the
Island stock purchase agreement, CEA and Moran will receive fees of 3.9% and
1.1% respectively at the closing of the transaction(s).
F9
<PAGE> 67
On December 31, 1993, the Company entered into a management agreement with CEA
for the supervision and management of Video Jukebox Network International, Ltd.
("VJNIL"). As part of this agreement, CEA also prepared an international
business plan. As compensation, CEA received a management fee of $25,000 per
month, payable in cash upon the closing of any financing agreement where the
Company receives cash in excess of $2,000,000. This agreement was terminated
effective January 1, 1995.
Simultaneously with the execution of the Stock and Note Purchase Agreement with
StarNet/CEA, the Company closed a Consulting Agreement and a Management
Agreement with StarNet. The Consulting Agreement was terminated on December 15,
1993 and the Management Agreement commenced on December 16, 1993. Under the
Management Agreement, StarNet had management control of the domestic operations
of the Company and received a management fee of $300,000 per annum for the first
twelve month period of the agreement, payable in equal monthly installments.
Effective December 1, 1994, the management fee was reduced to $150,000 per
annum. In addition, StarNet was reimbursed for reasonable expenses and costs it
incurred in the performance of its duties under the Management Agreement. This
Agreement was terminated effective January 1, 1995.
The Company also completed a Service Agreement with StarNet which enables the
Company to deliver its programming by satellite. Under the Service Agreement,
StarNet is providing the Company with uplink service and satellite capacity on
Satcom C-4 on a preemptable basis. The Company has agreed to pay StarNet
$200,000 per month for analog signal delivery, which was reduced to $110,000 per
month when the Company converted from analog to digital satellite transmission
in February 1995. The Company will also receive a credit for interruptions,
outages or preemption with respect to the satellite delivery of its programming.
Under this agreement, the Company exercised its option to defer the first 11
month's transponder and uplink payments. The notes issued to StarNet for these
payments included interest at the prime rate as listed in The Wall Street
Journal on the first of the month in which each monthly note was issued plus one
percent per annum. Also in accordance with the terms of the agreement, the
Company elected to pay all outstanding principle and accrued interest on
December 12, 1994, whereupon StarNet was given five business days prior written
notice. StarNet then elected to receive such payment in Common Stock at $1.25
per share in lieu of cash. A total of 1,883,555 shares of Common Stock were
issued in payment of the total principle and accrued interest outstanding of
$2,354,444. The Service Agreement was scheduled to terminate on March 31, 1999,
but was mutually terminated effective April 1996.
Simultaneously with the execution of a Stock Purchase Agreement with Island, the
Company entered into a two-year Consulting Agreement whereby Island has agreed
to provide the Company with music and merchandising consulting services as well
as to assist the Company in developing its programming and on-air look. (See
Note 9). In exchange for Island's services, the Company agreed to pay Island a
monthly fee of $20,933, payable in three-month installments either in cash or
shares of common stock at the discretion of the Company. The Agreement was
terminated effective January 1, 1995.
F10
<PAGE> 68
On April 21, 1994, the Company also entered into a Lease Agreement with Island,
pursuant to which the Company leased from Island approximately 16,000 square
feet of space in two adjoining premises in South Beach, Miami Beach, Florida.
Beginning February 1995, the Company has occupied this space pursuant to the
lease which expires February 1, 2002. Payment of rent at this new location
commenced on July 15, 1995 at a base rental of $22.00 per square foot for the
first year of the lease term and increasing to $39.00 per square foot for the
seventh and final year of the lease term. The base rental does not include
certain operating expenses to be borne by the Company for the entire term of the
lease and capped for the first three years of the lease term. After the second
year of the lease, the Company has agreed to lease an additional 1,800 square
feet in one of the premises at a base rental rate of $13.00 per square foot (not
including the operating expenses referred to above) with a $.50 per square
escalation each year thereafter. The Company has the right to renew the lease
subject to the negotiation of a new rental rate, based upon the then-current
market rate. The Company's former headquarters office location was subject to a
lease through August 1, 1995. Since the Company chose to relocate its offices
prior to the lease termination, a loss reserve of approximately $137,000 was
established in the 1994 financial statements to reflect this charge.
During September 1994, the Company entered into an agreement with TelVue
Corporation ("TelVue"), a company controlled by the Company's Chairman of the
Board. Under such agreement, TelVue would provide telephone transactions
services to the Company on terms and rates no less favorable to the Company than
those available to the Company from its present telephone transaction service
provider for similar services. TelVue has not completed the software programming
necessary to the provision of services for the Company.
Pursuant to program affiliation agreements between the Company and cable
operators affiliated with certain stockholders (four in 1995 and 1994), the
Company incurred approximately $1,166,000 and $898,000 in 1995 and 1994,
respectively, for affiliate fees.
7. UNCONSOLIDATED SUBSIDIARIES
VJNIL --- In September 1991, two companies, Video Jukebox Network International
Limited ("VJNIL"), which began operations in 1992, and The Jukebox Network
Limited ("JNL"), which is inactive and now dissolved, were founded in the United
Kingdom to develop and launch a United Kingdom version of the Company's music
video television programming. The Company had beneficially owned 91% of the
outstanding common stock of VJNIL and all of the shares of JNL from inception
through June 29, 1995. Vincent P. Monsey, the Managing Director of VJNIL and a
director of the Company, owned 9% of the outstanding shares of VJNIL for the
same time period, of which forty percent of the shares owned by Mr. Monsey had
been held in escrow by the Company.
On June 30, 1995, the Company purchased the then remaining nine percent of VJNIL
from Mr. Monsey in exchange for 225,000 shares of the Company's common stock,
which were valued at $267,187 on that day. Also on June 30, 1995, the Company
completed the sale of a 50 percent equity interest in VJNIL to a wholly-owned
subsidiary of Ticketmaster Corporation ("Ticketmaster") for $2,225,000 in cash.
Legal
F11
<PAGE> 69
and investment banking expenses related to this transaction totaled
approximately $429,000. As part of such transaction, Ticketmaster loaned to
VJNIL $1,500,000 which approximated the aggregate amount of the advances that
had been made from time to time by the Company to VJNIL. Such loan from
Ticketmaster and advances by the Company are secured by all of the assets of
VJNIL and will accrue interest at the rate of prime plus one percent.
Simultaneously, an administrative services agreement was executed among the
Company, VJNIL and Ticketmaster through which Ticketmaster purchased a portion
of its 50 percent equity interest in VJNIL by issuing to VJNIL a promissory note
payable in the amount of 625,400 pounds sterling (the equivalent of U.S. $1
million). This administrative services agreement, which expires June 30, 2000,
requires Ticketmaster to provide VJNIL with strategic and marketing related
services, particularly with respect to sponsorship and promotional
opportunities, advertising sales, merchandising and other home shopping projects
undertaken by VJNIL. Principal amounts due under the promissory note will not
accrue interest and monthly payments of principal will be forgiven in full so
long as Ticketmaster is providing services to VJNIL under the administrative
agreement.
The remaining investment in VJNIL is accounted for on the equity method of
accounting effective June 30, 1995. Prior to June 30, 1995, the subsidiary's
assets, liabilities and operations had been consolidated with the Company. The
Company's remaining investment in and advances to VJNIL reflect its remaining
interest in VJNIL's losses recognized through December 31, 1995.
A summary of VJNIL's operating results included in the Company's consolidated
statement of operations for VJNIL is as follows:
<TABLE>
<CAPTION>
January 1, 1995
through Year Ended
June 30, 1995 December 31, 1994
--------------- -----------------
<S> <C> <C>
Net viewer revenues $ 645,420 $ 1,191,827
Advertising and other revenues 138,439 88,645
----------- -----------
783,859 1,280,472
----------- -----------
Affiliate fees, site costs, and
telephone services 293,168 277,239
Distribution, general and
administrative 811,806 957,976
Depreciation, amortization 144,831 183,648
Interest expense 41,057 132,372
Minority interest -0- (24,369)
----------- -----------
1,290,862 1,526,866
----------- -----------
Net Loss ($507,003) ($246,394)
=========== ===========
</TABLE>
F12
<PAGE> 70
The following is a summary of VJNIL's balance sheet as of December 31, 1995 and
its operating results for the period from July 1,1995 through December 31, 1995:
<TABLE>
<S> <C>
Current assets $ 1,288,923
Noncurrent assets 907,940
-----------
$ 2,196,863
===========
Current liabilities 353,002
Noncurrent liabilities 4,325
Equity, advances and notes
payable to shareholders 1,839,536
-----------
$ 2,196,863
===========
Net revenues $ 939,716
===========
Net operating loss $ (330,212)
===========
</TABLE>
The difference between the Company's recorded net investment in and advance to
VJNIL at December 31, 1995 and the underlying equity in VJNIL's net assets
relates primarily to previously recognized net losses prior to the sale of 50%
of its interest in VJNIL. Gross advances totaling $1,500,000 are represented by
a note receivable from VJNIL which bears interest at prime plus 1%. No principal
or interest payments are due under the note until the third quarter of 1997. The
note (and a similar note payable to Ticketmaster) are secured by all of VJNIL's
assets. The Company recorded interest income of $74,629 in 1995 related to this
note. Any future payments received on the note in excess of recorded amounts
will be recognized as income when received.
Other --- The following is a summary of the balance sheet and operating results
of other unconsolidated subsidiaries as of and for the year ended December 31,
1995:
<TABLE>
<S> <C>
Current assets $ 75,842
Noncurrent assets 402,316
---------
$ 478,158
=========
Current liabilities $ 129,093
Equity, advances and notes
payable to shareholders 349,065
---------
$ 478,158
=========
Net revenues $ 8,957
=========
Net operating loss $(262,686)
=========
</TABLE>
F13
<PAGE> 71
8. COMMITMENTS
The Company leases its main and regional offices and various office equipment
under several operating lease agreements. Rent expense was approximately
$1,449,000 and $1,167,000 for the years ended December 31, 1995, and 1994,
respectively. Future minimum payments under these non-cancelable leases are
approximately as follows:
<TABLE>
<CAPTION>
Year Amount
---- ------
<S> <C>
1996 $1,337,628
1997 882,078
1998 753,756
1999 790,415
2000 821,811
2001 and beyond 690,395
----------
$5,276,083
==========
</TABLE>
The Company has entered into agreements with television stations and cable
system operators granting the Company the right to air its programming. These
agreements are generally renewable every three years and are cancelable by
either party with 90 days written notice. The Company pays either a fixed fee
per month or a percentage of viewer revenues, with minimum monthly guaranteed
payments required for approximately fifty percent (50%) of the Company's cable
subscribers.
9. STOCKHOLDERS' EQUITY
On April 21, 1994, the Company consummated a Stock Purchase Agreement with
Island, pursuant to which Island purchased 2,500,000 newly-issued shares of the
Company's common stock and three options ("Options") to purchase an additional
2,500,000 shares of the Company's common stock in exchange for a cash payment to
the Company of $5,000,000.
The Options included: (i) an immediately exercisable option to purchase 500,000
shares of the Company's common stock at an exercise price of $2.00 per share
which expired April 20, 1995; (ii) an immediately exercisable option to purchase
1,000,000 shares of the Company's common stock at an exercise price of $5.00 per
share until April 20, 1996; and (iii) an immediately exercisable option to
purchase 1,000,000 shares of the Company's common stock at an exercise price of
$6.00 per share until April 20, 1997. Island was granted certain demand and
piggyback registration rights with respect to the 2,500,000 shares purchased and
the 500,000 shares of common stock underlying the $2.00 Options as well as
certain piggyback registration rights with respect to the 2,000,000 shares of
common stock underlying the $5.00 and $6.00 Options, pursuant to a Registration
Rights Agreement, date April 21, 1994, between the Company and Island.
F14
<PAGE> 72
10. EMPLOYEE STOCK OPTIONS AND WARRANTS
In June 1988, the Company was authorized to issue warrants to purchase up to
300,000 shares of Common Stock to certain key employees and directors. Any
warrants issued were exercisable at $1.75 per share of Common Stock and were
generally exercisable for 5 years from the date of grant. The remaining
outstanding warrants expire July 27, 1996.
In addition, in August 1988, the Company adopted and approved a stock option
plan for officers and other key employees (the "Plan"). The Plan is administered
by a committee consisting of three or more members of the Company's Board of
Directors who will then not be eligible to receive options under the Plan. On
November 1, 1993, the stockholders of the Company approved an amendment to the
Plan which allows the Company's Board of Directors to issue stock options to
purchase up to 1,000,000 shares of Common Stock to employees and non-employee
directors at an exercise price of not less than $1.00. In 1994, the Compensation
Committee granted 130,000 vested options to four non-employee directors, which
expire two years from the dates of grant. Additionally, 230,000 options were
granted to an executive officer of the Company, which vest over the next three
years. During 1995, the Compensation Committee of the Board of Directors issued
425,000 options, all at an exercise price of $2.00 per share, to employees and
30,000 options at an exercise price of $1.75 per share to non-employee Directors
of the Company. These employee options have various vesting terms, with the
majority of options (400,000) vesting proratably over a three year period from
date of employment. All director options were vested on December 31, 1995.
Deferred compensation has been recorded for the difference between the exercise
price of the following described stock options and warrants and the fair market
value of the Common Stock at the measurement date, usually the date of grant.
Compensation is recognized at the date of grant for warrants, and over the life
of the employment contracts for employees covered under the option plan. Such
compensation expense was approximately $254,000 and $271,000 for the years ended
December 31, 1995 and 1994, respectively. Certain of the securities underlying
the following described warrants have not been registered as of December 31,
1995.
F15
<PAGE> 73
A summary of these options and warrants for the years ended December 31, 1995
and 1994 follows:
<TABLE>
<CAPTION>
WARRANTS 1995 1994
---- ----
Number of Exercise Number of Exercise
Warrants Price Warrants Price
-------- ------ -------- ------
<S> <C> <C> <C> <C>
Outstanding at beginning
of period 46,000 $1.75 77,500 $1.75
Granted -0- -0- -0- -0-
Exercised or expired 35,000 $1.75 31,500 $1.75
------ ------
Outstanding at end of period 11,000 $1.75 46,000 $1.75
====== ===== ====== =====
Exercisable at end of period 11,000 $1.75 46,000 $1.75
====== ===== ======= =====
</TABLE>
<TABLE>
<CAPTION>
OPTIONS 1995 1994
---- ----
Number of Exercise Number of Exercise
Options Price Options Price
------- ------ ------- ------
<S> <C> <C> <C> <C>
Outstanding at beginning
of period 675,752 $1.00-$3.00 430,750 $1.00
Granted 455,000 $1.75-$2.00 360,000 $1.75-$3.00
Exercised 12,333 $1.00 43,998 $1.00
Canceled/expired 3,417 $1.00 71,000 $1.00
--------- -------
Outstanding at end of period 1,115,002 $1.00-$3.00 675,752 $1.00-$3.00
========= =========== ======= ===========
Exercisable at end of period 509,160 $1.00-$3.00 308,247 $1.00-$3.00
========= =========== ======= ===========
</TABLE>
11. CONTINGENCY
On August 30, 1991, the Company filed a complaint against certain parties
alleging wrongful and intentional removal of certain proprietary materials used
in connection with the development and marketing of an interactive television
program owned by the Company, and fraudulent inducement to enter into a business
relationship with these parties. The parties filed an answer, affirmative
defenses, and a counterclaim against the Company for breach of contract and
fraudulent inducement, and a complaint against the Company's former President,
alleging fraudulent inducement by him. The Company and its former President
believe the claims asserted are without merit. They have denied the allegations,
moved to dismiss the claims and intend to vigorously defend the action, while
pursuing the Company's claims against these parties. The accompanying financial
statements do not include any amounts relating to the outcome of this
uncertainty.
F16
<PAGE> 74
12. SUBSEQUENT EVENTS
On January 2, 1996, Time Warner Cable of New York City delaunched THE BOX in its
New York City systems. The Company used ten box units to service the market,
which totaled approximately 927,000 cable subscribers. Those systems produced
approximately $1,135,000 in net viewer revenue and a gross margin contribution
after affiliate fees and direct costs associated with operating those boxes of
approximately $574,000. Beyond this lost viewer transactional revenue, it is not
known what further financial impact, if any, will be the result of these
delaunches.
On February 20, 1996, the Company's Board of Directors approved and the Company
entered into an equipment and services agreement with Hughes Network Systems,
Inc. This agreement will provide the satellite receiving equipment as well as
the satellite transponder times for sending the digitized video segments from
the Company's headquarters to the various digital box unit locations at the
cable head ends, broadcast stations and Satcom 3 uplink sites. The agreement is
for a term of sixty months, cancelable after thirty-six months with a
termination charge of $98,000. The minimum financial commitment under this
agreement is approximately $1.9 million.
13. FOURTH QUARTER ADJUSTMENTS
The Company has recorded a reserve for potential uncollectible telephone
transactional revenue by providing monthly reserves for these revenue
chargebacks. While the Company analyzes the accumulated reserve on a monthly
basis and periodically adjusts the reserve based upon actual chargebacks
received, since the viewers are allowed up to one year by the Company's
telephone provider to deny payment or request a refund on a prior paid
transaction, the Company has been very conservative in any adjustments to this
reserve account. However, due to over fifteen months of reduced chargebacks as a
result of the Company's continued extensive efforts in credit limiting and call
blocking for prior non-pay accounts, the overall percentage of chargebacks has
been reduced. Therefore, in the fourth quarter of 1995, the Company recorded an
adjustment to reduce the chargeback reserve by approximately $210,000.
F17
<PAGE> 75
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act
of 1934, the registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
VIDEO JUKEBOX NETWORK, INC.
(Registrant)
Date: March 27, 1996 By: /s/ Alan R. McGlade
----------------------------------------------
Alan R. McGlade, President and Chief Executive
Officer and Director
In accordance with the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
/s/ Alan R. McGlade President, Chief Executive Officer and March 27, 1996
- ------------------------------ Director
Alan R. McGlade (Principal Executive Officer)
/s/ H. F. Lenfest Chairman of the Board of Directors March 27, 1996
- ------------------------------
H. F. Lenfest
/s/ J. Patrick Michaels, Jr. Vice Chairman of the Board of Directors March 27, 1996
- ------------------------------ and Acting Chief Operating Officer
J. Patrick Michaels, Jr.
/s/ Luann M. Hoffman Chief Financial and Administrative Officer March 27, 1996
- ------------------------------ and Secretary (Principal Financial and
Luann M. Hoffman Accounting Officer)
- ------------------------------ Director March __, 1996
David Burns
- ------------------------------ Director March __, 1996
Chris Blackwell
/s/ Leonard J. Sokolow Director March 27, 1996
- ------------------------------
Leonard J. Sokolow
/s/ Joel S. Rudich Director March 27, 1996
- ------------------------------
Joel S. Rudich
/s/ Stanley H. Greene Director March 27, 1996
- ------------------------------
Stanley H. Greene
</TABLE>
<PAGE> 1
EXHIBIT 10.43
EQUIPMENT AND SERVICES AGREEMENT
BETWEEN
HUGHES NETWORK SYSTEMS, INC.
AND
VIDEO JUKEBOX NETWORK, INC.
FEBRUARY, 1996
11717 Exploration Lane, Germantown, MD 20876
Tel: (301) 428-5500 Fax: 428-1868
<PAGE> 2
TABLE OF CONTENTS
SECTION PAGE
- ------- ----
1 SERVICES TO BE PROVIDED . . . . . . . . . . . . . . . . . . . 1
2 EQUIPMENT TO BE PROVIDED . . . . . . . . . . . . . . . . . . 2
3 TERM OF AGREEMENT . . . . . . . . . . . . . . . . . . . . . . 2
4 DESCRIPTION OF SERVICES . . . . . . . . . . . . . . . . . . . 2
4.1 SERVICE OPERATIONS . . . . . . . . . . . . . . . . . . . . . 2
4.2 INSTALLATION SERVICES . . . . . . . . . . . . . . . . . . . . 2
4.3 SPACE SEGMENT . . . . . . . . . . . . . . . . . . . . . . . . 4
4.4 REMOTE MAINTENANCE . . . . . . . . . . . . . . . . . . . . . 4
4.5 REPORTS AND OTHER INFORMATION . . . . . . . . . . . . . . . . 6
4.6 PROGRAM MANAGERS . . . . . . . . . . . . . . . . . . . . . . 6
4.7 DEMAND SERVICES . . . . . . . . . . . . . . . . . . . . . . . 6
5 CUSTOMER OBLIGATIONS . . . . . . . . . . . . . . . . . . . . 6
6 SERVICE PERFORMANCE . . . . . . . . . . . . . . . . . . . . . 7
6.1 SERVICE PERFORMANCE STANDARD . . . . . . . . . . . . . . . . 7
6.2 SERVICE PERFORMANCE CONDITIONS . . . . . . . . . . . . . . . 7
6.3 SERVICE INTERRUPTION . . . . . . . . . . . . . . . . . . . . 8
6.4 SERVICE INTERRUPTION CREDITS . . . . . . . . . . . . . . . . 8
7 PRICE AND PAYMENT TERMS . . . . . . . . . . . . . . . . . . . 8
8 TITLE AND RISK OF LOSS . . . . . . . . . . . . . . . . . . . 9
9 FORCE MAJEURE . . . . . . . . . . . . . . . . . . . . . . . . 10
10 PATENT AND COPYRIGHT INDEMNITY . . . . . . . . . . . . . . . 10
11 LIMITATION OF LIABILITY . . . . . . . . . . . . . . . . . . . 10
12 ASSIGNMENT . . . . . . . . . . . . . . . . . . . . . . . . . 11
13 INDEPENDENT CONTRACTOR AND SUBCONTRACTING . . . . . . . . . . 11
14 CONFIDENTIALITY . . . . . . . . . . . . . . . . . . . . . . . 11
15 LICENSE OF SOFTWARE . . . . . . . . . . . . . . . . . . . . . 12
16 ADDITIONAL CLAUSES . . . . . . . . . . . . . . . . . . . . . 12
ATTACHMENT I ORDER AND PRICE SCHEDULE . . . . . . . . . . . . . . I-1
ATTACHMENT II PERSONAL EARTH STATION INSTALLATION SERVICES . . . . II-1
ATTACHMENT III TRAFFIC VOLUMES . . . . . . . . . . . . . . . . . . III-1
- ii -
<PAGE> 3
EQUIPMENT AND SERVICES AGREEMENT
This Agreement is entered into and made effective as of this 27th day of
February, 1996, by and between Video Jukebox Network Inc., a Miami Beach
corporation (Customer), having its principal offices at 1221 Collins Avenue,
Miami Beach, Florida 33139, and Hughes Network Systems, Inc. (HNS), a Delaware
corporation, having its principal offices at 11717 Exploration Lane, Germantown,
MD 20876.
In accordance with the terms of this Agreement and in order for HNS to
provide the Equipment and Services needed to permit the implementation and
operation of an interactive satellite communications service for Customer, HNS
and Customer agree as follows:
1. SERVICES TO BE PROVIDED
A. HNS will provide and Customer will accept and pay for full duplex
point-to-multipoint satellite communications services (the
Services), in accordance with the terms of this Agreement and
Attachments I, II and III hereto, between an HNS shared hub and
Customer's locations in the contiguous United States. The Services
specifically include:
1) 24-hour per day, 7-day per week Service operations, including
hub operations, network supervision and control, and trouble
reporting, isolation, and resolution
2) Installation, including planning and scheduling
3) Space segment, including satellite transponder capacity
required to support the Customer network and its growth
4) Equipment maintenance, including trouble reporting, remote
service dispatch, problem isolation and resolution
5) Reports and other information listing data on installation
schedules and service outages
6) Program Management, including network planning and
implementation of Service
B. Disaster Recovery Service is available at the prices specified in
Section 2.B. of Attachment I.
C. At Customer's request and expense, HNS will arrange for, monitor,
and maintain terrestrial communications between the Customer's data
center and the HNS shared hub.
2. EQUIPMENT TO BE PROVIDED
The Services will be provided at Customer's remote locations through
Personal Earth StationsTM (the PESTM or Equipment), which are being purchased by
Customer pursuant to this Agreement and will be provided, installed, and
maintained by HNS at locations designated by Customer. The initial quantity of
PESs to be purchased by the Customer is set forth in Section 1.B of Attachment
I. Customer may, at its option sell, lease or sublease any of the PESs to be
purchased thereby under this Agreement, provided that Customer shall remain
primarily liable for the performance of its obligations hereunder.
<PAGE> 4
3. TERM OF AGREEMENT
The Term of the Agreement (the Term) will extend from the date first
written above (the Effective Date) for a period of sixty (60) months and will
continue thereafter on an annual renewal basis unless either party terminates
the Agreement upon sixty (60) days prior written notice to the other prior to
the end of the initial or any renewal Term. Notwithstanding the foregoing,
Customer may terminate this Agreement for its convenience after a minimum period
of thirty-six (36) months, provided (a) Customer has provided HNS with at least
ninety (90) days prior written notice of its intention to terminate, (b)
Customer pays termination charges in an amount equal to the sum of (i) the
amount specified in Section 1.A. of Attachment I for "Shared Hub Equipment"
times the number of months remaining in the Term after the effective date of
termination, plus (ii) the amount specified in Section 1.A. of Attachment I for
"Transponder Space Segment" times the number of months between the effective
date of termination and the next anniversary of the Effective Date.
For example, if the Effective Date of this Agreement is February 1, 1996,
and the effective date of termination of the Agreement is November 1, 1999
(assuming Customer has provided notice of such termination to HNS by not later
than August 1, 1999), the amount of termination charges, based upon the prices
set forth in Attachment I, will be [15 months x $4,091/month for Shared Hub
Equipment] plus [3 months x $14,000/month for Transponder Space Segment] for a
total of $103,365.
4. DESCRIPTION OF SERVICES
4.1 SERVICE OPERATIONS
Hub and network operations centers are staffed 24 hours per day, 365 days
per year, with experienced technical personnel. The network operations center
(the OC) is responsible for network control consisting of monitoring,
configuration management, and troubleshooting, including field dispatch. The OC
is also responsible for onsite maintenance and management of the shared hub
facilities. The prices set forth in Section 1.A. of Attachment I are based on
HNS providing Customer its own dedicated outroute on the Shared Hub. As a result
of Customer being provided a dedicated outroute for its traffic, only PESs which
are tuned to that dedicated outroute's unique frequency will be capable of
sending and receiving transmissions on Customer's network.
4.2 INSTALLATION SERVICES
A. Permits and Approvals
Customer will obtain landlord approvals. HNS will determine if
construction permits or zoning variances are required and, if so,
will obtain such permits. If additional or special documentation
(stamped engineering drawings, site specific drawings, soil test
report, etc.) is required, or if HNS or its representatives are
required to attend meetings before local planning or zoning boards,
or other municipal bodies, the additional charges specified in
Attachment I will apply. In addition, if Customer requires HNS to
obtain permits at locations where HNS otherwise would not plan to
secure them, the additional charges specified in Section 2.D of
Attachment I will apply. After all permits and approvals have been
obtained, Customer will authorize HNS to schedule and perform site
preparation and installation of PES remote terminals.
2
<PAGE> 5
B. Planning and Scheduling
Installations will be performed according to a schedule to be
provided and maintained by HNS, with the cooperation of Customer.
This schedule will be consistent with the overall implementation
schedule set forth in Section 3 of Attachment I.
In order to allow necessary time for installation planning, the
actual installation date for each site will be determined in
relation to the date Customer notifies HNS that all necessary
landlord approvals have been secured. HNS will endeavor to complete
installation within thirty (30) days of such notification (but not
more than thirty (30) such installations in any one month period).
The parties agree, however, that additional time may be required if
HNS encounters delays in obtaining any necessary permits or
variances, or if nonstandard installations (as defined herein) are
required. Based upon the mutually approved installation schedule,
the HNS installation management team will develop a master
installation schedule, which will include schedules for site survey
reports, where HNS determines they are necessary, site preparation
completion, and installation/commissioning of the PES. The master
installation schedule will be updated periodically by HNS as
additional installations are scheduled and planned installations are
completed. Installations are normally scheduled for completion at
any time during normal working hours within a one (1) week window.
Customer personnel will provide normal access to the site, and
Customer personnel may occasionally be requested to keep the site
open after normal business hours to allow timely completion of the
installation.
C. Site Survey
For sites identified by HNS as requiring a site survey, HNS will
perform the site survey which will identify technically suitable
locations for installing the indoor and outdoor PES Equipment and
cables.
D. Site Preparation
For sites identified as requiring preparation by HNS, HNS will
perform the following tasks:
1) Construct a standard antenna mounting point of the standard type
(Option 1 or 2 as described in Section 2 of Attachment II).
2) Provide suitable access for the connecting cable from the
exterior of the building to the interior and through any
concrete, masonry, or fire barrier walls between the indoor and
outdoor units.
HNS can provide AC power for deicing equipment at the Demand Service
rate set forth in Section 2.F. of Attachment I. In addition, HNS can
provide an independent contractor for any required structural or
additional electrical work at cost plus 10%.
E. Standard Installation
Standard installations are described in Section 2 of Attachment II
of the Agreement. The pricing for standard installations (i) applies
in those locations where all site preparation requirements can be
performed by the PES installation contractor and excludes buildings
requiring union subcontracting or use of local facilities personnel,
(ii) assumes that site surveys will only be required at a small
percentage of Customer's site, and (iii) assumes that permits and/or
zoning variances will only be required at a small percentage of
Customer's sites.
F. Nonstandard Installation
At those locations where standard installations do not apply, HNS
will conduct a site survey at the Customer's request in order to
determine the price of PES installation. This price will include the
cost of using union or local facilities personnel, if required.
3
<PAGE> 6
G. Cancellation
In the event that HNS performs a site survey for a given site and
Customer elects not to proceed with or later cancels the
installation of that site, Customer will pay HNS the site survey
charge set forth in Section 2.D of Attachment I.
In addition, in the event Customer cancels a scheduled PES
installation with less than seven (7) days prior notice, Customer
will pay HNS the Installation Cancellation charge set forth in
Section 2.D of Attachment I.
4.3 SPACE SEGMENT
Transponder capacity to support the Customer's communication network will
be provided on Galaxy 7, or another comparable Ku-band satellite. The satellite
is configured with redundant Traveling Wave Tube Amplifiers (TWTAs), which
provide inherent backup capability in the event of a primary TWTA failure.
Sufficient capacity is available to meet projected network growth as required.
4.4 REMOTE MAINTENANCE
A. HNS will make the OC available 24 hours per day, 365 days per year
by toll free telephone access for resolution of problems with the
Services. The OC provides a single point of contact for the
origination, administration, and tracking of Customer trouble
reports, HNS personnel contact names, telephone numbers, and other
trouble reporting and escalation procedures. An OC technical support
document detailing these procedures will be provided to Customer
after execution of this Agreement.
B. Corrective Maintenance
HNS will provide corrective maintenance for the PES remote satellite
terminals in accordance with the terms provided in this Agreement.
HNS will restore Customer's PES Equipment to good working condition
by performing the following corrective maintenance as required:
1) Diagnostic testing to determine the existence and cause of the
malfunction
2) Removal and replacement of any malfunctioning Field Replaceable
Unit (FRU)
3) Reorientation (repointing) of the antenna subsystem
4) Repair or replacement of PES interconnecting cables
5) Reloading initializing instructions and recommissioning
6) Verification of proper operation and completion of service report
7) Notification to the OC and the Customer host that Equipment has
been restored to operational status
C. Service Coverages and Response Times
Service coverage hours, including related travel, will be selected
on a site-by-site basis from the coverages available for that site.
The available coverage plans are:
1) Normal Service Coverage (8:00 a.m. to 5:00 p.m., local time,
Monday through Friday, holidays excepted)
4
<PAGE> 7
2) Extended Service Coverage (8:00 a.m. to 8:00 p.m., local time,
Monday through Saturday)
3) Extended Plus Coverage (8:00 a.m. to 8:00 p.m., 365 days per
year)
4) Continuous Service Coverage (24 hours per day, 365 days per
year).
At certain sites only Normal Service Coverage is available.
Within twenty (20) minutes of a request for maintenance, the OC
personnel will determine the problem and isolate the fault.
Thereafter, the OC will authorize field Service dispatch, and the
Customer Service Representative (CSR) will be onsite at Customer's
premises, according to the maintenance response time table given
below, from the time of authorization by the OC.
MAINTENANCE RESPONSE TIME TABLE
-------------------------------
<TABLE>
<CAPTION>
Distance from Service Office Response Time(1)
---------------------------- --------------
<S> <C> <C>
0 - 50 miles 4 hours
51 - 100 miles 5 hours
101 - 150 miles 6 hours
151 - 200 miles 10 hours
Over 200 miles 24 hours
</TABLE>
D. Spare Parts Support
Spares will be provided as part of this Agreement. An inventory of
spare parts will be prepositioned at HNS-designated local
maintenance facilities for support of all PES Customers supported by
that office.
Spares for the PES antenna subsystem, including reflectors, mounts,
anti-icing equipment, modems, and if applicable, certain video
equipment will be centrally stocked at a designated location in the
continental United States.
Malfunctioning Equipment will be replaced on a one-for-one exchange
basis by a functionally equivalent spare part.
E. Remote maintenance does not include any of the following services,
unless specifically requested by Customer, in which event the Demand
Services Rates specified in Attachment I will apply.
1) Maintenance, repair, or replacement of parts damaged or lost
through catastrophe, accident, lightning, theft, misuse, fault,
or negligence of the Customer, or causes external to the
Equipment, such as, but not limited to, failure of, or faulty,
electrical power or air conditioning, operator error, failure, or
malfunction of data communication Equipment not provided to
Customer by HNS, or from any cause other than intended and
ordinary use
2) Changes, modifications, or alterations in or to the Equipment
other than approved upgrades and configuration changes
3) Deinstallation, relocation, or removal of the Equipment or any
accessories, attachments, or other devices
- ---------------------
1. Response time estimates will be honored 90% for all Customer requests
received during applicable Service coverage hours.
5
<PAGE> 8
4.5 REPORTS AND OTHER INFORMATION
HNS will provide Customer with the following standard reports on a monthly
basis:
A. Chronological list of trouble reports summarizing determined
problem(s) and resolution(s) at remote site(s) with timed duration
of remote site outage. Service availability for the preceding month
will also be provided,
B. A summary report showing all open (with days to completion) and
completed work orders for new and existing PES locations during the
preceding month.
Customer may request other reports and information, which HNS may provide
for additional fees.
4.6 PROGRAM MANAGERS
Each party will designate a Program Manager who will represent the party
in all aspects of the provision of Equipment and Services.
4.7 DEMAND SERVICES
HNS will provide other reasonable ancillary services at Customer's
request, including supplementary maintenance and repair services, including
travel, on a best reasonable effort basis. Pricing for these requested Demand
Services is set forth in Section 2.F of Attachment I.
5. CUSTOMER OBLIGATIONS
To facilitate provision of the Equipment and Services by HNS, Customer
will meet the following obligations:
A. Customer hereby grants HNS and HNS' authorized representatives
access, subject to Customer's reasonable security restrictions, to
Equipment and related locations and areas of Customer's facilities
and premises, and will arrange permitted access to areas of
third-party facilities and premises for the purpose of HNS
performing the work required under this Agreement. HNS will comply
with Customer's reasonable rules and regulations for access, a copy
of which will be furnished to HNS by Customer promptly after
execution of this Agreement. Any delays or return calls resulting
from lack of free access or authorization to perform maintenance
may, at HNS' option, be billed at the Demand Service Charges
indicated in Section 2.F of Attachment I.
B. Customer shall provide safe access to Equipment on Customer premises
and will maintain the environment where the Equipment is located in
a safe and secure condition.
C. Customer shall provide HNS Service representatives with access to
electrical power, water, and other utilities, as well as telephone
access to the OC or Customer host facilities as required for
efficient Service.
D. Unless otherwise agreed, Customer shall provide and maintain all
backhaul facilities, equipment and services.
E. Customer host facility personnel shall cooperate with and assist the
HNS Service representative, as required, for installation,
troubleshooting, and fault isolation. The Customer host facility
shall be
6
<PAGE> 9
adequately staffed during installation and service coverage hours to
assist the commissioning, troubleshooting, and fault isolation of
remote terminal sites.
F. Customer will maintain minimum site-environment conditions which
meet the requirements listed below:
<TABLE>
<CAPTION>
Indoors Outdoors
------- --------
<S> <C> <C>
a) operating temperature 10 degrees C to 40 degrees C -30 degrees C to 75 degrees C
b) humidity 10% to 90% 5% to 100%
</TABLE>
G. To facilitate installation, Customer will perform all Customer tasks
as indicated in the Installation Services set forth in Attachment
II.
H. Customer will attempt to isolate faults in the Services at the
Customer's host facility before reporting a Service outage to HNS.
Customer will, at HNS' discretion, pay HNS at the Demand Service
Charges Rate for repair Service calls when the Equipment is found to
be in good operating order upon making a Service call.
Customer will reimburse HNS for all costs incurred by HNS as a result of
Customer's failure to meet the above obligations.
6. SERVICE PERFORMANCE
6.1 SERVICE PERFORMANCE STANDARD
HNS will provide for the Services to be operational for 99.5% of the
Scheduled Service Time (defined as 24 hours per day, 365 days per year) for each
calendar month of the Term (Service Performance Standard). That is, the
aggregate number of minutes of Service interruption as defined in said Section
6.3 for Customer's online PES units for a given calendar month of the Term shall
not exceed 0.5% of the aggregate number of minutes of scheduled Service time for
all of Customer's PES units that are online at the end of such month.
6.2 SERVICE PERFORMANCE CONDITIONS
In the event that HNS fails to meet the Service Performance Standard in
any month, then, as Customer's sole remedy, HNS will give Customer a credit
allowance, calculated in accordance with Section 6.4 below against future
Service charges. A failure to meet the Service performance standard does not
constitute a Service interruption for purposes of calculating such credit
allowance when due to any of the following causes:
A. The failure or nonperformance of any Customer-provided facilities or
Equipment, or third-party facilities or Equipment acquired by HNS in
behalf of Customer, including any out-of-tolerance earth station
conditions not caused by HNS
B. The fault, negligent act, or failure to act of Customer, its
employees, agents, or invitees
C. Preventive maintenance and/or Service expansion (when done on at
least 48 hours' notice to Customer and as mutually scheduled by the
parties) as may be necessary to maintain the Services in
satisfactory operating condition, to provide additional system
capacity, or to protect the overall performance of the Services
7
<PAGE> 10
D. An event of force majeure suspending HNS' performance obligations in
accordance with Section 9 of this Agreement
E. The unavailability of Services to Customer, pursuant to Federal
Communications Commission (FCC) rules and regulations published at
47 CFR 64.401, during emergency conditions such as major natural or
man-made disasters and emergencies involving United States national
defense and security
6.3 SERVICE INTERRUPTION
The duration of a Service interruption is measured by the number of hours
during the Scheduled Service Time that elapse from the time that the OC is
notified by Customer of the Service interruption, or the Service interruption is
detected by HNS operations personnel to the time that HNS notifies Customer that
the Services have been restored. Any applicable credit allowance due for a
Service interruption will be calculated by HNS on a monthly basis, as specified
in Section 6.4 below.
6.4 SERVICE INTERRUPTION CREDITS
If the aggregate number of minutes of Service interruption for Customer's
online PESs for a given calendar month exceeds 0.5% of the aggregate number of
minutes of Scheduled Service Time for all of Customer's PESs that are online at
the end of such month, then HNS shall give a credit against future Service
charges, with such credit to be computed as follows: the amount of the credit
for any month shall be the total Service charge for that month multiplied by a
fraction, the numerator of which is the aggregate number of minutes of
interruption for all of Customer's online PESs for such month in excess of the
said 0.5% allowance, and the denominator of that is the aggregate number of
minutes of Scheduled Service Time for that month multiplied by the number of
Customer's PESs that are online at the end of such month.
7. PRICE AND PAYMENT TERMS
A. The prices for the Equipment and Services to be provided hereunder
are set forth in Attachment I. For each PES provided, the monthly
Service charges shall begin to accrue on the day following the date
on which HNS notifies Customer that each of such item is available
to Customer. Customer will pay a full month's Service charge for the
month in which Services commence for any particular PES when such
Services commence on or before the fifteenth (15th) of the month. No
monthly charge for the first month of Service for the particular PES
shall be payable if Services commence after the fifteenth (15th) of
the month.
B. Equipment and installation charges will be invoiced as follows:
fifteen percent (15%) of the charge set forth in Section 1.B of
Attachment I will be invoiced upon execution of this Agreement and
the remaining eighty-five percent (85%) will be invoiced on a pro
rata basis upon completion of each installation.
C. HNS will invoice all Service charges hereunder on a monthly basis.
D. With regard to Disaster Recovery Service, if Customer elects to
purchase this service, an invoice for the one-time connectivity fee
and the one-time circuit termination fee will be issued upon
execution of this Agreement. All other charges in connection with
the Disaster Recovery Service will be invoiced on a monthly basis.
E. Customer will pay all invoices submitted hereunder net thirty (30)
days from the date of invoice. Customer agrees to pay interest on
demand on any Service charges, equipment, installation, and
maintenance charges and any other invoiced amount that is unpaid
more than thirty (30) days after
8
<PAGE> 11
date of said invoice, at the rate of one percent (1%) per month,
compounded monthly, not to exceed the maximum rate permitted by law.
F. (i) All Equipment and installation related prices and associated
items will remain in effect for two (2) years from the
Commencement Date. Thereafter, these prices may be adjusted
annually. Any such annual increase will be the lower of
either ten percent (10%) or the Consumer Price Index (CPI)
inflator using the original Agreement date as the base month.
(ii) The Service prices for the Initial Order, as set forth
in Section 1.A. of Attachment I, except for the monthly hub
access/remote maintenance fee, will remain in effect for five
(5) years from the Effective Date. Thereafter, these prices
may be adjusted annually. Any such annual increase will be
the lower of either ten percent (10%) or the Consumer Price
Index (CPI) inflator using the original Agreement date as the
base month.
(iii) The monthly hub access/remote maintenance fees will
remain in effect for two (2) years from the Effective Date.
Thereafter this price may be adjusted annually. Any such
annual increase will be the lower of ten percent (10%) or the
Consumer Price Index (CPI) inflator using the original
Agreement date as the base month.
(iv) The price for the Optional Services set forth in Section
2.A. of Attachment I (except, if applicable, any price listed
for space segment services to be used in connection with
occasional use video transmissions) will remain in effect for
one (1) year from the Commencement Date. Thereafter, these
prices may be adjusted annually. Any such annual increase
will be the lower of either ten percent (10%) or the Consumer
Price Index (CPI) inflator using the original Agreement date
as the base month. Any price listed in said Section 2.A. for
occasional use video space segment is the price in effect as
of the Commencement Date. Any such price may thereafter be
adjusted at any time on thirty (30) days prior written
notice.
(v) Demand Service charges are subject to change upon sixty
(60) days notice to Customer.
G. The prices provided for in this Agreement are exclusive of the
following taxes and charges with respect to the Services, material,
and Equipment provided hereunder: (i) any present or future Federal,
State, or local excise, sales, or use taxes; (ii) any other present
or future excise, sales, or use tax upon or measured by the gross
receipts from the transactions provided in this Agreement or any
allocated portion thereof or by the gross value of the Services,
materials, and Equipment provided hereunder; and (iii) any present
or future property, inventory, or value-added tax or similar charge.
Customer will pay and discharge the foregoing taxes and charges and
all registration fees, assessments, and other taxes with respect to
the transactions provided in this Agreement and all Services,
material, and Equipment provided hereunder (excluding any tax
measured by HNS' income or gross (receipts) (collectively, the
Taxes), prior to the time when any lien would attach for nonpayment
of the Taxes. If HNS is required by applicable law or regulation to,
or otherwise does, pay or collect the Taxes, then such amount of the
Taxes will be invoiced to and paid by Customer to HNS in addition to
the prices herein so provided.
8. TITLE AND RISK OF LOSS
The risk of loss or damage to all Equipment will pass to Customer upon
installation of the Equipment by HNS. Title to all or a portion of the Equipment
will pass to Customer upon payment. This Agreement will constitute a security
agreement with respect to all Equipment delivered or installed at Customer's
location up to the date of payment, and Customer hereby authorizes HNS to sign
and file on behalf of Customer any financing statements or other documents that
may be necessary to perfect such security interest.
9
<PAGE> 12
9. FORCE MAJEURE
HNS will be excused for delays or interruptions in the installation of
Equipment and provision of Services and shall have no liability as a result
thereof when such delays or interruptions (i) are caused by Customer, or (ii)
are otherwise beyond the reasonable control of HNS. Customer may cancel any
scheduled delivery that has been excusably delayed for reason (ii) above for
more than three (3) months.
10. PATENT AND COPYRIGHT INDEMNITY
A. HNS represents and warrants that there is not currently, nor will
there be in the future any rightful claim that the manufacture, use,
lease or sale of any HNS Equipment infringes on any United States
patent, copyright or any other intellectual property right of any
third party (hereinafter collectively referred to as "IPR"). In
addition, HNS agrees to resist or defend at its own expense any
request for royalty payments or any claim for equitable relief or
damages against Customer based on an allegation that the manufacture
of any Equipment or the use, lease, or sale thereof or that any
documentation infringes any IPR, to pay any royalties and other
costs related to the settlement of such request and to pay the costs
and damages, including attorney's fees, which are incurred by
Customer arising from and based on such claim, provided that HNS is
given prompt written notice of such request or claim by Customer and
given authority and such reasonable assistance and information as
HNS requests in writing and as it is available to Customer for
resisting such request or for the defense of such claim.
B. In the event that, as a result of any such suit (i) prior to
delivery, the manufacture of any item supplied by HNS hereunder is
enjoined, or (ii) after delivery, the use, lease, or sale thereof is
enjoined, HNS will, at its option and expense, either (a) negotiate
a license or other Agreement with plaintiff so that such item is no
longer infringing, (b) modify such item suitably or substitute a
suitable item therefor, which modified or substituted item is not
subject to such injunction, and extend the provisions of this
paragraph thereto (provided that any such modification will not
result in a decrease of the Services to be provided by HNS
hereunder), or if (a) and (b) cannot be effected by HNS' reasonable
and diligent efforts, (c) repurchase enjoined items at their then
current value on Customer's audited accounts.
C. Notwithstanding the above, HNS will not be liable for any damages or
costs resulting from claims (i) that HNS' compliance with Customer's
design, specifications, or instructions, (ii) that use of any item
provided by HNS in combination with products not supplied by HNS, or
(iii) that a manufacturing or other process carried out by or
through Customer and utilizing any item provided by HNS constitutes
either direct or contributory infringement of any United States
patent (such as claims being collectively referred to herein as
Other Claims). Customer will indemnify HNS from any and all damages
and costs (including settlement costs) finally awarded or agreed
upon for infringement of any United States patent or copyright in
any suit resulting from Other Claims, and from reasonable expenses
incurred by HNS in defense of such suit if Customer does not
undertake the defense thereof.
D. In no event will HNS be liable for consequential damages or costs
incurred by Customer under this Article.
10
<PAGE> 13
11. LIMITATION OF LIABILITY
A. Neither HNS nor its subcontractors will be liable for (i) libel,
slander, or infringement of copyright from or in connection with the
transmission of communications hereunder; (ii) any claim arising out
of any act or omission of Customer or any other entity furnishing
services or equipment for use in conjunction with the Equipment and
Services provided hereunder; (iii) any unlawful or unauthorized use
of the Equipment or Services provided hereunder by the Customer, its
employees, agents, or invitees; or (iv) any claim arising out of a
breach in the privacy or security of communications transmitted over
the facilities or other property of HNS.
B. IN NO EVENT WILL HNS OR ITS SUBCONTRACTORS BE LIABLE TO CUSTOMER OR
ANYONE ELSE FOR SPECIAL, COLLATERAL, EXEMPLARY, PUNITIVE, INDIRECT,
INCIDENTAL OR CONSEQUENTIAL DAMAGES (INCLUDING WITHOUT LIMITATION,
LOSS OF GOODWILL, LOSS OF PROFITS OR REVENUES, LOSS OF SAVINGS, LOSS
OF USE, INTERRUPTIONS OF BUSINESS, AND CLAIMS OF CUSTOMERS). ALL
WARRANTIES THAT MAY BE DEEMED APPLICABLE TO THE EQUIPMENT OR
SERVICES, INCLUDING BUT NOT LIMITED TO IMPLIED WARRANTIES OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE, ARE EXPRESSLY
DISCLAIMED.
C. The remedies of Customer set forth herein are exclusive and in lieu
of all other remedies, express or implied. Except for the remedies
provided in the section entitled "Service Interruption Credits",
neither HNS nor its subcontractors will be liable for any delay or
failure of performance of the Equipment or any Services provided
hereunder.
12. ASSIGNMENT
Except for (i) assignment to a successor who acquires substantially all of
the assets and business of HNS or Customer, (ii) assignment to a subsidiary
company, parent company, or subsidiary of parent company, or (iii) assignment,
pledge, or transfer by HNS of any interest in any payments to be received by HNS
hereunder, neither party hereto may assign this Agreement or any portion hereof
without the prior written consent of the other. Any assignment permitted
hereunder, or otherwise agreed to by the other party hereto will not relieve the
assigning party of any obligations with respect to any covenant, condition, or
obligation required to be performed by the assigning party under this Agreement.
13. INDEPENDENT CONTRACTOR AND SUBCONTRACTING
A. The relation of HNS to Customer under this Agreement will be that of
an independent contractor. HNS will exercise its own discretion on
the method and manner of performing its obligations hereunder.
B. Customer agrees that HNS may, at its sole discretion, subcontract
the whole or any part of its obligations under this Agreement and
HNS agrees that it will retain full responsibility for such
obligations despite such subcontract.
14. CONFIDENTIALITY
A. HNS and Customer, to the extent of their contractual and lawful
right to do so, will exchange proprietary or confidential
information as reasonably necessary for each to perform its
obligations under this Agreement. All information relating to this
Agreement provided by either party to the
11
<PAGE> 14
other, whether oral or written, and when identified as confidential
or proprietary in writing, is hereby deemed to be confidential and
proprietary information ("Proprietary Information").
B. Except as set forth in Paragraph C below, a party receiving
Proprietary Information pursuant hereto (the "Receiving Party") will
not, without the prior written consent of the party disclosing such
information (the "Disclosing Party"), (i) use any portion of the
Proprietary Information for any purpose other than the purpose of
this Agreement, or (ii) disclose any portion of the Proprietary
Information to any persons or entities other than the employees and
consultants of the Receiving Party (and HNS' subcontractors) who
reasonably need to have access to the Proprietary Information in
connection with the purposes of this Agreement and who have agreed
to protect Proprietary Information as though they were a party to
this Agreement. The obligations imposed by this Article on the
Receiving Party will extend to any use or disclosure of Proprietary
Information by the employees or consultants of the Receiving Party.
C. A Receiving Party will not be liable for disclosure of Proprietary
Information, or part thereof, if the Receiving Party can demonstrate
that such Proprietary Information (i) was in the public domain at
the time it was received or subsequently entered the public domain
through no fault of the Receiving Party; (ii) was known to or is in
the possession of the Receiving Party at the time of receipt; (iii)
became known to the Receiving Party from a source other than the
Disclosing Party without breach of an obligation of confidentiality;
or (iv) is disclosed more than five (5) years after the date of
receipt of the proprietary Information by the Receiving Party. In
the event of any legal action or proceeding or asserted legal
requirement for disclosure of Proprietary Information furnished
hereunder, the Receiving Party will promptly notify the Disclosing
Party and, upon the request and at the expense of the Disclosing
Party, will cooperate with the Disclosing Party in lawfully
contesting such disclosure. Except in connection with any failure to
discharge its responsibilities under the preceding sentence, the
Receiving Party will not be liable for any disclosure pursuant to
court order.
D. Proprietary Information will remain the property of the Disclosing
Party and will, at the Disclosing Party's request and after it is no
longer needed for the purposes of this Agreement, promptly be
returned thereto or be destroyed, together with all copies made by
the Receiving Party and by anyone to whom such Proprietary
Information has been made available by the Receiving Party in
accordance with the provisions of this Section.
15. LICENSE OF SOFTWARE
A. Customer acknowledges that any software supplied by HNS to Customer
hereunder is subject to the proprietary rights of HNS and/or HNS'
vendor(s) (the Licensor(s)). HNS hereby represents that it either
owns the software to be supplied hereunder or has obtained the right
to grant the license provided hereby to Customer. HNS or its
Licensor(s), as the case may be, will retain title to all of the
software.
B. HNS hereby grants to Customer and Customer hereby accepts from HNS a
limited, nonexclusive license (or sublicense, as applicable) to use
the software solely in the operation of HNS equipment, to commence
on delivery of the software to Customer and to last for the term of
this Agreement.
C. Except as permitted by this paragraph, Customer will not (i) copy or
duplicate, or permit anyone else to copy or duplicate, any part of
the software, or (ii) create or attempt to create, or permit others
to create or attempt to create, by reverse engineering or otherwise,
the source programs or any part thereof from the object programs or
from other information made available under this Agreement.
D. Customer will not, directly or indirectly, sell, transfer, offer,
disclose, lease (as lessor), or license the software to any third
party, except that subject to the terms of this Agreement, Customer
may sublicense to a third party lessee or user of the equipment the
right solely to use the software in the operation of the equipment.
12
<PAGE> 15
16. ADDITIONAL CLAUSES
A. GOVERNING LAW: This Agreement will be interpreted under the laws of
the State of Maryland applicable to Agreements made and performed in
that State, notwithstanding the place of execution or performance of
this Agreement.
B. SEVERABILITY: If any of the provisions or any portion of the
provisions of this Agreement shall be invalid or unenforceable, such
invalidity or unenforceability will not invalidate or render
unenforceable the entire Agreement, but rather the entire Agreement
will be construed as if not containing the particular invalid or
unenforceable provisions or portion thereof, and the rights and
obligations of the parties hereto will be construed and enforced
accordingly.
C. NO WAIVER: Failure by either party to exercise any rights under this
Agreement in any one or more instances will not constitute a waiver
of such rights in any other instance. Waiver by such party of any
default under this Agreement will not be deemed a waiver of any
other default. No alteration or modification of any provision of
this Agreement will be binding unless in writing and signed by duly
authorized representatives of both parties.
D. NOTICES: All notices provided for herein (other than routing
communications concerning the Services to be provided hereunder)
will be given in writing and will be effective when delivered
personally or when sent by certified mail, return-receipt requested,
postage prepaid, or when the answer-back is recorded by the sender's
telecopier machine at the end of a telecopier communication. All
notices sent by either party will be addressed as follows:
If to HNS:
Hughes Network Systems, Inc.
11717 Exploration Lane
Germantown, Maryland 20876
ATTN: Director, Satellite Networks Division Contracts
If to Customer:
Video Jukebox Network, Inc.
1221 Collins Avenue
Miami Beach, FL 33139
Attn: Vice President, Operations
E. ENTIRE AGREEMENT: This Agreement and the Attachments hereto
constitute the entire Agreement between the parties and supersede
any prior written or oral Agreement or understanding with respect to
the subject matter hereof. No interpretation, amendment, or change
to this Agreement will be effective unless made in writing and
signed by both parties, except that each party may change the
address or the name of the person to whom notices to that party will
be sent by giving written notice of such change to the other party
as provided in Section 16D hereof.
13
<PAGE> 16
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
by and through their duly authorized representatives.
Hughes Network Systems, Inc.
By: /s/ SHELDON REVKIN
---------------------------------
Name: Sheldon Revkin
---------------------------------
Title Sr. Vice President
---------------------------------
Date: 3/1/96
---------------------------------
Video Jukebox Network, Inc.
By: /s/ ALAN R. McGLADE
---------------------------------
Name: Alan R. McGlade
---------------------------------
Title President and CEO
---------------------------------
Date: 2-21-96
---------------------------------
14
<PAGE> 17
ATTACHMENT I
ORDER AND PRICE SCHEDULE
TO
AGREEMENT BETWEEN
VIDEO JUKEBOX NETWORK, INC.
AND
HUGHES NETWORK SYSTEMS, INC.
FOR
PERSONAL EARTH STATION(TM) EQUIPMENT AND SERVICES
<PAGE> 18
ATTACHMENT I
ORDER AND PRICE SCHEDULE
1. INITIAL ORDER FOR SERVICES AND EQUIPMENT
A. Services
The following sets forth the initial order for Shared Hub Services
and also sets forth the Service configuration that comprises the
initial order for Services under this Agreement. This configuration
is based upon the traffic parameters previously provided to HNS by
the Customer, as detailed in Attachment III.
<TABLE>
<CAPTION>
Initial Order(1)
Unit Price Initial Order Total Price
Shared Hub Service Component Per Month Quantity Per Month
---------------------------- ---------- ------------- ----------------
<S> <C> <C> <C>
Shared Hub Equipment $ 4,091 1 $ 4,091
Network Startup Equipment
Uplink Power Control
One SuperLIM
One Backup SuperLIM
Network Management System
Network Operations Services $17,000 1 $17,000(2)
and Program Management
Software Technical Support
Hardware Technical Support
Program Management
Transponder Space Segment (Galaxy VII, NB) $ 1,800/1% 8 $14,400
One 512 kbps Outroute
One 128 kbps Inroute
Remote Maintenance (Normal Coverage) $ 42.50 130 $ 5,525
Extended Coverage Remote Maintenance $ 10.00 130 $ 1,300
</TABLE>
- ------------------
1. Adjustments to the Service configuration for additional PESs, applications,
or transmission requirements will be priced as listed above. Such
adjustments to the Service configuration will be based on Customer's
revised requirements, will be provided on a best reasonable efforts basis,
and will be provided to the Customer no later than three (3) months from
date of request.
2. The charge for this service for the first month will be $5,000, and will
increase by $3,000 every other month until the specified $17,000 price
level is reached.
I-2
<PAGE> 19
<TABLE>
<CAPTION>
Initial Order
Unit Price Initial Order Total Price
File Broadcast Service Component Per Month Quantity Per Month
-------------------------------- ---------- ------------- -------------
<S> <C> <C> <C>
File Broadcast Server Maintenance $500 1 $500
File Broadcast Remote Software Maintenance $ 3 130 $390
(includes software and license)
<CAPTION>
Initial Order
Unit Price Initial Order Total Price
Backhaul Service Component Per Month Quantity Per Month
-------------------------------- ---------- ------------- -------------
<S> <C> <C> <C>
T1 Backhaul Access $5,485 1 $ 5,485
(1.544 DS-1 1XC access line from
local loop 305-674 to local loop 612-338)
-------
TOTAL MONTHLY SERVICE CHARGE $48,691
=======
</TABLE>
I-3
<PAGE> 20
B. Equipment
<TABLE>
<CAPTION>
Unit Price Quantity Extended Price
---------- -------- --------------
<S> <C> <C> <C>
PES (Basic package with one RF $ 7,300 130 $ 949,000
Subsystem, one Turbo Port Card (TPC)
with one Ethernet Interface and two RS-232
interfaces, 1.2 m.antenna, and indoor unit,
including standard installation and installation
Deicing for 1.0 or 1.2 m. antenna
Deicing determined by HNS to be necessary $ 972 6 $ 5,832(3)
based on 10 day/year deicing zone
Deicing recommended by HNS based on 10 $ 972 19 $ 18,468(3)
day/year deicing zone
File Broadcast Equipment and Software
File Broadcast HUB SERVER $34,650 1 $ 34,650
(Vax Workstation 4000/96 with
32MB memory, 12GB hard disk
capacity, tape drive, scsi turbochannel
adaptor expansion(4), TCP/IP software,
3 user license)
File Broadcast Software(5) (included)
File Broadcast License (included)
Backhaul Access Equipment
Line Conditioning Equipment $ 2600 2 $ 5200
(4 channel CSU/DSU, mounting ears,
includes aggregate and channel side
cabling)
</TABLE>
(3) Add $600 if not concurrent with PES installation. Price does not include
deicing electrical work, which will be billed at current time and materials
rates plus 10%. In addition, the number of sites necessary and recommended
for deicing is based upon an analysis of a list of 125 Customer's
locations, the addresses of which were provided to HNS.
(4) SCSI turbochannel adaptor provides for expansion of SCSI devices. It will
be ordered as part of the base system. Ordering lead time is 120 days.
(5) Upon completion by HNS of the development of the fixed gap retransmission
size feature , the file broadcast application shall function in accordance
with the following specifications: The annual average transmission
multiplier for a network of 150 sites or less shall not exceed 1.5.
Customer acknowledges that there is a significant variation in weather
throughout the year, and that there will be periods of one or two months in
duration during which the transmission multiplier frequently will exceed
2.0 on a daily basis. During the balance of the year, the transmission
multiplier is expected to be less than 1.2.
I-4
<PAGE> 21
<TABLE>
<CAPTION>
Unit Price Quantity Extended Price
---------- -------- --------------
<S> <C> <C> <C>
Ethernet/Serial Routing Equipment $6044 2 $ 12,088
(Dual ethernet, two wide area serial
interfaces, enterprise software set supporting
tcp/ip routing, including maintenance and
documentation)
----------
Total Equipment $1,006,770(6)
==========
</TABLE>
2. OPTIONS
<TABLE>
<CAPTION>
Unit Price
A. Services Per Month
-------- ----------
<S> <C>
Additional Space Segment $1,800/1% of
(subject to current pricing and availability) transponder capacity
Line Interface Modules (LIMs) $ 316
Each LIM can support up to one 56-kbps hub port; or
two 19.2-kbps hub ports or four 9.6-kbps hub ports
LAN Interface Modules $ 750
SuperLIMs $2,750
Dial modem backup support $1,107
(Supports up to 15 ports)
Dial modem backup ports $ 25
Each additional software protocol, in addition $ 5
to initial protocol, per PES site
PES Modem backup access fee, per PES site $ 5
IllumiNET Access and Maintenance (applicable when $ 470
Customer purchases an IllumiNET Console to
monitor the network)
Customer requested configuration changes $ 30/instance
Remote Maintenance for additional sites
For Normal Service Coverage, per PES site $42.50
For Extended Service Coverage, per PES site $ 10 additional
Network Operations Service $ 40
per PES site in excess of 150 sites
Occasional Use Video Uplink $ 800/hour*
(encrypted video transmission)
</TABLE>
- ------------------
(6) Total includes only six deicing locations.
I-5
<PAGE> 22
<TABLE>
<CAPTION>
Unit Price
Per Month
----------
<S> <C>
Occasional Use Video Uplink $ 500/hour*
(unencrypted "clear sky" transmission
Occasional Use Video Space Segment $1,500/hour*
(based on less than 15 hours of usage/month
Occasional Use Video Space Segment $1,100/hour*
(based on more than 15 hours of usage/month)
* Services are subject to price changes and availability
Live Video Uplink Feed Quoted on per site basis
</TABLE>
B. Disaster Recovery
HNS, at Customer's option, can provide a Disaster Recovery Service
(DRS) to Customer in the event of a catastrophic failure of the
shared hub on which Customer resides. In such an event, HNS will
move Customer's commissioned Equipment off the affected hub to
another HNS hub within eight (8) hours of the declaration of the
disaster by HNS. This service will only be available as long as
Customer remains on Galaxy 7 or its replacement.
As a part of this DRS, Customer will be provided, at its request,
one day every six (6) months for test purposes. Such testing is to
be jointly coordinated between Customer and HNS.
Customer will be responsible for the provision and maintenance of
all required backhaul facilities, including multiplex equipment, as
may be necessary to facilitate the DRS.
Following is the pricing for provision of the DRS:
<TABLE>
<CAPTION>
<S> <C>
Outroute (per percent of outroute) $ 10/month
Inroute (each) $ 100/month
LIMs (each) $ 32/month
LAN Interface Modules $ 75/month
Access fee per PES (less than 150) $ 20/month
Floor space for racks and Customer equipment $ 100/month
One-time connectivity/PM/ENG/per data center $10,000(7)
One-time circuit termination (per line) $ 250
Hourly test fee $ 400
</TABLE>
- ----------------------
(7) This is a one-time only fee, upon selection of this service by Customer, to
allow HNS to setup the necessary configuration in its disaster recovery
data base.
I-6
<PAGE> 23
C. Equipment and Associated Items
<TABLE>
<CAPTION>
Unit
Quantity Purchase Price
-------- --------------
<S> <C> <C>
PES Equipment
PES (Basic package with one RF each $6,800
Subsystem, one Turbo Port Card (TPC)
with one Ethernet Interface and two RS-232
interfaces, 1.0 m.antenna, and indoor unit,
including standard installation and installation
PES (Basic package with one RF each $7,300
Subsystem, one Turbo Port Card (TPC)
with one Ethernet Interface and two RS-232
interfaces, 1.2 m.antenna, and indoor unit,
including standard installation and installation
- Multiport Port Cards (MPC) 1 - 299 $1,350
(with two ports and one junction box) 300 - 499 $1,250
500+ $1,200
- Turbo Port Card with Ethernet interface (no serial) 1 - 299 $2,500
(Add a junction box for two RS-232 ports and 300 - 499 $2,350
one PLC for third and fourth serial port support) 500+ $2,200
- Turbo Port Card with Token Ring LAN interface (no serial) 1 - 299 $2,750
(Add a junction box for two RS-232 ports and one 300 - 499 $2,575
PLC for third and fourth serial port support) 500+ $2,400
- Turbo Port Card with two serial RS-232 ports 1 - 299 $2,000
(and Junction Box) (Add one PLC for third and 300 - 499 $1,850
fourth serial port support) (Add Token Ring or 500+ $1,700
Ethernet PLC for LAN support)
- Compact Port Cards (CPC with two RS-232 interfaces 1 - 299 $1,300
and one junction box) (Four serial ports maximum 300 - 499 $1,200
capability) 500+ $1,100
- Voice Port Modules at 16 Kbps (VPMs) 1 - 50 $1,800
50 - 500 $1,650
501+ $1,500
- Voice Port Modules at 5 Kbps CELP 1 - 50 $1,900
50 - 500 $1,750
501+ $1,600
- Multiport Card Expansion (two ports per card) 1 - 299 $350
300 - 499 $300
500 - 999 $250
1000+ $200
</TABLE>
I-7
<PAGE> 24
<TABLE>
<CAPTION>
Unit
Quantity Purchase Price
-------- --------------
<S> <C> <C>
- MPC failsafe dial backup capability 1 - 299 $400
(user port and backup port per PLC) 300 - 499 $350
500 - 999 $300
1000+ $250
- Four slot indoor unit (in place of one slot) Each $750
additional
- Extended Digital Interface Unit (EDIU) $2,750
(incremental price for EDIU containing additional
13 port card slots rather than DIU when ordered as
part of complete PES)
- EDIU $5,000
(price for standalone unit, rather than
substitute for DIU; includes IFM card but no port
cards)
- Ethernet PLC for Turbo Port Card upgrade to LAN 1 - 299 $700
300 - 499 $650
500 - 499 $625
500 + $600
- Token Ring PLC for Turbo Port Card upgrade to LAN 1 - 299 $950
300 - 499 $900
500 - 499 $850
500 + $800
- Junction Box add-on for MPC, CPC or TPC Each $300
(supports four I/O ports) (use for additional of
serial ports to TPC or for ports 5 to 8 on MPC)
- Serial Port Converter (two interfaces per PLC) 1 - 299 $500
Serial Port expansion of MPC, TPC or CPC 300 - 499 $425
(either RS-232, RS-422 or V.35) 500 - 499 $400
500 + $390
- 2-watt Ku-band PES upgrade Each $1,800
(at time of initial PES order)
- Universal Tripod Mount Each $500
- Nonpenetrating Mount (when ordered separately)
1.8 meter or smaller Each $900
2.4 meter Each $1,000
- Deicing (includes feedhorn heater)
1.0 meter Each $972
1.2 meter Each $972
1.8 meter Each $1,440
2.4 meter Each $2,900
</TABLE>
I-8
<PAGE> 25
<TABLE>
<CAPTION>
Unit
Quantity Purchase Price
-------- --------------
<S> <C> <C>
- PES 2.4 meter antenna (equipment only) Each $2,350
(excludes installation) additional
- IllumiNET Console Each $25,000
- Video Integrated Receiver Decoder (IRD) Each $1,600
- File Broadcast Hub Server Memory Each $6876
(64-MB capacity. four 16-MB SIMMS
modules. For VAXstation 4000
model 90 systems)
- File Broadcast Hub Server CDROM Each $370
(SCSI CDROM for VAXstation 4000
model 90 systems)
- File Broadcast Hub Server 2GB Hard Drive Each $1305
(3.5" SCSI hard drive with 2.1Gbf storage
capacity for VAXstation 4000 model 90 systems)
- Backhaul Access Single Ethernet 2501 Router Each $4844
(single ethernet interface with 2 wide area
interfaces, includes enterprise software set
and maintenance)
- Backhaul Access Dual Ethernet 2514 Router Each $6044
(dual ethernet interface with 2 wide area
interfaces, includes enterprise software set
and maintenance)
- Backhaul Access CSU/DSU Each $2456
(Tellabs unit with 4 V.35 channels)
</TABLE>
D. PES Installation Charges
The following PES installation pricing is based upon the standard
installation requirements, except as otherwise indicated, outlined in
Attachment II of the Agreement.
<TABLE>
<CAPTION>
Price
-----
<S> <C>
- PES Antenna Size and Mount Type
1.0-meter, 1.2-meter or 1.8-meter Standard Ground Mount
(Pole less than 6 feet) included
1.0-meter, 1.2-meter or 1.8-meter Nonpenetrating Mount included
2.4-meter standard ground mount $825 additional
</TABLE>
I-9
<PAGE> 26
<TABLE>
<CAPTION>
Price
-----
<S> <C>
1.0-meter, 1.2-meter, 1.8-meter, 2.4-meter Individual Bid
(Other Mount Types)
- Additional data cable installed (greater than
25 feet) $1.00/foot
- Site Survey and Report only $625/each
- Voice cable installed $1.25/foot
- Television Coaxial Cable installed $1.75/foot
- Obtain permits and approvals requiring $90/hour
additional or special documentation or plus all direct
requiring attendance at meetings before expenses at
local planning or zoning boards cost plus 10%
- Obtain permits and approvals, where $90/hour
requested, but not required plus all direct
expenses at
cost plus 10%
- Engineering Drawings, Special Reports, etc. Cost plus 10%
- PES IFL Cables
Non-plenum:
Type 1 up to 125 feet included in basic installation
Type 2 126 - 250 feet $150 additional
Type 3 251 - 485 feet $350 additional
Type 4 486 - 900 feet $3.00/foot additional
Plenum:
Type 1 up to 110 feet $50 additional
Type 2 111 - 185 feet $300 additional
Type 3 186 - 340 feet $550 additional
- 1.0- and 1.2-meter Deicing Installation(8) $300/each
- 1.8-meter Deicing Installation(9) $325/each
- 2.4-meter Deicing Installation(9) $400/each
- Expedited Installation at Customer's request
(in less than 30 days after
notification of landlord approval) $1,000/site
</TABLE>
(8) Add $600 if not concurrent with PES installation. Price does not include
required deicing electrical work, which will be billed at current time and
material rates plus 10%.
I-10
<PAGE> 27
<TABLE>
<CAPTION>
Price
-----
<S> <C>
- Aborted installation $750/site
- Site Cancellation Fee
With more than 7 days notice No charge
With less than 7 days notice $750/site
- PES Shipping Fee:
Up to 1.8-meter Antenna $200/site
2.4-meter Antenna $250/site
Quikpoint Kit installation and calibration $75/site
- Install Port Card or Dialup connection $275/each
- Install Device (same room as DIU) $300/each
- Install Device (same room as DIU, connection made
while technician is onsite performing other service) $150/each
- Install Device (different room) $340/each
- Install Device (Penetration through firewall or
existing conduit required, up to 150' of cable) $420/each
- Move DIU (same point of entry, same IFL cable) $340/each
- Move DIU (new IFL cable, 140' to 280') $850/each
- Move DIU (new IFL cable, over 280') $1,146/each
- Deinstallation of NPM (other mount types -
individual bids) $1,200
- Site relocation charges for 1.0 meter NPM* $3,100
- Site relocation charges for 1.2 meter NPM* $3,600
- Site relocation charges for 1.8 meter NPM* $4,000
- Site relocation charges for 2.4 meter NPM* Individual bid
- Site relocation charges for other mount types Individual bid
*Assumes same city and deinstall/reinstall within
24 hours
- Nonstandard Installations Individual Bid
</TABLE>
I-11
<PAGE> 28
E. Monthly Maintenance Service Coverages, Charges, and Conditions(9)
This section lists the maintenance charges for different service
coverages and maintenance for associated items.
- Pricing for Additional Items applicable for all Service Coverages
<TABLE>
<CAPTION>
Description Price
----------- -----
<S> <C>
Per Additional Data Port Card $5/month
Per Additional PLC $1/month
Per Voice Port Card $5/month
Per Dual Autodial/Answer Modem Port $3/month
Per Video IRD $5/month
Deicing (per site) Demand Service Rate
</TABLE>
F. Charges for Other Services
- Demand Services Rate
$125/hour, plus travel at $0.26 per mile
Material at cost plus 10%
- Special Equipment Charges
In the event that special equipment is required for maintenance
(including, but not limited to scaffolding and power lift trucks),
it will be provided by HNS, if practical, and the Customer will be
billed for the actual cost to HNS plus 10%. At sites requiring
special equipment for physical access, onsite repair time in
excess of 1 hour will be billed at prevailing rates for Demand
Services specified above.
- Monitoring and Maintenance of Terrestrial Communication
Ordering of terrestrial communications equipment and services, and
the monitoring and maintenance thereof, will be performed by HNS,
at Customer's request, for the actual terrestrial communications
equipment and facilities costs, plus 10%.
- False Call-Out Charge
In the event that Customer calls out an HNS Service Representative
to its location, and such Representative determines that the
problem was not caused by HNS, HNS may assess a False Call-Out
charge of $200 per instance
- --------------------
(9) Monthly maintenance charges per PES for normal service coverage are
included in the hub access/remote maintenance charge listed in Section 1.A.
I-12
<PAGE> 29
3. SYSTEM IMPLEMENTATION SCHEDULE
- - Number of Remotes installed in month one 1
- - Number of Remotes installed in month two 5
- - Number of Remotes installed in month three 10
- - Number of Remotes installed in month four 12
- - Number of Remotes installed in month five 15
- - Number of Remotes installed in month six 17
- - Number of Remotes installed in month seven 20
- - Number of Remotes installed in month eight 30
- - Number of Remotes installed in month nine 40
I-13
<PAGE> 30
ATTACHMENT II
TO
AGREEMENT BETWEEN
VIDEO JUKEBOX NETWORK, INC.
AND
HUGHES NETWORK SYSTEMS, INC.
FOR
PERSONAL EARTH STATION INSTALLATION SERVICES
<PAGE> 31
ATTACHMENT II
PERSONAL EARTH STATION INSTALLATION SERVICES
1. INSTALLATION SERVICES OVERVIEW
The installation process for a PES remote terminal consists of the
following major steps:
A. Preparation of installation specification document based upon
specific Customer guidelines and requirements, such document to be
reviewed and approved by the parties.
B. Customer informs onsite personnel of the planned installation and
arranges for access to sites. Customer provides the required
installation information for the sites. The required installation
information includes:
- Contact, Address, Telephone Number
- Alternate Contact, Address, Telephone Number
- Site Number, Address
- Building Manager, Address, Telephone Number
- Building Owner, Address, Telephone Number
C. HNS performs site surveys at sites identified by HNS as requiring
site surveys.
D. Customer obtains necessary landlord approvals.
E. HNS obtains construction permits at sites identified by HNS as
requiring permits.
F. HNS prepares sites identified by HNS as requiring preparation.
G. HNS installs and commissions the PES remote terminal Equipment.
2. PES MOUNTS
The following mounts and associated prices exclude efforts to structurally
reinforce walls or roofs, landscaping, tree removal, excavation into pavement
for cable conduit, roof penetrations, or restricted roof access requiring cranes
or helicopters. Ground mounts and nonpenetrating roof mounts, as described
below, are considered "Standard Installations" in accordance with Section 4.2.D
of this Agreement. Any other type of mount is considered "Nonstandard
Installation."
A. Option One - Nonpenetrating Roof Mount
Includes material and labor for the following items:
1) Nonpenetrating antenna mount for up to 1.8-meter PES antenna.
2) Ballast as required for the wind zone of each particular site.
3) Assembly of the nonpenetrating mount and placement of ballast.
4) Ground cable to an existing water pipe or existing grounded
structural steel member consisting of #8 gauge wire up to 15
feet in length. Additional length, or a driven ground rod, can
be provided on a cost plus 10% basis, if required.
II-2
<PAGE> 32
5) Interconnecting cables at the PES indoor unit of up to 25 feet
in length for all Customer data and telephone Equipment.
Anti-icing ac power can be provided on a cost plus 10% basis.
B. Option Two -Ground Mount
Includes material and labor for the following items:
1) Standard pole not to exceed 6 feet in height above ground.
2) Trenching through up to twenty (20) feet of soil (does not
include conduit or trenching through blacktop or concrete)
3) Ground cable to an existing water pipe or existing grounded
structural steel member consisting of #8 gauge wire up to 15
feet in length. Additional length, or a driven ground rod, can
be provided on a cost plus 10% basis, if required.
4) Interconnecting cables at the PES indoor unit of up to 25 feet
in length for all Customer data and telephone Equipment.
Anti-icing ac power can be provided on a cost plus 10% basis.
C. Option Three - Optional Antenna Mounts
In some cases (special sites), alternate mounting techniques may be
required for wall, roof, or complex ground mounts. These are offered
by HNS at an additional cost and will require additional independent
contractor Services at additional cost in some instances. If
nonstandard mounts or installations are required, upon completion of
the site survey, HNS will provide Customer with a quotation of its
price to perform this installation. If this quote is accepted by
Customer, HNS will proceed with the installation.
3. STANDARD PES INSTALLATION AND COMMISSIONING
HNS will perform PES Equipment installation and commissioning at each
Customer site as specified below:
A. Install the outdoor unit at designated location.
B. Install the indoor unit at designated location.
C. Supply up to 125 feet of PVC IFL cable. Additional cable and/or
plenum style cable can be supplied at additional cost.
D. Run connecting cable between outdoor and indoor units.
E. Connect the indoor unit to the provided ac outlet.
F. Connect active anti-icing (if applicable) to the provided ac
outlets.
G. Attach the indoor unit data ports to the Data Terminal Equipment
(DTE).
H. Align antenna to the satellite.
I. Perform initial commissioning procedures, with cooperation of the
hub operator.
II-3
<PAGE> 33
J. Perform the PES installation testing procedure and record data.
K. Complete Customer acceptance report in conjunction with local
Customer representative.
L. Notify the OC that the Customer site is in operation and that
Service coverage is to begin.
II-4
<PAGE> 34
ATTACHMENT III
TO
AGREEMENT BETWEEN
VIDEO JUKEBOX NETWORK, INC.
AND
HUGHES NETWORK SYSTEMS, INC.
ACCEPTANCE CRITERIA
<PAGE> 35
ATTACHMENT III
ACCEPTANCE CRITERIA
1. INTRODUCTION
This Attachment contains the acceptance criteria as mutually agreed
upon between the Customer and HNS and as defined in the document entitled Video
Jukebox Network Hughes VSAT Network Pilot Program success Criteria Revision B.
This document defines Customer's requirement for the succesful completion of the
VSAT Network Pilot Program with HNS. The agreed upon criteria also define the
acceptance criteria for execution of this agreement.
2. VJN APPLICATION
2.1 OVERVIEW
Customer will use the PES VSATs to enable WAN communications from its Operation
facilities in Miami FL and Mt. Laurel, NJ, to cable headends located throughout
the United States.
2.2 NETWORK TRAFFIC CHARACTERISTICS
The VSAT network will carry the following network traffic:
1. Interactive digit entry / Video ordering transactions
2. Customer cable headend equipment maintenance / monitoring traffic
3. Broadcast file transfers using HNS file broadcast application
2.3 HARDWARE / SOFTWARE PLATFORM
The HNS VSAT system shall be capable of interacting with Windows NT 3.5.1
standard Intel-based PCs. These PCs will function as clients, workstations, and
servers. The HNS VSAT system shall be capable of passing the following standard
networking protocols:
1. TCP/IP
2. NetBEUI over TCP/IP
3. SYSTEM REQUIREMENTS
3.1 OVERALL SYSTEM
3.1.1 SYSTEM OPERATION
The HNS VSAT system and file broadcast application shall operate in accordance
with this attachment and other applicable ISBN documentation.
3.1.2 NETWORK FAILURE DETECTION
The HNS VSAT system shall have a method for programmatically detecting a network
failure (remote or uplink) such that backup system management is possible.
Customer agrees that this method will be to use the Ping command in order to
monitor the remotes and ISBN uplink.
3.1.3 TRAFFIC PRIORITY ASSIGNMENT
The HNS VSAT system shall be capable of prioritizing LAN bridge traffic based on
IP port numbers. The system shall provide at least four active levels of
prioritization, one of which shall be capable of assigning a priority level
III-2
<PAGE> 36
to file broadcast traffic, such that higher priority interactive traffic may get
immediate access to space link bandwidth.
3.1.4 SIMULTANEOUS INTERACTIVE AND FILE BROADCAST TRAFFIC
The HNS VSAT uplink shall be capable of prioritizing interactive and file
broadcast traffic such that certain interactive traffic can be given priority in
order to reduce outbound latency. Based upon Customer's decision to waive HNS'
flow control enhancement proposal, Customer agrees to effectively throttle
traffic by enabling prioritization on the Hub SLIM. The customer agrees that the
multicast session will be configured with a lower priority than the point to
point sessions. The file broadcast traffic shall be effectively throttled back
in this situation by ensuring that the interactive traffic will be sent onto the
outroute at the expense, and possible packet loss, of the file broadcast (multi
cast traffic).
3.1.5 BIT ERROR
The HNS VSAT system shall have a bit error rate not greater than 10(-7), between
the uplink facility and any single remote PES in the Customer network.
3.2 INTERACTIVE NETWORK TRAFFIC PERFORMANCE CHARACTERISTICS
This traffic shall consist of the following:
1. Digit Entry Traffic
2. Remote Monitoring Traffic
3.2.1 OUTROUTE LATENCY
Packets traveling over the outroute shall not be delayed by more than 400ms
during conditions of high simultaneous usage (up to 100 users) sending small
transactions (up to 10 bytes). This calculation assumes no overloading on either
the outroute or inroutes. This delay is measured from the uplink hub to the
remote LAN.
3.2.2 WINDOWS NT TCP/IP STACK TUNING
The HNS VSAT system shall be compatible with the WindowsNT TCP/IP stack.
Customer and HNS will jointly tune the system to provide maximum performance
over the VSAT space link.
3.2.3 OUTROUTE PERFORMANCE
Using the HNS VSAT system, the Customer shall realize a bit rate of 512Kbps
outbound. The HNS VSAT system shall provide an aggregate data throughput
(nonVSAT traffic) of 450Kbps. This aggregate throughput assumes the following
conditions:
-a static environment (No PES downloads)
-no ODLC overhead
-no NCC polling occurs
-no superframe overhead
From the aggregate throughput, the HNS VSAT system shall be capable of providing
an actual user data throughput (including individual protocol overhead) of
something less than 450Kbps. For the HNS file broadcast application, HNS agrees
that this amount, after accounting for a 3% inefficiency factor (10Kbps), shall
be 440Kbps throughput.
III-3
<PAGE> 37
3.2.4 INROUTE PERFORMANCE
The HNS VSAT system shall be capable of a user data throughput of 112Kbps
inbound. This assumes the following conditions:
-a single active remote on the network
-a WindowsNT PC system for the source and destination
3.3 FILE BROADCAST APPLICATION
The HNS file broadcast application shall be capable of broadcasting files using
both a transmit and a receive component to WindowsNT based PC systems.
3.3.1 SYSTEM INTEGRATION
The file broadcast application shall be capable of continuous transmission of
large files (500MB), with a throughput as specified in section 3.3.2, to a
remote WindowsNT based PC without disrupting concurrent operations on the
Customer PC. The concurrent Customer PC operations are:
1. digital video playback
2. disk defragmentation
3. copying broadcast files from a staging disk to final disk location.
3.3.2 FILE BROADCAST THROUGHPUT
The HNS file broadcast application shall be capable of a data throughput of
440Kbps as specified in section 3.2.3. Packet loss shall be determined as
specified in section 3.1.4. Customer agrees that packets may be lost due to
receiver noise / atmospheric conditions.
3.3.3 FILE BROADCAST RETRANSMISSION SEGMENT SIZE
Customer agrees that HNS shall develop a file broadcast "fixed length segment"
retransmission scheme. The capabilities of this feature are described in
Footnote 5 in Attachment I. This development is not a feature which will be
evaluated during the Pilot Test.
3.3.4 FILE BROADCAST STATUS MONITOR
The HNS file broadcast application shall be capable of relaying status to
Customer's operations facility regarding file broadcast operations through an
online interface compatible with telnet. This status information shall include
the current status of file broadcast operations such as pending transfers,
success or fail of transfers, and unreachable remote locations.
III-4
<PAGE> 1
EXHIBIT 10.44
INTERNATIONAL REPRESENTATION AGREEMENT
This International Representation Agreement (the "Agreement") is made
and entered into the 14th day of September 1995 between Video Jukebox Network,
Inc., 1221 Collins Avenue, Miami Beach, Florida 33139 (the "Company"), and
Communications Equity Associates, Inc., 101 East Kennedy Boulevard, Suite 3300,
Tampa, Florida 33602 ("CEA").
RECITALS:
A. The Company owns and operates a business which distributes music
video television programming known as "THE BOX" in the United States, the United
Kingdom and Puerto Rico.
B. CEA is engaged in the business of providing investment banking and
brokerage services to media companies in the United States and throughout the
world.
C. The Company desires to engage CEA to arrange Financing (as defined
in Section 2 hereof) for the Company and to assist the Company in the manner
described hereinafter in entering certain geographical markets located outside
of the United States, the United Kingdom and Puerto Rico, and CEA desires to
provide such services to the Company.
NOW, THEREFORE, the parties hereto agree as follows:
1. Recitals. The Recitals set forth hereinabove are incorporated herein
by reference and are and shall be deemed to be a part of this Agreement.
2. Engagement. The Company hereby engages CEA as its exclusive
representative for purposes of: (a) arranging equity, debt and/or hybrid
financing ("Financing") for the Company for the purposes of expanding the
international distribution of its programming outside of the United States, the
United Kingdom and Puerto Rico, subject to Section 5(a), (b) assisting the
Company in entering into certain geographical markets, which are designated by
the Company in writing to CEA, and (c) for such other purposes as are mutually
agreed to in writing by the Company and CEA. The Company makes no
representation, warranty, commitment or covenant that it will complete, execute
or enter into any transaction with any Prospect or expand its operations outside
of the United States, the United Kingdom and Puerto Rico.
3. Duties of CEA. CEA shall prepare informational material, if
necessary, regarding the Company's operations and/or projects to present to
individuals and entities ("Prospect(s)"), subject to Section 8 hereof. CEA shall
act as a liaison and intermediary between the Company and such Prospects. CEA
shall not be an agent of the Company and shall not bind or obligate the Company
in any way, without the Company's prior written consent. Both CEA and the
Company shall keep each other informed as to the status of contacts, discussions
and negotiations with Prospects. CEA shall use its best efforts and endeavor to
contact Prospects for Financing and to accomplish transactions on terms that are
acceptable to the Company, but CEA makes no representations regarding the
successful conclusion of any transaction. CEA may perform its services hereunder
through any person or entity that, directly or indirectly, CEA controls, is
controlled by CEA or is under common
<PAGE> 2
control with CEA. When assisting the Company in entering into certain
geographical markets designated in writing by the Company, other than the
countries identified in Section 5(b) hereof, the exact scope of CEA's engagement
for such market shall be mutually agreed upon in writing by the parties hereto
prior to the commencement of CEA's services with respect to such market. The
Company acknowledges that CEA may from time to time represent entities which may
be competitors with the Company or Prospects for a Financing. CEA, however,
shall not, without the Company's prior written consent, represent any Prospect
with regard to a Financing of the Company.
4. Term. The term of this Agreement commences on the date first written
herein above and terminates at the close of business on December 31, 1996 (the
"Term").
5. Compensation.
(a) Financing. If the Company or an entity in which the
Company has an equity interest (the "Financed Entity") enters into an agreement
for Financing ("Financing Agreement") during the Term or within eight (8) months
thereafter with a Prospect who, during the Term and prior to the consummation of
the Financing Agreement, was: (i) identified in writing to the Company by CEA
and (ii) approved in writing by the Company, then the Company shall pay to CEA a
fee in an amount equal to five percent (5%) of the total amount of the Financing
provided to the Financed Entity under the Financing Agreement. A Financing
Agreement may contemplate, without limitation, a direct or indirect loan, lease,
guarantee, stock exchange, joint venture, partnership, sale of assets,
contribution of programming on a non-cash basis, purchase of securities or any
other debt and/or equity investment. CEA's fee shall be paid in full to CEA on
the date of each closing under the Financing Agreement, as and when cash or
other consideration is received by the Company, by wire transfer of immediately
available United States funds to a bank account specified in writing by CEA. The
Company shall notify CEA in writing in advance of any closing of a Financing
Agreement so that CEA may attend such closing. CEA shall have reasonable access
to all closing documents and to any other materials necessary to ascertain and
collect its fee hereunder.
(b) Transactions in Certain Countries. The Company recognizes
the substantial effort and time that CEA has spent to assist the Company in
expanding the distribution of its programming to Australia, France, Holland and
Sweden (collectively, the "Countries"). During the Term, if the Company or a
Financed Entity consummates a joint venture agreement or, in the case of
Australia, a joint venture or an affiliation agreement with a major cable or
satellite operator, then the Company will be obligated to pay CEA the amount set
forth in the following table opposite each of the Countries:
<TABLE>
<CAPTION>
Country U.S. Dollars
------- ------------
<S> <C>
Australia $ 75,000
France $150,000
Holland $175,000
Sweden $175,000
</TABLE>
2
<PAGE> 3
The Company acknowledges and understands that CEA shall not be required or
obligated in any respect to provide the Company with any additional services
with respect to the distribution of the Company's programming in any of the
Countries.
(c) CEA Assistance in Designated Markets. At the written
request and direction of the Company, CEA, with its written consent, shall
assist the Company on an ad hoc basis with respect to the Company's efforts to
expand the distribution of its programming in certain markets designated by the
Company. Prior to any such engagement, the Company and CEA shall negotiate in
good faith to reach an agreement on the specific scope of CEA's services and the
compensation to be paid to CEA with respect to such engagement.
(d) Research Assistance. At the written request and direction
of the Company, CEA, with its written consent, shall prepare research reports on
certain markets designated in writing by the Company. Prior to any such
engagement, the Company and CEA shall negotiate in good faith to reach an
agreement on the specific scope of CEA's services and the compensation to be
paid to CEA with respect to such engagement.
(e) Expense Reimbursement. Prior to commencing any of the
services to be provided by CEA hereunder, CEA and the Company shall agree in
writing on the maximum amount of out-of-pocket expenses of CEA which shall be
reimbursed by the Company. Reasonable expenses and costs incurred by CEA in
excess of the agreed-upon amount, which are supported by expense statements and
other reasonable supporting documentation, shall be reimbursed by the Company
upon the written pre-approval of the Chief Financial Officer of the Company. The
Company shall reimburse CEA up to the maximum amount of such agreed expenses
within thirty (30) days after receipt of an invoice and reasonable documentation
evidencing such expenses.
6. Confidentiality. Subject to (a) any legal requirements imposed on
CEA compelling disclosure and (b) disclosures to Prospects or their
representatives, CEA shall consider all information received from the Company as
proprietary and confidential, except to the extent that such information is
generally available to the public at large. Material non-public or confidential
information relating to the Company shall only be provided by CEA to Prospects
who have executed a confidentiality agreement, which is satisfactory to the
Company and includes the Company as a party to such agreement. Upon termination
of this Agreement, at the Company's written request, CEA shall cause all
Prospects either to destroy or to return to the Company all copies of documents
provided pursuant to this Agreement which contain proprietary and confidential
information relating to the Company. CEA acknowledges that nothing contained in
this Agreement shall be construed as creating in CEA any rights of ownership or
any property rights in any proprietary or confidential information of the
Company.
3
<PAGE> 4
7. Mutual Representations and Warranties.
(a) CEA warrants and represents that (i) CEA is and shall
remain during the Term licensed, if necessary, with all applicable governmental
agencies to provide the services to the Company set forth herein; (ii) it is a
corporation duly organized, validly existing, and in good standing under the
laws of the State of Florida, with all requisite power and authority to enter
into this Agreement and to carry out its obligation hereunder; (iii) this
Agreement has been duly authorized, executed and delivered and is a valid and
binding agreement; (iv) the consummation of the transactions contemplated herein
will not result in any breach of any of the terms or conditions of, or
constitute a default under, any indenture, agreement, or other instrument to
which CEA is a party, or violate any law or any order directed to CEA by any
court or any federal or state regulatory body or administrative agency having
jurisdiction over CEA, CEA's affiliates, or CEA's property.
(b) The Company warrants and represents that (i) it has full
authority and power to execute and perform this Agreement in accordance with its
terms; (ii) the execution or performance of this Agreement by the Company will
not violate any rights of, agreements with or obligations to any third parties;
(iii) the Company will comply with all applicable securities or other laws,
rules and regulations relating to the Agreement; and (iv) the Company will not
circumvent or otherwise frustrate the intent of this Agreement.
8. Covenants of CEA. CEA shall during the course of CEA's efforts to
assist the Company with respect to obtaining Financing (a): not make any untrue
statement of a material fact or omit to state a material fact required to be
stated or necessary to make any statement made not misleading concerning the
Company or its securities; (b) not offer or sell any securities of the Company
or of any Financed Entity by means of (i) any advertisement, articles, notice,
or other communication mentioning the securities, published in any newspaper,
magazine, or similar medium or broadcast over television or radio; or (ii) any
seminar or meeting, the attendees of which have been invited by any general
solicitation or general advertisement; and (c) only use sale materials which
have been approved in writing by the Company.
9. Mutual Indemnification. CEA and the Company each agree to indemnify
fully and forever each other and their affiliates and subsidiaries from any and
all losses, claims, damages, liabilities, costs and expenses arising from or
relating to the other party's breach of this Agreement, including, but not
limited to, all reasonable arbitration, attorneys' fees, collection and/or court
costs; provided, however, that the party seeking indemnification pursuant to
this Section 9 has not breached the terms of this Agreement or been grossly
negligent or engaged in willful misconduct in connection with such party's
obligations hereunder.
10. Public Announcements. Subject to the Company's prior written
approval, CEA shall have the right to publicly announce and/or advertise any of
the services provided to the Company hereunder. The Company shall mention the
role of CEA in key public announcements it may make regarding any completed
Financing hereunder.
4
<PAGE> 5
11. Controversies.
(a) In the event of any controversy arising out of or relating
to this Agreement or a breach or alleged breach hereof, which the parties are
unable to resolve among themselves, the parties shall resolve the dispute by
arbitration pursuant to the provision of 9 U.S.C. Sec. 1 et sec., and in
accordance with the Commercial Arbitration Rules of the American Arbitration
Association (the "AAA"), by sending written notice to the other party to such
effect. The place of arbitration shall be Miami, Florida.
(b) In the event of arbitration, within thirty (30) days after
receipt of a request to arbitrate a dispute, the Company and CEA shall each
appoint one arbitrator, and within fifteen (15) days thereafter the two
appointed arbitrators shall select a third arbitrator. In the event the two
arbitrators are unable to agree on the selection of a third arbitrator, the two
arbitrators shall request the Federal District Court, Southern District of
Florida, to select such third arbitrator. If the Company or CEA shall fail to
make such appointment within such thirty (30) day period, the other party shall
be authorized to appoint the second arbitrator. All arbitrators shall be
impartial and unrelated, directly or indirectly, so far as employment or
services is concerned, to any of the parties hereto or to any person or entity
directly or indirectly related to the parties hereto. In any arbitration
proceedings involving any specialized area of knowledge or competence, the
arbitrators shall have substantial knowledge and experience in such specialized
area. The arbitration proceedings shall otherwise be governed by the rules of
the AAA then in force.
(c) The three arbitrators shall investigate the facts and shall
hold a hearing or hearings if required at which the parties may present evidence
and arguments, be represented by counsel and conduct cross-examination. In
determining any question, matter or dispute before them, the arbitrators shall
apply the provisions of this Agreement, without varying therefrom in any
material respect. They shall not have the power to add, to modify or change any
of the provisions of this Agreement. The three arbitrators shall render a
written decision upon the matter presented to them by a majority vote, and that
decision shall be final and binding on the parties. Judgment upon the decision
rendered by such arbitration may be entered by any court having jurisdiction
thereof.
12. Notices. Any notice from one party to the other shall be in
writing and deemed given when mailed if delivered by first class certified mail,
return receipt requested, or by overnight delivery, to the person at the address
listed below or to such other person and/or address as may be designated from
time to time in writing.
If to CEA:
Communications Equity Associates, Inc.
101 East Kennedy Boulevard, Suite 3300
Tampa, Florida 33602
Attention: Chief Operating Officer
5
<PAGE> 6
If to the Company:
Video Jukebox Network, Inc.
1221 Collins Avenue
Miami Beach, Florida 33139
Attention: Chief Executive Officer
13. Severability. The invalidity or illegality of any provision, term,
or covenant contained in or made a part of this Agreement shall not affect the
validity of the remainder of this Agreement which shall remain in full force and
effect.
14. Entire Agreement. This Agreement contains all of the terms agreed
upon by the parties with respect to the subject matter hereof and there are no
representations or understandings between the parties except as provided herein.
This Agreement may not be amended or modified in any way except by a written
agreement duly executed by the parties. The execution of this Agreement
terminates all prior agreements, written or oral, between the Company and CEA
relating to international investment banking services and any other CEA services
relating to the Company's international expansion efforts, effective upon the
date of this Agreement.
15. Waiver. No consent or waiver of any condition or provision shall be
effective unless evidenced by an instrument in writing, duly executed by the
party sought to be charged with such waiver or consent. No waiver of a breach
of, or default under, any provision of this Agreement shall be deemed a waiver
of any other breach or default under any provision of this Agreement.
16. Headings. The headings in this Agreement are inserted for
convenience only and shall not affect the construction hereof.
17. Governing Law. This Agreement shall be construed as to both
validity and performance in accordance with and governed by the laws of the
State of Florida without regard to conflicts of laws principles thereof.
18. Benefits; Assignments. The rights under this Agreement shall not be
assignable nor the duties delegable by any party without first obtaining the
written consent of the other party hereto. Nothing contained in this Agreement,
express or implied, is intended to confer upon any person or entity, other than
the parties hereto and their successors in interest. Any rights or remedies
under or by reason of this Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and permitted
assigns.
19. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
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<PAGE> 7
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first written above.
COMMUNICATIONS EQUITY ASSOCIATES, INC.
By: /s/ David A. Burns
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Executive Vice President
VIDEO JUKEBOX NETWORK, INC.
By: /s/ Alan McGlade
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President and CEO
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EXHIBIT 10.45
COMMERCIAL LEASE AGREEMENT
1. PARTIES. This Lease is made this 5th day of December, 1995
between GOLDKRESS ASSOCIATES, LTD. and
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("Landlord"),
VIDEO JUKEBOX NETWORK, INC.
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("Tenant").
2. DEMISED PREMISES. Subject to the terms and provisions of this Lease,
Landlord hereby leases to Tenant and Tenant hereby leases from Landlord, those
certain Premises (the "Premises") located at 1205 WASHINGTON AVENUE, #200
THROUGH 216 AND #222 AND #226 , Miami Beach, in the County of Dade, State of
Florida (the "Building"). A floor plan of the ground floor of the Premises is
attached hereto and labeled "Exhibit C".
3. USE OF PREMISES.
3.1 PERMITTED USE. The Premises shall be used and occupied only as an
THE OFFICES, STUDIO, PRODUCTION FACILITY, ENGINEERING AND ASSEMBLY FACILITY FOR
VIDEO JUKEBOX NETWORK and for no other purpose.
3.2 HOURS OF BUSINESS. Deleted.
3.3 OPENING AND CONTINUOUS OCCUPANCY. Tenant shall open the whole of
the Premises for business to the public, fully fixtured, stocked and staffed
within 30 days of the Commencement Date, as hereinafter defined. The Tenant
shall continuously, actively and diligently carry on the business specified in
SECTION 3.1 on the whole of the Premises during the term, during such hours and
upon such days as are herein required, except when prevented from doing so by
force majeure. The Tenant acknowledges that its continued occupancy of the
Premises and the regular conduct of its business therein are of utmost
importance to neighboring tenants and to the Landlord in the renting of space in
the Building, the renewal of other leases therein, and the efficient and
economic supply of services and utilities. The Tenant acknowledges that the
Landlord is executing this Lease in reliance thereupon and that the same is a
material element inducing the Landlord to execute this Lease.
3.4 TENANT'S COVENANTS AS TO USE AND OCCUPANCY. Tenant shall exercise
reasonable care in its use of the Premises or Building and shall not do or
permit anything to be done in or about the Premises or Building, nor bring nor
keep anything in the Premises or Building which will in any way affect the fire
or other insurance upon the Building, or any of its contents, or which shall in
any way conflict with any statute, ordinance, rule, regulation, order, law or
other requirement (collectively the "Laws") affecting the occupancy and use of
the Premises or Building, which is now, or may hereafter be, enacted or
promulgated by any public authority. Tenant shall not obstruct or interfere with
the rights of other tenants of the Building, or injure or annoy them. Tenant
shall not use, or allow the Premises to be used, for any illegal purpose or
purpose constituting a public or private nuisance or for sleeping purposes, or
cooking, and nothing shall be prepared, manufactured, or mixed in the Premises
which would emit an odor and/or fumes of any type into or around any part of the
Building. Subject to the terms of Paragraph 7, Tenant shall promptly comply with
and execute all of the aforesaid Laws and all rules, orders and regulations of
the Southeastern Underwriters Association for the prevention of fires, at
Tenant's own cost and expense. Tenant shall pay for any amounts expended by
Landlord to correct a breach by Tenant of this Section. On or prior to the
Commencement Date and at all times during the term of this Lease and any
extensions or renewals thereof, Tenant shall, at its expense, obtain and
maintain all permits, licenses and other governmental authorizations which are
necessary for the operation of its business in accordance with Section 3.1.
3.5 INVENTORY, STAFF AND FIXTURES. Deleted.
3.6 DISPLAY WINDOWS. Deleted.
3.7 PROHIBITED USES. Tenant shall not use the Premises nor permit them
to be used for any of the following purposes: (A) for the sale by the Tenant, as
its principal business purpose, of any merchandise which the Tenant, in the
course of its normal business practice, purchases at manufacturers' clearances
or purchases of ends-of-runs, bankruptcy stock, seconds or other similar
merchandise; (B) for the sale of second-hand goods, war surplus articles,
insurance salvage stock, fire sale stock, merchandise damaged by or held out to
be damaged by fire, except merchandise damaged by fire or smoke occurring in the
Building, and then only for 30 days after the date of any such damage; (C) as an
auction or flea market; (D) for a bankruptcy sale or going-out-of-business sale
or liquidation sale or any similar sale, unless the Tenant is in fact in
bankruptcy or is going out of business or is in liquidation, in which case such
sale shall not continue beyond 30 days; (E) any business in which the Tenant is
engaged in intentionally deceptive or fraudulent advertising or selling
practices
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or any other act or business practice contrary to honest retail practices; (F)
or any use other than as specified in paragraph 3.1 above.
4. TERM. The term of this Lease shall be for a period of FIVE YEARS
commencing ten days after the date that Landlord provides Tenant written notice
that space is available for occupancy (the "Commencement Date") and ending five
years later or sooner if terminated as provided herein unless extended pursuant
to the terms hereof. Landlord agrees that the space will be available for
occupancy on approximately January 1, 1996, provided Tenant notifies Landlord
with its selections set forth in Exhibit "A" by December 11, 1995. In the event
that Tenant does not provide the selections by December 11, 1995, Landlord shall
deliver the Premises three weeks after selections are received. If Tenant, with
Landlord's prior consent, shall occupy the Premises before commencement of the
term, all provisions of this Lease shall be in full force and effect commencing
upon the occupancy, and Base Rent and Additional Rent for such period shall be
paid by Tenant at the same rate herein specified for the term.
5. BASE RENT.
5.1 As rental for the lease of the Premises, Tenant shall pay to
Landlord, at Landlord's address set forth in Section 22 hereof, or at such other
place and to such other person as Landlord may from time to time designate in
writing for the initial term of this Lease, total monthly base rent ("Base
Rent") in the initial amount of EIGHT THOUSAND ($ 8,000.00 ) DOLLARS, (subject
to escalation as described in Section 5.2 below) payable in monthly
installments, in advance, without notice, due on the first day of each calendar
month during the term of this Lease, free from all claims, demands or setoffs
against Landlord of any kind or character whatsoever. If the term of this Lease
shall begin or terminate on other than the first or last day respectively of a
calendar month, all rent and other charges accruing under this Lease for such
portion of the partial calendar month shall be apportioned and paid on the basis
of a thirty day month. In addition to any other sums due under this Lease,
simultaneously with Tenant's execution of this Lease, Tenant shall pay Landlord
the first month's rent.
5.2 The monthly Base Rent set forth in Section 5.1 above shall be
increased at the beginning of each Lease Year (as hereinafter defined) during
the term of this Lease as follows: Year 2: $8,400.00 monthly
Year 3: $8,820.00 monthly
Year 4: $9,261.00 monthly
Year 5: $9,724.05 monthly
A "Lease Year" shall be the twelve month period commencing with the commencement
date of this Lease and ending one year later. The first adjustment of Base Rent
shall be made at the beginning of the second Lease Year, and at the beginning of
each new Lease Year thereafter.
6. PERCENTAGE OF RENT. DELETED.
7. OPERATING COST PASS THROUGH. For purposes of this Lease, the
following terms shall have the following meanings: "Parcel" means the land owned
by Landlord on which the Building is located. "Tenant's Share" means and is
conclusively agreed to be 35 % .
In addition to Base Rent and adjustments thereto, Tenant shall pay to
Landlord as additional rent Tenant's Share of all taxes (including, without
limitation, all real estate taxes), assessments, insurance costs, common area
cleaning, landscaping, electricity, water, sewer, garbage and trash removal,
pest control, management fees (5% of gross rents, excluding sales tax), other
utility services, operating costs, maintenance costs, service contracts,
non-capital repair or replacement costs, impositions, governmental liens and any
other charges, costs and expenses of Landlord of any nature and sort whatsoever,
ordinary, foreseen, or unforeseen, computed on the accrual basis, which arise
from Landlord's ownership, operation or use of the Parcel or Building, or any
part thereof ("Operating Costs"). Operating Costs shall exclude only (i)
electricity, water, sewer, and gas serving the Premises which shall be
separately metered and paid by Tenant, (ii) janitorial, security, and telephone
service to the Premises which shall be provided by Tenant at Tenant's sole
expense, (iii) any ground lease rental, (iv) capital expenditures, (v) costs
incurred by Landlord for the repair of damage to the Building, to the extent
Landlord is reimbursed by insurance proceeds, (vi) depreciation, amortization,
lease payments and interest payments, (vii) costs for which Landlord has been
compensated by a management fee, (viii) costs arising from the presence of
hazardous substances in or about the Building before the Commencement Date, (ix)
cost for maintaining and repairing the roof and structure of the Building and
annual expenditures which are deemed capital improvements, (x) interest,
principal, points and fees on debts or amortization on any mortgages or any
other debt instrument encumbering the Building, (xi) the replacement of any air
conditioning or heating system components serving the Premises, the cost of
which shall be borne solely by Tenant (as further provided in Section 14
hereof), (xii) leasing commissions or fees, (xiii) improvements to any tenant
space, and (xiv) federal income tax. Notwithstanding anything to the contrary
contained herein, nothing set forth in this Section shall in any way be
construed as a representation by Landlord or a requirement to perform any
particular services of any kind except as expressly
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set forth elsewhere in this Lease.
Tenant agrees to pay Tenant's Share of annual Operating Costs, together
with installments of Base Rent, in monthly installments in advance during the
term of this Lease as may be estimated annually in advance by Landlord. Such
payments shall be prorated for the first and last calendar years of the term
hereof if such term does not start on the first and end on the last day of a
calendar year. Within ninety (90) days following the end of each calendar year,
Landlord shall advise Tenant of Tenant's Share of the actual Operating Costs
payable for the prior calendar year as computed based upon the actual cost
thereof to the Landlord. If there shall have been an underpayment by the Tenant
based on Landlord's estimates, the Tenant shall pay the difference within ten
(10) days of request therefor from Landlord; if there shall have been an
overpayment by Tenant, Tenant shall be given a credit towards the next due
payment of Tenant's Share of Operating Costs for the current year.
Tenant shall have the ability to inspect Landlord's books and records which
pertain to the Operating Costs and conduct an audit of same to determine if the
actual Operating Costs are accurate. If Tenant's audit reveals that Landlord has
overstated the Operating Costs through intentional wrongdoing, then Landlord
shall be responsible for paying for the cost of such audit and the Operating
Costs shall be revised accordingly.
The Tenant's Share of actual Operating Costs for the final calendar year of this
Lease shall be due and payable even though it may not be finally calculated
until after the expiration of the Lease term.
8. TAXES. All payments of Base Rent, Tenant's share of operating costs
and any other charges arising under this Lease shall be paid by Tenant together
with applicable Florida Sales, use and any other taxes thereon. The Tenant shall
pay when due all taxes (whether imposed on the Landlord or Tenant) attributable
to the personal property, trade fixtures, business income, occupancy or sales of
the Tenant or any other occupant of the Premises and to the use of the Building
by the Tenant (collectively the "Business Tax").
9. RENT PAST DUE. In the event any installment of Base Rent, Tenant's
Share of Operating Costs or other charges accruing under this Lease shall become
overdue by more than five (5) business days, a late charge of five percent (5%)
of the delinquent sum may be charged by Landlord. If any installment of Base
Rent, Percentage Rent, Tenant's Share of Operating Costs or other charges
accruing under this Lease remain overdue for more than fifteen days, an
additional late charge in an amount equal to 1-1/2% per month (18% per annum) or
the maximum permitted by law, of the delinquent amount may be charged by
Landlord, such charge to be computed for the entire period for which the amount
is overdue. All late charges shall be due immediately upon demand by Landlord
without set-off or defense.
10. SECURITY DEPOSIT. Simultaneously with the execution of this Lease,
Tenant has paid to Landlord the sum of SIXTEEN THOUSAND ($ 16,000.00 ) DOLLARS,
representing two month's security deposit, to be held by Landlord without
interest for the full and faithful performance by Tenant of the terms and
conditions of this Lease. Landlord may utilize such part of the security deposit
as is necessary to cure any default (after the expiration of any applicable
grace or cure period) of Tenant under this Lease and in such event Tenant shall
immediately replace such portions as may be expended by Landlord. Upon the
expiration of this Lease (except arising due to a default by Tenant), delivery
of the Premises to Landlord in their original condition, ordinary wear and tear
excepted, then the security deposit shall be returned to Tenant without
interest. Upon any conveyance of the Building by Landlord to a successor in
title, the successor shall become liable to Tenant for the return of the
security deposit and the conveying party released from same provided that the
successor assumes the obligation to return the security deposit. Landlord shall
not be required to hold the security deposit in any special account for the
benefit of the Tenant and the security deposit may be co-mingled with Landlord's
funds. In the event any installment of Base Rent or other charges accruing under
this Lease shall be late more than five (5) times during the term of this Lease
(including the return of any of Tenant's checks for insufficient or uncollected
funds or otherwise), the Landlord shall have the right, at the Landlord's sole
discretion, to require the Tenant to place with Landlord an additional security
deposit (in excess of the original security deposit), of up to two installments
of then current Base Rent, which sum shall become a part of the original
security deposit. The rights of the Landlord shall in no way be limited or
restricted by the security deposit, and the Landlord shall have the absolute
right to pursue any available remedies to protect its interests herein, as if
the security deposit had not been made. Landlord represents that current zoning
permits office use at this property. Notwithstanding anything to the contrary
contained in this Lease (including without limitation, Section 3.4), the
obtaining and maintenance of all permits, licenses, and governmental
authorizations required for Tenant's business operations shall be Tenant's sole
responsibility and at Tenant's sole cost and expense and in no case shall the
obtaining or maintenance of such be a condition to Tenant's obligations
hereunder. Tenant will be charged fifty dollars for any checks or payments
received by Landlord from Tenant and returned for "insufficient funds", in
addition to any late fees which may be accrued.
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11. IMPROVEMENTS AND DELIVERY OF POSSESSION. Tenant acknowledges that
Tenant has inspected the Premises and Tenant is accepting the same in "as is"
condition. No representations except those expressly contained herein have been
relied on by Tenant with respect to the condition, design, amenities or
completion of the Building or Premises. Tenant will make no claim against
Landlord on account of any representation of any kind, whether made by any
renting agent, broker, officer or other representative of Landlord or which may
be contained in any advertisement relating to the Building unless such
representation is specifically set forth in this Lease. Any improvements which
have not been approved by Landlord shall become Landlord's property and remain
on the Premises upon the expiration or earlier termination of this Lease.
Notwithstanding anything to the contrary contained in this Lease (including,
without limitation, Section 3.4), the obtaining and maintenance of all permits,
licenses, and governmental authorizations required for Tenant's business
operations shall be Tenant's sole responsibility and at Tenant's sole cost and
expense and in no case shall the obtaining or maintenance of such be a condition
to Tenant's obligations hereunder.
12. NEGATION OF PERSONAL LIABILITY. Except for intentional wrongdoing
or gross negligence of Landlord, its agents, employees, invitees or licensees,
notwithstanding anything to the contrary herein contained, Tenant agrees that
Landlord (and, in case Landlord is a joint venture, partnership, tenancy in
common, association or other form of joint ownership, the partners, members and
employees of any such joint venture, partnership, tenancy-in-common, association
or other form of joint ownership) shall have absolutely no personal liability
with respect to any of the provisions of this Lease, or any obligation or
liability arising therefrom or in connection therewith. Tenant shall look solely
to Landlord's equity in the Premises for the satisfaction of any remedies of
Tenant against Landlord including, without limitation, the collection of any
judgment (or other judicial process) requiring the payment of money by Landlord
in the event of any default or breach by Landlord with respect to any of the
terms and provisions of this Lease to be observed and/or performed by Landlord,
subject, however, to the prior rights of any holder of any mortgage covering all
or part of the Premises and no other assets of Landlord or any principal or
partner of Landlord shall be subject to levy, execution or other judicial
process for the satisfaction of Tenant's claim and in the event Tenant obtains a
judgment against Landlord, the judgment docket shall be so noted. This
exculpation of liability shall be absolute and without exception whatsoever.
This section shall inure to the benefit of Landlord's successors and assigns and
their respective principals.
13. RULES AND REGULATIONS. Deleted.
14. ASSIGNMENT AND SUBLETTING. Tenant shall not assign, sublet,
mortgage, pledge, or hypothecate this Lease, or any interest therein, nor shall
Tenant permit the use of the Premises by any person or persons other than
Tenant, nor shall Tenant sublet the Premises, or any part thereof, without the
written consent of Landlord, which consent shall not be unreasonably withheld.
In determining the reasonability of the assignee, Landlord will review, in
addition to other valid considerations, the financial position, reputation
within the community and type of business of the assignee, which shall be equal
or better than Tenant. Tenant may, without Landlord's consent, sublease or
assign part or all of this space to a parent, subsidiary, affiliate company, or
to an entity with whom Tenant has merged or consolidated, or to whom all of
Tenant's assets have been sold or the business of Tenant has been sold.
15. CONDITION OF DEMISED PREMISES: MAINTENANCE AND REPAIRS.
15.1 Subject to the terms of paragraph 7 and 15.2, the parties
agree that Tenant, will be responsible, at Tenant's sole cost and expense, and
at all times throughout the term and any extensions thereof, for all maintenance
and repairs in, on or about the Premises and all equipment and property thereon
shall be maintained in good condition, and in substantially the same condition
as same existed upon the Commencement Date, reasonable wear and tear excepted.
Tenant's responsibilities hereunder include, but are not limited to, the
replacement, repair and maintenance of all exterior and interior non-structural
improvements, fixtures, appliances, equipment, and air conditioning; and all of
the foregoing shall be maintained in good operating condition at all times, free
of dirt, rubbish and other obstructions, and shall be kept clean. All repairs
and maintenance shall be performed by contractors or workman designated or
approved by Landlord. Landlord's approval shall only be necessary for items
which cost in excess of $10,000 for which such approval shall not be
unreasonably withheld. Tenant shall not commit nor allow any waste or damage to
be committed on any portion of the Building or Premises. Tenant shall be
responsible for janitorial services within the leased premises. Tenant shall
perform the aforesaid maintenance, repairs and services and shall otherwise use
the Premises in a manner which is sensitive and consistent with the historic
nature of the Art Deco District. If Landlord gives Tenant written notice to make
any repairs and Tenant does not make repairs promptly and adequately or
otherwise fails to comply with this Section, the Landlord may, but need not,
make repairs or correct such failure, and the Tenant shall pay Landlord the cost
thereof on demand.
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15.2 Landlord shall maintain and repair the roof and structure
of the Building. The Landlord shall not be liable to the Tenant for any expense,
injury, loss or damage, resulting from work done in or upon, or the use of any
adjacent or nearby building, land, City of Miami Beach parking lot, street or
alley unless such expense, injury, loss or damage is due to the gross negligence
of Landlord or its agents, employees, invitees or licensees. The Tenant shall
pay the Landlord for overtime and for any other expense incurred in the event
repairs, alterations, decorating or other work performed by Landlord are not
made during ordinary business hours at the Tenant's request. If any damage to
the Premises or Building results from any act or neglect of the Tenant, its
employees, agents, invitees, licensees, or contractors, the Landlord will
provide Tenant with written notice and an opportunity to cure any such damage,
prior to the Landlord, at the Landlord's option, repairing such damage, whether
caused to the Building or to tenants thereof, and the Tenant shall thereupon pay
to the Landlord, upon demand, the total cost of such repairs and damages both to
the Building and to the tenants thereof, plus direct expenses to Landlord
including labor costs of Landlord's employees.
16. ALTERATIONS, ADDITIONS OR IMPROVEMENTS. The Tenant shall, at its
sole cost and expense, perform all work necessary to complete the Premises for
its business purposes, including, without limitation, the work specified in
Exhibit B hereto (collectively "Tenants Work". Tenant shall complete all of
Tenant's work by FEBRUARY 1, 1996 (the "Completion Date"). Tenant shall not
commence Tenant's work or make or allow any other repairs, replacements,
additions or modifications to the Premises (collectively the "Alterations")
without the Landlord's prior written approval. Fourteen (14) days from the
signing of this Lease, the Tenant shall submit to the Landlord, for Landlord's
written approval, details of all proposed alterations including drawings and
specifications prepared by qualified architects or engineers conforming to good
engineering practice. All such alterations shall be performed: (i) at the sole
cost of the Tenant; (ii) by licensed contractors and subcontractors and workmen
approved in writing by the Landlord; (iii) in a good and workmanlike manner;
(iv) in accordance with the drawings and specifications approved in writing by
the Landlord; (v) in accordance with all applicable laws and regulations; (vi)
subject to the reasonable regulations, supervision, control and inspection of
the Landlord; and (vii) subject to such indemnification against liens and
expenses as the Landlord reasonably requires. If any alterations would affect
the structure of the building or any of the electrical, plumbing, mechanical,
heating, ventilating or air conditioning systems or other base building systems,
such work shall, at the option of the Landlord, be performed by the Landlord at
the Tenant's cost. The cost of the work performed by Landlord plus direct
expenses to Landlord including labor costs of Landlord's employees shall be paid
by the Tenant to the Landlord upon demand. Upon installation, all alterations
shall become the property of Landlord and shall remain upon and be surrendered
with the Premises. Tenant shall have no right or power to create mechanics'
liens on the Premises, Building, underlying property, or attached fixtures and
shall so advise any suppliers of material or labor for work on the Premises. The
right, title and interest of Landlord in all or any portion of the Premises,
Building, underlying property or attached fixtures shall not be subject to any
liens arising directly or indirectly out of any improvements, alterations or
changes made to the Premises, or Building, by or on the behalf of Tenant, its
officers, employees, services or agents. The Tenant shall promptly pay for all
materials supplied and work done with respect to the Premises. Tenant has no
right, power or authority to create any mechanics' or materialmen's lien on the
Premises, Building, underlying property, or attached fixtures or Landlord's
right, title or interest therein and Tenant shall so notify all suppliers of
labor or materials in writing, and obtain written acknowledgement thereof, prior
to ordering such labor or materials. The Tenant agrees to indemnify and save
harmless the Landlord from any and all liabilities, expenses, costs,
expenditures or otherwise, including attorneys' fees at all judicial levels, for
breach of this provision in the event the damages are caused through the
negligence of Tenant. The Tenant shall notify the Landlord of any
accident,defect, damage or deficiency in any part of the Premises or Building
which comes to the attention of the Tenant, its employees or contractors
notwithstanding that the Landlord may have no obligation in respect thereof.
Tenant will allow Landlord to install, alter or remove any conduit pipes, water,
waste, or service lines that may penetrate the Tenant's premises, at Landlord's
expense.
16.1 MECHANICS LIENS. Tenant shall keep the Premises and all parts
thereof at all times free of mechanic's liens and any other lien for labor,
services, supplies, equipment or material purchased or procured, directly by or
for Tenant. Tenant further agrees that Tenant will promptly pay and satisfy all
liens of contractors, subcontractors, mechanics, laborers, materialmen and other
items of like character, and will indemnify Landlord against all expenses, costs
and charges, including bond premiums for release of liens and attorney's fees
and costs reasonably incurred in and about the defense of any suit in
discharging the Premises, from any liens, judgments, or encumbrances caused or
suffered by Tenant. In the event any such lien shall be made or filed, Tenant
shall bond against or discharge the same within thirty (30) days after the same
has been made or filed. It is understood and agreed between the parties hereto
that the expenses, costs and charges above referred to shall be considered as
Rent due and shall be included in any lien for Rent.
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The Tenant herein shall not have any authority to create any liens for
labor or material on the Landlord's interest in the Premises and all persons
contracting with the Tenant for the construction or removal of any facilities or
other improvements on or about the Premises, and all materialmen, contractors,
mechanics and laborers are hereby charged with notice that they must look only
to the Tenant and to the Tenant's interests in the Premises to secure the
payment of any bill for work done or material furnished at the request or
instruction of Tenant.
In accordance with Florida Statutes Section 713.10, Landlord shall have
the right to post on the Premises and to file and/or record in the Public
Records or court registry, as applicable, notices of non-responsibility and such
other notices as Landlord may reasonably deem proper for the protection of
Landlord's interest in the Premises. Tenant shall, before the commencement of
any work which might result in any lien on the Premises, give Landlord
reasonable written notice under the circumstances of its intention to commence
said work.
17. DESTRUCTION OF PREMISES. If the Premises or the Building shall be
damaged by fire or other casualty, Tenant shall give notice thereof to Landlord.
In case the Building shall be so damaged that substantial alteration or
reconstruction of the Building shall, in Landlord's opinion, be required,
Landlord may, at its option, terminate this Lease by notifying Tenant in writing
of such termination within ninety (90) days after the date of such casualty. If
Landlord does not thus elect to terminate this Lease, Landlord shall notify
Tenant in writing of such election within ninety (90) days after the date of
such casualty and shall commence and proceed with reasonable diligence to
restore the Building and the improvements, and such restoration shall be
completed in a similar manner and condition equal to or greater than the
condition prior to the casualty. In the event Landlord elects to restore the
Building as described above, Tenant shall have the option to terminate this
Lease by notifying Landlord in writing within thirty (30) days of receipt of
Landlord's intention to rebuild upon the happening of any of the following
events: (i) the repair or reconstruction to the Premises or Building cannot be
completed within one hundred eighty (180) days from the date of Landlord's
notice of its intention to rebuild (such notice to be accompanied by a schedule
from Landlord to Tenant of the work to be completed and the time frame to
complete same); or (ii) the notice from Landlord is sent any time during the
last six (6) months of the term of this lease. If the casualty is a minor
casualty necessitating expenditures of less than $50,000.00 in repairs to the
Building, Landlord shall commence such repairs within fifteen (15) days from the
date of the casualty. All costs and expenses of reconstructing the Premises and
Building shall be borne by Landlord.
18. ENTRY, INSPECTION AND OTHER RIGHTS RESERVED TO LANDLORD. Unless an
emergency, Landlord, prior to entering the Premises, shall provide Tenant with
written notice of its intention to do so, Landlord's entrance shall not
interfere with Tenant's business, and any alterations, repairs or additions
shall be made after business hours to the extent possible. Tenant will permit
Landlord at any time within the earlier of (i) one hundred twenty (120) days
prior to the expiration of this Lease or (ii) failure of Tenant to cure a
non-monetary default within thirty (30) days of notice by Landlord to bring
prospective tenants upon the Premises for purposes of inspection and to put or
keep upon the doors or windows thereof a "For Rent" and/or "For Sale" notice. In
furtherance of such rights, Landlord shall retain a key to the Premises and
Tenant shall not install any new locks to the Premises without the prior written
consent of Landlord and unless Tenant furnishes Landlord with a copy of such
key. No entry pursuant to this Paragraph shall in any way be deemed a breach of
the covenant of quiet enjoyment.
19. INDEMNITY. (a) Except for the gross negligence or willful
misconduct of Landlord, its agents, employees, invitees or licensees, Landlord
shall not be responsible or liable for the theft, loss or damage to person or
property in, on or about the Premises, and/or the Building. Tenant acknowledges
and agrees that Landlord is not responsible for the security of the Premises or
the Building in general. Landlord shall not be liable for any injury or damage
to persons or property resulting from fire, explosion, falling plaster, gas,
electricity, water, rain or leaks from any part of the Building or by any other
cause whatsoever, nor shall Landlord or its agents be liable for any such damage
caused by other tenants or persons in the Building; nor shall Landlord be liable
for any latent defect in the Premises or in the Building.
(b) Except for the gross negligence or willful misconduct of Landlord,
its agents, employees, invitees or licensees, Tenant agrees that Tenant, at all
times, will indemnify and hold harmless Landlord from all losses, damages,
liabilities and expenses (including reasonable legal fees and court costs)
whatsoever, which may arise or be claimed against Landlord, or any injuries or
damages to the persons or property of any persons, firms or corporations,
consequent upon or arising from: (i) the use or occupancy of the Premises and/or
other portions of the Building (including all Common Facilities) by Tenant, (ii)
any acts, omissions, neglect or fault of Tenant, Tenant's agents, employees,
customers, or invitees, or (iii) Tenant's failure to comply with the terms and
provisions of this Lease and/or any applicable laws.
Except for the gross negligence or willful misconduct of Landlord, its agents,
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employees, invitees or licensees, in case Landlord shall be made a party to any
litigation commenced against Tenant, then Tenant shall protect and hold Landlord
harmless and shall pay all costs, expenses and reasonable attorneys fees
incurred or paid by Landlord in connection with such litigation and any appeal
thereof.
The provisions of this paragraph shall survive any termination or cancellation
of the Lease.
20. INSURANCE. The Tenant shall maintain at its expense throughout the
terms of this Lease the following insurance coverages: (i) liability insurance
for bodily injury and property damage to protect both Landlord and Tenant
against damage, costs and attorneys' fees arising out of accidents of any kind
occurring on or about the Premises and Building (including all Common
Facilities) with combined single limit liability coverage of not less than
$1,000,000 and property damage coverage of not less than $100,000; (ii) fire and
extended casualty insurance with sufficient coverage to reimburse the loss of
all of Tenant's improvements to the Premises, and all of Tenant's fixtures,
equipment, personal property and inventory; (iii) plate glass insurance to
protect both Landlord and Tenant covering the replacement value of all plate
glass in or about the Premises; and (iv) appropriate workmen's compensation and
any and all other insurance required by law.
All insurance shall be written by a company or companies qualified to
do business in Florida and reasonably acceptable to Landlord. A certificate of
duplicate policies showing such insurance in force shall be delivered to
Landlord prior to the Commencement Date, and such insurance and updated
certificates or renewed policies shall be maintained with Landlord throughout
the term of this Lease. No policy shall be canceled or subject to reduction in
coverage or other change without at least 30 days advance written notice to
Landlord. All policies shall be written as primary policies not contributing
with and not in excess of coverage Landlord may carry. To the extent permitted
by its insurers, Tenant hereby waives any right of recovery against Landlord for
any loss Tenant shall apply to its insurers to obtain such waiver and shall
obtain any special endorsements if required by its insurer to evidence
compliance with such waiver.
All Policies referred to above shall: (i) be taken out with insurers
licensed to do business in Florida and reasonably acceptable to the Landlord;
(ii) be in a form reasonably satisfactory to the Landlord; (iii) be
non-contributing with, and shall apply only as primary and not as excess to any
other insurance available to the Landlord or the Mortgagee; and (iv) contain an
undertaking by the insurers to notify the Landlord by registered or certified
mail not less than 30 days prior to any material change, cancellation or
termination. Certificates of insurance on the Landlord's standard form or, if
required by the Mortgagee, copies of such insurance policies certified by an
authorized officer of Tenant's insurer as being complete and current, shall be
delivered to the Landlord promptly upon request. If a) the Tenant fails to take
out or to keep in force any insurance referred to in this Section, or should any
such insurance not be approved by either the Landlord or the Mortgagee, and b)
the Tenant does not commence and continue to diligently cure such default within
three (3) business days after written notice by the Landlord to the Tenant
specifying the nature of such default, then the Landlord has the right, without
assuming any obligation in connection therewith, to effect such insurance at the
sole cost of the Tenant and all outlays by the Landlord shall be paid by the
Tenant to the Landlord without prejudice to any other rights or remedies of the
Landlord under this Lease. Tenant will make its best efforts to obtain
contractual liability coverage as long as there is no cost to Tenant. If Tenant
can obtain such coverage then the following indemnity shall be included in such
coverage.
Tenant hereby agrees to indemnify, defend, and hold harmless Landlord
and its directors, officers, agents and employees from and against any and all
suits, actions, legal proceedings, liabilities, claims, demands, damages, costs,
expenses, attorneys' fees (collectively the "Claims"), and from all expenses in
defending Claims, including without limitation, court costs, attorneys' fees at
all judicial levels, the amounts of any judgments recovered, and any other
expenses resulting from Claims for bodily injury, sickness or disease, including
death resulting therefrom, sustained by any person or entity and/or resulting
from injury to or destruction of property, including loss of use thereof, caused
by, arising from, incident to, connected with, or arising out of the use of the
Premises by Tenant, its directors, officers, agents, employees, customers,
servants, invitees, visitors, or any other person whomsoever and/or any failure
of Tenant in any respect to comply with any of the requirements or provisions of
this Lease, and/or the acts or omissions of Tenant or its directors, officers,
agents, employees, customers, servants, invitees, visitors and/or by any
contractor, its agents or employees, and/or by any sublessee, its agents,
employees and customers, and/or by Landlord, its agents or employees. The
certificates or insurance required by this Section shall show that the above
Indemnity Agreement has been specifically insured for the limits specified
above.
21. UTILITIES AND SERVICES. Electricity, water, sewer and any other
utilities for the Premises shall be separately metered when possible in the name
of Tenant and the cost thereof, together with the cost and performance of
janitorial, telephone, and security service for the Premises shall be Tenant's
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sole responsibility. In the event that the utilities cannot be separately
metered, Tenant will pay it's pro-rata share of total building expenses to
provide such services. Landlord shall not be liable to Tenant for any
interruption in the service of any utility. No interruption or failure of such
utilities or services shall relieve Tenant from the obligation to pay the full
amount of rent and other charges herein reserved, nor shall the same constitute
a constructive or other eviction of Tenant, provided Landlord corrects or
remedies such failure within five (5) business days.
22. NOTICES. In every instance where it shall be necessary or desirable
for the Landlord or Tenant to serve any notice or demand upon the other, it
shall be sufficient:
(a) To deliver or cause to be delivered a written copy thereof, or by
means of personal delivery or Federal Express, or
(b) To send a written copy thereof by United Stated certified mail,
postage prepaid, or
(c) If notice by methods (a) and (b) has failed then Landlord may leave
a written copy thereof in or upon the Premises or to affix the same upon any
door leading into the Premises, in which event the notice or demand shall be
deemed to have been served at the time the copy is so left or affixed.
All notices or demands shall be signed by the Landlord or its agent.
Where the Tenant desires to serve notice or demand upon the Landlord, such
notice or demand shall be sent to Landlord at the following address: C/O DACRA
DEVELOPMENT, 230 FIFTH STREET, MIAMI BEACH, FLORIDA 33139. Any notice to be
given to Tenant prior to the commencement or subsequent to Tenant's occupancy
under this Lease shall be sent to Tenant at 1205 WASHINGTON AVENUE, MIAMI BEACH,
FL 33139 . Except as otherwise provided herein, notice given by personal
delivery shall be effective as of the date of delivery; notice mailed shall be
effective as of the second day (not a Saturday, Sunday or legal holiday) next
following the date of mailing; notice by Federal Express shall be effective on
the next business day following the date of sending.
23. DEFAULT. Tenant covenants and agrees that any of the following
events shall be a default under this Lease: (i) if any false or materially
misleading financial report or statement is furnished or made by or on behalf of
Tenant; or (ii) If any Base Rent, or Tenant's share of Operating Costs is in
arrears provided Tenant does not cure such default within ten (10) days after
receipt of written notice; or (iii) if Tenant shall fail to perform or observe
or breach any covenant, condition or agreement to be performed or observed by
such party hereunder (other than the payment of rent) provided Tenant does not
cure such default within thirty (30) days after receipt of written notice; or
(iv) if Tenant shall be in breach of any other lease with Landlord or in breach
of or in default in the payment and performance of any obligation owing to
Landlord, beyond any applicable grace or cure period, whether or not related to
this Lease and howsoever arising, whether by operation or law or otherwise,
present or future, contracted for or acquired, and whether joint, several,
absolute, contingent, secured, unsecured, matured or unmatured; or (v) if Tenant
shall cease doing business as a going concern, make an assignment for the
benefit of creditors, generally not pay its debts as they become due, admit in
writing its inability to pay its debts as they become due, become insolvent
(i.e. greater liabilities than assets), or take any action looking to its
dissolution of liquidation; or (vi) if Tenant should file for relief, or have
filed against it, an action under any provision of any state or federal
bankruptcy or insolvency law (provided that Tenant shall have ninety (90) days
to discharge such action); or (vii) if Tenant shall abandon or vacate the
Premises for more than thirty (30) days; or (viii) if Tenant fails to pay all
charges for gas, sewer, electricity and other utilities which are separately
metered for the Premises within twenty (20) days after such are due; or (ix) if
Landlord determines, in its sole discretion, that unpleasant noises or odors
emanate from the Premises and Tenant does not take immediate steps to eliminate
such noises and/or odors or fails to eliminate such noises and odors permanently
within twenty (20) days of notice from Landlord; or (x) if Landlord has sent
Tenant, at any time during the term of this Lease, five notices for the same
type of lease violation irrespective of whether such violation may have been
cured at the time of receipt of the notice.
In the event of any such default, Landlord may, at its option, without
notice, elect any of the following remedies:
(a) Re-take and recover possession of the Premises, terminate this
Lease, and retain Tenant's security deposit.
(b) Re-take and recover possession of the Premises, without
terminating this Lease, in which event Landlord may re-rent the
Premises as agent for and for the account of Tenant and recover
from Tenant the difference between the rental herein specified and
the rent provided in such re-rental, less all of Landlord's costs
and expenses of re-renting, including, without limitation,
attorneys' fees plus all other sums due hereunder.
(c) Permit the Premises to remain vacant in which event Tenant shall
continue to be responsible for all rental and other payments due
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hereunder.
(d) Re-take and recover possession of the Premises, and accelerate and
collect all rent due hereunder for the balance of the term of this
Lease to the maximum extent allowed by law.
(e) Take any other action as may be permitted at law or in equity.
All of the Landlord's remedies contained in this Lease shall be
cumulative and election by Landlord to take any one remedy shall not preclude
Landlord from taking any other remedy not by its nature absolutely incompatible
with any previously or contemporaneously elected remedy. The Landlord may, at
its option, apply any sums received from the Tenant against any amounts due and
payable by the Tenant under this Lease in such manner as the Landlord sees fit
and regardless of the express purpose for which the tender was made and
regardless of any endorsement placed on the check by which payment is made.
24. ATTORNEYS' FEES AND COSTS. The prevailing party shall be reimbursed
on demand for all costs, charges and expenses including reasonable attorneys'
fees at all tribunal levels, incurred by Landlord or Tenant in enforcing this
Lease or any covenant hereof or in the collection of any rent, or other sum of
money, becoming due hereunder or in the recovery of possession of the Premises
or reletting of the Premises, in the event of the breach by Tenant or Landlord
of any of the terms or provisions of this Lease.
25. NON-WAIVER OF BREACH. Landlord's or Tenant's failure to take
advantage of any default or breach of covenant on the part of Tenant or Landlord
shall not be construed as a waiver thereof, nor shall any custom or practice
which may grow between the parties in the course of administering this Lease be
construed or to waive or to lessen the right of Landlord or Tenant to insist
upon the strict performance by Tenant or Landlord of any term, covenant or
condition hereof, or to exercise any rights of Landlord or Tenant on account of
any such default. A waiver of a particular breach or default shall not be deemed
to be a waiver of the same or any other subsequent breach or default. The
acceptance of rent hereunder shall not be, or be construed to be, a waiver of
any breach of any term, covenant or condition of this Lease. The presentation of
any rent or other charge hereunder in the form of a check marked by Tenant to
constitute a waiver of any default shall not constitute such waiver even though
endorsed and cashed by Landlord unless Landlord expressly agrees to waive such
default by separate written instrument. No surrender of the Premises for the
remainder of the term hereof shall operate to release Tenant from liability
hereunder.
26. SUBORDINATION BY TENANT. This Lease and Tenant's rights here-under,
are hereby made expressly subject and subordinate to any and all security
agreements, mortgages, ground or underlying leases, or like instruments
resulting from any financing or refinancing affecting the Premises or Building
(or any portion thereof) which are currently in existence or which may hereafter
be created by Landlord, or its successors or assigns, including any and all
extensions and renewals, substitutions, and amendments thereof, and to any and
all advances made or to be made under same (collectively the "Mortgage"). This
provision shall be self-operative without the execution of any further
instruments. Tenant agrees to execute any instrument or instruments which the
Landlord may deem necessary or desirable to further evidence the foregoing
subordination. Tenant further agrees to make such reasonable modifications to
this Lease (not increasing Tenant's obligations hereunder) as may be requested
by the holder of any such Mortgage (the "Mortgagee"). Tenant agrees that in the
event of any act or omission by Landlord which could constitute a default by
Landlord or give Tenant the right to terminate this Lease or claim a partial
eviction, Tenant shall not exercise any such right until (i) Tenant notifies
Landlord in writing of such default and Landlord fails to cure such default
within thirty (30) days of such notice, or if such default cannot reasonably be
cured within such thirty (30) days; and (ii) until every holder of any Mortgage
is notified in writing of such default and fails to commence to cure such
default within thirty (30) days after all of Landlord's periods to cure such
default have expired. Tenant further agrees to execute any non-disturbance
and/or attornment agreement requested by any mortgagee and/or ground lessor.
Tenant's agreement to subordinate under the terms and conditions of this Lease
are contingent upon the Landlord and any present or future lenders to the
Property agreeing not to disturb this Lease so long as Tenant is in compliance
with all the terms and conditions of the Lease.
27. TIME. It is understood and agreed between the parties hereto that
time is of the essence of this Lease, and to all of the terms, conditions and
provisions contained herein. Any time period herein described of ten (10) days
or more shall mean calendar days; less than ten (10) days shall mean business
days.
28. TRANSFERABILITY BY LANDLORD. Landlord shall have the right to
transfer and assign, in whole or in part, all and every feature of its rights
and obligations hereunder as part of a conveyance of the Building and underlying
property and upon such assignment of this Lease or conveyance of the Building,
the Landlord named herein shall be released from all subsequent obligations or
liabilities hereunder, provided Landlord's successor assumes all terms and
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obligations under the Lease, and assumes the responsibility to Tenant for all
obligations of Landlord.
29. AMENDMENT OF LEASE. This Lease may not be altered, changed, or
amended, except by an instrument in writing, signed by the party against whom
enforcement is sought. This Lease and any exhibits contain the entire agreement
reached in all previous negotiations between the parties hereto and there are no
other representations, agreements or understandings of any kind, either written
or oral, except as specifically set forth herein.
30. CONDEMNATION. In the event all or any material part of the Building
shall be taken or condemned for any public or quasi-public use or purpose, the
Landlord or Tenant may, at its option, terminate this Lease from the time title
to or right to possession of the Building shall vest in or be taken for such
public or quasi-public use or purpose. Tenant shall not be entitled to receive
any portion of any award made or paid to Landlord representing the property or
interest of Landlord taken or damaged and Tenant hereby expressly waives and
relinquishes any right or claim to any portion of any such award regardless of
whether any such award includes any value attributable to Tenant's leasehold
estate. However, Tenant shall have the right to claim and recover from the
condemning authority, but not from Landlord, such special and separate damages
as may be recoverable by Tenant independent of and without diminution of
Landlord's recovery. Except as set forth above, any non-material partial taking
shall be treated in the same manner as a casualty loss for which neither party
elects to terminate this Lease, as provided herein.
31. SURRENDER OF DEMISED PREMISES. Tenant agrees to surrender the
Premises at the termination of the tenancy herein created in the same condition
as received by Tenant, reasonable use and wear thereof excepted.
32. HOLDING OVER. In case of holding over by Tenant after expiration or
termination of this Lease, Tenant shall be deemed a tenant at sufferance and in
addition, shall pay for each month of such holdover period one and a half times
the current rental rate plus other charges accruing for the last month during
the term of this Lease.
33. QUIET ENJOYMENT. Tenant shall and may peaceably have, hold and
enjoy the Premises subject to the terms of this Lease and provided Tenant pays
the rental herein reserved and performs all the covenants and agreements herein
contained.
34. ATTORNMENT. In the event of any foreclosure of any mortgage
encumbering the Building, or deed-in-lieu thereof, or sale of the Building,
Landlord shall be released from all liability hereunder and Tenant shall attorn
to the purchaser upon any such foreclosure or sale and recognize such purchaser
as the Landlord under this Lease. Tenant shall not be obligated to attorn to the
purchaser unless it has been provided with a non-disturbance agreement in form
and substance satisfactory to Tenant. Landlord shall not be released from
liability hereunder unless the purchaser has assumed all of the obligations
under the Lease.
35. ESTOPPEL CERTIFICATE. Within ten (10) days after request therefor
by Landlord, Tenant shall deliver to Landlord, in a form satisfactory to
Landlord, a certificate certifying (i) the good standing and absence of default
under this Lease; (ii) the absence of set-offs to charges hereunder; (iii) the
validity and completeness of a copy of this Lease and all amendments to be
attached to the certificate; (iv) the amount of pre-paid rent; (v) the amount of
security deposit; (vi) the commencement and expiration dates hereof; (vii) the
dates and amounts of the last made and next due rental installments; and (viii)
such other matters as Landlord shall reasonably request. Landlord shall furnish
Tenant with a similar estoppel certificate within the same ten (10) day period.
36. SIGNAGE AND WINDOW TREATMENTS. Except with the prior written
consent of Landlord which consent shall not be unreasonably withheld, the Tenant
shall not erect, install, display, inscribe, paint or affix any window
treatments, signs, lettering or advertising mediums, in, upon, or above any
exterior or interior portion of the Premises. Tenant will be allowed one sign on
second floor corner of the building. Said sign shall be produced and installed
at the Tenant's expense and shall comply with all Miami Beach codes and
regulations. Landlord shall have the right to approve said sign prior to
installation, which approval shall not be unreasonably withheld.
37. PARKING. Tenant shall be responsible, at Tenant's sole cost and
expense, for the payment of all parking, impact or other fees related to
Tenant's use or occupancy of the Premises or Building.
38. ALARM BOX. Should Tenant install an alarm box, that alarm box must
not be visible from the street.
39. BROKERAGE. Tenant and Landlord represent and warrant to each other
that there are no brokers involved in this Lease transaction except DACRA
REALTY, INC. (if left blank, "none" shall be deemed inserted) to whom commission
shall be paid by Landlord by separate agreement (if name inserted).
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Tenant and Landlord agree to indemnify, defend and hold each other harmless from
and against all costs, claims, liabilities, expenses or damages of any kind
whatsoever (including but not limited to attorneys' fees and costs at all
tribunal levels) arising from any such brokerage claim made by any one other
than the above named broker (if name inserted).
40. RECORDING. Tenant or anyone claiming under Tenant shall not record
this Lease or any memorandum thereof without the prior written consent of
Landlord. Landlord shall be entitled, but not required, to record a short form
of memorandum (the "Memorandum") of this Lease. Within five (5) days of written
request by Landlord, Tenant shall execute Landlord's form Memorandum and
promptly return such to Landlord.
41. AUTHORITY. Landlord is a duly authorized and existing partnership
and Tenant is a duly authorized and existing CORPORATION qualified to do
business in the state in which the Premises are located, and Tenant and Landlord
have full right and authority to enter into this Lease, and each of the persons
signing on Tenant's and Landlord's behalf are authorized to do so. In addition,
both Tenant and Landlord warrant that it is not necessary for any other person,
firm, corporation, or entity to join in the execution of this Lease to make the
Landlord's or Tenant's execution complete, appropriate and binding.
42. SEVERABILITY. Inapplicability, invalidation, or unenforceability of
any one or more of the provisions of this Lease or any instrument executed and
delivered pursuant hereto, by judgment, court order or otherwise, shall in no
way affect any other provision of this Lease or any other such instrument, which
shall remain in full force and effect.
43. LIEN UPON TENANT'S PROPERTY. Deleted.
44. EFFECT OF UNLAWFUL RETENTION OF PREMISES BY OTHER. Deleted.
45. BINDING EFFECT. Submission of this instrument for examination does
not constitute a reservation of or option for the Premises nor an offer to rent
the same. The instrument becomes effective as a Lease only upon execution and
delivery of both Landlord and Tenant.
46. TRIAL BY JURY. Deleted.
47. DISPLAYS. The Tenant may not display or sell merchandise or allow
grocery carts or other similar devices within the control of Tenant to be stored
or to remain outside the defined exterior walls and permanent doorways of the
Premises. Tenant further agrees not to install any exterior lighting, amplifiers
or similar devices or use in or about the Premises any advertising medium which
may be heard or seen outside the Premises, such as flashing lights,
searchlights, loudspeakers, phonographs or radio broadcasts without Landlord's
consent, which consent shall not be unreasonably withheld.
48. COVENANT OF RENT. Tenant agrees that the provisions for payment of
Rent herein are independent covenants of Tenant and Tenant shall not interpose
any counterclaim or counterclaims or in any action based upon non-payment of
rent or any other payment required of Tenant hereunder.
49. FORCE MAJEURE. This Lease and the obligations of the Tenant
hereunder shall not be affected or impaired and Landlord shall not be liable in
the event Landlord is unable to fulfill any of its obligations hereunder or is
delayed in doing so if such inability or delay is caused by "force majeure". The
term "force majeure" as used in this Lease shall mean "Acts of God", labor
disputes (whether lawful or not), restrictions by any governmental authority,
civil riots or floods.
50. INTERPRETATION. The captions, sections, clauses, article numbers,
section numbers and table of contents, if any, of this Lease are inserted for
convenience only and in no way limit, enlarge, define or otherwise affect the
scope or intent of the Lease or any provision thereof. The parties hereto intend
that the interpretation and enforcement of this Lease be governed by the laws of
the State of Florida. If there is more than one Tenant, the obligations and
liabilities hereunder imposed upon Tenant shall be joint and several. The words
"Landlord" and "Tenant" shall also extend to and mean the successors in interest
of the respective parties hereto and their permitted assigns, although this
shall not be construed as conferring upon the Tenant the right to assign this
Lease or sublet the Premises or confer rights of occupancy upon anyone other
than Tenant. All charges due from Tenant to Landlord hereunder, including,
without limitation, any charges against Tenant by Landlord for services or work
done on the Premises by order of Tenant, except sales tax, shall be deemed
additional rent, shall be included in any lien for rent, and shall be paid
(including sales tax) without setoff or defense of any kind. This Lease has been
fully negotiated and reviewed by the parties and their counsel and is the work
product of both Landlord and Tenant; it shall not be more strictly construed
against either party. Provisions inserted herein or affixed hereto shall not be
valid unless appearing in the duplicate original hereof held by the Landlord and
initialled by the Parties hereto. In the event of variation or discrepancy, the
Landlord's duplicate shall control. This Lease and the exhibits, schedules,
addenda, riders, if any,
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attached hereto are incorporated herein and set forth the entire agreement
between the Landlord and Tenant concerning the Premises and Building and there
are no other agreements or understandings between them. This Lease and its
exhibits, schedules, addenda, riders, if any, may not be modified except by
agreement in writing executed by the Landlord and Tenant. Nothing in this Lease
creates any relationship between the parties other than that of lessor and
lessee and nothing in this Lease constitutes the Landlord a partner of the
Tenant or a joint venturer or member of a common enterprise with the Tenant.
51. RENEWAL OPTION. Tenant shall have the option to renew the Lease for
an additional three (3) years. The Lease for such additional years will be
subject to the same terms and conditions as were in effect during the original
Lease Term, excepting base rental which shall be the prevailing market rental
rate or the rental rate in Year Five of the initial term of the lease plus five
(5%) percent, whichever is greater. Should Tenant desire to renew under this
provision, it shall deliver written notice to Landlord of its desire to renew
not later than six (6) months prior to the expiration of the Lease Term. If the
Tenant and Landlord cannot agree on the market rental rate within thirty (30)
days after the Tenant has given such notice of its desire to renew, each party
shall appoint an appraiser to set the market rate. If the rates are within ten
(10%) percent of each other, the average of the two rates will be used to
determine the rate for the renewal. If these two rates are not within ten (10%)
percent of each other, then the two appraisers will jointly appoint a third
appraiser who will then establish the market rental rate for the renewal period
at a rate between the rates established by the two independent appraisers to
establish the market rental rate, the parties will use their best efforts to
cause the appraisers to determine the final market rate within one hundred
twenty (120) days of the date Tenant delivered its desire to renew the Lease as
set forth above. Once the market rental rate has been established, Tenant shall
notify Landlord, in writing, of its election to exercise the renewal option at
the agreed market rental rate or the rental rate in Year Five of the initial
term of the lease plus five (5%) percent, whichever is greater, within thirty
(30) days after the date the market rental rate has been established.
In no event shall the rental rate be less than the rental rate in Year Five of
the initial lease term plus five (5%) percent. The base rental rate in years two
and three of the renewal period shall increase by five (5%) percent annually.
IN WITNESS WHEREOF, Landlord and Tenant have duly executed this Lease
in several counterparts as of the day and year first above written, each of
which counterpart shall be considered an executed original. In making proof of
this Lease it shall not be necessary to produce or account for more than one
counterpart.
LANDLORD:
Witnesses: GOLDKRESS ASSOCIATES, LTD.
BY ITS GENERAL PARTNER
GOLDKRESS ASSOCIATES, INC.
/s/ By: /s/ CRAIG ROBINS
- -------------------------- -----------------------------------
(As to Landlord) CRAIG ROBINS, PRESIDENT
/s/
- --------------------------
TENANT:
VIDEO JUKEBOX NETWORK, INC.
/s/ By: /s/
- -------------------------- ----------------------------------
(As to Tenant)
ITS: President and CEO
---------------------------------
- --------------------------
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SCHEDULE OF EXHIBITS
EXHIBIT "A" - LANDLORD'S WORK
EXHIBIT "B" - TENANT'S IMPROVEMENTS
EXHIBIT "C" - FLOOR PLAN
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EXHIBIT "A"
LANDLORD'S WORK
TENANT ACCEPTS SPACE IN "AS IS" CONDITION AND LANDLORD IS RESPONSIBLE
FOR NO TENANT IMPROVEMENTS WITH THE EXCEPTION OF THE FOLLOWING:
- Repair and replace ceiling tiles throughout leased premises.
- Install new carpet throughout with an allowance not to exceed $6.00
per square yard of carpet.
- Repaint lobby and leased premises with one coat of standard interior
paint with color selected by Tenant.
- Install doors and walls demising premises as shown in Exhibit "C".
- Install standard vinyl baseboard throughout leased premises.
LANDLORD WILL ATTEMPT TO COMPLETE LANDLORD'S WORK PRIOR TO JANUARY 1,
1996, PROVIDED TENANT NOTIFIES LANDLORD BY DECEMBER 11, 1995, OF ITS SELECTION
OF PAINT COLORS, CARPET SAMPLES AND OTHER INFORMATION REQUIRED TO COMPLETE THE
ABOVE-REFERENCED WORK. IN THE EVENT THAT TENANT DOES NOT PROVIDE THE SELECTIONS
BY DECEMBER 11, 1995, LANDLORD SHALL BE REQUIRED TO DELIVER THE PREMISES THREE
WEEKS AFTER SELECTIONS ARE RECEIVED.
14
<PAGE> 15
EXHIBIT "B"
TENANT'S IMPROVEMENTS
TENANT WILL BE RESPONSIBLE FOR ALL OF THE IMPROVEMENTS TO THE PREMISES
EXCEPT THOSE PROVIDED BY LANDLORD AND OUTLINED IN EXHIBIT "A". ALL WORK MUST BE
DONE BY A LICENSED AND INSURED GENERAL CONTRACTOR WITH ALL OF THE NECESSARY
PERMITS IN ACCORDANCE WITH PARAGRAPH SIXTEEN (16) OF THIS LEASE.
TENANT IS RESPONSIBLE TO OBTAIN ANY AND ALL PERMITS AND LICENSES
NECESSARY TO OPERATE ITS BUSINESS IN THE CITY OF MIAMI BEACH.
15
<PAGE> 16
EXHIBIT "C"
FLOOR PLAN
16
<PAGE> 17
RADON GAS NOTIFICATION
"RADON GAS: Radon is a naturally occurring radioactive gas that, when it has
accumulated in a building in sufficient quantities, may present health risks to
persons who are exposed to it over time. Levels of radon that exceed federal and
state guidelines have been found in buildings in Florida. Additional information
regarding radon and radon testing may be obtained from your county public health
unit."
Signed, sealed and delivered in
the presence of:
LANDLORD:
Witnesses: GOLDKRESS ASSOCIATES, LTD.
BY ITS GENERAL PARTNER
GOLDKRESS ASSOCIATES, INC.
/s/ By: /s/ CRAIG ROBINS
- -------------------------- -----------------------------------
(As to Landlord) CRAIG ROBINS, PRESIDENT
/s/
- --------------------------
TENANT:
VIDEO JUKEBOX NETWORK, INC.
/s/ By: /s/
- -------------------------- ----------------------------------
(As to Tenant)
ITS: President and CEO
---------------------------------
- --------------------------
17
<PAGE> 1
Exhibit 10.46
STANDARD FORM OF OFFICE LEASE
The Real Estate Board of New York, Inc.
AGREEMENT OF LEASE, made as of this 26th day of February, 1996, between
Flatiron Associates, c/o Helmsley-Spear, Inc., 60 East 42nd Street, New York,
NY 10017 party of the first part, hereinafter referred to as OWNER, and Video
Jukebox Network, Inc., a Florida corporation with an office at 1221 Collins
Avenue, Miami Beach, Florida 33139 party of the second part, hereinafter
referred to as TENANT,
WITNESSETH: Owner hereby leases to Tenant and Tenant hereby hires from Owner
Suite 700, substantially as shown on Exhibit A attached hereto and made a part
hereof in the building known as The Flatiron Building, 175 Fifth Avenue in the
Borough of Manhattan, City of New York, for the term of three (3) years (or
until such term shall sooner cease and expire as hereinafter provided) to
commence on the 1st day of March, nineteen hundred and ninety-six * , and to
end on the 28th day of February, 1999 ("Expiration Date") both dates inclusive,
at an annual rental rate of as set forth in Article 39 hereof, which Tenant
agrees to pay in lawful money of the United States which shall be legal tender
in payment of all debts and dues, public and private, at the time of payment, in
equal monthly installments in advance on the first day of each month during
said term, at the office of Owner or such other place as Owner may designate,
without any set off or deduction whatsoever, except that Tenant shall pay the
May 1996 monthly installment(s) on the execution hereof (unless this lease be a
renewal).
In the event that, at the commencement of the term of this lease, or
thereafter, Tenant shall be in default in the payment of rent to Owner pursuant
to the terms of another lease with Owner or with Owner's predecessor in
interest, Owner may at Owner's option and without notice to Tenant add the
amount of such arrears to any monthly installment of rent payable hereunder and
the same shall be payable to Owner as additional rent.
The parties hereto, for themselves, their heirs, distributees, executors,
administrators, legal representatives, successors and assigns, hereby covenant
as follows:
Rent: 1. Tenant shall pay the rent as above and as hereinafter provided.
Occupancy: 2. Tenant shall use and occupy demised premises for general and
executive offices and uses incidental thereto and for no other purpose.
Tenant Alterations: 3. Tenant shall make no changes in or to the demised
premises of any nature without Owner's prior written consent. Subject to the
prior written consent of Owner, and to the provisions of this article, Tenant,
at Tenant's expense, may make alterations, installations, additions or
improvements which are non-structural and which do not affect utility services
or plumbing and electrical lines, in or to the interior of the demised
premises by using contractors or mechanics first approved in each instance by
Owner. Tenant shall, before making any alterations, additions, installations or
improvements, at its expense, obtain all permits, approvals and certificates
required by any governmental or quasi-governmental bodies and (upon completion)
certificates of final approval thereof and shall deliver promptly duplicates of
all such permits, approvals and certificates to Owner and Tenant agrees to
carry and will cause Tenant's contractors and sub-contractors to carry such
workman's compensation, general liability, personal and property damage
insurance as Owner may require. If any mechanic's lien is filed against the
demised premises, or the building of which the same forms a part, for work
claimed to have been done for, or materials furnished to, Tenant, whether or
not done pursuant to this article, the same shall be discharged by Tenant
within thirty days thereafter, at Tenant's expense, by payment or filing the
bond required by law. All fixtures and all paneling, partitions, railings and
like installations, installed in the premises at any time, either by Tenant or
by Owner on Tenant's behalf, shall, upon installation, become the property of
Owner and shall remain upon and be surrendered with the demised premises unless
Owner, by notice to Tenant no later than twenty days prior to the date fixed as
the termination of this lease, elects to relinquish Owner's right thereto and
to have them removed by Tenant, in which event the same shall be removed from
the premises by Tenant prior to the expiration of the lease, at Tenant's
expense. Nothing in this Article shall be construed to give Owner title to or
to prevent Tenant's removal of trade fixtures, moveable office furniture and
equipment, but upon removal of any such from the premises or upon removal of
other installations as may be required by Owner, Tenant shall immediately and
at its expense, repair and restore the premises to the condition existing prior
to installation taking into account reasonable wear and tear thereof and
repair any damage to the demised premises or the building due to such removal.
All property permitted or required to be removed, by Tenant at the end of the
term remaining in the premises after Tenant's removal shall be deemed
abandoned and may, at the election of Owner, either be retained as Owner's
property or may be removed from the premises by Owner, at Tenant's expense.
Maintenance and Repairs: 4. Tenant shall, throughout the term of this
lease, take good care of the demised premises and the fixtures and
appurtenances therein. Tenant shall be responsible for all damage or injury to
the demised premises or any other part of the building and the systems and
equipment thereof, whether requiring structural or nonstructural repairs caused
by or resulting from carelessness, omission, neglect or improper conduct of
Tenant, Tenant's subtenants, agents, employees, invitees or licensees (other
than Owner or its employees) of which arise out of any work, labor, service
or equipment done for or supplied to Tenant or any subtenant or arising out of
the installation, use or operation of the property or equipment of Tenant or
any subtenant. Tenant shall also repair all damage to the building and the
demised premises caused by the moving of Tenant's fixtures, furniture and
equipment. Tenant shall promptly make, at Tenant's expense, all repairs in and
to the demised premises for which Tenant is responsible, using only the
contractor for the trade or trades in question, selected from a list of at
least two contractors per trade submitted by Owner. Any other repairs in or to
the building or the facilities and systems thereof for which Tenant is
responsible shall be performed by Owner at the Tenant's expense. Owner shall
maintain in good working order and repair the exterior and the structural
portions of the building, including the structural portions of its demised
premises, and the public portions of the building interior and the building
plumbing, electrical, heating and ventilating systems (to the extent such
systems presently exist) serving the demised premises. Tenant agrees to give
prompt notice of any defective condition in the premises for which Owner may
be responsible hereunder. There shall be no allowance to Tenant for diminution
of rental value and no liability on the part of Owner by reason of
inconvenience, annoyance or injury to business arising from Owner or others
making repairs, alterations, additions or improvements in or to any portion of
the building or the demised premises or in and to the fixtures, appurtenances
or equipment thereof provided Owner diligently makes such repair, alteration,
addition or improvement. It is specifically agreed that Tenant shall not be
entitled to any setoff or reduction of rent by reason of any failure of Owner
to comply with the covenants of this or any other article of this Lease. Tenant
agrees that Tenant's sole remedy at law in such instance will be by way of an
action for damages for breach on contract. The provisions of this Article 4
shall not apply in the case of fire or other casualty which are dealt with in
Article 9 hereof.
Window Cleaning: 5. Tenant will not clean nor require, permit, suffer or
allow any window in the demised premises to be cleaned from the outside in
violation of Section 202 of the Labor Law or any other applicable law or of the
Rules of the Board of Standards and Appeals, or of any other Board or body
having or asserting jurisdiction.
Requirements of Law, Fire Insurance, Floor Loads: 6. Prior to the
commencement of the lease term, if Tenant is then in possession, and at all
times thereafter, Tenant, at Tenant's sole cost and expense, shall promptly
comply with all present and future laws, orders and regulations of all state,
federal, municipal and local governments, departments, commissions and boards
and any direction of any public officer pursuant to law, and all orders, rules
and regulations of the New York Board of Fire Underwriters, Insurance Services
Office, or any similar body which shall impose any violation, order or duty upon
Owner or Tenant with respect to the demised premises, whether or not arising
out of Tenant's use or manner of use thereof, (including Tenant's permitted
use) or, with respect to the building if arising out of the Tenant's use or
manner of use of the premises or the building (including the use permitted
under the lease). Nothing herein shall require Tenant to make structural
repairs or alterations unless Tenant has, by its manner of use of the demised
premises or method of operation therein, violated any such laws, ordinances,
orders, rules, regulations or requirements with respect thereto. Tenant may,
after securing Owner to
* ("Commencement Date")
<PAGE> 2
Owner's satisfaction against all damages, interest, penalties and expenses,
including, but not limited to, reasonable attorney's fees, by cash deposit or
by surety bond in an amount and in a company satisfactory to Owner, contest and
appeal any such laws, ordinances, orders, rules, regulations or requirements
provided same is done with all reasonable promptness and provided such appeal
shall not subject Owner to prosecution for a criminal offense or constitute a
default under any lease or mortgage under which Owner may be obligated, or
cause the demised premises or any part thereof to be condemned or vacated.
Tenant shall not do or permit any act or thing to be done in or to the demised
premises which is contrary to law, or which will invalidate or be in conflict
with public liability, fire or other policies of insurance at any time
carried by or for the benefit of Owner with respect to the demised premises or
the building of which the demised premises form a part, or which shall or might
subject Owner to any liability or responsibility to any person or for property
damage. Tenant shall not keep anything in the demised premises except as now or
hereafter permitted by the Fire Department, Board of Fire Underwriters, Fire
Insurance Rating Organization or other authority having jurisdiction, and then
only in such manner and such quantity so as not to increase the rate for fire
insurance applicable to the building, nor use the premises in a manner which
will increase the insurance rate for the building or any property located
therein over that in effect prior to the commencement of Tenant's occupancy.
Tenant shall pay all costs, expenses, fines, penalties, or damages, which may
be imposed upon Owner by reason of Tenant's failure to comply with the
provisions of this article and if by reason of such failure the fire insurance
rate shall, at the beginning of this lease or at any time thereafter, be higher
than it otherwise would be, then Tenant shall reimburse Owner, as additional
rent hereunder, for that portion of all fire insurance premiums thereafter paid
by Owner which shall have been charged because of such failure by Tenant. In
any action or proceeding wherein Owner and Tenant are parties, a schedule or
"make-up" of rate for the building or demised premises issued by the New York
Fire Insurance Exchange, or other body making fire insurance rates applicable
to said premises shall be conclusive evidence of the facts therein stated and of
the several items and charges in the fire insurance rates then applicable to
said premises. Tenant shall not place a load upon any floor of the demised
premises exceeding the floor load per square foot area which it was designed to
carry and which is allowed by law. Owner reserves the right to prescribe the
weight and position of all safes, business machines and mechanical equipment.
Such installations shall be placed and maintained by Tenant, at Tenant's
expense, in settings sufficient, in Owner's judgement, to absorb and prevent
vibration, noise and annoyance.
Subordination: 7. This lease is subject and subordinate to all ground or
underlying leases and to all mortgages which may now or
hereafter affect such leases or the real property of which demised premises are
a part and to all renewals, modifications, consolidations, replacements and
extensions of any such underlying leases and mortgages. This clause shall be
self-operative and no further instrument of subordination shall be required by
any ground or underlying lessor or by any mortgagee, affecting any lease or the
real property of which the demised premises are a part. In confirmation of such
subordination, Tenant shall from time to time execute promptly any certificate
that Owner may reasonably request.
Property 8. Owner or its agents shall not be liable for any damage
Loss, Damage to property of Tenant or of others entrusted to employees of
Reimbursement the building, nor for loss of or damage to any property of
Indemnity: Tenant by theft or otherwise, nor for any injury or damage
to persons or property resulting from any cause of whatsoever
nature, unless caused by or due to the negligence of Owner, its agents,
servants or employees. Owner or its agents will not be liable for any such
damage caused by other tenants or persons in, upon or about said building or
caused by operations in construction of any private, public or quasi public
work. If at any time any windows of the demised premises are temporarily
closed, darkened or bricked up (or permanently closed, darkened or bricked up,
if required by law) for any reason whatsoever including, but not limited to
Owner's own acts, Owner shall not be liable for any damage Tenant may sustain
thereby and Tenant shall not be entitled to any compensation therefor nor
abatement or diminution of rent nor shall the same release Tenant from its
obligations hereunder nor constitute an eviction. Tenant shall indemnify and
save harmless Owner against and from all liabilities, obligations, damages,
penalties, claims, costs and expenses for which Owner shall not be reimbursed
by insurance, including reasonable attorneys fees, paid, suffered or incurred
as a result of any breach by Tenant, Tenant's agents, contractors, employees,
invitees, or licensees, of any covenant or condition of this lease, or the
carelessness, negligence or improper conduct of the Tenant, Tenant's agents,
contractors, employees, invitees or licensees. Tenant's liability under this
lease extends to the acts and omissions of any sub-tenant, and any agent,
contractor, employee, invitee or licensee of any sub-tenant. In case any action
or proceeding is brought against Owner by reason of any such claim, Tenant,
upon written notice from Owner, will, at Tenant's expense, resist or defend such
action or proceeding by counsel approved by Owner in writing, such approval not
to be unreasonably withheld.
Destruction 9. (a) If the demised premises or any part thereof shall be
Fire and Other damaged by fire or other casualty, Tenant shall give immediate
Casualty: notice thereof to Owner and this lease shall continue in full
force and effect except as hereinafter set forth. (b) If the
demised premises are partially damaged or rendered partially unusuable by fire
or other casualty, the damages thereto shall be repaired by and at the expense
of Owner and the rent and other items of additional rent, until such repair
shall be substantially completed, shall be apportioned from the day following
the casualty according to the part of the premises which is usable. (c) If the
demised premises are totally damaged or rendered wholly unusable by fire or
other casualty, then the rent and other items of additional rent as hereinafter
expressly provided shall be proportionately paid up to the time of the casualty
and thenceforth shall cease until the date when the premises shall have been
repaired and restored by Owner (or sooner reoccupied in part by Tenant then
rent shall be apportioned as provided in subsection (b) above), subject to
Owner's right to elect not to restore the same as hereinafter provided. (d) If
the demised premises are rendered wholly unusable or (whether or not the
demised premises are damaged in whole or in part) if the building shall be so
damaged that Owner shall decide to demolish it or to rebuild it, then, in any
of such events, Owner may elect to terminate this lease by written notice to
Tenant, given within 90 days after such fire or casualty, or 30 days after
adjustment of the insurance claim for such fire or casualty, whichever is
sooner, specifying a date for the expiration of the lease, which date shall not
be more than 60 days after the giving of such notice, and upon the date
specified in such notice the term of this lease shall expire as fully and
completely as if such date were the date set forth above for the termination of
this lease and Tenant shall forthwith quit, surrender and vacate the premises
without prejudice however, to Landlord's rights and remedies against Tenant
under the lease provisions in effect prior to such termination, and any rent
owing shall be paid up to such date and any payments of rent made by Tenant
which were on account of any period subsequent to such date shall be returned
to Tenant. Unless Owner shall serve a termination notice as provided for
herein, Owner shall make the repairs and restorations under the conditions of
(b) and (c) hereof, with all reasonable expedition, subject to delays due to
adjustment of insurance claims, labor troubles and causes beyond Owner's
control. After any such casualty, Tenant shall cooperate with Owner's
restoration by removing from the premises as promptly as reasonably possible,
all of Tenant's salvageable inventory and moveable equipment, furniture, and
other property. Tenant's liability for rent shall resume five (5) days after
written notice from Owner that the premises are substantially ready for
Tenant's occupancy. (e) Nothing contained hereinabove shall relieve Tenant from
liability that may exist as a result of damage from fire or other casualty.
Notwithstanding the foregoing, including Owner's obligation to restore under
subparagraph (b) above, each party shall look first to any insurance in its
favor before making any claim against the other party for recovery for loss or
damage resulting from fire or other casualty, and to the extent that such
insurance is in force and collectible and to the extent permitted by law, Owner
and Tenant each hereby releases and waives all right of recovery with respect
to subparagraphs (b), (d), and (e) above, against the other or any one claiming
through or under each of them by way of subrogation or otherwise. The release
and waiver herein referred to shall be deemed to include any loss or damage to
the demised premises and/or to any personal property, equipment, trade
fixtures, goods and merchandise located therein. The foregoing release and
waiver shall be in force only if both releasors' insurance policies contain a
clause providing that such a release or waiver shall not invalidate the
insurance. If, and to the extent, that such waiver can be obtained only by the
payment of additional premiums, then the party benefiting from the waiver shall
pay such premium within ten days after written demand or shall be deemed to
have agreed that the party obtaining insurance coverage shall be free of any
further obligation under the provisions hereof with respect to waiver of
subrogation. Tenant acknowledges that Owner will not carry insurance on
Tenant's furniture and/or furnishings or any fixtures or equipment,
improvements, or appurtenances removable by Tenant and agrees that Owner will
not be obligated to repair any damage thereto or replace the same. (f) Tenant
hereby waives the provisions of Section 227 of the Real Property Law and agrees
that the provisions of this article shall govern and control in lieu thereof.
Eminent 10. If the whole or any part of the demised premises shall
Domain: be acquired or condemned by Eminent Domain for any public or
quasi public use or purpose, then and in that event, the term
of this lease shall cease and terminate from the date of title vesting in such
proceeding and Tenant shall have no claim for the value of any unexpired term
of said lease and assigns to Owner, Tenant's entire interest in any such award.
Tenant shall have the right to make an independent claim to the condemning
authority for the value of Tenant's moving expenses and personal property,
trade fixtures and equipment, provided Tenant is entitled pursuant to the
terms of the lease to remove such property, trade fixture and equipment at the
end of the term and provided further such claim does not reduce Owner's award.
Assignment, 11. Tenant, for itself, its heirs, distributees, executors,
Mortgage, administrators, legal representative successor and assigns,
Etc.: expressly covenants that it shall not assign, mortgage or
encumber this agreement, nor underlet, or suffer or permit the
demised premises or any part thereof to be used by others, without the prior
written consent of Owner in each instance. Transfer of the majority of the
stock of a corporate Tenant or the majority partnership interest of a
partnership Tenant shall be deemed an assignment. If this lease be assigned, or
if the demised premises or any part thereof be underlet or occupied by anybody
other than Tenant, Owner may, after default by Tenant, collect rent from the
assignee, under-tenant or occupant, and apply the net amount collected to the
rent herein reserved but no such assignment, underletting, occupancy or
collection shall be deemed a waiver of this covenant, or the acceptance of the
assignee, under tenant or occupant as tenant, or a release of Tenant from the
further performance by Tenant of covenants on the part of Tenant herein
contained. The consent by Owner to an assignment or underletting shall not in
any wise be construed to relieve Tenant from obtaining the express consent in
writing of Owner to any further assignment or underletting.
Electric 12. Rates and conditions in respect to submetering or rent
Current: inclusion, as the case may be, to be added if RIDER attached
hereto. Tenant covenants and agrees that at all times its use
of electric current shall not exceed the capacity of existing feeders to the
building or the risers or wiring installation and Tenant may not use any
electrical equipment which in Owner's opinion, reasonably exercised, will
overload such installations or interfere with the use thereof by other tenants
of the building. The change at any time of the character of electric service
shall in no wise make Owner liable or responsible to Tenant, for any loss,
damages or expenses which Tenant may sustain.
Access to 13. Owner or Owner's agents shall have the right (but shall
Premises: not be obligated) to enter the demised premises in any
emergency at any time, and, at other reasonable times, and
upon reasonable notice to examine the same and to make such repairs,
replacements and improvements as Owner may deem necessary and reasonably
desirable to the demised premises or to any other portion of the building of
which Owner may elect to perform. Tenant shall permit Owner to use and maintain
and replace pipes and conduits in and through the demised premises and to erect
new pipes and conduits therein provided they are concealed within the walls,
floor, or ceiling. Owner may, during the progress of any work in the demised
premises, take all necessary materials and equipment into said premises without
the same constituting an eviction nor shall the Tenant be entitled to any
abatement of rent while such work is in progress nor to any damages by reason of
loss or interruption of business or otherwise. Throughout the term hereof Owner
shall have the right to enter the demised premises at reasonable hours for the
purpose of showing the same to prospective purchasers or mortgagees of the
building and during the last six months of the term for the purpose of showing
the
- ----------------
Rider to be added if necessary.
4
<PAGE> 3
same to prospective tenants. If Tenant is not present to open and permit an
entry into the demised premises, Owner or Owner's agents may enter the same
whenever such entry may be necessary or permissible by master key or forcibly
and provided reasonable care is exercised to safeguard Tenant's property, such
entry shall not render Owner or its agents liable therefor, nor in any event
shall the obligations of Tenant hereunder be affected. If during the last
month of the term Tenant shall have removed all or substantially all of
Tenant's property therefrom Owner may immediately enter, alter, renovate or
redecorate the demised premises without limitation or abatement of rent, or
incurring liability to Tenant for any compensation and such act shall have no
effect on this lease or Tenant's obligations hereunder. In exercising its
rights hereunder, Owner shall use reasonable efforts to avoid unreasonable
interference with the normal conduct of Tenant's business in the demised
premises.
Vault, 14. No Vaults, vault space or area, whether or not enclosed
Vault Space, or covered, not within the property line of the building is
Area: leased hereunder, anything contained in or indicated on any
sketch, blue print or plan, or anything contained elsewhere
in this lease to the contrary notwithstanding. Owner makes no representation as
to the location of the property line of the building. All vaults and vault space
and all such areas not within the property line of the building, which Tenant
may be permitted to use and/or occupy, is to be used and/or occupied under a
revocable license, and if any such license be revoked, or if the amount of such
space or area be diminished or required by any federal, state or municipal
authority or public utility, Owner shall not be subject to any liability nor
shall Tenant be entitled to any compensation or diminution or requisition be
deemed constructive or actual eviction. Any tax, fee or charge of municipal
authorities for such vault or area shall be paid by Tenant.
Occupancy: 15. Tenant will not at any time use or occupy the demised
premises in violation of the certificate of occupancy issued
for the building of which the demised premises are a part. Tenant has
inspected the premises and accepts them as is, subject to the riders annexed
hereto with respect to the Owner's work, if any. In any event, Owner makes no
representation as to the condition of the premises and Tenant agrees to accept
the same subject to violations, whether or not of record.
Bankruptcy: 16. (a) Anything elsewhere in this lease to the contrary
notwithstanding, this lease may be cancelled by Owner by
the sending of a written notice to Tenant within a reasonable time after the
happening of any one or more of the following events: (1) the commencement of a
case in bankruptcy or under the laws of any state naming Tenant as the debtor,
provided, however, in the event of an involuntary bankruptcy proceeding
commenced against Tenant, Owner shall not cancel this Lease unless such filing
(i) is not contested, in good faith, by Tenant within 30 days of the date of
such filing and (ii) is not dismissed within 90 days of such filing or (2) the
making by Tenant or an assignment or any other arrangement for the benefit of
creditors under any state statute. Neither Tenant nor any person claiming
through or under Tenant, or by reason of any statute or order of court, shall
thereafter be entitled to possession of the premises demised but shall forthwith
quit and surrender the premises. If this lease shall be assigned in accordance
with its terms, the provisions of this Article 16 shall be applicable only to
the party then owning Tenant's interest in this lease.
(b) It is stipulated and agreed that in the event of the
termination of this lease pursuant to (a) hereof, Owner shall forthwith,
notwithstanding any other provisions of this lease to the contrary, be entitled
to recover from Tenant as and for liquidated damages an amount equal to the
difference between the rent reserved hereunder for the unexpired portion of the
term demised and the fair and reasonable rental value of the demised premises
for the same period. In the computation of such damages the difference between
any installment of rent becoming due hereunder after the date of termination and
the fair and reasonable rental value of the demised premises for the period for
which such installment was payable shall be discounted to the date of
termination at the rate of four percent (4%) per annum. If such premises or any
part thereof be re-let by the Owner for the unexpired term of said lease, or any
part thereof, before presentation of proof of such liquidated damages to any
court, commission or tribunal, the amount of rent reserved upon such re-letting
shall be deemed to be the fair and reasonable rental value for the part or the
whole of the premises so re-let during the term of the re-letting. Nothing
herein contained shall limit or prejudice the right of the Owner to prove for
and obtain as liquidated damages by reason of such termination, an amount equal
to the maximum allowed by any statute or rule of law in effect at the time when,
and governing the proceedings in which, such damages are to be proved, whether
or not such amount be greater, equal to, or less than the amount of the
difference referred to above.
Default: 17. (1) If Tenant defaults in fulfilling any of the covenants of
this lease other than the covenants for the payment of rent or additional rent;
or if the demised premises become vacant or deserted; or if any execution or
attachment shall be issued against Tenant or any of Tenant's property whereupon
the demised premises shall be taken or occupied by someone other than Tenant;
or if this lease be rejected under Section 235 of Title 11 of the U.S. Code
(bankruptcy code); or if Tenant shall fail to move into or take possession of
the premises within thirty (30) days after the commencement of the term of this
lease, then, in any one or more of such events, upon Owner serving a written
fifteen (15) days notice upon Tenant specifying the nature of said default and
upon the expiration of said fifteen (15) days, if Tenant shall have failed to
comply with or remedy such default, or if said default or omission complained of
shall be of a nature that the same cannot be completely cured or remedied within
said fifteen (15) day period, and if Tenant shall not have diligently commenced
curing such default within such fifteen (15) day period, and shall not
thereafter with reasonable diligence and in good faith, proceed to remedy and
cure such default, then Owner may serve a written five (5) days' notice of
cancellation of this lease upon Tenant, and upon the expiration of said five (5)
days this lease and the term thereunder shall end and expire as fully and
completely as if the expiration of such five (5) day period were the day herein
definitely fixed for the end and expiration of this lease and the term thereof
and Tenant shall then quit and surrender the demised premises to Owner but
Tenant shall remain liable as hereinafter provided.
(2) If the notice provided for in (1) hereof shall have been
given, and the term shall expire as aforesaid; or if Tenant shall make default
in the payment of the rent reserved herein or any item of additional rent
herein mentioned or any part of either or in making any other payment herein
required; then and in any of such events Owner may without notice, re-enter the
demised premises either by force or otherwise, and dispossess Tenant by summary
proceedings or otherwise, and the legal representative of Tenant or other
occupant of demised premises and remove their effects and hold the premises as
if this lease had not been made, and Tenant hereby waives the service of notice
of intention to re-enter or to institute legal proceedings to that end. If
Tenant shall make default hereunder prior to the date fixed as the commencement
of any renewal or extension of this lease and such default continues beyond any
applicable cure period, Owner may cancel and terminate such renewal or extension
agreement by written notice.
Remedies of 18. In case of any such default, re-entry, expiration and/or
Owner and dispossess by summary proceedings or otherwise, (a) the rent
Waiver of shall become due thereupon and be paid up to the time of such
Redemption: re-entry, dispossess and/or expiration, (b) Owner may re-let
the premises or any part or parts thereof, either in the name
of Owner or otherwise, for a term or terms, which may at Owner's option be less
than or exceed the period which would otherwise have constituted the balance of
the term of this lease and may grant concessions or free rent or charge a
higher rental than that in this lease, and/or (c) Tenant or the legal
representatives of Tenant shall also pay Owner as liquidated damages for the
failure of Tenant to observe and perform said Tenant's covenants herein
contained, any deficiency between the rent hereby reserved and/or covenanted to
be paid and the net amount, if any, of the rents collected on account of the
lease or leases of the demised premises for each month of the period which
would otherwise have constituted the balance of the term of this lease. The
failure of Owner to re-let the premises or any part or parts thereof shall not
release or affect Tenant's liability for damages. In computing such liquidated
damages there shall be added to the said deficiency such reasonable expenses as
Owner may incur in connection with re-letting, such as legal expenses,
reasonable attorneys' fees, brokerage, advertising and for keeping the demised
premises in good order or for preparing the same for re-letting. Any such
liquidated damages shall be paid in monthly installments by Tenant on the rent
day specified in this lease and any suit brought to collect the amount of the
deficiency for any month shall not prejudice in any way the rights of Owner to
collect the deficiency for any subsequent month by a similar proceeding. Owner,
in putting the demised premises in good order or preparing the same for
re-rental may, at Owner's option, make such alterations, repairs, replacements,
and/or decorations in the demised premises as Owner, in Owner's sole judgement,
considers advisable and necessary for the purpose of re-letting the demised
premises, and the making of such alterations, repairs, replacements, and/or
decorations shall not operate or be construed to release Tenant from liability
hereunder as aforesaid. Owner shall in no event be liable in any way whatsoever
for failure to re-let the demised premises, or in the event that the demised
premises are re-let, for failure to collect the rent thereof under such
re-letting, and in no event shall Tenant be entitled to receive any excess, if
any, of such net rents collected over the sums payable by Tenant to Owner
hereunder. In the event of a breach or threatened breach by Tenant of any of the
covenants or provisions hereof, Owner shall have the right of injunction and the
right to invoke any remedy allowed at law or in equity as if re-entry, summary
proceedings and other remedies were not herein provided for. Mention in this
lease of any particular remedy, shall not preclude Owner from any other remedy,
in law or in equity. Tenant hereby expressly waives any and all rights of
redemption granted by or under any present or future laws in the event of Tenant
being evicted or dispossessed for any cause, or in the event of Owner obtaining
possession of demised premises, by reason of the violation by Tenant of any of
the covenants and conditions of this lease, or otherwise.
Fees and 19. If Tenant shall default in the observance or performance
Expenses: of any term or covenant on Tenant's part to be observed or
performed under or by virtue of any terms or provisions in any
article of this lease, after notice if required and upon expiration of any
applicable grace period if any, (except in an emergency), then, unless
otherwise provided elsewhere in this lease, Owner may immediately or at any
time thereafter and without notice perform the obligation of Tenant thereunder.
If Owner, in connection with the foregoing or in connection with any default by
Tenant in the covenant to pay rent hereunder, makes any expenditures or incurs
any obligations for the payment of money, including but not limited to
reasonable attorneys' fees, in instituting, prosecuting or defending any action
or proceeding, and prevails in any such action or proceeding then Tenant will
reimburse Owner for such sums so paid or obligations incurred with interest and
costs. The foregoing expenses incurred by reason of Tenant's default shall be
deemed to be additional rent hereunder and shall be paid by Tenant to Owner
within ten (10) days of rendition of any bill or statement to Tenant therefor.
If Tenant's lease term shall have expired at the time of making of such
expenditures or incurring of such obligations, such sums shall be recoverable
by Owner, as damages.
Building 20. Owner shall have the right at any time without the same
Alterations without the same constituting an eviction and without incurring
and liability to Tenant therefor to change the arrangement and/or
Management: location of public entrances, passageways, doors, doorways,
corridors, elevators, stairs, toilets or other public parts of
the building and to change the name, number or designation by which the
building may be known. There shall be no allowance to Tenant for diminution of
rental value and no liability on the part of Owner by reason of inconvenience,
annoyance or injury to business arising from Owner or other Tenants making any
repairs in the building or any such alterations, additions and improvements.
Furthermore, Tenant shall not have any claim against Owner by reason of Owner's
imposition of such controls of the manner of access to the building by
Tenant's social or business visitors as the Owner may deem necessary for the
security of the building and its occupants.
No Repre- 21. Neither Owner nor Owner's agents have made any
sentations representations or promises with respect to the physical
by Owner: condition of the building, the land upon which it is erected
or the demised premises, the rents, leases, expenses of
operation or any other matter or thing affecting or related to the premises
except as herein expressly set forth and no rights, easements or licenses are
acquired by Tenant by implication or otherwise except as expressly set forth in
the provisions of this lease. Tenant has inspected the building and the demised
premises and is thoroughly acquainted with their condition and agrees to take
the same "as is" and acknowledges that the taking of possession of the
demised premises by Tenant shall he conclusive evidence that the said premises
and the building of which the same form a part were in good and satisfactory
condition at the time such possession was so taken, except as to latent
defects. All understandings and agreements heretofore made between the parties
hereto are merged in this contract, which alone fully and completely expresses
the agreement between Owner and Tenant and any executory agreement
<PAGE> 4
hereafter made shall be ineffective to change, modify, discharge or effect an
abandonment of it in whole or in part, unless such executory agreement is in
writing and signed by the party against whom enforcement of the change,
modification, discharge or abandonment is sought.
End of Term: 22. Upon the expiration or other termination of the term of
this lease, Tenant shall quit and surrender to Owner the demised premises,
broom clean, in good order and condition, ordinary wear and damages which
Tenant is not required to repair as provided elsewhere in this lease excepted,
and Tenant shall remove all its property. Tenant's obligation to observe or
perform this covenant shall survive the expiration or other termination of this
lease. If the last day of the term of this Lease or any renewal thereof, falls
on Sunday, this lease shall expire at noon on the preceding Saturday unless it
be a legal holiday in which case it shall expire at noon on the preceding
business day.
Quiet Enjoyment: 23. Owner covenants and agrees with Tenant that upon
Tenant paying the rent and additional rent and observing and performing all the
terms, covenants and conditions, on Tenant's part to be observed and performed,
Tenant may peaceably and quietly enjoy the premises hereby demised, subject,
nevertheless, to the terms and conditions of this lease including, but not
limited to, Article 31 hereof and to the ground leases, underlying leases and
mortgages hereinbefore mentioned.
Failure to Give Possession: 24. If Owner is unable to give possession of
the demised premises on the date of the commencement of the term hereof,
because of the holding-over or retention of possession of any tenant,
undertenant or occupants or if the demised premises are located in a building
being constructed, because such building has not been sufficiently completed to
make the premises ready for occupancy or because of the fact that a certificate
of occupancy has not been procured or for any other reason, Owner shall not be
subject to any liability for failure to give possession on said date and the
validity of the lease shall not be impaired under such circumstances, nor shall
the same be construed in any wise to extend the term of this lease, but the
rent payable hereunder shall be abated and the free rent period provided herein
shall be tolled provided Tenant is not responsible for Owner's inability to
obtain possession or complete construction) until after Owner shall have given
Tenant written notice that the Owner is able to deliver possession in
condition required by this lease. If permission is given to Tenant to enter
into the possession of the demises premises or to occupy premises other than
the demised premises prior to the date specified as the commencement of the
term of this lease, Tenant covenants and agrees that such possession and/or
occupancy shall be deemed to be under all the terms, covenants, conditions and
provisions of this lease except the obligation to pay the fixed annual rent
set forth in the preamble to this lease. The provisions of this article are
intended to constitute "an express provision to the contrary" within the
meaning of Section 223-a of the New York Real Property Law.
No Waiver: 25. The failure of Owner to seek redress for violation of, or
to insist upon the strict performance of any covenant or condition of this
lease or of any of the Rules or Regulations, set forth or hereafter adopted by
Owner, shall not prevent a subsequent act which would have originally
constituted a violation from having all the force and effect of an original
violation. The receipt by Owner of rent and/or additional rent with knowledge
of the breach of any covenant of this lease shall not be deemed a waiver of
such breach and no provision of this lease shall be deemed to have been waived
by Owner unless such waiver be in writing signed by Owner. No payment by Tenant
or receipt by Owner of a lesser amount than the monthly rent herein stipulated
shall be deemed to be other than on account of the earliest stipulated rent,
nor shall any endorsement or statement of any check or any letter accompanying
any check or payment as rent be deemed an accord and satisfaction, and Owner
may accept such check or payment without prejudice to Owner's right to recover
the balance of such rent or pursue any other remedy in this lease provided. No
act or thing done by Owner or Owner's agents during the term hereby demised
shall be deemed an acceptance of a surrender of said premises, and no agreement
to accept such surrender shall be valid unless in writing signed by Owner. No
employee of Owner or Owner's agent shall have any power to accept the keys of
said premises prior to the termination of the lease and the delivery of keys to
any such agent or employee shall not operate as a termination of the lease or a
surrender of the premises.
Waiver of Trial by Jury: 26. It is mutually agreed by and between Owner
and Tenant that the respective parties hereto shall and they hereby do waive
trail by jury in any action proceeding or counterclaim brought by either of the
parties hereto against the other (except for personal injury or property
damage) on any matters whatsoever arising out of or in any way connected with
this lease, the relationship of Owner and Tenant, Tenant's use of or occupancy
of said premises, and any emergency statutory or any other statutory remedy. It
is further mutually agreed that in the event Owner commences any proceeding or
action for possession including a summary proceeding for possession of the
premises, Tenant will not interpose any counterclaim of whatever nature or
description in any such proceeding including a counterclaim under Article 4
except for statutory mandatory counterclaims.
Inability to Perform: 27. This Lease and the obligation of Tenant to pay rent
hereunder and perform all of the other covenants and agreements hereunder on
part of Tenant to be performed shall in no wise be affected, impaired or
excused because Owner is unable to fulfill any of its obligations under this
lease or to supply or is delayed in supplying any service expressly or
impliedly to be supplied or is unable to make, or is delayed in making any
repair, additions, alterations or decorations or is unable to supply or is
delayed in supplying any equipment, fixtures, or other materials if Owner is
prevented or delayed from so doing by reason of strike or labor troubles or any
cause whatsoever including, but not limited to, government preemption or
restrictions or by reason of any rule, order or regulation of any department or
subdivision thereof of any government agency or by reason of the conditions
which have been or are affected, either directly or indirectly, by war or
other emergency.
Bills and Notices: 28. Except as otherwise in this lease provided, a bill,
statement, notice or communication which Owner may desire or be required to
give to Tenant, shall be deemed sufficiently given or rendered if, in writing,
delivered to Tenant personally or sent by registered or certified mail
addressed to Tenant at the building of which the demised premises form a part
or at the last known residence address or business address of Tenant or left at
any of the aforesaid premises addressed to Tenant, and the time of the
rendition of such bill or statement and of the giving of such notice or
communication shall be deemed to be the time when the same is delivered to
Tenant, mailed, or left at the premises as herein provided. Any notice by
Tenant to Owner must be served by registered or certified mail addressed to
Owner at the address first hereinabove given or at such other address as Owner
shall designate by written notice.
Services Provided by Owners: 29. As long as Tenant is not in default under
any of the covenants of this lease beyond the applicable grace period provided
in this lease for the curing of such defaults, Owner shall provide: (a)
necessary elevator facilities on business days from 8 a.m. to 6 p.m. and have
one elevator subject to call at all other times; (b) heat to the demised
premises when and as required by law, on business days from 8 a.m. to 6 p.m.;
(c) water for ordinary lavatory purposes, but if Tenant uses or consumes water
for any other purposes or in unusual quantities (of which fact Owner shall be
the sole judge), Owner may install a water meter at Tenant's expense which
Tenant shall thereafter maintain at Tenant's expense in good working order and
repair to register such water consumption and Tenant shall pay for water
consumed as shown on said meter as additional rent as and when bills are
rendered; (d) cleaning service for the demised premises on business days at
Owner's expense provided that the same are kept in order by Tenant. If,
however, said premises are to be kept clean by Tenant, it shall be done at
Tenant's sole expense, in a manner reasonably satisfactory to Owner and no one
other than persons approved by Owner shall be permitted to enter said premises
or the building of which they are a part for such purpose. Tenant shall pay
Owner the cost of removal of any of Tenant's refuse and rubbish from the
building; (e) If the demised premises are serviced by Owner's air conditioning/
cooling and ventilating system, air conditioning/cooling will be furnished to
tenant from May 15th through September 30th on business days (Mondays through
Fridays, holidays excepted) from 8:00 a.m. to 6:00 p.m., and ventilation will
be furnished on business days during the aforesaid hours except when air
conditioning/cooling is being furnished as aforesaid. If Tenant requires air
conditioning/cooling or ventilation for more extended hours or on Saturdays,
Sundays or on holidays, as defined under Owner's contract with Operating
Engineers Local 94-94A, Owner will furnish the same at Tenant's expense.
RIDER to be added in respect to rates and conditions for such additional
service; (f) Owner reserves the right to stop services of the heating,
elevators, plumbing, air-conditioning, electric, power systems or cleaning or
other services, if any, when necessary by reason of accident or for repairs,
alterations, replacements or improvements necessary or desirable in the
judgment of Owner for as long as may be reasonably required by reason thereof.
Owner agrees to diligently undertake such repair, alteration, replacement or
improvement. If the building of which the demised premises are a part supplies
manually operated elevator service, Owner at any time may substitute automatic
control elevator service and proceed diligently with alterations necessary
therefor without in any wise affecting this lease or the obligation of Tenant
hereunder.
Captions: 30. The Captions are inserted only as a matter of convenience
and for reference and in no way define, limit or describe the scope of this
lease nor the intent of any provisions thereof.
Definitions: 31. The term "office", or "offices", wherever used in this
lease, shall not be construed to mean premises used as a store or stores, for
the sale or display, at any time, of goods, wares or merchandise, of any kind,
or as a restaurant, shop, booth, bootblack or other sand, barber shop, or for
other similar purposes or for manufacturing. The term "Owner" means a landlord
or lessor, and as used in this lease means only the owner, or the mortgagee in
possession, for the time being of the land and building (or the owner of a
lease of the building or of the land and building) of which the demised
premises form a part, so that in the event of any sale or sales of said land
and building or of said lease, or in the event of a lease of said building, or
of the land and building, the said Owner upon the express or implied assumption
thereof by the new owner, shall be and hereby is entirely freed and relieved
of all covenants and obligations of Owner hereunder, and it shall be deemed
and construed without further agreement between the parties or their
successors in interest, or between the parties and the purchaser, at any
such sale, or the said lessee of the building, or of the land and building, that
the purchaser or the lessee of the building has assumed and agreed to carry out
any and all covenants and obligations of Owner, hereunder. The words "re-enter"
and "re-entry" as used in this lease are not restricted to their technical
legal meaning. The term "business days" as used in this lease shall exclude
Saturdays, Sundays and all days as observed by the State or Federal Government
as legal holidays and those designated as holidays by the applicable building
service union employees service contract or by the applicable Operating
Engineers contract with respect to HVAC service. Wherever it is expressly
provided in this lease that consent shall not be unreasonably withheld, such
consent shall not be unreasonably delayed.
Adjacent Excavation-Shoring: 32. If an excavation shall be made upon land
adjacent to the demised premises, or shall be authorized to be made, Tenant
shall afford to the person causing or authorized to cause such excavation,
license to enter upon the demised premises for the purpose of doing such work
as said person shall deem necessary to preserve the wall or the building of
which demised premises form a part from injury or damage and to support the
same by proper foundations without any claim for damages or indemnity against
Owner, or diminution or abatement of rent.
Rules and Regulations: 33. Tenant and Tenant's servants, employees, agents,
visitors, and licensees shall observe faithfully, and comply strictly with, the
Rules and Regulations and such other and further reasonable Rules and
Regulations as Owner or Owner's agents may from time to time adopt. Written
notice of any additional rules or regulations shall be given in such manner as
Owner may elect. In case Tenant disputes the reasonableness of any additional
Rule or Regulation hereafter made or adopted by Owner or Owner's agents, the
parties hereto agree to submit the question of the reasonableness of such Rule
or Regulation for decision to the New York office of the American Arbitration
Association, whose determination shall be final and conclusive upon the parties
hereto. The right to dispute the reasonableness of any additional Rule or
Regulation upon Tenant's part shall be deemed waived unless the same shall be
asserted by service of a notice, in writing upon Owner within fifteen (15) days
after the giving of notice thereof. Nothing
- --------------------
Rider to be added if necessary.
<PAGE> 5
in this lease contained shall be construed to impose upon Owner any duty or
obligation to enforce the Rules and Regulations or terms, covenants or
conditions in any other lease, as against any other tenant and Owner shall not
be liable to Tenant for violation of the same by any other tenant, its
servants, employees, agents, visitors or licensees.
Security: 34. Tenant has deposited with Owner the sum of $10,000.00
as security for the faithful performance and observance by
Tenant of the terms, provisions and conditions of this lease;
it is agreed that in the event Tenant defaults in respect of any of the terms,
provisions and conditions of this lease, including, but not limited to, the
payment of rent and additional rent, Owner may use, apply or retain the whole
or any part of the security so deposited to the extent required for the payment
of any rent and additional rent or any other sum as to which Tenant is in
default or for any sum which Owner may expend or may be required to expend by
reason of Tenant's default in respect of any of the terms, covenants and
conditions of this lease, including but not limited to, any damages or
deficiency in the re-letting of the premises, whether such damages or
deficiency accrued before or after summary proceedings or other re-entry by
Owner. In the event that Tenant shall fully and faithfully comply with all of
the terms, provisions, covenants and conditions of this lease, the security
shall be returned to Tenant after the date fixed as the end of the Lease and
after delivery of entire possession of the demised premises to Owner. In the
event of a sale of the land and building or leasing of the building, of which
the demised premises form a part, Owner shall have the right to transfer the
security to the vendee or lessee and Owner shall thereupon be released by
Tenant from all liability for the return of such security upon the express or
implied assumption for the responsibility thereof by the new owner; solely for
the return of said security, and it is agreed that the provisions hereof shall
apply to every transfer or assignment made of the security to a new Owner.
Tenant further covenants that it will not assign or encumber or attempt to
assign or encumber the monies deposited herein as security and that neither
Owner nor its successors or assigns shall be bound by any such assignment,
encumbrance, attempted assignment or attempted encumbrance.
Estoppel 35. Tenant, at any time, and from time to time, upon at least
Certificate: 10 days' prior notice by Owner, shall execute, acknowledge and
deliver to Owner, and/or to any other person, firm or
corporation specified by Owner, a statement certifying that this Lease is
unmodified and in full force and effect (or, if there have been modifications,
that the same is in full force and effect as modified and stating the
modifications), stating the dates to which the rent and additional rent have
been paid, and stating whether or not there exists any default by Owner under
this Lease, and, if so, specifying each such default. Owner shall, at Tenant's
request, provide Tenant with a similar estoppel certificate stating, among other
things, whether or not there exists any default by Tenant under this Lease.
Successors 36. The covenants, conditions and agreements contained in this
and Assigns: lease shall bind and inure to the benefit of Owner and Tenant
and their respective heirs, distributees, executors,
administrators, successors, and except as otherwise provided in this lease,
their assigns. Tenant shall look only to Owner's estate and interest in the
land and building, for the satisfaction of Tenant's remedies for the collection
of a judgment (or other judicial process) against Owner in the event of any
default by Owner hereunder, and no other property or assets of such Owner (or
any partner, member, officer or director thereof, disclosed or undisclosed),
shall be subject to levy, execution or other enforcement procedure for the
satisfaction of Tenant's remedies under or with respect to this lease, the
relationship of Owner and Tenant hereunder, or Tenant's use and occupancy of
the demised premises.
- ------------------------------
Space to be filled in or deleted.
See Rider attached hereto and made a part hereof.
IN WITNESS WHEREOF, Owner and Tenant have respectively signed and sealed this
lease as of the day and year first above written.
Witness for Owner:
- -----------------------------------------
Witness for Tenant:
/s/
- -----------------------------------------
Flatiron Associates, Owner
By: Helmsley-Spear, Inc., as Agent
By:
--------------------------------------
- -----------------------------------------
Video Jukebox Network, Inc.
By: /s/ Luann M. Hoffman
-------------------------------------
CFO
- -----------------------------------------
ACKNOWLEDGEMENTS
CORPORATE OWNER
STATE OF NEW YORK, ss.:
County of
On this day of , 19 , before me personally came
, to me known, who being by me duly sworn, did
depose and say that he resides in ; that he is the
of the corporation described in and which executed the
foregoing instrument, as OWNER; that he knows the seal of said corporation; the
seal affixed to said instrument is such corporate seal; that it was so affixed
by order of the Board of Directors of said corporation, and that he signed his
name thereto by like order.
------------------------------------------------
INDIVIDUAL OWNER
STATE OF NEW YORK, ss.:
County of
On this day of , 19 , before me personally came
to be known and known to me to be the individual
described in and who, as OWNER, executed the foregoing
instrument and acknowledged to me that he executed
the same.
-----------------------------------------------
CORPORATE TENANT
STATE OF NEW YORK, ss.:
County of
On this 26th day of February, 1996, before me personally came Luann M.
Hoffman, to me known, who being by me duly sworn, did depose and say that she
resides in Miami, Fla.; that she is the CFO of UTN, Inc. the corporation
described in and which executed the foregoing instrument, as TENANT; that she
knows the seal of said corporation; the seal affixed to said instrument is such
corporate seal; that it was so affixed by order of the Board of Directors of
said corporation, and that she signed his name thereto by like order.
Doug Linstaedt
-----------------------------------------------
[DOUGLAS A. LINSTAEDT NOTARY STAMP]
INDIVIDUAL TENANT
STATE OF NEW YORK,
County of
On this day of , 19 , before me personally came
to be known and known to me to be the individual
described in and who, as TENANT, executed the foregoing
instrument and acknowledged to me that he executed the
same.
-----------------------------------------------
<PAGE> 6
Address
Premises
=============================================================================
TO
=============================================================================
STANDARD FORM OF
OFFICE
LEASE
The Real Estate Board of New York, Inc.
(c) Copyright 1994. All rights Reserved.
Reproduction in whole or in part prohibited.
=============================================================================
Dated 19
Rent Per Year
Rent Per Month
Term
From
To
Drawn by .................................................................
Checked by ...............................................................
Entered by ...............................................................
Approved by ..............................................................
GUARANTY
FOR VALUE RECEIVED, and in consideration for, and as an inducement to
Owner making the within lease with Tenant, the undersigned guarantees to Owner,
Owner's successors and assigns, the full performance and observance of all the
covenants, conditions and agreements, therein provided to be performed and
observed by Tenant, including the "Rules and Regulations" as therein provided,
without requiring any notice of non-payment, non-performance, or
non-observance, or proof, or notice, or demand, whereby to charge the
undersigned therefor, all of which the undersigned hereby expressly waives and
expressly agrees that the validity of this agreement and the obligations of the
guarantor hereunder shall in no wise be terminated, affected or impaired by
reason of the assertion by Owner against Tenant of any of the rights or
remedies reserved to Owner pursuant to the provisions of the within lease. The
undersigned further covenants and agrees that this guaranty shall remain and
continue in full force and effect as to any renewal, modification or extension
of this lease and during any period when Tenant is occupying the premises as a
"statutory tenant." As a further inducement to Owner to make this lease and in
consideration thereof, Owner and the undersigned covenant and agree that in any
action or proceeding brought by either Owner or the undersigned against the
other on any matters whatsoever arising out of, under, or by virtue of the
terms of this lease or of this guarantee that Owner and the undersigned shall
and do hereby waive trial by jury.
Dated: ..................................................... 19 ......
............................................................
Guarantor
............................................................
Witness
............................................................
Guarantor's Residence
............................................................
Business Address
............................................................
Firm Name
STATE OF NEW YORK ) ss.:
COUNTY OF )
On this day of , 19 , before me
personally came ...................................................
to me known and known to me to be the individual described in, and who
executed the foregoing Guaranty and acknowledged to me that he executed
the same.
................................
Notary
IMPORTANT - PLEASE READ
RULES AND REGULATIONS ATTACHED TO AND MADE A PART OF
THIS LEASE IN ACCORDANCE WITH ARTICLE 33.
1. The sidewalks, entrances, driveways, passages, courts, elevators,
vestibules, stairways, corridors or halls shall not be obstructed or
encumbered by any Tenant or used for any purpose other than for ingress or
egress from the demised premises and for delivery of merchandise and equipment
in a prompt and efficient manner using elevators and passageways designated for
such delivery by Owner. There shall not be used in any space, or in the public
hall of the building, either by any Tenant or by jobbers or others in the
delivery or receipt of merchandise, any hand trucks, except those equipped with
rubber tires and safeguards. If said premises are situated on the ground floor
of the building, Tenant thereof shall further, at Tenant's expense, keep the
sidewalk and curb in front of said premises clean and free from ice, snow, dirt
and rubbish.
2. The water and wash closets and plumbing fixtures shall not be used for any
purposes other than those for which they were designed or constructed and no
sweepings, rubbish, rags, acids or other substances shall be deposited therein,
and the expense of any breakage, stoppage, or damage resulting from the
violation of this rule shall be borne by the Tenant who, or whose clerks,
agents, employees or visitors, shall have caused it.
3. No carpet, rug or other article shall be hung or shaken out of any window
of the building and no Tenant shall sweep or throw or permit to be swept or
thrown from the demised premises any dirt or other substances into any of the
corridors or halls, elevators, or out of the doors or windows or stairways of
the building and Tenant shall not use, keep or permit to be used or kept any
foul or noxious gas or substance in the demised premises, or permit or suffer
the demised premises to be occupied or used in a manner offensive or
objectionable to Owner or other occupants of the building by reason of noise,
odors, and/or vibrations, or interfere in any way with other Tenants or those
having business therein, nor shall any bicycles, vehicles, animals, fish, or
birds be kept in or about the building. Smoking or carrying lighted cigars or
cigarettes in the elevators of the building is prohibited.
4. No awnings or other projections shall be attached to the outside walls of
the building without the prior written consent of Owner.
5. No sign, advertisement, notice or other lettering shall be exhibited,
inscribed, painted or affixed by any Tenant on any part of the outside of the
demised premises or the building or on the inside of the demised premise if the
same is visible from the outside of the premises without the prior written
consent of Owner, except that the name of Tenant may appear on the entrance
door of the premises. In the event of the violation of the foregoing by any
Tenant, Owner may remove same without any liability, and may charge the expense
incurred by such removal to Tenant or Tenants violating this rule. Interior
signs on doors and directory tablet shall be inscribed, painted or affixed
for each Tenant by Owner at the expense of such Tenant, and shall be of a size,
color and style acceptable to Owner.
6. No Tenant shall mark, paint, drill into, or in any way deface any part of
the demised premises or the building of which they form a part. No boring,
cutting or stringing of wires shall be permitted, except with the prior written
consent of Owner, and as Owner may direct. No Tenant shall lay linoleum, or
other similar floor covering, so that the same shall come in direct contact
with the floor of the demised premises, and, if linoleum or other similar floor
covering is desired to be used an interlining of builder's deadening felt shall
be first affixed to the floor, by a paste or other material, soluble in water,
the use of cement or other similar adhesive material being expressly prohibited.
7. No additional locks or bolts of any kind shall be placed upon any of the
doors or windows by any Tenant, nor shall any changes be made in existing locks
or mechanism thereof. Each Tenant must, upon the termination of his Tenancy,
restore to Owner all keys of stores, offices and toilet rooms, either furnished
to, or otherwise procured by, such Tenant, and in the event of the loss of any
keys, so furnished, such Tenant shall pay to Owner the cost thereof.
8. Freight, furniture, business equipment, merchandise and bulky matter of
any description shall be delivered to and removed from the premises only on the
freight elevators and through the service entrances and corridors, and only
during hours and in a manner approved by Owner. Owner reserves the right to
inspect all freight to be brought into the building and to exclude from the
building all freight which violates any of these Rules and Regulations of the
lease or which these Rules and Regulations are a part.
9. Canvassing, soliciting and peddling in the building is prohibited and each
Tenant shall cooperate to prevent the same.
10. Owner reserves the right to exclude from the building all persons who do
not present a pass to the building signed by Owner. Owner will furnish passes
to persons for whom any Tenant requests same in writing. Each Tenant shall be
responsible for all persons for whom he requests such pass and shall be liable
to Owner for any acts of such persons. Tenant shall not have a claim against
Owner by reason of Owner excluding from the building any person who does not
present such pass.
11. Owner shall have the right to prohibit any advertising by any Tenant which
in Owner's opinion, tends to impair the reputation of the building or the
desirability as a building for offices, and upon written notice from Owner,
Tenant shall refrain from or discontinue such advertising.
12. Tenant shall not bring or permit to be brought or kept in or on the
demised premises, any inflammable, combustible, explosive, or hazardous fluid,
material, chemical or substance, or cause or permit any odors of cooking or
other processes or any unusual or other objectionable odors to permeate in or
emanate from the demised premises.
13. If the building contains central air conditioning and ventilation, Tenant
agrees to keep all windows closed at all times and to abide by all rules and
regulations issued by Owner with respect to such services. If Tenant requires
air conditioning or ventilation after the usual hours, Tenant shall give notice
in writing to the building superintendent prior to 3:00 p.m. in the case of
services required on week days, and prior to 3:00 p.m. on the day prior in
case of after hours service required on weekends or on holidays. Tenant shall
cooperate with Owner in obtaining maximum effectiveness of the cooling system
by lowering and closing venetian blinds and/or drapes and curtains when the
sun's rays fall directly on the windows of the demised premises.
14. Tenant shall not move any safe, heavy machinery, heavy equipment, bulk
matter, or fixtures into or out of the building without Owner's prior written
consent. If such safe, machinery, equipment, bulky matter or fixtures requires
special handling, all work in connection therewith shall comply with the
Administration Code of the City of New York and all other laws and regulations
applicable thereon and shall be done during such hours as Owner may designate.
15. Refuse and Trash. (1) Compliance by Tenant. Tenant covenants and agrees at
its sole cost and expense, to comply with all present and future laws, orders,
and regulations of all state, federal, municipal, and local governments,
departments, commissions and boards regarding the collection, sorting,
separation and recycling of waste products, garbage, refuse and trash. Tenant
shall sort and separate such waste products, garbage, refuse and trash into such
categories as provided by law. Each separately sorted category of waste
products, garbage, refuse and trash shall be placed in separate receptacles
reasonably approved by Owner. Such separate receptacles may, at Owner's option,
be removed from the demised premises in accordance with a collection schedule
prescribed by law. Tenant shall remove, cause to be removed by a contractor
acceptable to Owner, at Owner's sole discretion, such items as Owner may
expressly designate. (2) Owner's Rights in Event of Noncompliance. Owner has
the option to refuse to collect or accept from Tenant waste products, garbage,
refuse or trash (a) that is not separated and sorted as required by law or (b)
which consists of such items as Owner may expressly designate for Tenant's
removal, and to require Tenant to arrange for such collection at Tenant's sole
cost and expense, utilizing a contractor satisfactory to Owner. Tenant shall pay
all costs, expenses, fines, penalties, or damages that may be imposed on Owner
or Tenant by reason of Tenant's failure to comply with the provisions of this
Building Rule 15, and, at Tenant's sole cost and expense, shall indemnify,
defend and hold Owner harmless (including reasonable legal fees and expenses)
from and against any actions, claims and suits arising from such noncompliance,
utilizing counsel reasonably satisfactory to Owner.
<PAGE> 7
INDEX TO RIDER
<TABLE>
<CAPTION>
Article Page
<S> <C>
37. Rider Prevails . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
38. Delivery of Premises . . . . . . . . . . . . . . . . . . . . . . . . . 1
39. Rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
40. Real Estate Tax Escalation . . . . . . . . . . . . . . . . . . . . . . 2
41. Cost of Living Escalation. . . . . . . . . . . . . . . . . . . . . . . 4
42. Electricity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
43. Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
44. Alterations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
45. Broker . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
46. Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
47. Exculpation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
48. Owner Default. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
49. Subordination And Attornment . . . . . . . . . . . . . . . . . . . . . 9
50. Use and Occupancy. . . . . . . . . . . . . . . . . . . . . . . . . . . 10
51. Exterior Door; Hallway Walls; Door Locks . . . . . . . . . . . . . . . 10
52. Assignment and Subletting. . . . . . . . . . . . . . . . . . . . . . . 11
53. Insurance; Waiver of Subrogation . . . . . . . . . . . . . . . . . . . 14
54. Holdover . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
55. Security Deposit . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
56. Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
57. Directory Listings . . . . . . . . . . . . . . . . . . . . . . . . . . 17
58. Vermin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
59. Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . 17
60. Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
61. Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
62. Expansion Option . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
</TABLE>
<PAGE> 8
RIDER
ADDITIONAL CLAUSES ATTACHED TO AND FORMING A PART OF THE LEASE MADE AS OF
FEBRUARY __, 1996 BETWEEN FLATIRON ASSOCIATES, AS OWNER, AND VIDEO JUKEBOX
NETWORK, INC., AS TENANT, FOR SUITE 700 AT THE FLATIRON BUILDING, 175 FIFTH
AVENUE, NEW YORK, NEW YORK
37. RIDER PREVAILS
In the event of any inconsistency between the provisions of this
Rider and the provisions of the Lease to which this Rider is attached, the
provisions of this Rider shall govern and be binding.
38. DELIVERY OF PREMISES
(a) Supplementing Article 21, Owner shall have no obligation to
perform any work whatsoever to prepare the demised premises for Tenant's
occupancy other than the work ("LANDLORD'S WORK") set forth on Exhibit B hereto.
(b) The taking of occupancy of the whole or any part of the demised
premises by Tenant shall be conclusive evidence, as against Tenant, that (i) the
demised premises were substantially as shown on Exhibit A, (ii) Tenant accepts
possession thereof, (iii) the demised premises and the Building were in
satisfactory condition at the time such occupancy was so taken and (iv) Owner's
Work has been completed to Tenant's satisfaction, subject to any punch list
items associated with such work. In the event Owner does not substantially
complete Owner's Work within thirty (30) days from the Commencement Date, the
balance of the free rent set forth in Article 39 (a) will be tolled day-for-day
until Owner's Work is substantially completed. Owner will notify Tenant in
writing of the date of substantial completion of Owner's Work, but Owner's
failure to send such notice shall not operate as a waiver of nor prejudice or
otherwise be construed to affect the date of such substantial completion.
(c) Tenant hereby conclusively agrees that the demised premises
contains 2,878 rentable square feet.
39. RENT
(a) Beginning on the Commencement Date and continuing thereafter
throughout the term, Tenant shall pay to Owner base rent ("BASE RENT") equal to
$80,584 per annum ($6,715.33 per month) for the period beginning on the
Commencement Date and continuing thereafter through the remainder of the term
provided, however, that if Tenant shall not have defaulted on any of its
obligations hereunder, Owner shall waive the monthly installments of Base Rent
for the period commencing on the Commencement Date and ending on May 31, 1996,
both dates inclusive.
(b) Beginning on the Commencement Date, Tenant shall pay to Owner as
additional rent ("ADDITIONAL RENT") all sums payable by Tenant under the
provisions of this Lease other than Base Rent including, without limitation, all
interest and late charges that may accrue thereon in the event of Tenant's
failure to pay such amounts when due, and all damages, costs and expenses which
Owner may incur by reason of any default of Tenant or failure on Tenant's part
to comply with the terms of this Lease, all of which shall be due and payable
within 20 days of demand therefor unless another time is expressly provided for
in this Lease. Owner shall have the same remedies for failure to pay Additional
Rent as for non-payment of Base Rent.
(c) Tenant shall pay the Base Rent and Additional Rent
(collectively, the "RENTS") when due, without notice or demand, and without any
abatement, deduction or set-off,
<PAGE> 9
except for any notices, demands, abatements, deductions or set-offs expressly
provided for elsewhere in this Lease. Tenant shall pay the Rents to Owner in
lawful money of the United States by check or other method of payment so that in
any case the funds are "available" on the due date for payment thereof at the
address of Owner or such other place Owner may designate by notice to Tenant.
(d) The Rent for any portion of a calendar month included in the
term shall be prorated in the ratio that the number of days in such portion
bears to the actual number of days in such month.
(e) If any payment of Rent is not paid within ten (10) days of its
due date then, in addition to paying the amount due, Tenant shall pay to Owner,
on demand, a late charge equal to five (5%) percent of the amount required to be
paid from the date the payment was first required through and including the date
funds in payment of such amount are available to Owner, both dates inclusive.
(f) If any payment of Rent is not paid within thirty (30) days of
its due date thereof, interest shall commence to accrue on such payment at a
rate per annum equal to the lesser of (a) the then current base rate publicly
announced from time to time by Citibank, N.A., or its successor, in New York,
New York plus 3% or (b) the maximum rate of interest chargeable under law, from
and after the due date thereof without reference to any grace periods, until
fully paid. Notwithstanding the foregoing, in the event Tenant shall fail to pay
Rent on its due date more than twice in any twelve (12) month period, then the
thirty (30) day period provided for in the preceding sentence shall no longer be
in effect during the remaining term of this Lease.
(g) If the amount of the Rents payable under this Lease exceeds that
allowed by the terms of any valid government restriction that limits the amount
of rent or other charges that a commercial lessor may charge or collect, the
amount of Rents payable under this Lease shall be the maximum permitted by such
restriction for the period of time during which such restriction remains in
effect. All increases in Rents provided for in this Lease shall, however, to the
extent permitted by law, be calculated upon the amount of the Rents that would
have been payable in the absence of such restriction and, effective as of the
expiration of such restriction, the Rents payable hereunder shall be increased
to the amount that would have prevailed had such restriction never been in
effect. Furthermore, to the extent permitted by law, Tenant, as soon as the
restrictions are lifted, shall pay to Owner, as Additional Rent, an amount equal
to the difference between the amount of Rents that Tenant would have paid if
such restrictions had not been in force and the amount of Rents actually paid
during such restrictive period.
(h) The first monthly installment of Rent payable hereunder together
with the security deposit required herein shall be paid upon Tenant's execution
and delivery of this Lease.
40. REAL ESTATE TAX ESCALATION
(a) For the purpose of this Article 40:
(i) "TAXES" shall mean the real estate taxes, assessments and
special assessments imposed upon the Building and the land upon which the
Building is located (the "LAND") or payments required to be made to any
governmental authority in lieu thereof. If at any time during the term of this
Lease the methods of taxation prevailing at the commencement of the term hereof
shall be altered so that in lieu of or as an addition to or as a substitute for
the whole or any part of the taxes, assessments, levies, impositions or charges
now levied, assessed or imposed on the Land and the improvements thereon, there
shall be levied, assessed or imposed (A) a tax, assessment, levy, imposition or
charge wholly or partially as capital levy or otherwise on the rents received
therefrom, or (B) a tax, assessment, levy, imposition or charge measured by or
based in whole or in part upon the demised premises and imposed upon the Owner,
or (C) a license or fee measured by the rents payable by Tenant to Owner, then
all such taxes, assessments, levies, impositions or charges, or the part thereof
so measured or based shall be deemed to be included within the term "TAXES" for
the purposes hereof;
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<PAGE> 10
(ii) "BASE TAX YEAR" shall mean the 1996/1997 Tax Year;
(iii) "BASE TAXES" shall mean the Taxes, as finally
determined, for the BASE TAX YEAR;
(iv) "TAX YEAR" shall mean any period of 12 consecutive
calendar months, commencing July 1, all or any part of which falls within the
term; and
(v) "TENANT'S PROPORTIONATE SHARE" shall mean, for purposes of
this Lease and all calculations in connection herewith, 1.98%.
(b) If the Taxes for any Tax Year following the Base Tax Year shall
be more than the Base Taxes, Tenant shall pay, as Additional Rent for such Tax
Year, an amount equal to Tenant's Proportionate Share of the amount by which the
Taxes for such Tax Year are greater than the Base Taxes. (The amount payable by
Tenant is hereinafter referred to as the "TAX PAYMENT".) The Tax Payment and the
Base Taxes shall be appropriately prorated, if necessary, to correspond with
that portion of a Tax Year occurring within the term of this Lease. The Tax
Payment shall be payable by Tenant within ten (10) days after receipt of a
demand from Owner therefor, which demand shall be accompanied by a copy of the
tax bill together with Owner's computation of the Tax Payment (OWNER'S
computation of the Tax Payment is hereinafter referred to as an "Owner's
STATEMENT").
(c) On the first day of each month following rendition of an Owner's
Statement, Tenant shall pay to Owner a sum equal to one-twelfth (1/12th) of
Tenant's Tax Payment multiplied by the numbers of month of the then current Tax
Year which shall have already lapsed and, thereafter on the first day of each
succeeding month, Tenant shall pay to Owner, on account of the Tax Payment, an
amount equal to one-twelfth (1/12th) of the Tax Payment together with each
monthly installment of Base Rent. If there shall be any increase or decrease in
Taxes for any Tax Year, whether during or after such Tax Year, Owner shall
furnish a revised Owner's Statement therefor. If Tenant shall have paid one or
more installments of its Tax Payment for any Tax Year and, subsequent to such
payments a revised Owner's Statement is rendered, Tenant shall, within twenty
(20) days after receipt of such revised Owner's Statement, pay to Owner the
amount of any underpayment of the Tax Payment due for such Tax Year or, if
Tenant has overpaid its revised Tax Payment, Owner shall credit against the next
installments of Base Rent the amount of such overpayment.
(d) Only Owner shall be eligible to institute tax reduction or other
proceedings to reduce the assessed valuation of the Land and Building. Should
Owner be successful in any such reduction proceedings and obtain a rebate or a
reduction in assessment for periods during which Tenant has paid or is obligated
to pay Tenant's Proportionate Share of increases in Taxes, then either (i) Owner
shall, in the event a rebate is obtained, return Tenant's Proportionate Share of
such rebate to Tenant after deducting Owner's reasonable expenses, including
without limitation, attorneys' fees and disbursements in connection with such
rebate (such expenses incurred with respect to a rebate or reduction in
assessment being hereinafter referred to as "TAX EXPENSES"), or, (ii) if a
reduction in assessment is obtained prior to the date Tenant would be required
to pay Tenant's Proportionate Share of such increase in Taxes, Tenant shall pay
to Owner, within ten (10) days of written request therefor, Tenant's
Proportionate Share of such Tax Expenses.
(e) Notwithstanding anything to the contrary contained herein, in
the event that the holder of any superior mortgage or the lessor of any superior
lease shall require advance payments from the Owner on account of Taxes, then
Tenant will pay Tenant's Proportionate Share of any amounts required to be paid
in advance by Owner with the holder of the superior mortgage or the lessor of
the superior lease to the extent that such payments made by Owner exceed the
Base Taxes. Any payments to be made by Tenant hereunder shall be made ten (10)
days prior to the date Owner is required to make such payments to the holder of
the superior mortgage or the lessor of the superior lease.
3
<PAGE> 11
(f) Notwithstanding anything to the contrary contained herein, in no
event whatsoever shall the Rent be reduced below the Base Rent initially set
forth herein, as same may be increased by provisions of this Lease.
41. COST OF LIVING ESCALATION
(a) For purposes of this Article:
(i) "PRICE INDEX" shall mean, subject to the terms of
paragraph (e) below, "The Consumer Price Index (All Urban Consumers, New York,
N.Y.)", issued by the Bureau of Labor Statistics of the United States Department
of Labor.
(ii) "LEASE PERIOD" shall mean the period between the
Commencement Date and the last day of the calendar month immediately prior to
the first (1st) anniversary of the Commencement Date and each period of twelve
(12) consecutive calendar months thereafter.
(iii) "BASE PRICE INDEX" shall mean the Price Index in
effect for March, 1996.
(iv) "PERCENTAGE OF CPI INCREASE" shall mean the percentage,
if any, by which the Price Index in effect for the month in which occurs the
last day of the most recent Lease Period exceeds the Base Price Index.
(v) "CPI ADDITIONAL RENT" shall mean an amount equal to the
product of (A) the annual Base Rent multiplied by (B) the Percentage of CPI
Increase.
(b) After the expiration of each Lease Period occurring during the
term hereof, Owner shall send a written notice to Tenant setting forth: (i) the
Price Index in effect for the month in which occurs the last day of the Lease
Period for which the computation is being made; (ii) the Base Price Index; (iii)
the Percentage of CPI Increase with respect to the Lease Period for which the
computation is being made; and (iv) the CPI Additional Rent attributable
thereto. Each such notice is hereinafter called a "CPI NOTICE". Every CPI Notice
given by Owner shall be conclusive and binding upon Tenant unless Tenant shall
notify Owner within thirty (30) days after its receipt of such notice that it
disputes the correctness of the computations made thereon, specifying the
particular respects in which such computations are claimed to be incorrect.
Pending the resolution of such dispute by agreement or arbitration, Tenant
shall, within thirty (30) days after receipt of such disputed CPI Notice, pay
any Additional Rent due in accordance therewith, but such payment shall be
without prejudice to Tenant's position. If the dispute shall be resolved in
Tenant's favor, Owner shall, on demand, pay Tenant the amount of Tenant's
overpayment of Additional Rent, if any, resulting from compliance with the
disputed CPI Notice.
(c) Tenant shall pay to Owner, as Additional Rent, in equal monthly
installments in advance commencing upon the first day of each Lease Period after
the first Lease Period and continuing thereafter throughout such Lease Period
for the remainder of the term of this Lease, including any extensions or
renewals thereof, the CPI Additional Rent (subject to recalculation as provided
in this Article), and, with respect to each such subsequent Lease Period, the
CPI Additional Rent shall be computed in accordance with the provisions of this
Article. If Tenant shall have failed to receive a CPI Notice with respect to any
Lease Period, then Tenant shall continue to pay the CPI Additional Rent for the
prior Lease Period until Tenant's receipt of the CPI Notice for such Lease
Period. Within ten (10) days after Tenant's receipt of a CPI Notice, Tenant
shall pay to Owner the amount of CPI Additional Rent that would have been due to
Owner hereunder had the CPI Additional Rent for such Lease Period been
determined on or before the first day of such Lease Period and thereafter pay to
Owner the amount of CPI Additional rent as shown in the CPI Notice.
(d) In the event that the Price Index ceases to use the 1982-1984
average of 100 as the basis of calculation, or if a substantial change is made
in the term or number of items contained in the Price Index, then the Price
Index shall be adjusted to the figure that would have
4
<PAGE> 12
been arrived at had the change in the manner of computing the Price Index in
effect at the date of this Lease not been altered. In the event that such Price
Index (or a successor or substitute index) is not available, a reliable
governmental or other non-partisan publication evaluating the information
theretofore used in determining the Price Index shall be used.
(e) Notwithstanding anything contained in this Article to the
contrary, in no event shall the Base Rent and CPI Additional Rent payable by
Tenant for any year during any Lease Period be less than the amount of Base Rent
and CPI Additional Rent, payable by Tenant for the immediately preceding Lease
Period.
(f) Owner's failure to prepare and deliver any of the bills,
statements, or notices set forth in this Article, or Owner's failure to make a
demand, shall not in any way cause Owner to forfeit or surrender its rights to
collect any of the foregoing items of Additional Rent that may have become due
during the term of this Lease. Tenant's liability for the amounts due under this
Article shall survive the expiration of the term hereof, and any amount due for
a partial period between the expiration of any operational year or any Lease
Period and the Expiration Date shall be prorated.
42. ELECTRICITY
(a) On and after the Commencement Date, Owner shall supply
electricity to the demised premises on a submetered basis. Tenant shall purchase
from Owner all electricity consumed or to be consumed in the demised premises
and shall pay to Owner or a meter company designated by Owner the cost of the
electricity consumed in the demised premises, as determined by a meter or meters
measuring consumption within the demised premises, plus an amount equal to 10%
of the charge therefor for Owner's overhead and supervision (the cost of
electricity plus the 10% surcharge is hereinafter called the "ELECTRICITY
ADDITIONAL RENT"). If any tax is imposed upon the Electricity Additional Rent
received by Owner from the sale or resale of electricity to Tenant, Tenant
agrees that to the extent permitted by law, Tenant shall reimburse such taxes to
Owner as Additional Rent within 20 days after demand therefor. Bills for the
cost of electricity shall be rendered at such times as Owner may elect, and such
amounts shall be paid by Tenant as Additional Rent within 20 days of Tenant's
receipt of bills therefor. If there is more than one meter for the demised
premises, the electricity rendered through each meter may be computed and billed
separately.
(b) If, at any time during the term, Owner is prohibited by law or
the requirements of the New York State Public Service Commission from supplying
and charging for electricity on a submetered basis, Owner shall supply
electricity to the demised premises and, at Owner's election, may charge for the
electricity on a rent inclusion basis or a direct supply basis, as selected by
Owner.
(c) During any period in which electricity is to be supplied to the
demised premises on a rent inclusion basis, the Base Rent shall be increased by
an amount (the "ELECTRIC INCLUSION AMOUNT") equal to the actual amount required
to be paid hereunder by Tenant under paragraph (a) for electricity supplied to
the demised premises during the 365 day period immediately prior to such period,
including all sales and use taxes thereon. Thereafter and from time to time
during the term, Owner may cause surveys of Tenant's electricity usage to be
made by a reputable electrical consultant selected by Owner ("OWNER'S ELECTRICAL
CONSULTANT") and, if such survey shall determine that the then Electric
Inclusion Amount does not accurately reflect the amount and/or cost of
electricity consumed in the demised premises, the then Electric Inclusion Amount
shall be adjusted by Owner's Electrical Consultant in accordance with such
survey to reflect the cost (including all taxes and indirect costs) to Owner of
the electricity consumed by Tenant based on Tenant's usage of electricity as
indicated by such survey. Owner may also cause the Electric Inclusion Amount to
be adjusted without survey from time to time in accordance with calculations by
Owner's Electrical Consultant to reflect changes in the fuel adjustment
component of the utility company's charge or other changes in the charges by the
utility company supplying electricity to Owner. Tenant shall pay the amount of
any increase in the Electric Inclusion Amount retroactively from the date of the
survey of Tenant's electricity usage and/or from the date when the increased
charges to Owner from the utility company
5
<PAGE> 13
became effective, as the case may be, such amount to be paid within 20 days upon
billing therefor by Owner. An appropriate credit against Rents (or prompt
payment to Tenant in the event the Lease has since expired) shall be allowed to
Tenant to the extent such survey evidences a decrease in Owner's cost resulting
from Tenant's electricity usage.
(d) Supplementing Article 12, Tenant's use of electric current in
the demised premises shall not at any time exceed the capacity of any of the
electrical conductors and equipment in or otherwise serving the demised
premises. In order to insure that such capacity is not exceeded and to avert
possible adverse effect upon the Building electricity service, Tenant shall not,
without Owner's prior written consent in each instance, which consent shall not
be unreasonably withheld or delayed, connect any additional fixtures, appliances
or equipment (other than lamps, typewriters, similar office machines and other
installations which do not use material amounts of electricity) to the Building
electric distribution system or make any alteration or addition to the electric
system serving the demised premises existing at the commencement of the term
hereof. Should Owner grant such consent, all additional risers or other
equipment required therefor shall be installed by Owner and the cost thereof
shall be paid by Tenant upon Owner's demand. Owner shall not be liable in any
way to Tenant for any failure or defect in the supply or character of electric
current furnished to the demised premises other than such as may result from
Owner's gross negligence or otherwise wrongful act or omission. Tenant shall
furnish and install all lighting tubes, lamps and bulbs used in the demised
premises.
43. SERVICES
Supplementing Article 29:
(a) Owner shall have the right to discontinue, temporarily or
permanently, the use of any one or more (but not all) elevators servicing the
demised premises.
(b) Owner, at its option, may provide heat at hours in addition to
those hereinbefore set forth provided Tenant shall deliver to Owner a written
request for such additional service setting forth in the request the exact dates
and hours for which such additional service is required. Such request shall be
given to Owner a reasonably adequate time prior to the date such additional
service is desired. If Owner provides such additional service to Tenant, such
service shall be subject to the terms and charges then being imposed by Owner
therefor. Said charges shall be deemed to be Additional Rent and shall be
payable immediately upon the furnishing of a bill specifying the cost of said
additional service.
(c) Owner reserves the right to change cleaning contractors at
anytime and for any reason. If Tenant desires additional or other cleaning or
janitorial services, Tenant agrees to use the contractors approved by Owner
therefor or, if applicable, contractors approved for any waxing, polishing,
window cleaning and maintenance work in the demised premises or with respect to
any personal property of Tenant located therein. Tenant agrees that it shall not
employ any other cleaning or maintenance contractor nor any individual firm or
organization for such purpose without Owner's prior written consent.
If Owner permits Tenant to store, prepare or consume food or
beverages in the demised premises, Tenant, at Tenant's expense, shall cause all
portions of the demised premises used for the storage, preparation or
consumption of food or beverages to be cleaned daily in a manner satisfactory to
Owner, and to be exterminated against infestation by vermin, roaches or rodents
regularly and at Tenant's sole cost and expense.
Tenant shall pay to Owner, on demand, Owner's charges for removal
from the demised premises and the Building of (i) so much of any refuse and
rubbish of Tenant as shall exceed that normally accumulated daily in the routine
of ordinary business occupancy and (ii) all of the refuse and rubbish of any
machines of Tenant and of any eating facilities requiring special care.
(d) Notwithstanding any provision of this Lease to the contrary,
Owner reserves the right to interrupt, curtail, stop or suspend service or
operation of any of the
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Building services (i) when Owner is required to do so by
law or to adhere to a recognized energy, water or other resource conservation
programs or guidelines, laws or recommendations promulgated by any Federal,
state, municipal or other governmental or quasi-governmental agency, bureau,
board, commission, department, office or other sub-division thereof, or (ii)
when necessary, by reason of accident, or emergency, or for repairs,
alterations, replacements, improvements, maintenance or testing desirable or
necessary in the sole judgment of Owner to be made, until such repairs,
alterations, replacements, improvements, maintenance or testing shall have been
completed. Any such repairs, alterations, replacements or improvements shall, to
the extent possible but without the occurrence of overtime or premium pay labor,
be made with a minimum amount of inconvenience to Tenant, and Owner shall
diligently prosecute same to completion.
(e) Owner shall have no responsibility or liability for (i) failure
to supply any Building service during any period referred to in (d) above or
(ii) any loss, damage or expense that Tenant may sustain or incur by reason of
any failure, inadequacy or defect in the character, quantity, quality or supply
of services or utilities furnished to the demised premises or the Building for
any reason except for actual damage suffered by Tenant by reason of any such
failure, inadequacy or defect but only, however, to the extent caused by the
negligence or willful misconduct of Owner or its agents, employees or
contractors, and then only after actual notice thereof to Owner and Owner's
failure to cure same within a reasonable time.
44. ALTERATIONS
Supplementing the provisions of Article 3:
(a) Tenant shall make no improvements, changes or alterations
(collectively "ALTERATIONS") in or to the demised premises without Owner's prior
written approval, which shall not be unreasonably withheld for non-structural
Alterations that do not affect Building systems. Before proceeding with any
Alteration (other than painting, decorating, wall covering or carpeting), Tenant
shall obtain Owner's approval of the plans and specifications for the work to be
done, which shall include a scheduled completion date, and Tenant shall not
proceed with such work until it obtains Owner's written approval of such work,
plans and specifications. If any superior mortgagee or superior lessor shall not
approve such Alteration, then such disapproval shall be deemed to be reasonable
grounds for Owner to withhold its consent to such Alteration.
(a) Tenant shall pay to Owner upon demand, as Additional Rent, the
reasonable out-of-pocket costs and expenses incurred by Owner for any architect,
engineer or attorney employed by Owner for reviewing said plans and
specifications and inspecting the Alterations.
(b) Before proceeding with any Alteration estimated to cost in
excess of $10,000.00, Tenant shall furnish to Owner one of the following (as
selected by Tenant): (i) a cash deposit or (ii) a performance bond and a labor
and materials payment bond (issued by a corporate surety licensed to do business
in New York reasonably satisfactory to Owner), or (iii) an irrevocable,
unconditional, negotiable letter of credit, issued by and drawn on a bank or
trust company which is a member of the New York Clearing House Association in a
form reasonably satisfactory to Owner; each in an amount equal to one hundred
fifty (150%) percent of the estimated cost (as reasonably determined by Owner)
of the Alteration.
(c) Upon (i) the completion of the Alteration in accordance with the
terms of this Article and (ii) the submission to Owner of proof evidencing the
payment in full for said Alteration, the security deposited with Owner (or the
balance of the proceeds thereof, if Tenant has furnished cash or a letter of
credit and if Owner has drawn on the same) shall be returned to Tenant.
(d) Upon Tenant's failure to properly perform or complete any
Alteration in accordance with its plans and specifications, as adjusted by
change orders, as the foregoing is reasonably determined by Owner, or to fully
pay for any Alteration, then, following notice to
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Tenant, Owner shall be entitled to draw on the security deposited under this
Article to the extent it deems necessary to complete any incomplete or otherwise
hazardous Alteration, to effect any necessary restoration and/or protection of
the demised premises or the Building and to apply such funds to the payment or
satisfaction of any costs, damages or expenses in connection with the foregoing
and/or Tenant's obligations under this Article and the Lease relating to
alterations and repairs, including the satisfaction of any mechanic's lien.
(e) If, in connection with any Alterations, Tenant shall hire the
services of any contractor or construction manager, Tenant shall enter into an
agreement with such party which shall provide that such contractor or
construction manager, as well as all subcontractors, materialmen and suppliers
hired in connection therewith (all of the foregoing known collectively as
"CONTRACTORS"), shall upon receiving any payment respecting such Alterations
deliver to Tenant a duly executed Waiver of Mechanic's Lien evidencing payment
in full for the cost of work, labor and/or services theretofore furnished. Said
Waivers of Mechanic's Lien shall name the Owner and Tenant as the beneficiaries
of such Waivers and shall be in a form reasonably acceptable to Owner. Prior to
the commencement of any Alterations, a form of the Waiver of Mechanic's Lien to
be given by each such Contractor must be approved by Owner.
45. BROKER
Owner and Tenant each warrant and represent to the other that it has dealt
with no broker in connection with this Lease other than Helmsley-Spear, Inc. and
Williamson, Picket, Gross, Inc. (the "BROKERS"). Commission due to the Brokers
shall be paid by Owner pursuant to a separate agreement. Each of Owner and
Tenant agrees to indemnify, defend and hold harmless the other from and against
any claims, based or alleged to be based upon the acts or omissions of the
indemnifying party, for any brokerage commission or finder's fee with respect to
this Lease by persons other than the Brokers and for all costs, expenses and
liabilities incurred in connection with such claims, including attorneys' fees
and disbursements arising out of a breach of the foregoing representation. The
provisions of this Article shall survive the expiration or sooner termination of
this Lease.
46. INDEMNIFICATION
Tenant shall defend, indemnify and hold harmless Owner, its agents,
officers, directors, shareholders, partners and principals (whether disclosed or
undisclosed) (hereinafter the "OWNER PARTIES") from and against any and all
claims, demands, liability, loss, damage, costs and expenses (including
reasonable attorneys' fees and disbursements) arising from or in connection
with: (a) any breach or default by Tenant in the full and prompt payment and
performance of Tenant's obligations hereunder; (b) the use or occupancy or
manner of use or occupancy of the demised premises by Tenant or any person
claiming under or through Tenant (c) any act, omission or negligence of Tenant
or any of its subtenants or licensees or its or their partners, principals,
directors, officers, agents, invitees, employees or contractors during the term;
(d) any accident, injury or damage occurring in or about the demised premises
during the term provided same is not caused by the gross negligence or willful
misconduct of Owner, its employees or agents; (e) the performance of any
alteration in the demised premises including, without limitation, Tenant's
failure to obtain any permit, authorization or license or failure to pay in full
any contractor, subcontractor or materialmen performing work on such alteration;
and (f) any mechanics lien filed, claimed or asserted in connection with any
alteration or any other work, labor, services or materials done for or supplied
to Tenant, or any person claiming through or under Tenant. If any claim, action
or proceeding is brought against any of the Owner Parties for a matter covered
by this indemnity, Tenant, upon notice from the indemnified person or entity,
shall defend such claim, action or proceeding by counsel reasonably satisfactory
to Owner and the indemnified person or entity. The provisions of this Article
shall survive the expiration or sooner termination of this Lease.
47. EXCULPATION
(a) Notwithstanding anything to the contrary in this Lease, none of
the Owner Parties shall be liable to Tenant or its partners, principals,
directors, officers, contractors,
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agents, employees, invitees, sublessees, licensees or any other person or
entity claiming through or under Tenant for any loss, injury or damage to
Tenant or to any other person or entity, or to its or their property, or for
any inconvenience, annoyance, interruption or injury to business arising from
Owner performing any maintenance, repairs, alterations, additions or
improvements in or to any portion of the Building, or the demised premises or
in or to the fixtures, equipment or appurtenances of the Building or the
demised premises (nor shall Tenant or any other person or entity be entitled
to any abatement or suspension of its obligation to pay Rents or be construed to
be constructively or otherwise evicted on account of the foregoing),
irrespective of the cause of such loss, injury, damage, inconvenience,
annoyance, interruption, or injury unless caused by or resulting from any
wrongful act or omission, gross negligence or willful misconduct of Owner or its
agents or employees; provided, however, that even if due to any such wrongful
act or omission, gross negligence or willful misconduct of Owner, its agents or
employees, Tenant waives, to the full extent permitted by law, any claim for any
indirect, consequential or punitive damages, including loss of profits in
connection therewith.
(b) Tenant shall look solely to the estate and property of Owner in
the Land and Building of which the demised premises are a part for the
satisfaction of Tenant's remedies for the collection of a judgment or judicial
process or arbitration award requiring the payment of money by Owner and no
other property or assets of Owner, Owner's agents, shareholders, officers,
directors, partners, principals (disclosed or undisclosed) or affiliates,
whether directly or indirectly through Owner or through any receiver, assignee,
trustee in bankruptcy or through any other person or entity shall be subject to
levy, lien, execution, attachment or other enforcement procedure for any
liability of Owner to Tenant under this Lease or under law.
(c) In no event shall Owner be liable for any loss, injury or damage
(including indirect, consequential or punitive damages) claimed by Tenant or any
person or entity claiming through or under Tenant in connection with the failure
or refusal by Owner to grant its consent or approval with respect to any matter
as to which it is entitled to give its consent or approval pursuant to this
Lease. If Owner withholds or delays its consent or conditions its consent and
Tenant believes that Owner did so unreasonably, Tenant may prosecute an action
for declaratory relief to determine if Owner properly withheld, delayed or
conditioned its consent, but Tenant waives and discharges any claims it may have
against Owner for damages arising from Owner's withholding, delaying or
conditioning its consent. In any such action, each party shall bear its own
attorneys' fees.
48. OWNER DEFAULT
Owner shall in no event be in default in the performance of any of Owner's
obligations hereunder unless and until it has failed to perform such obligation
within 30 days after receipt of written notice of such failure from Tenant;
provided, however, that if the nature of such failure is such that more than 30
days are required for its cure, Owner shall not be in default hereunder if Owner
commences to cure such default within such 30 day period and thereafter
prosecutes such cure to completion with reasonable diligence. In any event,
Tenant's sole remedy for breach of this Lease by Owner shall be an action for
damages, injunction or specific performance; Tenant shall have no right to
terminate this Lease on account of any breach or default by Owner.
49. SUBORDINATION AND ATTORNMENT
Supplementing Article 7 hereof:
(a) This Lease, and all rights of Tenant under it, are subordinate
and subject to all present and future ground, master or operating leases of the
Land and the Building and any and all present and future mortgages, security
interests or other security documents upon or affecting the Land and the
Building and to all advances thereunder and all renewals, replacements,
modifications, amendments, consolidations and extensions thereof (all of the
foregoing, collectively, the "SENIOR INTERESTS"), unless any holder of the
Senior Interests elects, by written notice to Tenant, that this Lease shall be
superior to its lease or mortgage. This Article shall be self-operative and no
further instrument of subordination shall be required. In
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confirmation of such subordination, Tenant shall, within 20 days of demand
therefor, execute, acknowledge and deliver any reasonable instrument that
Owner, the holder of any Senior Interest or any of their respective successors
in interest may (in the form required by the Senior Interest holder requesting
the same) request to evidence such subordination.
(b) The holder of any Senior Interest who succeeds to the rights of
Owner under this Lease is sometimes referred to herein as a "SUCCESSOR
LANDLORD". Tenant acknowledges and agrees that, upon a Successor Landlord's
succession to the rights of Owner under this Lease, Tenant shall, at the option
of such Successor Landlord, fully and completely attorn to and recognized the
Successor Landlord as Tenant's landlord hereunder and shall promptly execute and
deliver to such Successor Landlord any additional reasonable instrument that
such Successor Landlord may request to evidence such attornment. Upon
attornment, this Lease shall continue in full force and effect as a direct Lease
between Tenant and the Successor Landlord upon all of the terms, covenants and
conditions contained herein. Nothing contained in this Article shall be
construed to impair any right otherwise exercisable by the holder of a Senior
Interest.
50. USE AND OCCUPANCY
Supplementing Article 2 hereof:
(a) Subject to and in accordance with all rules, regulations, laws,
ordinances, statutes and requirements of all governmental authorities and any
bodies having jurisdiction thereof, Tenant covenants and agrees that it shall
use the demised premises solely for executive and administrative offices and for
no other purpose.
(b) Tenant covenants that Tenant will not use or suffer or permit
any person to use the demised premises for any unlawful purpose and to obtain
and maintain at Tenant's sole cost and expense all licenses and permits from any
and all governmental authorities having jurisdiction of the demised premises
which may be necessary for the conduct of Tenant's business therein. Tenant
further covenants to comply with all applicable laws, resolutions, codes, rules
and regulations of any department, bureau, agency or any governmental authority
having jurisdiction over the operation, occupancy, maintenance and use of the
demised premises for the purpose set forth herein. Tenant indemnifies and saves
Owner harmless from and against any claims, penalties, loss, damage or expense
imposed by reason of a violation of any applicable law or the rules and
regulations of governmental authorities having jurisdiction thereof relating to
Tenant's use and occupancy.
51. EXTERIOR DOOR; HALLWAY WALLS; DOOR LOCKS
No alterations or changes or affixing (including, without
limitation, locks, peepholes, mail slots, door bell, door buzzers, door
knockers, intercoms, door closets and signage) of anything to the door (the
"EXTERIOR DOOR") leading from the demised premises to the common hallway shall
be done or permitted without in each instance the express prior written approval
of Owner, such approval not to be unreasonably withheld. Any refusal by Owner to
consent thereto will be deemed reasonable if the alteration, change or affixing
does not conform to the then Building standard therefor. Any door sign to be
affixed to the Exterior Door must, as to configuration, color, design, lettering
and materials, be approved by Owner and, after approval by Owner, any such door
sign shall, at Owner's option, be caused to be fabricated and installed by Owner
at Tenant's expense.
Nothing shall be affixed by Tenant to the walls of the common
hallway of the floor on which the demised premises is located. Tenant shall not
repair, change, replace or add any locks at the demised premises but shall, in
writing, request Owner to repair, change, replace or add such locks. Owner shall
not unreasonably withhold or delay its approval of said Tenant's request and,
upon approval, shall have the requested and approved work done at Tenant's
expense by a locksmith approved by Owner. Owner shall be furnished with keys for
the demised premises.
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Any charges for work done at Tenant's expense pursuant to this
Article, or pursuant to any other provision of this Lease, shall be deemed to be
Additional Rent payable upon receipt by Tenant of a bill therefor.
52. ASSIGNMENT AND SUBLETTING
Supplementing Article 11 hereof:
(a) If Tenant shall, at any time or times during the term hereof,
desire to assign this Lease or sublet the demised premises, Tenant shall give
notice thereof to Owner, which notice shall be accompanied by the following: (i)
a duplicate original copy of the proposed assignment or sublease, the effective
or commencement date of which shall be not less than thirty (30) nor more than
one hundred eighty (180) days after the giving of such notice; (ii) a statement
setting forth, in reasonable detail, the identity of the proposed assignee or
subtenant, the nature of its business and its proposed use of the demised
premises; and (iii) current financial information with respect to the proposed
assignee or subtenant, including its most recent financial statement. Such
notice shall be deemed an offer from Tenant to Owner whereby Owner (or Owner's
designee) may, at its option ("OWNER'S OPTION") terminate this Lease. Owner's
Option may be exercised by Owner by notice given to Tenant at any time within
thirty (30) days after such notice has been given by Tenant to Owner; and during
such thirty (30) day period, Tenant shall not assign this Lease or sublet the
demised premises.
(b) In the event that Tenant desires either to assign this Lease or
to sublet the demised premises, then if Owner exercises its option to terminate
this Lease as provided herein, this Lease shall end and expire upon the date
that such assignment or subletting was to be effective or to commence, as the
case may be, and the Rents shall be paid and apportioned through and including
such date.
(c) In the event that Tenant desires to sublease the demised
premises or assign this Lease then, provided Tenant complies with the provisions
of paragraph (a) hereof and Owner does not exercise Owner's Option within the
time provided therefor, and further provided that Tenant is not in default of
any of Tenant's obligations under this Lease after notice and the expiration of
any applicable grace period, Owner's consent (which must be in writing and in
form satisfactory to Owner) to the proposed assignment or sublease shall not be
unreasonably withheld or delayed, provided and upon condition that:
(i) in Owner's judgment, the proposed assignee or subtenant is
engaged in such a business, and the demised premises will be used in such a
manner, that: (A) is in keeping with the then standards of the Building; and (B)
is limited to the use expressly permitted hereunder;
(ii) the proposed assignee or subtenant is a reputable person
or entity of good character and with sufficient financial worth considering the
responsibility involved, and Owner has been furnished with reasonable proof
thereof;
(iii) neither (A) the proposed assignee or sublessee nor (B)
any person that, directly or indirectly, controls, is controlled by, or is under
common control with, the proposed assignee or sublessee or any person who
controls the proposed assignee or sublessee, is then an occupant of any part of
the Building;
(iv) the proposed assignee or sublessee is not a person
with whom Owner is then negotiating to lease space in the Building;
(v) the form of the proposed sublease shall be in form
satisfactory to Owner and shall comply with the applicable provisions of this
Article;
(vi) there shall not be more than one (1) subtenant of
demised premises;
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(vii) the amount of the aggregate rent to be paid by the
proposed subtenant is not less than the then current market rent per rentable
square foot for the demised premises as though the demised premises were vacant,
and the rental and other terms and conditions of the sublease are the same as
those contained in the proposed sublease furnished to Owner pursuant to
paragraph (a) hereof;
(viii) Tenant shall reimburse Owner on demand for any
reasonable costs that may be incurred by Owner in connection with said
assignment or sublease, including the costs of making investigations as to the
acceptability of the proposed assignee or subtenant and legal costs incurred in
connection with the granting of any requested consent;
(ix) Tenant shall not have: (A) advertised or publicized in
any way the availability of the demised premises without prior notice to, and
approval by, Owner, nor shall any advertisement state the name (as distinguished
from the address) of the Building or the proposed rental or (B) listed the
demised premises for subletting or assignment at a rental rate less than the
greater of (Y) the Base Rent and Additional Rent then payable hereunder for such
space or (Z) the Base Rent and Additional Rent at which Owner is then offering
to lease other space in the Building; and
(x) the sublease shall not provide for an option on behalf of
the subtenant thereunder to extend or renew the term of such sublease.
(d) In the event that (i) Owner fails to exercise Owner's Option
under paragraph (a) hereof and consents to a proposed assignment or sublease and
(ii) Tenant fails to execute and deliver the assignment or sublease to which
Owner consented within ninety (90) days after the giving of such consent, then
Tenant shall again comply with all of the provisions and conditions of paragraph
(a) hereof before assigning this Lease or subletting all of the demised
premises.
(e) Each subletting pursuant to this Article shall be subject to all
of the covenants, agreements, terms, provisions and conditions contained in this
Lease. Notwithstanding any such subletting to any other subtenant and/or
acceptance of rent or Additional Rental by Owner from any subtenant, Tenant
shall and will remain fully liable for the payment of the Base Rent and
Additional Rent due, and to become due, hereunder, for the performance of all of
the covenants, agreements, terms, provisions, and conditions contained in this
Lease on the part of Tenant to be observed and performed and for all acts and
omissions of any licensee, subtenant, or any other person claiming under or
through any subtenant that shall be in violation of any of the obligations of
this Lease, and any such violation shall be deemed to be a violation by Tenant.
Tenant further agrees that, notwithstanding any such subletting, no further
subletting (including, without limitation any extensions or renewals of any
initial sublettings) of the demised premises by Tenant, or any person claiming
through or under Tenant shall, or will be, made, except upon compliance with,
and subject to, the provisions of this Article. If Owner shall decline to give
its consent to any proposed assignment or sublease in accordance with the terms
of this Lease, or if Owner shall exercise Owner's Option under paragraph (a)
hereof, Tenant shall indemnify, defend and hold Owner harmless from and against
any and all losses, liabilities, wages, costs and expenses (including attorneys
fees) resulting from any claims that may be made against Owner by the proposed
assignee or subtenant or by any brokers or other persons claiming a commission
or similar compensation in connection with the proposed assignment or sublease.
(f) With respect to each and every sublease or subletting permitted
hereunder, it is further agreed that:
(i) no subletting shall be for a term ending later than
one day prior to the expiration date hereof;
(ii) no sublease shall be valid, and no subtenant shall take
possession of the demised premises or any part thereof, until an executed
counterpart of such sublease has been delivered to Owner; and
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(iii) each sublease for the demised premises executed by
Tenant hereunder shall provide that (A) it is subject and subordinate to this
Lease and all instruments to which this Lease is subject and subordinate, (B)
the subtenant will not pay any rent or other sums under its sublease more than
one (1) month in advance, and (C) in the event of a termination, re-entry, or
dispossess by Owner under this Lease, Owner (or the lessor of any superior lease
or holder of any superior mortgage) may, at its option, cause the subtenant to
attorn to, or enter into a direct sublease on identical terms, with Owner (or
such superior lessor), except that Owner (or such superior lessor) shall not (X)
be liable for any previous act or omission of Tenant under such sublease, (Y) be
subject to any offset, not expressly provided in such sublease, that theretofore
accrued to such subtenant against Tenant or (Z) be bound by any previous
modification of such sublease or by any previous prepayment of more than one (1)
month's fixed rent or any additional rent then due.
(g) Any assignment or transfer shall be made only if, and shall not
be effective until, the assignee shall execute, acknowledge and deliver to Owner
an agreement, in form and substance satisfactory to Owner, whereby the assignee
shall assume all of the obligations of this Lease on the part of Tenant to be
performed or observed and whereby the assignee shall agree that the provisions
contained herein shall, notwithstanding such assignment or transfer, continue to
be binding upon it in respect of all future assignments and transfers. The
original named Tenant covenants that, notwithstanding any assignment or
transfer, whether or not in violation of the provisions hereof, and
notwithstanding the acceptance of Base Rent and/or Additional Rent by Owner from
an assignee, transferee, or any other party, the original named Tenant shall
remain fully liable for the payment of the Base Rent and Additional Rent and for
the other obligations of this Lease on the part of Tenant to be performed or
observed.
(h) If Owner shall give its consent to any assignment of this Lease
or to any sublease, Tenant shall, in consideration therefor, pay to Owner, as
Additional Rent:
(i) in the case of an assignment, an amount equal to all sums
and other consideration paid to Tenant by the assignee for, or by reason of,
such assignment (including all sums paid for the sale of Tenant's fixtures,
leasehold improvements, equipment, furniture, furnishings, or other personal
property, less the then net unamortized or undepreciated cost thereof determined
on the basis of Tenant's federal income tax returns); and
(ii) in the case of a sublease, any rents, additional charges,
or other consideration payable under the sublease by the subtenant to Tenant
that are in excess of the Base Rent and Additional Rent accruing during the term
of the sublease in respect of the subleased space (at the rate per square foot
payable by Tenant hereunder) pursuant to the terms hereof (including all sums
paid for the sale or rental of Tenant's fixtures, leasehold improvements,
equipment, furniture, or other personal property, less, in the case of the sale
thereof, the then net unamortized or undepreciated cost thereof determined on
the basis of Tenant's federal income tax returns). The sums payable under this
paragraph shall be paid to Owner as and when payable by the subtenant to Tenant.
(i) If Tenant is a corporation, the provisions of Article 11, as
supplemented hereby, shall apply to a transfer (or by one or more transfers) of
a majority of the stock of Tenant, as if such transfer of a majority of the
stock of Tenant were an assignment of this Lease.
(j) The joint and several liability of Tenant and any immediate or
remote successor in interest to Tenant, and the due performance of the
obligations of this Lease on Tenant's part to be performed or observed, shall
not be discharged, released, or impaired in any respect by any agreement or
stipulation made by Owner extending the time of, or modifying any of the
obligations of, this Lease, or by any waiver or failure of Owner to enforce any
of the obligations of this Lease.
(k) The listing of a name other than that of Tenant, whether on the
doors of the demised premises, on the Building directory (if any), or otherwise,
shall not operate to vest any right or interest in this Lease or in the demised
premises, nor shall it be deemed to be the
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consent of Owner to any assignment or transfer of this Lease, to any sublease
of the demised premises, or to the use or occupancy thereof by others.
(l) If Tenant is a corporation, a dissolution of the corporation or
a transfer (by one or more transactions) of a majority of the voting stock of
Tenant shall be deemed to be an assignment of this Lease subject to the
provisions hereof. However, these provisions shall not apply to transactions
with a corporation into or with which Tenant is merged or consolidated or to
which substantially all of Tenant's assets are transferred or which owns or
controls Tenant, is owned and controlled by Tenant, or is under common ownership
and control with Tenant (hereinafter a "Related Entity"), if: (i) a principal
purpose of the merger or transfer is not the assignment of this Lease; (ii)
immediately after giving effect to any such merger, consolidation or transfer
such corporation shall have assets, capitalization and a net worth, determined
in accordance with generally accepted accounting principles, and certified to
Owner by an independent certified public accountant, at lease equal to the
assets, capitalization and net worth, similarly determined, of Tenant at the
beginning of the term, or of Tenant immediately prior to such merger,
consolidation or transfer, as the case may be, whichever is greater; and (iii)
the surviving entity expressly assumes the obligations of Tenant under this
Lease in writing for the benefit of Owner. Tenant shall cause reasonably
satisfactory proof of such net worth to be delivered at least thirty (30) days
prior to the effective date of the transaction. If Tenant is a partnership, a
dissolution of the partnership (including a "technical" dissolution) or a
transfer of the controlling interest in the partnership (including the admission
of new partners or the withdrawal of existing partners having a controlling
interest) shall be deemed an assignment of this Lease subject to the provisions
hereof, regardless of whether the transfer is made by one or more transactions,
or whether one or more persons hold the controlling interest prior to or after
the transfer.
53. INSURANCE; WAIVER OF SUBROGATION
The following requirements (collectively, the "INSURANCE REQUIREMENTS")
shall be complied with by Tenant at all times during the term:
(a) At all times during the term, Tenant shall maintain, at Tenant's
expense, the following insurance coverage:
(i) fire and extended coverage property insurance with a limit
of not less than $500,000 covering physical loss to the improvements,
alterations and Tenant's property in the demised premises;
(ii) broad form commercial general liability insurance written
on a per occurrence basis with a per-occurrence limit of not less than
$2,000,000 and with other limits reasonably satisfactory to Owner;
(iii) business interruption insurance covering risk of loss
due to the occurrence of any of the hazards covered by the insurance to be
maintained by Tenant described in subparagraph (a)(i) with coverage in a face
amount of not less than the aggregate amount, for a period of 12 months
following the insured-against peril, of 100% of all Rent to be paid by Tenant
under this Lease;
(iv) worker's compensation insurance and employer's liability
coverage in statutory limits, and New York State disability insurance as
required by law, covering all employees; and
(v) such other coverage as Owner may reasonably require with
respect to the demised premises, its use and occupancy and the conduct or
operation of business therein.
Owner may, from time to time, but not more frequently than once
every year, adjust the minimum limits set forth above.
(b) All insurance policies to be maintained as set forth above (i)
shall be issued by companies of recognized responsibility, licensed to do
business in the State of New York,
14
<PAGE> 22
reasonably acceptable to Owner, and
maintaining a rating of A-/XII or better in Best's Insurance
Reports-Property-Casualty (or an equivalent rating in any successor index
adopted by Best's or its successor), (ii) shall provide that they may not be
cancelled or modified unless Owner and all additional insureds and loss payees
thereunder are given at least 30 days prior written notice of such cancellation
or modification, (iii) shall name, as additional insureds, Owner, the managing
agent of the Building and any Senior Interest holder whose name and address
shall have been furnished to Tenant and (iv) shall be primary and
non-contributory in all respects. All policies providing fire and extended
coverage property insurance coverage pursuant to subparagraph (a)(i) shall name
Owner as loss payee with respect to improvements and alterations, and shall name
Tenant as loss payee with respect to Tenant's property.
(c) Prior to the Commencement Date, Tenant shall deliver to Owner
certificates of insurance for the insurance coverage required by paragraph (a)
and, if required by Owner, copies of the policies therefor, in each case in form
and providing for deductibles reasonably satisfactory to Owner. Tenant shall
procure and pay for renewals of such insurance from time to time before the
expiration thereof, and Tenant shall deliver to Owner certificates of renewal at
least 30 days before the expiration of any existing policy. If Tenant fails to
procure or maintain any insurance required by this Lease and to pay all premiums
and charges therefor, Owner may (but shall not be obligated to) pay the same,
and Tenant shall reimburse Owner, within 20 days after demand, for all such sums
paid by Owner. If Owner elects to make such payment for Tenant in accordance
with the foregoing, it will notify Tenant in writing thereof. Any such payment
shall not cure or waive any default by Tenant in the performance of its
obligations hereunder, nor shall the foregoing right of Owner to make such
payment in any way limit, reduce, diminish or impair the rights of Owner under
the terms of this Lease or at law or in equity arising as a result of any such
default.
(d) Tenant shall not carry separate or additional insurance,
concurrent in form or contributing in the event of any loss or damage with any
insurance required to be obtained by Tenant under this Lease unless the parties
required by paragraph (b) to be named as additional insureds or loss payees
thereunder are so named. Tenant may carry any insurance coverage required of it
hereunder pursuant to blanket policies of insurance so long as the coverage
afforded Owner and the other additional insureds or loss payees thereunder, as
the case may be, shall not be less than the coverage that would be provided by
direct policies.
(e) Neither Owner nor Tenant shall be liable to the other or to any
insurance company (by way of subrogation or otherwise) insuring any of the other
parties, and each hereby waive their entire right of recovery against the other,
for any loss or damage arising out of or incident to the perils insured, or
required pursuant to this Lease to be insured even though such loss or damage
might have been occasioned by the negligence of Owner, Tenant, or their
respective agents, employees, contractors, invitees and/or permitted subtenants.
Each of Owner and Tenant (i) shall give notice to their respective insurers that
the foregoing mutual waiver of recovery is contained in this Lease and, if
required by any such insurer, shall obtain such insurer's prior consent to the
foregoing waiver of its and its insured's right of recovery, and (ii) shall
endeavor to obtain from their respective insurers an appropriate clause in, or
an endorsement upon, each such insurance policy pursuant to which each such
insurer shall agree that the foregoing waiver shall not affect the validity or
enforceability of its insured's coverage. If such a clause or endorsement is
obtainable only upon payment of an additional premium, each party shall pay such
additional premium. If Tenant's insurer shall refuse to issue such clause or
endorsement even with an additional premium, then Owner shall have the right to
designate another insurer with a Best's Insurance Guide rating of A-/XII or
better who would be prepared to permit such clause or endorsement and Tenant
shall use such other insurer. If it is not possible to obtain a clause or
endorsement of the type described in clause (ii) above, then the party unable to
obtain such clause or endorsement shall notify the other party of this fact and
such party shall no longer be obligated hereunder to endeavor to obtain such a
clause or endorsement in its insurance policies. The provisions of this
paragraph shall be applicable to any new or renewal insurance policies which
Tenant may obtain during the term.
(f) During the performance of any alteration, Tenant shall maintain
the insurance reasonably required by Owner.
15
<PAGE> 23
54. HOLDOVER
Tenant acknowledges the extreme importance to Owner of obtaining
possession of the demised premises at the stated Expiration Date or sooner
termination of this Lease, and in the condition required by this Lease, so that
Owner can prepare and rerent the demised premises for a term commencing promptly
thereafter. If Tenant shall holdover or retain possession of the demised
premises after the expiration or termination of this Lease, Tenant shall (i)
indemnify and hold harmless Owner from and against any and all liabilities,
costs, suits, demands, charges and expenses of any kind or nature, including
attorneys fees and disbursements, resulting from such holdover, including
without limitation, any claims made by any succeeding tenant arising from
Owner's failure to deliver possession of the demised premises as a result of
Tenant's holding over and (ii) pay to Owner, upon demand, as liquidated damages,
two times the amount of the Base Rent and Additional Rent in effect on the date
of such expiration or termination, prorated for each day that Tenant so holds
over or retains possession. The provisions of the foregoing sentence shall in no
way be deemed a waiver of any rights or remedies which Owner may have against
Tenant to obtain immediate possession of the demised premises, and the demand or
acceptance by Owner of such payment shall not be construed as a consent by Owner
to such holding over. Notwithstanding anything to the contrary contained herein,
if (i) Tenant is prevented from removing its property from the demised premises
due to a Force Majeure event (defined below) and (ii) Tenant surrenders and
relinquishes to Owner all of its interest in and to the demised premises in a
written instrument in form and substance reasonably satisfactory to Owner, then
Tenant shall not be obligated to pay liquidated damages pursuant to the second
sentence of this Article as a result of its failure to remove such property and
deliver the demised premises in the condition required herein on the Expiration
Date originally set forth herein and shall be deemed to be occupying the Demised
Premises after such original Expiration Date as a tenant from month-to-month
upon all of the other terms of this Lease applicable immediately prior to the
Expiration Date; provided, however, upon the cessation of such Force Majeure,
Tenant shall immediately deliver the demised premises to Owner in the condition
required by, and otherwise in accordance with all of the applicable provisions
of this Lease.
55. SECURITY DEPOSIT
Supplementing Article 34, if Owner is required to apply all or any part of
the Security Deposit to cure any default by Tenant under this Lease, Tenant
shall, within 20 days of notice or demand by Owner, restore such Security
Deposit to the original amount required hereunder, failing which Tenant shall be
in default hereunder.
56. NOTICES
Supplementing and modifying Article 28, in order to be effective, any
notice, demand, consent or approval (a "Notice") hereunder shall be in writing
(except as otherwise expressly stated herein) and signed by the party giving
such Notice. Any Notice in writing, except as otherwise provided in the
preceding sentence, shall be personally delivered, sent by a nationally
recognized courier service or mailed by registered or certified mail, return
receipt requested, addressed as follows:
If to Owner, at:
Flatiron Associates
c/o Helmsley-Spear, Inc.,
as Agent for Flatiron Associates
60 East 42nd Street
New York, New York 10165
Attention: Charles McQuillan
16
<PAGE> 24
If to Tenant, at:
Video Jukebox Network, Inc.
Suite 700
175 Fifth Avenue
New York, New York 10010
with a copy of the Notice sent to Tenant at:
Video Jukebox Network, Inc.
1221 Collins Avenue
Miami Beach, Florida 33139
Notices in writing shall be deemed given when personally delivered or upon
receipt (or refusal of receipt) if mailed or sent by a courier service. Any
party hereto shall have the right to change its notice address by giving notice
in the manner set forth herein.
57. DIRECTORY LISTINGS
Owner, at Tenant's request, shall maintain on the directory board located
in the lobby of the Building, listings of the name of Tenant and Tenant's
officers or employees and Tenant's permitted subtenants and assignees; provided,
however, that the names so listed shall not exceed 2 designated names
58. VERMIN
Tenant shall maintain at all times during the term a service contract with
a person or company acceptable to Owner for the extermination of vermin, mice
and rats in the demised premises. Such service contract shall be in form
approved by Owner, which approval shall not be unreasonably withheld or delayed.
59. FINANCIAL STATEMENTS
Upon Owner's written request, but not more often than once per year,
Tenant shall promptly furnish Owner, from time to time, with current audited
financial statements for Tenant prepared in accordance with generally accepted
accounting principles, certified by Tenant's chief financial officer and an
independent auditor to be true and correct and reflecting Tenant's then current
financial condition.
60. MISCELLANEOUS
(a) Tenant shall not record this Lease or any memorandum hereof.
(b) This Lease (including all Exhibits attached hereto) contains all
of the agreements and understandings between the parties related to the leasing
of the Demised Premises and the respective obligations of Owner and Tenant in
connection therewith. All prior agreements and understandings between the
parties have merged into this Lease.
(c) No agreement shall be effective to amend, change, modify, waive,
release, discharge, terminate or effect an abandonment of this Lease, in whole
or in part, unless such agreement is in writing, refers expressly to this Lease,
and is signed by Owner and Tenant.
(d) Except as otherwise expressly provided herein, the obligations
of this Lease shall bind and benefit the successors and assigns of the parties
hereto; provided, however, that no assignment, sublease or other transfer in
violation of the provisions hereof shall operate to vest any rights in any
putative assignee, sublessee or transferee of Tenant.
(e) Supplementing Article 27, Owner shall have no liability
whatsoever to Tenant on account of the inability of Owner to timely fulfill any
of Owner's obligations under this Lease by reason of any strike, lockout or
other labor trouble; inability to obtain labor,
17
<PAGE> 25
materials, oil or other suitable fuel or reasonable substitutes therefor or
the failure of the supply of any thereof; acts of God, fire or other casualty;
governmental preemption of priorities or other controls in connection with a
public emergency; governmental restrictions or requirements of laws; or any
other cause, whether similar or dissimilar to the above, beyond Owner's
reasonable control (the foregoing events are collectively referred to as
"Force Majeure"). If this Lease specifies a time period for performance of an
obligation of Owner, that time period shall be extended by the period of any
delay in Owner's performance caused by any of the events of Force Majeure.
(f) If any provision of this Lease shall be invalid or
unenforceable, the remainder of this Lease shall not be affected but rather
shall be enforced to the fullest extent permitted by law.
(g) Each provision of this Lease on Tenant's part to be performed
shall be deemed and construed as a separate and independent covenant of Tenant,
not dependent on any other provision or covenant.
(h) All words used or defined in this Lease or the Exhibits hereto,
regardless of the number or gender in which they are used, shall be deemed to
include any other number and any other gender as the context may require.
(i) All exhibits, schedules and riders appended to this Lease are
incorporated herein and by this reference made a part hereof. References to
"Exhibits" shall be to Exhibits attached to this Lease except where the context
requires otherwise.
(j) The submission of this Lease to Tenant or its broker, agent or
attorney for review or signature does not constitute an offer to Tenant to lease
the demised premises or the granting of an option to do so. This instrument
shall have no binding force or effect until its execution and unconditional
delivery by both Owner and Tenant.
(k) The captions in this Lease are for convenience and reference
only and in no way define, limit or describe the scope of this Lease or the
intent of any provision hereof.
61. GOVERNING LAW.
This Lease shall be governed by, and shall be construed in accordance
with, the laws of the State of New York, and any legal suit, action or
proceeding against Tenant or Owner arising out of or relating to this Lease may
be instituted in any federal or state court in New York, New York.
62. EXPANSION OPTION
(a) Subject to and in accordance with the provisions of this
Article, Tenant shall have an option (the "EXPANSION OPTION") to lease Suite 709
in the Building (the "EXPANSION SPACE") for a term to commence as provided in
paragraph (b) below. Subject to the provisions of paragraph (k) below, Tenant
may elect to lease the Expansion Space by giving Owner a written notice (the
"EXPANSION NOTICE") exercising the Expansion Option not later than 90 days prior
to the Expansion Space Commencement Date (as defined below).
(b) Subject to the provisions of paragraph (k), if Tenant timely
commits to exercise the Expansion Option, then the Expansion Space shall be
added to and included in the demised premises for the period (the "EXPANSION
SPACE TERM") commencing on March 1, 1997 (the "EXPANSION SPACE COMMENCEMENT
DATE") and ending on the Expiration Date.
(c) The inclusion of the Expansion Space shall be upon all the terms
and conditions of this Lease, except as otherwise stated in this Article, and
upon such additional terms and conditions as are set forth in this Article.
18
<PAGE> 26
(d) As of the Expansion Space Commencement Date, Tenant's
Proportionate Share shall be increased to 2.42%. Tenant conclusively agrees that
the Expansion Space contains 633 rentable square feet.
(e) Tenant shall accept the Expansion Space in its condition and
state of repair existing as of the Expansion Space Commencement Date.
Furthermore, Owner shall not be required to perform any work, supply any
materials or incur any expense (including the granting of any allowance to
Tenant with respect thereto) to prepare the Expansion Space for Tenant's
occupancy.
(f) Tenant shall not be entitled to a credit against Base Rent or
any other rent concession or abatement of Base Rent with respect to the
Expansion Space.
(g) The Base Rent per annum for the Expansion Space during the
Expansion Space Term (the "EXPANSION SPACE BASE RENT") shall be $17,724 plus the
escalations which are applicable to the Base Rent for the original demised
premises and shall be payable together with, and in the same manner as, Base
Rent with respect to the demised premises.
(h) Effective as of the Expansion Space Commencement Date, the
Expansion Space shall be considered a part of the demised premises and the Base
Rent for the Expansion Space shall be considered part of the Base Rent for the
demised premises including, without limitation, for purposes of determining real
estate tax escalations and cost of living escalations.
(i) Once Tenant has delivered the Expansion Notice, Owner shall use
reasonable efforts to deliver possession of the Expansion Space to Tenant on or
prior to the Expansion Space Commencement Date. If Owner is unable to deliver
the Expansion Space to Tenant on the Expansion Space Commencement Date and such
inability is due to (a) the holding over or retention of possession by any
tenant or occupant in the Expansion Space, and/or (b) the existence of a then
binding lease for the Expansion Space or any renewal or extension thereof,
and/or (c) any other reason outside of Owner's control, then (i) Owner shall not
be subject to any liability for failure to give possession on such date and (ii)
Tenant waives the right to rescind its lease of the original demised premises
leased hereunder or to recover any damages that may result from the failure of
Owner to deliver possession of the Expansion Space and agrees that the
provisions of this paragraph shall constitute an "express provision to the
contrary" within the meaning of Section 223-a of the New York Real Property Law.
(j) Notwithstanding Tenant's waiver set forth in the preceding
paragraph, if Owner shall be unable to deliver the Expansion Space to Tenant on
the Expansion Space Commencement Date or within 30 days thereafter, Tenant, at
Tenant's option, shall have the right to cancel its lease of the Expansion Space
by giving notice (an "OPTION CANCELLATION NOTICE") to Owner within 30 days after
the expiration of such 30 day period, which cancellation shall be effective as
of the date on which Owner receives the Option Cancellation Notice; provided,
however, that if Owner is able to deliver the Expansion Space to Tenant on or
prior to the date on which Owner receives Tenant's Option Cancellation Notice,
such notice shall be null and void, and Tenant's lease of the Expansion Space
shall continue in full force and effect in accordance with the provisions
hereof, as if such Option Cancellation Notice was never delivered.
(k) Notwithstanding the foregoing provisions of this Article, Tenant
may not exercise the Expansion Option if (i) Tenant is in default under this
Lease beyond any applicable grace, notice and cure period, or (ii) there is in
effect a sublease pursuant to which Tenant has subleased the demised premises to
other than a Related Entity, or (iii) there is in effect an assignment pursuant
to which this Lease has been assigned to other than a Related Entity, and any
such purported exercise of the Expansion Option shall be deemed null and void
and of no force and effect.
(l) If Tenant does not elect to exercise the Expansion Option in
accordance with this Article and within the applicable time periods set forth
herein, time being of the essence, then (i) Tenant shall have forever waived and
relinquished its right to exercise the Expansion Option, (ii) Owner shall at any
time thereafter be entitled to lease the Expansion
19
<PAGE> 27
Space to others at such rental and upon such terms and conditions as Owner in
its sole discretion may desire, and (iii) Tenant, upon Owner's request, shall
promptly deliver to Owner (and any other person or entity designated by Owner) a
notice acknowledging that Tenant has forever waived and relinquished its right
to exercise the Expansion Option.
(m) The termination of this Lease shall also terminate and render
void the Expansion Option whether or not the Expansion Option shall have been
exercised. The Expansion Option may not be severed from this Lease or separately
sold or transferred.
(n) Notwithstanding anything to the contrary contained herein, Owner
shall have the right to lease the Expansion Space to any person or entity and
upon any terms and conditions including, without limitation, for a term
extending beyond the Expansion Space Commencement Date, at any time prior to the
date it receives the Expansion Notice.
IN WITNESS WHEREOF, Owner and Tenant have hereunto executed this Lease by
their respective duly authorized representatives as of the day and year first
above written.
OWNER:
FLATIRON ASSOCIATES
By: Helmsley-Spear, Inc.,
as agent for Flatiron Associates
By:
Name:
Title:
TENANT:
VIDEO JUKEBOX NETWORK, INC.
By: /s/ LUANN M. HOFFMAN
----------------------
Name: Luann M. Hoffman
Title: CFO
20
<PAGE> 28
EXHIBIT A
Map bordered by
32nd Street
Fifth Avenue
23rd Street
Broadway
<PAGE> 29
EXHIBIT B
OWNER'S WORK
Owner shall, at its expense, perform the following work and installations,
all of which shall be of material, design, capacity, finish, and color of the
standard adopted by Owner for the Building:
1. Paint the demised premises one coat.
2. Carpet the entire demised premises at a cost not exceeding $25 per
square yard.
3. Clean all windows to the demised premises.
4. Relamp the demised premises.
<PAGE> 1
Exhibit 23
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Ernst & Young LLP
We consent to the incorporation by reference in the Registration Statement
(Form S-8, No. 33-74752) and in the related prospectus of our report dated
March 12, 1996, with respect to the consolidated financial statements of Video
Jukebox Network, Inc. included in the Annual Report (Form 10-KSB) for the year
ended December 31, 1995.
ERNST & YOUNG LLP
Miami, Florida
March 25, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 6,712,402
<SECURITIES> 0
<RECEIVABLES> 3,603,015
<ALLOWANCES> 981,079
<INVENTORY> 0
<CURRENT-ASSETS> 9,810,333
<PP&E> 11,679,543
<DEPRECIATION> 8,672,659
<TOTAL-ASSETS> 14,661,337
<CURRENT-LIABILITIES> 3,305,058
<BONDS> 0
0
0
<COMMON> 23,944
<OTHER-SE> 11,332,335
<TOTAL-LIABILITY-AND-EQUITY> 14,661,337
<SALES> 0
<TOTAL-REVENUES> 24,158,735
<CGS> 6,083,275
<TOTAL-COSTS> 17,302,037
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,677
<INCOME-PRETAX> 525,058
<INCOME-TAX> 40,000
<INCOME-CONTINUING> 485,058
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 485,058
<EPS-PRIMARY> .02
<EPS-DILUTED> .02
</TABLE>
