SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 13D
Under the Securities Exchange Act of 1934
ACTV, Inc.
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(Name of Issuer)
Common Stock, par value $.10 per share
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(Title of Class of Securities)
00088E112
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(CUSIP Number)
Timothy G. Ewing
Value Partners, Ltd.
c/o Ewing & Partners
Suite 4660 West
2200 Ross Avenue
Dallas, Texas 75201
(214) 999-1900
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(Name, Address and Telephone Number of Person
Authorized to Receive Notices and Communications)
January 14, 1998
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(Date of Event which Requires
Filing of this Statement)
If the filing person has previously filed a statement on Schedule 13G to
report the acquisition which is the subject of this Schedule 13D, and is
filing this Schedule because of Rule 13d-1(b)(3) or (4), check the
following box [ ].
CUSIP NO. 0008 8E112 Schedule 13D
(1) Name of Reporting Person Value Partners, Ltd.
S.S. or I.R.S. Identification 75-2291866
No. of Above Person (Not Required To
Be Reported)
(2) Check the Appropriate Box if a (a)
Member of a Group (See instructions) (b) X
(3) SEC Use Only
(4) Source of Funds (See instructions) WC
(5) Check if Disclosure of Legal Proceedings
is Required Pursuant to Items 2(d) or 2(e)
(6) Citizenship or Place of Organization Texas
Number of Shares (7) Sole Voting Power 1,360,897*
Beneficially Owned
by Each Reporting (8) Shared Voting -0-
Person with: Power
(9) Sole Dispositive 1,360,897*
Power
(10) Shared Dispositive -0-
Power
(11) Aggregate Amount Beneficially
Owned by Each Reporting Person 1,360,897*
(12) Check if the Aggregate Amount in
Row (11) Excludes Certain Shares
(See instructions)
(13) Percent of Class Represented by 8.1%
Amount in Row (11)
(14) Type of Reporting Person (See PN
Instructions)
- -------------
* But see Item 5
CUSIP NO. 0008 8E112 Schedule 13D
(1) Name of Reporting Person Ewing & Partners
S.S. or I.R.S. Identification 75-2741747
No. of Above Person (Not Required To
Be Reported)
(2) Check the Appropriate Box if a (a)
Member of a Group (See instructions) (b) X
(3) SEC Use Only
(4) Source of Funds (See instructions) 00
(5) Check if Disclosure of Legal Proceedings
is Required Pursuant to Items 2(d) or 2(e)
(6) Citizenship or Place of Organization Texas
Number of Shares (7) Sole Voting Power -0-
Beneficially Owned
by Each Reporting (8) Shared Voting -0-*
Person with: Power
(9) Sole Dispositive -0-
Power
(10) Shared Dispositive -0-*
Power
(11) Aggregate Amount Beneficially
Owned by Each Reporting Person -0-*
(12) Check if the Aggregate Amount in
Row (11) Excludes Certain Shares
(See instructions)
(13) Percent of Class Represented by -0-%*
Amount in Row (11)
(14) Type of Reporting Person (See PN
Instructions)
- -------------
* But see Item 5
CUSIP NO. 0008 8E112 Schedule 13D
(1) Name of Reporting Person Timothy G. Ewing
S.S. or I.R.S. Identification ###-##-####
No. of Above Person (Not Required To
Be Reported)
(2) Check the Appropriate Box if a (a)
Member of a Group (See instructions) (b) X
(3) SEC Use Only
(4) Source of Funds (See instructions) 00
(5) Check if Disclosure of Legal Proceedings
is Required Pursuant to Items 2(d) or 2(e)
(6) Citizenship or Place of Organization United States of America
Number of Shares (7) Sole Voting Power -0-
Beneficially Owned
by Each Reporting (8) Shared Voting -0-*
Person with: Power
(9) Sole Dispositive -0-
Power
(10) Shared Dispositive -0-*
Power
(11) Aggregate Amount Beneficially
Owned by Each Reporting Person -0-*
(12) Check if the Aggregate Amount in
Row (11) Excludes Certain Shares
(See instructions)
(13) Percent of Class Represented by -0-%*
Amount in Row (11)
(14) Type of Reporting Person (See IN
Instructions)
- -------------
* But see Item 5
ITEM 1. SECURITY AND ISSUER
This Schedule 13D relates to the common stock, par value $.10 per
share (the "Common Stock"), of ACTV, Inc., a Delaware corporation (the
"Issuer"), whose principal executive offices are located at 1270 Avenue of
the Americas, New York, New York 10020.
ITEM 2. IDENTITY AND BACKGROUND
(a)-(c) This Schedule 13D is filed by Value Partners, Ltd., a Texas
limited partnership ("Value Partners"), Ewing & Partners, a Texas general
partnership (formerly known as Fisher Ewing Partners) ("Ewing & Partners"),
and Timothy G. Ewing ("Ewing"). Ewing & Partners is the general partner of
Value Partners. Ewing and Ewing Asset Management, Inc., a Texas limited
liability company ("EAM") are the general partners of Ewing & Partners, and
Ewing is the managing general partner of Ewing & Partners. EAM is
controlled by Ewing. The principal place of business for Value Partners,
Ewing & Partners, EAM and Ewing is Suite 4660 West, 2200 Ross Avenue,
Dallas, Texas 75201.
The present principal occupation or employment of Ewing is managing
general partner of Ewing & Partners. The principal business of EAM is
acting as a general partner of Ewing & Partners. The principal business of
Ewing & Partners is the management of Value Partners. The principal
business of Value Partners is the investment in and trading of capital
stocks, warrants, bonds, notes, debentures and other securities.
(d) None of Value Partners, Ewing & Partners, EAM or Ewing, during
the last five years, has been convicted in a criminal proceeding (excluding
traffic violations or similar misdemeanors).
(e) None of Value Partners, Ewing & Partners, EAM or Ewing has,
during the last five years, been a party to a civil proceeding of a
judicial or administrative body of competent jurisdiction and as a result
of such proceeding was or is subject to a judgment, decree or final order
enjoining future violations of, or prohibiting or mandating activities
subject to, federal or state securities laws or finding any violation with
respect to such laws.
(f) Ewing is a citizen of the United States of America.
ITEM 3. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION
On January 13, 1998, The Texas Individualized Television Network,
Inc., a wholly-owned subsidiary of the Issuer ("Texas Network"), ACTV
Entertainment, Inc., the Issuer, and the Purchasers (as such term is
defined in the Agreement (as defined below)) entered into a Note Purchase
Agreement, dated as of January 13, 1998 (the "Agreement"). Pursuant to the
Agreement, as a Purchaser, Value Partners purchased a $4.5 million note
from Texas Network for $4.5 million. All of such funds came from the
working capital of Value Partners. In connection with the purchase of such
note and for no additional consideration, Value Partners received on
January 14, 1998 a common stock purchase warrant (the "Warrant") of Texas
Network that grants Value Partners the right to purchase shares of common
stock of Texas Network. The Warrant also grants Value Partners the right
to exchange the Warrant for such number of shares of Common Stock, at the
time of and giving effect to such exchange, equal to 4.95% of the fully
diluted number of shares of Common Stock outstanding, after giving effect
to the exercise or conversion of all then outstanding options, warrants and
other rights to purchase or acquire shares of Common Stock. As of the date
hereof, if Value Partners exercised the Warrant in full with respect to the
Common Stock, Value Partners would receive 1,360,897 shares of Common
Stock.
ITEM 4. PURPOSE OF TRANSACTION
Value Partners has acquired the Warrant and the related Common Stock
beneficially owned by it solely for investment purposes. Depending on its
evaluation of the Issuer, other investment opportunities, market
conditions, and such other factors as it may deem material, Value Partners
may seek to acquire additional shares of Common Stock in the open market,
in private transactions, or otherwise, or may dispose of all or a portion
of the Warrant or, after exercise of such Warrant with respect to the
Common Stock, shares of Common Stock owned by it.
Except as set forth above, none of Value Partners, Ewing & Partners,
EAM or Ewing has any plans or proposals of the type referred to in clauses
(a) through (j) of Item 4 of Schedule 13D.
ITEM 5. INTEREST IN SECURITIES OF THE ISSUER
(a) The Warrant may be exchanged for such number of shares of Common
Stock, at the time of and giving effect to such exchange, equal to 4.95% of
the fully diluted number of shares of Common Stock outstanding, after
giving effect to the exercise or conversion of all then outstanding
options, warrants and other rights to purchase or acquire shares of Common
Stock. Consequently, the number of shares of Common Stock for which the
Warrant may be exchanged is not fixed until the time of exchange.
Based upon a representation by counsel to the Issuer, on January 21,
1998 (i) the number of shares of Common Stock outstanding was 15,492,923
and (ii) the fully diluted number of shares of Common Stock outstanding was
27,492,872. Thus, under the Warrant, based upon such representation, Value
Partners may exchange the Warrant for such number of shares of Common Stock
equal to 4.95% multiplied by 27,492,872 (the fully diluted number of shares
of Common Stock outstanding), which equals 1,360,897 shares of Common
Stock. Also, after such exchange, Value Partners would beneficially own
8.1% of the shares of Common Stock outstanding, which such percentage was
calculated by dividing (i) 1,360,897 shares of Common Stock beneficially
owned by Value Partners after such exchange, by (ii) 16,853,820 shares of
Common Stock, which equals the sum of (x) 15,492,923 shares of Common Stock
outstanding based upon such representation by counsel to the Issuer and (y)
1,360,897 additional shares of Common Stock outstanding after such
exchange. Thus, Value Partners, Ewing & Partners and Ewing (the "Reporting
Persons") beneficially own the 1,360,897 shares of Common Stock as follows
(after giving effect to the exercise of the Warrant with respect to the
Common Stock):
SHARES OF % OF COMMON
NAME COMMON STOCK STOCK OUTSTANDING
----- ------------ ------------------
Value Partners 1,360,897 8.1%
Ewing & Partners -0- -0-
Ewing -0- -0-
Ewing & Partners and Ewing are deemed to have beneficial ownership of
the shares of Common Stock beneficially owned by Value Partners.
(b) Value Partners has the sole power to vote and dispose of the
1,360,897 shares of Common Stock beneficially owned by it. Value Partners
does not share the power to vote or to direct the vote of, or the power to
dispose or to direct the disposition of, the Common Stock owned by it.
However, Ewing & Partners, as general partner of Value Partners, may be
deemed, for purposes of determining beneficial ownership pursuant to Rule
13d-3, to have the shared power with Value Partners to vote or direct the
vote of, and the shared power with Value Partners to dispose of or direct
the disposition of, the 1,360,897 shares of Common Stock owned by Value
Partners. Ewing, as managing general partner of Ewing & Partners, may be
deemed, for purposes of determining beneficial ownership pursuant to Rule
13d-3, to have the shared power with Value Partners to vote or to direct
the vote of, and the shared power to dispose or to direct the disposition
of, the 1,360,897 shares of Common Stock owned by Value Partners.
The filing of this statement on Schedule 13D shall not be construed as
an admission that Ewing or Ewing & Partners is for the purposes of Section
13(d) or 13(g) of the Securities Exchange Act of 1934, as amended, the
beneficial owner of any of the 1,360,897 shares of Common Stock
beneficially owned by Value Partners. Pursuant to Rule 13d-4, Ewing and
Ewing & Partners disclaim all such beneficial ownership.
(c) No transactions in Common Stock were effected by any of the
Reporting Persons during the 60 days prior to January 14, 1998 or the date
hereof.
(d) Ewing and Ewing & Partners may be deemed to have the power to
direct the receipt of dividends from, or the proceeds from the sale of, the
Common Stock beneficially owned by Value Partners.
(e) Not applicable.
ITEM 6. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH
RESPECT TO SECURITIES OF THE ISSUER
Value Partners, Ewing & Partners and Ewing have no contracts,
arrangements, understandings or relationships (legal or otherwise) between
themselves and any person with respect to any securities of the Issuer
other than those described below:
(a) Joint Filing Agreement, dated as of the date hereof, between
Value Partners, Ewing & Partners, and Ewing, which was entered into to
enable more than one person to report on this Schedule 13D.
(b) Note Purchase Agreement, dated as of January 13, 1998, pursuant
to which Value Partners acquired a note of Texas Network and the Warrant.
In addition, under the Note Purchase Agreement, if certain conditions are
met, Value Partners will receive an option to purchase notes of a
subsidiary of the Issuer (other than Texas Network) and, upon such
purchase, will receive a warrant with terms and conditions substantially
similar to those of the Warrant, including the right to exchange such
warrant for shares of Common Stock.
(c) Common Stock Purchase Warrant W-1, dated January 14, 1998,
pursuant to which Texas Network and the Issuer granted Value Partners the
right to purchase shares of common stock of Texas Network or exchange such
Warrant for shares of Common Stock.
ITEM 7. MATERIAL TO BE FILED AS EXHIBITS
The following are filed as exhibits to this Statement on Schedule 13D:
Exhibit 1 Joint Filing Agreement, dated as of January 23, 1998.
Exhibit 2 Form of Note Purchase Agreement, dated as of January 13, 1998.
Exhibit 3 Common Stock Purchase Warrant W-1, dated January 14, 1998.
[THE REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK]
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete
and correct.
DATED: January 23, 1998
VALUE PARTNERS, LTD.
By: EWING & PARTNERS
as General Partner
By:/S/TIMOTHY G. EWING
----------------------
Timothy G. Ewing
as Managing Partner
EWING & PARTNERS
By:/S/TIMOTHY G. EWING
----------------------
Timothy G. Ewing
as Managing Partner
/S/TIMOTHY G. EWING
--------------------------------
Timothy G. Ewing
EXHIBIT INDEX
Page No.
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Exhibit 1 Joint Filing Agreement
Exhibit 2 Form of Note Purchase Agreement, dated as of
January 13, 1998.
Exhibit 3 Common Stock Purchase Warrant W-1, dated
January 14, 1998.
EXHIBIT 1
---------
JOINT FILING AGREEMENT
In accordance with Rule 13d-1(f) under the Securities Exchange Act of
1934, as amended, the undersigned agree to the joint filing on behalf of
each of them of a Statement on Schedule 13D (including any and all
amendments thereto) with respect to the Common Stock, par value $.10 per
share, of ACTV, Inc., and further agree that this Joint Filing Agreement
shall be included as an Exhibit to such joint filings.
The undersigned further agree that each party hereto is responsible
for timely filing of such Statement on Schedule 13D and any amendments
thereto, and for the accuracy and completeness of the information
concerning such party contained therein; provided, however, that no party
is responsible for the accuracy or completeness of the information
concerning any other party, unless such party knows or has reason to
believe that such information is inaccurate.
This Joint Filing Agreement may be signed in counterparts with the
same effect as if the signature on each counterpart were upon the same
instrument.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
January 23, 1998.
VALUE PARTNERS, LTD.
By: EWING & PARTNERS
as General Partner
By:/S/TIMOTHY G. EWING
----------------------
Timothy G. Ewing
as Managing Partner
EWING & PARTNERS
By:/S/TIMOTHY G. EWING
----------------------
Timothy G. Ewing
as Managing Partner
/S/TIMOTHY G. EWING
-----------------------------
Timothy G. Ewing
</TEXT
EXHIBIT 2
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ACTV ENTERTAINMENT, INC./
THE TEXAS INDIVIDUALIZED TELEVISION NETWORK, INC.
NOTE PURCHASE AGREEMENT
Dated as of January 13, 1998
Re: US$5,000,000 13% Senior Secured Notes
Due June 30, 2003
TABLE OF CONTENTS
(Not a part of the Agreement)
SECTION HEADING PAGE
SECTION 1. DESCRIPTION OF NOTES AND COMMITMENT
Section 1.1 Description of Notes
Section 1.2 Payment of Kind
Section 1.3 Commitment
Section 1.4 Closing
Section 1.5 Other Note Purchase Agreements
Section 1.6 Senior Status; Security Agreement; Guaranty
Section 1.7 Warrants
Section 1.8 2nd Regional Network Option
Section 1.9 Enforcement of Rights
Section 1.10 Direct Payment
SECTION 2. PREPAYMENT OF NOTES
Section 2.1 Optional Prepayment with Premium
Section 2.2 Note of Optional Prepayments
Section 2.3 Prepayment of Notes upon Change of Control
SECTION 3. REPRESENTATIONS
Section 3.1 Representations of Texas Network
Section 3.2 Representations of Entertainment
Section 3.3 Representations of the Purchaser
Section 3.4 Representations of ACTV
SECTION 4. CONDITIONS TO CLOSING
Section 4.1 The Company's Obligation
Section 4.2 Use of Proceeds
Section 4.3 Waiver of Conditions
SECTION 5. COVENANTS
Section 5.1 Texas Network Corporate Existence, etc. Corporate
Existence, Etc.
Section 5.2 Texas Network Insurance
Section 5.3 Texas Network Taxes, Claims for Labor
and Materials; Compliance with Laws
Section 5.4 Texas Network Maintenance, Etc.
Section 5.5 Texas Network Nature of Business
Section 5.6 Texas Network Limitations on Debt
Section 5.7 Texas Network Limitation of Liens
Section 5.8 Texas Network Limitation on Sale and Leaseback
Section 5.9 Texas Network Restricted Payments
Section 5.10 Texas Network Investments
Section 5.11 Texas Network Mergers, Consolidations and Sales of
Assets
Section 5.12 Texas Network Issuance of Capital Stock
Section 5.13 Texas Network Transactions with Affiliates
Section 5.14 Texas Network Reports and Rights of Inspection
Section 5.15 Texas Network Indebtedness
Section 5.16 Texas Network Guarantees
Section 5.17 Texas Network Certificate of Default
Section 5.18 Texas Network Additional Information
Section 5.19 Texas Network Other Documents
Section 5.20 Texas Network Use of Proceeds
Section 5.21 Waiver of Stay, Extension or Usury Laws
Section 5.22 ACTV Corporate Existence, Etc.
Section 5.23 ACTV Insurance
Section 5.24 ACTV Taxes, Claims for Labor and Materials;
Compliance with Laws
Section 5.25 ACTV Maintenance, Etc.
Section 5.26 ACTV Reports
Section 5.27 ACTV Certificate of Default
Section 5.28 ACTV Additional Information
Section 5.29 ACTV Other Documents
Section 5.30 Entertainment Corporate Existence, Etc.
Section 5.31 Entertainment Insurance
Section 5.32 Entertainment Taxes, Claims for Labor and
Materials; Compliance with Laws
Section 5.33 Entertainment Maintenance, etc.
Section 5.34 Entertainment Reports
Section 5.35 Entertainment Certificate of Default
Section 5.36 Entertainment Additional Information
Section 5.37 Entertainment Other Documents
SECTION 6. EVENTS OF DEFAULT AND REMEDIES THEREFOR
Section 6.1. Events of Default
Section 6.2. Notice to Holders
Section 6.3. Acceleration of Maturities
Section 6.4. Rescission of Acceleration
SECTION 7. AMENDMENTS, WAIVERS AND CONSENTS
Section 7.1. Consent Required
Section 7.2. Solicitation of Holders
Section 7.3. Effect of Amendment or Waiver
SECTION 8. INTERPRETATION OF AGREEMENT; DEFINITIONS
Section 8.1. Definitions
Section 8.2 Accounting Principles
Section 8.3 Directly or Indirectly
SECTION 9. MISCELLANEOUS
Section 9.1 Registered Notes
Section 9.2 Exchange Notes
Section 9.3 Loss, Theft, Etc. of Notes
Section 9.4 Expenses, Stamp Tax Indemnity
Section 9.5 Powers and Rights Not Waived; Remedies Cumulative
Section 9.6 Notices
Section 9.7 Successors and Assigns
Section 9.8 Survival of Covenants and Representations
Section 9.9 Severability
Section 9.10 Governing Law; Venue
Section 9.11 Captions
Section 9.12 Attorneys Fees
Section 9.13 The Agent
Section 9.14 Entire Agreement
Section 9.15 Continued Effect
Section 9.16 Waivers
Section 9.17 Further Assurances
Section 9.18 Amendment
Section 9.19 Counterparts
Signature Page
ATTACHMENTS TO NOTE PURCHASE AGREEMENT:
Schedule I -- Names and Addresses of Purchasers and Amounts of
Commitments
Exhibit A -- Form of 13% Senior Secured Note due June 30, 2003
Exhibit B -- Common Stock Purchase Warrant
Exhibit C -- Texas Network Registration Rights Agreement
Exhibit D -- ACTV Registration Rights Agreement
Exhibit E -- Security Agreement
Exhibit F -- Guaranty
Exhibit G -- Opinion of Gersten, Savage, Kaplowitz & Fredericks, LLP
ACTV ENTERTAINMENT, INC./
THE TEXAS INDIVIDUALIZED TELEVISION NETWORK, INC.
-------------------------------------------------
NOTE PURCHASE AGREEMENT
Re: US$5,000,000 13% Senior Secured Notes
Due June 30, 2003
Dated as of
January 13, 1998
WHEREAS, ACTV Entertainment, Inc., a New York corporation
("Entertainment") and The Texas Individualized Television Network, Inc., a
Delaware corporation, a wholly owned subsidiary of Entertainment ("Texas
Network") (Entertainment and Texas Network are collectively referred to
herein as the "Company"), each of whose chief executive office, a majority
of executive officers, and banking and financial accounts are located at,
and whose corporate and administrative operations are conducted in, the
City of New York, State of New York, desire to raise $5,000,000 by issuing
13% Senior Secured Notes, upon the terms and conditions as provided in this
Note Purchase Agreement; and
WHEREAS, ACTV, Inc., a Delaware corporation, ("ACTV"), whose
chief executive office, executive officers, and banking and financial
accounts are located at, and whose corporate and administrative operations
are conducted in, the City of New York, State of New York, and which owns,
directly or indirectly, all of the outstanding common stock of
Entertainment and Texas Network, has agreed to provide a guaranty of the
13% Senior Secured Notes upon the terms and conditions as provided in this
Note Purchase Agreement.
NOW THEREFORE, Entertainment, Texas Network and ACTV desire to
enter into this Note Purchase Agreement with the person whose name appears
on the signature page hereof (the "Purchaser") (who along with the persons
whose names appear on Schedule I annexed hereto are collectively referred
to as the "Purchasers") as follows:
1. DESCRIPTION OF NOTES AND COMMITMENT.
1.1 Description of Notes. The Company will authorize the issue
and sale of $5,000,000 aggregate principal amount of its 13% Senior Secured
Notes (the "Notes"), to be dated the date of issue, to bear interest from
such date of issue at the rate of 13% per annum, payable semiannually on
the last day of December and June in each year (commencing June 30, 1998)
and at maturity and to bear interest on overdue principal and premium, if
any, and, to the extent legally enforceable, on any overdue installment of
interest, at the rate of 17% (the "Overdue Rate") after the due date,
whether by acceleration or otherwise. Said Notes to mature on June 30,
2003, and to be substantially in the form attached hereto as Exhibit A.
Each of Entertainment and Texas Network shall be a primary obligor on the
Notes, and shall be jointly and severally liable for the Notes,
notwithstanding the allocation between Entertainment and Texas Network of
the proceeds upon the issuance of the Notes. The entire outstanding
principal amount together with accrued but unpaid interest shall be due at
maturity whether by acceleration or otherwise. Interest on the Notes shall
be computed on the basis of a 360-day year of twelve 30-day months and
shall accrue until paid, including on any amounts that are overdue. The
Notes are not subject to prepayment at the Company's or ACTV's option
except on the terms and conditions and in the amounts and with the premium,
if any, set forth in Section 2 of this Agreement. The term "Notes" as used
herein shall include each Note delivered pursuant to this Agreement and the
separate agreements with the other Purchasers named in Schedule I. The
terms which are capitalized herein, unless defined elsewhere herein, shall
have the meanings set forth in Section 8.1 unless the context shall
otherwise require. The notes to be issued by the 2nd Regional Network if
the 2nd Regional Network Option is exercised (as defined in Section 1.8
herein) shall mature on June 30, 2003.
1.2 Payment in Kind Option. The Company may, at its option on
up to four (4) occasions (the "PIK Option"), in lieu of making the cash
payment on any interest due on the Notes (and any PIK Notes, as defined
below, outstanding) as provided in Section 1.1, pay the accrued and unpaid
interest on the Notes (and any PIK Notes outstanding) due by the execution
and delivery to the holder of PIK Notes in accordance with this Section
1.2. Subject to the terms and conditions of this Agreement, each Holder
agrees to make loans (collectively the "PIK Loans") to the Company upon
exercise by the Company of the PIK Option in an aggregate principal amount
equal to the amount of accrued interest payable with respect to the Notes
(and any PIK Notes outstanding) on such date calculated at 13.75% per
annum. Each PIK Loan shall be evidenced by a PIK Note (a "PIK Note") in
the form of the Notes annexed hereto as Exhibit A adjusted to reflect this
Section 1.2, payable to each Holder and representing the obligation of the
Company to pay the principal amount of the PIK Loan with interest thereon.
The PIK Note shall bear interest at 13% per annum if paid in cash or 13.75%
per annum if a PIK Option is exercised payable upon the same terms and
conditions as the Notes. The Company shall deliver in accordance with this
Agreement to each Holder executed PIK Notes in an aggregate principal
amount equal to the respective PIK Loan.
1.3 Commitment. Subject to the terms and conditions hereof and
on the basis of the representations and warranties hereinafter set forth,
the Company agrees to issue and sell to Purchaser and Purchaser agrees to
purchase from the Company, Notes in the principal amount set forth opposite
Purchaser's name on the signature page hereto at a price of 100% of the
principal amount thereof on the Closing Date hereafter mentioned.
1.4 Closing. Delivery of the Notes will be made at the offices
of Gersten, Savage, Kaplowitz & Fredericks, LLP, against payment therefor
in Federal Reserve or other funds current and immediately available in the
amount of the purchase price at 10:00 a.m., Eastern time, on January 15,
1998 or such later date as shall mutually be agreed upon by the Company and
the Purchasers (the "Closing Date"). The Notes delivered to Purchaser on
the Closing Date will be delivered to Purchaser in the form of a single
registered Note in the form attached hereto as Exhibit A for the full
amount of the purchase (unless different denominations are specified by
Purchaser), registered in Purchaser's name or in the name of such nominee,
as may be specified on the signature page hereto.
1.5 Other Note Purchase Agreements. Simultaneously with the
execution and delivery of this Agreement, the Company is entering into
similar agreements with such other Purchasers agreeing to purchase from the
Company the principal amount of Notes set forth opposite such Purchasers'
names in Schedule I, and obligations of the Company hereunder are subject
to the execution and delivery of the similar agreements by the other
Purchasers. This Agreement and said similar agreements with the other
Purchasers are herein collectively referred to as the "Agreements". The
obligations, representations, warranties and covenants of each Purchaser
shall be several and not joint and no Purchaser shall be liable or
responsible for the acts of any other Purchaser.
1.6 Senior Status; Security Agreement; Guaranty.
(a) Other Indebtedness. Texas Network will not incur,
create, assume or at any time become liable, contingently or otherwise for
any Indebtedness that is senior in right of payment to the Notes. Except
as otherwise expressly provided herein, nothing herein shall be construed
to permit the issuance of any Indebtedness that would be secured by the
collateral granted to the Purchasers.
(b) Security Agreement. The Notes will be secured by
certain collateral (the "Collateral") described in the Security Agreement
(the "Security Agreement") by and between Texas Network and the Purchasers,
in the form annexed hereto as Exhibit E to be executed at the Closing.
(c) ACTV Guaranty. As further security, ACTV will execute
for the benefit of Purchasers, a guaranty in the form annexed hereto as
Exhibit F ("ACTV Guaranty"). The ACTV Guaranty shall provide that if ACTV
causes ACTV Net, Inc. to (i) make an initial public offering of ACTV Net,
Inc.'s securities or (ii) make a distribution of ACTV Net, Inc.'s equity
securities to ACTV's stockholders, then the assets of ACTV Net, Inc. and
any interest ACTV has, direct or indirect, in ACTV Net, Inc., shall be free
and clear of any claim which may arise under the ACTV Guaranty, provided,
however, ACTV may not cause such initial public offering or distribution
until after the earlier of (i) the expiration of the Offer Period in
Section 1.8(b) herein, or (ii) the expiration of the 2nd Regional Network
Option under Section 1.8(c) herein, provided, further, that if the 2nd
Regional Network Option is exercised under Section 1.8(b), then ACTV may
not cause such initial public offering or distribution until twenty (20)
days after the closing of the 2nd Regional Network Option and the issuance
of the warrants thereunder. ACTV shall guarantee the notes to be issued
upon the exercise of the 2nd Regional Network Option, as defined under
Section 1.8 hereof upon the same terms and conditions as provided herein.
1.7 Warrants.
(a) Exercisable into Texas Network's Class A Common Stock.
As consideration for entering into this Agreement and purchasing the Notes,
each Purchaser shall be issued at the Closing a common stock purchase
warrant in the form annexed hereto as Exhibit B (the "Warrant"). The
Warrants to be issued to Purchasers hereunder shall grant the Warrant
holders, upon written consent of the Majority Holders (as defined in
Section 1.9), the right to purchase Texas Network's Class A Common Stock,
$.01 par value per share, ("Texas Network Common Stock") upon exercise
thereof until June 30, 2003 representing the aggregate of 17.5% of the
number of shares of Texas Network Common Stock outstanding, at the time of
and after giving effect to the exercise of the Warrants, on a fully-diluted
basis after giving effect to the exercise or conversion of all then
outstanding options, warrants, and other rights to purchase or acquire
shares of Texas Network Common Stock, at an exercise price of $.01 per
share. Notwithstanding that upon exercise of the Warrants, there may be an
increase in the aggregate number of shares of Texas Network's Common Stock
issuable upon exercise of the Warrants as compared to the aggregate number
of shares of Texas Network Common Stock that would be issuable if the
Warrants were exercised as of the date hereof, there shall be no change in
the aggregate amount paid upon exercise of the Warrants. The Warrant shall
grant each Purchaser the right to acquire a pro rata portion of the 17.5%
of the fully-diluted outstanding Texas Network Common Stock determined by
multiplying 17.5% by the quotient of the aggregate principal amount of
Notes purchased by Purchaser hereunder divided by $5,000,000. Texas
Network will grant the holders of Texas Network's Class A Common Stock
issuable upon exercise of the Warrants certain registration rights pursuant
to the Registration Rights Agreement annexed hereto as Exhibit C to be
executed by the parties thereto at the Closing. The right to exercise the
warrants to purchase shares of common stock in the 2nd Regional Network to
be issued if the 2nd Regional Network Option is exercised (as defined in
Section 1.8 herein) also shall expire on June 30, 2003. For purposes of
this Agreement, Texas Network Common Stock on a fully-diluted basis shall
include Texas Network's Class A Common Stock and Class B Common Stock;
provided, however, fully-diluted basis shall not take into account
additional voting rights of Class B Common Stock over Class A Common Stock.
At ACTV's option, upon exercise of any of the Warrants, ACTV shall cause
Texas Network to amend its certificate of incorporation to authorize an
adequate number of shares of Class A Common Stock or transfer Class A
Common Stock owned by ACTV, Entertainment, or any other ACTV subsidiary in
such number to satisfy the obligations under the Warrants.
(b) Option to Exchange Warrants for ACTV Common Stock. As
more fully described in the Warrant, all of the Warrants may be exchanged
in their entirety at any time for eighteen (18) months from the Closing
Date at the option of the Warrant holders owning a majority of the Warrants
for 5.5% of the number of shares of ACTV Common Stock, $.10 par value per
share, outstanding at the time of and after giving effect to the exchange
of the Warrants, on a fully-diluted basis after giving effect to the
exercise or conversion of all then outstanding options, warrants, and other
rights to purchase or acquire shares of ACTV Common Stock, including, but
not limited to, exchangeable preferred stock of ACTV Holdings, Inc. The
Warrants issued at the Closing shall grant the holder the right to acquire
a pro rata portion of the 5.5% of ACTV's fully-diluted outstanding Common
Stock determined by multiplying 5.5% by the quotient of the aggregate
principal amount of Notes purchased by Purchaser hereunder divided by
$5,000,000. ACTV will grant the holders of ACTV Common Stock upon exchange
of the Warrants certain registration rights pursuant to the ACTV
Registration Rights Agreement annexed hereto as Exhibit D to be executed by
the parties thereto at the Closing. The right to exchange for ACTV Common
Stock the warrants exercisable for shares of common stock in the 2nd
Regional Network to be issued if the 2nd Regional Network Option is
exercised (as defined in Section 1.8 herein) shall expire eighteen months
from the closing date of the notes purchased from the 2nd Regional Network.
(c) Right of First Offer. As more fully defined in the
Warrants, should any holder of the Warrants desire to sell any or all of
the Warrants or shares of Texas Network Common Stock issuable upon exercise
of the Warrants, ACTV or a subsidiary shall have the right to purchase such
Warrant or Texas Network Common Stock on such terms as proposed and as
amended. The right of first offer shall not apply to ACTV Common Stock
issued upon exchange of the Warrants.
(d) Put Option. As more fully described in the Warrants,
after five years, the Warrant holders shall be entitled, under certain
circumstances, to put the Warrants to Texas Network at a price based on the
greater of Texas Network's earnings or the appraised value of the Warrants.
1.8 2nd Regional Network Option.
(a) Option. In the event ACTV, directly or indirectly
through a subsidiary or any entity controlled by or under common control
with ACTV, forms and capitalizes any entity for the principal purpose of
operating (whether directly or indirectly, including by a franchise
agreement or an assignment of rights or a royalty, etc.) a new subscription
sports channel service to subscribers based on an enhancement agreement
("Enhancement License Agreement") with or for the benefit of one of the ten
regional networks of Fox Sports Net utilizing ACTV's Individualized
Programming within a geographic region, other than the region covered by
Texas Network (the "2nd Regional Network"), the Purchasers shall be
provided a one time option to purchase notes from the 2nd Regional Network
in the same amount and on the same terms and conditions as provided in this
Agreement, including the Warrants, substituting the term "2nd Regional
Network" for Texas Network and, where applicable, for the Company, and
including, excluding or modifying such terms and conditions where
specifically provided for in this Agreement (the "2nd Regional Network
Option"), provided, however, that if, on one occasion, an entity or its
Affiliate(s) which has a synergistic interest in that particular region
(e.g. TCI, Liberty Media, FOX Sports Net, Cox, Comcast, Time Warner)
provides the start-up capital for the 2nd Regional Network, the Purchasers
shall have option to fund a different regional network. Upon exercise of
the 2nd Regional Network Option as provided for in Section 1.8(b), each of
the proper parties shall execute and deliver such documents and instruments
as reasonably requested by any other proper party to effectuate the intent
of the 2nd Regional Network Option. If the Purchasers exercise the 2nd
Regional Network Option, the Purchasers purchasing the 2nd Regional Network
notes and warrants shall not be granted any option to invest in any future
ACTV regional networks.
(b) Terms. Within thirty (30) days after the later of (i)
ACTV forming the 2nd Regional Network, (ii) the capitalization of the 2nd
Regional Network subsequent to the date hereof with intent to commence
operations, and (iii) ACTV or the 2nd Regional Network entering into an
Enhancement License Agreement with a Fox Sports Net regional network to
operate a new subscription sports channel service in one of the ten
regional networks other than the region covered by Texas Network, the
Purchasers may exercise the 2nd Regional Network Option and ACTV shall
provide written notice to each Purchaser of the Purchasers' right to
exercise the 2nd Regional Network Option (the "2nd Regional Network
Offer"). ACTV or an ACTV subsidiary has entered into an Enhancement
License Agreement with each of Fox Sports West, Fox Sports Northwest, and
Fox Sports Rocky Mountain. In each of the foregoing regions, ACTV has
formed a new corporation. The 2nd Regional Network Option is not
assignable by the Purchasers without the prior written consent of ACTV.
The 2nd Regional Network Offer shall be irrevocable for a period (the
"Offer Period") ending at 11:59 p.m., New York time, on the thirtieth
(30th) day following the day of the 2nd Regional Network Offer is delivered
to the Purchasers at which time the 2nd Regional Network Offer shall
expire, subject to the following sentence. If during the Offer Period, the
Purchasers or permitted assignees determine in good faith that the terms
and conditions of the notes and warrants to be purchased by the Purchasers
or permitted assignees upon exercise of the 2nd Regional Network Option
violates applicable law, such party may notify ACTV of such violation(s)
prior to the expiration of the Offer Period, then the Offer Period shall be
extended sixty (60) days and the parties shall negotiate, in good faith and
using their best efforts, to modify the terms and conditions of the notes
and warrants to be purchased upon exercise of the 2nd Regional Network
Option so as to comply with applicable law and to conform in all material
respects with the economic substance of the 2nd Regional Network Option as
otherwise provided in this Section 1.8. If the 2nd Regional Network Offer
is not accepted in writing to ACTV by the Purchasers, or their permitted
assignees, who represent more than 50% of the total commitments on Schedule
I during the Offer Period, it shall be deemed rejected in its entirety. If
the 2nd Regional Network Offer is accepted in writing to ACTV by the
Purchasers, or their permitted assignees, who represent more than 50% but
less than all of the total commitments on Schedule I during the Offer
Period, it shall be deemed rejected in its entirety unless the consenting
Purchasers agree within five (5) business days thereafter to fund the non-
consenting Purchasers' commitments up to a total commitment to the 2nd
Regional Network of $5,000,000. If the 2nd Regional Network Option is
exercised, the closing shall occur, if all of the Purchasers accept the 2nd
Regional Network Option, no later than thirty (30) days after the date of
acceptance, or, if applicable, the date thirty (30) days after the
consenting Purchasers agree to fund the non-consenting Purchasers'
commitments.
(c) Expiration of 2nd Regional Network Option. Except for
an outstanding 2nd Regional Network Offer which shall remain open during
the Offer Period, the 2nd Regional Network Option, and any obligations of
ACTV, any ACTV subsidiary or Affiliate, or the 2nd Regional Network arising
thereunder, shall expire on June 30, 1998, after which no Purchaser shall
have any right to exercise the 2nd Regional Network Option, provided,
however, that if an entity or its Affiliate(s) which has a synergistic
interest in that particular region provides the start-up capital for the
2nd Regional Network on or before June 30, 1998, then the 2nd Regional
Network Option shall expire on June 30, 1999.
1.9 Enforcement of Rights. During the time any of the Notes
remain outstanding, Holders of more than fifty percent (50%) of the
principal amount of Notes outstanding (the "Majority Holders") may
designate a Holder to act as Agent (as provided in Section 9.13) on behalf
of all of the Holders to enforce the rights of the Holders under the Loan
Documents and to execute and amend the Security Agreement, the Guaranty and
Financing Statements. Each Purchaser, each subsequent Holder, the Company
and ACTV consent to the foregoing.
1.10 Direct Payment. Notwithstanding anything to the contrary
contained in this Agreement or the Notes, in the case of any Note owned by
Purchaser or Purchaser's nominee or owned by any Holder which has given
written notice to the Company requesting that the provision of this Section
1.10 shall apply, the Company will punctually pay when due the principal
thereof, directly to Purchaser, to Purchaser's nominee or to such Holder at
Purchaser's address set forth in Schedule I hereto or such other address as
Purchaser, Purchaser's nominee or such Holder may from time to time
designate in writing to the Company or, if a bank account with a United
States bank is designated for Purchaser, Purchaser's nominee on Schedule I
hereto or in any written notice to the Company from Purchaser, from
Purchaser's nominee or from any Holder, the Company will make such payments
in immediately available funds to such bank account, to be transmitted no
later than 2:00 p.m. Eastern time on the date due, marked for attention as
indicated, or in such other manner or to such other account in any United
States bank as Purchaser, Purchaser's nominee or any Holder may from time
to time direct in writing. If for any reason whatsoever the Company does
not make any such payment by such 2:00 p.m. transmittal time, such payment
shall be deemed to have been made on the next following Business Day.
2. PREPAYMENT OF NOTES.
2.1 Optional Prepayment with Premium.
(a) Upon compliance with Section 2.2, the Company shall
have the option, at any time and from time to time of prepaying the
outstanding Notes, in whole or in part, by payment of (i) the outstanding
principal amount of the Notes, plus (ii) the premium set forth in Section
2.1(b), and (iii) interest thereon to the Prepayment Date determined under
Section 2.2, provided, however, that if the Company makes any prepayment
under this Section 2.1 on less than all of the outstanding principal amount
of the Notes, then such prepayment shall be made to each Holder
proportional to each Holder's principal amount of outstanding Notes as of
the Prepayment Date. Prepayment hereunder shall not effect any rights
under the Warrants or under the 2nd Regional Network Option.
(b) The premium shall be equal to the outstanding principal
to be prepaid under Section 2.1 multiplied by the applicable premium
percentage:
IF THE PREPAYMENT DATE (AS DEFINED THEN THE APPLICABLE PREMIUM
IN SECTION 2.2 HEREIN) IS: PERCENTAGE IS:
- --------------------------------------- ----------------------------
Prior to December 31, 1998 15.000%
January 1, 1999 to December 31, 1999 10.000%
January 1, 2000 to December 31, 2000 6.500%
January 1, 2001 to December 31, 2001 4.333%
January 1, 2002 to December 31, 2002 2.166%
January 1, 2003 to June 30, 2003 0.000%
2.2 Notice of Optional Prepayments. The Company will give
notice of any prepayment of the Notes pursuant to Section 2.1 to each
Holder thereof not less than 30 days nor more than 60 days before the date
fixed for such optional prepayment specifying (a) such date (the
"Prepayment Date"), (b) the principal amount of the Holder's Notes to be
prepaid on the Prepayment Date, (c) that a premium may be payable and the
computation of such premium, and (d) the accrued interest applicable to the
prepayment. Such notice of prepayment shall also certify all facts, if
any, which are conditions precedent to any such prepayment including the
right to revoke the notice only if such conditions precedent are not met.
Notice of prepayment having been so given, the aggregate principal amount
of the Notes specified in such notice, together with accrued interest
thereon and the premium, if any, payable with respect thereto shall become
due and payable on the Prepayment Date.
2.3 Prepayment of Notes upon Change of Control. In the event
that any Change of Control shall occur or the Company shall have knowledge
of any proposed Change of Control, the Company will give written notice
(the "Company Notice") of such fact in the manner provided in Section 9.6
hereof to the Holders of the Notes. The Company Notice shall be delivered
promptly upon receipt of such knowledge by the Company and in any event no
later than three Business Days following the occurrence of any Change of
Control. The Company Notice shall (1) describe the facts and
circumstances of such Change of Control in reasonable detail, (2) make
reference to this Section 2.3 and the right of the holders of the Notes to
require prepayment of the Notes on the terms and conditions provided for in
this Section 2.3, (3) offer in writing to prepay the outstanding Notes,
together with accrued interest to the date of prepayment, and (4) specify a
date for such prepayment (the "Change of Control Prepayment Date"), which
Change of Control Prepayment Date shall be not more than 90 days nor less
than 30 days following the date of such the Company Notice. Each holder
of the then outstanding Notes shall have the right to accept such offer and
require prepayment of the Notes held by such holder in full by written
notice to the Company (a "Noteholder Notice") given not later than 20 days
after receipt of the Company Notice. The Company shall on the Change of
Control Prepayment Date prepay in full all of the Notes held by holders
which have so accepted such offer of prepayment. The prepayment price of
the Notes payable upon the occurrence of any Change of Control shall be an
amount equal to 101% of the outstanding principal amount of the Notes so to
be prepaid and accrued interest thereon to the date of such prepayment.
Prepayment hereunder shall not effect any rights under the Warrants or
under the 2nd Regional Network Option.
3. REPRESENTATIONS.
3.1 Representations of Texas Network. Texas Network represents
and warrants to each Purchaser as follows:
(a) Due Incorporation, Etc. Texas Network is a corporation
duly organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation, and has all requisite corporate power and
authority under such laws to own or lease and operate its properties and to
carry on its business as now conducted and as proposed to be conducted.
Texas Network's chief executive office, a majority of executive officers,
banking and financial accounts, and a place of business are located at, and
its corporate and administrative operations are conducted in, the City of
New York, State of New York. Texas Network is duly qualified or licensed
to do business as a foreign corporation in good standing in all
jurisdictions in which it owns or leases property or in which the conduct
of its business requires it to so qualify or be licensed, except to the
extent that the failure to so qualify or be in good standing would not have
a material adverse effect on the business, operations, properties,
prospects or condition (financial or otherwise) of Texas Network. Texas
Network has no subsidiaries.
(b) Authorization and Execution; Shares Validly Issued.
The execution, delivery, and performance by Texas Network of the Loan
Documents and Warrants and Texas Network Registration Rights Agreement
hereunder have been duly and validly authorized and Texas Network has the
corporate power and authority to execute, deliver and perform this
Agreement and issue the Notes and Warrants and Texas Network Registration
Rights Agreement hereunder. This Agreement has been duly executed and
delivered by Texas Network and constitutes a valid and binding agreement of
Texas Network. Upon the payment of the purchase price therefor and the
delivery of documents evidencing the Note and Warrants, such instruments
will be validly issued and outstanding, fully paid and nonassessable.
(c) Capitalization of Texas Network. Texas Network's
authorized capital stock consists of 4,000,000 shares of Class A Common
Stock, 1,000,000 shares of Class B Common Stock and 1,000,000 shares of
preferred stock the rights, privileges and preferences of which are to be
determined by the Board of Directors. As of the date of this Agreement,
4,000,000 shares of Class A Common Stock, no shares of Class B Common Stock
and no shares of preferred stock were issued and outstanding. All
outstanding shares have been duly authorized, validly issued and are fully
paid and nonassessable. As of the Closing Date, there will be no rights,
warrants, options, conversion rights, or agreements of any kind outstanding
to purchase from Texas Network, or otherwise require Texas Network to
issue, any shares of capital stock or securities or obligations of any kind
convertible into or exchangeable for any shares of capital stock of Texas
Network and Texas Network will not be subject to any obligation (contingent
or otherwise) to repurchase or otherwise acquire or retire any shares of
its capital stock, except for the Warrants and except for outstanding
options to purchase up to 500,000 shares of Class B Common Stock.
(d) Ownership of Property. Texas Network has good record
title in fee simple to, or valid and subsisting leasehold interest in, all
its real property, and good title to all its other property, in each case
which is necessary or useful in the conduct of its business, including all
collateral pledged to the Purchasers. Each lease agreement under which
Texas Network holds an interest in leased property is in full force and
effect.
(e) No Conflicts. Neither the execution and delivery by
Texas Network of this Agreement nor the performance by Texas Network of its
obligations thereunder, nor the consummation by Texas Network of the
transactions contemplated thereby, will (i) conflict with the certificate
of incorporation or by-laws of Texas Network or (ii) conflict with or
result in a breach of, or constitute a default under, or result in the
creation or imposition of any lien (other than the liens created pursuant
to the Security Agreement) upon any of Texas Network's property or assets
under (A) any lease, indenture, mortgage, deed of trust or other loan
instrument or agreement to which Texas Network may be bound or to which any
of Texas Network's property or assets may be subject or (B) any applicable
law, rule, regulation, judgment, order or decree of any governmental,
administrative or judicial authority or regulatory body having jurisdiction
over Texas Network or any of Texas Network's properties or assets.
(f) No Consents. No order, license, consent, authorization
or approval of, or exemption by, or notice to or registration with, any
federal, state, municipal or other foreign or domestic governmental
department, commission, board, bureau, agency or other foreign or domestic
governmental, administrative or judicial authority or regulatory body, and
no filing, recording, publication or registration of any kind, is necessary
in connection with the execution, delivery and performance by Texas Network
of this Agreement or the transactions contemplated thereby.
(g) Periodic Reports and Financial Statements. The
unaudited financial statements for Texas Network for the period ending
September 30, 1997 (the "Financial Statements"), which have been made
available to the Purchasers, fairly present the financial condition and
results of operations of Texas Network for the period ended on such date.
The financial books and records, and the books of account, stock records
and other records of Texas Network are complete and correct and have been
maintained in accordance with reasonable business practices.
(h) No Material Adverse Change. There has been no material
adverse change in the business, operations, properties, prospects or
condition (financial or otherwise) of Texas Network since September 30,
1997.
(i) Litigation. There are no pending or, to the knowledge
of Texas Network, threatened actions or proceedings affecting Texas
Network, or any of its properties or assets that in the aggregate could
reasonably be expected to (i) materially adversely affect the business,
operations, properties, prospects or condition (financial or otherwise) of
Texas Network, (ii) prohibit the performance by Texas Network of its
obligations hereunder or (iii) affect the legality, validity,
enforceability or binding nature of this Agreement.
(j) Absence of Undisclosed Liabilities. Texas Network has
no material liabilities or obligations of any nature (whether accrued,
absolute or contingent), including but not limited to liabilities for
taxes, that are required to be disclosed under GAAP and are not reflected
on, or reserved against in, the Financial Statements except for liabilities
or obligations incurred since September 30, 1997 in the ordinary course of
business and consistent with past practice.
(k) Contracts; No Defaults. Texas Network is not in
default in any manner, under any lease, agreement or other instrument, that
has any reasonable likelihood of having a material adverse effect on Texas
Network's properties, assets, operations, condition (financial or
otherwise) or prospects, or the performance, observance or fulfillment of
any of the obligations, covenants, or conditions contained in any lease,
agreement or instrument to which Texas Network is a party.
(l) Taxes. Texas Network has filed all United States
Federal income tax returns and all state tax returns which are required to
be filed by it and has paid all taxes due pursuant to such returns or
pursuant to any assessment received by Texas Network, except such taxes
which are being contested in good faith and for which Texas Network has
made all necessary reserves. The charges, accruals, and reserves on the
books of Texas Network in respect of taxes and other governmental charges
are adequate in the opinion of Texas Network. No tax lien has been filed,
and to the knowledge of Texas Network, no claim is being asserted with
respect to any such tax, assessment or other charge.
(m) Legal Compliance. Texas Network is in compliance with
all applicable laws, rules, regulations and orders of, and all applicable
restrictions imposed by, all governmental authorities or bodies in respect
of the conduct of its business and the ownership or leasing of its
property, except such noncompliance as would not, in the aggregate, have
any reasonable likelihood of having a material adverse effect on Texas
Network's business, properties, assets, operations, condition (financial or
otherwise) or prospects.
(n) No Existing Liens. The Collateral (as defined in the
Security Agreement) is free and clear of any liens, security interests or
other encumbrances other than those contemplated under this Agreement and
includes all tangible and intangible assets used by Texas Network in the
conduct of its business. The Security Agreement creates a valid, first
priority lien upon and security interest in the Collateral.
(o) Accuracy and Completeness of Information. All
information, reports and other papers and data with respect to Texas
Network furnished or made available to Purchaser under Section 3.1(g) were,
at the time the same were furnished, complete and correct in all material
respects, or have been subsequently supplemented by other information,
reports or other papers or data, to the extent necessary to give Purchaser
a true and accurate knowledge of the subject matter thereof in all material
respects. No fact is known to Texas Network which materially and adversely
affects or in the future may (so far as Texas Network can reasonably
foresee) materially and adversely affect the business, assets or
liabilities, financial condition, results of operations or business
prospects of Texas Network which has not been set forth in the Financial
Statements or in such written information, reports, papers and data or
otherwise disclosed in writing to Purchaser under Section 3.1(g) prior to
the date hereof. No document furnished or made available or statement made
in writing to the Purchaser under Section 3.1(g) by Texas Network in
connection with the negotiation, preparation or execution of this Agreement
contains any untrue statement of a material fact, or omits to state any
such material fact necessary in order to make the statements contained
therein not misleading, in either case which has not been corrected,
supplemented or remedied by subsequent documents furnished or statements
made in writing to Purchaser.
(p) Use of Proceeds. The use of proceeds from the sale of
the Notes will be as provided in Section 4.2 hereof. None of the
transactions contemplated in the Agreements (including, without limitation
thereof, the use of proceeds from the issuance of the Notes) will violate
or result in a violation of Section 7 of the Securities Exchange Act of
1934, as amended, or any regulation issued pursuant thereto, including,
without limitation, Regulations G, T, U and X of the Board of Governors of
the Federal Reserve System, 12 C.F.R. Parts 207, 220, 221 and 224,
respectively. Texas Network does not own or intend to carry or purchase
any "margin stock" within the meaning of said Regulation G. None of the
proceeds from the sale of the Notes will be used to purchase, or refinance
any borrowing the proceeds of which were used to purchase, any "security"
within the meaning of the Securities Exchange Act of 1934, as amended.
(q) ERISA. The consummation of the transactions provided
for in the Agreements and compliance by Texas Network with the provisions
thereof and the Notes issued thereunder will not involve any prohibited
transaction within the meaning of ERISA or Section 4975 of the Code.
(r) Investment Company Act. Texas Network is not, and is
not directly or indirectly controlled by or acting on behalf of any Person
which is, required to register as an "investment company" under the
Investment Company Act of 1940, as amended.
(s) Exclusive Right to Individualized Programming. Texas
Network has been granted the exclusive right by Entertainment to provide
Individualized Programming to subscribers within Texas Network's defined
region, as more fully defined in the sublicense agreement and services
agreement between Entertainment and Texas Network each dated March 14,
1997, furnished to the Purchaser herewith or prior hereto.
3.2 Representations of Entertainment. Entertainment represents
to each Purchaser as follows:
(a) Due Incorporation, Etc. Entertainment is a corporation
duly organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation, and has all requisite corporate power and
authority under such laws to own or lease and operate its properties and to
carry on its business as now conducted and as proposed to be conducted.
Entertainment's chief executive office, a majority of executive officers,
banking and financial accounts, and principal place of business are located
at, and its corporate and administrative operations are conducted in, the
City of New York, State of New York. Entertainment is duly qualified or
licensed to do business as a foreign corporation in good standing in all
jurisdictions in which it owns or leases property or in which the conduct
of its business requires it to so qualify or be licensed, except to the
extent that the failure to so qualify or be in good standing would not have
a material adverse effect on the business, operations, properties,
prospects or condition (financial or otherwise) of Entertainment.
(b) Authorization and Execution. The execution, delivery,
and performance by Entertainment of the Agreement and of the Notes have
been duly and validly authorized and Entertainment has the corporate power
and authority to execute, deliver and perform this Agreement and the Notes.
This Agreement has been duly executed and delivered by Entertainment and
constitutes a valid and binding agreement of Entertainment.
(c) Capitalization of Entertainment. Entertainment's
authorized capital stock consists of 4,000,000 shares of Class A Common
Stock, 1,000,000 shares of Class B Common Stock and 1,000,000 shares of
preferred stock the rights, privileges and preferences of which are to be
determined by the Board of Directors. As of the date of this Agreement,
4,000,000 shares of Class A Common Stock, no shares of Class B Common Stock
and no preferred stock were issued and outstanding. All outstanding shares
have been duly authorized, validly issued and are fully paid and
nonassessable. As of the Closing Date, there will be no rights, warrants,
options, conversion rights, or agreements of any kind outstanding to
purchase from Entertainment, or otherwise require Entertainment to issue,
any shares of capital stock or securities or obligations of any kind
convertible into or exchangeable for any shares of capital stock of
Entertainment and Entertainment will not be subject to any obligation
(contingent or otherwise) to repurchase or otherwise acquire or retire any
shares of its capital stock, except for outstanding options to purchase up
to 700,000 shares of Class B Common Stock.
(d) Ownership of Property. Entertainment has good record
title in fee simple to, or valid and subsisting leasehold interest in, all
its real property, and good title to all its other property, in each case
which is necessary or useful in the conduct of its business. Each lease
agreement under which Entertainment holds an interest in leased property is
in full force and effect.
(e) Periodic Reports and Financial Statements. The
unaudited financial statements for Entertainment for the period ending
September 30, 1997 (the "Entertainment Financial Statements"), which have
been made available to the Purchasers, fairly present the financial
condition and results of operations of Entertainment for the period ended
on such date. The financial books and records, and the books of account,
stock records and other records of Entertainment are complete and correct
and have been maintained in accordance with reasonable business practices.
(f) Use of Proceeds. The use of proceeds from the sale of
the Notes will be as provided in Section 4.2 hereof. None of the
transactions contemplated in the Agreements (including, without limitation
thereof, the use of proceeds from the issuance of the Notes) will violate
or result in a violation of Section 7 of the Securities Exchange Act of
1934, as amended, or any regulation issued pursuant thereto, including,
without limitation, Regulations G, T, U and X of the Board of Governors of
the Federal Reserve System, 12 C.F.R. Parts 207, 220, 221 and 224,
respectively. Entertainment does not own or intend to carry or purchase
any "margin stock" within the meaning of said Regulation G. None of the
proceeds from the sale of the Notes will be used to purchase, or refinance
any borrowing the proceeds of which were used to purchase, any "security"
within the meaning of the Securities Exchange Act of 1934, as amended.
3.3 Representations of the Purchaser. Each Purchaser,
individually and not jointly and severally, represents to the Company and
ACTV as follows:
(a) Authority. Each Purchaser has full power and authority
to enter into and to perform this Agreement in accordance with its terms.
(b) Investment Representations. Each Purchaser represents
and warrants that it is acquiring the Notes and Warrants, and the common
stock issuable upon exercise or exchange thereof, for its own account, for
investment and not with a view to, or for sale in connection with, any
distribution of such Notes, Warrants and the common stock issuable upon
exercise or exchange thereof, or any part thereof in violation of the
Securities Act of 1933, as amended (the "Securities Act").
(c) Investment Experience; Access to Information. Each
Purchaser represents and warrants that it is an investor experienced in the
evaluation of businesses similar to the Company, is able to fend for itself
in the transactions contemplated by this Agreement, has such knowledge and
experience in financial business matters as to be capable of evaluating the
merits and risks of this investment and is an "Accredited Investor" as such
term is defined in Rule 501 promulgated under the Securities Act. Each
Purchaser represents and warrants that, during the course of this
transaction and prior to the purchase of the Notes, it has had the
opportunity to ask questions of and receive answers from the Company
concerning the terms and conditions of the offering of the Notes and to
obtain any additional information necessary to verify the accuracy of the
representations and warranties and other information contained in this
Agreement. Each Purchaser confirms that all documents, records and books
pertaining to its investment in the Company and requested by it have been
made available or delivered to it.
(d) Absence of Registration. Each Purchaser understands
that:
(1) Subject to Texas Network's obligations under the
Registration Rights Agreement annexed hereto as Exhibit C and ACTV's
obligations under the Registration Rights Agreement annexed hereto as
Exhibit D, the Notes to be sold and issued hereunder (and the Warrants and
the common stock issuable upon exercise or exchange of the Warrants) have
not been registered under the Securities Act and may be required to be held
indefinitely unless subsequently registered under the Securities Act, or an
exemption from such registration is available.
(2) The Company is under no obligation to file a
registration statement with the Securities and Exchange Commission (the
"Commission") with respect to the Notes, and except as provided in the
Registration Rights Agreements annexed hereto as Exhibits C and D, neither
Texas Network nor ACTV is under any obligation to file a registration
statement with the Commission with respect to the Warrants or the common
stock issuable upon exercise or exchange of the Warrants.
(3) Rule 144 promulgated under the Securities Act
("Rule 144"), which provides for certain limited sales of unregistered
securities, is not presently available with respect to the Notes, Warrants
and common stock issuable upon exercise or exchange of the Warrants.
(e) Restrictions on Transfer. Each Purchaser agrees that
it will not, and is not permitted to, offer, sell, pledge, hypothecate, or
otherwise dispose of the Notes, Warrants and common stock issuable upon
exercise or exchange of the Warrants unless such offer, sale, pledge,
hypothecation or other disposition is (i) registered under the Securities
Act, or (ii) such offer, sale, pledge, hypothecation or other disposition
thereof does not violate the Securities Act, and (b) the certificates
representing the Notes, Warrants and common stock issuable upon exercise of
exchange thereof shall bear a legend stating in substance:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS AND MAY
NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED
UNLESS AND UNTIL REGISTERED UNDER SAID ACT AND SUCH LAWS, OR SUCH OFFER,
SALE OR TRANSFER, PLEDGE OR HYPOTHECATION IS OTHERWISE EXEMPT FROM
REGISTRATION UNDER SAID ACT AND SUCH LAWS.
(f) Transfer Instructions. Each Purchaser agrees that the
Company and ACTV may provide for appropriate transfer instructions to
implement the provisions of Section 3.3(e) hereof.
(g) Economic Risk. Each Purchaser understands that it must
bear the economic risk of the investment represented by this Agreement for
an indefinite period.
3.4 Representations of ACTV. ACTV represents to each Purchaser
as follows:
(a) Due Incorporation, Etc. ACTV is a corporation duly
organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation, and has all requisite corporate power and
authority under such laws to own or lease and operate its properties and to
carry on its business as now conducted and as proposed to be conducted.
ACTV's chief executive office, executive officers, banking and financial
accounts, and principal place of business, are located at, and its
corporate and administrative operations are conducted in, the City of New
York, State of New York. ACTV is duly qualified or licensed to do business
as a foreign corporation in good standing in all jurisdictions in which it
owns or leases property or in which the conduct of its business requires it
to so qualify or be licensed, except to the extent that the failure to so
qualify or be in good standing would not have a material adverse effect on
the business, operations, properties, prospects or condition (financial or
otherwise) of ACTV.
(b) Authorization and Execution; Shares Validly Issued.
The execution, delivery, and performance by ACTV of the Agreement, the
Warrant, the ACTV Registration Rights Agreement, the Guaranty and the
issuance of ACTV's Common Stock upon exchange of the Warrants hereunder
have been duly and validly authorized and ACTV has the corporate power and
authority to execute, deliver and perform this Agreement, the Warrant, the
ACTV Registration Rights Agreement, the Guaranty and issue ACTV's Common
Stock upon exchange of the Warrants hereunder. This Agreement, the
Warrant, the ACTV Registration Rights Agreement and Guaranty have been duly
executed and delivered by ACTV and each constitutes a valid and binding
agreement of ACTV. Upon the delivery of documents evidencing the exchange
of the Warrants, ACTV's Common Stock issuable upon exchange of the Warrants
will be validly issued and outstanding, fully paid and nonassessable.
(c) Capitalization of ACTV. ACTV's authorized capital
stock consists of 65,000,000 shares of Common Stock and 1,000,000 shares of
preferred stock, the rights, privileges and preferences of which are to be
determined by ACTV's Board of Directors. As of the date of this Agreement,
15,108,486 shares of Common Stock and 86,200 shares of Preferred Stock were
issued and outstanding. All outstanding shares have been duly authorized,
validly issued and are fully paid and nonassessable. As of the Closing
Date, there will be no rights, warrants, options, conversion rights, or
agreements of any kind outstanding to purchase from ACTV, or otherwise
require ACTV to issue, any shares of capital stock or securities or
obligations of any kind convertible into or exchangeable for any shares of
capital stock of ACTV and ACTV will not be subject to any obligation
(contingent or otherwise) to repurchase or otherwise acquire or retire any
shares of its capital stock, except for the Warrants and except as
described in the periodic reports in Section 3.4(d) (including an estimated
8,286,485 shares of ACTV Common Stock issuable upon exchange of outstanding
preferred stock of ACTV Holdings, Inc., assuming a present trading price of
ACTV Common Stock on December 17, 1997 of 1 15/32) and the 1,436,666 shares
of common stock issuable upon conversion of the 86,200 shares of Preferred
Stock plus payment in kind dividends, if any.
(d) Ownership of Property. ACTV has good record title in
fee simple to, or valid and subsisting leasehold interest in, all its real
property, and good title to all its other property, in each case which is
necessary or useful in the conduct of its business. Each lease agreement
under which ACTV holds an interest in leased property is in full force and
effect.
(e) Periodic Reports and Financial Statements. ACTV's
Proxy Statement for its 1997 annual shareholders meeting, Form S-3 filed
with the Securities and Exchange Commission on November 20, 1997 and
declared effective on November 28, 1997, Form 10-K for the year ended
December 31, 1996, and its Form 10-Q for the period ending September 30,
1997, which Forms 10-K and 10-Q include the audited financial statements
for ACTV for the years ending December 31, 1995 and December 31, 1996 and
the unaudited financial statements for ACTV for the period ending September
30, 1997, respectively, together with the notes to such financial
statements, fairly present the financial condition and results of
operations of ACTV for the periods ended on such dates, all in accordance
with GAAP (except, in the case of the unaudited financial statements, for
the omission of footnotes and customary year-end adjustments) and the
services and sublicense agreements referred to in Section 3.1(s) hereof,
all of which have been furnished or made available to Purchaser.
4. CONDITIONS TO CLOSING.
4.1 The Company's Obligations. Purchaser's obligation to
purchase the Notes on the Closing Date shall be subject to the performance
by the Company of its agreements hereunder which by the terms hereof are to
be performed at or prior to the time of delivery of the Notes and to the
following further conditions precedent:
(a) Closing Certificates. Purchaser shall have received
a certificate dated the Closing Date, signed by a Responsible Officer of
each of Texas Network, Entertainment and ACTV, the truth and accuracy of
which shall be a condition to Purchaser's obligation to purchase the Notes
proposed to be sold to Purchasers and to the effect that (1) the
representations and warranties of the Company in Sections 3.1, 3.2 and 3.4,
respectively, herein are true and correct on and with respect to the
Closing Date, (2) the Company and ACTV have performed all of its
obligations hereunder which are to be performed on or prior to the Closing
Date, (3) no Default or Event of Default has occurred and is continuing,
and (4) the good standing of the Company.
(b) Related Transactions. The Company shall have
consummated the sale of the entire principal amount of the Notes scheduled
to be sold on the Closing Date pursuant to this Agreement and the other
agreements referred to in Section 1.
(c) Funding Instructions. Prior to the Closing Date,
Purchasers shall have received written instructions executed by a
Responsible Officer of the Company directing the manner of the payment of
funds and setting forth (1) the name and address of the transferee bank (2)
such transferee bank's ABA number, (3) the account name and number into
which the purchase price for the Notes is to be deposited, and (4) the name
and telephone number of the account representative responsible for
verifying receipt of such funds.
(d) Equity Financing. On or before the Closing Date, ACTV
shall advance an aggregate of $3,000,000 to Texas Network. In respect of
said advance, ACTV will be credited $1,667,000 for equipment purchases and
start-up costs for Texas Network incurred as of September 30, 1997.
Subsequent thereto and prior to the Closing Date, ACTV shall advance to
Texas Network additional equity, consisting of equipment purchases and
start-up costs, of $1,333,000. If within 90 days after the Closing Date
Texas Network raises equity financing and there is not existing an Event of
Default, then for each dollar of such equity financing raised by Texas
Network one dollar shall be repaid by Texas Network to ACTV up to an
aggregate of $3,000,000. The ACTV advance shall at all times be
subordinate to the Notes until such amount of the advance is to be repaid
to ACTV as provided in the foregoing sentence. Any portion of the ACTV
advance not repaid to ACTV within 90 days after the Closing Date shall be
converted into equity of Texas Network.
(e) Legal Fees. On the Closing Date, the Company shall pay
Purchasers' legal fees in the amount of $26,000, which is the total fees of
$41,000 less $15,000 previously paid by the Company.
(f) Opinion of Counsel. On the Closing, Purchasers shall
have received an opinion of counsel in the form annexed hereto as Exhibit
G.
4.2 Use of Proceeds. After deducting a three percent (3%)
commission to Libra Investments, Inc. and other expenses relating to sale
of the Notes, the net proceeds from the sale of the Notes shall be paid to
Texas Network and used by it for the construction of the master control
facilities, sports and other programming costs associated with the roll-out
of the new subscription sports channel service by Texas Network, related
marketing and development costs and working capital.
4.3 Waiver of Conditions. If on the Closing Date the Company
fails to tender to Purchaser the Notes to be issued to Purchaser on such
date or if the conditions specified in Section 4.1 have not been fulfilled,
Purchaser may thereupon elect to be relieved of all further obligations
under this Agreement. Without limiting the foregoing, if the conditions
specified in Section 4.1 have not been fulfilled, Purchaser may waive
compliance by the Company with any such conditions to such extent as
Purchaser may in its sole discretion determine. Nothing in this Section
4.3 shall operate to relieve the Company of any of its obligations
hereunder or to waive any of Purchaser rights against the Company.
5. COVENANTS. From and after the Closing Date and continuing so
long as any amount remains unpaid on any Note:
5.1 Texas Network Corporate Existence, Etc. Texas Network will
preserve and keep in full force and effect its corporate existence and all
licenses and permits necessary to the proper conduct of its business,
provided that the foregoing shall not prevent any transaction permitted by
Section 5.11. Texas Network shall not acquire any subsidiary without the
consent of the Holders owning Notes representing more than 50% of the total
outstanding principal amount of the Notes.
5.2 Texas Network Insurance. Texas Network will maintain
insurance coverage by financially sound and reputable insurers and in such
forms and amounts and against such risks as are customary for corporations
of established reputation engaged in the same or a similar business and
owning and operating similar properties.
5.3 Texas Network Taxes, Claims for Labor and Materials;
Compliance with Laws.
(a) Texas Network will promptly pay and discharge all
lawful taxes, assessments and governmental charges or levies imposed upon
Texas Network or upon or in respect of all or any part of the property or
business of Texas Network, all trade accounts payable in accordance with
usual and customary business terms, and all claims for work, labor or
materials, which if unpaid might become a Lien upon any property of Texas
Network; provided Texas Network shall not be required to pay any such tax,
assessment, charge, levy, account payable or claim if (1) the validity,
applicability or amount thereof is being contested in good faith by
appropriate actions or proceedings which will prevent the forfeiture or
sale of any property of Texas Network or any material interference with the
use thereof by Texas Network, and (2) Texas Network shall set aside on its
books, reserves deemed by it to be adequate with respect thereto.
(b) Texas Network will promptly comply with all laws,
ordinances or governmental rules and regulations to which it is subject the
violation of which could materially and adversely affect the properties,
business, prospects, profits or conditions (financial or otherwise) of
Texas Network or would result in any Lien not permitted under Section 5.7.
5.4 Texas Network Maintenance, Etc. Texas Network will
maintain, preserve and keep its properties which are used or useful in the
conduct of its business (whether owned in fee or a leasehold interest) in
good repair and working order and from time to time will make all necessary
repairs, replacements, renewals and additions so that at all times the
efficiency thereof shall be maintained.
5.5 Texas Network Nature of Business. Texas Network will not
engage in any business if, as a result, the general nature of the business
which would then be engaged in by Texas Network would be substantially
changed from the general nature of the business engaged in by Texas Network
on the date of this Agreement.
5.6 Texas Network Limitations on Debt. Texas Network will not
incur, create, issue, assume, or at any time become liable, contingently or
otherwise, for Indebtedness, including Indebtedness senior to the Notes,
except:
(a) Indebtedness evidenced by the Notes;
(b) Subordinated Indebtedness of Texas Network owing to
ACTV or any subsidiary of ACTV.
(c) Indebtedness for customary trade/vendor obligations,
subject to a maximum aggregate amount of $2.5 million.
(d) Additional Indebtedness of Texas Network, provided that
at the time of creation, issuance, assumption, guarantee or incurrence
thereof and after giving effect thereto and to the application of the
proceeds thereof for the four prior full quarters Texas Network's EBITDA
divided by Interest Expense is not less than three (3).
(e) Capitalized Leases and Indebtedness incurred after the
Closing Date for the acquisition or purchase of fixed assets useful and
intended to be used in carrying on the business of Texas Network in the
amount up to $300,000 in the aggregate outstanding at any one time,
provided the Capital Lease or Indebtedness incurred does not exceed an
amount equal to the lesser of purchase price of fair market value at the
time of acquisition or purchase of such fixed asset (as determined in good
faith by the Board of Directors of Texas Network).
5.7 Texas Network Limitation on Liens. Texas Network will not
create or incur, or suffer to be incurred or to exist, any Lien on its
property or assets, whether now owned or hereafter acquired, or upon any
income or profits therefrom, or transfer any property for the purpose of
subjecting the same to the payment of obligations in priority to the
payment of its general creditors, or acquire or agree to acquire, any
property or assets upon conditional sales agreements or other title
retention devices, except:
(a) Liens for property taxes and assessments or
governmental charges or levies and Liens securing claims or demands of
mechanics and material men, provided that payment thereof is not at the
time required by Section 5.3;
(b) Liens of or resulting from any judgment or award, the
time for the appeal or petition for rehearing of which shall not have
expired, or in respect of which Texas Network shall at any time in good
faith be prosecuting an appeal or proceeding for a review and in respect of
which a stay of execution pending such appeal or proceeding for review
shall have been secured;
(c) Liens incidental to the conduct of business or the
ownership of properties and assets (including Liens in connection with
worker's compensation, unemployment insurance and other like laws,
warehousemen's and attorney's liens and statutory landlords' liens) and
Liens to secure the performance of bids, tenders or trade contracts, or to
secure statutory obligations, surety or appeal bonds or other Liens of like
general nature, in any such case incurred in the ordinary course of
business and not in connection with the borrowing of money, provided in
each case, the obligation secured is not overdue or, if overdue, is being
contested in good faith by appropriate actions or proceedings;
(d) minor survey exceptions or minor encumbrances,
easements or reservations, or rights of other for rights-of-way, utilities
and other similar purposes, or zoning or other restrictions as to the use
of real properties which are necessary for the conduct of the activities of
Texas Network which customarily exist on properties of corporations engaged
in similar activities and similarly situated and which do not in any event
materially impair their use in the operation of the business of Texas
Network;
(e) Liens securing Indebtedness of Texas Network to ACTV;
(f) Liens created or incurred after the Closing Date given
to secure the payment of the purchase price incurred in connection with the
acquisition or purchase of fixed assets useful and intended to be used in
carrying on the business of Texas Network in the amount up to $300,000 in
the aggregate outstanding at any one time, provided that (1) the Lien
shall attach solely to the fixed assets acquired or purchased, (2) such
Lien shall have been created or incurred within three months of the date of
acquisition or purchase of such fixed assets, (3) the aggregate amount
remaining unpaid on all Indebtedness secured by Liens on such fixed assets,
whether or not assumed by Texas Network, shall not exceed an amount equal
to 100% (or 100% in the case of Capitalized Leases) of the lesser of the
total purchase price or fair market value at the time of acquisition or
purchase of such fixed assets (as determined in good faith by the Board of
Directors of Texas Network); and
(g) any extensions, renewal or refunding of any Lien
permitted by Section 5.7 in respect of the same property theretofore
subject to such Lien in connection with the extension, renewal or refunding
of the Indebtedness secured thereby; provided that (1) such extension,
renewal or refunding of Indebtedness shall be without increase in the
principal amount remaining unpaid as of the date of such extension, renewal
or refunding (2) such Lien shall attach solely to the same such property,
and (3) the principal amount remaining unpaid as of the date of extension,
renewal or refunding of Indebtedness is less than or equal to the fair
market value of the property (determined in good faith by the Board of
Directors of Texas Network) to which such Lien is attached.
Nothing herein shall be construed to permit the issuance of any
Indebtedness that would be secured by the Collateral (as defined in Section
1.6(b) hereof) on parity with or senior to the Holders' security interest
with respect to the Collateral, except as provided in Section 5.7(f)
hereof.
5.8 Texas Network Limitation on Sale and Leaseback. Texas
Network will not enter into any arrangement whereby Texas Network shall
sell or transfer any property owned by Texas Network to any Person other
than Texas Network and thereupon Texas Network shall lease or intend to
lease, as lessee, the same property.
5.9 Texas Network Restricted Payments. Texas Network will not
except as hereinafter provided:
(a) Declare or pay any dividends, either in cash or
property, on any shares of its capital stock of any class;
(b) Redeem, retire, purchase or otherwise acquire for value
any shares of any class of its own stock; or
(c) Make any other payment or distribution in respect of
its capital stock.
5.10 Texas Network Investments. Texas Network will not make any
Investments, other than ("Permitted Investments"):
(a) Investments of Texas Network existing as of the Closing
Date;
(b) receivables arising from the sale of goods and services
in the ordinary course of business of Texas Network;
(c) Investments in commercial paper of corporations
organized under the laws of the United States or any agency or
instrumentality of the United State of America, the payment or guarantee of
which constitutes a full faith and credit obligation of the United States
of America, in either case, maturing within twelve months from the date of
acquisition thereof;
(d) Investments in certificates of deposit and time
deposits maturing within one year from the date of issuance thereof, either
(1) issued by a bank or trust company organized under the laws of the
United States or any State thereof, having capital, surplus and undivided
profits aggregating at least $100,000,000, provided, that at the time of
acquisition thereof by Texas Network (1) the senior unsecured long-term
debt of such bank or trust company or of the holding company of such bank
or trust company is rated investment grade or better by Standard & Poor's
Ratings Group or better by Moody's Investors Service, Inc. or (2) such
certificate of deposit or time deposit is issued by any bank or trust
company organized under the laws of the United States or any state thereof
to the extent that such Investments are fully insured by the Federal
Depository Insurance Corporation;
(e) Investments in any money market fund which is
classified as a current asset in accordance with GAAP, the aggregate asset
value of which "marked to market", is at least $100,000,000 and which is
managed by a fund manager of recognized national standing, and which
invests substantially all of its assets in obligations described in clauses
(c) and (d) above.
5.11 Texas Network Mergers, Consolidations and Sales of Assets.
(a) Texas Network will not consolidate with or be a party
to a merger with any other Person, or sell, lease or otherwise dispose of
all or substantially all of its assets except that:
(i) Any person may merge or consolidate with or into
Texas Network so long as in any merger or consolidation involving Texas
Network, (A) Texas Network shall be the surviving or continuing entity or
if the entity which results from such consolidation or merger (the
"surviving entity") is other than Texas Network then the due and punctual
payment of the principal of and premium, if any, and interest on all of the
Notes, according to their tenor, and the due and punctual performance and
observation of all of the covenants in the Notes and this Agreement to be
performed or observed by Texas Network are expressly assumed in writing by
the surviving entity, and Texas Network shall furnish to the holders of the
Notes an opinion of counsel satisfactory to such holders to the effect that
the instrument of assumption has been duly authorized, executed and
delivered and constitutes the legal, valid and binding contract and
agreement of the surviving entity enforceable in accordance with its terms,
(B) at the time of such consolidation or merger and immediately after
giving effect thereto, (I) no Default or Event of Default would exist and
(II) the surviving entity would be permitted by the provisions of Section
5.6(d) to incur at least $1.00 of additional Indebtedness, (C) Texas
Network or the surviving entity has a Consolidated Net Worth no less than
the Consolidated Net Worth of Texas Network immediately prior to the
closing of the merger, and (D) there is no Change in Control of Texas
Network.
(ii) Texas Network will not sell, lease, transfer,
abandon or otherwise dispose of assets (which for purposes of this Section
5.11(a)(ii) shall be defined as $250,000 per fiscal year) unless (A) at
least 80% of the proceeds are for cash, (B) in the opinion of Texas
Network's Board of Directors, the sale is for fair value and is in the
best interests of Texas Network, (C) immediately after the consummation of
the transaction and after giving effect thereto, no Default or Event of
Default would exist, and (D) there is no Change in Control of Texas
Network. Within 180 days after the receipt of the net proceeds, Texas
Network may reinvest in similar assets used for the business the net
proceeds from any such sale of assets; such assets so acquired shall be
subject to the Security Agreement described in Section 1.6(b) hereof. If
the net proceeds are not so reinvested within 180 days of the closing of a
sale of assets, the net proceeds (after repayment of purchase money debt
and other secured debt) shall be used to make an offer to redeem an
allocable portion of the Notes at 101% of the outstanding principal amount
plus accrued interest to the date of redemption. The procedure for
redeeming the Notes shall comply with Section 2.3 herein.
(b) Notwithstanding Section 5.11(a)(ii), Texas Network
shall not sell, transfer, convey or otherwise dispose of the exclusive
right granted by Entertainment to provide Individualized Programming, as
described in Section 3.1(s) hereof.
5.12 Texas Network Issuance of Capital Stock. Texas Network will
not issue, sell, pledge or otherwise dispose of any shares of its capital
stock, provided, however, ACTV shall own, directly or indirectly, all of
the common stock of Texas Network (except for the 17.5% of the fully
diluted outstanding common stock of Texas Network determined at the time of
and giving effect to exercise of the Warrants and other rights to purchase
or acquire shares of Texas Network's common stock which is reserved for
issuance upon exercise of the Warrants), except (i) up to 15% of the fully
diluted common stock of Texas Network may be issued to cable television
distributors in return for affiliate (carriage) agreements, and (ii) Texas
Network will be permitted to issue up to 49% of its fully diluted common
stock, provided that the common stock is sold at a price equal to the
greater of (x) fair market value, as determined by a written opinion as to
the fair market value of such transaction to ACTV from an independent
investment banking firm of national reputation, or (y) an equity valuation
of $12.5 million for the 49% of Texas Network being sold (or any resulting
pro rata fraction thereof for a minority stake of less than 49%, e.g., a
24.5% ownership stake in Texas Network could not be sold for less than
$6.25 million); and provided further that Texas Network must use the
proceeds received from such sale to make an offer to redeem the Notes in
accordance with the Optional Prepayment with Premium provisions in Section
2.1 herein. The foregoing provisions of Section 5.12 shall not apply to
sales of stock within one year from the Closing Date equal to a minority
interest in Texas Network to Fox Sports Net, Liberty Media, TCI, or any of
their Affiliates, and ACTV may not sell, issue, transfer or convey to any
third party more than a 49% fully-diluted ownership stake in Texas Network
without the consent of Holders of a majority of the principal amount of
Notes outstanding. Notwithstanding the foregoing, ACTV and the holders of
the Warrants shall, collectively, not hold less than 51% of the outstanding
Class A Common Stock of Texas Network on a fully diluted basis, which, for
purposes of determining fully diluted, shall include Texas Network's Class
A Common Stock and Class B Common Stock, provided, however, fully diluted
shall not take into account additional voting rights of Class B Common
Stock over Class A Common Stock
5.13 Texas Network Transactions with Affiliates. Texas Network
will not enter into or be a party to any transaction or arrangement with
any Affiliate (including, without limitation, the purchase from, sale to or
exchange of property with, or the rendering of any service by or for, any
Affiliate) (an "Affiliate Transaction") unless (i) the Affiliate
Transaction is between Texas Network and a direct or indirect subsidiary of
ACTV and (ii) (A) the Board of Directors determines that the terms of such
Affiliate Transaction are fair and reasonable to Texas Network, and no less
favorable to Texas Network than could have been obtained in an arm's length
transaction with a non-Affiliate, (B) if involving consideration to either
party in excess of $250,000 for such transaction or series of related
transactions, unless such Affiliate Transaction(s) is evidenced by an
Officers' Certificate addressed and delivered to the holders of the Notes
certifying that such Affiliate Transaction(s) has been approved by a
majority of the members of the Board of Directors that are disinterested in
such transaction and (C) if such transaction involves consideration to
either party in excess of $2.0 million, Texas Network obtains a written
favorable opinion as to the fairness of such transaction to the Southwest
Network from a financial point of view from an independent investment
banking firm of national reputation. For purposes of this Section 5.13, a
director shall be deemed to be disinterested with respect to a transaction
unless such director has a material personal financial interest in such
transaction other than a director's regular compensation or equity interest
in Texas Network, ACTV or any ACTV subsidiary. Notwithstanding the
foregoing, Texas Network may enter into agreements for routine management
and professional services provided to Texas Network by ACTV and
Entertainment.
5.14 Texas Network Reports and Rights of Inspection. Texas
Network will keep proper books of record and account in which full and
correct entries will be made of all dealings or transactions of, or in
relation to, the business and affairs of Texas Network, in accordance with
GAAP consistently applied (except for changes disclosed in the financial
statements furnished to the Purchasers pursuant to this Section 5.14), and
will furnish to each Holder of the then outstanding Notes (in duplicate if
so specified below or otherwise requested):
(a) Quarterly Statements. As soon as available and in any
event within 60 days after the end of each quarterly fiscal period (except
the last) of each fiscal year, copies of the following, all in reasonable
detail and certified as complete and correct by an authorized financial
officer of Texas Network:
(1) a balance sheet of Texas Network as of the close
of such quarterly fiscal period,
(2) statements of income of Texas Network for such
quarterly fiscal period and for the portion of the fiscal year ending with
such quarterly fiscal period, and
(3) a statement of cash flows of Texas Network for the
portion of the fiscal year ending with such quarterly fiscal period.
(b) Annual Statements. As soon as available and in any
event within 90 days after the close of each fiscal year of Texas Network,
copies of:
(1) a balance sheet of Texas Network as of the close
of such fiscal year, and
(2) a statement of income, retained earnings and cash
flows of Texas Network for such fiscal year,
in each case setting forth in comparative form the figures for the
preceding fiscal year, all in reasonable detail and accompanied by a report
thereon of a firm of independent public accountants of recognized standing
selected by Texas Network to the effect that the financial statements
present fairly, in all material respects, the financial position of Texas
Network as of the end of the fiscal year being reported on and the
consolidated results of the operations and cash flows for said year in
conformity with GAAP and that the examination of such accountants in
connection with such financial statements has been conducted in accordance
with generally accepted auditing standards and included such tests of the
accounting records and such other auditing procedures as said accountants
deemed necessary in the circumstances.
(c) SEC Reports. Promptly upon their becoming available,
one copy of each financial statement, report, notice or proxy statement
sent by Texas Network to its creditors and stockholders generally and of
each regular or periodic report, and any registration statement or
prospectus filed by Texas Network with any securities exchange or the
Securities and Exchange Commission or any successor agency.
(d) Requested Information. With reasonable promptness,
such other data and information as Purchaser or any such Holder may
reasonably request.
Without limiting the foregoing, Texas Network will permit Purchasers, so
long as Purchasers are the holder of any Note, and each Holder of the then
outstanding Notes (or such Persons as either Purchaser or such Holder may
designate), to visit and inspect, under Texas Network's guidance, any of
the properties of Texas Network to examine all of their books of account,
records, reports and other papers, to make copies and extracts therefrom
and to discuss their respective affairs, finances and accounts with their
respective officers, employees, and independent public accountants (and by
this provision Texas Network authorizes said accountants to discuss with
Purchaser the finances and affairs of Texas Network), all at such
reasonable times and as often as may be reasonably requested. Any
visitation shall be at the sole expense of Purchaser or such Holder, unless
a Default or Event of Default shall have occurred and be continuing or the
holder of any Note or of any other evidence of Indebtedness of Texas
Network gives any written notice or takes any other action with respect to
a claimed default, in which case, any such visitation or inspection shall
be at the sole expense of Texas Network.
5.15 Texas Network Indebtedness. Texas Network will pay
punctually and discharge when due and payable any Indebtedness hereto or
hereafter incurred or assumed by it and discharge, perform and observe the
covenants, provisions and conditions to be discharged, performed and
observed on the part of Texas Network in connection therewith, or in
connection with any agreement or other instrument relating thereto.
5.16 Texas Network Guarantees. Texas Network will not guarantee
on a basis senior in right of payment to the Notes directly or indirectly,
any Indebtedness of any other Person. Nothing herein shall be construed to
permit issuance of any Indebtedness that would be secured by the collateral
granted to the holders of the Notes.
5.17 Texas Network Certificate of Default. Texas Network shall
deliver to the Holders, forthwith upon becoming aware of any default or
defaults in the performance of any covenant, agreement or condition
contained in this Agreement or in any document related hereto (including
notice of any event which with the giving of notice, lapse of time or both
would become an Event of Default), an Officer's Certificate specifying such
default or Event of Default.
5.18 Texas Network Additional Information. Texas Network shall
provide such data and information as from time to time may reasonably be
requested by any Holder.
5.19 Texas Network Other Documents. Texas Network will comply
with all other covenants, representations, warranties, terms and
obligations of this and all other documents executed pursuant to the terms
hereof or to the other documents.
5.20 Texas Network Use of Proceeds. Texas Network shall apply
the net proceeds from the sale of the Notes as provided in Section 4.2.
5.21 Waiver of Stay, Extension or Usury Laws. Each of
Entertainment and Texas Network covenants (to the extent that it may
lawfully do so) that it shall not at any time insist upon, or plead, or in
any manner whatsoever claim, and shall resist any and all efforts to be
compelled to take the benefit or advantage of, any stay or extension law or
any usury law or other law which would prohibit or forgive either of
Entertainment or Texas Network from paying all or any portion of the
principal of or interest on the Notes as contemplated herein, wherever
enacted, now or at any time hereafter in force, or which may effect the
covenants or the performance of this Agreement; and (to the extent that it
may lawfully do so) each of Entertainment and Texas Network hereby
expressly waives all benefit or advantage of any such law and covenants
that it shall not hinder, delay or impede the execution of power herein
granted to the Holder but shall suffer and permit the execution of every
such power as though no such law had been enacted. All agreements between
either of Entertainment or Texas Network and Holders, whether now existing
or hereafter arising and whether written or oral, are hereby limited so
that in no contingency, whether by reason or demand or acceleration of the
final maturity date of the Notes or otherwise, shall the interest
contracted for, charged, received, paid or agreed to be paid to holders
exceed the maximum amount permissible under the laws of the State of New
York (hereinafter the "Applicable Law"). If, from any circumstances
whatsoever, interest would otherwise be payable to Holders in excess of the
maximum amount permissible under Applicable Law, the interest payable to
the Holders shall be reduced to the maximum amount permissible under
Applicable Law, and if from any circumstances the Holders shall ever
receive anything deemed interest by the Applicable Law in excess of the
maximum amount permissible under the Applicable Law, an amount equal to the
excessive interest shall be applied to the reduction of the principal
hereof and not to the payment of interest, or if such excessive amount of
interest exceeds the unpaid principal balance of principal hereof, such
excess shall be refunded to Entertainment or Texas Network as applicable.
All interest paid or agreed to be paid to the Holders shall, to the extent
permitted by Applicable Law, be amortized, prorated, allocated and spread
throughout full period (including any renewal or extension) until payment
in full of the principal so that the interest hereon for such full period
shall not exceed the maximum amount permissible under the Applicable Law.
The Holders expressly disavow any intent to contract for, charge or receive
interest in an amount which exceeds the maximum amount permissible under
Applicable Law. This paragraph shall control agreements between either of
Entertainment or Texas Network and the Holders. This covenant shall
survive the payment in full of the Notes.
5.22 ACTV Corporate Existence, Etc. ACTV will preserve and keep
in full force and effect its corporate existence and all licenses and
permits necessary to the proper conduct of its business.
5.23 ACTV Insurance. ACTV will maintain insurance coverage by
financially sound and reputable insurers and in such forms and amounts and
against such risks as are customary for corporations of established
reputation engaged in the same or a similar business and owning and
operating similar properties.
5.24 ACTV Taxes, Claims for Labor and Materials; Compliance with
Laws.
(a) ACTV will promptly pay and discharge all lawful taxes,
assessments and governmental charges or levies imposed upon ACTV or upon or
in respect of all or any part of the property or business of ACTV, all
trade accounts payable in accordance with usual and customary business
terms, and all claims for work, labor or materials, which if unpaid might
become a Lien upon any property of ACTV; provided ACTV shall not be
required to pay any such tax, assessment, charge, levy, account payable or
claim if (1) the validity, applicability or amount thereof is being
contested in good faith by appropriate actions or proceedings which will
prevent the forfeiture or sale of any property of ACTV or any material
interference with the use thereof by ACTV, and (2) ACTV shall set aside on
its books, reserves deemed by it to be adequate with respect thereto.
(b) ACTV will promptly comply with all laws, ordinances or
governmental rules and regulations to which it is subject the violation of
which could materially and adversely affect the properties, business,
prospects, profits or conditions (financial or otherwise) of ACTV.
5.25 ACTV Maintenance, Etc. ACTV will maintain, preserve and
keep its properties which are used or useful in the conduct of its
business (whether owned in fee or a leasehold interest) in good repair and
working order and from time to time will make all necessary repairs,
replacements, renewals and additions so that at all times the efficiency
thereof shall be maintained.
5.26 ACTV Reports. ACTV shall provide, upon request of any
Holder, promptly upon their becoming available, one copy of each financial
statement, report, notice or proxy statement sent by ACTV to its
stockholders generally and of each regular or periodic report, and any
registration statement or prospectus filed by ACTV with any securities
exchange or the Securities and Exchange Commission or any successor agency.
5.27 ACTV Certificate of Default. ACTV shall deliver to the
Holders, forthwith upon becoming aware of any default or defaults in the
performance of any covenant, agreement or condition contained in this
Agreement or in any document related hereto (including notice of any event
which with the giving of notice, lapse of time or both would become an
Event of Default), an Officer's Certificate specifying such default or
Event of Default.
5.28 ACTV Additional Information. ACTV shall provide such data
and information as from time to time may reasonably be requested by any
Holder.
5.29 ACTV Other Documents. ACTV will comply with all other
covenants, representations, warranties, terms and obligations of this and
all other documents executed pursuant to the terms hereof or to the other
documents.
5.30 Entertainment Corporate Existence, Etc. Entertainment will
preserve and keep in full force and effect its corporate existence and all
licenses and permits necessary to the proper conduct of its business.
5.31 Entertainment Insurance. Entertainment will maintain
insurance coverage by financially sound and reputable insurers and in such
forms and amounts and against such risks as are customary for corporations
of established reputation engaged in the same or a similar business and
owning and operating similar properties.
5.32 Entertainment Taxes, Claims for Labor and Materials;
Compliance with Laws.
(a) Entertainment will promptly pay and discharge all
lawful taxes, assessments and governmental charges or levies imposed upon
Entertainment or upon or in respect of all or any part of the property or
business of Entertainment, all trade accounts payable in accordance with
usual and customary business terms, and all claims for work, labor or
materials, which if unpaid might become a Lien upon any property of
Entertainment; provided Entertainment shall not be required to pay any such
tax, assessment, charge, levy, account payable or claim if (1) the
validity, applicability or amount thereof is being contested in good faith
by appropriate actions or proceedings which will prevent the forfeiture or
sale of any property of Entertainment or any material interference with the
use thereof by Entertainment, and (2) Entertainment shall set aside on its
books, reserves deemed by it to be adequate with respect thereto.
(b) Entertainment will promptly comply with all laws,
ordinances or governmental rules and regulations to which it is subject the
violation of which could materially and adversely affect the properties,
business, prospects, profits or conditions (financial or otherwise) of
Entertainment.
5.33 Entertainment Maintenance, Etc. Entertainment will
maintain, preserve and keep its properties which are used or useful in the
conduct of its business (whether owned in fee or a leasehold interest) in
good repair and working order and from time to time will make all necessary
repairs, replacements, renewals and additions so that at all times the
efficiency thereof shall be maintained.
5.34 Entertainment Reports. Entertainment shall provide, upon
request of any Holder, promptly upon their becoming available, one copy of
each quarterly and annual financial statement, report, notice or proxy
statement sent by Entertainment to its stockholders generally or used in
the preparation of ACTV's consolidated financial statements and of each
regular or periodic report, and any registration statement or prospectus
filed by Entertainment with any securities exchange or the Securities and
Exchange Commission or any successor agency.
5.35 Entertainment Certificate of Default. Entertainment shall
deliver to the Holders, forthwith upon becoming aware of any default or
defaults in the performance of any covenant, agreement or condition
contained in this Agreement or in any document related hereto (including
notice of any event which with the giving of notice, lapse of time or both
would become an Event of Default), an Officer's Certificate specifying such
default or Event of Default.
5.36 Entertainment Additional Information. Entertainment shall
provide such data and information as from time to time may reasonably be
requested by any Holder.
5.37 Entertainment Other Documents. Entertainment will comply
with all other covenants, representations, warranties, terms and
obligations of this and all other documents executed pursuant to the terms
hereof or to the other documents.
6. EVENTS OF DEFAULT AND REMEDIES THEREFOR.
6.1 Events of Default. An "Event of Default" shall mean the
occurrence or existence of any one or more of the following events, whether
such occurrence is voluntary or involuntary or comes about or is effected
by operation of law or pursuant to or in compliance with any judgment,
decree or order of any court or any order, rule or regulation of any
administrative or governmental authority:
(a) Default shall occur in the payment of interest on any
Note when the same shall have become due and failure to make such payment
shall continue for more than ten (10) days; or
(b) Default shall occur in the required prepayment on any
of the Notes as provided in Section 2.1 and failure to make such payment
shall continue for more than ten (10) days; or
(c) Default shall occur in the payment of the principal of
any Note thereon at the expressed or any accelerated maturity date or at
any date fixed for prepayment and failure to make such payment shall
continue for more than ten (10) days; or
(d) The breach of any term, provision, covenant or
agreement of this Agreement or breach of any term, provision, covenant or
agreement in any of the Loan Documents, including documents or instruments,
guarantees, evidencing, securing or pertaining to the Notes or the failure
of any such documents to remain in full force and effect, which is not
remedied within twenty (20) days (or such other time period as provided in
the Loan Documents with respect to said default) after the earlier of (1)
the day on which a Responsible Officer of either Texas Network or
Entertainment first obtains knowledge of such default, or (2) the day on
which written notice thereof is given to either Texas Network or
Entertainment by the holder of any Note; or
(e) Default or the happening of any event shall occur under
any indenture, agreement or other instrument under which any Indebtedness
for borrowed money (other than the Notes) of Texas Network, Entertainment
or ACTV may be issued, and such default or event shall continue for a
period of time sufficient to permit the acceleration of the maturity of any
Indebtedness for borrowed money of Texas Network, Entertainment or ACTV
outstanding thereunder; or
(f) Any representation or warranty or other statement of
fact made by Texas Network, Entertainment or ACTV herein or in any of the
Loan Documents, or made by Texas Network, Entertainment or ACTV in any
statement or certificate furnished by Texas Network, Entertainment or ACTV
in connection with the consummation of the issuance and delivery of the
Notes or furnished by Texas Network, Entertainment or ACTV pursuant hereto,
is untrue in any material respect as of the date of the issuance or making
thereof; or
(g) Final judgment or judgments for the payment of money
aggregating in excess of $100,000, $100,000 or $200,000 is or are
outstanding against Texas Network, Entertainment or ACTV, respectively,
against any property or assets of either and any one of such judgments has
remained unpaid, unvacated, unbonded or unstayed by appeal or otherwise for
a period of 30 days from the date of its entry; or
(h) A conservator, custodian, liquidator, trustee or
receiver is appointed for Texas Network, Entertainment or ACTV or for the
whole or any substantial part of the property of either and is not
discharged within 60 days after such appointment; or
(i) Texas Network, Entertainment or ACTV becomes insolvent,
is generally not paying its debts as they become due or makes an assignment
for the benefit of creditors, or Texas Network, Entertainment or ACTV
applies for or consents to the appointment of a conservator, custodian,
liquidator, trustee or receiver for Texas Network, Entertainment or ACTV or
for the whole or any substantial part of the property of either; or
(j) Bankruptcy, reorganization, arrangement or insolvency
proceedings, or other proceedings for relief under any bankruptcy or
similar law or laws for the relief of the debtor, are instituted by or
against Texas Network, Entertainment or ACTV and, if instituted against
Texas Network, Entertainment or ACTV, are consented to or are not dismissed
within 60 days after such institution; or
(k) If Texas Network, Entertainment or ACTV ceases to exist
and the obligations hereunder have not been assumed in accordance with this
Agreement; or
(l) Loss, cancellation or termination of any license or
legal right of Texas Network, Entertainment or ACTV to operate their own
businesses, including, the Enhancement License Agreement with Fox Sports
Southwest or the Master Programming License Agreement or any amendment or
modification thereto that would have a material adverse effect on the
financial condition of Texas Network, Entertainment or ACTV; or
(m) Conviction of a felony of any officer or key employee
of Texas Network, Entertainment or ACTV by any governmental authority; or
(n) Adjudication of fraud committed by any officer or key
employee of Texas Network, Entertainment or ACTV.
6.2 Notice to Holders. When any Event of Default described in
the foregoing Section 6.1 has occurred, or if the Holder of any Note or of
any other evidence of Indebtedness for borrowed money of the Company gives
any notice or takes any other action with respect to a claimed default, the
Company agrees to give notice within three Business Days of such event to
all Holders of the Notes then outstanding.
6.3 Acceleration of Maturities. It is understood and agreed
that time is of the essence of the Notes. If an Event of Default shall
have occurred and be continuing, the Agent shall, at the request of the
Majority Holders, and may, with the consent of the Majority Holders,
exercise any one or more of the following rights and remedies, and any
other remedies provided in the Loan Documents, as Majority Holders in their
sole discretion, may deem necessary or appropriate: (i) declare the
principal and all accrued and unpaid interest on the outstanding Notes to
be forthwith due and payable, whereupon presentment, demand, protest,
notice of default, notice of acceleration or of intent to accelerate or
other notice of any kind, all of which the Company hereby expressly waives,
anything contained herein or in the Notes to the contrary notwithstanding,
(ii) reduce any claim to judgment and/or (iii) without notice of default or
demand, pursue and enforce any of the Holders' rights and remedies under
the Loan Documents, or otherwise provided under or pursuant to any
applicable law or agreement; provided, however, that if any Event of
Default specified in Sections 6.1(h), (i) and (j) shall occur, the
principal and all accrued and unpaid interest on the Notes shall thereupon
become due and payable concurrently therewith, without any further action
by Agent or any Holder and without presentment, demand, protest, notice of
default, notice of acceleration or intention to accelerate or other notice
of any kind all of which the Company hereby waives. Upon the Notes
becoming due and payable as a result of any Event of Default as aforesaid,
the Company will forthwith pay to the Agent on behalf of the holders of the
Notes the entire principal and interest accrued on the Notes, determined as
of the date on which the Notes shall so become due and payable. No course
of dealing on the part of any Agent or Holder of the Notes nor any delay or
failure on the part of any Agent or Holder of the Notes to exercise any
right shall operate as a waiver of such right or otherwise prejudice such
Agent's or such Holder's rights, powers and remedies. The Company further
agrees, to the extent permitted by law, to pay to the Agent and to the
Holders of the Notes all costs and expenses incurred by each of them in the
collection of any Notes upon any default hereunder or thereon, including
reasonable compensation to such Agent's or Holder's or Holders' attorneys
for all services rendered in connection therewith.
6.4 Rescission of Acceleration. The provisions of Section 6.3
are subject to the condition that if the principal of and accrued interest
on all or any outstanding Notes have been declared immediately due and
payable by reason of the occurrence of any Event of Default described in
paragraphs (a) through (g), inclusive, of Section 6.1, the holders of more
than 50% in aggregate principal amount of the Notes then outstanding may,
by written instrument filed with the Company, rescind and annul such
declaration and the consequences thereof, provided that at the time such
declaration is annulled and rescinded:
(a) no judgment or decree has been entered for the payment
of any monies due pursuant to the Notes or this Agreement;
(b) all arrears of interest upon all the Notes and all
other sums payable under the Notes and under this Agreement (except any
principal, interest or premium on the Notes which has become due and
payable solely by reason of such declaration under Section 6.3) shall have
been duly paid; and
(c) each and every other Default and Event of Default shall
have been made good, cured or waived pursuant to Section 7.1;
and provided further, that no such rescission and annulment shall extend to
or affect any subsequent Default or Event of Default or impair any right
consequent thereto.
7. AMENDMENTS, WAIVERS AND CONSENTS.
7.1 Consent Required. Any term, covenant, agreement or
condition of this Agreement may, with the consent of the Company, be
amended or compliance therewith may be waived (either generally or in a
particular instance and either retroactively or prospectively), if the
Company shall have obtained the consent in writing of the Holders of more
than 50% in aggregate principal amount of outstanding Notes; provided that
without the written consent of the Holders of all of the Notes then
outstanding, no such amendment or waiver shall be effective (a) which will
change the time of payment (including any prepayment required by Section
2.1) of the principal of or the interest on any Note or change the
principal amount thereof or change the rate of interest thereon, or (b)
which will change the percentage of holders of the Notes required to
consent to any such amendment or waiver of any of the provisions of Section
6 or this Section 7.
7.2 Solicitation of Holders. So long as there are any Notes
outstanding, the Company will not solicit, request or negotiate for or with
respect to any proposed waiver or amendment of any of the provisions of
this Agreement or the Notes unless each Holder of Notes (irrespective of
the amount of Notes then owned by it) shall be informed thereof by the
Company and shall be afforded the opportunity of considering the same and
shall be supplied by the Company with sufficient information to enable it
to make an informed decision with respect thereto. The Company will not,
directly or indirectly, pay or cause to be paid any remuneration, whether
by way of supplemental or additional interest, fee or otherwise, to any
Holder of Notes as consideration for or as an inducement to entering into
by any Holder of Notes of any waiver or amendment of any of the terms and
provisions of this Agreement or the Notes unless such remuneration is
concurrently offered, on the same terms, ratably to the Holders of all
Notes then outstanding. Promptly and in any event within 30 days of the
date of execution and delivery of any such waiver or amendment, the Company
shall provide a true, correct and complete copy thereof to each of the
Holders of the Notes.
7.3 Effect of Amendment or Waiver. Any such amendment or waiver
shall apply equally to all of the Holders of the Notes and shall be binding
upon them, upon each future holder of any Note and upon the Company,
whether or not such Note shall have been marked to indicate such amendment
or waiver. No such amendment or waiver shall extend to or affect any
obligation not expressly amended or waived or impair any right consequent
thereon.
8. INTERPRETATION OF AGREEMENT; DEFINITIONS.
8.1 Definitions. Unless the context otherwise requires, the
terms hereinafter set forth when used herein shall have the following
meanings and the following definitions shall be equally applicable to both
the singular and plural forms of any of the terms herein defined:
"ACTV" shall mean ACTV, Inc., a Delaware corporation.
"Affiliate" shall mean, excluding any Holder, any Person (a)
which directly or indirectly through one or more intermediaries controls,
or is controlled by, or is under common control with, an entity, (b) which
beneficially owns or holds 5% or more of any class of the Voting Stock of
the entity or (c) 10% or more of the Voting Stock (or in the case of a
Person which is not a corporation, 10% or more of the equity interest) of
which is beneficially owned or held by the entity. The term "control"
means the possession, directly or indirectly, of the power to direct or
cause the discretion of the management and policies of a Person, whether
through the ownership of Voting Stock, by contract or otherwise.
"Agent" shall mean the Person designated in Sections 1.9 and 9.13
hereof. The initial Agent shall be Value Partners, Ltd.
"Business Day" shall mean any day other than a Saturday, Sunday
or other day on which banks in New York or Los Angeles are required by law
to close or are customarily closed.
"Capitalized Lease" shall mean any lease the obligation of
Rentals with respect to which is required to be capitalized on a
consolidated balance sheet of the lessee and its subsidiaries in accordance
with GAAP.
"Change of Control" shall mean and include (i) any Acquisition by
any Person or any Persons acting together which would constitute a "group"
for purposes of Section 13(d) of the Exchange Act (a "Group") of more than
50% of the total voting power of all classes of capital stock of an entity
entitled to vote generally in the election of the Board of Directors of
such entity, (ii) the Acquisition by a Person for cash, property or
securities, in one transaction or a series of related transactions within a
12-month period, of more than 50% of the capital stock of an entity
outstanding immediately prior to the commencement of such acquisition, or
(iii) any Acquisition by any Person or Group of the power to elect, appoint
or cause the election or appointment of at least a majority of the members
of the Board of Directors of an entity, through beneficial ownership of the
capital stock or otherwise; provided however, that a transfer of capital
stock of any ACTV majority owned subsidiary, including Texas Network or
Entertainment, to another majority owned subsidiary, by merger or
otherwise, shall not be deemed to be a Change in Control. For the purposes
of this definition, "ACQUISITION" of the power or properties and assets
stated in the preceding sentence means the earlier of (a) the equal
possession thereof and (b) the consummation of any transaction of series of
related transactions which, with the passage of time, will give such Person
or Persons that actual possession thereof.
"Code" shall mean the Internal Revenue Code of 1986, as amended,
and the regulations from time to time promulgated thereunder.
"Company" shall mean collectively The Texas Individualized
Television Network, Inc., a Delaware corporation, and ACTV Entertainment,
Inc., a New York corporation. Whenever the term "Company" is used in this
Agreement referring to an election or option to be made, or which may be
made, by the Company, Entertainment may make such election or option on
behalf of Texas Network and Entertainment. Whenever the term "Company" is
used in this Agreement referring to notice to be given to the Company, it
shall be sufficient to give such notice to Entertainment on behalf of Texas
Network and Entertainment.
"Consolidated Net Income" for any period shall mean the gross
revenues of Texas Network for such period less all expenses and other
proper charges (including taxes on income), determined on a consolidated
basis in accordance with GAAP, but excluding any extraordinary item.
"Consolidated Net Worth" shall mean, as of the date of any
determination thereof the amount of the capital stock accounts (net of
treasury stock, at cost) plus (or minus in a deficit) the surplus in
retained earnings of Texas Network as determined in accordance with GAAP.
"Current Debt" of any Person shall mean as of the date of any
determination thereof (a) all Indebtedness of such Person for borrowed
money and (b) Guaranties by such Person of Current Debt of others.
"Default" shall mean any event or condition the occurrence of
which would, with the lapse of time or the giving of notice, or both,
constitute an Event of Default.
"EBITDA" shall mean Consolidated Net Income plus interest
expense, income taxes, depreciation and amortization for the applicable
period as determined under GAAP consistent with past practices.
"Entertainment" shall mean ACTV Entertainment, Inc., a New York
corporation.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended, and any successor statute of similar import, together
with the regulations thereunder, in each case as in effect from time to
time. References to sections of ERISA shall be construed to also refer to
any successor sections.
"Event of Default" shall have the meaning set forth in Section
6.1.
"FOX Sports Net" consists of ten owned-and-operated regional
sports networks (Arizona, Detroit, Midwest, Northwest, Pittsburgh, Rocky
Mountain, South, Southwest, West, and West2). Fox Sports Net is the United
States sports telecasting arm of the worldwide sports alliance formed
between News Corp., Liberty Media and Tele-Communications, Inc.
"GAAP" shall mean U.S. Generally Accepted Accounting Principles
at the time.
"Guaranties" by a Person shall mean all obligations (other than
endorsements in the ordinary course of business of negotiable instruments
for deposit or collection) of such Person guaranteeing, or in effect
guaranteeing, any Indebtedness, dividend or other obligation of any other
Person (the "primary obligor") in any manner, whether directly or
indirectly, including, without limitation, all obligations incurred through
any agreement, contingent or otherwise, by such Person: (a) to purchase
such Indebtedness or obligation or any property or assets constituting
security therefor, (b) to advance or supply funds (1) for the purchase or
payment of such Indebtedness or obligation, or (2) to maintain working
capital or any balance sheet or income statement condition or otherwise to
advance or make available funds for the purchase or payment of such
Indebtedness or obligation, (c) to lease property or to purchase Securities
or other property or services primarily for the purpose of assuring the
owner of such Indebtedness or obligation of the ability of the primary
obligor to make payment of the Indebtedness or obligation, or (d) otherwise
to assure the owner of the Indebtedness or obligation of the primary
obligor against loss in respect thereof. For the purposes of all
computations made under this Agreement, a Guaranty in respect of any
Indebtedness for borrowed money shall be deemed to be Indebtedness equal to
the principal amount of such Indebtedness for borrowed money which has been
guaranteed, and a Guaranty in respect of any other obligation or liability
or any dividend shall be deemed to be Indebtedness equal to the maximum
aggregate amount of such obligation, liability or dividend.
"Holder" means initially any Purchaser and thereafter any person
who is a holder of any Notes upon transfer of such Notes in accordance with
this Agreement.
"Indebtedness" of any Person shall mean and include all
obligations of such Person which in accordance with GAAP shall be
classified upon a balance sheet of such Person as liabilities of such
Person, and in any event shall include all (a) obligations of such Person
for borrowed money or which have been incurred in connection with the
acquisition of property or assets, including trade debts, (b) obligations
secured by any Lien upon property or assets owned by such Person, even
though such Person has not assumed or become liable for the payment of such
obligations, (c) obligations created or arising under any conditional sale
or other title retention agreement with respect to property acquired by
such Person, notwithstanding the fact that the rights and remedies of the
seller, lender or lessor under such agreement in the event of default are
limited to repossession or sale of property, (d) Capitalized Leases and (e)
Guaranties of obligations of others of the character referred to in this
definition.
"Interest Expense" of Texas Network for any period shall mean all
interest and all amortization of debt discount and expense on any
particular Indebtedness (including, without limitation, payment-in-kind,
zero coupon and other like securities) for which such calculations are
being made. Computations of Interest Expense on a pro forma basis for
Indebtedness having a variable interest rate shall be calculated at the
rate in effect on the date of any determination.
"Investments" shall mean all investments, in cash or by delivery
of property, made directly or indirectly in any Person, whether by
acquisition of shares of capital stock, Indebtedness other obligations or
Securities or by loan, advance, capital contribution or otherwise; provided
that "Investments" shall not mean or include routine purchases of property
to be used or consumed in the ordinary course of business.
" Lien" shall mean any interest in property securing an
obligation owed to, or a claim by, a Person other than the owner of the
property, whether such interest is based on the common law, statues or
contract, and including but not limited to the security interest lien
arising from a mortgage, encumbrance, pledge, conditional sale or trust
receipt or a lease, consignment or bailment for security purpose. The term
"Lien" shall include reservations, exceptions, encroachments, restrictions,
leases and other title exceptions and encumbrances (including, with respect
to stock, stockholder agreement, voting trust agreements, buyback
agreements and all similar arrangements) affecting property. For the
purposes this Agreement, Texas Network shall be deemed to be the owner of
any property which it has acquired or holds subject to a conditional sale
agreement, Capitalized Lease or other arrangement pursuant to which title
to the property has been retained by or vested in some other Person for
security purposes and such retention or vesting shall constitute a Lien.
"Loan Documents" shall mean collectively this Note Purchase
Agreement, the outstanding Notes issued thereunder, and the Security
Agreement and the Guaranty executed in connection therewith.
"Long -Term Lease" shall mean any leases or real or personal
property (other than a Capitalized Lease) having an original term,
including any period for which the lease may be renewed or extended at the
option of the lessor, of more than three years.
"Person" shall mean an individual, partnership, limited liability
company, corporation, trust or unincorporated organization, and a
government or agency or political subdivision thereof.
"Rentals" shall mean and include as of the date of any
determination thereof all fixed payments (including as such payments which
the lessee is obligated to make to the lessor on termination of the lease
or surrender of the property) payable by Texas Network, as lessee or
sublessee under a lease of real or personal property, but shall be
exclusive of any amounts required to be paid by Texas Network (whether or
not designated as rents or additional rents) on account of maintenance,
repairs, insurance, taxes and similar charges. Fixed rents under any so-
called "percentage leases" shall be computed solely on the basis of the
minimum rents, if any, required to be paid by the lessee regardless of
sales volume or gross revenues.
"Responsible Officer" of Texas Network shall mean the Chairman of
the Board, Chief Executive Officer, President or Chief Financial Officer of
Texas Network, and of Entertainment shall mean the Chairman of the Board,
Chief Executive Officer, President or Chief Financial Officer of
Entertainment.
"Security" shall have the same meaning as in Section 2(1) of the
Securities Act of 1933, as amended.
The term "subsidiary" shall mean as to any particular corporation
any corporation or other entity of which more than 50% (by number of votes
) of the Voting Stock shall be beneficially owned, directly or indirectly,
by such parent corporation or other entity.
"Tangible Assets" shall mean as of the date of any determination
thereof the total amount of all assets of Texas Network (less depreciation,
depletion and other properly deductible valuation reserves) after deducting
goodwill, patents, trade names, trade marks, copyrights, franchises,
experimental expense, organization expense, unamortized debt discounts and
expense, deferred assets other than prepaid insurance and prepaid taxes,
the excess of cost of shares acquired over book valve of related assets and
such other assets as are properly classified as "intangible assets" in
accordance with GAAP.
"Texas Network" shall mean The Texas Individualized Television
Network, Inc., a Delaware corporation.
"Voting Stock" shall mean Securities of any class or classes, the
holders of which are ordinarily, in the absence of contingencies, entitled
to elect a majority of the corporate directors or Persons performing
similar functions.
8.2 Accounting Principles. Where the character or amount of any
asset or liability or item of income or expense is required to be
determined or any consolidation or other accounting computation is required
to be made for the purposes of this Agreement, the same shall be done in
accordance with GAAP, to the extent applicable, except where such
principles are inconsistent with the requirements of this Agreement.
8.3 Directly or Indirectly. Where any provision in this
Agreement refers to action to be taken by any Person, or which such Person
is prohibited from taking such action, such provision shall be applicable
whether the action in question is taken directly or indirectly by such
Person.
9. MISCELLANEOUS.
9.1 Registered Notes. The Company shall cause to be kept at its
principal office a register for the registration and transfer of the Notes,
and the Company will register or transfer or cause to be registered or
transferred, as hereinafter provided, any Note issued pursuant to this
Agreement. At any time and from any time to time the holder of any Note
which has been duly registered as hereinabove provided may transfer such
Note upon surrender thereof at the principal office of the Company duly
endorsed or accompanied by a written instrument of transfer duly executed
by the holder of such Note or its attorney duly authorized in writing. The
Person in whose name any Note shall be registered shall be deemed and
treated as the owner and holder thereof for all purpose of this Agreement.
Payment of or on account of the principal, premium, if any, and interest on
any Note shall be made to or upon the written order of such holder.
9.2 Exchange of Notes. At any time and from time to time to
that effect given by the holder of any Note initially delivered or of any
Note substituted therefor pursuant to Section 9.1, 9.2 or 9.3, and upon
surrender of such Note at its office, the Company will deliver in exchange
therefor, as soon as practicable, without expense to such holder, except as
set forth below, a Note for the same aggregate principal amount as the then
unpaid principal amount of the Note so surrendered, dated as of the date to
which interest has been paid on the Note so surrendered or, if such
surrender is prior to the payment of any interest thereon, then dated as of
the date of issue, registered in the name of such Person or Persons as may
be designated by such holder, and otherwise of the same form and tenor as
the Notes so surrendered for exchange. The Company may require the payment
of the sum sufficient to cover any stamp tax or governmental charge imposed
upon such exchange or transfer.
9.3 Loss, Theft, Etc. of Notes. Upon receipt of evidence
satisfactory to the Company of the loss, theft, mutilation or destruction
of any Note, and in the case of any such loss, theft or destruction upon
delivery of a bond of indemnity in such form and amount as shall be
reasonably satisfactory to the Company, or in the event of such mutilation
upon surrender and cancellation of the Note, the Company will make and
deliver without expense to the holder thereof, a new Note, of like tenor,
in lieu of such lost, stolen, destroyed or mutilated Note. If the Purchaser
or any subsequent Holder is the owner of any such lost, stolen or
destroyed Note, then the affidavit of any authorized officer of such owner,
setting forth the fact of loss, theft or distraction and of its ownership
of such Note at the time of such loss, theft or distraction shall be
accepted as satisfactory evidence thereof and no further indemnity shall be
required as a condition to the execution and delivery of a new Note other
than the written agreement of such owner to indemnify the Company.
9.4 Expenses, Stamp Tax Indemnity. Whether or not the
transactions herein contemplated shall be consummated, the Company agrees
to pay directly all of Purchasers' reasonable out-of-pocket costs and
expenses in connection with the preparation, execution and delivery of this
Agreement and the transactions contemplated hereby, including attorneys'
fees and expenses, duplicating and printing costs and charges for shipping
the Notes, adequately insured to Purchasers at Purchasers' homes, offices
or at such other place as Purchasers may designate, and all such expenses
relating to any amendments, waivers or consents pursuant to the provisions
hereof (whether or not the same are actually executed and delivered),
including, without limitation, any amendments, waivers, or consents
resulting from any work-out, renegotiation or restructuring relating to the
performance by the Company of its obligations under the Agreement and the
Notes. The Company further agrees that it will pay and save Purchaser
harmless against any and all liability with respect to stamp and other
taxes, if any, which may be payable or which may be determined to be
payable in connection with the execution and delivery of this Agreement or
the Notes, whether or not any Notes are then outstanding. The Company
agrees to protect and indemnify Purchaser against any liability for any and
all brokerage fees and commissions payable or claimed to be payable to any
Person in connection with the transactions contemplated by this Agreement.
9.5 Powers and Rights Not Waived; Remedies Cumulative. No delay
or failure on the part of the holder of any Note in the exercise of any
power or right shall operate as a waiver thereof; nor shall any single or
partial exercise of the same preclude any other or further exercise
thereof, or the exercise of any other power or right, and the rights and
remedies of the holder of any Note are cumulative to, and are not exclusive
of, any rights or remedies any such holder would otherwise have.
9.6 Notices. All communications provided for hereunder shall be
in writing and, if to Purchaser, delivered or mailed prepaid by registered
or certified mail or overnight air courier, or by facsimile communication,
in each case addressed to Purchaser at Purchaser's address appearing on
Schedule I to this Agreement or such other address as Purchaser or the
subsequent holder of any Note initially issued to Purchaser may designate
to the Company in writing, and if to Texas Network, delivered or mailed by
registered or certified mail or overnight air courier, or by facsimile
communication, to its chief executive offices at The Texas Individualized
Television Network, Inc, 1270 Avenue of the Americas, New York, New York
10020, Attention: David Reese, President, and if to Entertainment,
delivered or mailed by registered or certified mail or overnight air
courier, or by facsimile communication, to its chief executive offices at
ACTV Entertainment, Inc., 1270 Avenue of the Americas, New York, New York
10020, Attention: David Reese, President, and if to ACTV, delivered or
mailed by registered or certified mail or overnight air courier, or by
facsimile communication, to its chief executive offices at ACTV, Inc., 1270
Avenue of the Americas, New York, New York 10020, Attention: William C.
Samuels, Chief Executive Officer, with a copy, in any case, to Gersten,
Savage, Kaplowitz & Fredericks, LLP, 101 East 52nd Street, New York, New
York 10022, Attention: Wesley C. Fredericks Jr., or to such other address
as Texas Network, Entertainment, or ACTV may in writing designate to
Purchaser or to a subsequent holder of the Note initially issued to
Purchaser; provided, however, that a notice to Purchaser by overnight air
courier shall only be effective if delivered to Purchaser at a street
address designated for such purpose in Schedule I, and a notice to
Purchaser by facsimile communication shall only be effective if confirmed
by transmission of a copy thereof by prepaid overnight air courier, or, in
either case, as Purchaser or a subsequent holder of any Note initially
issued to Purchaser may designate to the Company in writing.
9.7 Successors and Assigns. This Agreement shall be binding
upon the Company and its successors and assigns and shall inure to
Purchaser's benefit and to the benefit of Purchaser's successors and
assigns, including each successive holder or holders of any Notes.
9.8 Survival of Covenants and Representations. All covenants,
representations and warranties made by the Company herein and in any
certificates delivered pursuant hereto, whether or not in connection with
the Closing Date, shall survive the closing and the delivery of this
Agreement and the Notes.
9.9 Severability. If any provision of this Agreement is held to
be illegal, invalid or unenforceable under present or future laws effective
during the term hereof, such provision shall be fully severable. This
Agreement shall be construed and enforced as if such illegal, invalid or
unenforceable provision had never comprised a part hereof, and the
remaining provisions hereof shall remain in full force and effect and shall
not be affected by the illegal, invalid or unenforceable provision or by
its severance herefrom. Furthermore, in lieu of such illegal, invalid or
unenforceable provision, there shall be added automatically as a part of
this Agreement a provision as similar in terms to such illegal, invalid or
unenforceable provision as may be possible and be legal, valid and
enforceable to give effect to the intent of the parties.
9.10 Governing Law; Venue. The parties hereto acknowledge that
the transactions contemplated by this Agreement and the Exhibits hereto
bear a reasonable relation to the State of New York in that, inter alia
Entertainment and ACTV have their principal place of business in New York,
Texas Network has a place of business in New York, Entertainment, ACTV and
Texas Network have their chief executive offices in New York, this
Agreement and the Exhibits hereto have been negotiated by and on behalf of
Texas Network, Entertainment and ACTV in the State of New York, that this
Agreement and the Exhibits hereto have been executed by Texas Network,
Entertainment and ACTV exclusively in the State of New York, and that
substantially all of the obligations of Texas Network, Entertainment and
ACTV under this Agreement and Exhibits hereto shall be performed in the
State of New York. As such, the parties hereto agree that the internal
laws of the State of New York shall govern this Agreement and the Exhibits
hereto, including, but not limited to, the interpretation and construction
of this Agreement and the Exhibits hereto, and further, including, but not
limited to, the enforcement of the amount of interest to be charged on the
outstanding principal amount of the Notes and as to all issues related to
usury. The parties hereto agree to submit to the jurisdiction of the state
and federal courts sitting in the City of New York, State of New York.
9.11 Captions. The descriptive headings of the various Sections
or parts of this Agreement are for convenience only and shall not effect
the meaning or construction of any of the provisions hereof.
9.12 Attorneys Fees. In the event of a dispute between the
parties arising under this Agreement or the Notes issued hereunder, the
prevailing party shall be entitled to recover reasonable attorney's fees
and costs incurred.
9.13 The Agent.
(a) Appointment and Authorization. Each Holder hereby
irrevocably appoints and authorizes the Agent to take such action on its
behalf and to exercise such powers under the Loan Documents as are
delegated to Agent by the terms thereof, together with such powers as are
reasonably incidental thereto. With respect to the Notes issued to it,
Agent shall have the same rights and powers under this Agreement as any
other Holder and may exercise the same as though it were not Agent; and the
term "Holder" or "Holders" shall, unless otherwise expressly indicated,
include the Agent in its capacity as a Holder. The Agent and its
affiliates may accept deposits from, lend money to, and generally engage in
any kind of business with, the Company, and any person which may do
business with the Company, all as if Agent were no Agent hereunder and
without any duty to account therefor to Holders.
(b) Note Holders. Agent may treat the payee of any Note as
the holder thereof until written notice of transfer shall have been filed
with it signed by such payee and in form satisfactory to Agent.
(c) Consultation with Counsel. Holders agree that Agent
may consult with legal counsel selected by it and shall not be liable for
any action taken or suffered in good faith by it in accordance with the
advice of such counsel.
(d) Documents. Agent shall not be under a duty to examine
or pass upon the validity, effectiveness, enforceability, genuineness or
value of any of the Loan Documents or any other instrument or document
furnished pursuant thereto or in connection therewith, and Agent shall be
entitled to assume that the same are valid, effective, enforceable and
genuine and what they purport to be.
(e) Responsibility of Agent. It is expressly understood
and agreed that the obligations of Agent under the Loan Documents are only
those expressly set forth in the Loan Documents and that Agent shall be
entitled to assume that no default or Event of Default has occurred and is
continuing, unless Agent has actual knowledge of such fact or has received
notice from a Holder that such Holder considers that a default or an Event
of Default has occurred and is continuing and specifying the nature
thereof. Neither Agent, nor the Majority Holders, nor any of their
directors, officers, general partners, representatives or agents, shall be
liable for any action taken or omitted to be taken by it under or in
connection with the Loan Documents, except for gross negligence or willful
misconduct. Agent shall incur no liability under or in respect of any of
the Loan Documents by acting upon any notice, consent, certificate,
warranty or other paper or instrument believed by it to be genuine or
authentic or to be signed by the proper party or parties, or with respect
to anything which it may do or refrain from doing in the reasonable
exercise of its judgment, or which may seem to it to be necessary or
desirable in the circumstances.
Agent shall not be responsible to the Holders for any recitals,
statements, representations or warranties contained in this Agreement, or
in any certificate or other document referred to or provided for in, or
received by any Holder under, this Agreement, or for the value, validity,
effectiveness, genuiness, enforceability or sufficiency of this Agreement
or any documents referred to or provided for herein or for any failure by
the Company to perform any of its obligations hereunder. Agent may employ
agents and attorneys-in-fact and shall not be answerable, except as to
money or securities received by it or its authorized agents, for the
negligence or misconduct of any such agents or attorneys-in-fact selected
by it in its sole and absolute discretion.
The relationship between Agent and each of the Holders is only that of
agent and principal and has no fiduciary aspects, and Agent's duties
hereunder are acknowledged to be only that of agent and principal and has
no fiduciary aspects, and agent's duties hereunder are acknowledged to be
only ministerial and not involving the exercise of discretion on its part.
Nothing in this Agreement or elsewhere contained shall be construed to
impose on Agent any duties or responsibilities other than those for which
express provision is herein made. In performing its duties and functions
hereunder, Agent does not assume and shall not be deemed to have assumed,
and hereby expressly disclaims, any obligation or responsibility toward or
any relationship of agency or trust with or for the Company. As to any
matters not expressly provided for by this Agreement (including, without
limitation, enforcement or collection of the Notes), Agent shall not be
required to exercise any discretion or take any action but shall be
required to act or to refrain from acting (and shall be fully protected in
so acting or refraining from acting) upon the instructions of Majority
Holders and such instructions shall be binding upon all Holders; provided,
however, that Agent shall not be required to take any action which exposes
Agent to personal liability or which is contrary to this Agreement or
applicable law.
Any protections provided to the Agent under this Section 9.13 with
respect to any Holder shall also apply to the Majority Holder.
(f) Notices of Event of Default. In the event that Agent
shall have acquired actual knowledge of any Event of Default or of any
event which, with the giving of notice or the lapse of time, or both, would
constitute an event of default, Agent shall promptly give notice thereof to
the other Holders.
(g) Independent Investigation. Each of the Holders
severally represents and warrants to Agent that it has made its own
independent investigation and assessment of the financial condition and
affairs of the Company in connection with the making and continuation of
this participation in the loans hereunder and has not relied exclusively on
any information provided to such Holder by Agent in connection herewith,
and each Holder represents, warrants and undertakes to Agent that it shall
continue to make its own independent appraisal of the creditworthiness of
the Company while the Notes are outstanding.
(h) Indemnification. Holders agree to indemnify Agent (to
the extent not reimbursed by the Company), ratably based on the principal
amount of Notes outstanding held by each Holder, from and against any and
all liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses, or disbursements of any kind or nature
whatsoever which may be imposed on, incurred by or asserted against Agent
in any way relating to or arising out of the Loan Documents or any action
taken or omitted by agent under the Loan Documents, provided that no Holder
shall be liable for any portion of such liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or
disbursements resulting from Agent's gross negligence or willful
misconduct.
(i) Enforcement of Claims. All rights of action and
asserting claims under the Loan Documents may be enforced by the Agent
without the possession of any of the Notes or the production thereof on any
trial or other proceedings relative thereto, and any such action or
proceedings instituted by the Agent shall be brought in its own name on
behalf of all Holders, as Agent of an express trust, and any recovery of
judgment, subject to the payment of the expenses, disbursements and
compensation of the Agent, each predecessor Agent and their respective
agents and attorneys, shall be for the ratable benefit of the Holders of
the Notes in respect of which such judgment has been sought. In any
proceedings brought by the Agent (and also any proceedings involving the
interpretation of any provision of this Agreement), the Agent shall be held
to represent all the Holders of the Notes, and it shall not be necessary to
make any Holders of the Notes parties to any such proceedings.
(j) Application of Proceeds. Upon default, unless waived
pursuant to the terms hereof, all sums due to the Holders under the Notes
must be paid to the Agent for disbursement. Any moneys collected by the
Agent pursuant to this Section shall be applied in the following order at
the date or dates fixed by the Agent and, in case of the distribution of
such moneys on account of principal or interest, upon presentation of the
several Notes and stamping (or otherwise noting) thereon the payment, or
issuing Notes in reduced principal amounts in exchange for the presented
Notes if only partially paid, or upon surrender thereof if fully paid:
(1) First, to the payment of all sums due the Agent
actually incurred by the Agent pursuant to the terms hereof, including,
attorneys fees and other costs of collection and enforcement of the Loan
Documents;
(2) Second, to the payment of all sums due any other
Holder other than the Agent actually incurred by such Holder pursuant to
the terms hereof, including, attorneys fees and other costs of collection
and enforcement of the Loan Documents and not otherwise provided under
subparagraph (1) above;
(3) Third, in case the principal of the Notes shall
not have become and be then due and payable, to the payment of interest in
default in the order of the maturity of the installments of such interest,
with interest (to the extent that such interest has been collected by the
Agent) upon the overdue installments of interest at the rate borne by the
Notes, such payments to be made ratably to the Persons entitled thereto,
without discrimination or preference;
(4) Fourth, in case the principal of the Notes shall
have become and shall be then due and payable, to the payment of the whole
amount then owing and unpaid upon all the Notes for principal and interest,
with interest upon the overdue principal, and (to the extent that such
interest has been collected by Agent) upon overdue installments of interest
at the rate borne by the Notes; and in case such moneys shall be
insufficient to pay in full the whole amount so due and unpaid upon the
Notes, then to the payment of such principal and interest, without
preference or priority over interest, or of interest over principal, or of
any installation of interest over any other installment of interest, or of
any Note over any other Note, ratably to the aggregate of such principal
and accrued and unpaid interest; and
(5) Fifth, to the payment of the remainder, if any, to
the Company or any other person lawfully entitled thereto.
(k) Enforcement. In case an Event of Default has occurred,
has not been waived and is continuing, the Agent may in its discretion
proceed to protect and enforce the rights vested in it by this Agreement,
the Security Agreement, the Guaranty, and any and other document related
hereto, including by such appropriate proceedings, judicial or otherwise,
as the Agent shall deem most effectual to protect and enforce any of such
rights, either at law or in equity or in bankruptcy or otherwise, whether
for the specific enforcement of any covenant or agreement contained in this
Agreement or in aid of the exercise of any power granted in this Agreement
or to enforce any other legal or equitable right vested in the Agent by
this Agreement or by law.
(l) Unconditional Rights of Security Holders to Institute
Certain Suits. Notwithstanding any other provision in this Agreement and
any provision of any security, the right of any Holder to receive payment
of the principal of and interest on such Note on or after the respective
due dates expressed in such Note, or to institute suit for the enforcement
of any such payment on or after such respective dates, shall not be
impaired or affected without the consent of such Holder.
(m) Powers and Remedies Cumulative; Delay or Omission Not
Waiver of Default. Except as otherwise provided herein, no right or remedy
herein conferred upon or reserved to the Agent or to the Holders is
intended to be exclusive of any other right or remedy, and every right and
remedy shall, to the extent permitted by law, be cumulative and in addition
to every other right and remedy given hereunder or now or thereafter
existing at law or in equity or otherwise. The assertion or employment of
any right or remedy hereunder, or otherwise, shall not prevent the
concurrent assertion or employment of any other appropriate right or
remedy. No delay or omission of the Agent or of any Holder to exercise any
right or power accruing upon and Event of Default occurring and continuing
as aforesaid shall impair any such right or power or shall be construed to
be a waiver of any such Event of Default or an acquiescence therein; and
every power and remedy given by this Agreement or by law to the Agent or to
the Holders may be exercised from time to time, as often as shall be deemed
expedient, by the Agent or by the Holders.
(n) Enforcing Remedies. Absent gross negligence or willful
misconduct, neither the Agent nor the Majority Holders shall be liable to
the Holders with respect to any action taken or omitted to be taken
relating to the time, method and place of conducting any proceeding for any
remedy available to the Agent, or exercising any trust or power conferred
upon the Majority Holders and the Agent, under this Agreement.
(o) Knowledge of Event of Default. The Agent shall not be
charged by the Holders with knowledge of an Event of Default unless the
Agent obtains written notice of such default.
(p) Expenses. None of the provisions contained in this
Agreement shall require the Agent to expend or risk its own funds or
otherwise incur any financial or other liability in the performance of any
of its duties or in the exercise of any of its rights or powers, if
repayment of such funds or adequate indemnity against such liability is not
assured to the reasonable satisfaction of the Agent.
(q) Authority. The Agent shall not be liable to any Holder
for any other action taken or omitted by it and believed by it to be
authorized or within the discretion, rights or powers conferred upon it by
this Agreement.
(r) Duty of Investigation. Prior to the occurrence of an
Event of Default hereunder and after the curing or waiving of all Events of
Default which may have occurred, the Agent shall not be bound to make any
investigation into the facts or matters stated in any resolution,
certificate, statement, appraisal, bond, debenture, note, coupon, security,
or other paper or document unless requested in writing so to do by the
Holders of not less than a majority in aggregate principal amount of the
Notes then outstanding; provided that if the payment within a reasonable
time to the Agent of the costs, expenses or liabilities likely to be
incurred by it in the making of such investigation is, in the opinion of
the Agent, not reasonably assured to the Agent, the Agent may require
reasonable indemnity from the Holders against such expenses or liabilities
as a condition to proceedings.
(s) Authorized Agents. The Agent may execute any of the
trusts or powers hereunder or perform any duties hereunder either directly
or by or through agents or attorneys, custodians or nominees not regularly
in its employ and the Agent shall not be responsible to any Holder for any
misconduct or negligence on the part of any such agent, attorney, custodian
or nominee appointed with due care by it hereunder.
(t) Benefit of Section 9.13. The agreements contained in
this Section 9.13 are solely for the benefit of Agent and Holders, and are
not for the benefit of, or detriment to, or to be relied upon by, the
Company, or any third party.
9.14 Entire Agreement. This Agreement and the Exhibits and
Schedules hereto constitute the entire agreement and supercedes any other
prior agreements and understandings, both written and oral, between the
parties hereto with respect to the subject matter hereof.
9.15 Continued Effect. Except to the extent amended hereby or in
connection herewith, all terms, provisions, and conditions of the Loan
Documents shall remain enforceable and binding in accordance with their
respective terms.
9.16 Waivers. The failure of any party to act to enforce rights
hereunder shall not be deemed a waiver and shall not preclude enforcement
of any rights hereunder. No waiver of any term or provision of this
Agreement on the part of a party shall be effective for any purpose
whatsoever unless such waiver is in writing and signed by such party.
9.17 Further Assurances. Each party hereto agrees to execute any
and all documents, and to perform such other acts, whether before or after
closing, that may be reasonably necessary or expedient to further the
purposes of this Agreement or to further assure the benefits intended to be
conferred hereby.
9.18 Counterparts. This Agreement may be executed in
counterparts, each executed counterpart constituting an original but all
together only one agreement.
[Signatures on Following Page]
IN WITNESS WHEREOF the parties have executed this Note Purchase
Agreement as of the date set forth on the front hereof.
THE TEXAS INDIVIDUALIZED
TELEVISION NETWORK, INC.
By /S/DAVID REESE
------------------------
David Reese
President
ACTV ENTERTAINMENT, INC.
By /S/DAVID REESE
------------------------
David Reese
President
ACTV, INC.
By /S/WILLIAM C. SAMUELS
------------------------
William C. Samuels
Chief Executive Officer
PURCHASER
VALUE PARTNERS, LTD.
By /S/TIMOTHY G. EWING
------------------------
Timothy G. Ewing,
Managing Partner of Ewing & Partners
2200 Ross Avenue
Suite 4660, West
Dallas, TX 75201
Tel: (214) 999-1900
Fax: (214) 999-1901
Tax ID No: 75-2291866
Amount of Notes
To be Purchased $4,500,000
PURCHASER
RAVICH REVOCABLE TRUST OF 1989
By /S/JESS M. RAVICH
------------------------
Jess M. Ravich, Trustee
c/o Libra Investments, Inc.
11766 Wilshire Blvd., Suite 870
Los Angeles, CA 90025
Tel: (310) 312-5600
Fax: (310) 312-5666
Tax ID No: ###-##-####
Amount of Notes
To be Purchased $480,000
PURCHASER
By /S/RUSSELL RIOPELLE
------------------------
Russell Riopelle
c/o Libra Investments, Inc.
11766 Wilshire Blvd., Suite 870
Los Angeles, CA 90025
Tel: (310) 312-5600
Fax: (310) 312-5666
Tax ID No: ###-##-####
Amount of Notes
To be Purchased $20,000
SCHEDULE I
NAMES AND ADDRESSES AMOUNT OF
OF PURCHASERS: NOTES TO BE PURCHASED
- ------------------- ----------------------
Value Partners, Ltd. $4,500,000
Timothy G. Ewing,
Managing Partner of Ewing & Partners
2200 Ross Avenue
Suite 4660, West
Dallas, TX 75201
Tel: (214) 999-1900
Fax: (214) 999-1901
Copy of Notices to:
Jack R. Bird, Esq.
Bergman, Yates, Stein & Bird, L.L.P.
4514 Travis Street
Travis Walk, Suite 300
Dallas, TX 75205
Tel: (214) 528-2444
Fax: (214) 528-7673
Ravich Revocable Trust of 1989 $ 480,000
Jess M. Ravich, Trustee
c/o Libra Investments, Inc.
11766 Wilshire Blvd., Suite 870
Los Angeles, CA 90025
Tel: (310) 312-5600
Fax: (310) 312-5666
Russell Riopelle $ 20,000
c/o Libra Investments, Inc.
11766 Wilshire Blvd., Suite 870
Los Angeles, CA 90025
Tel: (310) 312-5600
Fax: (310) 312-5666
EXHIBIT 3
---------
NEITHER THIS WARRANT NOR THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE
OR EXCHANGE HEREOF HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED, HYPOTHECATED OR
OTHERWISE DISPOSED OF UNTIL A REGISTRATION STATEMENT WITH RESPECT THERETO
IS DECLARED EFFECTIVE UNDER SUCH ACT OR THE COMPANY RECEIVES AN OPINION OF
COUNSEL TO THE COMPANY THAT AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS
OF THE ACT IS AVAILABLE.
W-1 January 14, 1998
COMMON STOCK PURCHASE WARRANT
THIS CERTIFIES THAT VALUE PARTNERS, LTD. (the "Holder", and
together with the holders of other Warrants issued pursuant to the Note
Purchase Agreement herein described, the "Holders") is entitled to purchase
from The Texas Individualized Television Network, Inc., a Delaware
corporation (the "Company"), such number of shares (the "Shares") of the
Company's common stock, $.01 par value per share (the "Common Stock"),
which shall, at the time of and giving effect to such exercise, equal
15.75% (the "Exercise Percentage") of the fully diluted number of shares of
Common Stock of the Company then outstanding, after giving effect to the
exercise or conversion of all then outstanding options, warrants and other
rights to purchase or acquire shares of the Company's Common Stock, at a
purchase price of $.01 per Share (the "Exercise Price").
This Warrant along with the Warrants granted to certain
investors, pursuant to the Note Purchase Agreement dated January 13, 1998,
grants to the Holders the right to acquire upon exercise of all of the
Warrants, 17.5% of the outstanding Common Stock of the Company at the time
of and giving effect to the exercise of said Warrants on a fully-diluted
basis. Notwithstanding that upon exercise of the Warrants there may be an
increase in the aggregate number of shares of the Company's Common Stock
issuable upon exercise of the Warrants as compared to the aggregate number
of shares of the Company's Common Stock that would be issuable if the
Warrants were exercised as of the date hereof, there shall be no change in
the aggregate amount paid upon exercise of the Warrants.
This Warrant also grants certain alternative rights to the Holder
to exchange this Warrant for common stock of ACTV, Inc., a Delaware
corporation ("ACTV"), of which the Company is an indirect wholly owned
subsidiary, as set forth in Section 12 herein.
1. TERM. The rights represented by this Warrant shall be
exercisable at the Exercise Price, subject to adjustment in accordance with
Section 7 hereof, and during the periods from the date hereof to June 30,
2003 (the "Expiration Date"). After the Expiration Date, the Holder shall
have no right to purchase any Common Stock hereunder.
2. EXERCISE. The rights represented by this Warrant may be
exercised at any time within the period above specified, in whole or in
part, by (i) the written consent of the Majority Holders, as such term is
defined in the Note Purchase Agreement which consent will not be required
after the earlier of (x) the date the Majority Holders exercise any of its
Warrants or (y) the expiration of the ACTV Option under Section 12 herein,
(ii) the surrender of the Warrant (with the exercise form at the end hereof
properly executed) at the principal executive office of the Company (or
such other office or agency of the Company as it may designate by notice in
writing to the Holder at the address of the Holder appearing on the books
of the Company); and (iii) payment to the Company of the Exercise Price
then in effect for the number of shares of Common Stock specified in the
above-mentioned exercise form together with applicable stock transfer
taxes, if any. The Warrant shall be deemed to have been exercised, in
whole or in part to the extent specified, immediately prior to the close of
business on the date the Warrant is surrendered and payment is made in
accordance with the foregoing provisions of this Section 2, and the person
or persons in whose name or names the certificates for Common Stock shall
be issuable upon such exercise shall become the holder or holders of record
of such Common Stock at that time and date. Certificates representing the
Common Stock so purchased shall be delivered to the Holder within a
reasonable time, not exceeding three (3) business days, after the rights
represented by this Warrant shall have been so exercised. In the event
that the Warrant is exercised in respect of less than all of the Shares
specified herein at any time prior to the Expiration Date, a new
certificate evidencing the remaining portion of the Warrant will be issued
by the Company.
3. RESTRICTIONS ON TRANSFER. Except for transfers to
successors of the Holder, to any officer, partner or director of the
Holder, or by will or pursuant to the laws of descent and distribution, the
Warrant shall not be transferred, sold, assigned, or hypothecated, without
(i) the written consent of the Company and ACTV, which consent shall not be
unreasonably withheld, and (ii) compliance with the right of first offer
pursuant to Section 13 hereof. Any assignment shall be effected by the
Holder by (i) executing the form of assignment at the end hereof and (ii)
surrendering the Warrant for cancellation at the office or agency of the
Company referred to in Section 2 hereof, accompanied by a certificate
(signed by an officer of the Holder if the Holder is a corporation),
stating that each transferee is a permitted transferee under this Section
3; whereupon the Company shall issue, in the name or names specified by the
Holder (including the Holder) a new Warrant or Warrants of like tenor and
representing in the aggregate rights to purchase the same number of
securities as are purchasable hereunder.
4. COVENANTS OF THE COMPANY. The Company covenants and agrees:
(a) That all shares of Common Stock which may be purchased
hereunder will, upon issuance against payment of the Purchase Price
therefor, be duly and validly issued, fully paid and nonassessable, and no
personal liability will attach to the holder thereof;
(b) That during the period within which this Warrant may be
exercised, the Company will at all times have authorized and reserved a
sufficient number of shares of its Common Stock to provide for the exercise
of the Warrant, or at the time of exercise shall amend its certificate of
incorporation to authorize and reserve a sufficient number of shares of its
Common Stock to provide for the exercise of the Warrant;
(c) That so long as any of the Warrants or shares of the
Company's Common Stock are held by a Holder, the Company shall provide the
reports to such Holder as provided in Section 5.14 of the Note Purchase
Agreement;
(d) That upon the reasonable request of any Holder, the
Company shall inform the Holder of the number of shares of the Company's
then outstanding Common Stock on a fully diluted basis; and
(e) That upon exercise of the Warrant and the consequent
issuance of the Company's Common Stock to Holder, the Holder shall receive
the entire legal and beneficial interest in such Common Stock free and
clear of any liens, claims and encumbrances.
5. RIGHTS OF STOCKHOLDER. The Warrant shall not entitle the
Holder to any voting rights or other rights as stockholders of the Company
or ACTV, except as provided for in the articles of incorporation and by-
laws of the Company or ACTV.
6. FRACTIONAL SHARES. Neither the Company nor ACTV shall be
required to issue certificates representing fractions of shares of Common
Stock or ACTV Common Stock upon the exercise or exchange of the Warrant,
nor shall the Company or ACTV be required to issue scrip or pay cash in
lieu of fractional interests, it being the intent of the parties that all
fractional interests shall be eliminated by rounding any fraction up to the
nearest whole number of shares of Common Stock or ACTV Common Stock as the
case may be.
7. APPLICABLE LAW. This Agreement shall be governed by and in
accordance with the internal laws of the State of New York.
8. LOST, STOLEN, MUTILATED OR DESTROYED WARRANTS CERTIFICATES.
If the certificate representing this Warrant (the "Warrant Certificate")
shall be mutilated, lost, stolen or destroyed, the Company shall execute
and deliver, in exchange and substitution for and upon cancellation of a
mutilated Warrant Certificate, or in lieu of or in substitution for a lost,
stolen or destroyed Warrant Certificate, a new Certificate for the number
of Warrants represented by the Warrant Certificate so mutilated, lost,
stolen or destroyed but only upon receipt of evidence of such loss, theft
or destruction of such Warrant Certificate, and of the ownership thereof,
and indemnity, if requested, all reasonably satisfactory to the Company.
9. [Reserved]
10. MERGER, CONSOLIDATION OR DISPOSITION OF ASSETS.
(a) In case of any consolidation of the Company with, or
merger of the Company with, or merger of the Company into, or the sale,
transfer or other disposition of all, substantially all or a significant
portion of the assets, property or business of the Company to or into
another corporation, other than a consolidation or merger which does not
result in any reclassification or change of the outstanding Common Stock,
and pursuant to the terms of such merger, consolidation, or disposition of
assets, the corporation formed by such consolidation, or the surviving
corporation of such merger, or the corporation acquiring such assets, then
such corporation shall execute and deliver to the Holder a supplemental
warrant agreement providing (i) that the Holder shall have the right
thereafter, until the Expiration Date, to receive, upon exercise of the
supplemental warrant, the kind and amount of shares of securities and
property receivable upon such consolidation, merger, or disposition of
assets by a holder of the number of shares of Common Stock of the Company
for which such warrant might have been exercised immediately prior to such
consolidation, merger, or other disposition of assets, and (ii) that such
corporation will assume each and every other covenant and condition of this
Warrant and all liabilities and obligations hereunder, including the same
anti-dilution protection as provided hereunder.
(b) For the purposes of this Section 10, "securities and
other property" of the corporation shall include capital stock of such
corporation of any class, evidences of indebtedness, other securities which
are convertible into or exchangeable for any such capital stock, and any
warrants or other rights to subscribe for or purchase any such capital
stock. The above provision of this subsection shall similarly apply to
successive consolidations, mergers or other disposition of assets.
(c) If any merger, consolidation or other disposition of
assets, described in Section 10(a) herein occurs on or after the ACTV
Expiration Date (as defined in Section 12(a) herein), then the Company
shall have the option to convert this Warrant into such number of shares of
Common Stock as if the Holder elected to exercise this Warrant on the date
immediately prior to the date of closing such merger, consolidation or
disposition of assets. The Company shall exercise this option by giving
notice to the Holder in writing at the address of the Holder appearing on
the books of the Company at least ten (10) days prior to such closing.
11. PUT OPTION.
(a) TERM. From January 14, 2003, (five years from the date
of this Warrant), until April 14, 2003 (three months thereafter) (the "Put
Option Period"), if (i) the Company's Common Stock is not registered under
Section 12 of the Securities Exchange Act of 1934, as amended, and (ii) the
Holder has not exercised all of this Warrant under Section 1 herein and/or
under Section 12 herein, then, upon the exercise of this Put Option in
accordance with Section 11(b) herein, the Holder shall have the right to
put the unexercised portion of this Warrant to the Company for the Put
Option Amount, as determined under Section 11(c) herein. Upon the Holder's
exercise of the Put Option, the Company shall be under no obligations to
the Holder under this Warrant except as provided in this Section 11.
(b) EXERCISE. At any time within the Put Option Period,
the Holder may exercise, with the consent of the Holders of the majority of
the then outstanding Warrants, the Put Option by the surrender of the
Warrant (with the Exercise Form at the end hereof properly executed) at the
principal executive office of the Company (or such other office or agency
of the Company as it may designate by notice in writing to the Holder at
the address of the Holder appearing on the books of the Company). The Put
Option shall be deemed to have been exercised immediately prior to the
close of business on the date the Exercise Form and Warrant is received by
the Company in accordance with the foregoing provisions of this Section
11(b) ("Put Option Date"). The Company shall pay the Put Option Amount to
the Holder within six (6) calendar months of the final determination of the
Put Option Amount as defined in Section 11(c) herein.
(c) PUT OPTION AMOUNT. The Put Option Amount to be paid to
the Holder upon exercise of the Put Option shall be equal to the greater
of:
(i) (A) six and one-half (6.5), multiplied by (B) the
total of (I) the consolidated net income of the Company and its wholly-
owned subsidiaries, if any, plus all interest, income taxes, depreciation,
and amortization, as determined under U.S. Generally Accepted Accounting
Principles consistently applied with the Company's past practices ("GAAP")
for the last twelve (12) full months immediately prior to the Put Option
Date; plus (II) the Company's cash on hand as of the Put Option Date, as
determined under GAAP; minus (III) the Company's liabilities as of the Put
Option Date, as determined under GAAP; multiplied by (C) the Exercise
Percentage as in effect on the Put Option Date; or
(ii) the fair market value of the Warrants determined
by an appraisal which shall be conducted by an appraiser (the "Appraiser")
jointly appointed by the Company and the Holders of the majority of the
outstanding Warrants and paid by the Company. If the Company and the
Holders of the majority of the outstanding Warrants do not agree on an
Appraiser, then the appraisal shall be conducted by two appraisers (the
"Appraisers"), one of whom shall be appointed and paid by the Company and
one shall be appointed and paid by the Holders of the outstanding Warrants
in proportion to the number of Warrants to be repurchased pursuant to the
Put Option. Such Appraisers shall be experienced in making appraisals of
company's engaged in the Company's business. The Appraisers shall attempt
to mutually agree as to such fair market value. If they are unable to
mutually agree within thirty (30) days after their appointment, the Company
and the Holders of the majority of the outstanding Warrants shall select a
third appraiser. Upon determination of an appraisal by the third
Appraiser, the Appraisers shall immediately submit in writing to the
Company and the Holders their respective appraisals of the fair market
value for the Warrants. The average of the two closest appraisals shall be
designated the fair market value, which determination shall be final and
binding upon the parties. The cost of obtaining such third appraisal shall
be divided equally between the Company and the Holders of the outstanding
Warrants in proportion to the number of Warrants to be repurchased pursuant
to the Put Option.
12. ACTV OPTION.
(a) EXCHANGE OF ACTV STOCK. This Warrant is one of the
warrants issued in connection with the sale of 13% Senior Secured Notes by
the Company pursuant to Note Purchase Agreements, the closing of which
occurred on January 14, 1998 ("Warrants"). Until July 14, 1999 (the "ACTV
Expiration Date"), eighteen (18) months from the date of this Warrant,
provided no part of any of the Warrants have been exercised to purchase the
Company's Common Stock, the Holders of the Warrants shall be entitled to
receive from ACTV upon the exchange of all of the Warrants, such number of
shares (the "ACTV Shares") of ACTV's common stock, $.10 par value per share
(the "ACTV Common Stock"), at the time of and giving effect to such
exchange, equal to 5.5% of the fully diluted number of shares of ACTV
Common Stock outstanding ("ACTV Option"), after giving effect to the
exercise or conversion of all then outstanding options, warrants and other
rights to purchase or acquire shares of ACTV Common Stock, (including, but
not limited to, the then outstanding ACTV Holdings, Inc. exchangeable
preferred stock) pro rated among each Holder in accordance with each
Holder's right to exercise the warrant into a percentage of the Company's
Common Stock divided by 17.5%. After the ACTV Expiration Date, the Holder
shall have no right to acquire any ACTV Common Stock hereunder.
Notwithstanding that upon exchange of the Warrants there may be an increase
in the aggregate number of shares of ACTV Common Stock issuable upon
exchange of the Warrants as compared to the aggregate number of shares of
ACTV Common Stock that would be issuable if the Warrants are exchanged as
of the date hereof, the aggregate consideration upon exchange of the
Warrants shall be the same.
(b) METHOD OF EXCHANGE. The ACTV Option may be exercised
prior to the ACTV Expiration Date, in its entirety, by the surrender of the
Warrants held by the majority of the Holders of the Warrants, with the ACTV
Option Exchange Form(s) at the end hereof properly executed by the
tendering Holders, at the principal executive office of ACTV, or such other
office or agency of ACTV as it may designate by notice in writing to the
Holders, with a copy of such executed Exchange Form to the Company as
provided in Section 2 hereof and ACTV shall notify the other Holders of
such exchange. The ACTV Option shall be deemed to have been exercised, in
whole, immediately prior to the close of business on the date the Warrants
are surrendered in accordance with the foregoing provisions of this Section
12(b), and the person or persons in whose name or names the certificates
for ACTV Common Stock shall be issuable upon such exercise shall become the
Holder or holders of record of such ACTV Common Stock at that time and
date. Nontendering Holders of the Warrants shall be deemed to have
exchanged their Warrants and shall be issued certificates of ACTV Common
Stock to the persons in whose names such Warrants were registered, and each
holder of the Warrants shall no longer have any rights with respect to any
provision of the Warrants. Certificates representing the ACTV Common Stock
so purchased shall be delivered within a reasonable time, not exceeding
three (3) business days, after the rights represented by the ACTV Option
shall have been so exercised. Except for the surrender of the Warrants by
the tendering Holders and the deemed surrender of the Warrants as to
nontendering Holders, no additional consideration shall be required to
exchange the Warrants for ACTV Common Stock.
(c) ACTV COVENANTS. ACTV covenants and agrees
(i) That all ACTV Shares which may be acquired upon
exchange of the Warrants will, upon issuance against delivery of the
Warrants as provided above, be duly and validly issued, fully paid and
nonassessable, and no personal liability will attach to the holder thereof;
(ii) That during the period within which the ACTV
Option may be exercised, ACTV will at all times have authorized and
reserved a sufficient number of shares of ACTV Common Stock to provide for
the exercise of the ACTV Option;
(iii) That so long as any of the Warrants are held
by a Holder, ACTV shall provide the reports to such Holder as provided in
Section 5.25 of the Note Purchase Agreement;
(iv) That upon the reasonable request of any Holder,
ACTV shall inform the Holder of the number of shares of ACTV's outstanding
Common Stock on a fully diluted basis; and
(v) That upon exchange of the Warrant and the
consequent issuance of ACTV's Common Stock to Holder, the Holder shall
receive the entire legal and beneficial interest in such Common Stock free
and clear of any liens, claims and encumbrances.
(d) MERGER, CONSOLIDATION OR DISPOSITION OF ASSETS. In
case of any consolidation of ACTV with, or merger of ACTV with, or merger
of ACTV into, or the sale, transfer or other disposition of all,
substantially all or a significant portion of the assets, property or
business of ACTV to or into another corporation, other than a consolidation
or merger which does not result in any reclassification or change of the
outstanding ACTV Common Stock, and pursuant to the terms of such merger,
consolidation, or disposition of assets, the corporation formed by such
consolidation, or the surviving corporation of such merger, or the
corporation acquiring such assets, then such corporation shall execute and
deliver to the Holder a supplemental warrant agreement providing (i) that
the Holder shall have the right thereafter, until the ACTV Expiration Date,
to receive, upon exercise of the supplemental warrant, the kind and amount
of shares of securities and property receivable upon such consolidation,
merger, or disposition of assets by a holder of the number of shares of
ACTV Common Stock for which such warrant might have been exercised
immediately prior to such consolidation, merger, or other disposition of
assets, and (ii) that such corporation will assume each and every other
covenant and condition of this Warrant and all liabilities and obligations
hereunder, including the same anti-dilution protection as provided
hereunder. The term "securities and other property" of the corporation
shall include capital stock of such corporation of any class, evidences of
indebtedness, other securities which are convertible into or exchangeable
for any such capital stock, and any warrants or other rights to subscribe
for or purchase any such capital stock. The above provision of this
subsection shall similarly apply to successive consolidations, mergers or
other disposition of assets.
13. RIGHT OF FIRST OFFER. In the event the Holder desires to
sell any or all of the Warrant or the shares of the Company's Common Stock
issuable upon exercise of the Warrant, the Holder hereby grants, and shall
give notice to, ACTV of the right of ACTV or a subsidiary of ACTV
designated by ACTV to acquire such securities, which notice shall include
the terms and conditions as offered by the Holder, which offer shall remain
irrevocable for thirty (30) days from the date of notice. If ACTV or the
subsidiary designated by ACTV accepts the offer, the Holder shall be
obligated to sell the securities on such terms and conditions to ACTV or
the subsidiary designated by ACTV. ACTV or the subsidiary designated by
ACTV shall have sixty (60) days to close the purchase of the securities.
If ACTV or the subsidiary designated by ACTV does not accept the offer, the
Holder may sell to a third person, subject to such other restrictions as
are imposed by federal and state securities laws, this Warrant and the Note
Purchase Agreement, provided, however, that the Holder shall be obligated
to make a subsequent offer(s) to ACTV if, and each time, the Holder changes
the terms and conditions of the offer which would be more favorable to the
purchaser. This Section 13 shall not apply to the sale of ACTV Common
Stock.
14. MERGER. This Warrant constitutes the entire understanding
and supercedes any other prior agreements and understandings, both written
and oral, between the Holder, the Company and ACTV with respect to the
subject matter hereof.
15. AMENDMENT. This Warrant may only be amended with the
written consent by the Company, ACTV and all of the Holders.
[Signatures on following page]
IN WITNESS WHEREOF, The Texas Individualized Television Network,
Inc. and ACTV, Inc. have each caused this Warrant to be signed by their
duly authorized officers, and this Warrant to be dated as of the date first
above written.
THE TEXAS INDIVIDUALIZED TELEVISION
NETWORK, INC.
/S/DAVID REESE
------------------------------------
David Reese
President
ACTV, INC.
/S/WILLIAM C. SAMUELS
------------------------------------
William C. Samuels
Chief Executive Officer
EXERCISE FORM
(To be signed only upon exercise of Warrant or Put Option)
- ------- The undersigned, the holder of the foregoing Warrant, hereby
irrevocably elects to exercise the purchase rights represented by
such Warrant for, and to purchase thereunder, ______________
shares of Common Stock of The Texas Individualized Televison
Network, Inc., par value $.01 per share, and herewith makes
payment of $_____________________ therefor, and requests that the
certificates for shares of Common Stock be issued in the name(s)
of, and delivered to _____________________, whose address(es) is
(are):
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
- ------- The undersigned, the holder of the foregoing Warrant, hereby
irrevocably elects to exercise the Put Option in Section 11 of
such Warrant and requests that such cash consideration be
delivered to _____________________, whose address(es) is (are):
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
Dated:
--------------------
--------------------------------------------
Signature
--------------------------------------------
(Print name under signature)
(Signature must conform in all respects to the
name of holder as specified on the face of the
Warrant).
--------------------------------------------
(Insert Social Security or other identifying
number of Holder)
ACTV OPTION EXCHANGE FORM
(To be signed only upon exercise of the ACTV Option)
The undersigned, the holder of the foregoing Warrant, hereby
irrevocably elects to exchange the purchase rights represented by such
Warrant for, and to acquire thereunder, ______________ shares of Common
Stock of ACTV, Inc., par value $.10 per share, and requests that the
certificates for shares of ACTV Common Stock be issued in the name(s) of,
and delivered to _____________________, whose address(es) is (are):
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
Dated: , 19
--------------- ------
--------------------------------------------
Signature
--------------------------------------------
(Print name under signature)
(Signature must conform in all respects to the
name of holder as specified on the face of the
Warrant).
--------------------------------------------
(Insert Social Security or other identifying
number of Holder)
FORM OF ASSIGNMENT
(To be executed by the registered holder if such holder
desires to transfer the Warrant)
FOR VALUE RECEIVED _____________________________________________
hereby sells, assigns and transfers unto _________________________________
(Please print name and address of transferee)
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
this Warrant, together with all right, title and interest therein, and does
hereby irrevocably constitute and appoint ________________________________
Attorney, to transfer the within Warrant on the books of THE TEXAS
INDIVIDUALIZED TELEVISION NETWORK, INC., with full power of substitution.
Dated:
---------------------
--------------------------------------------
Signature
--------------------------------------------
(Print name under signature)
(Signature must conform in all respects to the
name of holder as specified on the face of the
Warrant).
--------------------------------------------
(Insert Social Security or other identifying
number of Holder)
