SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-KSB
[x] ANNUAL REPORT UNDER SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended October 31, 1996
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ____________
Commission File No.: 0-19997
UC TELEVISION NETWORK CORP.
(FORMERLY LASER VIDEO NETWORK, INC.)
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(Name of small business issuer in its charter)
Delaware 13-3557317
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
645 Fifth Avenue, East Wing, New York, New York 10022
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (212) 888-0617
Securities registered under Section 12(b) of the Exchange Act:
Title of Classes
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Common Stock, $.001 par value
Class A Redeemable Warrants
Class B Redeemable Warrants
Units (consisting of two shares of
Common Stock, one Class A Warrant
and one Class B Warrant)
Securities registered under Section 12(g) of the Exchange Act: NONE
<PAGE>
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the Registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes [x] No [ ]
Check if disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this Form, and no disclosure will be
contained, to the best of Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ ]
Issuer's revenues for its most recent fiscal year: $2,016,152
The aggregate market value of the voting stock held by non-affiliates of
the Registrant as of January 31, 1997 (computed by reference to the average bid
and asked prices of such stock on January 31, 1997) was approximately
$6,067,405.
There were 10,984,857 shares of Common Stock outstanding at January 31,
1997.
Transitional Small Business Disclosure Format (check one):
Yes [ ] No [X]
DOCUMENTS INCORPORATED BY REFERENCE: Certain portions of Registrant's
definitive proxy statement with respect to its 1997 Annual Meeting of
Stockholders to be filed, pursuant to Regulation 14A under the Securities
Exchange Act of 1934 (the "Exchange Act"), with the Commission within 120 days
of the close of Registrant's fiscal year ended October 31, 1996, are
incorporated by reference into Part III of this report.
<PAGE>
PART I
ITEM 1. DESCRIPTION OF BUSINESS.
General
UC Television Network Corp., a Delaware corporation formerly known as Laser
Video Network, Inc. (the "Company"), commenced operations in January 1991. The
Company is a broadcasting company which owns and operates the UC Television
Network ("UCTN"), a proprietary interactive commercial television network
operating on college and university campuses, through single-channel television
systems ("Systems") placed free of charge primarily in campus dining facilities
and student unions. Substantially all of the Company's revenues are derived from
advertising displayed on UCTN. At January 27, 1997 UCTN was installed or
contracted for installtaion at approximately 226 locations at various colleges
and universities throughout the United States. The Company believes UCTN
currently reaches a viewership of approximately 587,000 daily impressions.
The Company believes UCTN to be the largest college and university private
commercial television network in the United States. UCTN is installed in many of
the nation's largest colleges and universities, including among others: Penn
State University, Michigan State University, Arizona State University, UCLA,
Florida State University, Syracuse University, Georgia Tech University, North
Carolina State University, University of Missouri, University of Kentucky,
University of Alabama, Michigan State University and Rutgers University. There
are approximately 3,600 colleges and universities in the United States. The
Company's goal is to place UCTN in a significant number of these institutions.
UCTN, which currently airs primarily music videos, is viewed over 25-inch
television monitors strategically placed throughout the installation site to
provide the highest degree of exposure. Each site is equipped with an
interactive touch screen unit and from three to ten monitors. The System allows
students to select from a wide variety of music videos or to view a pre-set
format. In order to enhance the flexibility and program diversification of UCTN
and to maintain its state-of-the-art appeal, the Company has replaced its
existing CD-ROM technology by converting each System to receive programming
directly through satellite transmission. Satellite delivery of programming is
expected to commence in February 1997. Management believes satellite delivery
will likely result in significant cost savings to the Company and will
facilitate expanded programming opportunities, such as frequent updates of news,
sports and campus current events, in addition to music videos. The Company has
entered into an agreement with Turner Private Networks, Inc. to provide news and
sports programming on UCTN.
<PAGE>
The Company derives its revenues from advertisers displaying their
commercials on UCTN, with the Company presently allotting eight minutes of
advertising available per hour. The Company believes UCTN is well-positioned to
offer advertisers an inexpensive and effective way to reach a highly desirable
audience: 18-25 year old students, with significant disposable income, a
demographic group with proven attractiveness to national advertisers. Each
advertiser's cost per thousand viewers ("CPM") on UCTN is substantially below
that of national advertising in competing media, such as radio, television, MTV,
campus newspapers or campus billboards. National advertisers on UCTN during
fiscal 1996 included Burger King, Coca Cola, Discover Card, Gatorade,
MasterCard, UPS, MGM, Virgin Records, RCA Records, Winter Harvest Records, Fine
Line Pictures, New Line Cinema, Pontiac, Reebok, Twentieth Century Fox,
Universal Pictures, Visa and Warner Brothers. Generally, the Company's mix of
advertisers on CTN changes from time to time. The Company's revenues have grown
from $705,413 in fiscal 1994, to $1,621,465 in fiscal 1995 and to $2,016,152 in
fiscal 1996.
The Company's overall strategy is to expand the number of institutions in
which UCTN is being offered and to expand the number of advertisers. As
additional institutions are added, the Company expects to be able to attract
additional advertisers as well as be able to increase its CPM rate, which is
currently significantly below that of other competing media. If the Company
successfully meets these objectives, advertising revenues should grow
significantly and enhance profitability. The Company also continues to explore
other avenues where its interactive technology can be used (i.e., on-line sales,
Internet sales, couponing and the sale of market research information collected
by the touch screen).
The UC Television Network System
UCTN is a private commercial television network airing the Company's
programming on university and college campuses located throughout the United
States. UCTN is installed in campus public areas such as dining facilities and
student union areas and is designed to serve as background entertainment. The
System is a single channel system offering only UCTN programming, which
currently consists primarily of music videos. UCTN offers an advanced
interactive marketing system which the Company believes is the first "out of
home" network featuring "video on demand." Currently, each UCTN location is
equipped with an interactive touch-screen monitor, a nine gigabyte hard drive, a
Pentium class computer, a phone modem, and high performance speakers. In
addition, three to ten dedicated 25-inch television monitors are strategically
placed throughout the location to maximize the degree of exposure.
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In order to more effectively expand its programming to include national
news, local campus news, sports, and comedy on a current basis, the Company has
determined to switch to the use of satellite transmission, which the Company
anticipates will commence in February 1997. The Company is in the process of
completing the conversion of its entire network to a Hughes Direct PC
satellite-delivered system. Management believes that a satellite-delivery system
offers greater programming flexibility and allows for more specialized, regional
advertising campaigns than its CD-ROM system.
Markets
There are approximately 3,600 colleges and universities in the United
States. The Company's goal is to place UCTN in a significant number of these
institutions. As of January 27, 1997, UCTN was installed or contracted for
installation in 226 locations throughout the country. Included among the
institutions equipped with UCTN are Penn State University, Michigan State
University, Arizona State University, UCLA, Florida State University, Syracuse
University, Georgia Tech University, North Carolina State University, University
of Missouri, University of Kentucky, University of Alabama, Michigan State
University and Rutgers University.
The Company markets its Systems principally to colleges and universities
and to local operators responsible for dining facilities at targeted college or
university campuses. The Company has one full-time employee who is responsible
for marketing the Company's Systems to such institutions and local operators.
Advertising Revenues
The Company derives its revenues from payments by advertisers for spots
played on UCTN. The Company believes advertisers find the network's programming
current and appealing, the campus dining hall setting with its captive audience
desirable, and the System's interactive capability modern and innovative.
UCTN is currently designed to offer sixteen 30-second commercials every
hour. The Company expects that commercials will run on each System for
approximately eight minutes per hour, and the Company is presently charging
$55,000 for a network spot for a 30-second commercial which will run ten times a
day. In both fiscal 1996 and 1995, approximately 33% of the network spots were
sold.
The Company's overall strategy contemplates three principal methods for
increasing its advertising revenue, by(i) increasing audience size by adding
institutions, (ii) increasing the number of advertisers and advertising spots
sold to maximize the use of time
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available to be sold, (iii) increasing the CPM rate, which is currently well
below that of competing media.
Advertisers during fiscal 1996 included Burger King, Coca Cola, Discover
Card, Gatorade, MasterCard, UPS, MGM, Virgin Records, RCA Records, Winter
Harvest Records, Fine Line Pictures, New Line Cinema, Pontiac, Reebok, Twentieth
Century Fox, Universal Pictures, Visa and Warner Brothers. VISA, Warner Brothers
and Coca Cola accounted for 22%, 15% and 10%, respectively, of the Company's
sales for fiscal 1996. No other advertiser represented more than 10% of the
Company's sales for fiscal 1996.
Programming Content
UCTN airs short-form entertainment, currently consisting primarily of music
videos. The Company obtains music videos pursuant to written or oral licensing
agreements with a number of the major music company labels which are represented
by Sony, Warner/Electric/Atlantic, EMI, Polygram, MCA and BMG. Each of these
agreements permits the Company to use the music videos for a modest annual fee,
which fee, the Company believes, is not material to either the Company or the
music companies.
On November 5, 1996, the Company entered into a three-year agreement with
Turner Private Networks, Inc. to provide news and sports programming on UCTN
through December 31, 1999 at an aggregate cost of $890,095.
Upgrading, Installation and Maintenance
The Company estimates that it will cost $13,000 to install a System using
the Company's new satellite transmission technology in each new college or
university location. The Company estimates that it will cost approximately
$10,000 per month, plus $10 per location per month, for the Company to transmit
30 minutes of new programming per day (including uplink and downloading).
Maintenance is currently provided by Wang Laboratories, Inc. at an
aggregate cost of approximately $5,000 per month.
Each System is installed, without charge to the institution, at designated
locations agreed upon with the Company. Most of the installations are in the
eastern part of the United States due to the significant number of colleges and
universities located in such geographic area. The Company bears the costs of
normal maintenance and replacement parts.
The Company has obtained liability insurance which generally covers losses
from fire, theft, vandalism and certain other events for each installed System.
The Company pays a premium on a per machine basis and intends to expand coverage
to newly produced
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<PAGE>
machines each quarter. There can be no assurance that such insurance can be
maintained at reasonable rates, or at all. Without such insurance, significant
damage to a number of Systems could adversely affect the Company and its
financial condition. To date, the Company has filed only one claim for losses.
Of the 226 Systems contracted for as of January 27, 1997, 212 are presently
installed throughout the United States at college and university campuses. The
remaining Systems are expected to be installed by the start of the fall 1997
semester. System installation generally takes approximately 12 weeks. The
Company is in the process of negotiating with independent third party suppliers
who shall manufacture the equipment housing and assemble the Systems for
approximately $1,200 per System. The Company believes that there are sufficient
number of suppliers available.
The components for each System are generally standard, and the Company
believes, based on its past experience and discussions regarding proposals with
various component part manufacturers and suppliers, that such components will be
available from at least a few different sources. Based on the stated estimated
mean time to failure provided by component part manufacturers and suppliers, the
expected useful life for each System is approximately five years. The warranties
for such components are generally for 12 months.
Competition
UCTN competes for advertisers with many other forms of advertising
targeting the 18-25 year-old market. These competing forms of advertising media
include television, radio, print, direct mail and billboard. The Company is not
aware of any other national television network specifically directed at college
students. However, there is no assurance that someone with greater resources
will not enter into the market, particularly because there are few proprietary
characteristics with the business. The Company believes it can successfully
compete against other forms of media because it offers an effective means of
reaching a difficult to reach targeted audience at a low cost.
The Company believes that the time required to secure each location is
significant. The Company has already invested a great amount of time in securing
its present locations.
Employees
As of January 27, 1997, the Company employed 14 full-time salaried
personnel, consisting of three management persons, one person responsible for
placement of Systems, three operations persons, five administrative persons and
two advertising salesperson. Although the Company expects to continue to hire
employees to conduct and expand its operations, the Company also
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<PAGE>
expects to use independent contractors to perform certain of the services
required in connection with the production, installation and maintenance of the
Systems. The responsibilities of the Company's operations and administrative
personnel include conducting marketing and promotional activities, managing
campus relations, and performing certain administrative and financial functions.
Five of the Company's employees have employment agreements with the Company. The
Company believes that its relationship with its employees is satisfactory.
Governmental Regulation
Since UCTN is a private network and is not a direct live broadcast, the
Company is not restricted by regulations of the Federal Communications
Commission, network standards and practices or traditional format length and
content restraints. The Company believes that the manner in which it presently
conducts its business operations, and intends to conduct its business
operations, including its licensing arrangements with record companies and
agreements with location owners, is and will be in material compliance with all
applicable laws.
Proprietary Information
The Company believes that certain of its rights to, and uses of, its System
may be protectable under applicable patent, copyright and proprietary
information laws. There can be no assurance as to such fact or that others may
not independently develop the same or similar technology on which the Company's
System is based and thereafter directly compete with the Company. The Company
intends to pursue copyright and trademark registrations as
necessary. No assurance can be given, however, that its obtaining such coverage,
even if it can do so, will afford the Company meaningful protection of any of
its proprietary rights.
ITEM 2. DESCRIPTION OF PROPERTY.
The Company presently has facilities in three locations: New York City,
Boston and Medford, Massachusetts. The New York City facility is the Company's
principal executive office out of which the Company conducts its marketing
efforts, performs certain financial and administrative functions and develops
and maintains campus and sponsor relations. The Boston office is primarily
responsible for the Company's engineering and product development efforts. The
Medford, Massachusetts facility is primarily used for warehousing the Systems
and related spare parts.
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<PAGE>
The Company currently leases approximately 2,200 square feet of space for
its principal executive office in New York City and approximately 1,000 square
feet of space for its office in Boston. The lease of the space in New York City
terminates in March 1997. If this lease is not renewed, the Company does not
anticipate any problems in finding suitable alternative space. The lease in
Boston terminates in May 1997. In addition, the Company leases, on a
month-to-month basis, 3,132 square feet of space for its warehouse facilities in
Medford, Massachusetts. The aggregate monthly rental for these leased offices
and facilities is currently approximately $12,435, and the Company's management
believes that these facilities are adequate for its intended activities in the
foreseeable future.
ITEM 3. LEGAL PROCEEDINGS.
The Company is not a party, nor to its knowledge threatened to be made a
party, to any litigation or governmental proceeding which its management
believes would, if adversely determined, result in any judgments or fines that
would have a material adverse effect on the Company or its financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
During the fourth quarter of fiscal year 1996, no matter was submitted to a
vote of securityholders of the Company.
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<PAGE>
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS.
The Company's Common Stock is traded and quoted under the symbol UCTN on
The Nasdaq Stock Market's SmallCap Market ("Nasdaq"). The Company's Class A
Warrants are also traded and quoted on Nasdaq under the symbol UCTNW. Prior to
delisting, the Company's IPO Units and Class B Warrants were traded and quoted
on Nasdaq under the symbols LVNIU and UCTNZ, respectively. Each IPO Unit
consists of two shares of Common Stock, one Class A Warrant and one Class B
Warrant. Each of the 144,979 outstanding Class A Warrants entitles the holder
thereof to purchase 1.3 shares of Common Stock and one Class B Warrant for an
aggregate price of $4.60 (subject to adjustment) until June 10, 1997. Each of
the 2,270,021 outstanding Class B Warrants entitles the holder thereof to
purchase 1.3 shares of Common Stock for $6.91 (subject to adjustment) until June
10, 1997. The following table sets forth the high and low sales prices for the
Common Stock, Class A Warrants, Class B Warrants and IPO Units, as quoted on
Nasdaq, for the periods indicated. Quotations are interdealer prices without
retail markup, markdown or commission, and may not necessarily represent actual
transactions.
<TABLE>
<CAPTION>
Common Stock Class A Warrants Class B Warrants/1/ IPO Units/2/
------------ ---------------- ----------------- ----------
High Low High Low High Low High Low
---- --- ---- --- ---- --- ---- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Quarter ended
January 31, 1995 5-1/4 1-7/8 3-1/4 15/16 1-3/8 7/32 16 4
Quarter ended
April 30, 1995 5-5/16 2-9/16 3-3/4 2-5/8 2-1/2 15/16 17 8
Quarter ended
July 31, 1995 4-1/4 1-11/16 4 1-5/8 3 1-3/8 16 4
Quarter ended
October 31, 1995 2-7/16 31/32 2-1/4 7/8 1-3/8 7/32 6 3-1/2
Quarter ended
January 31, 1996 2-3/32 15/16 1-1/2 3/4 9/16 1/4
Quarter ended
April 30, 1996 1-1/2 15/16 1 3/4 9/32 5/32
Quarter ended
July 31, 1996 1-23/32 1 1 1/2 9/32 1/16
Quarter ended
October 31, 1996 1-9/16 27/32 1/2 1/2 1/8 1/32
</TABLE>
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1 Delisted on January 8, 1997, due to low trading activity.
2 Delisted on August 25, 1995, due to low trading activity.
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<PAGE>
As of January 31, 1997, the Company had 66 owners of record and, it
believes, approximately 1,500 beneficial owners of its Common Stock.
Since its inception, the Company has not paid any cash dividends on its
Common Stock. No dividends may be paid to the holders of Common Stock prior to
payment of dividends by the Company to the holders of its Series A Preferred
Stock. The Company intends to retain future earnings, if any, that may be
generated from the Company's operations to help finance the operations and
expansion of the Company and accordingly does not plan, for the reasonably
foreseeable future, to pay cash dividends to holders of the Common Stock. Any
decisions as to the future payment of dividends will depend on the earnings and
financial position of the Company and such other factors as the Company's Board
of Directors deem relevant.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the Company's financial statements, beginning on page F-1, included elsewhere in
this report.
Results of Operations
The Company is an interactive multimedia company whose principal activities
involve operating and marketing UCTN, a private commercial television network.
As of January 27, 1997, UCTN was installed or contracted for installation in 226
locations in colleges and universities throughout the United States.
Substantially all of its revenues are derived from advertising displayed on
UCTN. The Company started operations in January 1991.
In order to utilize satellite transmission technology as a means of
updating its programming on UCTN, the Company retrofitted its existing Systems
installed at college and university campuses during the summer months of 1996.
This retrofit required a shut-down of UCTN for the summer, resulting in minimal
sales during this period. Although installation of the satellite dishes at
campus locations is continuing and system-wide satellite transmissions are not
expected to commence until February 1997, UCTN resumed operations at the start
of the fall 1996 semester. The existing Systems will continue to be updated via
CD-ROM until the satellite transmissions commence.
Because of the substantial cost to retrofit the existing Systems, the
Company had delayed production of additional units until the new technolgy was
available and field tests were completed. This delay, combined with the
deinstallation of locations not suited to receive satellite transmissions,
resulted in minimal growth of the network over the past year.
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The Company's sales are affected by the pattern of seasonality common to
most school-related businesses. Historically, the Company generates a
significant portion of its sales during September through May and substantially
less during the summer months when colleges and universities do not hold regular
sessions.
The following table sets forth certain financial data derived from the
Company's statement of operations for the fiscal years ended October 31, 1996
("Fiscal 1996"), October 31, 1995 ("Fiscal 1995") and October 31, 1994 ("Fiscal
1994"):
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
October 31, 1996 October 31, 1995 October 31, 1994
---------------------------- ---------------------------- ---------------------------
% of % of % of
$ Sales $ Sales $ Sales
---------------- --------- ---------------------------- ----------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Sales . . . . . . . . . . . . . . . . $ 2,016,152 100% $ 1,621,465 100% $ 705,413 100%
Cost of sales . . . . . . . . . . . . 1,297,684 64 1,252,420 77 1,163,003 165
Selling, general and administrative . 2,837,331 141 2,947,498 182 2,545,680 361
Interest income . . . . . . . . . . . 67,411 3 84,066 5 92,586 13
Net loss . . . . . . . . . . . . . . 2,051,452 102 2,494,387 154 2,910,684 413
</TABLE>
Sales increased to $2,016,152 for Fiscal 1996 from $1,621,465 for Fiscal
1995 and $705,413 for Fiscal 1994. This represents a 24% increase over Fiscal
1995 and a 186% increase over Fiscal 1994. The Company's advertiser base
increased to 19 advertisers during Fiscal 1996 and included Visa, Warner
Brothers, Coca Cola, Universal Pictures, Discover Card, UPS and MasterCard. This
compares to 17 advertisers during Fiscal 1995 and 7 during Fiscal 1994. In
addition, the Company increased its advertising rates charged during Fiscal
1996. The Company anticipates continued sales growth during the year ending
October 31, 1997 ("Fiscal 1997") by continuing to expand its advertiser base and
by further increasing the amount charged for its advertising spots to reflect
the anticipated increase in viewership. Although the Company has agreements with
national advertisers and has held discussions or had prior agreements with other
national advertisers, no assurance can be given that these or other advertisers
will continue to purchase advertising time from the Company, or that future
significant advertising revenues will ever be generated. A failure to
significantly increase advertising revenues could have a material impact on the
operations of the Company.
Cost of sales totaled $1,297,684 for Fiscal 1996. This compares to
$1,252,420 for Fiscal 1995 and $1,163,003 for Fiscal 1994. The increase in
Fiscal 1996, due to costs associated with the planning of the retrofit to
accommodate a satellite delivered system and increased costs to update the
programming in the Systems, were substantially offset by a decrease in
installation
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costs associated with a delay in new installations until the retrofit was
completed and a decrease in depreciation expense related to the Company's use of
accelerated depreciation. The increase in Fiscal 1995 over Fiscal 1994 relates
directly to the increase of the installed base of UCTN. Cost of sales as a
percentage of sales decreased to 64% in Fiscal 1996 from 77% and 165% in Fiscal
1995 and Fiscal 1994, respectively. Although cost of sales, which include costs
associated with System installations, maintenance, network programming and
System depreciation, is expected to continue to increase as additional locations
are added, the trend of decreases as a percentage of sales is expected to
continue because of added operating efficiencies.
Selling, general and administrative ("SG&A") expenses decreased to
$2,837,331 for Fiscal 1996 versus $2,947,498 for Fiscal 1995 and $2,545,680 for
Fiscal 1994. SG&A expenses as a percentage of sales decreased to 141% in Fiscal
1996 from 182% and 361% in Fiscal 1995 and Fiscal 1994, respectively. The
Company made a concerted effort during Fiscal 1996 to maintain the same level of
SG&A expense as in Fiscal 1995. Stock compensation expense of $165,249 was
recognized in Fiscal 1995 as a result of an extension of a certain officer's
stock option. The elimination of this expense in Fiscal 1996 more than offset
the increased advertising agency fees, which is directly related to the sales
growth. Increased advertising agency fees in Fiscal 1995 was the primarily the
source of the increase over Fiscal 1994.
In February 1994, the fair market value of the Company's Common Stock
exceeded $5.50 per share for ten consecutive trading days and, therefore,
options issued to certain officers of the Company under the Company's 1990
Performance Equity Plan, representing 37,134 shares of Common Stock, became
exercisable. Compensation expense relating to these options of $202,195 in
Fiscal 1994 have been recorded as SG&A expense.
Interest income continued to decrease to $67,411 for Fiscal 1996 as
compared to $84,066 for Fiscal 1995 and $92,586 for Fiscal 1994. The decreases
are a result of a combination of lower interest rates and lower average cash
balances.
The Company has incurred substantial losses since commencement of its
operations and anticipates that such losses will continue in Fiscal 1997. The
net loss decreased by 18% to $2,051,452 for Fiscal 1996 as compared to a net
loss of $2,494,387 for Fiscal 1995. The Company incurred a net loss of
$2,910,684 for Fiscal 1994. The decrease in the Fiscal 1996 and 1995 net losses
over their respective previous years is primarily attributed to increased sales
while a large portion of costs associated with the operation of UCTN remained
relatively fixed.
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In order to reach the stage where the Company is profitable, it is expected that
additional financing will be required to fund the Company's planned expansion.
Financial Condition and Liquidity
At October 31, 1996, the Company had working capital of $1,495,008. At such
date, the Company's cash and cash equivalents totaled $1,158,738.
Pursuant to a private placement offering, the Company issued an aggregate
of 4,914,293 shares of its Common Stock at $.70 per share on April 26, 1996 and
May 28, 1996. The offering resulted in net proceeds of $2,939,288, after payment
of placement expenses and agent commissions. Under this private placement,
warrants to purchase an additional 4,914,293 shares of its Common Stock were
also issued. The warrants, which are exercisable at $1.29 per share, will expire
five years from the issue date. The Company has registered the shares of Common
Stock issued pursuant to this private placement and the shares of Common Stock
to be issued upon exercise of the warrants. Cash provided during Fiscal 1996 was
primarily from this private placement.
On January 30, 1995, the Company issued, through a private placement
offering, 500,000 shares of its Common Stock at $2.8125 per share. The issuance
resulted in net proceeds of $1,246,232 after payment of placement expenses and
agent commissions. On March 13, 1995, the Company issued, through a private
placement offering, 250,000 additional shares of its Common Stock at $2.45 per
share. The issuance resulted in net proceeds of $554,630 after payment of
placement expenses and agent commissions. Cash provided during Fiscal 1995 was
primarily from these private placements ($1,800,862) and net proceeds of
short-term investments ($745,297).
Cash used in operations decreased to $1,486,530 in Fiscal 1996 from
$2,202,910 in Fiscal 1995, primarily as a result of the increase in sales while
expenses remained relatively fixed. Management believes that positive cash flow
from operations can be achieved with approximately 200 installed locations,
provided, however, that national advertisers agree to purchase at least 12
commercial spots for a period of eight months per year at the Company's current
rates. Each spot represents a 30-second commercial displayed each hour during
normal operating hours on all available entertainment systems. Such level of
revenues represents approximately 75% of potential capacity. The Company's sales
in both Fiscal 1996 and Fiscal 1995 represented approximately 33% of capacity.
There are no assurances that such required level of revenues can be achieved and
if such level is achieved, that positive cash flow would result.
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Purchases of property and equipment, net of the sale of obsolete equipment,
increased to $941,227 in Fiscal 1996 from $307,472 in Fiscal 1995 due to the
conversion of UCTN to a satellite delivered network. Installation of new Systems
during Fiscal 1996 was minimal as a result of the retrofitting of the existing
systems.
The Company executed an equipment rental agreement with Hughes Network
Systems on November 22, 1996. The agreement calls for the installation of 200
systems for receiving satellite transmissions with payments aggregating $328,032
over a three year period. At the end of such period, the Company may purchase
the equipment for $1.00.
As previously discussed, the Company has incurred substantial losses since
commencement of its operations and anticipates that such losses will continue in
Fiscal 1997. In order to reach the stage where the Company is profitable, it is
expected that additional financing will be required to fund the Company's
planned expansion. The Company is expected to seek additional financing,
however, there can be no assurance that such financing will be obtained and if
so, on terms favorable to the Company.
In the event the Company does not achieve anticipated revenue levels and/or
obtain additional financing, the Company expects to reduce its operating
expenses by, among other actions, downsizing its personnel and reducing its
marketing, promotional and product development costs in an effort to reduce cash
requirements. Reduction of operating expenses alone is not expected to assure
profitability.
ITEM 7. FINANCIAL STATEMENTS.
See the financial statements and notes related thereto, beginning on page
F-1, included elsewhere in this report.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
Not applicable.
-13-
<PAGE>
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE
ACT.
Information with respect to Item 9 is set forth in the Company's Proxy
Statement for its 1997 Annual Meeting of Stockholders (the "1997 Proxy
Statement") and is incorporated herein by reference.
ITEM 10. EXECUTIVE COMPENSATION.
Certain information with respect to Item 10 is set forth in the 1997 Proxy
Statement and is incorporated herein by reference.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Information with respect to Item 11 is set forth in the 1997 Proxy
Statement and is incorporated herein by reference.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
None.
-14-
<PAGE>
ITEM 13. EXHIBITS, LIST AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit No.
- -----------
3.1 - Composite Amended and Restated Certificate of
Incorporation of the Registrant.
3.2 - By-Laws of the Registrant (incorporated herein by
reference to Exhibit 3.2 to the Registrant's
Registration Statement on Form S-1 (No. 33-44935), as
amended, declared effective on June 10, 1992 (the
"Form S-1")).
4.1 - Form of Unit Purchase Option (incorporated herein by
reference to Exhibit 4.1 to the Form S-1).
4.2 - Form of the Warrant Agreement (with Warrant
Certificates) between the Registrant and the
Underwriter (incorporated herein by reference to
Exhibit 4.2 to the Form S-1).
4.3 - Specimen certificates representing Class A Warrants,
Class B Warrants and Common Stock (incorporated herein by
reference to Exhibit 4.3 to the Form S-1).
4.4 - Certificate of Designations, Rights and Preferences of
Series A Redeemable Preferred Stock, as amended
(incorporated herein by reference to Exhibit 3.3 to
the Form S-1).
4.5 - Form of Series A Preferred Stock Certificate
(incorporated herein by reference to Exhibit 10.8 to
the Form S-1).
10.1 - Amended and Restated Employment Agreement and Stock
Option Agreements, dated as of November 1, 1991,
between the Registrant and Peter Kauff (incorporated
herein by reference to Exhibit 10.1 to the Form S-1).
10.2 - Registrant's 1990 Performance Equity Plan
(incorporated herein by reference to Exhibit 10.4 to
the Form S-1).
10.3 - Employment Agreement and Stock Option Agreements,
dated as of September 16, 1992, between the Registrant
and Alan Pearl (incorporated herein by reference to
Exhibit 10.3 to the Registrant's Annual Report on Form
10-KSB for the fiscal year ended October 31, 1992).
10.4 - Employment Agreement and Stock Option Agreements,
dated as of September 8, 1992, between the Registrant
and Richard Vogel (incorporated herein by reference to
Exhibit 10.19 to the Registrant's Post-Effective
Amendment No. 1 to the Form S-1, filed on August 26,
1993).
10.5 - Registrant's Outside Directors' 1994 Stock Option Plan
(incorporated herein by reference to Exhibit 10.15 to the
Registrant's Annual Report on Form 10-KSB for the
-15-
<PAGE>
fiscal year ended October 31, 1994, filed on January 30,
1995 (the "1994 Form 10-KSB")).
10.6 - Amendment Agreement to Employment Agreement, dated as
of February 1, 1994, between the Registrant and Peter
Kauff (incorporated herein by reference to Exhibit
10.16 to the 1994 Form 10-KSB).
10.7 - Registrant's 1996 Stock Incentive Plan (incorporated
herein by reference to Exhibit A to the Registrant's
definitive proxy statement with respect to its 1996
Annual Meeting of Stockholders on Form 14A, filed on
July 1, 1996 (the "1996 Proxy Statement").
10.8 - Registrant's Outside Directors' 1996 Stock Option Plan
(incorporated herein by reference to Exhibit B to the
1996 Proxy Statement).
10.9 - Second Amendment Agreement to Employment Agreement,
dated as of October 1, 1995, between the Registrant
and Peter Kauff (incorporated herein by reference to
Exhibit 10.18 to the Registrant's Annual Report on
Form 10-KSB for the fiscal year ended October 31, 1995
(the "1995 Form 10-KSB").
10.10 - Amendment Agreement to Employment Agreement, dated as
of September 8, 1995, between the Registrant and
Richard Vogel (incorporated herein by reference to
Exhibit 10.19 to the 1995 Form 10-KSB).
10.11 - Amendment Agreement to Employment Agreement, dated as
of September 16, 1995, between the Registrant and Alan
Pearl (incorporated herein by reference to Exhibit
10.20 to the 1995 Form 10-KSB).
10.12 - Employment Agreement, dated as of January 1, 1996,
between the Registrant and Thomas Gatti.
10.13 - Employment Agreement, dated August 1, 1996, between
the Registrant and Robert Douglas.
10.14 - Third Amendment Agreement to Employment Agreement,
dated as of September 12, 1996, between the Registrant
and Peter Kauff.
10.15 - Second Amendment Agreement to Employment Agreement,
dated as of September 12, 1996, between the Registrant and
Alan Pearl.
10.16 - Programming Agreement, dated as of November 5, 1996, by
and between the Registrant and Turner Private Networks,
Inc.
10.17 - Equipment Rental Agreement, dated November 22, 1996,
between the Registrant and Hughes Network Systems, Inc.,
doing business as DirecPC.
27 - Financial Data Schedule
- --------------------
(b) Reports on Form 8-K.
None.
-16-
<PAGE>
SIGNATURE
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Dated: February 3, 1997 UC TELEVISION NETWORK CORP.
By: /s/ Peter Kauff
---------------
Peter Kauff
Chairman of the Board
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on
the dates indicated.
Signature Title Date
- --------- ----- ----
/s/ Peter Kauff Chairman of the February 3, 1997
- --------------- Board; and Director
Peter Kauff (Principal Executive
Officer)
/s/ Alan Pearl
- -------------- Chief Financial February 3, 1997
Alan Pearl Officer; Treasurer;
and Secretary (Princi-
pal Accounting and
Financial Officer)
/s/ Stephen Roberts Director February 3, 1997
- -------------------
Stephen Roberts
/s/ Edward McLaughlin
- ---------------------- Director February 3, 1997
Edward McLaughlin
/s/ Edward Weinberger Director February 3, 1997
- ---------------------
Edward Weinberger
-17-
<PAGE>
UC TELEVISION NETWORK CORP.
INDEX TO FINANCIAL STATEMENTS
PAGE
NUMBER
------
Report of Independent Auditors F-2
Balance Sheet as at October 31, 1996 F-3
Statements of Operations for the years ended October 31, 1996
and October 31, 1995 F-4
Statements of Changes in Stockholders' Equity for the years
ended October 31, 1996 and October 31, 1995 F-5
Statements of Cash Flows for the years ended October 31, 1996
and October 31, 1995 F-6
Notes to Financial Statements F-7
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Stockholders
UC Television Network Corp.
New York, New York
We have audited the accompanying balance sheet of UC Television Network
Corp. (formerly Laser Video Network, Inc.) as at October 31, 1996 and the
related statements of operations, changes in stockholders' equity and cash flows
for each of the years in the two year period then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements enumerated above present
fairly, in all material respects, the financial position of UC Television
Network Corp. at October 31, 1996 and the results of its operations and its cash
flows for the two years then ended in conformity with generally accepted
accounting principles.
/s/ Richard A. Eisner & Company, LLP
New York, New York
January 13, 1997
F-2
<PAGE>
UC TELEVISION NETWORK CORP.
BALANCE SHEET
October 31, 1996
ASSETS
Current assets:
Cash and cash equivalents ............................... $1,158,738
Accounts receivable ..................................... 761,796
Prepaid expenses ........................................ 91,324
Other current assets .................................... 18,530
----------
Total current assets ............................. 2,030,388
Property and equipment, net ................................ 1,641,456
Other assets ............................................... 7,040
----------
TOTAL ............................................ $3,678,884
==========
LIABILITIES
Current liabilities:
Accounts payable and accrued expenses .................. $ 533,461
Dividends payable ...................................... 1,919
----------
Total current liabilities ........................ 535,380
----------
Redeemable preferred stock ................................. 3,333
----------
Commitments and contingencies
STOCKHOLDERS' EQUITY
Capital stock:
Preferred stock - $.001 par; authorized
500,000 shares; none issued
Common stock - $.001 par; authorized 50,000,000 shares;
issued and outstanding 10,929,157 shares .............. 10,929
Additional paid in capital ................................. 14,846,451
Accumulated deficit ........................................ (11,717,209)
------------
Total stockholders' equity ....................... 3,140,171
------------
TOTAL ............................................ $ 3,678,884
============
The accompanying notes are an integral part of the financial statements.
F-3
<PAGE>
UC TELEVISION NETWORK CORP.
STATEMENTS OF OPERATIONS
Year Ended
October 31,
---------------------------------
1996 1995
------------------ --------------
Sales .................................... $ 2,016,152 $ 1,621,465
----------- -----------
Cost of sales ............................ 1,297,684 1,252,420
Selling, general and administrative ...... 2,837,331 2,947,498
Interest income .......................... (67,411) (84,066)
----------- -----------
4,067,604 4,115,852
----------- -----------
NET LOSS ................................. $(2,051,452) $(2,494,387)
=========== ===========
Loss per share ........................... $ (0.25) $ (0.44)
Weighted average number of
common shares outstanding ............ 8,335,007 5,739,898
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE>
UC TELEVISION NETWORK CORP.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Additional
Common Stock Paid-In
Shares Amount Capital (Deficit)
-------------- ----------- ---------------- -----------------
<S> <C> <C> <C> <C>
Balance - November 1, 1994 5,204,764 $5,205 $9,903,746 ($7,171,370)
Proceeds from private placement offerings - net of expenses . . 750,000 750 1,800,112
Proceeds from Class A Warrant exercise . . . . . . . . . . . . . . 100 450
Stock compensation expense . . . . . . . . . . . . . . . . . . . 165,429
Preferred stock dividends declared . . . . . . . . . . . . . . . (9,801)
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,494,387)
-------------- ----------- ---------------- -----------------
Balance - October 31, 1995 5,954,864 5,955 11,859,936 (9,665,757)
Proceeds from private placement offerings - net of expenses . . 4,914,293 4,914 2,934,374
Issuance of Common Stock for services . . . . . . . . . . . . . . 60,000 60 59,940
Preferred stock dividends declared . . . . . . . . . . . . . . . (7,799)
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,051,452)
-------------- ----------- ---------------- -----------------
BALANCE - OCTOBER 31, 1996 10,929,157 $10,929 $14,846,451 ($11,717,209)
============== =========== ================ =================
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-5
<PAGE>
UC TELEVISION NETWORK CORP.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended
October 31,
--------------------------------------
1996 1995
------------------ --------------
<S> <C> <C>
Cash flows from operating activities:
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (2,051,452) $ (2,494,387)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . 443,556 578,386
Write down of certain entertainment equipment components . . . . . . . 31,794 12,508
Issuance of Common Stock for services . . . . . . . . . . . . . . . . 60,000
Compensation expense relating to nonqualified stock options . . . . . 165,429
Changes in operating assets and liabilities:
Increase in accounts receivable . . . . . . . . . . . . . . . . . . (118,138) (459,981)
Decrease (increase) in prepaid expenses and other assets . . . . . . 11,200
(116)
Increase (decrease) in accounts payable and accrued expenses . . . . 136,510 (4,749)
------------------ ------------------
Net cash used in operating activities . . . . . . . . . . . . . . (1,486,530) (2,202,910)
------------------ ------------------
Cash flows from investing activities:
Purchases of property and equipment . . . . . . . . . . . . . . . . . . . (1,265,497) (307,472)
Proceeds from sale of obsolete components . . . . . . . . . . . . . . . . 324,270
Proceeds from short-term investments. . . . . . . . . . . . . . . . . . . 1,250,000
Purchases of short-term investments . . . . . . . . . . . . . . . . . . . (504,703)
------------------ ------------------
Net cash provided by (used in) investing activities . . . . . . . (941,227) 437,825
------------------ ------------------
Cash flows from financing activities:
Net proceeds from private placement offerings. . . . . . . . . . . . . . . 2,939,288 1,800,862
Redemption of redeemable preferred stock (including dividends of
$51,883 in 1996 and $1,387 in 1995). . . . . . . . . . . . . . . . . . . (145,217) (4,720)
Net proceeds from exercise of Class A Warrants . . . . . . . . . . . . . .
450
------------------ ------------------
Net cash provided by financing activities. . . . . . . . . . . . . 2,794,071 1,796,592
------------------ ------------------
NET INCREASE IN CASH AND CASH EQUIVALENTS . . . . . . . . . . . . . . . . . . 366,314 31,507
Cash - beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . 792,424 760,917
------------------ ------------------
CASH AND CASH EQUIVALENTS - END OF PERIOD. . . . . . . . . . . . . . . . . . $ 1,158,738 $ 792,424
================== ==================
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-6
<PAGE>
UC TELEVISION NETWORK CORP.
NOTES TO FINANCIAL STATEMENTS
(NOTE A) - The Company and its Significant Accounting Policies:
[1] The Company:
UC Television Network Corp., formerly Laser Video Network, Inc. ("the
Company"), is a broadcasting company which owns and operates the UC Television
Network ("UCTN"), a proprietary interactive commercial television network
operating on college and university campuses, through single-channel television
systems placed primarily in campus dining facilities and student unions.
Substantially all of the Company's revenues are derived from advertising
displayed on UCTN. At October 31, 1996, the Company had an installed base of
approximately 200 entertainment systems at various colleges and universities
throughout the United States.
The Company has incurred substantial losses since inception and anticipates
losses to continue through 1997 although at a reduced rate. During fiscal 1996,
the Company raised approximately $2.9 million in a private placement offering
and had a significant increase in sales and decrease in cash used in operations
from the prior year. The Company anticipates a further increase in sales in 1997
and expects to seek additional financing for its planned expansion. There is no
assurance that either will occur and, if not, the Company will have to modify
its expansion plans and reduce operating costs. However, the Company believes it
will have sufficient working capital to continue its operations through October
31, 1997.
[2] Depreciation and amortization:
Property and equipment, stated at cost, are depreciated by accelerated
methods over their estimated useful lives of five years for completed
interactive entertainment equipment and five to seven years for other assets.
[3] Revenue recognition
The Company's principal sales are derived from advertising displayed on
UCTN. Advertising sales are reflected in income during the period advertising is
aired. For the year ended October 31, 1996, approximately 47% of sales were
derived from advertising sold to three customers, $440,000, $302,500 and
$210,000. For the year ended October 31, 1995, approximately 26% of sales were
derived from advertising sold to two customers, such sales for the year totaled
$247,500 and $171,500.
The Company's revenues are affected by the pattern of seasonally common to
most school-related businesses. Historically, the Company generates a
significant portion of its revenues during the period of September through May
and substantially less revenues during the summer months when colleges and
universities do not hold regular classes. Furthermore, the Company retrofitted
its existing systems during the summer months of 1996 in order to be able to
utilize satellite transmission technology as a means of updating its programming
on UCTN. This retrofit required a shut down of the network, resulting in minimal
sales during this period.
F-7
<PAGE>
(NOTE A) - The Company and its Significant Accounting Policies: (Continued)
[4] Statements of cash flows:
For purposes of the statements of cash flows, the Company considers all
highly liquid debt instruments purchased with an original maturity of three
months or less to be cash equivalents. The Company places its temporary cash
investments with high credit quality financial institutions. Such investments
often exceed the FDIC limits or are not covered by insurance.
[5] Estimates and assumptions:
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reported period. Actual results could differ from these
estimates.
[6] Loss per share:
Loss per common share is based on the weighted average number of common
shares outstanding and gives effect to a 10% preferred stock dividend.
(NOTE B) - Property and Equipment:
Property and equipment consist of the following:
Entertainment systems, completed . . . . . . . . . . . $3,003,647
Entertainment systems, in progress . . . 279,774
Machinery and equipment . . . . . . . . . . . . . . . 162,062
Furniture and fixtures . . . . . . . . . . . . . . . 41,603
3,487,086
Less accumulated depreciation
and amortization . . . . . . . . . . . . . . . . . 1,845,630
---------
Total . . . . . . . . . . . . . . . . . . . . . . $1,641,456
==========
(NOTE C) -Redeemable Preferred Stock:
The Company's redeemable preferred stock has no voting rights and
has a liquidation preference equal to $1.00 per share plus accrued and unpaid
dividends. The stock is redeemable at any time, at the option of either the
Company or the holder thereof. Of the 1,500,000 shares originally authorized,
3,333 shares were issued and outstanding at October 31, 1996. Dividends, accrued
at 10%, totaled $7,799 for fiscal 1996 of which $1,919 was payable at October
31, 1996.
F-8
<PAGE>
(NOTE D) - Stockholders' Equity:
[1] Issuance of Common Stock
Pursuant to a private placement offering, the Company issued an aggregate
of 4,914,293 shares of its Common Stock at $.70 per share on April 26, 1996 and
May 28, 1996. The offering resulted in net proceeds of $2,939,288, after payment
of placement expenses and agent commissions. Under this private placement,
warrants to purchase an additional 4,914,293 shares of its Common Stock were
also issued. The warrants, which are exercisable at $1.29 per share, will expire
five years from the issue date. The Company has registered the shares of Common
Stock issued and to be issued pursuant to this private placement. In conjunction
with the private placement, an option was issued to the placement agent to
purchase units representing up to 491,428 shares of Common Stock at $.70 per
share. With each share purchased, the placement agent will receive a warrant to
purchase one share of Common Stock for $1.29. Such option expires on April 25,
2001.
On January 30, 1995, the Company issued, through a private placement
offering, 500,000 additional shares of its Common Stock at $2.8125 per share.
The issuance resulted in net proceeds of $1,246,232 after payment of placement
expenses and agent commissions. On March 13, 1995, the Company issued, through a
private placement offering, 250,000 additional shares of its Common Stock at
$2.45 per share. The issuance resulted in net proceeds of $554,630 after payment
of placement expenses and agent commissions.
[2] Warrants:
At October 31, 1996, the Company had outstanding 144,979 Redeemable Class A
Warrants and 2,270,021 Redeemable Class B Warrants. The holder of each Class A
Warrant is entitled to purchase 1.3 shares of Common Stock and one Class B
Warrant at an exercise price of $4.60. The holder of each Class B Warrant is
entitled to purchase 1.3 shares of Common Stock at an exercise price of $6.91.
The Warrants are subject to redemption by the Company, upon not less than 30
days written notice, at a price of $.05 per warrant, provided that the average
of the closing bid prices of the Common Stock for any 30 consecutive business
days within five business days of the date on which notice of redemption is
given exceeds $6.75 with respect to Class A Warrants and $9.75 with respect to
Class B Warrants. Both Class A and Class B Warrants expire on June 10, 1997.
[3] Unit Purchase Option:
At October 31, 1996, there was an outstanding Unit Purchase Option to
purchase up to 133,988 units (each unit consisting of two shares of Common
Stock, one Class A Warrant and one Class B Warrant) at $7.05 per unit which had
been granted to the underwriters of the Company's initial public offering. Such
option expires on June 10, 1997.
[4] Performance Equity Plan:
Under the Company's Performance Equity Plan, the Company has reserved an
aggregate of 464,164 shares of its common stock for issuance to its officers and
key employees, consultants and independent contractors in the form of long-term
performance-based stock and/or other equity interests in the Company.
F-9
<PAGE>
(NOTE D) - Stockholders' Equity: (Continued)
A summary of nonqualified stock option transactions under the Performance
Equity Plan is as follows:
Number of Exercise Price
Shares per Share
Outstanding -
October 31, 1994 . . . . . . . 275,291 $.43-$4.06
Granted . . . . . . . . . . . . . 221,500 $1.36-$3.00
Canceled . . . . . . . . . . . . (37,133) $.43
--------
Outstanding -
October 31, 1995 . . . . . . . 459,658 $.43-$4.06
Canceled . . . . . . . . . . . . (37,133) $.43
Expired . . . . . . . . . . . . (20,000) $4.06
-------
Outstanding -
October 31, 1996 . . . . . . . 402,525 $.43-$3.00
=======
Of the 402,525 options outstanding at October 31, 1996, 243,025 are
currently exercisable. The remaining options are exercisable through 1999.
The expiration date of options to purchase 125,325 shares of Common Stock
issued to a certain officer of the Company was extended from December 31, 1996
to September 30, 1998 to coincide with the expiration of an extension of such
officer's employment agreement. Compensation expense related to the extension of
$165,429 has been recorded as selling, general and administrative expense during
the year ended October 31, 1995. At October 31, 1996, 61,639 shares of Common
Stock were available for future grants.
[5] Stock Incentive Plan:
The 1996 Stock Incentive Plan was approved by stockholders on March 20,
1996. Under the Company's Stock Incentive Plan, the Company has reserved an
aggregate of 500,000 shares of its common stock for issuance to its officers,
key employees and consultants in the form of stock options and/or other forms of
equity interests in the Company. During fiscal 1996, options for 304,766 shares
were granted at exercise prices of ranging from $1.00 to $1.44 per share. Of the
304,766 options outstanding at October 31, 1996, 104,266 are currently
exercisable. The remaining options are exercisable through 2000. At October 31,
1996, 195,234 shares of Common Stock were available for future grants.
[6] Outside Directors' Stock Option Plan
The Outside Directors' 1996 Stock Option Plan ("Directors' Plan") was
approved by stockholders on March 20, 1996. Under the Directors' Plan, the
Company has reserved an aggregate of 150,000 shares of its common stock for
issuance to its non-employee Directors. Upon stockholder adoption of the
Directors' Plan, the only eligible outside Director was granted options to
acquire 20,000 shares of the Company's common stock at the market price on the
date of the grant. Upon initial election to the board, subsequent eligible
Directors receive an option to purchase 10,000 shares. Eligible Directors are
granted an additional 10,000 shares each February 14 provided they have served
on the Board at least six months as of that date. Such option grants are vested
ratably over a four year period. (NOTE D) - Stockholders' Equity: (Continued)
During fiscal 1996, options for 30,000 shares were granted to outside
Directors at an exercise price of $1.19 per share. At October 31, 1996, 120,000
shares of Common Stock were available for future grants.
[7] Other Stock Options
During fiscal 1996, non-qualified options to purchase 337,500 shares of
Common Stock at an exercise price of $1.31 per share were granted to a certain
officer of the Company. The options are exercisable through 2000, however no
options were exercisable at October 31, 1996.
(NOTE E) - Commitments and Contingencies:
[1] Employment agreements:
The Company has employment agreements with four officers and an employee.
The agreements call for minimum base salaries for the years ending October 31,
1997, 1998, 1999, 2000 and 2001 of approximately $688,594, $494,583, $360,000,
$250,000 and $41,667, respectively. The agreement with one of the officers also
provide for bonuses in the aggregate of up to 5% of the pre-tax income of the
Company.
[2] Leases:
The Company leases certain of its office facilities under two operating
leases, expiring in 1997. Rent expense amounted to $146,426 and $141,315 for the
year ended October 31, 1996 and October 31, 1995, respectively. The minimum
annual rental payments for the year ending October 31, 1997 is $56,250.
[3] Contingencies:
In connection with the Company's acquisition of the rights to and inventory
of video jukeboxes in 1991, the Company agreed to pay Larry Abrams and Wendl
Thomis, two former stockholders of the seller, an aggregate of $100,000,
one-half being payable at such time as the Company's net pre-tax income equals
at least $500,000, and the balance being payable at such time as the Company has
an additional $500,000 in net pre-tax earnings.
[4] Subsequent Events
On November 5, 1996, the Company signed an agreement with Turner Private
Networks, Inc. to provide news and sports programming on UCTN during the period
from January 1, 1997 to December 31, 1999 for a aggregate cost of $890,095,
payable in equal installments during the term of the agreement after an initial
payment of $30,000.
F-11
<PAGE>
(NOTE E) - Commitments and Contingencies: (Continued)
The Company executed an equipment rental agreement with Hughes Network
Systems on November 6, 1996. The agreement calls for the installation of 200
systems for receiving satellite transmissions with payments aggregating $328,032
over a three year period. At the end of such period, the Company may purchase
the equipment for $1.00.
(NOTE F) - Income Taxes:
At October 31, 1996, the Company has net operating loss carryforwards of
approximately $10,750,000 expiring through the year 2011. Due to ownership
changes, utilization of approximately $1,200,000 of the net operating loss
carryforwards is limited to approximately $300,000 per year. The Company has not
yet determined whether the shares issued in the private placement in April and
May 1996 will result in further limitations upon use of its net operating loss
carryforwards as of such dates.
The components of the deferred income tax assets arising under FASB
Statement No. 109 were as follows as at October 31, 1996:
Deferred tax assets:
Net operating loss carryforwards . . . . . . . $ 3,648,000
Expenses not currently deductible . . . . . . 337,000
Less valuation allowance . . . . . . . . . . . (3,985,000)
--------------
Balance . . . . . . . . . . . . $ -0-
==============
The change in the valuation allowance in the years ended October 31, 1996
and October 31, 1995 was $698,000 and $885,000, respectively, which was
principally attributable to the benefit from the increase in the net operating
loss carryforwards for such years.
(NOTE G) - Related Party Transaction:
During fiscal 1996, the Company paid commissions and fees of approximately
$96,000 to a related party.
F-12
COMPOSITE AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
UC TELEVISION NETWORK CORP.
AS OF JANUARY 27, 1997
FIRST: The name of the Corporation is UC Television Network Corp.
SECOND: The address of the Corporation's registered office in the State
of Delaware is 32 Loockerman Square, Suite L-100, City of Dover, County of
Dover. The name of its registered agent at such address is The Prentice-Hall
Corporation System, Inc.
THIRD: The purpose of the Corporation is to engage in any lawful act or
activity for which a corporation may be organized under the laws of the General
Corporation Law of the State of Delaware.
FOURTH: The total number of shares of capital stock which the
Corporation shall have authority to issue is Fifty-Two Million (52,000,000)
shares, of which Fifty Million (50,000,000) shares shall be Common Stock, par
value $.001 per share, and Two Million (2,000,000) shares shall be Preferred
Stock, par value $.001 per share.
The Preferred Stock may be issued from time to time in one or more
series. The Board of Directors is hereby expressly
<PAGE>
authorized to provide, by resolution or resolutions duly adopted by it prior to
issuance, for the creation of each such series and to fix the designation and
the powers, preferences, rights, qualifications, limitations and restrictions
relating to the shares of each such series. The authority of the Board of
Directors with respect to each such series of Preferred Stock shall include, but
not be limited to, determining the following:
(a) the designation of such series, the number of shares to
constitute such series and the stated value if different from the par
value thereof;
(b) whether the shares of such series shall have voting rights,
in addition to any voting rights provided by law, and, if so, the
terms of such voting rights, which may be general or limited;
(c) the dividends, if any, payable on such series, whether any
such dividends shall be cumulative, and, if so, from what dates, the
conditions and dates upon which such dividends shall be payable, and
the preference or relation which such dividends shall bear to the
dividends payable on any shares of stock of any other class or any
other series of Preferred Stock;
(d) whether the shares of such series shall be subject to
redemption by the Corporation, and, if so, the times, prices and other
conditions of such redemption;
-2-
<PAGE>
(e) the amount or amounts payable upon shares of such series
upon, and the rights of the holders of such series in, the voluntary
or involuntary liquidation, dissolution or winding up, or upon any
distribution of the assets, of the Corporation;
(f) whether the shares of such series shall be subject to the
operation of a retirement or sinking fund and, if so, the extent to
and manner in which any such retirement or sinking fund shall be
applied to the purchase or redemption of the shares of such series for
retirement or other corporate purposes and the terms and provisions
relating to the operation thereof;
(g) whether the shares of such series shall be convertible into,
or exchangeable for, shares of stock of any other class or any other
series of Preferred Stock or any other securities and, if so, the
price or prices or the rate or rates of conversion or exchange and the
method, if any, of adjusting the same, and any other terms and
conditions of conversion or exchange;
(h) the limitations and restrictions, if any, to be effective
while any shares of such series are outstanding upon the payment of
dividends or the making of other distributions on, and upon the
purchase, redemption or other acquisition by the Corporation of, the
Common Stock or shares of stock of any other class or any other series
of Preferred Stock;
-3-
<PAGE>
(i) the conditions or restrictions, if any, upon the creation of
indebtedness of the Corporation or upon the issue of any additional
stock, including additional shares of such series or of any other
series of Preferred Stock or of any other class; and
(j) any other powers, preferences and relative, participating,
optional and other special rights, and any qualifications, limitations
and restrictions, thereof.
The powers, preferences and relative, participating, optional and other
special rights of each series of Preferred Stock, and the qualifications,
limitations or restrictions thereof, if any, may differ from those of any and
all other series at any time outstanding. All shares of any one series of
Preferred Stock shall be identical in all respects with all other shares of such
series, except that shares of any one series issued at different times may
differ as to the dates from which dividends thereof shall be cumulative.
FIFTH: Unless required by law or determined by the Chairman of the
meeting to be advisable, the vote by stockholders on any matter, including the
election of directors, need not be by written ballot.
SIXTH: The Corporation reserves the right to increase or decrease its
authorized capital stock, or any class or series thereof, and to reclassify the
same, and to amend, alter, change or repeal any provisions contained in the
-4-
<PAGE>
Certificate of Incorporation under which the Corporation is organized or in any
amendment thereto, in the manner now or hereafter prescribed by law, and all
rights conferred upon stockholders in said Certificate of Incorporation or any
amendment thereto are granted subject to the aforementioned reservation.
SEVENTH: The Board of Directors shall have the power at any time, and
from time to time, to adopt, amend and repeal any and all By-Laws of the
Corporation.
EIGHTH: All persons who the Corporation is empowered to indemnify
pursuant to the provisions of Section 145 of the General Corporation Law of the
State of Delaware (or any similar provision or provisions of applicable law at
the time in effect), shall be indemnified by the Corporation to the full extent
permitted thereby. The foregoing right of indemnification shall not be deemed to
be exclusive of any other rights to which those seeking indemnification may be
entitled under any by-law, agreement, vote of stockholders or disinterested
directors, or otherwise. No repeal or amendment of this Article EIGHTH shall
adversely affect any rights of any person pursuant to this Article EIGHTH which
existed at the time of such repeal or amendment with respect to acts or
omissions occurring prior to such repeal or amendment.
NINTH: No director of the Corporation shall be personally liable to the
Corporation or its stockholders for any monetary damages for breaches of
fiduciary duty as a director,
-5-
<PAGE>
provided that this provisions shall not eliminate or limit the liability of a
director (i) for any breach of the director's duty of loyalty to the Corporation
or its stockholders; (ii) for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law; (iii) under
Section 174 of the General Corporation Law of the State of Delaware; or (iv) for
any transaction from which the director derived an improper personal benefit. No
repeal or amendment of this Article NINTH shall adversely affect any rights of
any person pursuant to this Article NINTH which existed at the time of such
repeal or amendment with respect to acts or omissions occurring prior to such
repeal or amendment.
-6-
EMPLOYMENT AGREEMENT
AGREEMENT dated as of the 1st day of January, 1996 between LASER VIDEO
NETWORK, INC., a Delaware corporation (the "Company"), and THOMAS GATTI
("Executive") residing at 20 Sutton Place South, New York, New York 10022.
W I T N E S S E T H :
---------------------
WHEREAS, Company wishes to employ Executive and Executive wishes such
employment, all upon the terms and conditions herein contained.
NOW,THEREFORE, in consideration of the covenants herein contained, the
parties hereto hereby agree as follows:
1. Employment.
1.1 General. Company hereby employs Executive in the capacity of
Executive Vice President - Media Sales and Executive hereby accepts such
employment, all subject to the terms and conditions herein obtained. In such
capacity, Executive agrees to perform such duties (consistent with his position)
as may be assigned to Executive from time to time by the Company.
1.2 Full-Time Position. Executive hereby agrees that during the
Employment Term (as defined in Section 3 hereof) he will devote all of his
business time, attention and skills to the business and affairs of the Company
and its subsidiaries, except during vacation time and any periods of illness.
2. Compensation.
2.1 Base Salary. Subject to the terms and conditions herein
contained, Company will pay to Executive, and Executive will accept, for all
services which say be rendered by him pursuant to this Agreement an annual base
salary ("Base Salary") at the rate of $170,000 per year, effective from the date
set forth above. The Base Salary shall be payable in such installments as in
effect from time to time in accordance with the payroll practices of the
Company.
2.2 Commission. In addition to his base salary, Executive shall be
paid a commission equal to three (3%) percent of "Net Sales" of the Company in
excess of $1,250,000 for each year of the Employment Term. "Net Sales" shall
mean gross revenues from advertising shown on the College Television Network,
net of commissions paid to third party persons, firms or agencies. Net Sales
shall be pro-rated for a portion of a year
<PAGE>
in determining whether commissions are payable under the circumstances described
in Sections 4.3(a) and 4.3(c). For example, if the Executive's employment is
terminated under Section 4.3(c) as of June 30, 1997, and if Net Sales from
January 1 through June 30, 1997 amounted to $700,000, the Executive would be
entitled to a commission equal to three (3%) percent times $75,000 ($700,000
less $625,000 [$1,250,000 times 6/12]).
2.3 Stock Options. The Executive shall also be entitled to an
award of stock options under the Company's Stock Option Plan (the "Plan"), as
follows:
(a) 15,000 options on the date of actual signing of
the agreement, at the fair market value of the Common Stock on
such date, as determined in accordance with the Plan.
(b) In the event that Net Sales during either
calendar year of the Employment Term exceed $2,250,000, then
the Employee shall receive non-qualified stock options
entitling him to buy 7,500 shares of the Company's common
stock, pursuant to the Plan. He shall also receive an
additional 7,500 options for each additional million dollars
of annual net sales (i.e., achieving $3,250,000, $4,250,000,
etc.) during any such calendar year. The options provided for
herein shall be exercis-able at the fair market value of the
Company's common stock on December 31 of the year in which
such Net Sales were achieved, and the grant shall be made
effective on that date.
(c) The options described in this Section 2.3 shall
have a duration of five (5) years and otherwise conform to the
terms and provisions of the Plan and of the Company's basic
form of Stock Option Agreement adopted pursuant to the Plan.
3. Term of Employment. The employment by Company of Executive pursuant
hereto will commence on the date hereof and, subject to the provisions of
Section 4, will terminate on Decem- ber 31, 1997 (the "Employment Term").
4. Premature Termination.
4.1 Events of Termination. Anything in this Agreement contained to
the contrary notwithstanding, Executive's employment hereunder will terminate
upon the following events and conditions:
(a) Death. Executive's employment hereunder will
terminate forthwith upon the death of Executive.
(b) Disability. Executive's employment hereunder will
terminate, at the option of Company, in the event that Company
makes a good faith determination that Executive is so
disabled, for mental or physical
- 2 -
<PAGE>
reasons, as to be unable to substantially perform his duties
hereunder for an aggregate of 180 days during any period of 12
consecutive months of which at least 60 days are consecutive.
The existence of a disability will be determined by the Board
of Directors in consultation with a reputable, licensed
physician selected by Company and approved by Executive, and
Executive will cooperate in all reasonable respects to enable
an examination to be made by such physician.
(c) By Company For Cause. Executive's employment
hereunder will terminate, at the option of Company, in the
event (i) Executive engages in any conduct, action or behavior
that has or may reasonably be expected to have a material
adverse effect on the reputation of Company; (ii) Executive
commits an act involving moral turpitude or dishonesty, in
connection with Executive's employment hereunder; or (iii) of
a material failure on the part of Executive to perform his
obligations hereunder, which failure is not remedied within 30
days after written notice thereof is furnished by Company to
Executive.
4.2 Notice. In the event of the termination of Executive's
employment pursuant to Section 4.1(b) and 4.1(c) above, not less than 10 days'
prior written notice of such termination will be given by Company to Executive,
which notice will specify the effective date of termination.
4.3 Payment Upon Premature Termination.
(a) Termination Upon Death or Disability. In the
event that Executive's employment hereunder is terminated
pursuant to Section 4.1(a) or 4.1(b), Executive will be paid
his Base Salary plus commissions on prorated Net Sales, if
earned, under Section 2.2 through the date of such
termination, as payment in full of all amounts due and owing
by Company to Executive.
(b) Termination by Company for Cause. In the event
that Executive's employment hereunder is terminated pursuant
to Section 4.1(c), or if Executive voluntarily terminates his
own employment hereunder, Executive will be paid his Base
Salary up to the effective date of termination as payment in
full.
(c) Termination by Company Without Cause. In the
event that Executive's employment hereunder is ter- minated
other than pursuant to Section 4.1(a) or 4.1(b) above,
Executive will be paid his Base Salary for the greater of (i)
12 months from the date of termination or (ii) the then
remaining term hereof, plus commissions on pro-rated Net
Sales, if earned, under Section 2.2 through the date of such
termination,
- 3 -
<PAGE>
as payment in full of all amounts due and owing by Company to
Executive. Commencing 120 days prior to the expiration of this
Agreement, the parties will discuss whether the Agreement will
be renewed or extended, and if so, the terms on which such
renewal or extension shall take place. It is understood and
agreed that the failure of the parties to reach agreement of a
renewal or extension shall not constitute a termination of the
Agreement by the Company without cause.
5. Expenses. Company will reimburse Executive (upon the submission by
his of reasonably itemized accounts thereof) for such costs and expenses as
Executive may reasonably incur in connection with the performance by him of his
duties hereunder in accordance with Company's policy with respect thereto as in
effect from time to time during the term of this Agreement.
6. Benefits
6.1 Participation in Executive Benefit Plans. Executive will
participate in all benefits and plans which Company say from time to time,
during the term of Executive's employment hereunder, provide for its employees
and for which Executive is eligible.
6.2 Vacation. Executive will be entitled to take three weeks paid
vacation in each twelve-month period during the term hereof.
7. Nondisclosure: Noncompete.
7.1 "Confidential Information" Defined. As used in this Section 9,
the term "Confidential Information" will mean any and all information (verbal
and written) relating to Company or any of its operations, other than such
information which is in the public domain other than as the result of a breach
of the provisions of Section 7.2 below, including, but not limited to,
information relating to: identity and description of services used; purchasing;
costs; pricing; design and development; customers and prospects; marketing; and
selling and servicing.
7.2 Nondisclosure of Confidential Information. Executive hereby
agrees not to, at any time, directly or indirectly use, communicate, disclose or
disseminate any Confidential Information in any manner whatsoever.
7.3. Non-Compete. Executive agrees that he will not, during the
term of Executive's employment hereunder, and for the balance of the term of
this Agreement if the Executive is terminated for cause or leaves voluntarily,
directly or indirectly, compete, or engage in any business or enterprise
- 4 -
<PAGE>
competitive with the business of Company -- i.e., selling media on college
campuses -- or serve as an officer, director to employee of, or consultant to,
or own any interest in, any entity which competes, directly or indirectly, with
such business of Company. Notwithstanding the foregoing, Executive may own
securities of any publicly held entity provided that such securities do not
represent more than two (2%) percent of the outstanding voting securities of
such entity.
7.4 Certain Activities. Executive agrees that he will not, during
the term of Executive's employment hereunder and for the balance of the term of
this Agreement, if the Executive is terminated for cause or leaves voluntarily,
directly or indirectly, offer to hire, hire, entice away or in any other manner
persuade or attempt to persuade any officer, employee, agent, customer,
prospective customer or supplier of Company to discontinue or alter his or its
relationship with Company or take any action which constitutes an interference
with or disruption of the operation of the business of the Company.
7.5 Injunctive Relief, etc. The parties hereto hereby acknowledge
and agree that (a) Company would be irreparably injured in the event of a breach
by Executive of any of his obligations under this Section 7, (b) monetary
damages would not be an adequate remedy for any such breach, (c) Company will be
entitled to injunctive relief, in addition to any other remedy which it may
have, at law, in equity or otherwise, in the event of any such breach, and (d)
the existence of any claims which Executive may have against Company, whether
under this Agreement or otherwise, will not be a defense to the enforcement by
Company of any of its rights under this Section 7.
7.6 Scope of Restriction. It is the intent of the parties hereto
that the restrictions contained in this Section 7 will be enforced to the
fullest extent permissible under the laws and public policies of each
jurisdiction in which enforcement is sought (Executive hereby acknowledging that
said restrictions are reasonably necessary for the protection of Company).
Accordingly, it is hereby agreed that if any one or more of the provisions of
this Section a will be adjudicated to be invalid or unenforceable for any reason
whatsoever, this Section 7 will be (only with respect to the operation thereof
in the particular jurisdiction in which such adjudication in made) construed by
limiting and reducing it so as to be enforceable to the maximum extent
permissible.
7.7 Additional Undertakings. The provisions of this Section 7 will
be in addition to, and not in lieu of any other obligations with respect to the
subject matter hereof, whether arising as a matter of contract, by law or
otherwise, including, but not limited to, any obligations which may be contained
in any other agreement between Executive and Company.
- 5 -
<PAGE>
8. Intellectual Property. Executive hereby acknowledges and agrees that
all right, title and interest, proprietary or otherwise, in all software
programs and other similar properties, whether or not patented, patentable,
copyrighted, copyrightable or otherwise protected or protectable developed,
initiated as otherwise created by or with the assistance of Executive during the
Employment Term shall vest immediately and exclusively in the Company and
Executive hereby covenants and agrees to execute and deliver such agreements,
instruments and other documents necessary or appropriate to protect Company's
rights and interests therein.
9. Miscellaneous Provisions.
9.1 Execution in Counterparts. This Agreement may be executed in
one or more counterparts, each of which will be deemed an original, but all of
which together will constitute one and the same document.
9.2 Notices. All notices, requests, demands and other
communications hereunder will be in writing and will be deemed duly given when
delivered by hand or mailed by registered or certified mail or private courier
service, postage prepaid, return receipt requested, as follows:
If to Company, to:
Laser Video Network, Inc.
645 Fifth Avenue
East Wing
New York, New York 10022
Attn: Mr. Peter Kauff
Copy to:
Kramer, Levin, Naftalis & Frankel
919 Third Avenue
New York, New York 10022
Attn: Richard Marlin, Esq.
If to Executive to:
Mr. Thomas Gatti
20 Sutton Place South
New York, New York 10022
or to such other address as either party hereto will have designated by like
notice to the other party hereto.
- 6 -
<PAGE>
9.3 Amendment. This Agreement may only be supplemented, abandoned,
discharged or amended by a written instrument executed by each of the parties
hereto.
9.4 Entire agreement. This Agreement constitutes the entire
agreement of the parties hereto with respect to the subject matter hereof, and
supersedes all prior agreements and understandings of the parties hereto, oral
and written, with respect to the subject matter hereof.
9.5 Applicable Law. This Agreement will be governed by the laws of
the State of New York applicable to contracts made and to be wholly performed
therein.
9.6 Headings. The headings contained herein are for the sole
purpose of convenience of reference, and will not in any way limit or affect the
meaning or interpretation of any of the terms or provisions of this Agreement.
9.7 Binding Effect: Benefits. Executive may not delegate his
duties or assign his rights hereunder. This Agreement will inure to the benefit
of, and be binding upon, the parties hereto and their respective heirs, legal
representatives, successors and permitted assigns.
9.8 Waiver, etc. The failure of either of the parties hereto to at
any time enforce any of the provisions of this Agreement will not be deemed or
construed to be a waiver of any such provision, nor to in any way affect the
validity of this Agreement or any provision hereof or the right of either of the
parties hereto to thereafter enforce each and every provision of this Agreement.
No waiver of any breach of any of the provisions of this Agreement will be
effective unless set forth in a written instrument executed by the party against
whom or which enforcement of such waiver is sought; and no waiver of any such
breach will be construed or deemed to be a waiver of any other or subsequent
breach.
9.9 Capacity, etc. Executive hereby represents and warrants to
Company that: (a) he has full power, authority and capacity to execute and
deliver this Agreement, and to perform his obligations hereunder, (b) such
execution, delivery and performance will not (and with the giving of notice.or
lapse of time or both would not) result in the breach of any agreements or other
obligations to which he is a party or otherwise bound, and (c) this Agreement is
his valid and binding obligation enforceable against him in accordance with its
terms. Company hereby represents that it has the full power and authority to
execute and deliver this Agreement and to perform its obligations hereunder and
this Agreement is the valid and binding obligation of Company enforceable
against it in accordance with its terms.
- 7 -
<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed and delivered by
the parties hereto as of the date first above written.
LASER VIDEO NETWORK, INC.
By: /s/ Peter Kauff
-----------------
Peter Kauff, Chairman
Executive:
By; /s/ Tom Gatti
-------------
Tom Gatti
- 8 -
EMPLOYMENT AGREEMENT
AGREEMENT dated the 1st day of August, 1996 between UC TELEVISION
NETWORK CORP., a Delaware corporation ("the Company"), and ROBERT DOUGLAS
("Executive") residing at 74-43 64th Lane, Glendale, New York 11385.
W I T N E S S E T H :
---------------------
WHEREAS, Company wishes to employ Executive and Executive wishes such
employment, all upon the terms and conditions herein contained.
NOW,THEREFORE, in consideration of the covenants herein contained, the
parties hereto hereby agree as follows:
1. Employment.
1.1 General. Company hereby employs Executive in the capacity of
Vice President - (non-corporate) - Affiliate Sales, and Executive hereby accepts
such employment, all subject to the terms and conditions herein obtained. In
such capacity, Executive agrees to perform such (consistent with his position)
as may be assigned to Executive from time to time by the Company.
1.2 Full-Time Position. Executive hereby agrees that during the
Employment Term (as defined in Section 3 hereof) he will devote substantially
all of his business time, attention and skills to the business and affairs of
the Company and its subsidiaries, except during vacation time and any periods of
illness. The Company acknowledges that the Executive has other business
interests, briefly described on Exhibit A hereto, which do not conflict with
Executive's employment, provided that the Executive shall not spend more than 5%
of his time during normal business hours in connection with such other business
interests.
2. Compensation.
2.1 Base Salary. Subject to the terms and conditions herein
contained, Company will pay to Executive, and Executive will accept, for all
services which may be rendered by him pursuant to this Agreement an annual base
salary ("Base Salary") at the rate of $75,000 per year through September 30,
1996 and $80,000 thereafter. The Base Salary shall be payable in such
installments as in effect from time to time in accordance with the payroll
practices of the Company.
2.2 Stock Options. The Executive shall be granted 15,000 stock
options under the Company's Stock Option Plan. The Options provided for herein
shall be exercisable at the fair market value of the Company's common stock on
the date
<PAGE>
of signing of this Agreement, shall have a duration of five (5) years and
otherwise conform to the terms and provisions of the Company's Stock Option Plan
and the Company's basic form of Stock Option Agreement adopted pursuant to the
Plan.
3. Term of Employment. The employment by Company of Executive pursuant
hereto will commence on the date hereof and, subject to the provisions of
Section 4, will terminate on July 31, 1997 "Employment Term").
4. Premature Termination.
4.1 Events of Termination. Anything in this Agreement contained to
the contrary notwithstanding, Executive's employment hereunder will terminate
upon the following events and conditions:
(a) Death. Executive's employment hereunder will
terminate forthwith upon the death of Executive.
(b) Disability. Executive's employment hereunder will
terminate, at the option of Company, in the event that Company
makes a good faith determination that Executive is so
disabled, for mental or physical reasons, as to be unable to
substantially perform his duties hereunder for an aggregate of
120 days during any period of 12 consecutive months of which
at least 60 days are consecutive.
(c) By Company For Cause. Executive's employment
hereunder will terminate, at the option of Company, in the
event (i) Executive engages in any conduct, action or behavior
that has or may reasonably be expected to have a material
adverse effect on the reputation of Company, or Executive's
reputation or that is not befitting of a senior executive of
Company; or (ii) Executive commits an act involving moral
turpitude or dishonesty, whether or not in connection with
Executive's employment hereunder; or (iii) of a material
failure an the part of Executive to perform his obligations
hereunder, which failure is not remedied within 10 days after
notice thereof is furnished by Company to Executive.
4.2 Notice. In the event of the termination of Executive's
employment pursuant to Section 4.1(b) and 4.1(c) above, not less than 10 days'
prior written notice of such termination will be given by Company to Executive,
which notice will specify the effective date of termination.
- 2 -
<PAGE>
4.3 Payment Upon Premature Termination.
(a) Termination Upon Death or Disability. In the
event that Executive's employment hereunder is terminated
pursuant to Section 4.1(a) or 4.1(b), Executive will be paid
his Base Salary and any unpaid bonuses which may have been
awarded to him as payment in full of all amounts due and owing
by Company to Executive.
(b) Termination by Company for Cause. In the event
that Executive's employment hereunder is terminated pursuant
to Section 4.1(c), Executive will be paid his Base Salary up
to the effective date of termination as payment in full.
(c) Termination by Company Without Cause. In the
event that Executive's employment hereunder is terminated
other than pursuant to Section 4.1(a), (b) or (c) above,
Executive will be paid, as liquidated damages, Bass Salary for
the lesser of (i) 12 months from the date of termination or
(ii) the then remaining term hereof.
5. Expenses. Company will reimburse Executive (upon the submission by
him of reasonably itemized accounts thereof) for such costs and expenses as
Executive may reasonably incur in connection with the performance by him of his
duties hereunder in accordance with Company's policy with respect thereto as in
effect from time to time during the term of this Agreement.
6. Benefits
6.1 Participation in Executive Benefit Plans. Executive will
participate in all benefits and plans which Company say from time to time,
during the term of Executive's employment hereunder, provide for its employees
and for which Executive is eligible.
6.2 Vacation. Executive will be entitled to take three weeks paid
vacation in each twelve-month period during the term hereof.
7. Nondisclosure: Noncompete.
7.1 "Confidential Information" Defined. As used in this Section 9,
the term "Confidential Information" will mean any and all information (verbal
and written) relating to Company or any of its operations, other than such
information which is in the public domain other than as the result of a breach
of the provisions of Section 7.2 below, including, but not limited to,
information relating to: identity and description of services used; purchasing;
costs; pricing; design and development; customers and prospects; marketing; and
selling and servicing.
- 3 -
<PAGE>
7.2 Nondisclosure of Confidential Information. Executive hereby
agrees not to, at any time, directly or indirectly use, communicate, disclose or
disseminate any Confidential Information in any manner whatsoever.
7.3. Non-Compete. Executive agrees that he will not, during the
term of Executive's employment hereunder, directly or indirectly, compete, or
engage in any business or enterprise competitive with the business of Company,
as conducted from time to time, or serve as an officer, director to employee of,
or consultant to, or own any interest in, any entity which competes, directly or
indirectly, with such business of Company. Notwithstanding the foregoing,
Executive may own securities of any publicly hold entity provided that such
securities do not represent more than two (2%) percent of the outstanding voting
securities of such entity, and may continue with his present outside business
interests, as disclosed on Exhibit A.
7.4 Certain Activities. Executive agrees that he will not, during
the term of Executive's employment hereunder, directly or indirectly, offer to
hire, hire, entice away or in any other manner persuade or attempt to persuade
any officer, employee, agent, customer, prospective customer or supplier of
Company to discontinue or alter his or its relationship with Company or take any
action which constitutes an interference with or disruption of the operation of
the business of the Company.
7.5 Injunctive Relief, etc. The parties hereto hereby acknowledge
and agree that (a) Company would be irreparably injured in the event of a breach
by Executive of any of his obligations under this Section 7, (b) monetary
damages would not be an adequate remedy for any such breach, (c) Company will be
entitled to injunctive relief, in addition to any other remedy which it may
have, at law, in equity or otherwise, in the event of any such breach, and (d)
the existence of any claims which Executive may have against Company, whether
under this Agreement or otherwise, will not be a defense to the enforcement by
Company of any of its rights under this Section 7.
7.6 Scope of Restriction. It is the intent of the parties hereto
that the restrictions contained in this Section 7 will be enforced to the
fullest extent permissible under the laws and public policies of each
jurisdiction in which enforcement is sought (Executive hereby acknowledging that
said restrictions are reasonably necessary for the protection of Company).
Accordingly, it is hereby agreed that if any one or more of the provisions of
this Section a will be adjudicated to be invalid or unenforceable for any reason
whatsoever, this Section 7 will be (only with respect to the operation thereof
in the particular jurisdiction in which such adjudication in made) construed by
limiting and reducing it so as to be enforceable to the maximum extent
permissible.
- 4 -
<PAGE>
7.7 Additional Undertakings. The provisions of this Section 7 will
be in addition to, and not in lieu of any other obligations with respect to the
subject matter hereof, whether arising as a matter of contract, by law or
otherwise, including, but not limited to, any obligations which may be contained
in any other agreement between Executive and Company.
8. Intellectual Property. Executive hereby acknowledges and agrees that
all right, title and interest, proprietary or otherwise, in all software
programs and other similar properties, whether or not patented, patentable,
copyrighted, copyrightable or otherwise protected or protectable developed,
initiated as otherwise created by or with the assistance of Executive during the
Employment Term shall vest immediately and exclusively in the Company and
Executive hereby covenants and agrees to execute and deliver such agreements,
instruments and other documents necessary or appropriate to protect Company's
rights and interests therein.
9. Miscellaneous Provisions.
9.1 Execution in Counterparts. This Agreement may be executed in
one or more counterparts, each of which will be deemed an original, but all of
which together will constitute one and the same document.
9.2 Notices. All notices, requests, demands and other
communications hereunder will be in writing and will be deemed duly given when
delivered by hand or mailed by registered or certified mail or private courier
service, postage prepaid, return receipt requested, as follows:
If to Company, to:
UC Television Network Corp.
645 Fifth Avenue
East Wing
New York, New York 10022
Attn: Mr. Peter Kauff
Copy to:
Kramer, Levin, Naftalis & Frankel
919 Third Avenue
New York, New York 10022
Attn: Richard Marlin, Esq.
If to Executive to:
Mr. Robert Douglas
74-43 64th Lane
Glendale, New York 11385
- 5 -
<PAGE>
or to such other address as either party hereto will have designated by like
notice to the other party hereto.
9.3 Amendment. This Agreement may only be supplemented, abandoned,
discharged or amended by a written instrument executed by each of the parties
hereto.
9.4 Entire agreement. This Agreement constitutes the entire
agreement of the parties hereto with respect to the subject matter hereof, and
supersedes all prior agreements and understandings of the parties hereto, oral
and written, with respect to the subject matter hereof.
9.5 Applicable Law. This Agreement will be governed by the laws of
the State of New York applicable to contracts made and to be wholly performed
therein.
9.6 Headings. The headings contained herein are for the sole
purpose of convenience of reference, and will not in any way limit or affect the
meaning or interpretation of any of the terms or provisions of this Agreement.
9.7 Binding Effect: Benefits. Executive may not delegate his
duties or assign his rights hereunder. This Agreement will inure to the benefit
of, and be binding upon, the parties hereto and their respective heirs, legal
representatives, successors and permitted assigns.
9.8 Waiver, etc. The failure of either of the parties hereto to at
any time enforce any of the provisions of this Agreement will not be deemed or
construed to be a waiver of any such provision, nor to in any way affect the
validity of this Agreement or any provision hereof or the right of either of the
parties hereto to thereafter enforce each and every provision of this Agreement.
No waiver of any breach of any of the provisions of this Agreement will be
effective unless set forth in a written instrument executed by the party against
whom or which enforcement of such waiver is sought; and no waiver of any such
breach will be construed or deemed to be a waiver of any other or subsequent
breach.
9.9 Capacity, etc. Executive hereby represents and warrants to
Company that: (a) he has full power, authority and capacity to execute and
deliver this Agreement, and to perform his obligations hereunder, (b) such
execution, delivery and performance will not (and with the giving of notice.or
lapse of time or both would not) result in the breach of any agreements or other
obligations to which he is a party or otherwise bound, and (c) this Agreement is
his valid and binding obligation enforceable against him in accordance with its
terms. Company hereby represents that it has the full power and authority to
execute and deliver this Agreement and to perform its obligations
- 6 -
<PAGE>
hereunder and this Agreement is the valid and binding obligation of Company
enforceable against it in accordance with its terms.
IN WITNESS WHEREOF, this Agreement has been executed and delivered by
the parties hereto as of the date first above written.
UC TELEVISION NETWORK CORP.
By:/s/ Peter Kauff
----------------
Peter Kauff, Chairman
Executive:
/s/ Robert Douglas
------------------
Robert Douglas
- 7 -
<PAGE>
EXHIBIT A
A. MEMBER-BOARD OF DIRECTORS
The Great American Ice Cream Machine Company
Massapequa, NY
STOCK PARTICIPATION
1.5% Outstanding Stock - when issued
B. AS CONSULTANT
Apple Amusement, Inc.
11-07 East Gun Hill Road
Bronx, NY 10469
- 8 -
THIRD AMENDMENT AGREEMENT
Agreement between UC Television Network Corp., a Delaware corporation
("Employer"), and Peter Kauff ("Executive"), dated as of September 12, 1996.
The Employer and the Executive are parties to an Amended and Restated
Employment Agreement dated as of November 1, 1991, as amended by an Amendment
Agreement dated as of February 1, 1994 and as further amended by a Second
Amendment Agreement dated as of October 1, 1996 (the "Employment Agreement"),
and desire to further amend the Employment Agreement to provide for an extension
of the term of employment and increased compensation to be payable to Executive.
Accordingly, the parties hereto hereby agree as follows:
1. Section 2.1 of the Employment Agreement is hereby amended as
follows: Effective as of September 16, 1996, the Employee's "Base Salary" of
$200,000 per year stated therein shall be increased to $250,000 per year for the
balance of the Employment Term, and the Consumer Price Index adjustment in the
last two sentences of said Section 2.1 shall be deleted.
2. Section 2.2 of the Employment Agreement is hereby amended to read in
its entirety as follows:
"2.2 Bonuses. In addition to the Base Salary, the Executive
will receive the following bonuses during the Employment Term:
(a) An annual bonus equal to 5.0% of the Pre-tax Income
(as hereinafter
<PAGE>
defined) of the Employer, such bonus not to exceed $500,000
for any year.
(b) Pre-tax Income for each fiscal year will, for
purposes of this Agreement, be deemed to be an amount equal
to the earnings of the Employer, as reflected in the
certified financial statements of the Employer for such
fiscal year, (i) before taxes, (ii) without giving effect to
the payment of a bonus to the Executive under Section
2.2(a), and (iii) without giving effect to the payment of a
bonus to any employee of the Employer."
3. Section 2.3 and 2.4 of the Employment Agreement are hereby deleted
in their entirety.
4. Section 3 of the Employment Agreement is hereby amended to change
the date "September 30, 1998" stated therein to "December 31, 2000."
5. Section 4.3(c) of the Employment Agreement is hereby amended to read
in its entirety as follows:
"(c) Termination Without Cause; Change in Control. In
the event that (i) the Executive's employment hereunder is
terminated for any reason other than pursuant to death,
disability or for cause, as set forth in paragraphs 4.1(a),
(b) and (c), respectively, above, or (ii) there is a change
in control (as defined below) of Employer which results in
an actual or constructive termination of employment (as
defined below), then (x) Executive will be paid an amount
equal to all unpaid Base Salary through the end of the
Employment Term, and (y) all of Executive's outstanding
options will be deemed vested.
The amount under clause (x) above, (A) shall not exceed
two years' Base Salary nor be less than one year's Base
Salary and
2
<PAGE>
(B) must be paid to Executive in full without offset for any
reason within ten (10) days following Employer's declaration
of termination of employment; and, if not, all of
Executive's rights to full compensation and damages, not
limited by this provision, shall remain in effect. Upon
receipt of such liquidated damages payment, Executive agrees
to waive all further rights with respect to his entitlement
to compensation from Employer, including his right to seek
litigation or arbitration to enforce such rights. Nothing in
this Section 4.3(c) shall prohibit the Employer from
subsequently seeking repayment of monetary obligations of
the Executive owed to Employer (e.g. just debts or similar
amounts).
A "change in control" shall mean the individuals who
currently constitute the directors of Employer, or
individuals elected by more than two-thirds of such current
directors to replace any of such current directors, no
longer constitute a majority of the directors of Employer. A
"constructive termination of employment" shall mean any of
the following, if done without Executive's consent and
having a material adverse effect on Executive's employment
or the conditions under which Executive works: (i) a change
in Executive's title, duties or responsibilities, including
the person or body to whom Executive reports, (ii) a change
in the location where Executive's services are rendered,
(iii) any reduction in compensation or fringe benefits or
change of any other term of Executive's employment, or (iv)
any other breach of the terms of Executive's employment by
Employer. A constructive termination shall be determined by
Exective in Executive's sole, reasonable discretion."
6. Section 7 of the Employment Agreement is hereby amended by inserting
the following at the end of said section:
"(c) In connection with Executive's employment
hereunder, Employer hereby grants to Executive (i) an
incentive stock option to purchase 162,500 shares of Common
Stock of Employer, pursuant to the terms of Employer's 1996
Stock Incentive Plan (the "1996 Plan")
3
<PAGE>
and (ii) a non-qualified stock option to purchase 337,500
shares of Common Stock outside the 1996 Plan, in accordance
with and subject to the terms of the stock option agreement
to be executed by the parties hereto in the form attached
hereto as Exhibit E."
7. Except to the extent specifically amended hereby, the provisions of
the Employment Agreement shall remain unmodified, and as amended hereby the
Employment Agreement is hereby confirmed as being in full force and effect.
IN WITNESS WHEREOF this Third Amendment Agreement has been executed and
delivered by the parties hereto as of the date first above written.
UC TELEVISION NETWORK CORP.
By: /s/ Alan Pearl
------------------
Name: Alan Pearl
Title:
/s/ Peter Kauff
---------------
Peter Kauff
4
SECOND AMENDMENT AGREEMENT
Agreement between UC Television Network Corp., a Delaware corporation
("Employer"), and Alan Pearl ("Executive"), dated as of September 12, 1996.
The Employer and the Executive are parties to an Employment Agreement
dated as of September 16, 1992, as amended by an Amendment Agreement dated as of
September 16, 1992 (the "Employment Agreement"), and desire to further amend the
Employment Agreement to provide for an extension of the term of employment and
increased compensation to be payable to Executive. Accordingly, the parties
hereto hereby agree as follows:
1. Section 2.1 of the Employment Agreement is hereby amended by
deleting the first sentence thereof and inserting the following:
"Subject to the terms and conditions herein contained, Employer
will pay to Executive, and Executive will accept, for all services
which may be rendered by him pursuant to this Agreement, an annual
base salary ("Base Salary") of (a) $105,000 for the period of
September 16, 1996 to September 30, 1997, (b) $112,500 for the period
of October 1, 1997 to September 30, 1998 and (c) $120,000 for the
period of October 1, 1998 to September 30, 1999. Commencing October 1,
1997 and each October 1 thereafter during the Employment Term,
Executive's Base Salary shall be increased by that percentage, if any,
by which the Consumer Price Index, Urban Wager Earner's, for the New
York, New York Metropolitan area, published by the United States
Government for the month beginning on such October 1 exceeds such
Index for the preceding October. The parties hereto hereby agree that
if the above Index is not readily available, they will agree on a
reasonable equivalent thereof."
<PAGE>
2. Section 3 of the Employment Agreement is hereby amended to change
the date "September 15, 1997" stated therein to "September 30, 1999".
3. Section 6.2 of the Employment Agreement is hereby amended by
inserting "(a)" after the header and by adding the following after the first
paragraph:
"(b) In connection with Executive's employment hereunder,
Employer hereby grants to Executive an option to purchase 36,000
shares of Common Stock of Employer, at an exercise price of $1.3125
per share, which Employer and Executive agree is equal to fair market
value thereof, pursuant to the terms of Employer's 1996 Stock
Incentive Plan and in accordance with and subject to the terms of the
stock option agreement to be executed by the parties hereto in the
form attached hereto as Exhibit D."
4. Except to the extent specifically amended hereby, the provisions of
the Employment Agreement shall remain unmodified, and as amended hereby the
Employment Agreement is hereby confirmed as being in full force and effect.
IN WITNESS WHEREOF this Second Amendment Agreement has been executed
and delivered by the parties hereto as of the date first above written.
LASER VIDEO NETWORK, INC.
By: /s/ Peter Kauff
---------------
Name: Peter Kauff
Title:
/s/ Alan Pearl
--------------
Alan Pearl
PROGRAMMING AGREEMENT
This Programming Agreement (the "Agreement") is entered into as of this
5th day of November, 1996 by and between UC Television Network Corp. ("UCTN") a
Delaware corporation, with its principal place of business at 645 Fifth Avenue,
East Wing, New York, New York 10022 ("UCTN"), and Turner Private Networks, Inc.
a Georgia corporation, with its principal place of business at One CNN Center,
P.O. Box 105366, Atlanta, Georgia 30348-5366 ("Turner"). (UCTN and Turner are
collectively referred to herein as the "Parties").
WITNESSETH:
-----------
WHEREAS, UCTN owns and operates the UCTV Network (the "Network") which
provides programming in a place-based single channel environment in common areas
on college campuses;
WHEREAS, UCTN desires that Turner provide the Programs (as hereinafter
defined) to UCTN for exhibition on the Network;
WHEREAS, Turner desires to become the exclusive supplier of news and
sports programming to UCTN for exhibition on the Network;
THEREFORE, in consideration of the mutual covenants contained herein
and the mutual benefits to be derived therefrom and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties agree as follows:
I. Representations and Authorizations
A. UCTN.
UCTN represents and warrants to Turner: (i) that it is the owner and
operator of the Network and hereby grants to Turner the exclusive
right to provide programming to the Network as described herein; (ii)
that it has the full power and authority to execute, deliver and
perform under this Agreement and to consummate any and all
transactions provided for herein; and (iii) that the execution,
delivery and performance of this Agreement and the consummation of any
and all transactions contemplated by this Agreement, and the
fulfillment of and compliance with the terms and conditions of this
Agreement do not and will not violate or conflict with, or constitute
a material breach of or default under, any existing contracts or
commitments to which UCTN is a party or by which it may be bound.
<PAGE>
B. Turner.
Turner represents and warrants to UCTN: (i) that it has the full power
and authority to execute, deliver and perform under this Agreement and
to consummate any and all transactions provided for herein; (ii) that
the execution, delivery and performance of this Agreement, and the
consummation of any and all transactions contemplated by this
Agreement, and the fulfillment of and compliance with the terms and
conditions of this Agreement do not and will not violate or conflict
with, or constitute a material breach of or default under, any
existing contracts or commitments to which Turner is a party or by
which it may be bound; (iii) that the Programs do not violate any
third party's right of copyright; (iv) any re-use, residual and other
similar fees payable with respect to the production and distribution
of the Programs have or will be paid by Turner; and (v) that the
non-dramatic performing rights to each musical composition in each
Program are: (a) controlled by ASCAP, BMI or SESAC; (b) controlled by
Turner to the extent necessary to permit UCTN's use of the Programs as
authorized hereunder; or (c) in the public domain. To the extent
rights and clearances to musical compositions and recordings necessary
for UCTN's use of the Programs are not controlled by Turner, UCTN
acknowledges that such rights and clearances are not granted herein,
and UCTN shall, at its sole cost and expense, secure all necessary
public performance licenses necessary for the exhibition by UCTN of
each musical composition contained in each Program.
II. Term and Exhibition Period
The term of this Agreement shall commence on the date of execution of this
Agreement and shall continue through December 31, 1999 (the "Term"). The
Exhibition Period for the Programs licensed hereunder shall be January 1,
1997 to December 31, 1999 (the "Exhibition Period").
III. Programs and Features
A. Description.
Throughout the Term, Turner shall produce and provide to UCTN a total
of four hundred sixty two (462) news and sports programs, each of
which shall be approximately seven to ten (7-10) minutes in duration
and shall be comprised of topical segments, including News; Sports;
College Weather Scroll; and Factoids (the "Program(s)"). The Programs
shall be of first-class broadcast quality according to generally
accepted industry standards and shall be comparable to other CNN
programs. The host, the format and the set for the Programs, as well
as the graphics included as part of the Programs, shall
- 2 -
<PAGE>
be mutually agreeable to UCTN and Turner, when considered in the
context of the budget for the Programs. The foregoing matters shall be
agreed upon by the parties not later than November 30, 1996. Turner
shall have absolute and complete discretion, editorial and otherwise,
with respect to the content, production, editing and updating of the
Programs. In addition, it is expressly acknowledged and agreed that
the Cable News Network ("CNN") logo shall appear on-screen at all
times in the Programs, and that the CNN logo shall be of a size
generally accepted in the television industry.
B. Delivery.
Turner shall assemble and deliver the Programs to UCTN for exhibition
on the dates set forth on the Delivery Schedule attached hereto as
Exhibit "A" and incorporated herein by reference. With respect to
costs of delivery, Turner shall be responsible for the expense of
transmitting the Programs via a T-1 line to Hughes satellite
facilities in Germantown, Maryland for UCTN's distribution to
individual colleges. Turner may, at its sole option, utilize a direct
satellite feed to the Hughes facilities in lieu of the T-1 line. UCTN
shall be responsible for any expenses incurred downlinking any such
satellite feed; for all expenses related to the MPEG- I encoding
system and the installation thereof, which system shall be mutually
acceptable to both parties with regard to technical performance, video
quality and operating characteristics; and for all T-1 connecting
equipment and installation costs at all connection points.
IV. Program Fee and Payment Schedule
A. Program Fee.
As consideration for the Programs supplied to UCTN under this
Agreement, UCTN agrees to pay Turner the amount of Eight Hundred
Ninety Thousand Ninety-Five Dollars ($890,095.00) (the "Program Fee").
B. Payment.
The Program Fee shall be paid to Turner as follows:
Thirty Thousand Dollars ($30,000.00) upon execution of this Agreement;
The balance of the Program Fee (Eight Hundred Sixty Thousand
Ninety-Five Dollars) ($860,095.00) shall be paid in thirty-six (36)
equal monthly installments of Twenty-Three Thousand Eight Hundred
Ninety-One Dollars ($23,891.00) each, due on the first (1st) day of
each month of the Term, commencing on January 1, 1997.
- 3 -
<PAGE>
V. Ownership, Copyright and Distribution
A. Ownership and Copyright of the Programs.
It is expressly acknowledged and agreed that, as between UCTN and
Turner, Turner shall own and retain, throughout the universe, and in
perpetuity, the exclusive ownership of all rights in and to the
Programs, including all rights of trademark (other than UCTN
trademarks used in the Programs), copyright and copyright renewal. In
addition, Turner shall have the exclusive right and interest in and to
any royalty payments deriving from the Programs to which it may be
entitled pursuant to Sections 111(d) and 119 of the Copyright Act of
1976, as now existing or hereafter amended (the "Copyright Act"), or
similar legislation that may hereafter be enacted, or from any other
entity collecting and distributing retransmission royalties anywhere
throughout the universe. Turner, or its designee(s), may make whatever
application is necessary to petition for such royalty payments. UCTN
and/or the Network agree to perform all such acts and execute all such
documents as Turner may, in its sole discretion desire or require in
order to comply with the requirements of the Copyright Act, such
similar legislation or such other entity. Turner's exclusive ownership
and control of the Programs shall be absolute and without any further
obligation whatsoever to UCTN or to any third party except as
specifically provided herein.
B. UCTN's Use of Programs.
Turner grants to UCTN the right to exhibit the Programs on the Network
once per hour at such time as UCTN in its discretion may decide.
Except as otherwise provided below in this Paragraph V(B), UCTN shall
not edit, insert material into, or otherwise alter the material
contained in the Programs as delivered by Turner. The foregoing
restriction shall not apply to insertions of advertising materials or
to local segments produced by colleges or universities in designated
spots in the Program(s). UCTN may not exhibit or otherwise use any
Program or any portion thereof in any inspect after the date upon
which such program is initially exhibited without the written consent
of Turner. Turner may not market, sell, license or otherwise
distribute the Programs to any other party; provided, however, that
Turner may exercise its rights with respect to individual segments of
the Program(s) (the "Segments"). Turner's rights in and to the
Segments shall include, without limitation, the right to distribute,
transmit, display, project, exhibit, license, simulcast, cablecast,
telecast, broadcast and otherwise exploit the Segments and any
portions thereof, and the right to authorize others to exercise such
rights, throughout the universe, in any and all languages, in
perpetuity, and in any and all media, whether now known or hereafter
devised.
- 4 -
<PAGE>
VI. Advertising Time and Content
Except as provided in this paragraph, UCTN shall have the right to sell all
advertising time within the Programs and to retain all revenue derived
therefrom. It is expressly acknowledged and agreed that Turner shall
receive one (1) thirty second promotional spot per hour to use for
promotional advertising for cable networks owned and/or operated by Turner
Broadcasting System, Inc. not to exceed a value of three hundred fifty
thousand dollars ($350.000.00) for year one (1997), with an increase of ten
percent (10%) for year two (1998) and an additional increase of ten percent
(10%) for year three (1999), which value shall be calculated by using the
lowest rate paid to UCTN by any paid advertiser. Turner shall receive the
foregoing thirty second promotional spot per hour regardless of the value
of such spot(s) during 1997.
VII. Exclusivity; Right of First Negotiation
Turner shall be the exclusive programming supplier of news and sports
programming for the Network during the Term of this Agreement; provided,
however, that such exclusivity shall not prevent UCTN from obtaining and
excluding local segments produced by colleges and universities. Turner
shall have, at all times, a right of first negotiation with respect to
continuing as the exclusive news and sports programming supplier for the
Network, and with respect to becoming the exclusive advertising sales
representative for the Network.
Specifically, UCTN agrees that prior to negotiating with any other party
regarding the right to produce or provide news and sports programming to
the Network, or regarding the exclusive right to sell advertising on the
Network, UCTN shall notify Turner in writing and shall negotiate in good
faith with Turner for a period of not more than thirty (30) days from
Turner's receipt of such notice to arrive at an agreement pertaining to
Turner's continuing as the exclusive news and sports programming supplier
for the Network or becoming the exclusive advertising sales representative
for the Network. If UCTN and Turner are unable to reach an agreement within
said thirty (30) day period, UCTN may then negotiate with other parties
regarding the rights mentioned above.
This paragraph shall survive the termination of this Agreement.
For the period commencing on the date of this Agreement and terminating on
the first anniversary date of the date of this Agreement, Turner shall have
a two week, "first look" right with respect to programming produced by UCTN
for non residential use; provided, however, such "first look" right shall
not apply to programming to be displayed by UCTN or an affiliate of UCTN.
- 5 -
<PAGE>
VIII. Good Faith Negotiation Regarding Future Business Relationship
The Parties agree to negotiate in good faith with respect to establishing a
future business arrangement between them, which shall include possible
equity participation in UCTN by Turner as well as joint marketing of
advertising time on the Network for a period of ninety (90) days from the
date of execution of this Agreement; provided, however, that this Agreement
and the parties' performance hereunder is in no respect conditioned upon
the outcome of the negotiations referenced in this paragraph.
IX. General Provisions.
A. Indemnification.
1. Turner hereby agrees to assume liability for, and shall
indemnify, defend, protect, save and hold harmless UCTN, the
Network, their related entities, and their respective agents,
officers, directors, employees, successors, licensees, assignees
and attorneys, from and against any and all claims,
counterclaims, actions, suits, costs, liabilities, liens,
judgments, obligations, losses, penalties, damages or expenses of
any nature whatsoever, including, without limitation, reasonable
attorneys' fees (including, without limitation, an applicable
share of in-house attorneys' costs and expenses) and court costs,
whether fixed or contingent, threatened or actual, known or
unknown, liquidated or unliquidated, of any kind or nature
whatsoever (collectively, "Claims"), imposed on, incurred by, or
asserted against UCTN, the Network, their related entities, and
their respective agents, officers, directors, employees,
successors, licensees, assignees and attorneys, by any third
party, arising out of or related to, or allegedly arising out of
or related to the Programs, including, but not limited to, any
actual or alleged libel, slander, invasion of privacy or
infringement of copyright or other intellectual property rights,
or any breach or alleged breach of any representation, warranty,
covenant or obligation of Turner contained in or made pursuant to
this Agreement, except to the extent any Claim arises out of or
relates to a breach by UCTN of any of its representations,
warranties, covenants or obligations contained herein or made
pursuant hereto.
2. UCTN hereby agrees to assume liability for, and shall indemnify,
defend, protect, save and hold harmless Turner and its related
entities, and their respective agents, officers, directors,
employees, successors, licensees, assignees and attorneys, from
and against, any and all Claims imposed on, incurred by, or
asserted against Turner and its related entities, and their
respective agents, officers, directors, employees,
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<PAGE>
successors, licensees, assignees and attorneys, by any third
party, arising out of or related to, or allegedly arising out of
or related to any breach or alleged breach of any representation,
warranty, covenant or obligation of UCTN contained in or made
pursuant to this Agreement, except to the extent any Claim arises
out of or relates to a breach by Turner of any of its
representations, warranties, covenants or obligations contained
herein or made pursuant hereto.
B. Termination.
1. If either party is in default in the performance of its material
obligations hereunder, the non-defaulting party may terminate
this Agreement if such default if curable, remains uncured after
receipt of five (5) days' written notice from the non-defaulting
party.
In the event of termination of this Agreement by UCTN for any
reason other than a material breach of this Agreement by Turner,
which, for purposes of this Agreement, shall include the failure
to deliver or withdrawal of an aggregate of three (3) Programs,
Turner shall then, upon presentment of proper documentation
and/or receipts, be entitled to receive payment for all
outstanding costs and expenses incurred by Turner in connection
with producing the Programs, as well as all actual out-of-pocket
closing costs associated with terminating production and delivery
of the Programs to UCTN (such costs to include, without
limitation, severance payments, if necessary, in accordance with
Turner standard policies, and remaining capital costs
outstanding); provided, however, that in no event shall UCTN's
payment pursuant to this provision exceed the amount representing
the unpaid portion of the Program Fee.
2. In the event this Agreement is terminated by UCTN for any reason,
other than a material breach of this Agreement by Turner, UCTN
agrees that it shall not have discussions with any third party
regarding news and sports programming rights nor shall it grant
such rights to any third party for a period of six (6) months
following termination of this Agreement; provided, however, that
upon remitting to Turner any -------- ------- unpaid portion of
the Program Fee, UCTN shall have the right to negotiate and/or
enter into an agreement with any third party, provided UCTN has
complied with the provisions of paragraph VII of this Agreement.
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<PAGE>
C. Withdrawal Rights.
Turner may, in its absolute discretion, permanently or temporarily
withdraw any Program or any portion thereof at any time as it deems
necessary or advisable in the exercise of its sound business judgment
and any such withdrawals, interruption, delay or interference shall
not constitute or be deemed to be a breach of this Agreement;
provided, however, that Turner agrees to use its best efforts to
deliver a substitute Program as soon as possible.
In the event Turner withdraws or fails to deliver a Program, Turner
shall reimburse or credit UCTN for: (i) The pro-rata portion of the
Program Fee allocable to such Program; and (ii) lost advertising
revenue from advertising time which actually has been sold with
respect to such withdrawn Program.
D. Force Majeure.
Neither party shall be liable to the other for any failure to perform
under this Agreement caused by or due to an event of force majeure,
such as any act of God, inevitable accident, fire, lockout, strike or
other labor dispute, riot or civil commotion, act of public enemy,
failure of transportation facilities, enactment, rule, order or act of
government or governmental instrumentality (whether domestic or
international and whether federal, state or local, or the
international equivalent thereof), failure of technical facilities,
including satellite failures or feed failures, or any other cause of
any nature whatsoever beyond the control of the Parties hereto which
was not avoidable.
E. Notices.
All notices which either party hereto is required or may desire to
give to the other party hereunder shall be in writing and shall be
given either by personal delivery (including by means of overnight
delivery services), telegram, telex (toll prepaid), telecopy or other
electronic means or by registered or certified mail (postage prepaid),
air mail if available. Such notices shall be deemed given on the date
delivered, telegraphed, telexed, telecopied or otherwise delivered by
electronic means or, if mailed, on the date received. Until further
notice, all notices given hereunder shall be addressed to Turner and
UCTN as follows:
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<PAGE>
TO TURNER:
Turner Private Networks, Inc.
Mr. John McMenamin
420 5th Avenue, 4th Floor
New York, New York 10018
Telephone: (212) 852-6684
Facsimile: (212) 852-6881
cc: Office of the General Counsel
Turner Broadcasting System, Inc.
One CNN Center, 13 North
P. O. Box 105366
Atlanta, GA 30348-5366
Attn: Kellie S. Raiford, Esq.
Telephone (404) 827-1678
Facsimile (404) 827-1995
TO UCTN:
UC Television Network Corp., lnc.
645 Fifth Avenue, East Wing
New York, New York 10022
Attn: Mr. Peter Kauff
Telephone (212) 888-0617
Facsimile (212) 755-5992
cc: Richard Marlin, Esq.
Kramer, Levin, Naftalis & Frankel
919 Third Avenue
New York, NY 10022
Telephone (212) 715-9100
Facsimile (212) 715-8000
F. Severability.
Nothing contained in this Agreement shall be construed to require the
commission of any act contrary to law, statute, ordinance, order or
regulation, and wherever there is any conflict between any provision of
this Agreement and any of the foregoing, contrary to which the Parties
hereto have no legal right to contract, such law, statute, ordinance, order
or regulation shall prevail; provided, however, in such event: (a) the
provision of this Agreement so affected shall be limited only to the extent
necessary to permit compliance with the minimum legal requirement; (b) no
other provisions of
- 9 -
<PAGE>
this Agreement shall be affected thereby; and (c) all such other provisions
shall continue in full force and effect. The Parties shall negotiate in
good faith to replace any invalid, illegal or unenforceable provision with
a valid provision, the effect of which comes as close as possible to that
of such invalid, illegal or unenforceable provision.
G. Further Documents.
Each party hereto shall execute any and all further instruments which
either party may deem reasonably necessary, desirable or proper to
carry out the purposes of this Agreement.
H. Prior Agreements; Waivers; Paragraph Headings, Modification.
This Agreement supersedes all prior agreements and understandings
between the Parties hereto, whether oral or written, pertaining to the
subject matter hereof No waiver of any term or condition of this
Agreement shall be construed as a waiver of any other term or
condition hereof; nor shall any waiver of any default under this
Agreement be construed as a waiver of any other default hereunder. The
descriptive headings of the paragraphs of this Agreement are for
convenience only and do not constitute a part of this Agreement. This
Agreement may be modified only by a written instrument executed by the
Parties hereto.
I. Governing Law.
This Agreement shall in all respects be governed by, and construed in
accordance with, the laws of the state of New York applicable to
contracts.
J. Assignments.
Neither party shall assign any of its rights or obligations hereunder,
voluntarily or by operation of law, without the prior written consent
of the other party, unless such assignment is made to an entity
controlling, controlled by or under common control with the assigning
party, or to an entity which acquires all or substantially all of the
assets of the assigning party.
K. Confidentiality.
During the term of this Agreement and thereafter, neither UCTN nor
Turner shall disclose to any third party any information regarding the
terms and conditions of this Agreement, except: (i) to the minimum
extent necessary to comply with the law or valid court order; (ii) as
part of its normal reporting or review procedure
- 10 -
<PAGE>
to its board members, shareholders, lenders, auditors and attorneys;
or (iii) in order to enforce its rights or perform its obligations
under this Agreement. Any information released to the public regarding
this Agreement, including, without limitation, press releases, must be
agreed upon and approved by both Parties.
L. Non-Compete.
During the term of this Agreement: (a) UCTN agrees that it will not
directly or indirectly compete with or attempt to compete with Turner
with respect to utilization of the Programs or any portion thereof in
any manner at any time; and (b) Turner agrees that it will not provide
customized sports and news programming to any college or university
television network or program service which is directly competitive
with UCTN. Furthermore, for a period of one (1) year following
termination of this Agreement for any reason, Turner shall not create
a college television network.
M. Survival
All representations, warranties and indemnities contained herein or
made by either party in connection herewith shall survive the
execution, delivery, suspension. expiration and termination of this
Agreement or any provision hereof
N. Relationship of Parties.
Nothing herein shall be deemed to create an employment, joint venture,
agency or partnership relationship between the parties hereto. The
Parties hereto acknowledge and represent that they are independent
contractors with respect to each other.
O. Insurance.
With respect to the Programs, Turner shall procure and maintain in
full force and effect until the end of the Term, standard producer's
liability (errors & omissions) insurance issued by a nationally
recognized insurance carrier, with minimum limits of at least
$1,000,000 for any single occurrence and $3,000,000 for all claims in
the aggregate. Such insurance shall name UCTN as an additional insured
and shall be evidenced by a Certificate of Insurance indicating that
such coverage shall be primary and not contributing to or in excess of
any such insurance maintained by UCTN. Turner shall deliver a valid
Certificate of Insurance to UCTN not later than five (5) days after
execution of this Agreement, evidencing the existence of such
insurance coverage with certified copy of the endorsement of
insurance.
- 11 -
<PAGE>
P. Reservation of Rights.
Any and all rights in and to the Programs which are not expressly
granted to UCTN herein are reserved to Turner and may be exercised,
marketed, exploited and disposed of by Turner concurrently with and
throughout the Term of this Agreement freely and without limitation or
restriction.
AGREED TO AND ACCEPTED BY:
UC TELEVISION NETWORK, INC.
By:/s/ Peter L. Kauff
------------------
Peter L. Kauff
Title: CEO
TURNER PRIVATE NETWORKS, INC.
By:/s/ Jon McMacnamara
-------------------
Jon McMacnamara
Title: President
- 12 -
<PAGE>
EXHIBIT "A"
- 13 -
Exhibit 10.17
EQUIPMENT
RENTAL AGREEMENT
This Agreement is made between Hughes Network Systems, Inc., doing business as
DirecPC(TM) (collectively "DirecPC"), having its primary place of business at
100 Lakeforest Blvd., Gaithersburg, MD 20879, and; UC Television Network Corp.
having its primary place of business at 645 Fifth Avenue-East Wing, New York, NY
10022 (Customer).
================================================================================
1. SCOPE
This Agreement governs the rental of certain equipment and the license of
certain software produced by DirecPC which is used to receive the high speed
information delivery services offered by DirecPC, as listed in Attachment A (the
"System).
2. CUSTOMER
DirecPC will provide and Customer will accept and pay for the rental of the
System, in accordance with the terms of this Agreement. All Systems rented
hereunder must be for the sole use of the Customer.
3. TERM
This Agreement shall commence on the date this Agreement is signed by both
DirecPC and Customer and shall continue for a period of thirty six months
("Initial Term"). This Agreement shall be renewed automatically for successive
periods of twelve months each unless either party delivers notice to the other
in accordance with the terms hereof at least ninety (90) days before the
termination of the then current term (the Initial Term and each such successive
twelve month term shall each be referred to as "Term"); provided, however, that
the delivery of such notice shall not impair the obligations of either party
with respect to any outstanding obligations remaining under this agreement. This
Agreement Term shall not terminate, nor shall the respective obligations of
DirecPC and Customer with respect to any System provided hereunder be affected
by reason of any loss or destruction of any such System from any cause
whatsoever, or the interference with the use thereof by any private person,
corporation or governmental authority, or as a result of any war, riot,
insurrection or Act of God (expect in any case if any caused by DirecPC).
4. SYSTEM RENTAL
Upon execution of this Agreement DirecPC shall deliver to the Customer 200
Systems in accordance with Attachment A. DirecPC will provide professional
installation services for the Systems as part of the total rental price of the
Systems. This will include 100 ft. of RG6 coaxial cable or its equivalent,
penetration of one wall and miscellaneous wire connector hardware. Installation
are Monday through Friday (8:00 a.m. - 5:00 p.m.) excluding holiday
installations and 10 business days advanced scheduling. This price does not
include the cost of, and DirecPC shall not be responsible for, the acquisition
of any permits, site surveys, engineering drawings or any similar requirements.
Installation terms other than those outlined above shall be negotiated in good
faith by the parties to this agreement.
<PAGE>
5. DELIVERY
DirecPC shall use reasonable efforts to deliver the System, suitably packaged,
to a common carrier for delivery to the destination specified by Customer on or
about the estimated shipment date. Customer acknowledges that the System will be
installed by agents of DirecPC who shall coordinate directly with Customer
regarding the date of such installation. Customer shall be responsible for
providing safe access to the premises, equipment, utilities, including
electrical and telephone services, and shall be responsible to ensure that any
end customer shall cooperate with and assist DirecPC or its agents in the
installation, troubleshooting and fault isolation of the System.
6. TITLE
Nothing contained in this Agreement shall give or convey to Customer any right,
title or interest in or to the System provided hereunder. DirecPC is hereby
authorized by Customer, to cause this Agreement, or other instrument as may be
required by law showing the interest of DirecPC and any Assignee to be filed and
Customer agrees to execute and deliver Uniform Commercial Code financing
statements reasonably required by DirecPC for such purposes. Customer shall, at
its expense, protect and defend DirecPC' s title as well as the interest of any
Assignee against all persons claiming against or through Customer and shall at
all times keep the System free and clear from any legal process, liens or
encumbrances whatsoever (except any placed thereon by DirecPC) and shall give
DirecPC immediate written notice thereof and shall indemnify and hold DirecPC
and any Assignee harmless from and against any loss caused thereby.
Notwithstanding the forgoing, upon final payment of all fees, bills, charges
and/or invoices in accordance with Article 10 below, Customer shall be entitled
to purchase the equipment contained in the 200 Systems for the sum of $1.00. In
the event that the Customer exercises its right to purchase the equipment,
DirecPC shall grant Customer a software license for the life of the equipment on
terms similar to those contained in Article 9 herein.
7. INSPECTION
Upon reasonable notice to Customer, DirecPC or its agents shall have free access
to the System at reasonable times for the purpose of inspection and for any
other purpose contemplated by this Agreement, subject to the reasonable policies
of the location.
8. DAMAGE, DESTRUCTION OR LOSS
A. From and after an installation date, Customer shall be responsible for and
hereby assumes the entire risk of loss, damage or destruction with respect to
any installed System resulting from any cause whatsoever, except that caused by
DirecPC or its agents.
B. In the event any System is materially damaged, Customer shall promptly notify
DirecPC. If such damaged System can be repaired by DirecPC under the terms of
this Agreement, DirecPC shall effect such repairs.
C. If any such System is damaged beyond repair or is lost, stolen, destroyed, in
the opinion of DirecPC rendered permanently unusable or not economically
repairable (any such occurrence hereinafter referred to as an "Event of Loss"),
then this Agreement shall continue in full force and effect without any
abatement of payments hereunder, unless such event is caused by DirecPC or its
agents. Customer shall immediately notify DirecPC of the same and, at Customers
expense, promptly replace the affected System with a like unit, in good
condition and otherwise acceptable to DirecPC, and having a fair market value
equal to that of the replaced System prior to its being so affected, free and
clear of any liens or at the discretion of the Customer, Customer may elect to
continue to make payments on the System until the end of the term without
replacement. Any such replacement System shall be the property of DirecPC and
for the purposes of this Agreement be deemed to be the System which it replaced
and thereupon shall be subject to the terms of this Agreement.
D. Any insurance proceeds received as a result of any damage to the System or an
Event of Loss shall be applied first in respect of any then unpaid obligations
of Customer hereunder, and second, provided Customer is not then in default
under this Agreement, to reimburse Customer for any payment made with respect to
the provisions of subparagraphs (B) and (C) of this Article.
<PAGE>
9. SOFTWARE LICENSE
Subject to the performance by Customer of the terms and conditions of this
Agreement, DirecPC hereby grants to Customer and Customer hereby accepts from
DirecPC a limited, nontransferable, nonexclusive license to use the System
software solely in the operation of the System commencing on the date of the
delivery of the relevant System equipment and payment therefor and to last
during the term of this Agreement only.
Customer acknowledges that any System software delivered hereunder is subject to
the proprietary rights of DirecPC, or its vendors and that DirecPC, or its
vendors, as the case may be shall retain title to all of such software.
Customer agrees that it shall not copy or duplicate or permit anyone else to
copy or duplicate, any part of the software, or create or attempt to create, or
permit others to create or attempt to create, by reverse engineering or
otherwise, the source programs or any part thereof from the object programs or
from other information made available under this Agreement
10. PRICING AND PAYMENT
In consideration of delivery to Customer of the System, Customer shall pay to
DirecPC the System rental price of $45.56 for each System, which includes
standard installation, on a monthly basis during the term of this Agreement for
a total of $1,640.16 on each Systems over thirty six (36) months. The total
price for rental of 200 Systems under this Agreement over a thirty six month
period for each System shall be $328,032.00. Payment terms are net thirty (30)
days from invoice date. Payment to commence on the 1st day of the month after
installment of a System. Customer shall pay to DirecPC interest on delinquent
balance at the rate of one and one-half percent (1.5%) per month prorated on a
daily basis.
DirecPC shall reserve a purchase money security interest in the System rented to
Customer. Customer agrees to sign any documents presented to Customer by DirecPC
to protect DirecPC's security interest under the Uniform Commercial Code.
Customer shall be liable for DirecPC's expenses (including reasonable attorneys
fees) in retaking, holding, and preparing for sale of the System obtained by
DirecPC under the Uniform Commercial Code.
11. ADDITIONAL CHARGES
In addition to the prices set forth in Attachment A, the Customer will pay to
DirecPC any duties, taxes (including any taxes on the receipts or income of
DirecPC, on either a gross or net basis, which may be assesses by any
governmental authority other than the United States or any of its political
subdivisions), export packaging, shipping (including shipping related
insurance), or similar charges incurred by DirecPC in transferring and shipping
rented Systems hereunder. Shipping costs for rented Systems hereunder, if any,
incurred by DirecPC will be billed to Customer at DirecPC's cost plus a twenty
percent (20%) handling charge. Other charges which DirecPC may be required to
pay or collect upon with respect to purchases hereunder, will be billed to
Customer at DirecPC's cost.
<PAGE>
12. LIMITED WARRANTY; LIMITATION
ON LIABILITY
System equipment delivered by DirecPC to Customer in accordance with this
Agreement, are warranted to Customer against defects in material and
workmanship. In addition, DirecPC warrants to Customer that System software
delivered hereunder shall substantially conform to the product descriptions and
specifications contained in the program documentation current on the date of
shipment. The warranty period for the System equipment and software is one (1)
year from the date of delivery of the respective item.
DIRECPC DOES NOT WARRANT THAT OPERATION OF ANY OF THE EQUIPMENT OR SOFTWARE
SHALL BE UNINTERRUPTED OR ERROR FREE IN TERMS OF ACCURACY, RELIABILITY,
CURRENTNESS OR OTHERWISE, OR THAT FUNCTIONS CONTAINED IN THE EQUIPMENT OR
SOFTWARE SHALL OPERATE IN THE COMBINATIONS THAT MAY BE SELECTED, OR THAT ERRORS
WILL BE CORRECTED.
This warranty shall be invalidated d the relevant System items; or portion
thereof (i) have not been installed, handled, or used in accordance with
DirecPC's recommended procedures and installation specifications (ii) have been
damaged through the negligence or abuse of Customer or the end user, or (iii)
are damaged by causes external to the System, including shipping damage,
improper installation by entities other than DirecPC or its agents, power
failure, air conditioning failure, or accident.
This warranty is contingent upon the Customer notifying DirecPC of an alleged
defect during the relevant warranty period. Subsequent to receiving such
notification, DirecPC shall send to Customer an advance replacement or instruct
Customer to return the allegedly defective hem to DirecPC's designated location
for repair or replacement, which return shall be made freight prepaid and packed
to assure safe arrival.
In the event that DirecPC advance replaces the allegedly defective item, the
Customer shall return such allegedly defective item to DirectPC's designated
location, freight prepaid and packed to assure safe arrival within thirty (30)
days of receipt of the advance replacement. In the event that the Customer does
not fulfill such return obligation, DirecPC shall invoice the Customer for and
the Customer shall pay to DirecPC within thirty days of the date of such invoice
the cost of the replacement hem. In the event that DirecPC repairs or replaces
defective equipment in lieu of advance replacement, DirecPC shall return
repaired or replacement equipment, freight prepaid and packed to assure safe
arrival to the Customer's designated location.
THE FOREGOING WARRANTY IS IN LIEU OF ALL OTHER WARRANTIES, EXPRESS OR IMPLIED,
INCLUDING, BUT NOT LIMITED TO, THE IMPLIED WARRANTIES OF MERCHANTABILITY AND
FITNESS FOR A PARTICULAR PURPOSE.
DIRECPC'S LIABILITY BY REASON OF SUPPLYING ANY SYSTEM EQUIPMENT OR SOFTWARE
SHALL NOT EXCEED THE LESSER OF THE COST OF REPAIR OR REPLACEMENT OF SUCH SYSTEM
EQUIPMENT OR SOFTWARE NOT ACCEPTED PLUS TEN PERCENT (10%) OF THE PRICE OF THE
SYSTEM EQUIPMENT OR SOFTWARE OR PART THEREOF ON WHICH SUCH LIABILITY IS BASED.
IN NO EVENT SHALL DIRECPC BE LIABLE TO CUSTOMER OR TO ANY OTHER PERSON FOR ANY
PUNITIVE, SPECIAL, INDIRECT OR CONSEQUENTIAL DAMAGES WHETHER ARISING OUT OF
TORT, NEGLIGENCE, BREACH OF WARRANTY, OR OTHERWISE, REGARDLESS OF WHETHER
DIRECPC WAS ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
13. MAINTENANCE
DirecPC shall make available to Customer spare parts and/or maintenance services
for all System equipment or software delivered to it hereunder pursuant to
DirecPC's standard terms and conditions during the initial term of this
Agreement.
14. TRAINING
DirecPC shall provide standard curriculum training at its facilities to
Customer's personnel at DirecPC's then-current rates (less the Customer Training
discount noted in Attachment A.) The dates of these classes will be published by
DirecPC. The current fee for training services is set forth in Attachment A.
Customer shall be responsible for all travel, lodging, and other expenses
incurred by Customer's personnel while attending such classes.
<PAGE>
15. LABELING
Customer agrees that it will not remove or deface any marking or labels affixed
to any System by DirecPC which indicates DirecPC' interest in the System.
Customer shall replace any such stenciling, tag or plate which may be removed or
destroyed or become illegible. Customer shall keep all Systems free from any
marking or labeling which might be interpreted as a claim of ownership thereof
by Customer or any party other than DirecPC or anyone so claiming through
DirecPC.
16. CUSTOMER'S INSURANCE
REQUIREMENTS
During the term of this Agreement, Customer shall, at its sole cost and expense,
maintain in full force and effect, "all risk" extended coverage fire and
casualty insurance on the Systems. Such insurance shall:
A. provide for coverage in an amount equal to at least the replacement cost of
the Systems;
B. be in form and substance and with insurers reasonably satisfactory to both
parties;
C. designate DirecPC and the Assignee, if any as additional insureds and
designate the Assignee (or, if there is none, DirecPC) as the loss payee for
distribution of the insurance proceeds to the respective parties as their
interests may appear;
D. provide that the policy or policies may not be canceled or materially altered
without thirty (30) days prior written notice to DirecPC and the Assignee, if
any; and
E. provide DirecPC and that Assignee, if any, with thirty (30) days in which
they shall be permitted to cure any defaults by Customer under the policy.
17. DOCUMENTATION/LITERATURE
DirecPC shall provide to Customer standard documentation and literature for use
in promoting the DirecPC System. Customer agrees that any promotional material
using the DirecPC name or logo created by or for Customer must be approved in
writing by DirecPC.
18. CONFIDENTIAL INFORMATION
"Confidential" or "Proprietary" information of the parties will be that
information which is marked "Confidential" or "Proprietary" or which, if
disclosed orally, is identified as confidential or proprietary at the time of
disclosure, provided that the disclosing party ("Disclosing Party") confirms the
confidential or proprietary nature of the information to the receiving party
("Receiving Party") in writing within five (5) days after oral disclosure.
Notwithstanding the foregoing, Confidential or Proprietary information will not
include information that is already in its possession of the Receiving Party
without restriction, which is in or enters the public domain, which is
independently developed or rightfully acquired by the Receiving Party without
restriction from a third party, which is approved for release by the Disclosing
Party or whose disclosure is required by a government agency. The Receiving
Party will use not less than the degree of care used to prevent disclosure of
its own proprietary information to prevent disclosure of information received in
accordance with this Agreement. In no event, however, will less than a
reasonable standard of care be used.
The Receiving Party will not make copies of Confidential or Proprietary
information, and will not disclose Confidential or Proprietary information to
others, except to persons within its own organization or to its agents who have
need to know such information for purposes of performing under the terms of this
Agreement and who have agreed in writing to protect such information as though
they were a party to this Agreement.
All Confidential or Proprietary information will remain the property of the
Disclosing Party and the Receiving Party will return or destroy all Confidential
or Proprietary information at the conclusion of the Discussions or sooner, if
requested by the Disclosing Party to do so.
The restrictions imposed by this Section shall continue for three (3) years
after this Agreement terminates.
19. PRODUCT CHANGES
DirecPC reserves the right to make changes to the System or to any information
delivery service which it may offer from time to time, and to discontinue
providing the System or such service, or any portion thereof.
<PAGE>
20. PATENT AND COPYRIGHT INDEMNITY
DirecPC agrees to resist or defend at its own expense any request for royalty
payments or any claim for equitable relief or damages against Customer based on
an allegation that the manufacture of any DirecPC equipment or the use, lease,
or sale thereof or that any documentation infringes any United States patent or
copyright, and to pay any royalties and other costs related to the settlement of
such request and to pay the costs and damages, including attorney's fees,
finally awarded as the result of any suit based on such claim, provided that
DirecPC is given prompt written notice of such request or claim by Customer and
given authority and such reasonable assistance and information as DirecPC
requests in writing and as if is available to Customer for resisting such
request or for the defense of such claim.
In the event that, as a result of any such suit (i) prior to delivery, the
manufacture of any item supplied by DirecPC hereunder is enjoined, or (ii) after
delivery, the use, lease or sale thereof is enjoined, DirecPC will, at its
option and expense, either (a) negotiate a license or other agreement with
plaintiff so that such item is no longer infringing, (b) modify such item
suitably or substitute a suitable item therefor, which modified or substituted
item is not subject to such injunction, and to extend the provisions of this
Article thereto, or d (a) or (b) cannot be effected by DirecPC's reasonable and
diligent efforts, (c) refund the rental price of the System during the months
which use is enjoined.
Notwithstanding the above, DirecPC will not be liable for any damages or costs
resulting from claims (i) that DirecPC's compliance with the Customer"s designs,
specifications, or instructions, (ii) that use of any item provided by DirecPC
in combination with products not supplied by DirecPC, or (iii) that a
manufacturing or other process carried out by or through Customer or any
equipment end user utilizing any item provided by DirecPC constitutes either
direct or contributory infringement of any United States patent (such claims
being collectively referred to herein as "Other Claims"). Customer will
indemnify DirecPC from any and all damages and costs (including settlement costs
agreed to by Customer) finally awarded or agreed upon for infringement of any
United States patent or copyright in any suit resulting from Other Claims, and
from reasonable expenses incurred by DirecPC in defense of such suit d Customer
does not undertake the defense thereof.
21. FORCE MAJEURE
Neither party will be liable for nondelivery, delay in delivery or installation,
or any other impairment of performance hereunder in whole or in part caused by
the occurrence of any contingency beyond the reasonable control either of that
party or that party's suppliers, including but not limited to war (whether an
actual declaration thereof is made or not), sabotage, insurrection, rebellion,
riot or other act of civil disobedience, act of a public enemy, failure of or
delay in transportation, failure of or delay in performance of the other party's
obligations under this Agreement, act of any government or any agency or
subdivision thereof, judicial action, labor dispute, fire, accident, explosion,
epidemic, quarantine, restrictions, storm, flood, earthquake or other Act of
God, or shortage of labor, fuel, raw material, or machinery, where such party
has exercised ordinary care in the prevention thereof. If any such contingency
occurs, DirecPC may allocate production and deliveries among DirecPC's customers
on a pro rata basis with respect to production and delivery requirements and the
delivery requirements of this Agreement will be amended accordingly.
22. DEFAULT BY CUSTOMER
The occurrence of any one or more the following events (herein called "Events of
Customer Default") shall constitute a default by Customer under this Agreement:
<PAGE>
A. Default by Customer in the payment of any charge payable hereunder as and
when the same becomes due and payable and such default continues for a period of
thirty (30) days after notice of such default from DirecPC, or
B. Default by Customer in the performance of any other term, covenant or
condition of this Agreement, which default shall continue for a period of thirty
(30) days after written notice; or
C. The making of an assignment by Customer for the benefit of its creditors or
the admission by Customer in writing of its inability to pay its debts as they
become due, or the insolvency of Customer, or the filing by Customer of a
voluntary petition in bankruptcy, or the adjudication of Customer as bankrupt,
or the filing by Customer of any petition or answer seeking for itself any
reorganization, arrangement, composition or readjustment precipitated by the
insolvency or bankruptcy of Customer, any liquidation, dissolution or similar
relief under any present or future statute, law or regulation, or the filing of
any answer by Customer admitting, or the failure by Customer to deny, the
material allegations of a petition filed against it for any such relief, or the
seeking or consenting by Customer to, or acquiescence by Customer in, the
appointment of any trustee, receiver or liquidator of Customer or of all or any
substantial part of the properties of Customer, or the inability of Customer to
pay its debts when due, or the commission by Customer of any act of bankruptcy;
or
D. The failure by Customer, within sixty (60) days after the commencement of any
proceeding against Customer seeking any reorganization, arrangement,
composition, readjustment, liquidation, dissolution or similar relief under any
present or future statute, law or regulation, to obtain the dismissal of such
proceeding or, within sixty (60) days after the appointment, without the consent
or acquiescence of Customer, or any trustee, receiver or liquidator of Customer
or of all or any substantial part of the properties of Customer, to vacate such
appointment.
23. REMEDIES FOR CUSTOMER DEFAULT
Upon the occurrence of any one or more Events of Customer Default,
DirecPC, at its option, may (1) proceed by appropriate court action or actions
either at law or in equity to enforce performance by Customer of the applicable
terms of this Agreement, or to recover from Customer any and all damages or
expenses, including reasonable attorneys fees, which DirecPC shall have
sustained by reason of Customers default or on account of DirecPC' enforcement
of its remedies hereunder, or (2) without written notice, declare immediately
due and payable all monies to be paid during the term of this Agreement.
Customer shall in any event remain fully liable for reasonable damages as
provided by law and for all costs and expenses incurred by DirecPC on account of
such default including all court costs and reasonable attorneys feet and DirecPC
shall have the right to the extent permitted by law: (i) to recover all sums so
due thereunder; (ii) to retake immediate possession of any System not previously
purchased by Customer without any process of law and for such purpose DirecPC
may enter upon premises where such System may be located and may remove the same
therefrom without notice, and without being liable to Customer therefor, except
that DirecPC shall be liable for damages resulting from the fault or negligence
of DirecPC, DirecPC' Assignee or their respective agents and representatives in
any such entry or repossession; (iii) to sell, rent or otherwise dispose of all
or any portion of such non-Customer-purchased System, with the privilege of
becoming the purchaser thereof, at public or private sale, for cash or on credit
without notice of its intention to do so or of its doing so, in which event
DirecPC shall apply the cash proceeds from any sale or other disposition, less
all costs and expenses incurred in connection with the recovery, repair or
storage of such System or the transaction itself, against all sums due from
Customer and to the extent and in the manner permitted by law, Customer shall be
liable to DirecPC for the amount by which the Proceeds of any such transaction,
less the expenses of retaking, storing, repairing and the transaction itself,
including reasonable attorney's fees incurred by DirecPC, is less than all sums
due from Customer hereunder; and (iv) to pursue any other remedy permitted by
law or equity.
<PAGE>
24. TRADEMARK
Hughes Network Systems and DirecPC trademarks shall not be altered, hidden or
removed from the System or documentation delivered therewith. The Hughes Network
Systems and DirecPC trademarks are exclusively owned by DirecPC and no other
party shall represent that it has any right, title or interest in or to the
Hughes Network Systems or DirecPC trademarks; provided that Customer is hereby
authorized use such trademarks to make general statements regarding the
relationship of the parties under this Agreement. Customer hereby grants to
DirecPC the fight to use Its names and trademarks solely for the purpose of
making general statements regarding the relationship of the parties under this
Agreement.
25. GENERAL PROVISIONS
A. This Agreement constitutes the entire agreement between the parties and
supersedes all prior understandings regarding this subject matter. This
Agreement may not be modified except in writing signed by officers of both the
parties hereto.
B. In the event that DirecPC ceases to operate as a going concern, Customer
shall be given the opportunity to acquire DirecPC licensed software, upon
mutually agreeable terms and prices, to enable it to continue services.
C. The failure of either party to require performance by the other party of any
provision hereof shall not affect the right to require such performance at any
time thereafter, nor shall the waiver by either party of a breach of any
provision hereof be held to be a waiver of the provision itself.
D. If any term or condition of this Agreement is held to be invalid or
unenforceable, the remaining provisions shall continue in effect.
E. This Agreement shall be governed by the laws of the State of Maryland and the
United States.
F. Customer shall not assign or otherwise transfer its right or obligations
under this Agreement without the prior written consent of DirecPC. However, a
successor in interest of either party shall acquire all interest of such party
hereunder.
G. It is expressly agreed that the execution of this Agreement and the
subsequent delivery of items purchased hereunder shall be subject to all
applicable export controls imposed or administered by the U.S. Department of
Commerce as well as by any other U.S. Government Agency that may impose such
controls, including, but not limited to, the export of technical data,
equipment, software and know-how.
H. Notices regarding this Agreement shall be in writing and shall be deemed to
have been given when delivered personally or when sent by certified mail (return
receipt requested) to the other party at the addresses set forth above.
I. Each party shall be excused and shall have no liability for delays or
interruptions caused by the failure of the other party to perform their
obligations under this Agreement or which are otherwise beyond the reasonable
control of such party.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
as of the date written below.
CUSTOMER: UC TELEVISION NETWORK. HUGHES NETWORK SYSTEMS
CORP. dba DirecPC
Peter Kauff Phillip K. O'Brien
- --------------------------------------------------------------------------------
Name: Typed or Printed Name: Typed or Printed
/s/ Peter Kauff /s/ Phillip K. O'Brien
- --------------- ----------------------
Signature Signature
CEO Sr. Director, Contracts
- --------------------------------------------------------------------------------
Title Title
11/22/96 11/11/96
- --------------------------------------------------------------------------------
Date Date
- 2 -
<PAGE>
ATTACHMENT A
A. SYSTEM
Model 50
B. ROLLOUT AND PAYMENT SCHEDULE
Roll out will commence upon execution of this Agreement and shall be
completed no later than February 28, 1997.
Total units 200
This order not subject to cancellation.
C. STANDARD INSTALLATION SERVICES
The above installation services prices assume the following: a non-penetrating
mount; the use of 100 feet of RG6 coaxial cable and the connector hardware
included in the standard installation kit; Monday through Friday 8:00 am to 5:00
pm installations (except holidays); and the absence of any permits, site surveys
and engineering drawings or similar requirements. Customer agrees that any
installation terms other than those assumed in the standard installation
services shall be priced separately including as follows:
Installation Extras
Cabling in excess of 100' $0.90/foot (material and labor) Wall mount in
place of a non-penetrating roof mount $100 additional Install exposed
PVC conduft on roofs $3.00/foot (material and labor)
D. SPARES
DirecPC Adapter Cards $408 (Excluding Software License)
0.6M Antenna $195
LNB $ 95
Manual $ 30
Mount (NP, W, P) $ 75
Replacement Software $ 50
E. DIRECPC SUBSCRIBER SERVICES
A DirecPC subscription is required to access the DirecPC Service. Every ISA card
will be charged a $9.95/mo access fee. For Window(R) 95 Turbo Internet users,
there 4 a one time activation fee of $49.95
A-1
<PAGE>
<TABLE>
<CAPTION>
TURBO INTERNET WINDOWS(R) 95
- ---------------------------------------------------------------------------------------------------------------------
Monthly Plan Price Description
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Basic Plan $.80/MB peak*
$.60/MB off peak*
- ----------------------------------------------------------------------------------------------------------------------
Bulk Plan $24.95/mo per 64MB User purchases in 64MB increments
(After 64X units are consumed, pricing reverts to Basic Plan
- ----------------------------------------------------------------------------------------------------------------------
Moon Surfer $39.95/mo Unlimited access during off peak times
Peak time charged at $.80/MB
- ----------------------------------------------------------------------------------------------------------------------
Sun Surfer $129.95/mo Unlimited access during peak times.
- ----------------------------------------------------------------------------------------------------------------------
Off peak times charged at $.60/MB
- ----------------------------------------------------------------------------------------------------------------------
*Peak is 6am-6pm user's local time Mon-Fri (local time is used only for Turbo Internet)
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
Package Delivery and Multimedia service pricing is available under a separate
Content Providers Agreement.
F. WARRANTY AND MAINTENANCE OPTIONS PRICING
Five Year Warranty $200, Customer must contract for at time of
(in lieu of standard warranty) purchase of equipment
Extention of Warranty $150 per year, Customer must contract for
while warranty still in effect
Above warranties are subject to standard DirecPC warranty terms and conditions
(see Article 9 of the Agreement)
On-site maintenance $125 per year, assumes equpment is
under warranty
Time and materials maintenance $75 per hour plus any travel costs
G. TRAINING
$750 per day per attendee.
H. PROGRAM MANAGERS
Within 30 days after the Effective date of this contract the Parties
hereto shall each appoint a program manager to be the primary single
point of contact between the Parties as it relates to this Agreement.
Either Party may change their program manager upon 5 days written
notice to the other Party.
A-2
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-END> OCT-31-1996
<CASH> 1,158,738
<SECURITIES> 0
<RECEIVABLES> 761,796
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,030,388
<PP&E> 3,487,086
<DEPRECIATION> 1,845,630
<TOTAL-ASSETS> 1,641,456
<CURRENT-LIABILITIES> 535,380
<BONDS> 0
3,333
0
<COMMON> 10,929
<OTHER-SE> 3,129,242
<TOTAL-LIABILITY-AND-EQUITY> 3,678,884
<SALES> 2,016,152
<TOTAL-REVENUES> 2,016,152
<CGS> 1,297,684
<TOTAL-COSTS> 1,297,684
<OTHER-EXPENSES> 2,769,920
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (2,051,452)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,051,452)
<EPS-PRIMARY> (.25)
<EPS-DILUTED> (.25)
</TABLE>
