<PAGE>
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
Form 10-KSB
ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF
the Securities Exchange Act of 1934
For the Fiscal Year Ended October 31, 1997 Commission File No. 0-19997
COLLEGE TELEVISION NETWORK, INC.
(formerly UC Television Network Corp.)
--------------------------------------
(Name of small business issuer in its charter)
<TABLE>
<S> <C>
DELAWARE 13-3557317
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
5784 Lake Forrest Drive, Suite 275
Atlanta, Georgia 30328
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (404) 256-4444
Securities registered under Section 12 (b) of the Securities registered under Section 12(g) of the
Exchange Act: Exchange Act:
Title of Classes: Common Stock, $.005 par value NONE
</TABLE>
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: $2,808,658.
The aggregate market value of the voting stock held by non-affiliates of
the Registrant as of December 31, 1997 (computed by reference to the average bid
and asked prices of such stock on December 31, 1997) was approximately
$3,738,171.
There were 8,015,153 shares of Common Stock outstanding at December 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 1998 Annual Meeting of Stockholders, to be filed with the Commission
pursuant to Regulation 14A under the Securities Exchange Act of 1934 (The
"Exchange Act"), within 120 days of the close of Registrant's fiscal year ended
October 31, 1997, are incorporated by reference into Part III of this report.
================================================================================
<PAGE>
ITEM 1. DESCRIPTION OF BUSINESS
General
- -------
College Television Network, Inc., a Delaware corporation formerly known as
UC Television Network Corp. (the "Company"), commenced operations in January
1991. The Company is a broadcasting company which owns and operates the College
Television Network ("CTN") , a proprietary commercial television network
operating on college and university campuses, through single channel television
systems (collectively, the "Systems" and individually, a "System") 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 CTN. At December 31, 1997, CTN was installed or contracted for
installation at approximately 281 locations at various colleges and universities
throughout the United States. The Company believes CTN currently reaches a
viewership of approximately 800,000 daily impressions.
The Company believes CTN to be the largest college and university private
commercial television network in the United States. CTN is installed in many of
the nation's largest colleges and universities, including among others: Penn
State University, Michigan State University, University of Arkansas-Little Rock,
UCLA, Florida State University, Syracuse University, Georgia Tech University,
North Carolina State University, University of Missouri, University of Kentucky,
University of Alabama, and Rutgers University. There are approximately 3,600
colleges and universities in the United States. The Company's goal is to place
CTN in a significant number of these institutions.
CTN, 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 a main
processing unit and from three to ten monitors. In locations where an
interactive touch screen exists, 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 CTN 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 commenced in April 1997.
Management currently is researching the feasibility of implementing a new
broadcast platform for CTN, which will provide increased digital quality signals
coupled with expanded programming opportunities. The Company has entered into
an agreement with Turner Private Network, Inc. to provide news and sports
programming on CTN.
The Company derives its revenues from advertisers displaying their
commercials on CTN, with the Company presently allotting eight minutes of
advertising available per hour. The Company believes CTN 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 CTN is substantially below
that of national advertising in competing media, such as radio, television, MTV,
campus newspapers, or campus billboards. National advertisers on CTN during
fiscal 1997 included Burger King, Coca-Cola, Columbia House, Discover Card,
Frito-Lay, Ralph Lauren, Plymouth, MasterCard, UPS, MGM, Virgin Records, Fine
Line Pictures, New Line Cinema, 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 $1,621,465 in fiscal
1995 to $2,016,152 in fiscal 1996, and to $2,808,658 in fiscal 1997.
During the fiscal year ended October 31, 1997 ("Fiscal 1997"), the Company
issued 29,090,909 shares of common stock to U-C Holdings, L.L.C. for an
aggregate purchase price, net of issuance costs, of $15,400,837. (The number of
shares referenced in the preceding sentence has not been adjusted to reflect the
one-for-five reverse stock split which became effective on November 12, 1997
subsequent to the issuance of shares to U-C Holdings, L.L.C.) U-C Holdings,
L.L.C. became the holder of a majority of the Company's common stock by virtue
of this transaction. Concurrent with this transaction, the
1
<PAGE>
Company's management was restructured with the designation of five new directors
and the addition of Jason Elkin as Chairman and CEO, John Dobson as President
and Joseph Gersh as Vice Chairman. These individuals have extensive sales,
management and operational experience in the broadcast industry. Both Mr. Elkin
and Mr. Gersh are former officers of New Vision Television and Mr. Dobson is a
former Vice President for Turner Broadcasting Sales. With the recent capital
infusion by U-C Holdings, L.L.C. and the addition of highly experienced and
successful broadcast/media management executives, CTN believes it is now poised
to accelerate the growth of the network.
With its increased capital and new management, CTN has taken a number of
steps toward accomplishing its goals. The Company has increased the size of its
affiliate department five-fold, increased the size of its media sales staff and
added veteran broadcast sales personnel from the Turner, Discovery, and Family
Channel Networks. CTN has intensified its contacts with multi-campus food
service operators who are those most involved in the running of cafeterias and
public areas at the nation's colleges. CTN has also increased its penetration
of college systems such as state universities with multiple campuses. In
addition, CTN has put forth a concentrated effort to improve its network
delivery system and system maintenance procedures.
The Company's overall strategy is to expand the number of institutions in
which CTN 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, the Company believes advertising revenues
should grow significantly and enhance profitability. The Company also continues
to explore other avenues to penetrate the college market in diversified ways.
The Company believes there is an opportunity to grow the network. While
the Company experienced a net loss in Fiscal 1997 in excess of its net loss for
the prior fiscal year, advertising revenues and the number of affiliate
universities has increased. The Company believes it will have sufficient
working capital to meet its ongoing operational demands through at least
December 31, 1998.
The College Television Network System
- -------------------------------------
CTN is a private commercial television network airing the Company's
programming on university and college campuses located throughout the United
States. CTN is installed in campus public areas such as dining facilities and
student union areas and is designed to serve as background entertainment. The
Systems are single channel systems offering only CTN programming, which
currently consists primarily of music videos. In various locations, CTN offers
an advanced interactive marketing system which the Company believes is the first
"out of home" network featuring "video on demand".
In order to more effectively expand its programming to include national
news, local campus news, sports and comedy on a current basis, the Company
switched to the use of satellite transmission in April 1997. The Company is
currently researching a new broadcast platform for CTN. Digital Video Broadcast
("DVB") may offer CTN a state of the art delivery system that is reliable and
cost efficient, while providing the operational flexibility CTN desires.
Markets
- -------
There are approximately 3,600 colleges and universities in the United
States. The Company's goal is to place CTN in a significant number of these
institutions. As of December 31, 1997, CTN was installed or contracted for
installation in 281 locations throughout the country. Included among the
institutions equipped with CTN are Penn State University, Michigan State
University, University of Arkansas-Little Rock, UCLA, Florida State University,
Syracuse University, Georgia Tech University, North Carolina State University,
University of Missouri, University of Kentucky, University of Alabama, and
Rutgers University.
2
<PAGE>
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 four full-
time employees who are 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
aired on CTN. The Company believes advertisers find the network's programming
current and appealing, the campus dining hall setting with its captive audience
desirable, and the Systems' programming concept modern and innovative.
CTN 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. During Fiscal 1997, the Company increased
its advertising rates by approximately 36% from the prior fiscal year for a 30-
second commercial network spot, which will run ten times a day. In both Fiscal
1997 and 1996, 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 available to be sold, (iii) increasing the CPM
rate, which is currently below that of competing media.
Advertisers during Fiscal 1997 included Burger King, Coca-Cola, Columbia
House, Discover Card, Frito-Lay, Ralph Lauren, Plymouth, MasterCard, UPS, MGM,
Virgin Records, New Line Cinema, Twentieth Century Fox, Universal Pictures,
Visa, and Warner Brothers. UPS, Visa, Frito-Lay, and Burger King accounted for
13%, 13%, 10%, and 10%, respectively, of the Company's advertising revenues for
Fiscal 1997. No other advertiser represented more than 10% of the Company's
sales for Fiscal 1997.
Programming Content
- -------------------
CTN airs short-form entertainment, currently consisting primarily of music
videos. The Company obtains music videos from a number of the major music
company labels which are represented by Sony, Warner/Electric/Atlantic, EMI,
Polygram, MCA, and BMG. Each of these music companies permit the Company to use
the music videos, which showcase featured artists from each of the music labels.
On November 5, 1996, the Company entered into a three-year agreement with
Turner Private Networks, Inc. to provide news and sports programming on CTN
through March 31, 2000 at an aggregate cost of $890,095.
Upgrading, Installation, and Maintenance
- ----------------------------------------
Each System is installed, without charge to the institution, at designated
locations agreed upon between the Company and the institution. Due to the
Company's increased marketing efforts, CTN is currently installed in 43 states
nationwide. 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 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 281 Systems contracted for as of December 31, 1997, 241 were
installed throughout the United States at college and university campuses. The
remaining Systems are expected to be installed by
3
<PAGE>
the start of the fall 1998 semester. System installation generally takes
approximately 8 to 10 weeks. The average agreement with a university is
typically for a two to three year term.
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
- -----------
CTN 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 aware of
three other national television networks specifically directed at college
students: Big Media On Campus, College Entertainment Network, and Burly Bear.
There is no assurance that other firms 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 December 31, 1997, the Company employed 36 full-time salaried
personnel, consisting of various managerial, operational, programming,
advertising, and affiliate sales people. Although the Company expects to
continue to hire employees to conduct and expand its operations, the Company
also 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.
Fifteen of the Company's employees have employment agreements with the Company.
The Company believes that its relationship with its employees is satisfactory.
Government Regulation
- ---------------------
Since CTN is a private network and is currently not a direct live broadcast
network, the Company is not restricted by current 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
Systems 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
Systems are 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. The Company has obtained trademark registrations for
"College Television Network" and "UCTN" and intends to seek trademark
registration for its "CTN" logo.
4
<PAGE>
Note Regarding Forward-Looking Statements
- -------------------------------------------
Certain forward-looking information contained in this report is being
provided in reliance upon the "safe harbor" provisions of the Private Securities
Litigation Reform Act of 1995 as set forth in Section 27A of the Securities Act
of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as
amended. Such information includes, without limitation, discussions as to
estimates, expectations, beliefs, plans, strategies and objectives concerning
the Company's future financial and operating performance. Such forward-looking
information is subject to assumptions and beliefs based on current information
known to the Company and factors that could yield actual results differing
materially from those anticipated.
ITEM 2. DESCRIPTION OF PROPERTY
The Company presently has facilities in five locations: Atlanta, New York
City, Los Angeles, Chicago and Boston. The Atlanta facility is the Company's
principal executive office out of which the Company conducts various
administrative and financial functions. The Boston office is primarily
responsible for the Company's engineering and product development efforts. The
Company conducts its marketing and affiliate relations efforts primarily out of
its New York, Chicago and Los Angeles offices.
The Company currently leases approximately 4,650 square feet of space for
its principal executive office in Atlanta. The lease for this space terminates
in July 2000. The Company also leases approximately 4,100 square feet, 1,810
square feet and 1,000 square feet for the New York, Los Angeles and Boston
offices, with respective lease termination dates of September 1998, September
2002 and February 1998 (with an option to extend month to month). The Chicago
lease terminates in February 1998; however, the Company has secured 2,010 square
feet of space pursuant to a five-year lease expiring February 2003.
The aggregate monthly rental for these leased offices is currently
approximately $22,800, 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.
By written consent on October 6, 1997 of U-C Holdings, L.L.C., the majority
shareholder which owns 5,818,181 shares of Common Stock of the Company, the
Company adopted an Amended and Restated Certificate of Incorporation and Amended
and Restated Bylaws. The Company mailed a Schedule 14C Information Statement to
all shareholders on or about October 20, 1997 in connection with such action.
Share information in this paragraph reflects the impact of the one-for-five
reverse stock split which became effective on November 12, 1997.
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 following table sets
forth the high and low sales prices for the Common Stock, as quoted on Nasdaq,
for the periods indicated, which prices have not been adjusted to reflect the
one-for-five reverse stock split which became effective on November 12, 1997.
5
<PAGE>
<TABLE>
<CAPTION>
COMMON STOCK
- ---------------------------------------------------------------------------------------------------------
Fiscal Period HIGH PRICE LOW PRICE
- --------------------------------- ---------------------------------- ----------------------------------
<S> <C> <C>
Quarter ended January 31, 1996 2-3/32 15/16
Quarter ended April 30, 1996 1-1/2 15/16
Quarter ended July 31, 1996 1-23/32 1
Quarter ended October 31, 1996 1-9/16 27/32
Quarter ended January 31, 1997 1-3/32 7/16
Quarter ended April 30, 1997 29/32 13/32
Quarter ended July 31, 1997 7/8 33/64
Quarter ended October 31, 1997 13/16 1/2
</TABLE>
As of December 31, 1997, the Company had 64 owners of record and, it
believes, approximately 1,400 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 OF 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 a multimedia company whose principal activities involve
operating and marketing CTN, a private commercial television network. As of
December 31, 1997, CTN was installed or contracted for installation in 281
locations in colleges and universities throughout the United States.
Substantially all of its revenues are derived from advertising displayed on CTN.
The Company started operations in January 1991.
In order to utilize satellite transmission technology as a means of
updating its programming on CTN, the Company retrofitted its existing Systems
installed at college and university campuses during the summer months of 1996.
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.
6
<PAGE>
The following table sets forth certain financial data derived from the
Company's statement of operations for the fiscal years ended October 31, 1997
("Fiscal 1997"), October 31, 1996 ("Fiscal 1996") and October 31, 1995 ("Fiscal
1995"):
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
October 31, 1997 October 31, 1996 October 31, 1995
--------------------------------------------------------------------------------------------------------
$ % of Revenues $ % of Revenues $ % of Revenues
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenues $2,808,658 100% $2,016,152 100% $1,621,465 100%
Operating expenses 1,784,436 64 882,528 44 702,569 43
Selling, general
and administrative 4,620,132 164 2,808,931 139 2,920,419 180
Depreciation and 828,684 30 443,556 22 579,469 36
amortization
Interest income 421,004 15 67,411 3 86,605 5
Net Loss $4,003,590 143 $2,051,452 102 $2,494,387 154
</TABLE>
Revenues increased to $2,808,658 for Fiscal 1997 from $2,016,152 for Fiscal
1996 and $1,621,465 for Fiscal 1995. Fiscal 1997 revenues reflected a 39%
increase over Fiscal 1996 and a 73% increase over Fiscal 1995. The Company's
advertiser base consisted of 18 advertisers during Fiscal 1997 and included
Burger King, Frito-Lay, MGM, Ralph Lauren, Plymouth, Visa, Warner Brothers,
Coca-Cola, Universal Pictures, Discover Card, UPS and MasterCard. This compares
to 19 advertisers during Fiscal 1996 and 17 during Fiscal 1995. In addition,
the Company increased its advertising rates charged during Fiscal 1997. The
Company recently changed its fiscal year end, for years subsequent to Fiscal
1997, to December 31. The Company anticipates continued sales growth during the
year ending December 31, 1998 ("Fiscal 1998") 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.
Operating expenses totaled $1,784,436 for Fiscal 1997. This compares to
$882,528 for Fiscal 1996 and $702,569 for Fiscal 1995. The increase in Fiscal
1997 is primarily attributable to additional costs associated with improved
programming for CTN. Furthermore, the Company incurred expenses in Fiscal 1997
directly related to the commencement of satellite transmission of programming
for the network. The increase in Fiscal 1996, as compared to Fiscal 1995 was
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. These costs were substantially offset by a decrease in installation
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. Although operating expenses, which include costs
associated with System installations, maintenance and network programming is
expected to continue to increase as additional locations are added, the ratio of
operating expenses to revenues is expected to decrease as the Company
anticipates revenues to grow due to the expansion of the network.
7
<PAGE>
Selling, general and administrative ("SG&A") expenses increased to
$4,620,132 for Fiscal 1997 versus $2,808,931 for Fiscal 1996 and $2,920,419 for
Fiscal 1995. The primary reasons for this increase are attributable to the
Company's efforts to increase market awareness for the network. This is being
achieved by expanding the Company's management team, advertising and affiliate
sales forces, opening additional regional sales offices, and instituting a more
aggressive advertising and marketing campaign for CTN. Although a significant
increase in these expenses was incurred in Fiscal 1997, the Company believes a
benefit will be achieved in future years as the network's advertising revenues
and number of affiliates continues to grow. SG&A expenses for Fiscal 1996
remained fairly constant with respect to Fiscal 1995.
Depreciation and amortization expense totaled $828,684 for Fiscal 1997 as
compared to $443,556 for Fiscal 1996 and $579,469 for Fiscal 1995. The Fiscal
1997 increase is primarily attributable to System retrofit costs associated with
the change to a satellite delivered system. The decrease in Fiscal 1996
depreciation compared to Fiscal 1995 was the result of accelerated depreciation
methods applied to assets in the later stages of their useful lives.
Interest income increased to $421,004 for Fiscal 1997 as compared to
$67,411 for Fiscal 1996 and $86,605 for Fiscal 1995. The significant increase
in Fiscal 1997 is attributable to higher interest rates and greater average cash
balances directly related to the April 1997 purchase of a majority of the
Company's Common Stock by U-C Holdings, L.L.C., a Delaware limited liability
company. The Fiscal 1996 and Fiscal 1995 interest income balances 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 1998. The
net loss increased to $4,003,590 for Fiscal 1997 as compared to $2,051,452 for
Fiscal 1996 and a net loss of $2,494,387 for Fiscal 1995. The Fiscal 1997 net
loss reflected a 95% increase over Fiscal 1996 and a 61% increase over Fiscal
1995. The large increase in the Fiscal 1997 net loss is reflective of the
Company's continued efforts to expand the advertising and affiliate bases. The
Company has spent more on programming, system installation, maintenance and
overhead expenses as the number of employees has increased significantly.
Management of the Company believes this expansion is necessary in order to grow
the advertising and affiliate levels to a point where the Company will achieve
profitability.
FINANCIAL CONDITION AND LIQUIDITY
At October 31, 1997, the Company had working capital of $12,751,686. At
such date, the Company's cash and cash equivalents totaled $13,094,472.
Pursuant to the terms of a purchase agreement dated as of April 25, 1997
between the Company and U-C Holdings, L.L.C., a Delaware limited liability
company (the "Purchaser"), for an aggregate purchase price, net of issuance
costs, of $15,400,837, the Company issued to the Purchaser 29,090,909 shares of
Common Stock and a Class C Warrant to purchase 3,863,662 shares of Common Stock
for $.55 per share. As a result of this transaction, the Purchaser became the
holder of a majority of the outstanding common stock of the Company. In
addition, the Company and the Purchaser entered into certain equity protection
agreements to protect the Purchaser's percentage ownership interest in the
Company from dilution from third party exercises of outstanding warrants and
options to acquire the Company's Common Stock. Such agreements provide the
Purchaser with the right to acquire additional shares of the Company's Common
Stock. The amounts discussed in this section do not reflect the reverse stock
split transaction which became effective on November 12, 1997.
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.
8
<PAGE>
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.
Cash used in operations increased to $2,367,593 in Fiscal 1997 from
$1,486,530 in Fiscal 1996. The primary reasons for this increase were
attributable to costs associated with the commencement of satellite transmission
network programming, coupled with overall expansion of the Company in various
critical areas including advertising and affiliate sales forces and senior
management. These expense increases for Fiscal 1997 were partially offset by
the increase in sales revenue for the current fiscal year.
Purchases of property and equipment, net of the proceeds from the sale of
obsolete equipment, increased to $1,121,461 in Fiscal 1997 from $941,227 in
Fiscal 1996 due to the conversion of the network to a satellite delivered
broadcast platform. The increase was also attributable to the purchase of
furniture and equipment needed for the addition of new regional offices and
additional employees hired during the fiscal year.
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 1998. In order to reach the stage where the Company is profitable, it is
expected that additional expenditures will be required to increase the affiliate
base and to market the network properly to attract more advertisers.
Although to this point the Company has not achieved profitability, the
Company believes it has sufficient working capital available to continue
operating as a going concern through the end of Fiscal 1998.
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.
Effective June 24, 1997, the Company dismissed Richard A. Eisner & Company,
L.L.P. ("Eisner"), the Company's independent accounting firm which was
previously engaged as the principal accountant to audit the Company's financial
statements. The decision to change accountants was recommended and approved by
the Company's board of directors.
In an audit report dated January 12, 1996 relating to the Company's
financial statements for the fiscal year ended October 31, 1995, Eisner stated
that "[T] he Company has suffered recurring losses from operations, anticipates
such losses will continue, and is in need of additional financing. These
factors raise substantial doubt about its ability to continue as an ongoing
concern." The report further stated that, "[T]he financial statements do not
include any adjustments that might result from the outcome of this uncertainty."
The Company has authorized Eisner to respond fully to the inquiries of Price
Waterhouse, L.L.P. ("Price Waterhouse"), the Company's new independent
accountants, concerning the subject matter of such statements.
Other than the matter discussed in the preceding paragraph, none of
Eisner's reports on the financial statements of the Company contained, for
either of the past two years, an adverse opinion or a disclaimer of opinion, nor
was it qualified or modified as to uncertainty, audit scope, or accounting
principles. During the Company's two most recent fiscal years and all
subsequent interim periods preceding Eisner's dismissal, there was no
disagreement with Eisner on any matter of accounting
9
<PAGE>
principles or practices, financial statement disclosure, or auditing scope or
procedure, which disagreement, if not solved to the satisfaction of Eisner,
would have caused Eisner to make reference to the subject of the disagreement in
connection with its report. During the Company's two most recent fiscal years
and all subsequent interim periods preceding Eisner's dismissal, none of the
kinds of events listed in paragraphs (A) and (B) of Item 304(a)(1)(iv) of
Regulation S-B occurred.
Effective June 24, 1997, the Company engaged Price Waterhouse as the
principal accountant to audit the Company's financial statements. During the
Company's two most recent fiscal years and any subsequent interim periods prior
to engaging Price Waterhouse, neither Company nor anyone on its behalf consulted
Price Waterhouse regarding any matter described in Item 304(a)(2)(i) or (ii) of
Regulation S-B.
The Company reported the change in principal accountants on a Current
Report on Form 8-K filed July 1, 1997. The Company provided Eisner with a copy
of the disclosures it made in the Current Report on Form 8-K prior to the filing
of the report with the Securities and Exchange Commission. Eisner has furnished
the Company a copy of a letter addressed to the Securities and Exchange
Commission stating that Eisner agrees with the statements made by the Company in
this report.
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 will be set forth in the Company's Proxy
Statement for its 1998 Annual Meeting of Stockholders (the "1998" Proxy
Statement") and is incorporated herein by reference.
ITEM 10. EXECUTIVE COMPENSATION
Certain information with respect to Item 10 will be set forth in the 1998
Proxy Statement and is incorporated herein by reference.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Information with respect to Item 11 will be set forth in the 1998 Proxy
Statement and is incorporated herein by reference.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Information with respect to Item 12 will be set forth in the 1998 Proxy
Statement and is incorporated herein by reference.
ITEM 13. EXHIBITS LIST AND REPORTS ON FORM 8-K
(a) Exhibits. The following exhibits are filed as part of, or are
incorporated by reference into, this report on Form 10-KSB:
<TABLE>
<CAPTION>
Exhibit Description
Number
- --------------- ---------------------------------------------------------------------------------------------
<S> <C>
3.1 Restated Certificate of Incorporation of the Registrant
3.2 Amended and Restated Bylaws of the Registrant
4.1 Form of Class C Warrant
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
4.2 Equity Protection Agreement, dated April 25, 1997, between the Registrant and U-C
Holdings, L.L.C.
4.3 Equity Protection Agreement, dated April 25, 1997, between the Registrant and U-C
Holdings, L.L.C.
4.4 Equity Protection Agreement, dated April 25, 1997, between the Registrant and U-C
Holdings, L.L.C.
4.5 Equity Protection Agreement, dated April 25, 1997, between the Registrant and U-C
Holdings, L.L.C.
4.6 Specimen certificate representing Common Stock (incorporated herein by reference to
Exhibit 4.3 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")
10.1 Employment Agreement, dated as of April 29, 1997, between the Registrant and Jason Elkin
10.2 Employment Agreement, dated as of April 29, 1997, between the Registrant and Joseph D.
Gersh
10.3 Employment Agreement, dated as of April 29, 1997, between the Registrant and John T.
Dobson III
10.4 Employment Agreement, dated as of April 25, 1997, between the Registrant and Peter Kauff
10.5 Employment Agreement, dated as of September 10, 1997, between the Registrant and Patrick
G. Doran
10.6 Registrant's 1990 Performance Equity Plan (incorporated herein by reference by Exhibit
10.4 to the Form S-1)
10.7 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 fiscal year
ended October 31, 1994, filed on January 30, 1995 (the "1994 Form 10-KSB")
10.8 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)
10.9 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 statement with respect to its 1996 Annual Meeting of Stockholders on Form
14A, filed on July 1, 1996 (the "1996 Proxy Statement")
10.10 Registrant's Outside Directors' 1996 Stock Option Plan (incorporated herein by reference
to Exhibit B to the 1996 Proxy Statement)
10.11 Programming Agreement, dated as of November 5, 1996, by and between the Registrant and
Turner Private Networks, Inc. (incorporated herein by reference to Exhibit 10.16 to the
Registrant's Annual Report on Form 10-KSB for the fiscal year ended October 31, 1996)
10.12 Equipment Rental Agreement, dated November 22, 1996, between the Registrant and Hughes
Network Systems, Inc. doing business as DirecPC (incorporated herein by reference to
Exhibit 10.17 to the Registrant's Annual Report on Form 10-KSB for the fiscal year ended
October 31, 1996)
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
10.13 Registration Rights Agreement, dated as of April 25, 1997, between the Registrant and U-C
Holdings, L.L.C.
10.14 Purchase Agreement, dated as of April 25, 1997, between the Registrant and U-C Holdings,
L.L.C.
10.15 Lease, dated June 13, 1997, between the Atlanta Board of Realtors Educational Foundation,
Inc. and the Registrant, and Lease Addendum thereto, dated October 31, 1997
16.1 Letter of Richard A. Eisner & Company regarding change in certifying accountant
27 Financial Data Schedule (for SEC use only)
</TABLE>
(b) Reports of Form 8-K. The Company filed no reports on Form 8-K during
the quarter ended October 31, 1997.
12
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
COLLEGE TELEVISION NETWORK, INC.
By: /s/ Jason Elkin
----------------
Jason Elkin
Chief Executive Officer and
Chairman of the Board
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
/s/ Jason Elkin Chief Executive Officer; and
- ---------------------------------------- Chairman of the Board of Directors January 28, 1998
Jason Elkin
/s/ Joseph D. Gersh Vice Chairman of the Board of
- ---------------------------------------- Directors January 28, 1998
Joseph D. Gersh
/s/ John T. Dobson III
- ---------------------------------------- President; Director January 28, 1998
John T. Dobson III
/s/ Peter Kauff Chief Operating Officer; Director
- ---------------------------------------- January 28, 1998
Peter Kauff
/s/ Patrick G. Doran Chief Financial Officer;
- ---------------------------------------- Treasurer; Secretary January 28, 1998
Patrick G. Doran
/s/ Avy H. Stein
- ---------------------------------------- Director January 28, 1998
Avy H. Stein
/s/ Beth F. Johnston
- ---------------------------------------- Director January 28, 1998
Beth F. Johnston
/s/ Stephen Roberts
- ---------------------------------------- Director January 28, 1998
Stephen Roberts
/s/ Hollis W. Rademacher
- ---------------------------------------- Director January 28, 1998
Hollis W. Rademacher
</TABLE>
<PAGE>
COLLEGE
TELEVISION
NETWORK, INC.
FINANCIAL STATEMENTS
OCTOBER 31, 1997
<PAGE>
COLLEGE TELEVISION NETWORK, INC.
INDEX TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Page Number
-----------
<S> <C>
Reports of Independent Accountants F-1
Balance Sheet at October 31, 1997 F-3
Statement of Operations for the years ended October 31, 1997
and October 31, 1996 F-4
Statement of Changes in Stockholders' Equity for the years ended
October 31, 1997 and October 31, 1996 F-5
Statement of Cash Flows for the years ended October 31, 1997
and October 31, 1996 F-6
Notes to Financial Statements F-7-14
</TABLE>
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Stockholders
College Television Network, Inc.
Atlanta, Georgia
We have audited the accompanying statements of operations, changes in
stockholders' equity and cash flows of College Television Network, Inc.
(formerly UC Television Network Corp.) for the year ended October 31, 1996.
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 audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements enumerated above present fairly, in all
material respects, the results of operations and cash flows of College
Television Network, Inc. for the year ended October 31, 1996 in conformity with
generally accepted accounting principles.
Richard A. Eisner & Company, LLP
New York, New York
January 13, 1997
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
College Television Network, Inc.
In our opinion, the accompanying balance sheet and the related statements of
income and retained earnings and of cash flows present fairly, in all material
respects, the financial position of College Television Network, Inc., formerly
UC Television Network Corp., at October 31, 1997, and the results of their
operations and their cash flows for the year then ended in conformity with
generally accepted accounting principles. 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 audit. We conducted our
audit of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for the opinion expressed above.
Price Waterhouse LLP
Atlanta, Georgia
December 19, 1997
<PAGE>
COLLEGE TELEVISION NETWORK, INC.
BALANCE SHEET
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
OCTOBER 31,
1997
<S> <C>
ASSSETS
Current assets
Cash and cash equivalents $ 13,094,472
Accounts receivable 1,008,790
Prepaid expenses 96,172
Other current assets 30,855
-----------------
Total current assets 14,230,289
Property and equipment, net 1,908,972
Other Assets 18,103
-----------------
Total assets $ 16,157,364
-----------------
LIABILITIES, REDEEMABLE PREFERRED STOCK, AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 468,631
Accrued expenses 872,416
Dividends payable 2,168
Current portion of capital lease obligation 135,388
-----------------
Total current liabilities 1,478,603
Long-term portion of capital lease obligation 114,306
-----------------
Total liabilities 1,592,909
-----------------
Redeemable preferred stock 3,333
-----------------
Stockholders' equity (share data restated for one-for-five stock
split discussed in Note 8)
Preferred stock - $.001 par value, 500,000 shares authorized,
no shares issued and outstanding
Common stock - $.005 par value, 100,000,000 shares,
8,015,153 shares issued and outstanding 40,076
Additional paid-in capital 30,241,845
Accumulated deficit (15,720,799)
-----------------
Total stockholders' equity 14,561,122
-----------------
Committments and contingencies (Note 5) -
-----------------
Total liabilities, redeemable preferred stock,
and stockholder's equity $ 16,157,364
-----------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE>
COLLEGE TELEVISION NETWORK, INC.
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
1997 1996
<S> <C> <C>
Revenues $ 2,808,658 $ 2,016,152
Interest 421,004 67,411
------------- -------------
Total revenues 3,229,662 2,083,563
------------- -------------
Expenses
Operating 1,784,436 882,528
Selling, general, and administrative 4,620,132 2,808,931
Depreciation and amortization 828,684 443,556
------------- -------------
Total expenses 7,233,252 4,135,015
------------- -------------
Loss before income taxes (4,003,590) (2,051,452)
Provision for income taxes - -
------------- -------------
Net loss $ (4,003,590) $ (2,051,452)
------------- -------------
Loss per share (Restated for one-for-five
stock split discussed in Note 8) $ (.77) (1.23)
Weighted average number of common shares outstanding 5,185,932 1,667,001
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
COLLEGE TELEVISION NETWORK, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
SHARES AMOUNT PAID-IN CAPITAL DEFICIT TOTAL
<S> <C> <C> <C> <C> <C>
Balance, October 31, 1995 (share data restated for 1,190,973 $ 5,955 $ 11,859,936 $ (9,665,757) 2,200,134
one-for-five stock split discussed in Note 8)
Proceeds from private placement offering, net of expenses 982,858 4,914 2,934,374 - 2,939,288
Issuance of common stock for services 12,000 60 59,940 - 60,000
Preferred stock dividends declared - - (7,799) - (7,799)
Net loss - - - (2,051,452) (2,051,452)
---------- --------- ------------ ------------- -----------
Balance, October 31, 1996 2,185,831 10,929 14,846,451 (11,717,209) 3,140,171
Proceeds from private placement offering, net of expenses 5,818,182 29,091 15,371,746 - 15,400,837
Proceeds from exercise of stock options 11,140 56 23,895 - 23,951
Preferred stock dividends declared - - (247) - (247)
Net loss - - - (4,003,590) (4,003,590)
---------- --------- ------------ ------------- -----------
Balance, October 31, 1997 8,015,153 $ 40,076 $ 30,241,845 $ (15,720,799) $14,561,122
---------- --------- ------------ ------------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
COLLEGE TELEVISION NETWORK, INC.
STATEMENT OF CASH FLOWS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
1997 1996
<S> <C> <C>
Cash flows from operating activities
Net loss $ (4,003,590) $ (2,051,452)
Adjustments to reconcile net loss to net cash used
in operating activities
Depreciation and amortization 828,684 443,556
Loss on disposal of fixed assets 25,017 31,794
Issuance of common stock for services - 60,000
Changes in assets and liabilities
Increase in accounts and receivable (246,994) (118,138)
(Increase) decrease in prepaid expenses (4,848) 12,187
Increase in other current assets (12,325) (2,227)
(Increase) decrease in other assets (11,063) 1,240
(Increase) in accounts payable 242,111 56,114
Increase in accrued expenses 565,474 124,481
Increase (decrease) in dividends payable 247 (44,085)
Increase in capital lease obligation 249,694 -
-------------- --------------
Net cash used in operating activities (2,367,593) (1,486,530)
-------------- --------------
Cash flows from investing activities
Purchases of property and equipment (1,121,461) (1,265,497)
Proceeds from sale of property and equipment - 324,270
-------------- --------------
Net cash used in investing activities (1,121,461) (941,227)
-------------- --------------
Cash flows from financing activities
Net proceeds from exercise of stock options 23,951 -
Net proceeds from private placement offerings 15,400,837 2,939,288
Redemption of redeemable preferred stock (including
dividends of $51,883 in fiscal 1996) - (145,217)
-------------- --------------
Net cash provided by financing activities 15,424,788 2,794,071
-------------- --------------
Net increase in cash and cash equivalents 11,935,734 366,314
Cash and cash equivalents, beginning of period 1,158,738 792,424
-------------- --------------
Cash and cash equivalents, end of period $ 13,094,472 $ 1,158,738
-------------- --------------
</TABLE>
The accompanying notes are integral part of these financial statements.
5
<PAGE>
COLLEGE TELEVISION NETWORK, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. THE COMPANY AND ITS SIGNIFICANT ACCOUNTING POLICIES
THE COMPANY
College Television Network, Inc., formerly, UC Television Network Corp.
("the Company"), is a broadcasting company which owns and operates the
College Television Network ("CTN"), a proprietary 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 CTN. At October 31, 1997, the Company had an
installed base of approximately 241 entertainment systems at various
colleges and universities throughout the United States.
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.
REVENUE RECOGNITION
The Company's principal sales are derived from advertising displayed on
CTN. Advertising sales are reflected in income during the period
advertising is aired. For the year ended October 31, 1997, approximately
55% of sales were derived from advertising sold to five customers in the
amounts of $375,000, $332,400, $298,125, $280,000, and $247,500. For the
year ended October 31, 1996, approximately 47% of sales were derived from
advertising sold to three customers in the amounts of $440,000, $302,500,
and $210,000. No assurance can be given that these or other advertisers
will continue to purchase advertising time from the Company. A failure to
significantly increase advertising revenues could have a material impact on
the operations of the Company.
The Company's revenues are affected by the pattern of seasonality common to
most school-related businesses. Historically, the Company has generated 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. The Company retrofitted its
existing systems during the summer months of 1996 in order to utilize
satellite transmission technology as a means of updating its programming on
CTN. This retrofit required a shut down of the network, resulting in
minimal sales during this period.
CASH AND CASH EQUIVALENTS
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.
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
6
<PAGE>
COLLEGE TELEVISION NETWORK, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
reported amounts of revenues and expenses during the reported period.
Actual results could differ from these estimates.
INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("FAS
109"). FAS 109 is an asset and liability approach that requires the
recognition of deferred tax assets and liabilities for the expected future
tax consequences of events that have been recognized in the Company's
financial statements or tax returns. In estimating future tax consequences,
FAS 109 generally considers all expected future events other than
enactments of changes in the tax law or rates. Income tax accounting
information is disclosed in Note 6 to the Financial Statements.
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 and
the one-for-five reverse stock split discussed in Note 8.
RECLASSIFICATION
Certain prior year amounts have been reclassified to conform with the
current year presentation.
CHANGE IN FISCAL YEAR END
On June 24, 1997, the Company changed its fiscal year end from October 31
to December 31, effective December 31, 1998. Financial information for the
two month period November 1, 1997 to December 31, 1997 will be contained in
a separate filing.
2. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
OCTOBER 31,
1997
<S> <C>
Entertainment systems, complete $ 3,593,971
Entertainment system, in progress 36,022
Machinery and equipment 647,755
Furniture and fixtures 219,916
-----------
4,497,664
Less accumulated depreciation and amortization
-----------
Total $ 1,908,972
-----------
</TABLE>
3. 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
7
<PAGE>
COLLEGE TELEVISION NETWORK, INC.
INDEX TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1,500,000 shares originally authorized, 3,333 shares were issued and
outstanding at October 31, 1997. Dividends, accrued at 10%, totaled $247
for fiscal 1997. Dividends in the amount of $2,168 are payable at October
31, 1997.
4. STOCKHOLDERS' EQUITY
Per share data has been restated for the one-for-five stock split discussed
in Note 8.
ISSUANCE OF COMMON STOCK
Pursuant to a private placement offering, the Company issued an aggregate
of 982,858 shares of its common stock at $3.50 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 982,858 shares of its
common stock were also issued. The warrants, which are exercisable at $6.45
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 98,256 shares of common stock at $3.50 per share. With each share
purchased, the placement agent will receive a warrant to purchase one share
of common stock for $6.45. Such option expires on April 25, 2001.
Pursuant to the terms of a purchase agreement dated April 25, 1997 between
the Company and U-C Holdings, L.L.C., a Delaware limited liability company
(the "Purchaser" or "Holdings"), the Company issued 5,818,182 shares of
common stock and a Class C Warrant to purchase 772,732 shares of common
stock for $2.75 per share for an aggregate purchase price, net of issuance
costs of $15,400,837. Share data has been restated for the one-for-five
stock split discussed in Note 8.
Concurrent with the private placement, the Company's management was
restructured with the designation of five new directors and the addition of
Jason Elkin as Chairman and CEO, John Dobson as President, and Joseph Gersh
as Vice Chairman. Three officers and two directors of the Company own an
approximate combined 47.1% interest in Holdings, of which Holdings owns an
approximate 72.6% ownership interest in the Company at October 31, 1997.
The Company and the Purchaser have entered into certain equity protection
agreements to protect the Purchaser's percentage ownership interest in the
Company from dilution from third party exercises of outstanding warrants
and options to acquire the Company's common stock. Such agreements provide
the Purchaser with the right to acquire additional shares of the Company's
common stock.
PERFORMANCE EQUITY PLAN
Under the Company's Performance Equity Plan, the Company has reserved an
aggregate of 92,833 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. One option is exercisable for one share of the Company's common
stock.
8
<PAGE>
COLLEGE TELEVISION NETWORK, INC.
INDEX TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
A summary of nonqualified stock option transactions under the Performance
Equity Plan is as follows:
<TABLE>
<CAPTION>
NUMBER OF EXERCISE PRICE
OPTIONS PER OPTION
<S> <C> <C>
Outstanding at October 31, 1996 80,505 $ 2.15 - $15.00
Exercised (11,140) $ 2.15
---------
Outstanding at October 31, 1997 69,365 $ 2.15 - $15.00
---------
</TABLE>
Of the 69,365 options outstanding at October 31, 1997, 66,365 are currently
exercisable. The remaining options are exercisable through 2001. At October
31, 1997, 12,328 shares of common stock are available for future grants.
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 100,000 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. One option is
exercisable for one share of the Company's common stock.
A summary of stock option transactions under the 1996 Stock Incentive Plan
is as follows:
<TABLE>
<CAPTION>
NUMBER OF EXERCISE PRICE
OPTIONS PER OPTION
<S> <C> <C>
Outstanding at October 31, 1996 60,953 $ 5.00 - $ 7.20
Granted 33,200 $ 3.44 - $ 4.06
---------
Outstanding at October 31, 1997 94,153 $ 3.44 - $ 7.20
---------
</TABLE>
Of the 94,153 options outstanding at October 31, 1997, 50,753 are currently
exercisable. The remaining options are exercisable through 2007. At October
31, 1997, 5,847 shares of common stock are available for future grants.
9
<PAGE>
COLLEGE TELEVISION NETWORK, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
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 30,000 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 4,000 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 2,000 shares at the then current market price. Eligible directors
are granted an additional 2,000 shares each February 14 provided they have
served on the Board at least six months at that date. Such option grants vest
ratably over a four year period. Avy Stein, Beth Johnston, Hollis Rademacher,
and Thomas McMillen each waived their right under the Directors' Plan to
automatic grants of options. One option is exercisable for one share of the
Company's common stock.
A summary of stock option transactions under the Outside Directors' 1996 Stock
Option Plan is as follows:
<TABLE>
<CAPTION>
NUMBER OF EXERCISE PRICE
OPTIONS PER OPTION
<S> <C> <C>
Outstanding at October 31, 1996 6,000 $ 5.95
Granted 6,000 $ 3.05 - $3.75
Cancelled (6,000) $ 3.05 - $5.95
-------
Outstanding at October 31, 1997 6,000 $ 3.05 - $5.95
-------
</TABLE>
At October 31, 1997, 24,000 shares of common stock are available for future
grants.
OTHER STOCK OPTIONS
During Fiscal 1996, non-qualified options to purchase 67,500 shares of common
stock at an exercise price of $6.55 per share were granted to a certain
officer of the Company. In conjunction with the purchase agreement dated
April 25, 1997 between the Company and Holdings, 202,500 additional options
were granted to this officer at an exercise price of $3.80. The exercise
price of the options issued in Fiscal 1996 was revised to $3.80 per share
resulting in a total of 270,000 options outstanding at October 31, 1997.
These options are currently exercisable, however, none have been exercised
through October 31, 1997.
FAIR VALUE OF STOCK OPTIONS
Had compensation expense for the options discussed above been determined based
on the fair value at the grant dates for the options consistent with the
methodology prescribed under Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation", the Company's net loss and net
loss per share would have been reduced to the pro forma amounts indicated
below:
10
<PAGE>
COLLEGE TELEVISION NETWORK, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
OCTOBER 31,
1997
<S> <C>
As reported
Net loss $ (4,003,590)
Net loss per common share $ (.77)
Pro forma
Net loss $ (4,078,426)
Net loss per common share $ (.79)
</TABLE>
The fair values of the options granted were estimated as of the date of grant
using the Black-Scholes option pricing model based on the following weighted-
average assumptions used for grants during fiscal 1996; dividend yield of 0.0
percent; expected volatility of 89.1 percent; risk-free interest rate of 6.6
percent; and expected lives of 3.1 years. Stock option activity for fiscal 1997
is set forth below:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
FISCAL 1997 EXERCISE
OPTIONS PRICE
<S> <C> <C>
Outstanding at October 31, 1996 214,958 $ 5.27
Granted 241,700 $ 3.74
Exercised (11,140) $ (2.15)
Cancelled (6,000) $ (4.25)
--------- ---------
Outstanding at October 31, 1997 439,518 $ 2.61
--------- ---------
Exercisable at October 31, 1997 393,118
Weighted average fair value of options
granted during the year $ 2.16
</TABLE>
5. COMMITMENTS AND CONTINGENCIES
EMPLOYMENT AGREEMENTS
The Company has employment agreements through 2001 with certain officers and
employees. The agreements call for minimum base salaries for the years ending
October 31, 1998, 1999, 2000, and 2001 of approximately $2,394,000,
$2,350,000, $2,387,000, and $958,000, respectively.
LEASES
The Company leases certain of its office facilities under operating leases
expiring at various dates through 2002. Rent expense amounted to $184,729 and
$146,426 for the years ended October 31, 1997 and 1996, respectively. Annual
lease payments for the years ending October 31, 1998, 1999, 2000, 2001, and
2002 will approximate $239,000, 123,000, $91,000, $45,000, and $46,000,
respectively.
11
<PAGE>
COLLEGE TELEVISION NETWORK, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
OTHER COMMITMENTS AND CONTINGENCIES
In connection with the Company's acquisition of the rights to and inventory
of video jukeboxes in 1991, the Company agreed to pay two former stockholders
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. The Company will provide for these contingent liabilities at the
time in which ultimate payment is considered probable.
On November 5, 1996, the Company signed an agreement with Turner Private
Networks, Inc. to provide news and sports programming on CTN during the
period from April 1, 1997 to March 31, 2000 for an aggregate cost of
$890,095, payable in equal installments during the term of the agreement
after an initial payment of $30,000.
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. This equipment is accounted for as a
capital lease with the related asset of $242,060 and liability of $249,694
included in the Balance Sheet at October 31, 1997. Future minimum lease
payments are contingent upon the total number of systems leased at any given
time. The Company is currently researching the feasibility of a new broadcast
platform for CTN. The impact of this potential change in delivery methods to
the financial statements cannot be determined at this time.
6. INCOME TAXES
At October 31, 1997, the Company has net operating loss carryforwards of
approximately $14,400,000 expiring through the year 2012. Due to an ownership
change in April 1997, utilization of approximately $12,100,000 of the net
operating loss carryforwards is limited to approximately $1,200,000 per year.
The components of the deferred income tax assets arising under FAS 109 were
as follows:
<TABLE>
<CAPTION>
OCTOBER 31,
1997
<S> <C>
Deferred tax assets
Net operating loss carryforwards $ 4,875,000
Expenses not currently deductible 450,000
Less valuation allowance $(5,325,000
-------------
Balance $ -
-------------
</TABLE>
The change in the valuation allowance in the years ended October 31, 1997 and
October 31, 1996 was $1,340,000 and $698,000, respectively, which was
principally attributable to the benefit from the increase in the net
operating loss carryforwards for such years.
12
<PAGE>
COLLEGE TELEVISION NETWORK, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
7. RELATED PARTY TRANSACTIONS
Commissions and fees of approximately $67,000 and $96,000 were paid to a
member of the Board of Directors of the Company during fiscal year 1997 and
1996, respectively.
8. SUBSEQUENT EVENTS
As of October 6, 1997, the Company had 40,075,766 shares of common stock
outstanding. On October 6, 1997, Holdings, the majority stockholder,
consented to an amendment to effect a one-for-five reverse stock spit (the
"Reverse Stock Split") and a related change in par value of the Company's
common stock which became effective on November 12, 1997.
Adoption of the Reverse Stock Split reduced the presently issued and
outstanding shares of common stock from 40,075,766 to approximately
8,015,153. As a result of the Reverse Stock Split, the stockholders of the
Company own one-fifth of the number of shares of common stock previously
owned, but have not experienced a decrease in their relative percentages of
stock ownership in the Company. Although the effective date of the Reverse
Stock Split was November 12, 1997, all amounts and per share data reflected
in these financial statements reflect the impact of the Reverse Stock Split.
With the exception of changes resulting from the Reverse Stock Split and the
change in par value, the rights and privileges of holders of shares of common
stock remain the same after the Reverse Stock Split.
On January 12, 1998, the Company completed an acquisition of the assets of
Link Magazine from Creative Media Generations, Inc. Link Magazine is a New
York based publication sent to college students. The magazine generates
revenue through advertising sales. Management believes that this acquisition
does not have a material impact on the Company's historical financial
statements.
13
<PAGE>
EXHIBIT
NUMBER DESCRIPTION
- ------- --------------------------------------------------------------------
3.1 Restated Certificate of Incorporation of the Registrant
3.2 Amended and Restated Bylaws of the Registrant
4.1 Form of Class C. Warrant
4.2 Equity Protection Agreement, dated April 25, 1997, between
the Registrant and U-C Holdings, L.L.C.
4.3 Equity Protection Agreement, dated April 25, 1997, between
the Registrant and U-C Holdings, L.L.C.
4.4 Equity Protection Agreement, dated April 25, 1997, between
the Registrant and U-C Holdings, L.L.C.
4.5 Equity Protection Agreement, dated April 25, 1997, between
the Registrant and U-C Holdings, L.L.C.
4.6 Specimen certificate representing Common Stock
(incorporated herein by reference to Exhibit 4.3 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")
10.1 Employment Agreement, dated as of April 29, 1997, between
the Registrant and Jason Elkin
10.2 Employment Agreement, dated as of April 29, 1997, between
the Registrant and Joseph D. Gersh
10.3 Employment Agreement, dated as of April 29, 1997, between
the Registrant and John T. Dobson III
10.4 Employment Agreement, dated as of April 25, 1997, between
the Registrant and Peter Kauff
10.5 Employment Agreement, dated as of September 10, 1997,
between the Registrant and Patrick G. Doran
10.6 Registrant's 1990 Performance Equity Plan (incorporated
herein by reference by Exhibit 10.4 to the Form S-1)
10.7 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 fiscal
year ended October 31, 1994, filed on January 30, 1995 (the
"1994 Form 10-KSB")
<PAGE>
10.8 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 statement with respect
to its 1996 Annual Meeting of Stockholders on Form 14A,
filed on July 1, 1996 (the "1996 Proxy Statement")
10.9 Registrant's Outside Directors' 1996 Stock Option Plan
(incorporated herein by reference to Exhibit B to the
1996 Proxy Statement)
10.10 Programming Agreement, dated as of November 5, 1996, by
and between the Registrant and Turner Private Networks,
Inc. (incorporated herein by reference to Exhibit 10.16
to the Registrant's Annual Report on Form 10-KSB for the
fiscal year ended October 31, 1996)
10.11 Equipment Rental Agreement, dated November 22, 1996,
between the Registrant and Hughes Network Systems, Inc.
doing business as DirecPC (incorporated herein by
reference to Exhibit 10.17 to the Registrant's Annual
Report on Form 10-KSB for the fiscal year ended
October 31, 1996)
10.12 Registration Rights Agreement, dated as of April 25,
1997, between the Registrant and U-C Holdings, L.L.C.
10.13 Purchase Agreement, dated as of April 25, 1997, between
the Registrant and U-C Holdings, L.L.C.
10.15 Lease, dated June 13, 1997, between the Atlanta Board of
Realtors Educational Foundation, Inc. and the Registrant,
and Lease Addendum thereto, dated October 31, 1997
16.1 Letter of Richard A. Eisner & Company regarding change in
certifying account
27 Financial Data Schedule
-2-
<PAGE>
EXHIBIT 3.1
RESTATED CERTIFICATE OF INCORPORATION
OF
COLLEGE TELEVISION NETWORK, INC.
1. (a) The present name of the corporation (hereinafter called the
"Corporation") is College Television Network, Inc.
(b) The name under which the Corporation was originally incorporated is
Light Technologies, Inc., and the date of filing the original certificate of
incorporation of the Corporation with the Secretary of State of the State of
Delaware is August 17, 1989.
2. The certificate of incorporation of the Corporation is hereby amended by
(i) striking out Article FIRST thereof and by substituting in lieu therefor new
Article FIRST which is set forth in the Restated Certificate of Incorporation
hereinafter provided for, (ii) amending the par value of the Corporation's
authorized common stock from $.001 to $.005 per share, as set forth in Article
FOURTH of the Restated Certificate of Incorporation as hereinafter provided for,
and (iii) striking out Article SEVENTH thereof and by substituting in lieu
thereof new Article SEVENTH which is set forth in the Restated Certificate of
Incorporation hereinafter provided for. The foregoing amendment to Article
FOURTH reflects a reverse stock split of the Corporation's authorized common
stock such that each five (5) of the previously issued shares of $.001 par value
common stock shall be consolidated into one (1) share of common stock having a
par value of $.005, with payment in cash to the registered holders of all
resulting fractional issued shares of the fair value of the shares as of the
effective date of such consolidation, which shall be the date this Restated
Certificate of Incorporation is duly filed with the Secretary of State of the
State of Delaware.
3. The provisions of the certificate of incorporation as heretofore amended
and/or supplemented, and as herein amended, are hereby restated and integrated
into the single instrument which is hereinafter set forth, and which is entitled
Restated Certificate of Incorporation of College Television Network, Inc.,
without any further amendment other than the amendment certified herein and
without any discrepancy between the provisions of the certificate of
incorporation as heretofore amended and supplemented and the provisions of the
said single instrument hereinafter set forth.
4. The amendment and restatement of the certificate of incorporation herein
certified have been duly adopted by the stockholders in accordance with the
provisions of Sections 228, 242 and 245 of the General Corporation Law of the
State of Delaware. Prompt written notice of the adoption of the amendment and
of the restatement of the certificate of incorporation herein certified has been
given to those stockholders who have not consented in writing thereto, as
provided in Section 228 of the General Corporation Law of the State of Delaware.
5. The certificate of incorporation of the Corporation, as amended and
restated herein, shall at the effective time of this Restated Certificate of
Incorporation, read as follows:
<PAGE>
"FIRST: The name of the Corporation is College Television Network,
Inc.
SECOND: The address of the Corporation's registered office in the
State of Delaware is 1013 Centre Road, City of Wilmington, County of New
Castle. 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 One Hundred and Two Million
(102,000,000) shares, of which One Hundred Million (100,000,000) shares
shall be Common Stock, par value $.005 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 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;
(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.
-3-
<PAGE>
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 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 Bylaws of the Corporation may be altered, amended or
repealed, and new Bylaws may be adopted, only by the stockholders holding a
majority of the outstanding common stock 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 bylaw, 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, provided that this provision 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."
IN WITNESS WHEREOF, the undersigned, a duly authorized officer of the
Corporation, has executed this Restated Certificate of Incorporation this 6th
day of October, 1997.
COLLEGE TELEVISION NETWORK, INC.
By: /s/ Jason Elkin
------------------------------------
Jason Elkin, Chief Executive Officer
and Chairman of the Board
-4-
<PAGE>
EXHIBIT 3.2
COLLEGE TELEVISION NETWORK, INC.
AMENDED AND RESTATED
BY-LAWS
NOVEMBER 10, 1997
ARTICLE I
OFFICES
The location of the registered office of the Corporation in the State of
Delaware is 1013 Centre Road, in the City of Wilmington, County of New Castle,
and the name of its registered agent at such address is The Prentice-Hall
Corporation System, Inc.
The Corporation shall in addition to its registered office in the State of
Delaware establish and maintain an office or offices at such place or places as
the Board of Directors may from time to time find necessary or desirable.
ARTICLE II
CORPORATE SEAL
The corporate seal of the Corporation shall have inscribed thereon the name
of the Corporation and may be in such form as the Board of Directors may
determine. Such seal may be used by causing it or a facsimile thereof to be
impressed, affixed or otherwise reproduced.
ARTICLE III
MEETINGS OF STOCKHOLDERS
1. All meetings of the stockholders shall be held at the registered office
of the Corporation in the State of Delaware or at such other place as shall be
determined from time to time by the Board of Directors.
2. The annual meeting of stockholders shall be held on such day and at such
time as may be determined from time to time by resolution of the Board of
Directors, when the stockholders shall elect by plurality vote, a Board of
Directors to hold office until the annual meeting of stockholders held next
after their election and their successors are respectively elected and qualified
or until their earlier resignation or removal. Any other proper business may be
transacted at the annual meeting.
3. The holders of a majority of the stock issued and outstanding and
entitled to vote thereat, present in person or represented by proxy, shall
constitute a quorum at all meetings of the
<PAGE>
stockholders for the transaction of business, except as otherwise expressly
provided by statute, by the Certificate of Incorporation or by these By-Laws.
If, however, such majority shall not be present or represented at any meeting of
the stockholders, the stockholders entitled to vote thereat, present in person
or by proxy, shall have power to adjourn the meeting from time to time, without
notice other than announcement at the meeting (except as otherwise provided by
statute). At such adjourned meeting at which the requisite amount of voting
stock shall be represented any business may be transacted which might have been
transacted at the meeting as originally notified, provided a quorum is present.
4. At all meetings of the stockholders each stockholder having the right to
vote shall be entitled to vote in person, or by proxy appointed by an instrument
in writing subscribed by such stockholder and bearing a date not more than three
years prior to said meeting, unless such instrument provides for a longer
period.
5. At each meeting of the stockholders each stockholder shall have one vote
for each share of capital stock having voting power, registered in his name on
the books of the Corporation at the record date fixed in accordance with these
By-Laws, or otherwise determined, with respect to such meeting. Except as
otherwise expressly provided by statute, by the Certificate of Incorporation or
by these By-Laws, all matters coming before any meeting of the stockholders
shall be decided by the vote of a majority of the number of shares of stock
present in person or represented by proxy at such meeting and entitled to vote
thereat, a quorum being present.
6. Notice of each meeting of the stockholders shall be mailed to each
stockholder entitled to vote thereat not less than 10 nor more than 60 days
before the date of the meeting. Such notice shall state the place, date and hour
of the meeting and, in the case of a special meeting, the purposes for which the
meeting is called.
7. Special meetings of the stockholders, for any purpose or purposes,
unless otherwise prescribed by statute, may be called by the Chairman, Chief
Executive Officer, Vice-Chairman or by the Board of Directors, and shall be
called by the Secretary at the request in writing of stockholders owning a
majority of the amount of the entire capital stock of the Corporation issued and
outstanding and entitled to vote. Such request by stockholders shall state the
purpose or purposes of the proposed meeting.
8. Business transacted at each special meeting shall be confined to the
purpose or purposes stated in the notice of such meeting.
9. The order of business at each meeting of stockholders shall be
determined by the presiding officer.
10. No business may be transacted at an annual meeting of stockholders,
other than business that is either (a) specified in the notice of meeting (or
any supplement thereto) given by or at the direction of the Board of Directors
(or any duly authorized committee thereof), (b) otherwise properly brought
before the annual meeting by or at the direction of the Board of Directors (or
any other duly authorized committee thereof) or (c) otherwise properly brought
2
<PAGE>
before the annual meeting by any stockholder of the Corporation (i) who is a
stockholder of record on the date of the giving of the notice provided for in
this Paragraph 10 and on the record date for the determination of stockholders
entitled to vote at such annual meeting and (ii) complies with the notice
procedures set forth in this Paragraph 10.
In addition to any other applicable requirements, for business to be
properly brought before an annual meeting by a stockholder, such stockholder
must have given timely notice thereof in proper written form to the Secretary of
the Corporation.
To be timely, a stockholder's notice to the Secretary must be delivered to
or mailed and received at the principal executive offices of the Corporation not
less than sixty (60) days nor more than ninety (90) days prior to the
anniversary date of the immediately preceding annual meeting of stockholders;
provided, however, that in the event that the annual meeting is called for a
date that is not within thirty (30) days before or after such anniversary date,
notice by the stockholder in order to be timely must be so received not later
than the close of business on the tenth (10th) day following the day on which
such notice of the date of the annual meeting was mailed or such public
disclosure of the date of the annual meeting was made, whichever first occurs.
To be in proper written form, a stockholder's notice to the Secretary must
be set forth as to each matter such stockholder proposes to bring before the
annual meeting (i) a brief description of the business desired to be brought
before the annual meeting and the reasons for conducting such business at the
annual meeting, (ii) the name and record address of such stockholder, (iii) the
class or series and number of shares of capital stock of the Corporation which
are owned beneficially or of record by such stockholder, (iii) a description of
all arrangements or understandings between such stockholder and any other person
or persons (including their names) in connection with the proposal of such
business by such stockholder and any material interest of such stockholder in
such business and (v) a representation that such stockholder intends to appear
in person or by proxy at the annual meeting to bring such business before the
meeting.
No business shall be conducted at the annual meeting of stockholders except
business brought before the annual meeting in accordance with the procedures set
forth in this Paragraph 10; provided, however, that, once business has been
properly brought before the annual meeting in accordance with such procedures,
nothing in this Paragraph 10 shall be deemed to preclude discussion by any
stockholder of any such business. If the Chairman of an annual meeting
determines that business was not properly brought before the annual meeting in
accordance with the foregoing procedures, the Chairman shall declare that the
business was not properly brought before the meeting and such business shall not
be transacted.
11. In order that the Corporation may determine the stockholders entitled
to notice of or to vote at any meeting of stockholders or any adjournment
thereof, or, prior to the record date, entitled to express consent to corporate
action in writing without a meeting, or entitled to receive payment of any
dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock,
or for the purpose of any
3
<PAGE>
other lawful action, the Board of Directors may fix, in advance, a record date,
which shall not be more than sixty days nor less than ten days before the date
of such meeting, nor more than sixty days prior to any such other corporate
action. A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting.
12. Any action to be taken at any annual or special meeting of
stockholders, or any action which may be taken at an annual special meeting of
such stockholders may be taken without a meeting, without prior notice and
without a vote, if a consent or consents in writing, setting forth the actions
taken shall be signed by the holders of outstanding stock having not less than
the minimum number of votes that would be necessary to authorize or take such an
action at a meeting at which all shares entitled to vote thereon were present
and voted and shall be delivered to the Corporation by delivery to its
registered office in the State of Delaware, its principal place of business or
any officer or agent of the Corporation having custody of the book in which
proceedings of meetings of stockholders are recorded. Delivery made to the
Corporation's registered office shall be by hand or by certified or registered
mail, return receipt requested. Every written consent shall bear the date of
signature of each stockholder who signs the consent and no written consent shall
be effective to take the corporate action referred to therein unless, within
sixty (60) days of the earliest dated consent delivered in the manner required
by this section to the Corporation, written consents signed by sufficient number
of holders to take action are delivered to the Corporation by delivery to its
registered office in the State of Delaware, its principal place of business or
an officer or agent of the Corporation having custody of the book in which
proceedings of meeting of stockholders are recorded. Delivery to the
Corporation's registered office shall be by hand or by certified or registered
mail, return receipt requested. Prompt notice of the taking of the corporate
action without a meeting by less than unanimous written consent shall be given
to those stockholders who have not consented in writing and who, if the action
had been taken at the meeting, would have been entitled to notice of the meeting
if the record date for such meeting had been the date that written consent
signed by sufficient number of holders to take the action were delivered to the
Corporation as provided above. In the event that the action which is consented
to is such as would have required the filing of a certificate under the General
Corporation Law of the State of Delaware, if such action had been voted on by
stockholders at a meeting thereof, such certificate shall state, in lieu of any
statement concerning any vote of stockholders, that written consent has been
given in accordance with the General Corporation Law of the State of Delaware
and the By-Laws of the Corporation.
ARTICLE IV
DIRECTORS
1. The business and affairs of the Corporation shall be managed under the
direction of a Board of Directors, which may exercise all such powers and
authority for and on behalf of the Corporation as shall be permitted by law, the
Certificate of Incorporation and these By-Laws. Each of the directors shall hold
office until the next annual meeting of stockholders and until his successor has
been elected and qualified or until his earlier resignation or removal.
4
<PAGE>
2. The Board of Directors may hold their meetings within or outside of the
State of Delaware, at such place or places as it may from time to time
determine.
3. The Board of Directors as of the date of these Amended and Restated By-
Laws shall consist of no more than eleven (11) directors. Any change in the
number of directors comprising the Board of Directors shall be only by
resolution or consent of the stockholders holding a majority of the outstanding
common stock of the Corporation. In case of any such increase, the stockholders
holding a majority of the outstanding common stock of the Corporation shall have
power to elect each additional director(s) to hold office until the next meeting
of stockholders relating to the election of the Board of Directors and until his
successor is elected and qualified or his earlier resignation or removal. Any
such decrease in the number of directors shall take effect at the time of such
action by the stockholders holding a majority of the outstanding common stock of
the Corporation only to the extent that vacancies then exist; to the extent that
such decrease exceeds the number of such vacancies, the decrease shall not
become effective, except as further vacancies may thereafter occur, until the
time of and in connection with the election of directors at the next succeeding
meeting of the stockholders.
4. If the office of any director becomes vacant, by reason of death,
resignation, disqualification, removal or otherwise, a majority of the directors
then in office, although less than a quorum, may fill the vacancy by electing a
successor who shall hold office until the next annual meeting of stockholders
and until his successor is elected and qualified or his earlier resignation or
removal; provided, however, that any vacancy may only be filled by a candidate
nominated by the Nominating Committee; provided further that if the Board
receives written notice from the stockholders holding a majority of the
outstanding common stock of the Corporation as to who they request as a new
appointee, the stockholders shall fill such vacancy.
5. Any director may resign at any time by giving written notice of his
resignation to the Board of Directors. Any such resignation shall take effect
upon receipt thereof by the Board, or at such later date as may be specified
therein. Any such notice to the Board shall be addressed to it in care of the
Secretary.
6. The directors of the Corporation shall hold office until their
successors are elected and qualified, or until their earlier resignation or
removal. Any Director may be at any time removed from office only by the
stockholders holding a majority of the outstanding common stock of the
Corporation, with or without cause.
ARTICLE V
COMMITTEES OF DIRECTORS
1. By resolutions adopted by a majority of the whole Board of Directors,
the Board may designate an Executive Committee and one or more other committees
and shall designate a Nominating Committee, each such committee to consist of
three or more directors of the Corporation. The Nominating Committee shall
consist of the Chairman of the Board and each of the Investor Directors. For
purposes hereof, "Investor Directors" shall mean no more than two
5
<PAGE>
directors designated as the "Investor Directors" hereunder from time to time in
a written notice delivered to the Corporation by U-C Holdings, L.L.C., a
Delaware limited liability company ("Holdings"); provided that the right of
Holdings to designate any Investor Director shall terminate at such time as
Holdings shall cease to hold any common stock of the Corporation. The Executive
Committee shall consist of no more than five (5) members, two of which members
shall be Investor Directors, and the Executive Committee shall have and may
exercise all the powers and authority of the Board in the management of the
business and affairs of the Corporation (except as otherwise expressly limited
by statute), including the power and authority to declare dividends and to
authorize the issuance of stock, and may authorize the seal of the corporation
to be affixed to all papers which may require it. Each such committee shall have
such of the powers and authority of the Board as may be provided from time to
time in resolutions adopted by a majority of the whole Board.
2. The requirements with respect to the manner in which the Executive
Committee and each such other committee shall hold meetings and take actions
shall be set forth in the resolutions of the Board of Directors designating the
Executive Committee or such other committee.
ARTICLE VI
COMPENSATION OF DIRECTORS
The directors shall receive such compensation for their services as may be
authorized by resolution of the Board of Directors, which compensation may
include an annual fee and a fixed sum for expense of attendance at regular or
special meetings of the Board or any committee thereof. Nothing herein contained
shall be construed to preclude any director from serving the Corporation in any
other capacity and receiving compensation therefor.
ARTICLE VII
MEETINGS OF DIRECTORS; ACTION WITHOUT A MEETING
1. Regular meetings of the Board of Directors may be held without notice
at such time and place, either within or without the State of Delaware, as may
be determined from time to time by resolution of the Board, and a copy of such
resolution has been sent to all directors at least twenty-four (24) hours prior
to the next regular meeting.
2. Special meetings of the Board of Directors shall be held whenever
called by the Chairman of the Board, Vice Chairman or Chief Executive Officer of
the Corporation or any two members of the Board of Directors or any Investor
Director on at least 24 hours' notice to each director. Except as may be
otherwise specifically provided by statute, by the Certificate of Incorporation
or by these By-Laws, the purpose or purposes of any such special meeting need
not be stated in such notice, although the time and place of the meeting shall
be stated.
6
<PAGE>
3. At all meetings of the Board of Directors, the presence in person of
both (i) a majority of the members of the Board of Directors and (ii) at least
one Investor Director shall be necessary and sufficient to constitute a quorum
for the transaction of business, and, except as otherwise provided by statute,
by the Certificate of Incorporation or by these By-Laws, if a quorum shall be
present the act of a majority of the directors present shall be the act of the
Board.
4. At any meeting, of the Board of Directors or any committee thereof, any
Investor Director shall have the power to adjourn the meeting at any time
(including prior to the taking of any certain action or vote at such meeting)
for a period of no more than fifty (50) days.
5. Any action required or permitted to be taken at any meeting of the
Board of Directors or of any committee thereof may be taken without a meeting if
all the members of the Board or such committee, as the case may be, consent
thereto in writing and the writing or writings are filed with the minutes of
proceedings of the Board of committee. Any director may participate in a meeting
of the Board, or any committee designated by the Board, by means of a conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other, and participation in a meeting
pursuant to this sentence shall constitute presence in person at such meeting.
ARTICLE VIII
OFFICERS
1. The officers of the Corporation shall be chosen by the Board of
Directors and shall be a Chief Executive Officer, President, Chief Operating
Officer, one or more Vice Presidents, a Secretary, and a Treasurer. The Board
may also choose a Chairman, one or more Vice Chairmen, one or more Assistant
Secretaries and Assistant Treasurers, and such other officers as it shall deem
necessary. Any number of offices may be held by the same person.
2. The salaries of all officers of the Corporation shall be fixed by the
Board of Directors, or in such manner as the Board may prescribe.
3. The officers of the Corporation shall hold office until their
successors are elected and qualified, or until their earlier resignation or
removal. Any officer may be at any time removed from office by the Board of
Directors, with or without cause. If the office of any officer becomes vacant
for any reason, the vacancy may be filled by the Board of Directors.
4. Any officer may resign at any time by giving written notice of his
resignation to the Board of Directors. Any such resignation shall take effect
upon receipt thereof by the Board or at such later date as may be specified
therein. Any such notice to the Board shall be addressed to it in care of the
Secretary.
7
<PAGE>
ARTICLE IX
CHAIRMAN
The Chairman shall be the chief executive officer of the Corporation,
unless otherwise determined by the Board of Directors. Subject to the
supervision and direction of the Board of Directors, he shall be responsible for
managing the affairs of the Corporation. He shall have supervision and direction
of all of the other officers of the Corporation and shall have the powers and
duties usually and customarily associated with the office of chief executive
officer. He shall preside at meetings of the stockholders and of the Board of
Directors.
ARTICLE X
VICE CHAIRMAN
The Vice Chairman shall have such powers and perform such duties as shall
be assigned to him(them) by the chief executive officer or the Board of
Directors.
ARTICLE XI
PRESIDENT
The President shall have such powers and perform such duties as shall be
assigned to him by the chief executive officer or the Board of Directors.
ARTICLE XII
CHIEF OPERATING OFFICER
The Chief Operating Officer shall have such powers and perform such duties
as shall be assigned to him by the chief executive officer or the Board of
Directors.
ARTICLE XIII
VICE PRESIDENTS
The Vice Presidents shall have such powers and duties as may be delegated
to them by the chief executive officer.
ARTICLE XIV
SECRETARY AND ASSISTANT SECRETARY
1. The Secretary shall attend all meetings of the Board of Directors and
of the stockholders, and shall record the minutes of all proceedings in a book
to be kept for that purpose. He shall perform like duties for the committees of
the Board when required.
8
<PAGE>
2. The Secretary shall give, or cause to be given, notice of meetings of
the stockholders, of the Board of Directors and of the committees of the Board.
He shall keep in safe custody the seal of the Corporation, and when authorized
by the Chief Executive Officer, President, an Executive Vice President or a Vice
President, shall affix the same to any instrument requiring it, and when so
affixed it shall be attested by his signature or by the signature of an
Assistant Secretary. He shall have such other powers and duties as may be
delegated to him by the Chief Executive Officer.
3. The Assistant Secretary shall, in case of the absence of the Secretary,
perform the duties and exercise the powers of the Secretary, and shall have such
other powers and duties as may be delegated to them by the Chief Executive
Officer.
ARTICLE XV
TREASURER AND ASSISTANT TREASURER
1. The Treasurer shall have the custody of the corporate funds and
securities, and shall deposit or cause to be deposited under his direction all
moneys and other valuable effects in the name and to the credit of the
Corporation in such depositories as may be designated by the Board of Directors
or pursuant to authority granted by it. He shall render to the Chief Executive
Officer and the Board whenever they may require it an account of all his
transactions as Treasurer and of the financial condition of the Corporation. He
shall have such other powers and duties as may be delegated to him by the Chief
Executive Officer.
2. The Assistant Treasurer shall, in case of the absence of the Treasurer,
perform the duties and exercise the powers of the Treasurer, and shall have such
other powers and duties as may be delegated to them by the Chief Executive
Officer.
ARTICLE XVI
CERTIFICATES OF STOCK
The certificates of stock of the Corporation shall be numbered and shall be
entered in the books of the Corporation as they are issued. They shall exhibit
the holder's name and number of shares and shall be signed by the Chief
Executive Officer, President or Vice President, and by the Treasurer or an
Assistant Treasurer, or the Secretary or an Assistant Secretary.
ARTICLE XVII
CHECKS
All checks, drafts and other orders for the payment of money and all
promissory notes and other evidences of indebtedness of the Corporation shall be
signed by such officer or officers or such other person as may be designated by
the Board of Directors or pursuant to authority granted by it.
9
<PAGE>
ARTICLE XVIII
FISCAL YEAR
The fiscal year of the Corporation shall be as determined from time to time
by resolution duly adopted by the Board of Directors.
ARTICLE XIX
NOTICES AND WAIVERS
1. Whenever by statute, by the Certificate of Incorporation or by these
By-Laws it is provided that notice shall be given to any director or
stockholder, such provision shall not be construed to require personal notice,
but such notice may be given in writing, by mail, by depositing the same in the
United States mail, postage prepaid, directed to such stockholder or director at
his address as it appears on the records of the Corporation, and such notice
shall be deemed to be given at the time when the same shall be thus deposited.
Notice of regular or special meetings of the Board of Directors may also be
given to any director by telephone or by telex, telegraph or cable, and in the
latter event the notice shall be deemed to be given at the time such notice,
addressed to such director at the address hereinabove provided, is transmitted
by telex (with confirmed answerback), or delivered to and accepted by an
authorized telegraph or cable office.
2. Whenever by statute, by the Certificate of Incorporation or by these
By-Laws a notice is required to be given, a written waiver thereof, signed by
the person entitled to notice, whether before or after the time stated therein,
shall be deemed equivalent to notice. Attendance of any stockholder or director
at any meeting thereof shall constitute a waiver of notice of such meeting by
such stockholder or director, as the case may be, except as otherwise provided
by statute.
ARTICLE XX
INDEMNIFICATION
1. 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 such rights to which those seeking indemnification from
the Corporation may be entitled, including, but not limited to, any rights of
indemnification to which they may be entitled pursuant to any agreement,
insurance policy, other by-law or charter provision, vote of stockholders or
directors, or otherwise. No repeal or amendment of this Article XX shall
adversely affect any rights of any person pursuant to this Article XX which
existed at
10
<PAGE>
the time of such repeal or amendment with respect to acts or omissions occurring
prior to such repeal or amendment.
2. Any indemnification of a director or officer of the Corporation under
Section 1 of this Article XX or advance of expenses under Section 5 of this
Article XX shall be made promptly, and in any event within thirty (30) days,
upon the written request of the director or officer. If a determination by the
Corporation that the director or officer is entitled to indemnification pursuant
to this Article XX is required, and the Corporation fails to respond within
sixty (60) days to a written request for indemnity, the Corporation shall be
deemed to have approved the request. If the Corporation denies a written
request for indemnification or advancing of expenses, in whole or in part, or if
payment in full pursuant to such request is not made within thirty (30) days,
the right to indemnification or advances as granted by this Article XX shall be
enforceable by the director or officer in any court of competent jurisdiction.
Such person's costs and expenses incurred in connection with successfully
establishing his or her right to indemnification, in whole or in part, in any
such action shall also be indemnified by the Corporation. It shall be a defense
to any such action (other than an action brought to enforce a claim for expenses
incurred in defending any proceeding in advance of its final disposition where
the required undertaking, if any, has been tendered to the Corporation) that the
claimant has not met the standards of conduct which make it permissible under
the General Corporation Law of the State of Delaware for the Corporation to
indemnify the claimant for the amount claimed, but the burden of such defense
shall be on the Corporation. Neither the failure of the Corporation (including
its board of directors, independent legal counsel, or its stockholders) to have
made a determination prior to the commencement of such action that
indemnification of the claimant is proper in the circumstances because he or she
has met the applicable standard of conduct set forth in the General Corporation
Law of the State of Delaware, nor an actual determination by the Corporation
(including its board of directors, independent legal counsel, or its
stockholders) that the claimant has not met such applicable standards of
conduct, shall be a defense to the action or create a presumption that the
claimant has not met the applicable standard of conduct.
3. The rights to indemnification and the payment of expenses incurred in
defending a proceeding in advance of its final disposition conferred in this
Article XX shall not be exclusive of any other right which any person may have
or hereafter acquire under any statute, provision of the certificate of
incorporation, by-law, agreement, vote of stockholders or disinterested
directors or otherwise.
4. The Corporation may purchase and maintain insurance on its own behalf
and on behalf of any person who is or was a director, officer, employee,
fiduciary, or agent of the Corporation or was serving at the request of the
Corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against any liability
asserted against him or her and incurred by him or her in any such capacity,
whether or not the Corporation would have the power to indemnify such person
against such liability under this Article XX.
5. Expenses incurred by any person described in Section 1 of this Article
XX in defending a proceeding shall be paid by the Corporation in advance of such
proceeding's final
11
<PAGE>
disposition upon receipt of an undertaking by or on behalf of the director or
officer to repay such amount if it shall ultimately be determined that he or she
is not entitled to be indemnified by the Corporation. Such expenses incurred by
other employees and agents may be so paid upon such terms and conditions, if
any, as the board of directors deems appropriate.
6. Persons who are not covered by the foregoing provisions of this Article
XX and who are or were employees or agents of the Corporation, or who are or
were serving at the request of the Corporation as employees or agents of another
corporation, partnership, joint venture, trust or other enterprise, may be
indemnified to the extent authorized at any time or from time to time by the
board of directors.
7. The provisions of this Article XX shall be deemed to be a contract
right between the Corporation and each director or officer who serves in any
such capacity at any time while this Article XX and the relevant provisions of
the General Corporation Law of the State of Delaware or other applicable law are
in effect, and any repeal or modification of this Article XX or any such law
shall not affect any rights or obligations then existing with respect to any
state of facts or proceeding then existing.
8. For purposes of this Article XX, references to "the Corporation" shall
include, in addition to the resulting corporation, any constituent corporation
(including any constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have had power and
authority to indemnify its directors, officers, and employees or agents, so that
any person who is or was a director, officer, employee or agent of such
constituent corporation, or is or was serving at the request of such
constituent corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, shall stand
in the same position under this Article XX with respect to the resulting of
surviving corporation as he or she would have with respect to such constituent
corporation if its separate existence had continued.
ARTICLE XXI
ALTERATION OF BY-LAWS
The By-Laws of the Corporation may be altered, amended or repealed, and new
By-Laws may be adopted, only by the stockholders holding a majority of the
outstanding common stock of the Corporation.
12
<PAGE>
EXHIBIT 4.1
CLASS C WARRANT
THE WARRANT REPRESENTED BY THIS CERTIFICATE AND THE SHARES ISSUABLE UPON
EXERCISE HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), OR ANY STATE SECURITIES LAWS AND NEITHER SUCH SECURITIES
NOR ANY INTEREST THEREIN MAY BE OFFERED, SOLD, PLEDGED, ASSIGNED OR OTHERWISE
TRANSFERRED UNLESS (1) A REGISTRATION STATEMENT WITH RESPECT THERETO IS
EFFECTIVE UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS, OR (2) THE
COMPANY RECEIVES AN OPINION OF COUNSEL TO THE HOLDER OF SUCH SECURITIES, WHICH
COUNSEL AND OPINION ARE REASONABLY SATISFACTORY TO THE COMPANY, THAT SUCH
SECURITIES MAY BE OFFERED, SOLD, PLEDGED, ASSIGNED OR TRANSFERRED IN THE MANNER
CONTEMPLATED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR
APPLICABLE STATE SECURITIES LAWS.
THE TRANSFER OF THIS WARRANT IS
RESTRICTED AS DESCRIBED HEREIN.
UC TELEVISION NETWORK CORP.
Warrant for the Purchase of Shares of Common Stock,
par value $0.001 per share
THIS WARRANT EXPIRES ON APRIL 25, 2004
No. C-1 3,863,662 Shares
THIS CERTIFIES that, for value received, U-C Holdings, L.L.C., a
Delaware limited liability company, with an address at 227 West Monroe Street,
Suite 4300, Chicago, IL 60606, c/o Willis Stein & Partners (including any
transferee, the "Holder"), is entitled to subscribe for and purchase from UC
Television Network Corp., a Delaware corporation (the "Company"), upon the terms
and conditions set forth herein, at any time or from time to time after the
Commencement Date (as defined below) and before 5:00 P.M. on April 25, 2004, New
York time (the "Exercise Period"), 3,863,662 shares of the Company's Common
Stock (as hereinafter defined) at a price per share equal to $.55 (as the same
may be adjusted from time to time in accordance with the terms of this Warrant,
the "Exercise Price"). This Warrant is the Class C Warrant (collectively,
including any warrants issued upon the exercise or transfer of this Warrant in
whole or in part, the "Warrants") issued pursuant to that certain Purchase
Agreement, dated as of the date hereof, by and between the Company and the
original Holder of this Warrant (the "Purchase Agreement"). As used herein the
term "this Warrant" shall mean and include this
<PAGE>
Warrant and any Warrant or Warrants hereafter issued as a consequence of the
exercise or transfer of this Warrant in whole or in part.
For purposes of this Warrant, the following terms shall have the
meanings set forth below:
(A) the term "Common Stock" shall mean the Company's common stock, par
value $.001 per share, and any capital stock of any class of the Company
hereafter authorized which is not limited to a fixed sum or percentage of par or
stated value in respect to the rights of the holders thereof to participate in
dividends or in the distribution of assets upon any liquidation, dissolution or
winding up of the Company;
(B) the term "Commencement Date" means the earlier of (i) April 25,
1999, (ii) the date of the consummation of any Sale of the Company and (iii) the
date of any Public Offering;
(C) the term "Sale of the Company" shall mean the sale of the Company
to an Independent Third Party or group of Independent Third Parties pursuant to
which such party or parties acquire (i) capital stock of the Company possessing
the voting power under normal circumstances to elect a majority of the Company's
board of directors (whether by merger, consolidation, recapitalization, sale or
transfer of the Company's capital stock or otherwise) or (ii) all or
substantially all of the Company's assets determined on a consolidated basis;
(D) the term "Independent Third Party" shall mean any person or entity
who, immediately prior to the contemplated transaction, does not own in excess
of 5% of the Company's Common Stock on a fully-diluted basis (a "5% Owner"), who
is not controlling, controlled by or under common control with any such 5% Owner
and who is not the spouse or descendent (by birth or adoption) of any such 5%
Owner or a trust for the benefit of such 5% Owner and/or such other persons or
entities;
(E) the term "Public Offering" shall mean the sale in an underwritten
public offering registered under the Securities Act of shares of the Company's
Common Stock;
(F) the term "Existing Warrants" shall mean, collectively, all
warrants to purchase shares of Common Stock of the Company outstanding as of the
date hereof and any warrant or warrants issued as a consequence of the exercise
or transfer of such warrants in whole or part, including, without limitation,
any of the Company's Class A Redeemable Warrants, Class B Redeemable Warrants,
any of the warrants issued pursuant to the private placement of securities of
the Company on April 26, 1996 and May 28, 1996, the unit purchase option issued
to Barington Capital Group, L.P. ("Barington") on April 26, 1996 and any
warrants subsequently issued to Barington or its transferees pursuant to the
exercise of such unit purchase option;
(G) the term "Existing Options" shall mean, collectively, all options
and other rights to purchase shares of Common Stock of the Company (other than
the Existing Warrants) outstanding as of the date hereof and any option or
options issued as a consequence of the
2
<PAGE>
exercise or transfer of such options in whole or part, including, without
limitation, any options granted pursuant to the Company's 1990 Performance
Equity Plan, 1996 Stock Incentive Plan, Outside Directors 1996 Stock Option Plan
and the nonqualified option for 337,500 shares of Common Stock granted to Peter
Kauff (as such nonqualified option shall be amended or modified);
(H) the term "Purchase Rights" shall mean the right to purchase shares
of the Company's Common Stock granted pursuant to those certain Equity
Protection Agreements, dated as of the date hereof, between the Company and the
original Holder; and
(I) the term "Warrant Shares" shall mean the shares of Common Stock
issuable upon exercise of the Warrants.
1. This Warrant may be exercised during the Exercise Period, as to the
whole or any lesser number of whole Warrant Shares, by the surrender of this
Warrant (with the "Election to Exercise" attached hereto, duly executed) to the
Company at its office at 645 Fifth Avenue, East Wing, New York, New York 10022,
or at such other place as is designated in writing by the Company. In connection
with any exercise of this Warrant, the Holder shall deliver to the Company
either (a) cash (by wire transfer of immediately available funds to the
Company's account) or a certified or bank cashier's check payable to the order
of the Company in an amount equal to the product of the Exercise Price
multiplied by the number of Warrant Shares being purchased upon such exercise
(the "Aggregate Exercise Price"), (b) the surrender to the Company of debt or
equity securities of the Company having a Current Market Price (as defined in
Section 5(e)) equal to the Aggregate Exercise Price of the Common Stock being
purchased upon such exercise (provided that for purposes of this subparagraph,
the Current Market Price of any note or other debt security or any preferred
stock shall be deemed to be equal to the aggregate outstanding principal amount
or liquidation value thereof plus all accrued and unpaid interest thereon or
accrued or declared and unpaid dividends thereon) or (c) a written notice to the
Company that the Holder is exercising this Warrant (or a portion thereof) by
authorizing the Company to withhold from issuance a number of shares of Common
Stock issuable upon such exercise of this Warrant which when multiplied by the
Current Market Price of the Common Stock is equal to the Aggregate Exercise
Price (and such withheld shares shall no longer be issuable under this Warrant).
Each Warrant not exercised prior to 5:00 p.m. on April 25, 2004 New York time
shall become null and void and all rights thereunder shall cease as of such
time. At least 30 days prior to the end of the Exercise Period, the Company
shall give the Holder written notice of (i) the expiration of the Exercise
Period, (ii) the number of Warrant Shares issuable upon exercise of this Warrant
as of the date of such notice and (iii) the Exercise Price in effect as of such
date.
2. Upon receipt by the Company of this Warrant, the "Election to
Exercise," and the Aggregate Exercise Price for the Warrant Shares, the Holder
shall be deemed to be the holder of record of the Warrant Shares issuable upon
such exercise; provided, however, that if the date of such receipt is a date
upon which the transfer books of the Company are closed, the Holder shall be
deemed to be the record holder on the next succeeding business day on which such
books are open. The Company shall not close its books against the transfer of
this Warrant
3
<PAGE>
or of any Warrant Shares issued or issuable upon the exercise of this Warrant in
any manner which interferes with the timely exercise of this Warrant. As soon
as practicable after each such exercise of this Warrant, the Company shall issue
and cause to be delivered to the Holder a certificate or certificates for the
Warrant Shares issuable upon such exercise, registered in the name of the Holder
or its designee. If this Warrant should be exercised in part only, the Company
shall, upon surrender of this Warrant for cancellation, execute and deliver a
new Warrant evidencing the right of the Holder to purchase the remaining
unexercised balance of the Warrant Shares (or portions thereof) subject to
purchase hereunder.
3. (a) Any Warrants issued upon the transfer or exercise in part of
this Warrant shall be numbered and shall be registered in a Warrant Register as
they are issued. The Company shall be entitled to treat the registered holder of
any Warrant on the Warrant Register as the owner in fact thereof for all
purposes and shall not be bound to recognize any equitable or other claim to or
interest in such Warrant on the part of any other person, and shall not be
liable for any registration or transfer of Warrants which are registered or to
be registered in the name of a fiduciary or the nominee of a fiduciary unless
made with the actual knowledge that a fiduciary or nominee is committing a
breach of trust in requesting such registration or transfer, or with the
knowledge of such facts that its participation therein amounts to bad faith.
This Warrant shall not be transferable without the prior written consent of the
Company except in connection with (i) the transfer of shares of Common Stock
acquired pursuant to the purchase agreement (the "Purchase Agreement") between
the Company and the original Holder, dated April 25, 1997 and in such event, in
a percentage equal to the percentage of Common Stock transferred determined by
dividing the number of shares being transferred by the number of shares
purchased under the Purchase Agreement; (ii) any Sale of the Company; or (iii) a
sale of all remaining Common Stock owned by the Holder. This Warrant shall be
transferable only on the books of the Company upon delivery thereof duly
endorsed by the Holder or by his duly authorized attorney or representative, or
accompanied by proper evidence of succession, assignment, or authority to
transfer. In all cases of transfer by an attorney, executor, administrator,
guardian, or other legal representative, duly authenticated evidence of his or
its authority shall be produced. Upon any registration of transfer, the Company
shall cause to be delivered a new Warrant or Warrants to the person entitled
thereto. This Warrant may be exchanged, at the option of the Holder thereof, for
another Warrant, or other Warrants of different denominations, of like tenor and
representing in the aggregate the right to purchase a like number of Warrant
Shares (or portions thereof), upon surrender to the Company or its duly
authorized agent. Notwithstanding the foregoing, the Company shall have no
obligation to cause Warrants to be transferred on its books to any person if, in
the opinion of counsel to the Company, such transfer does not comply with the
provisions of the Securities Act of 1933, as amended (the "Act"), and the rules
and regulations thereunder.
(b) The Holder acknowledges that such Holder has been advised by
the Company that neither this Warrant nor the Warrant Shares have been
registered under the Act, that this Warrant is being or has been issued and the
Warrant Shares may be issued on the basis of the statutory exemption provided by
Section 4(2) of the Act or Regulation D promulgated thereunder, or both,
relating to transactions by an issuer not involving any public offering, and
that the Company's reliance thereon is based in part upon the representations
made by the original Holder in the Purchase Agreement. The Holder acknowledges
that such Holder is
4
<PAGE>
familiar with the nature of the limitations imposed by the Act and the rules and
regulations thereunder on the transfer of securities. In particular, the Holder
agrees that no sale, assignment or transfer of this Warrant or the Warrant
Shares issuable upon exercise hereof shall be valid or effective, and the
Company shall not be required to give any effect to any such sale, assignment or
transfer, unless (i) the sale, assignment or transfer of this Warrant or such
Warrant Shares is registered under the Act, it being understood that neither
this Warrant nor such Warrant Shares are currently registered for sale and that
the Company has no obligation or intention to so register this Warrant or such
Warrant Shares except as specifically provided in the registration rights
agreement referred to in Section 9, or (ii) this Warrant or such Warrant Shares
are sold, assigned or transferred in accordance with all the requirements and
limitations of Rule 144 under the Act, it being understood that Rule 144 is not
available at the time of the original issuance of this Warrant for the sale of
this Warrant or such Warrant Shares and that there can be no assurance that Rule
144 sales will be available at any subsequent time, or (iii) such sale,
assignment, or transfer is otherwise exempt from registration under the Act.
Notwithstanding any other provision hereof, if an exercise of this Warrant or
any portion hereof is to be made in connection with a registered public offering
or the sale of the Company, the exercise of this Warrant or any portion hereof
may, at the election of the Holder, be conditioned upon the consummation of the
public offering or sale of the Company in which case such exercise shall not be
deemed to be effective until the consummation of such transaction. The Company
shall assist and cooperate with any Holder required to make any governmental
filings or obtain any governmental approvals prior to or in connection with any
exercise of this Warrant (including, without limitation, making any filings
required to be made by the Company).
4. The Company covenants that the Warrant Shares, upon receipt by the
Company of the Aggregate Exercise Price therefor, shall be validly issued, fully
paid, nonassessable, and free of preemptive rights, liens, taxes and charges
with respect to the issuance thereof. The Company shall take all such actions
as may be necessary to assure that all such shares of Common Stock may be so
issued without violation of any applicable law or governmental regulation or any
requirements of any domestic securities exchange upon which shares of Common
Stock may be listed (except for official notice of issuance which shall be
immediately delivered by the Company upon each such issuance). The Company
shall from time to time take all such action as may be necessary to assure that
the par value per share of the unissued Common Stock acquirable upon exercise of
this Warrant is at all times equal to or less than the Exercise Price then in
effect. The Company covenants and agrees that promptly after the date hereof,
the Company shall amend its certificate of incorporation to increase the
authorized and unissued shares of Common Stock of the Company to a number
sufficient to allow for the exercise of the Warrants, the Existing Warrants, the
Existing Options and the Purchase Rights. The Company shall at all times
thereafter reserve and keep available out of its authorized and unissued Common
Stock, solely for the purpose of providing for the exercise of the Warrants,
such number of shares of Common Stock as shall, from time to time, be sufficient
therefor and the Company shall not thereafter take any action which would cause
the number of authorized but unissued shares of Common Stock to be less than the
number of such shares required to be reserved hereunder for issuance upon
exercise of the Warrants.
5
<PAGE>
5. (a) In case the Company shall at any time after the date this
Warrant is first issued (i) declare a dividend on any class of the outstanding
capital stock of the Company (the "Capital Stock") payable in shares of its
Capital Stock, (ii) subdivide any class of the outstanding Capital Stock, or
(iii) combine any class of the outstanding Capital Stock into a smaller number
of shares, then, in each case, the Exercise Price, and the number of Warrant
Shares issuable upon exercise of this Warrant, in effect at the time of the
record date for such dividend or of the effective date of such subdivision, or
combination, shall be proportionately adjusted so that the Holder after such
time shall be entitled to receive the aggregate number and kind of shares for
such consideration which, if such Warrant had been exercised immediately prior
to such time at the then current exercise price, he would have owned upon such
exercise and been entitled to receive by virtue of such dividend, subdivision,
or combination. Such adjustment shall be made successively whenever any event
listed above shall occur.
(b) In case the Company shall issue or fix a record date for the
issuance to all holders of any class of Capital Stock of rights, options, or
warrants to subscribe for or purchase Common Stock (or securities convertible
into or exchangeable for Common Stock) at a price per share (or having a
conversion or exchange price per share, if a security convertible into or
exchangeable for Common Stock) less than the Current Market Price per share of
Common Stock on such record date, then, in each case, the Exercise Price shall
be adjusted by multiplying the Exercise Price in effect immediately prior to
such record date by a fraction, the numerator of which shall be the number of
shares of Common Stock outstanding on such record date plus the number of shares
of such class of Common Stock which the aggregate offering price of the total
number of shares of such class of Common Stock so to be offered (or the
aggregate initial conversion or exchange price of the convertible or
exchangeable securities so to be offered) would purchase at such Current Market
Price and the denominator of which shall be the number of shares of Common Stock
outstanding on such record date plus the number of additional shares of Common
Stock to be offered for subscription or purchase (or into which the convertible
or exchangeable securities so to be offered are initially convertible or
exchangeable); provided, however, that no such adjustment shall be made which
results in an increase in the Exercise Price. Such adjustment shall become
effective at the close of business on such record date; provided, however, that,
to the extent the shares of Common Stock (or securities convertible into or
exchangeable for shares of Common Stock) are not delivered, the Exercise Price
shall be readjusted after the expiration of such rights, options, or warrants
(but only with respect to Warrants exercised after such expiration), to the
Exercise Price which would then be in effect had the adjustments made upon the
issuance of such rights, options, or warrants been made upon the basis of
delivery of only the number of shares of Common Stock (or securities convertible
into or exchangeable for shares of Common Stock) actually issued. In case any
subscription price may be paid in a consideration, part or all of which shall be
in a form other than cash, the value of such consideration shall be as
determined in good faith by the board of directors of the Company, whose
determination shall be conclusive absent manifest error. Shares of Common Stock
owned by or held for the account of the Company or any majority-owned subsidiary
shall not be deemed outstanding for the purpose of any such computation.
(c) In case the Company shall distribute to all holders of any
class of Common Stock (including any such distribution made to the stockholders
of the Company in
6
<PAGE>
connection with a consolidation or merger in which the Company is the continuing
corporation) evidences of its indebtedness, cash (other than any cash dividend
which, together with any cash dividends paid within the 12 months prior to the
record date for such distribution, does not exceed 5% of the Current Market
Price at the record date for such distribution) or assets (other than
distributions and dividends payable in shares of Common Stock), or rights,
options, or warrants to subscribe for or purchase Common Stock, or securities
convertible into or changeable for shares of Common Stock (excluding those with
respect to the issuance of which an adjustment of the Exercise Price is provided
pursuant to section 5(b) hereof), then, in each case, the Exercise Price shall
be adjusted by multiplying the Exercise Price in effect immediately prior to the
record date for the determination of stockholders entitled to receive such
distribution by a fraction, the numerator of which shall be the Current Market
Price per share of such class of Common Stock on such record date, less the fair
market value (as determined in good faith by the board of directors of the
Company, whose determination shall be conclusive absent manifest error) of the
portion of the evidences of indebtedness or assets so to be distributed, or of
such rights, options, or warrants or convertible or exchangeable securities, or
the amount of such cash, applicable to one share, and the denominator of which
shall be such Current Market Price per share of such class of Common Stock.
Such adjustment shall become effective at the close of business on such record
date.
(d) In case the Company shall issue shares of Common Stock or
rights, options, or warrants to subscribe for or purchase Common Stock, or
securities convertible into or exchangeable for Common Stock (excluding shares,
rights, options, warrants, or convertible or exchangeable securities issued or
issuable (i) in any of the transactions with respect to which an adjustment of
the Exercise Price is provided pursuant to Sections 5(a), 5(b), or 5(c) above,
(ii) upon any issuance of securities pursuant to the Purchase Agreement, (iii)
upon exercise of any of the Existing Warrants, (iv) upon exercise of any of the
Existing Options or (v) upon exercise of any of the Purchase Rights), at a price
per share (determined, in the case of such rights, options, warrants, or
convertible or exchangeable securities, by dividing (x) the total amount
received or receivable by the Company in consideration of the sale and issuance
of such rights, options, warrants, or convertible or exchangeable securities,
plus the minimum aggregate consideration payable to the Company upon exercise,
conversion, or exchange thereof, by (y) the maximum number of shares covered by
such rights, options, warrants, or convertible or exchangeable securities) lower
than the Current Market Price per share of shares of such class of Common Stock
so issued in effect immediately prior to such issuance, then the Exercise Price
shall be reduced on the date of such issuance to a price (calculated to the
nearest cent) determined by multiplying the Exercise Price in effect immediately
prior to such issuance by a fraction, (1) the numerator of which shall be an
amount equal to the sum of (A) the number of shares of Common Stock outstanding
immediately prior to such issuance plus (B) the quotient obtained by dividing
the consideration received by the Company upon such issuance by such Current
Market Price, and (2) the denominator of which shall be the total number of
shares of Common Stock outstanding immediately after such issuance; provided,
however, that no such adjustment shall be made which results in an increase in
the Exercise Price. For the purposes of such adjustments, the maximum number of
shares which the holders of any such rights, options, warrants, or convertible
or exchangeable securities shall be entitled to initially subscribe for or
purchase or convert or exchange such securities into shall be deemed to be
issued and outstanding as of the
7
<PAGE>
date of such issuance, and the consideration received by the Company therefor
shall be deemed to be the consideration received by the Company for such rights,
options, warrants, or convertible or exchangeable securities, plus the minimum
aggregate consideration or premiums stated in such rights, options, warrants, or
convertible or exchangeable securities to be paid for the shares covered
thereby. No further adjustment of the Exercise Price shall be made as a result
of the actual issuance of shares of Common Stock on exercise of such rights,
options, or warrants or on conversion or exchange of such convertible or
exchangeable securities. On the expiration or the termination of such rights,
options, or warrants, or the termination of such right to convert or exchange,
the Exercise Price shall be readjusted (but only with respect to Warrants
exercised after such expiration or termination) to such Exercise Price as would
have obtained had the adjustments made upon the issuance of such rights,
options, warrants, or convertible or exchangeable securities been made upon the
basis of the delivery of only the number of shares of Common Stock actually
delivered upon the exercise of such rights, options, or warrants or upon the
conversion or exchange of any such securities; and on any change of the number
of shares of Common Stock deliverable upon the exercise of any such rights,
options, or warrants or conversion or exchange of such convertible or
exchangeable securities or any change in the consideration to be received by the
Company upon such exercise, conversion, or exchange, including, without
limitation, a change resulting from the antidilution provisions thereof. In
case the Company shall issue shares of Common Stock or any such rights, options,
warrants, or convertible or exchangeable securities for a consideration
consisting, in whole or in part, of property other than cash or its equivalent,
then the "price per share" and the "consideration received by the Company" for
purposes of the first sentence of this Section 5(d) shall be as determined in
good faith by the board of directors of the Company, whose determination shall
be conclusive absent manifest error. Shares of Common Stock owned by or held
for the account of the Company or any majority-owned subsidiary shall not be
deemed outstanding for the purpose of any such computation.
(e) For the purpose of any computation under this Section 5, the
Current Market Price per share of any class of Capital Stock on any date shall
be deemed to be the average of the daily closing prices for shares of such class
for the 30 consecutive trading days immediately preceding the date in question.
The closing price for each day shall be the last reported sales price regular
way, or in case no such reported sales takes place on such date, the closing bid
price regular way on the principal national securities exchange (including, for
purposes hereof, the NASDAQ National Market System or the NASDAQ SmallCap
Market) on which shares of such class of Common Stock are listed or admitted to
trading or, if such class of Common Stock is not listed or admitted to trading
on any national securities exchange, the highest reported bid price for such
class of Common Stock as furnished by the National Association of Securities
Dealers, Inc. through NASDAQ or a similar organization if NASDAQ is no longer
reporting such information. If on any such date such class of Common Stock is
not listed or admitted to trading on any national securities exchange and is not
quoted by NASDAQ or any similar organization, the fair value of a share of such
class of Common Stock on such date, as determined in good faith by the board of
directors of the Company, whose determination shall be conclusive absent
manifest error, shall be used.
8
<PAGE>
(f) All calculations under this Section 5 shall be made to the
nearest cent or to the nearest one-thousandth of a share, as the case may be.
(g) Upon each adjustment of the Exercise Price as a result of the
calculations made in Sections 5(b), 5(c), or 5(d) hereof, this Warrant shall
thereafter evidence the right to purchase, at the adjusted Exercise Price, that
number of shares (calculated to the nearest thousandth) obtained by dividing (A)
the product obtained by multiplying the number of shares purchasable upon
exercise of this Warrant prior to adjustment of the number of shares by the
Exercise Price in effect prior to adjustment of the Exercise Price by (B) the
Exercise Price in effect after such adjustment of the Exercise Price.
(h) Whenever there shall be an adjustment as provided in this
Section 5, the Company shall promptly cause written notice thereof to be sent by
certified mail, postage prepaid, to the Holder, at its address as it shall
appear in the Warrant Register, which notice shall be accompanied by an
officer's certificate setting forth the number of Warrant Shares purchasable
upon the exercise of this Warrant and the Exercise Price after such adjustment
and setting forth a brief statement of the facts requiring such adjustment and
the computation thereof, which officer's certificate shall be conclusive
evidence of the correctness of any such adjustment absent manifest error.
(i) The Company shall not be required to issue fractions of shares
of Common Stock of the Company upon the exercise of this Warrant. If any
fraction of a share would be issuable on the exercise of this Warrant (or
specified portions thereof), the Company shall purchase such fraction for an
amount in cash equal to the same fraction of the Current Market Price of such
share of Common Stock on the date of exercise of this Warrant.
6. (a) In case of any consolidation with or merger of the Company with
or into another corporation (other than a merger or consolidation in which the
Company is the surviving or continuing corporation), or in case of any sale,
lease, or conveyance to another corporation of the property and assets of any
nature of the Company as an entirety or substantially as an entirety, such
successor, leasing, or purchasing corporation, as the case may be, shall (i)
execute with the Holder an agreement providing that the Holder shall have the
right thereafter to receive upon exercise of this Warrant solely the kind and
amount of shares of stock and other securities, property, cash, or any
combination thereof receivable upon such consolidation, merger, sale, lease, or
conveyance by a holder of the number of shares of Common Stock for which this
Warrant might have been exercised immediately prior to such consolidation,
merger, sale, lease, or conveyance, and (ii) make effective provision in its
certificate of incorporation or otherwise, if necessary, to effect such
agreement. Such agreement shall provide for adjustments which shall be as nearly
equivalent as practicable to the adjustments in Section 5.
(b) In case of any reclassification or change of the shares of
Common Stock issuable upon exercise of this Warrant (other than a change in par
value or from no par value to a specified par value, or as a result of a
subdivision or combination, but including any change in the shares into two or
more classes or series of shares), or in case of any consolidation or merger of
another corporation into the Company in which the Company is the continuing
9
<PAGE>
corporation and in which there is a reclassification or change (including a
change to the right to receive cash or other property) of the shares of Common
Stock (other than a change in par value, or from no par value to a specified par
value, or as a result of a subdivision or combination, but including any change
in the shares into two or more classes or series of shares), the Holder shall
have the right thereafter to receive upon exercise of this Warrant solely the
kind and amount of shares of stock and other securities, property, cash, or any
combination thereof receivable upon such reclassification, change,
consolidation, or merger by a holder of the number of shares of Common Stock for
which this Warrant might have been exercised immediately prior to such
reclassification, change, consolidation, or merger. Thereafter, appropriate
provision shall be made for adjustments which shall be as nearly equivalent as
practicable to the adjustments in Section 5.
(c) The above provisions of this Section 6 shall similarly apply
to successive reclassifications and changes of shares of Common Stock and to
successive consolidations, mergers, sales, leases, or conveyances.
(d) If any event occurs of the type contemplated by the provisions
of this Section 6 but not expressly provided for by such provisions, then the
Company's board of directors shall make an appropriate adjustment in the
Exercise Price and the Number of Warrant Shares obtainable upon exercise of this
Warrant so as to protect the rights of the holders of the Warrants; provided
that no such adjustment shall increase the Exercise Price or decrease the Number
of Warrant Shares obtainable as otherwise determined pursuant to this Warrant
without the prior written consent of the holders of a majority of the Warrant
Shares issued or issuable upon exercise of the Warrants (which consent will not
be unreasonably withheld).
7. In case at any time the Company shall propose to:
(a) pay any dividend or make any distribution on shares of Common
Stock in shares of Common Stock or make any other distribution (other than
regularly scheduled cash dividends which are not in a greater amount per share
than the most recent such cash dividend) to all holders of Common Stock; or
(b) issue any rights, warrants, or other securities to all holders
of Common Stock entitling them to purchase any additional shares of Common Stock
or any other rights, warrants, or other securities; or
(c) effect any reclassification or change of outstanding shares of
Capital Stock, or any consolidation, merger, sale, lease, or conveyance of
property, described in Section 6 hereof; or
(d) effect any liquidation, dissolution, or winding-up of the
Company; or
(e) take any other action which would cause an adjustment to the
Exercise Price;
10
<PAGE>
then, and in any one or more of such cases, the Company shall give written
notice thereof, by certified mail, postage prepaid, to the Holder at the
Holder's address as it shall appear in the Warrant Register, mailed at least 15
days prior to (i) the date as of which the holders of record of shares of Common
Stock to be entitled to receive any such dividend, distribution, rights,
warrants, or other securities are to be determined, (ii) the date on which any
such reclassification, change of outstanding shares of Common Stock,
consolidation, merger, sale, lease, conveyance of property, liquidation,
dissolution, or winding-up is expected to become effective, and the date as of
which it is expected that holders of record of shares of Common Stock shall be
entitled to exchange their shares for securities or other property, if any,
deliverable upon such reclassification, change of outstanding shares,
consolidation, merger, sale, lease, conveyance of property, liquidation,
dissolution, or winding-up, or (iii) the date of such action which would require
an adjustment to the Exercise Price.
8. The issuance of any shares or other securities upon the exercise of
this Warrant, and the delivery of certificates or other instruments representing
such shares or other securities, shall be made without charge to the Holder for
any tax or other charge in respect of such issuance or for any other cost of the
Company incurred in connection with such issuance and delivery. The Company
shall not, however, be required to pay any tax which may be payable in respect
of any transfer or delivery of this Warrant to a person other than, or the
issuance and delivery of any certificate in a name other than that of the
registered Holder and the Company shall not be required to issue or deliver any
such certificate unless and until the person or persons requesting the issue
thereof shall have paid to the Company the amount of such tax or shall have
established to the satisfaction of the Company that such tax has been paid.
9. The Warrant Shares shall be entitled to benefit of the provisions
of that certain Registration Rights Agreement, of even date herewith, by and
among the Company and the persons purchasing securities pursuant to the Purchase
Agreement.
10. Subject to the conditions set forth below, the Company agrees to
indemnify and hold harmless each Holder, its officers, directors, partners,
employees, agents, and counsel, and each person, if any, who controls any such
person within the meaning of Section 15 of the Act or Section 20(a) of the
Exchange Act, from and against any and all loss, liability, charge, claim,
damage, and expense whatsoever (which shall include, for all purposes of this
Section 10, without limitation, reasonable attorneys' fees and any and all
expense whatsoever incurred in investigating, preparing, or defending against
any litigation, commenced or threatened, or any claim whatsoever, and any and
all amounts paid in settlement of any claim or litigation), as and when
incurred, arising out of, based upon, or in connection with, any breach of any
representation, warranty, covenant, or agreement of the Company contained in any
of the Warrants. The foregoing agreement to indemnify shall be in addition to
any liability the Company may otherwise have, including liabilities arising
under any of the Warrants.
If any action is brought against any Holder or any of its officers,
directors, partners, employees, agents, or counsel, or any controlling persons
of such person (an "indemnified party") in respect of which indemnity may be
sought against the Company pursuant
11
<PAGE>
to the foregoing paragraph, such indemnified party or parties shall promptly
notify the Company in writing of the institution of such action (but the failure
so to notify shall not relieve the Company from any liability under this Section
10 unless the Company shall have been materially prejudiced by such failure or
relieve the Company from any liability other than pursuant to this Section 10)
and the Company shall promptly assume the defense of such action, including the
employment of counsel (reasonably satisfactory to such indemnified party or
parties) and payment of expenses. Such indemnified party or parties shall have
the right to employ its or their own counsel in any such case, but the fees and
expenses of such counsel shall be at the expense of such indemnified party or
parties unless the employment of such counsel shall have been authorized in
writing by the Company in connection with the defense of such action or the
Company shall not have employed counsel reasonably satisfactory to such
indemnified party or parties to have charge of the defense of such action or
such indemnified party or parties shall have reasonably concluded that there may
be one or more legal defenses available to it or them or to other indemnified
parties which are different from or additional to those available to the
Company, in any of which events such fees and expenses shall be borne by the
Company and the Company shall not have the right to direct the defense of such
action on behalf of the indemnified party or parties. Anything in this Section
10 to the contrary notwithstanding, the Company shall not be liable for any
settlement of any such claim or action effected without its written consent,
which shall not be unreasonably withheld.
11. Unless registered pursuant to the provisions of the registration
rights agreement referred to in Section 9 hereof, the Warrant Shares issued upon
exercise of the Warrants shall be subject to a stop transfer order and the
certificate or certificates evidencing such Warrant Shares shall bear the
following legend:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"),
OR ANY STATE SECURITIES LAWS AND NEITHER SUCH SECURITIES NOR ANY
INTEREST THEREIN MAY BE OFFERED, SOLD, PLEDGED, ASSIGNED OR OTHERWISE
TRANSFERRED UNLESS (1) A REGISTRATION STATEMENT WITH RESPECT THERETO
IS EFFECTIVE UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS,
OR (2) THE COMPANY RECEIVES AN OPINION OF COUNSEL TO THE HOLDER OF
SUCH SECURITIES, WHICH COUNSEL AND OPINION ARE REASONABLY SATISFACTORY
TO THE COMPANY, THAT SUCH SECURITIES MAY BE OFFERED, SOLD, PLEDGED,
ASSIGNED OR TRANSFERRED IN THE MANNER CONTEMPLATED WITHOUT AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR APPLICABLE STATE
SECURITIES LAWS."
12
<PAGE>
In addition, any Warrants issued upon transfer or any new Warrants
issued shall bear a similar legend.
12. Upon receipt of evidence satisfactory to the Company of the loss,
theft, destruction, or mutilation of any Warrant (and upon surrender of any
Warrant if mutilated), including an affidavit of the Holder thereof that this
Warrant has been lost, stolen, destroyed or mutilated, together with an
indemnity against any claim that may be made against the Company on account of
such lost stolen, destroyed or mutilated Warrant, and upon reimbursement of the
Company's reasonable incidental expenses, the Company shall execute and deliver
to the Holder thereof a new Warrant of like date, tenor, and denomination.
13. The Holder of any Warrant shall not have solely on account of such
status, any rights of a stockholder of the Company, either at law or in equity,
or to any notice of meetings of stockholders or of any other proceedings of the
Company, except as provided in this Warrant. No provision hereof, in the absence
of affirmative action by the Holder to purchase Common Stock, and no enumeration
herein of the rights or privileges of the Holder shall give rise to any
liability of such holder for the Exercise Price of Common Stock acquirable by
exercise hereof or as a stockholder of the Company.
14. This Warrant shall be construed in accordance with the laws of the
State of Delaware applicable to contracts made and performed within such State,
without regard to principles governing conflicts of law.
15. Any notice or other communication required or permitted to be
given hereunder shall be in writing and shall be mailed by certified mail,
return receipt requested, or by Federal Express, Express Mail or similar
overnight delivery or courier service or delivered (in person or by telecopy,
telex or similar telecommunications equipment) against receipt to the party to
whom it is to be given, (i) if to the Company, at 645 Fifth Avenue, East Wing,
New York, New York 10022, Attention: President, (ii) if to the Holder, at its
address set forth on the first page hereof, or (iii) in either case, to such
other address as the party shall have furnished in writing in accordance with
the provisions of this Section 15. Notice to the estate of any party shall be
sufficient if addressed to the party as provided in this Section 15. Any notice
or other communication given by certified mail shall be deemed given at the time
of certification thereof, except for a notice changing a party's address which
shall be deemed given at the time of receipt thereof. Any notice given by other
means permitted by this Section 15 shall be deemed given at the time of receipt
thereof.
16. No course of dealing and no delay or omission on the part of the
Holder in exercising any right or remedy shall operate as a waiver thereof or
otherwise prejudice the Holder's rights, powers or remedies. No right, power or
remedy conferred by this Warrant upon the Holder shall be exclusive of any other
right, power or remedy referred to herein or now or hereafter available at law,
in equity, by statute or otherwise, and all such remedies may be exercised
singly or concurrently.
13
<PAGE>
17. This Warrant may be amended only by a written instrument executed
by the Company and the Holder hereof. Any amendment shall be endorsed upon this
Warrant, and all future Holders shall be bound thereby.
* * * * *
Dated: April 25, 1997
UC TELEVISION NETWORK CORP.
By: /s/ Peter C. Kauff
--------------------
Its:
/s/ Alan Pearl
-----------------
Alan Pearl, Secretary
14
<PAGE>
FORM OF ASSIGNMENT
(To be executed by the registered holder if such holder desires to transfer the
attached Warrant.)
FOR VALUE RECEIVED, ______________________ hereby sells, assigns, and
transfers unto ___________________ a Warrant to purchase __________ shares of
Common Stock, par value $0.001 per share, of UC Television Network Corp. (the
"Company"), together with all right, title, and interest therein, and does
hereby irrevocably constitute and appoint the secretary of the Company attorney
to transfer such Warrant on the books of the Company, with full power of
substitution.
Dated: ____________________
Signature
Signature Guarantee
NOTICE
The signature on the foregoing Assignment must correspond to the name
as written upon the face of this Warrant in every particular, without alteration
or enlargement or any change whatsoever.
15
<PAGE>
To: UC TELEVISION NETWORK CORP.
645 Fifth Avenue
East Wing
New York, New York 10022
ELECTION TO EXERCISE
The undersigned hereby exercises his or its rights to purchase _____
Warrant Shares covered by the within Warrant and tenders payment herewith of the
Aggregate Exercise Price in accordance with the terms thereof, and requests that
certificates for such securities be issued in the name of, and delivered to:
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(Print Name, Address and Social Security
or Tax Identification Number)
and, if such number of Warrant Shares shall not be all the Warrant Shares
covered by the within Warrant, that a new Warrant for the balance of the Warrant
Shares covered by the within Warrant be registered in the name of, and delivered
to, the undersigned at the address stated below.
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(Print Name, Address and Social Security
or Tax Identification Number)
16
<PAGE>
Dated: ____________________
Name:________________________________
(Print)
_____________________________________
(Signature)
_____________________________________
(Signature Guarantee)
_____________________________________
(Signature Guarantee)
17
<PAGE>
EXHIBIT 4.2
EQUITY PROTECTION AGREEMENT
THIS EQUITY PROTECTION AGREEMENT (this "Agreement") is made as of April 25,
1997, by an among UC Television Network Corp., a Delaware corporation (the
"Company"), and U-C Holdings, L.L.C., a Delaware limited liability company
("Holdings" and including any permitted transferees or assigns of any rights
under this Agreement, the "Holder"). As used herein the term "this Agreement"
shall mean and include this Agreement and any agreement or agreements hereafter
entered into as a consequence of the exercise or transfer in whole or in part of
any of the Purchase Rights (as hereinafter defined) granted pursuant to this
Agreement.
WHEREAS, the Company and Holdings are parties to that certain Purchase
Agreement, dated as of the date hereof, pursuant to which Holdings purchased
shares of the Company's Common Stock and a Class C Warrant of the Company; and
WHEREAS, the Company and Holdings desire to enter into this Agreement in
order to protect Holdings from the dilution of its equity position in the
Company upon the exercise of any outstanding warrants or options to purchase
Common Stock of the Company.
NOW, THEREFORE, in consideration of the mutual covenants set forth herein
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto hereby agree as follows:
1. The following terms shall have the following meanings:
(A) the term "Number of Shares" shall mean, as of any particular date, the
number of shares of Common Stock issuable upon exercise of the Purchase Rights
(the "Shares") equal to the sum of (i) the product of (a) two and (b) the
aggregate number of shares of Common Stock which have been issued by the Company
upon the exercise of any of the Existing Warrants (as hereinafter defined) and
any of the Existing Options (as hereinafter defined) and (c) the Applicable
Percentage, minus (ii) the product of (a) the aggregate number of shares of
Common Stock issued as of such particular date in connection with any prior
exercises of the Purchase Rights and (b) the Applicable Percentage;
(B) the term "Existing Warrants" shall mean, collectively, all warrants to
purchase shares of Common Stock of the Company outstanding as of the date hereof
and any warrant or warrants issued as a consequence of the exercise or transfer
of such warrants in whole or part, including, without limitation, any of the
Company's Class A Redeemable Warrants,
<PAGE>
Class B Redeemable Warrants, any of the warrants issued pursuant to the private
placement of securities of the Company on April 26, 1996 and May 28, 1996.
(C) the term "Existing Options" shall mean, collectively, all options and
other rights to purchase shares of Common Stock of the Company (other than the
Existing Warrants) outstanding as of the date hereof and any option or options
issued as a consequence of the exercise or transfer of such options in whole or
part, including, without limitation, any options granted pursuant to the
Company's 1990 Performance Equity Plan, 1996 Stock Incentive Plan, Outside
Directors 1996 Stock Option Plan and the nonqualified option for 337,500 shares
of Common Stock granted to Peter Kauff (as such nonqualified option has been or
shall be amended, modified or increased);
(D) the term "Barington Option" shall mean the unit purchase option issued
to Barington Capital Group, L.P. ("Barington") dated April 26, 1996 and any
warrants subsequently issued to Barington or its transferees pursuant to the
exercise of such unit purchase option.
(E) the term "Applicable Percentage" shall mean, (i) initially, 100% and
(ii) after any partial transfer of the Purchase Rights, the percentage of the
total Number of Shares represented by this Agreement (for example, if the right
to purchase 30% of the Number of Shares is transferred, the Applicable
Percentage for this Agreement shall be 70% of the Applicable Percentage then in
effect with respect to this Agreement and the Applicable Percentage for any new
equity protection agreement issued upon such transfer shall be 30% of the
Applicable Percentage then in effect with respect to this Agreement);
(F) the term "Common Stock" shall mean the Company's common stock, par
value $.001 per share, and any capital stock of any class of the Company
hereafter authorized which is not limited to a fixed sum or percentage of par or
stated value in respect to the rights of the holders thereof to participate in
dividends or in the distribution of assets upon any liquidation, dissolution or
winding up of the Company;
(G) the term "Sale of the Company" shall mean the sale of the Company to an
Independent Third Party or group of Independent Third Parties pursuant to which
such party or parties acquire (i) capital stock of the Company possessing the
voting power under normal circumstances to elect a majority of the Company's
board of directors (whether by merger, consolidation, recapitalization, sale or
transfer of the Company's capital stock or otherwise) or (ii) all or
substantially all of the Company's assets determined on a consolidated basis;
(H) the term "Independent Third Party" shall mean any person or entity who,
immediately prior to the contemplated transaction, does not own in excess of 5%
of the Company's Common Stock on a fully-diluted basis (a "5% Owner"), who is
not controlling, controlled by or under common control with any such 5% Owner
and who is not the spouse or descendent (by birth or adoption) of any such 5%
Owner or a trust for the benefit of such 5% Owner and/or such other persons or
entities;
2
<PAGE>
(I) the term "New Warrants" shall mean the Class C Warrant issued pursuant
to the Purchase Agreement and any warrants issued upon the exercise or transfer
in whole or part of such warrant; and
(J) the term "Purchase Rights" shall mean the right to purchase Shares
granted pursuant to this Agreement.
2. The Company hereby grants to the Holder the right to subscribe for and
purchase from Company, upon the terms and conditions set forth herein, at any
time or from time to time before 5:00 P.M. on April 25, 2004, New York time (the
"Exercise Period"), the Number of Shares at a price per share equal to $.55 (as
the same may be adjusted from time to time in accordance with the terms of this
Agreement, the "Exercise Price").
3. The Purchase Rights may be exercised during the Exercise Period, as to
the whole or any lesser number of whole Shares, by the surrender of this
Agreement for notation as to the Number of Shares so purchased (with the
"Election to Exercise" attached hereto, duly executed) to the Company at its
office at 645 Fifth Avenue, East Wing, New York, New York 10022, or at such
other place as is designated in writing by the Company. In connection with any
exercise of the Purchase Rights, the Holder shall deliver to the Company either
(a) cash (by wire transfer of immediately available funds to the Company's
account) or a certified or bank cashier's check payable to the order of the
Company in an amount equal to the product of the Exercise Price multiplied by
the number of Shares being purchased upon such exercise (the "Aggregate Exercise
Price"), (b) the surrender to the Company of debt or equity securities of the
Company having a Current Market Price (as defined in Section 7(e)) equal to the
Aggregate Exercise Price of the Common Stock being purchased upon such exercise
(provided that for purposes of this subparagraph, the Current Market Price of
any note or other debt security or any preferred stock shall be deemed to be
equal to the aggregate outstanding principal amount or liquidation value thereof
plus all accrued and unpaid interest thereon or accrued or declared and unpaid
dividends thereon) or (c) a written notice to the Company that the Holder is
exercising the Purchase Rights (or a portion thereof) by authorizing the Company
to withhold from issuance a number of shares of Common Stock issuable upon such
exercise of the Purchase Rights which when multiplied by the Current Market
Price of the Common Stock is equal to the Aggregate Exercise Price (and such
withheld shares shall no longer be issuable under this Agreement). All Purchase
Rights which are not exercised prior to 5:00 p.m. on April 25, 2004 New York
time shall become null and void and all such Purchase Rights shall cease as of
such time. At least 30 days prior to the end of the Exercise Period, the Company
shall give the Holder written notice of (i) the expiration of the Exercise
Period, (ii) the Number of Shares issuable upon exercise of the Purchase Rights
as of the date of such notice and (iii) the Exercise Price in effect as of such
date.
4. Upon receipt by the Company of this Agreement, the "Election to
Exercise," and the Aggregate Exercise Price for the Shares, the Holder shall be
deemed to be the holder of record of the Shares issuable upon such exercise;
provided, however, that if the date of such receipt is a date upon which the
transfer books of the Company are closed, the Holder shall be deemed to be the
record holder on the next succeeding business day on which such books are open.
The Company shall not close its books against the transfer of the Purchase
Rights or of
3
<PAGE>
any Shares issued or issuable upon the exercise of the Purchase Rights in any
manner which interferes with the timely exercise of the Purchase Rights. As
soon as practicable after each such exercise of the Purchase Rights, the Company
shall issue and cause to be delivered to the Holder a certificate or
certificates for the Shares issuable upon such exercise, registered in the name
of the Holder or its designee. Unless this Agreement shall have expired, the
Company shall, upon surrender of this Agreement in connection with any exercise
of the Purchase Rights, return this Agreement to the Holder after notation of
the Number of Shares issued upon such exercise.
5. (a) Any Purchase Rights which are assigned or otherwise transferred
shall be recorded by the Company on a purchase rights register as such Purchase
Rights are assigned or transferred. Such Purchase Rights shall only be assigned
in accordance with the provisions of Section 16. The Company shall be entitled
to treat the registered holder of any Purchase Rights on such register as the
owner in fact thereof for all purposes and shall not be bound to recognize any
equitable or other claim to or interest in such Purchase Rights on the part of
any other person, and shall not be liable for any registration or transfer of
such Purchase Rights which are registered or to be registered in the name of a
fiduciary or the nominee of a fiduciary unless made with the actual knowledge
that a fiduciary or nominee is committing a breach of trust in requesting such
registration or transfer, or with the knowledge of such facts that its
participation therein amounts to bad faith. The Purchase Rights shall be
transferable only on the books of the Company upon delivery hereof duly endorsed
by the Holder or by his duly authorized attorney or representative, or
accompanied by proper evidence of succession, assignment, or authority to
transfer. In all cases of transfer by an attorney, executor, administrator,
guardian, or other legal representative, duly authenticated evidence of his or
its authority shall be produced. Upon any registration of transfer, the Company
shall cause to be delivered a new agreement or agreements substantially
identical to this Agreement to the person entitled thereto. This Agreement may
be exchanged, at the option of the Holder hereof, for another agreement, or
other agreements of different denominations, of like tenor and representing in
the aggregate the right to purchase the Applicable Percentage of the Number of
Shares represented by such agreement or agreements, upon surrender to the
Company or its duly authorized agent. Notwithstanding the foregoing, the Company
shall have no obligation to cause the Purchase Rights to be transferred on its
books to any person if, in the opinion of counsel to the Company, such transfer
does not comply with the provisions of the Securities Act of 1933, as amended
(the "Act"), and the rules and regulations thereunder.
(b) The Holder acknowledges that such Holder has been advised by the
Company that neither the Purchase Rights nor the Shares have been registered
under the Act, that the Purchase Rights are being or have been granted and the
Shares may be issued on the basis of the statutory exemption provided by Section
4(2) of the Act or Regulation D promulgated thereunder, or both, relating to
transactions by an issuer not involving any public offering, and that the
Company's reliance thereon is based in part upon the representations made by the
original Holder in the Purchase Agreement. The Holder acknowledges that such
Holder is familiar with the nature of the limitations imposed by the Act and the
rules and regulations thereunder on the transfer of securities. In particular,
the Holder agrees that no sale, assignment or transfer of the Purchase Rights or
the Shares issuable upon exercise thereof shall be valid or effective, and the
Company shall not be required to give any effect to any such sale, assignment
4
<PAGE>
or transfer, unless (i) the sale, assignment or transfer of the Purchase Rights
or such Shares is registered under the Act, it being understood that neither the
Purchase Rights nor such Shares are currently registered for sale and that the
Company has no obligation or intention to so register the Purchase Rights or
such Shares except as specifically provided in the registration rights agreement
referred to in Section 11, or (ii) the Purchase Rights or such Shares are sold,
assigned or transferred in accordance with all the requirements and limitations
of Rule 144 under the Act, it being understood that Rule 144 is not available as
of the date hereof for the sale of the Purchase Rights or such Shares and that
there can be no assurance that Rule 144 sales will be available at any
subsequent time, or (iii) such sale, assignment, or transfer is otherwise exempt
from registration under the Act. Notwithstanding any other provision hereof, if
an exercise of the Purchase Rights or any portion thereof is to be made in
connection with a registered public offering or the sale of the Company, the
exercise of the Purchase Rights or any portion thereof may, at the election of
the Holder, be conditioned upon the consummation of the public offering or sale
of the Company in which case such exercise shall not be deemed to be effective
until the consummation of such transaction. The Company shall assist and
cooperate with any Holder required to make any governmental filings or obtain
any governmental approvals prior to or in connection with any exercise of the
Purchase Rights (including, without limitation, making any filings required to
be made by the Company).
6. The Company covenants that the Shares, upon receipt by the Company of
the Aggregate Exercise Price therefor, shall be validly issued, fully paid,
nonassessable, and free of preemptive rights, liens, taxes and charges with
respect to the issuance thereof. The Company shall take all such actions as may
be necessary to assure that all such shares of Common Stock may be so issued
without violation of any applicable law or governmental regulation or any
requirements of any domestic securities exchange upon which shares of Common
Stock may be listed (except for official notice of issuance which shall be
immediately delivered by the Company upon each such issuance). The Company shall
from time to time take all such action as may be necessary to assure that the
par value per share of the unissued Common Stock acquirable upon exercise of the
Purchase Rights is at all times equal to or less than the Exercise Price then in
effect. The Company covenants and agrees that promptly after the date hereof,
the Company shall amend its certificate of incorporation to increase the
authorized and unissued shares of Common Stock of the Company to a number
sufficient to allow for the exercise of all of the Purchase Rights, the Existing
Warrants, the Barington Option and the Existing Options. The Company shall at
all times thereafter reserve and keep available out of its authorized and
unissued Common Stock, solely for the purpose of providing for the exercise of
the Purchase Rights, such number of shares of Common Stock as shall, from time
to time, be sufficient therefor and the Company shall not thereafter take any
action which would cause the number of authorized but unissued shares of Common
Stock to be less than the number of such shares required to be reserved
hereunder for issuance upon exercise of the Purchase Rights.
7. (a) In case the Company shall at any time after the date this Agreement
is first made (i) declare a dividend on any class of the outstanding capital
stock of the Company (the "Capital Stock") payable in shares of its Capital
Stock, (ii) subdivide any class of the outstanding Capital Stock, or (iii)
combine any class of the outstanding Capital Stock into a smaller number of
shares, then, in each case, the Exercise Price in effect at the time of the
record
5
<PAGE>
date for such dividend or of the effective date of such subdivision, or
combination, shall be proportionately adjusted. In addition, to the extent any
shares of Common Stock have been issued upon exercise of any of the Existing
Warrants or the Existing Options, the Number of Shares issuable upon exercise of
the Purchase Rights shall be proportionately adjusted to reflect such dividend,
subdivision, or combination of the Common Stock issued upon such exercise of any
of the Existing Warrants or the Existing Options. Such adjustment shall be made
successively whenever any event listed above shall occur.
(b) In case the Company shall issue or fix a record date for the issuance
to all holders of any class of Capital Stock of rights, options, or warrants to
subscribe for or purchase Common Stock (or securities convertible into or
exchangeable for Common Stock) at a price per share (or having a conversion or
exchange price per share, if a security convertible into or exchangeable for
Common Stock) less than the Current Market Price per share of Common Stock on
such record date, then, in each case, the Exercise Price shall be adjusted by
multiplying the Exercise Price in effect immediately prior to such record date
by a fraction, the numerator of which shall be the number of shares of Common
Stock outstanding on such record date plus the number of shares of such class of
Common Stock which the aggregate offering price of the total number of shares of
such class of Common Stock so to be offered (or the aggregate initial conversion
or exchange price of the convertible or exchangeable securities so to be
offered) would purchase at such Current Market Price and the denominator of
which shall be the number of shares of Common Stock outstanding on such record
date plus the number of additional shares of Common Stock to be offered for
subscription or purchase (or into which the convertible or exchangeable
securities so to be offered are initially convertible or exchangeable);
provided, however, that no such adjustment shall be made which results in an
increase in the Exercise Price. Such adjustment shall become effective at the
close of business on such record date; provided, however, that, to the extent
the shares of Common Stock (or securities convertible into or exchangeable for
shares of Common Stock) are not delivered, the Exercise Price shall be
readjusted after the expiration of such rights, options, or warrants (but only
with respect to the Purchase Rights exercised after such expiration), to the
Exercise Price which would then be in effect had the adjustments made upon the
issuance of such rights, options, or warrants been made upon the basis of
delivery of only the number of shares of Common Stock (or securities convertible
into or exchangeable for shares of Common Stock) actually issued. In case any
subscription price may be paid in a consideration, part or all of which shall be
in a form other than cash, the value of such consideration shall be as
determined in good faith by the board of directors of the Company, whose
determination shall be conclusive absent manifest error. Shares of Common Stock
owned by or held for the account of the Company or any majority-owned subsidiary
shall not be deemed outstanding for the purpose of any such computation.
(c) In case the Company shall distribute to all holders of any class of
Common Stock (including any such distribution made to the stockholders of the
Company in connection with a consolidation or merger in which the Company is the
continuing corporation) evidences of its indebtedness, cash (other than any cash
dividend which, together with any cash dividends paid within the 12 months prior
to the record date for such distribution, does not exceed 5% of the Current
Market Price at the record date for such distribution) or assets (other
6
<PAGE>
than distributions and dividends payable in shares of Common Stock), or rights,
options, or warrants to subscribe for or purchase Common Stock, or securities
convertible into or changeable for shares of Common Stock (excluding those with
respect to the issuance of which an adjustment of the Exercise Price is provided
pursuant to Section 7(b) hereof), then, in each case, the Exercise Price shall
be adjusted by multiplying the Exercise Price in effect immediately prior to the
record date for the determination of stockholders entitled to receive such
distribution by a fraction, the numerator of which shall be the Current Market
Price per share of such class of Common Stock on such record date, less the fair
market value (as determined in good faith by the board of directors of the
Company, whose determination shall be conclusive absent manifest error) of the
portion of the evidences of indebtedness or assets so to be distributed, or of
such rights, options, or warrants or convertible or exchangeable securities, or
the amount of such cash, applicable to one share, and the denominator of which
shall be such Current Market Price per share of such class of Common Stock.
Such adjustment shall become effective at the close of business on such record
date.
(d) In case the Company shall have issued at any time after April 26, 1996
or shall issue shares of Common Stock or rights, options, or warrants to
subscribe for or purchase Common Stock, or securities convertible into or
exchangeable for Common Stock (excluding shares, rights, options, warrants, or
convertible or exchangeable securities issued or issuable (i) in any of the
transactions with respect to which an adjustment of the Exercise Price is
provided pursuant to Sections 7(a), 7(b), or 7(c) above, (ii) upon any issuance
of securities pursuant to the Purchase Agreement, (iii) upon exercise of the New
Warrants, (iv) upon exercise of any of the Existing Warrants, (v) upon exercise
of any Existing Options or (vi) upon exercise of the Barington Option), at a
price per share (determined, in the case of such rights, options, warrants, or
convertible or exchangeable securities, by dividing (x) the total amount
received or receivable by the Company in consideration of the sale and issuance
of such rights, options, warrants, or convertible or exchangeable securities,
plus the minimum aggregate consideration payable to the Company upon exercise,
conversion, or exchange thereof, by (y) the maximum number of shares covered by
such rights, options, warrants, or convertible or exchangeable securities) lower
than the Current Market Price per share of shares of such class of Common Stock
so issued in effect immediately prior to such issuance, then the Exercise Price
shall be reduced on the date of such issuance to a price (calculated to the
nearest cent) determined by multiplying the Exercise Price in effect immediately
prior to such issuance by a fraction, (1) the numerator of which shall be an
amount equal to the sum of (A) the number of shares of Common Stock outstanding
immediately prior to such issuance plus (B) the quotient obtained by dividing
the consideration received by the Company upon such issuance by such Current
Market Price, and (2) the denominator of which shall be the total number of
shares of Common Stock outstanding immediately after such issuance; provided,
however, that no such adjustment shall be made which results in an increase in
the Exercise Price. For the purposes of such adjustments, the maximum number of
shares which the holders of any such rights, options, warrants, or convertible
or exchangeable securities shall be entitled to initially subscribe for or
purchase or convert or exchange such securities into shall be deemed to be
issued and outstanding as of the date of such issuance, and the consideration
received by the Company therefor shall be deemed to be the consideration
received by the Company for such rights, options, warrants, or convertible or
exchangeable securities, plus the minimum aggregate consideration or premiums
7
<PAGE>
stated in such rights, options, warrants, or convertible or exchangeable
securities to be paid for the shares covered thereby. No further adjustment of
the Exercise Price shall be made as a result of the actual issuance of shares of
Common Stock on exercise of such rights, options, or warrants or on conversion
or exchange of such convertible or exchangeable securities. On the expiration or
the termination of such rights, options, or warrants, or the termination of such
right to convert or exchange, the Exercise Price shall be readjusted (but only
with respect to Warrants exercised after such expiration or termination) to such
Exercise Price as would have obtained had the adjustments made upon the issuance
of such rights, options, warrants, or convertible or exchangeable securities
been made upon the basis of the delivery of only the number of shares of Common
Stock actually delivered upon the exercise of such rights, options, or warrants
or upon the conversion or exchange of any such securities; and on any change of
the number of shares of Common Stock deliverable upon the exercise of any such
rights, options, or warrants or conversion or exchange of such convertible or
exchangeable securities or any change in the consideration to be received by the
Company upon such exercise, conversion, or exchange, including, without
limitation, a change resulting from the antidilution provisions thereof. In case
the Company shall issue shares of Common Stock or any such rights, options,
warrants, or convertible or exchangeable securities for a consideration
consisting, in whole or in part, of property other than cash or its equivalent,
then the "price per share" and the "consideration received by the Company" for
purposes of the first sentence of this Section 7(d) shall be as determined in
good faith by the board of directors of the Company, whose determination shall
be conclusive absent manifest error. Shares of Common Stock owned by or held for
the account of the Company or any majority-owned subsidiary shall not be deemed
outstanding for the purpose of any such computation.
(e) For the purpose of any computation under this Section 7, the Current
Market Price per share of any class of Capital Stock on any date shall be deemed
to be the average of the daily closing prices for shares of such class for the
30 consecutive trading days immediately preceding the date in question. The
closing price for each day shall be the last reported sales price regular way,
or in case no such reported sales takes place on such date, the closing bid
price regular way on the principal national securities exchange (including, for
purposes hereof, the NASDAQ National Market System or the NASDAQ SmallCap
Market) on which shares of such class of Common Stock are listed or admitted to
trading or, if such class of Common Stock is not listed or admitted to trading
on any national securities exchange, the highest reported bid price for such
class of Common Stock as furnished by the National Association of Securities
Dealers, Inc. through NASDAQ or a similar organization if NASDAQ is no longer
reporting such information. If on any such date such class of Common Stock is
not listed or admitted to trading on any national securities exchange and is not
quoted by NASDAQ or any similar organization, the fair value of a share of such
class of Common Stock on such date, as determined in good faith by the board of
directors of the Company, whose determination shall be conclusive absent
manifest error, shall be used.
(f) All calculations under this Section 7 shall be made to the nearest cent
or to the nearest one-thousandth of a share, as the case may be.
8
<PAGE>
(g) Whenever there shall be an adjustment as provided in this Section 7,
the Company shall promptly cause written notice thereof to be sent by certified
mail, postage prepaid, to the Holder, at its address as it shall appear in the
purchase rights register, which notice shall be accompanied by an officer's
certificate setting forth the Number of Shares purchasable upon the exercise of
the Purchase Rights and the Exercise Price after such adjustment and setting
forth a brief statement of the facts requiring such adjustment and the
computation thereof, which officer's certificate shall be conclusive evidence of
the correctness of any such adjustment absent manifest error.
(h) The Company shall not be required to issue fractions of shares of
Common Stock of the Company upon the exercise of the Purchase Rights. If any
fraction of a share would be issuable on the exercise of the Purchase Rights (or
specified portions thereof), the Company shall purchase such fraction for an
amount in cash equal to the same fraction of the Current Market Price of such
share of Common Stock on the date of exercise of the Purchase Rights.
8. (a) In case of any consolidation with or merger of the Company with or
into another corporation (other than a merger or consolidation in which the
Company is the surviving or continuing corporation), or in case of any sale,
lease, or conveyance to another corporation of the property and assets of any
nature of the Company as an entirety or substantially as an entirety, such
successor, leasing, or purchasing corporation, as the case may be, shall (i)
execute with the Holder an agreement providing that the Holder shall have the
right thereafter to receive upon exercise of the Purchase Rights solely the kind
and amount of shares of stock and other securities, property, cash, or any
combination thereof receivable upon such consolidation, merger, sale, lease, or
conveyance by a holder of the number of shares of Common Stock for which the
Purchase Rights might have been exercised immediately prior to such
consolidation, merger, sale, lease, or conveyance, and (ii) make effective
provision in its certificate of incorporation or otherwise, if necessary, to
effect such agreement. Such agreement shall provide for adjustments which shall
be as nearly equivalent as practicable to the adjustments in Section 7.
(b) In case of any reclassification or change of the shares of Common Stock
issuable upon exercise of the Purchase Rights (other than a change in par value
or from no par value to a specified par value, or as a result of a subdivision
or combination, but including any change in the shares into two or more classes
or series of shares), or in case of any consolidation or merger of another
corporation into the Company in which the Company is the continuing corporation
and in which there is a reclassification or change (including a change to the
right to receive cash or other property) of the shares of Common Stock (other
than a change in par value, or from no par value to a specified par value, or as
a result of a subdivision or combination, but including any change in the shares
into two or more classes or series of shares), the Holder shall have the right
thereafter to receive upon exercise of the Purchase Rights solely the kind and
amount of shares of stock and other securities, property, cash, or any
combination thereof receivable upon such reclassification, change,
consolidation, or merger by a holder of the Number of Shares for which the
Purchase Rights might have been exercised immediately prior to such
reclassification, change, consolidation, or merger. Thereafter, appropriate
provision shall
9
<PAGE>
be made for adjustments which shall be as nearly equivalent as practicable to
the adjustments in Section 7.
(c) The above provisions of this Section 8 shall similarly apply to
successive reclassifications and changes of shares of Common Stock and to
successive consolidations, mergers, sales, leases, or conveyances.
(d) If any event occurs of the type contemplated by the provisions of this
Section 8 but not expressly provided for by such provisions, then the Company's
board of directors shall make an appropriate adjustment in the Exercise Price
and the Number of Shares obtainable upon exercise of the Purchase Rights so as
to protect the rights of the Company and the holders of the Purchase Rights;
provided that no such adjustment shall increase the Exercise Price or decrease
the Number of Shares obtainable as otherwise determined pursuant to this
Agreement without the prior written consent of the holders of a majority of the
Shares issued or issuable upon exercise of the Purchase Rights (which consent
will not be unreasonably withheld).
9. (a) In case at any time the Company shall issue any shares of Common
Stock upon the exercise of any of the Existing Warrants, the Barington Option or
Existing Options, then the Company shall give written notice thereof, (i) by
telecopy to the Holder at the telecopy number of such Holder as it shall appear
on the Company's books and records, such notice to be sent as of the date of
such issuance and (ii) by certified mail, postage prepaid, to the Holder at the
Holder's address as it shall appear in the purchase rights register, such notice
to be mailed no later than one day after such issuance. Each such notice shall
state (A) the name of the party or parties exercising any such Existing
Warrants, the Barington Option or Existing Options, (B) the number of shares of
Common Stock issued upon such exercise, (C) the purchase price per share of
Common Stock issued upon such exercise, (D) the number of Shares exercisable
under this Agreement after giving effect to such issuance, (E) the Exercise
Price then in effect under this Agreement after giving effect to such issuance
and (F) the remaining Number of Shares as of the date of such notice.
(b) In case at any time the Company shall propose to:
(i) pay any dividend or make any distribution on shares of Common
Stock in shares of Common Stock or make any other distribution (other than
regularly scheduled cash dividends which are not in a greater amount per
share than the most recent such cash dividend) to all holders of Common
Stock; or
(ii) issue any rights, warrants, or other securities to all holders of
Common Stock entitling them to purchase any additional shares of
Common Stock or any other rights, warrants, or other securities; or
(iii) effect any reclassification or change of outstanding shares of
Capital Stock, or any consolidation, merger, sale, lease, or conveyance of
property, described in Section 8 hereof; or
10
<PAGE>
(iv) effect any liquidation, dissolution, or winding-up of the
Company; or
(v) take any other action which would cause an adjustment to the
Exercise Price;
then, and in any one or more of such cases, the Company shall give written
notice thereof, by certified mail, postage prepaid, to the Holder at the
Holder's address as it shall appear in the purchase rights register, mailed at
least 15 days prior to (A) the date as of which the holders of record of shares
of Common Stock to be entitled to receive any such dividend, distribution,
rights, warrants, or other securities are to be determined, (B) the date on
which any such reclassification, change of outstanding shares of Common Stock,
consolidation, merger, sale, lease, conveyance of property, liquidation,
dissolution, or winding-up is expected to become effective, and the date as of
which it is expected that holders of record of shares of Common Stock shall be
entitled to exchange their shares for securities or other property, if any,
deliverable upon such reclassification, change of outstanding shares,
consolidation, merger, sale, lease, conveyance of property, liquidation,
dissolution, or winding-up, or (C) the date of such action which would require
an adjustment to the Exercise Price.
10. The issuance of any shares or other securities upon the exercise of the
Purchase Rights, and the delivery of certificates or other instruments
representing such shares or other securities, shall be made without charge to
the Holder for any tax or other charge in respect of such issuance or for any
other cost of the Company incurred in connection with such issuance and
delivery. The Company shall not, however, be required to pay any tax which may
be payable in respect of any transfer or delivery of the Purchase Rights to a
person other than, or the issuance and delivery of any certificate in a name
other than that of the registered Holder and the Company shall not be required
to issue or deliver any such certificate unless and until the person or persons
requesting the issue thereof shall have paid to the Company the amount of such
tax or shall have established to the satisfaction of the Company that such tax
has been paid.
11. The Shares shall be entitled to benefit of the provisions of that
certain Registration Rights Agreement, of even date herewith, by and among the
Company and the persons purchasing securities pursuant to the Purchase
Agreement.
12. Subject to the conditions set forth below, the Company agrees to
indemnify and hold harmless each Holder, its officers, directors, partners,
employees, agents, and counsel, and each person, if any, who controls any such
person within the meaning of Section 15 of the Act or Section 20(a) of the
Exchange Act, from and against any and all loss, liability, charge, claim,
damage, and expense whatsoever (which shall include, for all purposes of this
Section 12, without limitation, reasonable attorneys' fees and any and all
expense whatsoever incurred in investigating, preparing, or defending against
any litigation, commenced or threatened, or any claim whatsoever, and any and
all amounts paid in settlement of any claim or litigation), as and when
incurred, arising out of, based upon, or in connection with, any breach of any
representation, warranty, covenant, or agreement of the Company contained in
this
11
<PAGE>
Agreement. The foregoing agreement to indemnify shall be in addition to any
liability the Company may otherwise have, including liabilities arising under
the Purchase Rights.
If any action is brought against any Holder or any of its officers,
directors, partners, employees, agents, or counsel, or any controlling persons
of such person (an "indemnified party") in respect of which indemnity may be
sought against the Company pursuant to the foregoing paragraph, such indemnified
party or parties shall promptly notify the Company in writing of the institution
of such action (but the failure so to notify shall not relieve the Company from
any liability under this Section 12 unless the Company shall have been
materially prejudiced by such failure or relieve the Company from any liability
other than pursuant to this Section 12) and the Company shall promptly assume
the defense of such action, including the employment of counsel (reasonably
satisfactory to such indemnified party or parties) and payment of expenses.
Such indemnified party or parties shall have the right to employ its or their
own counsel in any such case, but the fees and expenses of such counsel shall be
at the expense of such indemnified party or parties unless the employment of
such counsel shall have been authorized in writing by the Company in connection
with the defense of such action or the Company shall not have employed counsel
reasonably satisfactory to such indemnified party or parties to have charge of
the defense of such action or such indemnified party or parties shall have
reasonably concluded that there may be one or more legal defenses available to
it or them or to other indemnified parties which are different from or
additional to those available to the Company, in any of which events such fees
and expenses shall be borne by the Company and the Company shall not have the
right to direct the defense of such action on behalf of the indemnified party or
parties. Anything in this Section 12 to the contrary notwithstanding, the
Company shall not be liable for any settlement of any such claim or action
effected without its written consent, which shall not be unreasonably withheld.
13. Unless registered pursuant to the provisions of the registration rights
agreement referred to in Section 11 hereof, the Shares issued upon exercise of
the Purchase Rights shall be subject to a stop transfer order and the
certificate or certificates evidencing such Shares shall bear the following
legend:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY STATE
SECURITIES LAWS AND NEITHER SUCH SECURITIES NOR ANY INTEREST THEREIN MAY BE
OFFERED, SOLD, PLEDGED, ASSIGNED OR OTHERWISE TRANSFERRED UNLESS (1) A
REGISTRATION STATEMENT WITH RESPECT THERETO IS EFFECTIVE UNDER THE ACT AND
ANY APPLICABLE STATE SECURITIES LAWS, OR (2) THE COMPANY RECEIVES AN
OPINION OF COUNSEL TO THE HOLDER OF SUCH SECURITIES, WHICH COUNSEL AND
OPINION ARE REASONABLY SATISFACTORY TO THE COMPANY, THAT SUCH SECURITIES
MAY BE OFFERED, SOLD, PLEDGED,
12
<PAGE>
ASSIGNED OR TRANSFERRED IN THE MANNER CONTEMPLATED WITHOUT AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR APPLICABLE STATE
SECURITIES LAWS."
14. Upon receipt of evidence satisfactory to the Company of the loss,
theft, destruction, or mutilation of this Agreement or any similar agreements
issued upon the assignment or transfer of all or any portion of the Purchase
Rights (and upon surrender of any such agreement if mutilated), including an
affidavit of the Holder thereof that this Agreement or any similar agreements
issued upon the assignment or transfer of all or any portion of the Purchase
Rights has been lost, stolen, destroyed or mutilated, together with an indemnity
against any claim that may be made against the Company on account of such lost
stolen, destroyed or mutilated agreement, and upon reimbursement of the
Company's reasonable incidental expenses, the Company shall execute and deliver
to the Holder thereof a new agreement of like date, tenor, and denomination.
15. The Holder of any Purchase Rights shall not have solely on account of
such status, any rights of a stockholder of the Company, either at law or in
equity, or to any notice of meetings of stockholders or of any other proceedings
of the Company, except as provided in this Agreement. No provision hereof, in
the absence of affirmative action by the Holder to purchase Common Stock, and no
enumeration herein of the rights or privileges of the Holder shall give rise to
any liability of such holder for the Exercise Price of Common Stock acquirable
by exercise hereof or as a stockholder of the Company.
16. The Purchase Rights shall not be transferable without the prior written
consent of the Company except in connection with (i) the transfer of shares of
Common Stock acquired pursuant to the purchase agreement (the "Purchase
Agreement") between the Company and the original Holder, dated April 25, 1997
and in such event, in a percentage equal to the percentage of Common Stock
transferred determined by dividing the number of shares being transferred by the
number of shares purchased under the Purchase Agreement; (ii) any Sale of the
Company; or (iii) a sale of all remaining Common Stock owned by the Holder.
17. This Agreement shall be construed in accordance with the laws of the
State of Delaware applicable to contracts made and performed within such State,
without regard to principles governing conflicts of law.
18. Any notice or other communication required or permitted to be given
hereunder shall be in writing and shall be mailed by certified mail, return
receipt requested, or by Federal Express, Express Mail or similar overnight
delivery or courier service or delivered (in person or by telecopy, telex or
similar telecommunications equipment) against receipt to the party to whom it is
to be given, (i) if to the Company, at 645 Fifth Avenue, East Wing, New York,
New York 10022, Attention: President, (ii) if to the Holder, at its address set
forth on the signature page hereof, or (iii) in either case, to such other
address as the party shall have furnished in writing in accordance with the
provisions of this Section 18. Notice to the estate of
13
<PAGE>
any party shall be sufficient if addressed to the party as provided in this
Section 18. Any notice or other communication given by certified mail shall be
deemed given at the time of certification thereof, except for a notice changing
a party's address which shall be deemed given at the time of receipt thereof.
Any notice given by other means permitted by this Section 18 shall be deemed
given at the time of receipt thereof.
19. No course of dealing and no delay or omission on the part of the Holder
in exercising any right or remedy shall operate as a waiver thereof or otherwise
prejudice the Holder's rights, powers or remedies. No right, power or remedy
conferred by this Agreement upon the Holder shall be exclusive of any other
right, power or remedy referred to herein or now or hereafter available at law,
in equity, by statute or otherwise, and all such remedies may be exercised
singly or concurrently.
20. This Agreement may be amended only by a written instrument executed by
the Company and the Holder hereof. Any amendment shall be endorsed upon this
Agreement, and all future Holders shall be bound thereby.
* * * *
14
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Equity Protection
Agreement as of the date first written above.
UC TELEVISION NETWORK CORP.
By: /s/ Peter Kauff
-----------------------------------
Name: Peter Kauff
Title: Chairman of the Board and
Chief Executive Officer
Address: 645 Fifth Avenue, East Wing
New York, New York 10022
U-C HOLDINGS, L.L.C.
By: WILLIS STEIN & PARTNERS, L.P.
Its Managing Member
By: Willis Stein & Partners, L.L.C.
Its General Partner
By: /s/ Avy H. Stein
-----------------------------------
Avy H. Stein
Its Manager
Address: 227 West Monroe Street
Suite 4300
Chicago, Illinois 60606
15
<PAGE>
FORM OF ASSIGNMENT
(To be executed by the registered holder if such holder desires to transfer any
Purchase Rights granted pursuant to the attached Agreement.)
FOR VALUE RECEIVED, ______________________ hereby sells, assigns, and
transfers unto ___________________ the right to purchase __________ shares of
Common Stock, par value $0.001 per share, of UC Television Network Corp. (the
"Company"), together with all right, title, and interest therein, and does
hereby irrevocably constitute and appoint the secretary of the Company attorney
to transfer such rights on the books of the Company, with full power of
substitution.
Dated: ____________________
Signature
--------------------------------
-----------------------------------------
Signature Guarantee
NOTICE
The signature on the foregoing Assignment must correspond to the name
as written upon the face of this Agreement in every particular, without
alteration or enlargement or any change whatsoever.
16
<PAGE>
To: UC TELEVISION NETWORK CORP.
645 Fifth Avenue
East Wing
New York, New York 10022
ELECTION TO EXERCISE
The undersigned hereby exercises his or its rights to purchase _____
Shares covered by the within Agreement and tenders payment herewith of the
Aggregate Exercise Price in accordance with the terms thereof, and requests that
certificates for such securities be issued in the name of, and delivered to:
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(Print Name, Address and Social Security
or Tax Identification Number)
and that this Agreement containing a notation as to the Number of Shares issued
upon such exercise be registered in the name of, and delivered to, the
undersigned at the address stated below.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(Print Name, Address and Social Security
or Tax Identification Number)
17
<PAGE>
Dated: ____________________
Name:
-------------------------------------
(Print)
------------------------------------------
(Signature)
------------------------------------------
(Signature Guarantee)
------------------------------------------
(Signature Guarantee)
18
<PAGE>
EXHIBIT 4.3
EQUITY PROTECTION AGREEMENT
THIS EQUITY PROTECTION AGREEMENT (this "Agreement") is made as of April 25,
1997, by an among UC Television Network Corp., a Delaware corporation (the
"Company"), and U-C Holdings, L.L.C., a Delaware limited liability company
("Holdings" and including any permitted transferees or assigns of any rights
under this Agreement, the "Holder"). As used herein the term "this Agreement"
shall mean and include this Agreement and any agreement or agreements hereafter
entered into as a consequence of the exercise or transfer in whole or in part of
any of the Purchase Rights (as hereinafter defined) granted pursuant to this
Agreement.
WHEREAS, the Company and Holdings are parties to that certain Purchase
Agreement, dated as of the date hereof, pursuant to which Holdings purchased
shares of the Company's Common Stock and a Class C Warrant of the Company; and
WHEREAS, the Company and Holdings desire to enter into this Agreement in
order to protect Holdings from the dilution of its equity position in the
Company upon the exercise of any outstanding warrants or options to purchase
Common Stock of the Company.
NOW, THEREFORE, in consideration of the mutual covenants set forth herein
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto hereby agree as follows:
1. The following terms shall have the following meanings:
(A) the term "Number of Shares" shall mean, as of any particular date, the
number of shares of Common Stock issuable upon exercise of the Purchase Rights
(the "Shares") equal to the sum of (i) the product of (a) one and (b) the
aggregate number of shares of Common Stock which have been issued by the Company
upon the exercise of any of the Existing Warrants (as hereinafter defined) and
any of the Existing Options (as hereinafter defined) and (c) the Applicable
Percentage, minus (ii) the product of (a) the aggregate number of shares of
Common Stock issued as of such particular date in connection with any prior
exercises of the Purchase Rights and (b) the Applicable Percentage;
(B) the term "Existing Warrants" shall mean, collectively, all warrants to
purchase shares of Common Stock of the Company outstanding as of the date hereof
and any warrant or warrants issued as a consequence of the exercise or transfer
of such warrants in whole or part, including, without limitation, any of the
Company's Class A
<PAGE>
Redeemable Warrants, Class B Redeemable Warrants, any of the warrants issued
pursuant to the private placement of securities of the Company on April 26, 1996
and May 28, 1996.
(C) the term "Existing Options" shall mean, collectively, all options and
other rights to purchase shares of Common Stock of the Company (other than the
Existing Warrants) outstanding as of the date hereof and any option or options
issued as a consequence of the exercise or transfer of such options in whole or
part, including, without limitation, any options granted pursuant to the
Company's 1990 Performance Equity Plan, 1996 Stock Incentive Plan, Outside
Directors 1996 Stock Option Plan and the nonqualified option for 337,500 shares
of Common Stock granted to Peter Kauff (as such nonqualified option has been or
shall be amended, modified or increased);
(D) the term "Barington Option" shall mean the unit purchase option issued
to Barington Capital Group, L.P. ("Barington") dated April 26, 1996 and any
warrants subsequently issued to Barington or its transferees pursuant to the
exercise of such unit purchase option.
(D) the term "Applicable Percentage" shall mean, (i) initially, 100% and
(ii) after any partial transfer of the Purchase Rights, the percentage of the
total Number of Shares represented by this Agreement (for example, if the right
to purchase 30% of the Number of Shares is transferred, the Applicable
Percentage for this Agreement shall be 70% of the Applicable Percentage then in
effect with respect to this Agreement and the Applicable Percentage for any new
equity protection agreement issued upon such transfer shall be 30% of the
Applicable Percentage then in effect with respect to this Agreement);
(E) the term "Common Stock" shall mean the Company's common stock, par
value $.001 per share, and any capital stock of any class of the Company
hereafter authorized which is not limited to a fixed sum or percentage of par or
stated value in respect to the rights of the holders thereof to participate in
dividends or in the distribution of assets upon any liquidation, dissolution or
winding up of the Company;
(F) the term "Sale of the Company" shall mean the sale of the Company to an
Independent Third Party or group of Independent Third Parties pursuant to which
such party or parties acquire (i) capital stock of the Company possessing the
voting power under normal circumstances to elect a majority of the Company's
board of directors (whether by merger, consolidation, recapitalization, sale or
transfer of the Company's capital stock or otherwise) or (ii) all or
substantially all of the Company's assets determined on a consolidated basis;
(G) the term "Independent Third Party" shall mean any person or entity who,
immediately prior to the contemplated transaction, does not own in excess of 5%
of the Company's Common Stock on a fully-diluted basis (a "5% Owner"), who is
not controlling, controlled by or under common control with any such 5% Owner
and who is
2
<PAGE>
not the spouse or descendent (by birth or adoption) of any such 5% Owner or a
trust for the benefit of such 5% Owner and/or such other persons or entities;
(H) the term "New Warrants" shall mean the Class C Warrant issued pursuant
to the Purchase Agreement and any warrants issued upon the exercise or transfer
in whole or part of such warrant; and
(I) the term "Purchase Rights" shall mean the right to purchase Shares
granted pursuant to this Agreement.
2. The Company hereby grants to the Holder the right to subscribe for and
purchase from Company, upon the terms and conditions set forth herein, at any
time or from time to time before 5:00 P.M. on April 25, 2004, New York time (the
"Exercise Period"), the Number of Shares at a price per share equal to $.70 (as
the same may be adjusted from time to time in accordance with the terms of this
Agreement, the "Exercise Price").
3. The Purchase Rights may be exercised during the Exercise Period, as to
the whole or any lesser number of whole Shares, by the surrender of this
Agreement for notation as to the Number of Shares so purchased (with the
"Election to Exercise" attached hereto, duly executed) to the Company at its
office at 645 Fifth Avenue, East Wing, New York, New York 10022, or at such
other place as is designated in writing by the Company. In connection with any
exercise of the Purchase Rights, the Holder shall deliver to the Company either
(a) cash (by wire transfer of immediately available funds to the Company's
account) or a certified or bank cashier's check payable to the order of the
Company in an amount equal to the product of the Exercise Price multiplied by
the number of Shares being purchased upon such exercise (the "Aggregate Exercise
Price"), (b) the surrender to the Company of debt or equity securities of the
Company having a Current Market Price (as defined in Section 7(e)) equal to the
Aggregate Exercise Price of the Common Stock being purchased upon such exercise
(provided that for purposes of this subparagraph, the Current Market Price of
any note or other debt security or any preferred stock shall be deemed to be
equal to the aggregate outstanding principal amount or liquidation value thereof
plus all accrued and unpaid interest thereon or accrued or declared and unpaid
dividends thereon) or (c) a written notice to the Company that the Holder is
exercising the Purchase Rights (or a portion thereof) by authorizing the Company
to withhold from issuance a number of shares of Common Stock issuable upon such
exercise of the Purchase Rights which when multiplied by the Current Market
Price of the Common Stock is equal to the Aggregate Exercise Price (and such
withheld shares shall no longer be issuable under this Agreement). All Purchase
Rights which are not exercised prior to 5:00 p.m. on April 25, 2004 New York
time shall become null and void and all such Purchase Rights shall cease as of
such time. At least 30 days prior to the end of the Exercise Period, the Company
shall give the Holder written notice of (i) the expiration of the Exercise
Period, (ii) the Number of Shares issuable upon exercise of the Purchase Rights
as of the date of such notice and (iii) the Exercise Price in effect as of such
date.
3
<PAGE>
4. Upon receipt by the Company of this Agreement, the "Election to
Exercise," and the Aggregate Exercise Price for the Shares, the Holder shall be
deemed to be the holder of record of the Shares issuable upon such exercise;
provided, however, that if the date of such receipt is a date upon which the
transfer books of the Company are closed, the Holder shall be deemed to be the
record holder on the next succeeding business day on which such books are open.
The Company shall not close its books against the transfer of the Purchase
Rights or of any Shares issued or issuable upon the exercise of the Purchase
Rights in any manner which interferes with the timely exercise of the Purchase
Rights. As soon as practicable after each such exercise of the Purchase Rights,
the Company shall issue and cause to be delivered to the Holder a certificate or
certificates for the Shares issuable upon such exercise, registered in the name
of the Holder or its designee. Unless this Agreement shall have expired, the
Company shall, upon surrender of this Agreement in connection with any exercise
of the Purchase Rights, return this Agreement to the Holder after notation of
the Number of Shares issued upon such exercise.
5. (a) Any Purchase Rights which are assigned or otherwise transferred
shall be recorded by the Company on a purchase rights register as such Purchase
Rights are assigned or transferred. Such Purchase Rights shall only be assigned
in accordance with the provisions of Section 16. The Company shall be entitled
to treat the registered holder of any Purchase Rights on such register as the
owner in fact thereof for all purposes and shall not be bound to recognize any
equitable or other claim to or interest in such Purchase Rights on the part of
any other person, and shall not be liable for any registration or transfer of
such Purchase Rights which are registered or to be registered in the name of a
fiduciary or the nominee of a fiduciary unless made with the actual knowledge
that a fiduciary or nominee is committing a breach of trust in requesting such
registration or transfer, or with the knowledge of such facts that its
participation therein amounts to bad faith. The Purchase Rights shall be
transferable only on the books of the Company upon delivery hereof duly endorsed
by the Holder or by his duly authorized attorney or representative, or
accompanied by proper evidence of succession, assignment, or authority to
transfer. In all cases of transfer by an attorney, executor, administrator,
guardian, or other legal representative, duly authenticated evidence of his or
its authority shall be produced. Upon any registration of transfer, the Company
shall cause to be delivered a new agreement or agreements substantially
identical to this Agreement to the person entitled thereto. This Agreement may
be exchanged, at the option of the Holder hereof, for another agreement, or
other agreements of different denominations, of like tenor and representing in
the aggregate the right to purchase the Applicable Percentage of the Number of
Shares represented by such agreement or agreements, upon surrender to the
Company or its duly authorized agent. Notwithstanding the foregoing, the Company
shall have no obligation to cause the Purchase Rights to be transferred on its
books to any person if, in the opinion of counsel to the Company, such transfer
does not comply with the provisions of the Securities Act of 1933, as amended
(the "Act"), and the rules and regulations thereunder.
(b) The Holder acknowledges that such Holder has been advised by the
Company that neither the Purchase Rights nor the Shares have been
4
<PAGE>
registered under the Act, that the Purchase Rights are being or have been
granted and the Shares may be issued on the basis of the statutory exemption
provided by Section 4(2) of the Act or Regulation D promulgated thereunder, or
both, relating to transactions by an issuer not involving any public offering,
and that the Company's reliance thereon is based in part upon the
representations made by the original Holder in the Purchase Agreement. The
Holder acknowledges that such Holder is familiar with the nature of the
limitations imposed by the Act and the rules and regulations thereunder on the
transfer of securities. In particular, the Holder agrees that no sale,
assignment or transfer of the Purchase Rights or the Shares issuable upon
exercise thereof shall be valid or effective, and the Company shall not be
required to give any effect to any such sale, assignment or transfer, unless (i)
the sale, assignment or transfer of the Purchase Rights or such Shares is
registered under the Act, it being understood that neither the Purchase Rights
nor such Shares are currently registered for sale and that the Company has no
obligation or intention to so register the Purchase Rights or such Shares except
as specifically provided in the registration rights agreement referred to in
Section 11, or (ii) the Purchase Rights or such Shares are sold, assigned or
transferred in accordance with all the requirements and limitations of Rule 144
under the Act, it being understood that Rule 144 is not available as of the date
hereof for the sale of the Purchase Rights or such Shares and that there can be
no assurance that Rule 144 sales will be available at any subsequent time, or
(iii) such sale, assignment, or transfer is otherwise exempt from registration
under the Act. Notwithstanding any other provision hereof, if an exercise of the
Purchase Rights or any portion thereof is to be made in connection with a
registered public offering or the sale of the Company, the exercise of the
Purchase Rights or any portion thereof may, at the election of the Holder, be
conditioned upon the consummation of the public offering or sale of the Company
in which case such exercise shall not be deemed to be effective until the
consummation of such transaction. The Company shall assist and cooperate with
any Holder required to make any governmental filings or obtain any governmental
approvals prior to or in connection with any exercise of the Purchase Rights
(including, without limitation, making any filings required to be made by the
Company).
6. The Company covenants that the Shares, upon receipt by the Company of
the Aggregate Exercise Price therefor, shall be validly issued, fully paid,
nonassessable, and free of preemptive rights, liens, taxes and charges with
respect to the issuance thereof. The Company shall take all such actions as may
be necessary to assure that all such shares of Common Stock may be so issued
without violation of any applicable law or governmental regulation or any
requirements of any domestic securities exchange upon which shares of Common
Stock may be listed (except for official notice of issuance which shall be
immediately delivered by the Company upon each such issuance). The Company shall
from time to time take all such action as may be necessary to assure that the
par value per share of the unissued Common Stock acquirable upon exercise of the
Purchase Rights is at all times equal to or less than the Exercise Price then in
effect. The Company covenants and agrees that promptly after the date hereof,
the Company shall amend its certificate of incorporation to increase the
authorized and unissued shares of Common Stock of the Company to a number
sufficient to allow for the exercise of all of the Purchase Rights, the Existing
Warrants, the Barington Option and the Existing Options. The Company shall at
all times thereafter reserve and keep
5
<PAGE>
available out of its authorized and unissued Common Stock, solely for the
purpose of providing for the exercise of the Purchase Rights, such number of
shares of Common Stock as shall, from time to time, be sufficient therefor and
the Company shall not thereafter take any action which would cause the number of
authorized but unissued shares of Common Stock to be less than the number of
such shares required to be reserved hereunder for issuance upon exercise of the
Purchase Rights.
7. (a) In case the Company shall at any time after the date this Agreement
is first made (i) declare a dividend on any class of the outstanding capital
stock of the Company (the "Capital Stock") payable in shares of its Capital
Stock, (ii) subdivide any class of the outstanding Capital Stock, or (iii)
combine any class of the outstanding Capital Stock into a smaller number of
shares, then, in each case, the Exercise Price in effect at the time of the
record date for such dividend or of the effective date of such subdivision, or
combination, shall be proportionately adjusted. In addition, to the extent any
shares of Common Stock have been issued upon exercise of any of the Existing
Warrants or the Existing Options, the Number of Shares issuable upon exercise of
the Purchase Rights shall be proportionately adjusted to reflect such dividend,
subdivision, or combination of the Common Stock issued upon such exercise of any
of the Existing Warrants or the Existing Options. Such adjustment shall be made
successively whenever any event listed above shall occur.
(b) In case the Company shall issue or fix a record date for the issuance
to all holders of any class of Capital Stock of rights, options, or warrants to
subscribe for or purchase Common Stock (or securities convertible into or
exchangeable for Common Stock) at a price per share (or having a conversion or
exchange price per share, if a security convertible into or exchangeable for
Common Stock) less than the Current Market Price per share of Common Stock on
such record date, then, in each case, the Exercise Price shall be adjusted by
multiplying the Exercise Price in effect immediately prior to such record date
by a fraction, the numerator of which shall be the number of shares of Common
Stock outstanding on such record date plus the number of shares of such class of
Common Stock which the aggregate offering price of the total number of shares of
such class of Common Stock so to be offered (or the aggregate initial conversion
or exchange price of the convertible or exchangeable securities so to be
offered) would purchase at such Current Market Price and the denominator of
which shall be the number of shares of Common Stock outstanding on such record
date plus the number of additional shares of Common Stock to be offered for
subscription or purchase (or into which the convertible or exchangeable
securities so to be offered are initially convertible or exchangeable);
provided, however, that no such adjustment shall be made which results in an
increase in the Exercise Price. Such adjustment shall become effective at the
close of business on such record date; provided, however, that, to the extent
the shares of Common Stock (or securities convertible into or exchangeable for
shares of Common Stock) are not delivered, the Exercise Price shall be
readjusted after the expiration of such rights, options, or warrants (but only
with respect to the Purchase Rights exercised after such expiration), to the
Exercise Price which would then be in effect had the adjustments made upon the
issuance of such rights, options, or warrants been made upon the basis of
delivery of only the number of shares of Common Stock (or
6
<PAGE>
securities convertible into or exchangeable for shares of Common Stock) actually
issued. In case any subscription price may be paid in a consideration, part or
all of which shall be in a form other than cash, the value of such consideration
shall be as determined in good faith by the board of directors of the Company,
whose determination shall be conclusive absent manifest error. Shares of Common
Stock owned by or held for the account of the Company or any majority-owned
subsidiary shall not be deemed outstanding for the purpose of any such
computation.
(c) In case the Company shall distribute to all holders of any class of
Common Stock (including any such distribution made to the stockholders of the
Company in connection with a consolidation or merger in which the Company is the
continuing corporation) evidences of its indebtedness, cash (other than any cash
dividend which, together with any cash dividends paid within the 12 months prior
to the record date for such distribution, does not exceed 5% of the Current
Market Price at the record date for such distribution) or assets (other than
distributions and dividends payable in shares of Common Stock), or rights,
options, or warrants to subscribe for or purchase Common Stock, or securities
convertible into or changeable for shares of Common Stock (excluding those with
respect to the issuance of which an adjustment of the Exercise Price is provided
pursuant to Section 7(b) hereof), then, in each case, the Exercise Price shall
be adjusted by multiplying the Exercise Price in effect immediately prior to the
record date for the determination of stockholders entitled to receive such
distribution by a fraction, the numerator of which shall be the Current Market
Price per share of such class of Common Stock on such record date, less the fair
market value (as determined in good faith by the board of directors of the
Company, whose determination shall be conclusive absent manifest error) of the
portion of the evidences of indebtedness or assets so to be distributed, or of
such rights, options, or warrants or convertible or exchangeable securities, or
the amount of such cash, applicable to one share, and the denominator of which
shall be such Current Market Price per share of such class of Common Stock.
Such adjustment shall become effective at the close of business on such record
date.
(d) In case the Company shall have issued at any time after April 26, 1996
or shall issue shares of Common Stock or rights, options, or warrants to
subscribe for or purchase Common Stock, or securities convertible into or
exchangeable for Common Stock (excluding shares, rights, options, warrants, or
convertible or exchangeable securities issued or issuable (i) in any of the
transactions with respect to which an adjustment of the Exercise Price is
provided pursuant to Sections 7(a), 7(b), or 7(c) above, (ii) upon any issuance
of securities pursuant to the Purchase Agreement, (iii) upon exercise of the New
Warrants, (iv) upon exercise of any of the Existing Warrants, (v) upon exercise
of any Existing Options or (vi) upon exercise of the Barington Option), at a
price per share (determined, in the case of such rights, options, warrants, or
convertible or exchangeable securities, by dividing (x) the total amount
received or receivable by the Company in consideration of the sale and issuance
of such rights, options, warrants, or convertible or exchangeable securities,
plus the minimum aggregate consideration payable to the Company upon exercise,
conversion, or exchange thereof, by (y) the maximum number of shares covered by
such rights, options, warrants, or convertible or exchangeable securities) lower
than the Current Market Price per share of shares of
7
<PAGE>
such class of Common Stock so issued in effect immediately prior to such
issuance, then the Exercise Price shall be reduced on the date of such issuance
to a price (calculated to the nearest cent) determined by multiplying the
Exercise Price in effect immediately prior to such issuance by a fraction, (1)
the numerator of which shall be an amount equal to the sum of (A) the number of
shares of Common Stock outstanding immediately prior to such issuance plus (B)
the quotient obtained by dividing the consideration received by the Company upon
such issuance by such Current Market Price, and (2) the denominator of which
shall be the total number of shares of Common Stock outstanding immediately
after such issuance; provided, however, that no such adjustment shall be made
which results in an increase in the Exercise Price. For the purposes of such
adjustments, the maximum number of shares which the holders of any such rights,
options, warrants, or convertible or exchangeable securities shall be entitled
to initially subscribe for or purchase or convert or exchange such securities
into shall be deemed to be issued and outstanding as of the date of such
issuance, and the consideration received by the Company therefor shall be deemed
to be the consideration received by the Company for such rights, options,
warrants, or convertible or exchangeable securities, plus the minimum aggregate
consideration or premiums stated in such rights, options, warrants, or
convertible or exchangeable securities to be paid for the shares covered
thereby. No further adjustment of the Exercise Price shall be made as a result
of the actual issuance of shares of Common Stock on exercise of such rights,
options, or warrants or on conversion or exchange of such convertible or
exchangeable securities. On the expiration or the termination of such rights,
options, or warrants, or the termination of such right to convert or exchange,
the Exercise Price shall be readjusted (but only with respect to Warrants
exercised after such expiration or termination) to such Exercise Price as would
have obtained had the adjustments made upon the issuance of such rights,
options, warrants, or convertible or exchangeable securities been made upon the
basis of the delivery of only the number of shares of Common Stock actually
delivered upon the exercise of such rights, options, or warrants or upon the
conversion or exchange of any such securities; and on any change of the number
of shares of Common Stock deliverable upon the exercise of any such rights,
options, or warrants or conversion or exchange of such convertible or
exchangeable securities or any change in the consideration to be received by the
Company upon such exercise, conversion, or exchange, including, without
limitation, a change resulting from the antidilution provisions thereof. In case
the Company shall issue shares of Common Stock or any such rights, options,
warrants, or convertible or exchangeable securities for a consideration
consisting, in whole or in part, of property other than cash or its equivalent,
then the "price per share" and the "consideration received by the Company" for
purposes of the first sentence of this Section 7(d) shall be as determined in
good faith by the board of directors of the Company, whose determination shall
be conclusive absent manifest error. Shares of Common Stock owned by or held for
the account of the Company or any majority-owned subsidiary shall not be deemed
outstanding for the purpose of any such computation.
(e) For the purpose of any computation under this Section 7, the Current
Market Price per share of any class of Capital Stock on any date shall be deemed
to be the average of the daily closing prices for shares of such class for the
30
8
<PAGE>
consecutive trading days immediately preceding the date in question. The
closing price for each day shall be the last reported sales price regular way,
or in case no such reported sales takes place on such date, the closing bid
price regular way on the principal national securities exchange (including, for
purposes hereof, the NASDAQ National Market System or the NASDAQ SmallCap
Market) on which shares of such class of Common Stock are listed or admitted to
trading or, if such class of Common Stock is not listed or admitted to trading
on any national securities exchange, the highest reported bid price for such
class of Common Stock as furnished by the National Association of Securities
Dealers, Inc. through NASDAQ or a similar organization if NASDAQ is no longer
reporting such information. If on any such date such class of Common Stock is
not listed or admitted to trading on any national securities exchange and is not
quoted by NASDAQ or any similar organization, the fair value of a share of such
class of Common Stock on such date, as determined in good faith by the board of
directors of the Company, whose determination shall be conclusive absent
manifest error, shall be used.
(f) All calculations under this Section 7 shall be made to the nearest cent
or to the nearest one-thousandth of a share, as the case may be.
(g) Whenever there shall be an adjustment as provided in this Section 7,
the Company shall promptly cause written notice thereof to be sent by certified
mail, postage prepaid, to the Holder, at its address as it shall appear in the
purchase rights register, which notice shall be accompanied by an officer's
certificate setting forth the Number of Shares purchasable upon the exercise of
the Purchase Rights and the Exercise Price after such adjustment and setting
forth a brief statement of the facts requiring such adjustment and the
computation thereof, which officer's certificate shall be conclusive evidence of
the correctness of any such adjustment absent manifest error.
(h) The Company shall not be required to issue fractions of shares of
Common Stock of the Company upon the exercise of the Purchase Rights. If any
fraction of a share would be issuable on the exercise of the Purchase Rights (or
specified portions thereof), the Company shall purchase such fraction for an
amount in cash equal to the same fraction of the Current Market Price of such
share of Common Stock on the date of exercise of the Purchase Rights.
8. (a) In case of any consolidation with or merger of the Company with or
into another corporation (other than a merger or consolidation in which the
Company is the surviving or continuing corporation), or in case of any sale,
lease, or conveyance to another corporation of the property and assets of any
nature of the Company as an entirety or substantially as an entirety, such
successor, leasing, or purchasing corporation, as the case may be, shall (i)
execute with the Holder an agreement providing that the Holder shall have the
right thereafter to receive upon exercise of the Purchase Rights solely the kind
and amount of shares of stock and other securities, property, cash, or any
combination thereof receivable upon such consolidation, merger, sale, lease, or
conveyance by a holder of the number of shares of Common Stock for which the
Purchase Rights might have been exercised immediately prior to such
consolidation, merger, sale, lease, or conveyance, and (ii) make effective
provision in its
9
<PAGE>
certificate of incorporation or otherwise, if necessary, to effect such
agreement. Such agreement shall provide for adjustments which shall be as nearly
equivalent as practicable to the adjustments in Section 7.
(b) In case of any reclassification or change of the shares of Common Stock
issuable upon exercise of the Purchase Rights (other than a change in par value
or from no par value to a specified par value, or as a result of a subdivision
or combination, but including any change in the shares into two or more classes
or series of shares), or in case of any consolidation or merger of another
corporation into the Company in which the Company is the continuing corporation
and in which there is a reclassification or change (including a change to the
right to receive cash or other property) of the shares of Common Stock (other
than a change in par value, or from no par value to a specified par value, or as
a result of a subdivision or combination, but including any change in the shares
into two or more classes or series of shares), the Holder shall have the right
thereafter to receive upon exercise of the Purchase Rights solely the kind and
amount of shares of stock and other securities, property, cash, or any
combination thereof receivable upon such reclassification, change,
consolidation, or merger by a holder of the Number of Shares for which the
Purchase Rights might have been exercised immediately prior to such
reclassification, change, consolidation, or merger. Thereafter, appropriate
provision shall be made for adjustments which shall be as nearly equivalent as
practicable to the adjustments in Section 7.
(c) The above provisions of this Section 8 shall similarly apply to
successive reclassifications and changes of shares of Common Stock and to
successive consolidations, mergers, sales, leases, or conveyances.
(d) If any event occurs of the type contemplated by the provisions of this
Section 8 but not expressly provided for by such provisions, then the Company's
board of directors shall make an appropriate adjustment in the Exercise Price
and the Number of Shares obtainable upon exercise of the Purchase Rights so as
to protect the rights of the Company and the holders of the Purchase Rights;
provided that no such adjustment shall increase the Exercise Price or decrease
the Number of Shares obtainable as otherwise determined pursuant to this
Agreement without the prior written consent of the holders of a majority of the
Shares issued or issuable upon exercise of the Purchase Rights (which consent
will not be unreasonably withheld).
9. (a) In case at any time the Company shall issue any shares of Common
Stock upon the exercise of any of the Existing Warrants, the Barington Option or
Existing Options, then the Company shall give written notice thereof, (i) by
telecopy to the Holder at the telecopy number of such Holder as it shall appear
on the Company's books and records, such notice to be sent as of the date of
such issuance and (ii) by certified mail, postage prepaid, to the Holder at the
Holder's address as it shall appear in the purchase rights register, such notice
to be mailed no later than one day after such issuance. Each such notice shall
state (A) the name of the party or parties exercising any such Existing
Warrants, the Barington Option or Existing Options, (B) the number of shares of
Common Stock issued upon such exercise, (C) the purchase price per share of
10
<PAGE>
Common Stock issued upon such exercise, (D) the number of Shares exercisable
under this Agreement after giving effect to such issuance, (E) the Exercise
Price then in effect under this Agreement after giving effect to such issuance
and (F) the remaining Number of Shares as of the date of such notice.
(b) In case at any time the Company shall propose to:
(i) pay any dividend or make any distribution on shares of Common Stock
in shares of Common Stock or make any other distribution (other than
regularly scheduled cash dividends which are not in a greater amount per
share than the most recent such cash dividend) to all holders of Common
Stock; or
(ii) issue any rights, warrants, or other securities to all holders of
Common Stock entitling them to purchase any additional shares of Common
Stock or any other rights, warrants, or other securities; or
(iii) effect any reclassification or change of outstanding shares of
Capital Stock, or any consolidation, merger, sale, lease, or conveyance of
property, described in Section 8 hereof; or
(iv) effect any liquidation, dissolution, or winding-up of the
Company; or
(v) take any other action which would cause an adjustment to the
Exercise Price;
then, and in any one or more of such cases, the Company shall give written
notice thereof, by certified mail, postage prepaid, to the Holder at the
Holder's address as it shall appear in the purchase rights register, mailed at
least 15 days prior to (A) the date as of which the holders of record of shares
of Common Stock to be entitled to receive any such dividend, distribution,
rights, warrants, or other securities are to be determined, (B) the date on
which any such reclassification, change of outstanding shares of Common Stock,
consolidation, merger, sale, lease, conveyance of property, liquidation,
dissolution, or winding-up is expected to become effective, and the date as of
which it is expected that holders of record of shares of Common Stock shall be
entitled to exchange their shares for securities or other property, if any,
deliverable upon such reclassification, change of outstanding shares,
consolidation, merger, sale, lease, conveyance of property, liquidation,
dissolution, or winding-up, or (C) the date of such action which would require
an adjustment to the Exercise Price.
10. The issuance of any shares or other securities upon the exercise of the
Purchase Rights, and the delivery of certificates or other instruments
representing such shares or other securities, shall be made without charge to
the Holder for any tax or other charge in respect of such issuance or for any
other cost of the Company incurred in connection with such issuance and
delivery. The Company shall not, however, be
11
<PAGE>
required to pay any tax which may be payable in respect of any transfer or
delivery of the Purchase Rights to a person other than, or the issuance and
delivery of any certificate in a name other than that of the registered Holder
and the Company shall not be required to issue or deliver any such certificate
unless and until the person or persons requesting the issue thereof shall have
paid to the Company the amount of such tax or shall have established to the
satisfaction of the Company that such tax has been paid.
11. The Shares shall be entitled to benefit of the provisions of that
certain Registration Rights Agreement, of even date herewith, by and among the
Company and the persons purchasing securities pursuant to the Purchase
Agreement.
12. Subject to the conditions set forth below, the Company agrees to
indemnify and hold harmless each Holder, its officers, directors, partners,
employees, agents, and counsel, and each person, if any, who controls any such
person within the meaning of Section 15 of the Act or Section 20(a) of the
Exchange Act, from and against any and all loss, liability, charge, claim,
damage, and expense whatsoever (which shall include, for all purposes of this
Section 12, without limitation, reasonable attorneys' fees and any and all
expense whatsoever incurred in investigating, preparing, or defending against
any litigation, commenced or threatened, or any claim whatsoever, and any and
all amounts paid in settlement of any claim or litigation), as and when
incurred, arising out of, based upon, or in connection with, any breach of any
representation, warranty, covenant, or agreement of the Company contained in
this Agreement. The foregoing agreement to indemnify shall be in addition to any
liability the Company may otherwise have, including liabilities arising under
the Purchase Rights.
If any action is brought against any Holder or any of its officers,
directors, partners, employees, agents, or counsel, or any controlling persons
of such person (an "indemnified party") in respect of which indemnity may be
sought against the Company pursuant to the foregoing paragraph, such indemnified
party or parties shall promptly notify the Company in writing of the institution
of such action (but the failure so to notify shall not relieve the Company from
any liability under this Section 12 unless the Company shall have been
materially prejudiced by such failure or relieve the Company from any liability
other than pursuant to this Section 12) and the Company shall promptly assume
the defense of such action, including the employment of counsel (reasonably
satisfactory to such indemnified party or parties) and payment of expenses.
Such indemnified party or parties shall have the right to employ its or their
own counsel in any such case, but the fees and expenses of such counsel shall be
at the expense of such indemnified party or parties unless the employment of
such counsel shall have been authorized in writing by the Company in connection
with the defense of such action or the Company shall not have employed counsel
reasonably satisfactory to such indemnified party or parties to have charge of
the defense of such action or such indemnified party or parties shall have
reasonably concluded that there may be one or more legal defenses available to
it or them or to other indemnified parties which are different from or
additional to those available to the Company, in any of which events such fees
and expenses shall be borne by the Company and the Company shall not have the
right to direct the defense of such action on behalf of the indemnified party or
parties.
12
<PAGE>
Anything in this Section 12 to the contrary notwithstanding, the Company shall
not be liable for any settlement of any such claim or action effected without
its written consent, which shall not be unreasonably withheld.
13. Unless registered pursuant to the provisions of the registration rights
agreement referred to in Section 11 hereof, the Shares issued upon exercise of
the Purchase Rights shall be subject to a stop transfer order and the
certificate or certificates evidencing such Shares shall bear the following
legend:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY STATE
SECURITIES LAWS AND NEITHER SUCH SECURITIES NOR ANY INTEREST THEREIN MAY BE
OFFERED, SOLD, PLEDGED, ASSIGNED OR OTHERWISE TRANSFERRED UNLESS (1) A
REGISTRATION STATEMENT WITH RESPECT THERETO IS EFFECTIVE UNDER THE ACT AND
ANY APPLICABLE STATE SECURITIES LAWS, OR (2) THE COMPANY RECEIVES AN
OPINION OF COUNSEL TO THE HOLDER OF SUCH SECURITIES, WHICH COUNSEL AND
OPINION ARE REASONABLY SATISFACTORY TO THE COMPANY, THAT SUCH SECURITIES
MAY BE OFFERED, SOLD, PLEDGED, ASSIGNED OR TRANSFERRED IN THE MANNER
CONTEMPLATED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR
APPLICABLE STATE SECURITIES LAWS."
14. Upon receipt of evidence satisfactory to the Company of the loss,
theft, destruction, or mutilation of this Agreement or any similar agreements
issued upon the assignment or transfer of all or any portion of the Purchase
Rights (and upon surrender of any such agreement if mutilated), including an
affidavit of the Holder thereof that this Agreement or any similar agreements
issued upon the assignment or transfer of all or any portion of the Purchase
Rights has been lost, stolen, destroyed or mutilated, together with an indemnity
against any claim that may be made against the Company on account of such lost
stolen, destroyed or mutilated agreement, and upon reimbursement of the
Company's reasonable incidental expenses, the Company shall execute and deliver
to the Holder thereof a new agreement of like date, tenor, and denomination.
15. The Holder of any Purchase Rights shall not have solely on account of
such status, any rights of a stockholder of the Company, either at law or in
equity, or to any notice of meetings of stockholders or of any other proceedings
of the
13
<PAGE>
Company, except as provided in this Agreement. No provision hereof, in the
absence of affirmative action by the Holder to purchase Common Stock, and no
enumeration herein of the rights or privileges of the Holder shall give rise to
any liability of such holder for the Exercise Price of Common Stock acquirable
by exercise hereof or as a stockholder of the Company.
16. The Purchase Rights shall not be transferable without the prior written
consent of the Company except in connection with (i) the transfer of shares of
Common Stock acquired pursuant to the purchase agreement (the "Purchase
Agreement") between the Company and the original Holder, dated April 25, 1997
and in such event, in a percentage equal to the percentage of Common Stock
transferred determined by dividing the number of shares being transferred by the
number of shares purchased under the Purchase Agreement; (ii) any Sale of the
Company; or (iii) a sale of all remaining Common Stock owned by the Holder.
17. This Agreement shall be construed in accordance with the laws of the
State of Delaware applicable to contracts made and performed within such State,
without regard to principles governing conflicts of law.
18. Any notice or other communication required or permitted to be given
hereunder shall be in writing and shall be mailed by certified mail, return
receipt requested, or by Federal Express, Express Mail or similar overnight
delivery or courier service or delivered (in person or by telecopy, telex or
similar telecommunications equipment) against receipt to the party to whom it is
to be given, (i) if to the Company, at 645 Fifth Avenue, East Wing, New York,
New York 10022, Attention: President, (ii) if to the Holder, at its address set
forth on the signature page hereof, or (iii) in either case, to such other
address as the party shall have furnished in writing in accordance with the
provisions of this Section 18. Notice to the estate of any party shall be
sufficient if addressed to the party as provided in this Section 18. Any notice
or other communication given by certified mail shall be deemed given at the time
of certification thereof, except for a notice changing a party's address which
shall be deemed given at the time of receipt thereof. Any notice given by other
means permitted by this Section 18 shall be deemed given at the time of receipt
thereof.
19. No course of dealing and no delay or omission on the part of the Holder
in exercising any right or remedy shall operate as a waiver thereof or otherwise
prejudice the Holder's rights, powers or remedies. No right, power or remedy
conferred by this Agreement upon the Holder shall be exclusive of any other
right, power or remedy referred to herein or now or hereafter available at law,
in equity, by statute or otherwise, and all such remedies may be exercised
singly or concurrently.
20. This Agreement may be amended only by a written instrument executed by
the Company and the Holder hereof. Any amendment shall be endorsed upon this
Agreement, and all future Holders shall be bound thereby.
* * * *
14
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Equity Protection
Agreement as of the date first written above.
UC TELEVISION NETWORK CORP.
By: /s/ Peter C. Kauff
-------------------------------------------
Name: Peter Kauff
Title: Chairman of the Board and
Chief Executive Officer
Address: 645 Fifth Avenue, East Wing
New York, New York 10022
U-C HOLDINGS, L.L.C.
By: WILLIS STEIN & PARTNERS, L.P.
Its Managing Member
By: Willis Stein & Partners, L.L.C.
Its General Partner
By: /s/ Avy H. Stein
--------------------------------------
Avy H. Stein
Its Manager
Address: 227 West Monroe Street
Suite 4300
Chicago, Illinois 60606
15
<PAGE>
FORM OF ASSIGNMENT
(To be executed by the registered holder if such holder desires to transfer any
Purchase Rights granted pursuant to the attached Agreement.)
FOR VALUE RECEIVED, ______________________ hereby sells, assigns, and
transfers unto ___________________ the right to purchase __________ shares of
Common Stock, par value $0.001 per share, of UC Television Network Corp. (the
"Company"), together with all right, title, and interest therein, and does
hereby irrevocably constitute and appoint the secretary of the Company attorney
to transfer such rights on the books of the Company, with full power of
substitution.
Dated: ____________________
Signature
Signature Guarantee
NOTICE
The signature on the foregoing Assignment must correspond to the name
as written upon the face of this Agreement in every particular, without
alteration or enlargement or any change whatsoever.
16
<PAGE>
To: UC TELEVISION NETWORK CORP.
645 Fifth Avenue
East Wing
New York, New York 10022
ELECTION TO EXERCISE
The undersigned hereby exercises his or its rights to purchase _____
Shares covered by the within Agreement and tenders payment herewith of the
Aggregate Exercise Price in accordance with the terms thereof, and requests that
certificates for such securities be issued in the name of, and delivered to:
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(Print Name, Address and Social Security
or Tax Identification Number)
and that this Agreement containing a notation as to the Number of Shares issued
upon such exercise be registered in the name of, and delivered to, the
undersigned at the address stated below.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(Print Name, Address and Social Security
or Tax Identification Number)
17
<PAGE>
Dated: ____________________
Name:
-------------------------------
(Print)
------------------------------------
(Signature)
------------------------------------
(Signature Guarantee)
------------------------------------
(Signature Guarantee)
18
<PAGE>
EXHIBIT 4.4
EQUITY PROTECTION AGREEMENT
THIS EQUITY PROTECTION AGREEMENT (this "Agreement") is made as of April 25,
1997, by an among UC Television Network Corp., a Delaware corporation (the
"Company"), and U-C Holdings, L.L.C., a Delaware limited liability company
("Holdings" and including any permitted transferees or assigns of any rights
under this Agreement, the "Holder"). As used herein the term "this Agreement"
shall mean and include this Agreement and any agreement or agreements hereafter
entered into as a consequence of the exercise or transfer in whole or in part of
any of the Purchase Rights (as hereinafter defined) granted pursuant to this
Agreement.
WHEREAS, the Company and Holdings are parties to that certain Purchase
Agreement, dated as of the date hereof, pursuant to which Holdings purchased
shares of the Company's Common Stock and a Class C Warrant of the Company; and
WHEREAS, the Company and Holdings desire to enter into this Agreement in
order to protect Holdings from the dilution of its equity position in the
Company upon the exercise of any outstanding warrants or options to purchase
Common Stock of the Company.
NOW, THEREFORE, in consideration of the mutual covenants set forth herein
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto hereby agree as follows:
1. The following terms shall have the following meanings:
(A) the term "Number of Shares" shall mean, as of any particular date, the
number of shares of Common Stock issuable upon exercise of the Purchase Rights
(the "Shares") equal to the sum of (i) the product of (a) two and (b) the
aggregate number of shares of Common Stock which have been issued by the Company
upon the exercise of the Barington Option (as hereinafter defined) and (c) the
Applicable Percentage, minus (ii) the product of (a) the aggregate number of
shares of Common Stock issued as of such particular date in connection with any
prior exercises of the Purchase Rights and (b) the Applicable Percentage;
(B) the term "Existing Warrants" shall mean, collectively, all warrants to
purchase shares of Common Stock of the Company outstanding as of the date hereof
and any warrant or warrants issued as a consequence of the exercise or transfer
of such warrants in whole or part, including, without limitation, any of the
Company's Class A Redeemable Warrants, Class B Redeemable Warrants, any of the
warrants issued
<PAGE>
pursuant to the private placement of securities of the Company on April 26, 1996
and May 28, 1996.
(C) the term "Existing Options" shall mean, collectively, all options and
other rights to purchase shares of Common Stock of the Company (other than the
Existing Warrants) outstanding as of the date hereof and any option or options
issued as a consequence of the exercise or transfer of such options in whole or
part, including, without limitation, any options granted pursuant to the
Company's 1990 Performance Equity Plan, 1996 Stock Incentive Plan, Outside
Directors 1996 Stock Option Plan and the nonqualified option for 337,500 shares
of Common Stock granted to Peter Kauff (as such nonqualified option has been or
shall be amended, modified or increased);
(D) the term "Barington Option" shall mean the unit purchase option issued
to Barington Capital Group, L.P. ("Barington") dated April 26, 1996 and any
warrants subsequently issued to Barington or its transferees pursuant to the
exercise of such unit purchase option.
(E) the term "Applicable Percentage" shall mean, (i) initially, 100% and
(ii) after any partial transfer of the Purchase Rights, the percentage of the
total Number of Shares represented by this Agreement (for example, if the right
to purchase 30% of the Number of Shares is transferred, the Applicable
Percentage for this Agreement shall be 70% of the Applicable Percentage then in
effect with respect to this Agreement and the Applicable Percentage for any new
equity protection agreement issued upon such transfer shall be 30% of the
Applicable Percentage then in effect with respect to this Agreement);
(F) the term "Common Stock" shall mean the Company's common stock, par
value $.001 per share, and any capital stock of any class of the Company
hereafter authorized which is not limited to a fixed sum or percentage of par or
stated value in respect to the rights of the holders thereof to participate in
dividends or in the distribution of assets upon any liquidation, dissolution or
winding up of the Company;
(G) the term "Sale of the Company" shall mean the sale of the Company to an
Independent Third Party or group of Independent Third Parties pursuant to which
such party or parties acquire (i) capital stock of the Company possessing the
voting power under normal circumstances to elect a majority of the Company's
board of directors (whether by merger, consolidation, recapitalization, sale or
transfer of the Company's capital stock or otherwise) or (ii) all or
substantially all of the Company's assets determined on a consolidated basis;
(H) the term "Independent Third Party" shall mean any person or entity who,
immediately prior to the contemplated transaction, does not own in excess of 5%
of the Company's Common Stock on a fully-diluted basis (a "5% Owner"), who is
not controlling, controlled by or under common control with any such 5% Owner
and who is not the spouse or descendent (by birth or adoption) of any such 5%
Owner or a trust for the benefit of such 5% Owner and/or such other persons or
entities;
2
<PAGE>
(I) the term "New Warrants" shall mean the Class C Warrant issued pursuant
to the Purchase Agreement and any warrants issued upon the exercise or transfer
in whole or part of such warrant; and
(J) the term "Purchase Rights" shall mean the right to purchase Shares
granted pursuant to this Agreement.
1. The Company hereby grants to the Holder the right to subscribe for and
purchase from Company, upon the terms and conditions set forth herein, at any
time or from time to time before 5:00 P.M. on April 25, 2004, New York time (the
"Exercise Period"), the Number of Shares at a price per share equal to $.55 (as
the same may be adjusted from time to time in accordance with the terms of this
Agreement, the "Exercise Price").
2. The Purchase Rights may be exercised during the Exercise Period, as to
the whole or any lesser number of whole Shares, by the surrender of this
Agreement for notation as to the Number of Shares so purchased (with the
"Election to Exercise" attached hereto, duly executed) to the Company at its
office at 645 Fifth Avenue, East Wing, New York, New York 10022, or at such
other place as is designated in writing by the Company. In connection with any
exercise of the Purchase Rights, the Holder shall deliver to the Company either
(a) cash (by wire transfer of immediately available funds to the Company's
account) or a certified or bank cashier's check payable to the order of the
Company in an amount equal to the product of the Exercise Price multiplied by
the number of Shares being purchased upon such exercise (the "Aggregate Exercise
Price"), (b) the surrender to the Company of debt or equity securities of the
Company having a Current Market Price (as defined in Section 7(e)) equal to the
Aggregate Exercise Price of the Common Stock being purchased upon such exercise
(provided that for purposes of this subparagraph, the Current Market Price of
any note or other debt security or any preferred stock shall be deemed to be
equal to the aggregate outstanding principal amount or liquidation value thereof
plus all accrued and unpaid interest thereon or accrued or declared and unpaid
dividends thereon) or (c) a written notice to the Company that the Holder is
exercising the Purchase Rights (or a portion thereof) by authorizing the Company
to withhold from issuance a number of shares of Common Stock issuable upon such
exercise of the Purchase Rights which when multiplied by the Current Market
Price of the Common Stock is equal to the Aggregate Exercise Price (and such
withheld shares shall no longer be issuable under this Agreement). All Purchase
Rights which are not exercised prior to 5:00 p.m. on April 25, 2004 New York
time shall become null and void and all such Purchase Rights shall cease as of
such time. At least 30 days prior to the end of the Exercise Period, the Company
shall give the Holder written notice of (i) the expiration of the Exercise
Period, (ii) the Number of Shares issuable upon exercise of the Purchase Rights
as of the date of such notice and (iii) the Exercise Price in effect as of such
date.
3. Upon receipt by the Company of this Agreement, the "Election to
Exercise," and the Aggregate Exercise Price for the Shares, the Holder shall be
deemed to
3
<PAGE>
be the holder of record of the Shares issuable upon such exercise; provided,
however, that if the date of such receipt is a date upon which the transfer
books of the Company are closed, the Holder shall be deemed to be the record
holder on the next succeeding business day on which such books are open. The
Company shall not close its books against the transfer of the Purchase Rights or
of any Shares issued or issuable upon the exercise of the Purchase Rights in any
manner which interferes with the timely exercise of the Purchase Rights. As soon
as practicable after each such exercise of the Purchase Rights, the Company
shall issue and cause to be delivered to the Holder a certificate or
certificates for the Shares issuable upon such exercise, registered in the name
of the Holder or its designee. Unless this Agreement shall have expired, the
Company shall, upon surrender of this Agreement in connection with any exercise
of the Purchase Rights, return this Agreement to the Holder after notation of
the Number of Shares issued upon such exercise.
4. (a) Any Purchase Rights which are assigned or otherwise transferred
shall be recorded by the Company on a purchase rights register as such Purchase
Rights are assigned or transferred. Such Purchase Rights shall only be assigned
in accordance with the provisions of Section 16. The Company shall be entitled
to treat the registered holder of any Purchase Rights on such register as the
owner in fact thereof for all purposes and shall not be bound to recognize any
equitable or other claim to or interest in such Purchase Rights on the part of
any other person, and shall not be liable for any registration or transfer of
such Purchase Rights which are registered or to be registered in the name of a
fiduciary or the nominee of a fiduciary unless made with the actual knowledge
that a fiduciary or nominee is committing a breach of trust in requesting such
registration or transfer, or with the knowledge of such facts that its
participation therein amounts to bad faith. The Purchase Rights shall be
transferable only on the books of the Company upon delivery hereof duly endorsed
by the Holder or by his duly authorized attorney or representative, or
accompanied by proper evidence of succession, assignment, or authority to
transfer. In all cases of transfer by an attorney, executor, administrator,
guardian, or other legal representative, duly authenticated evidence of his or
its authority shall be produced. Upon any registration of transfer, the Company
shall cause to be delivered a new agreement or agreements substantially
identical to this Agreement to the person entitled thereto. This Agreement may
be exchanged, at the option of the Holder hereof, for another agreement, or
other agreements of different denominations, of like tenor and representing in
the aggregate the right to purchase the Applicable Percentage of the Number of
Shares represented by such agreement or agreements, upon surrender to the
Company or its duly authorized agent. Notwithstanding the foregoing, the Company
shall have no obligation to cause the Purchase Rights to be transferred on its
books to any person if, in the opinion of counsel to the Company, such transfer
does not comply with the provisions of the Securities Act of 1933, as amended
(the "Act"), and the rules and regulations thereunder.
(b) The Holder acknowledges that such Holder has been advised by the
Company that neither the Purchase Rights nor the Shares have been registered
under the Act, that the Purchase Rights are being or have been granted and the
Shares may be issued on the basis of the statutory exemption provided by Section
4(2)
4
<PAGE>
of the Act or Regulation D promulgated thereunder, or both, relating to
transactions by an issuer not involving any public offering, and that the
Company's reliance thereon is based in part upon the representations made by the
original Holder in the Purchase Agreement. The Holder acknowledges that such
Holder is familiar with the nature of the limitations imposed by the Act and the
rules and regulations thereunder on the transfer of securities. In particular,
the Holder agrees that no sale, assignment or transfer of the Purchase Rights or
the Shares issuable upon exercise thereof shall be valid or effective, and the
Company shall not be required to give any effect to any such sale, assignment or
transfer, unless (i) the sale, assignment or transfer of the Purchase Rights or
such Shares is registered under the Act, it being understood that neither the
Purchase Rights nor such Shares are currently registered for sale and that the
Company has no obligation or intention to so register the Purchase Rights or
such Shares except as specifically provided in the registration rights agreement
referred to in Section 11, or (ii) the Purchase Rights or such Shares are sold,
assigned or transferred in accordance with all the requirements and limitations
of Rule 144 under the Act, it being understood that Rule 144 is not available as
of the date hereof for the sale of the Purchase Rights or such Shares and that
there can be no assurance that Rule 144 sales will be available at any
subsequent time, or (iii) such sale, assignment, or transfer is otherwise exempt
from registration under the Act. Notwithstanding any other provision hereof, if
an exercise of the Purchase Rights or any portion thereof is to be made in
connection with a registered public offering or the sale of the Company, the
exercise of the Purchase Rights or any portion thereof may, at the election of
the Holder, be conditioned upon the consummation of the public offering or sale
of the Company in which case such exercise shall not be deemed to be effective
until the consummation of such transaction. The Company shall assist and
cooperate with any Holder required to make any governmental filings or obtain
any governmental approvals prior to or in connection with any exercise of the
Purchase Rights (including, without limitation, making any filings required to
be made by the Company).
5. The Company covenants that the Shares, upon receipt by the Company of
the Aggregate Exercise Price therefor, shall be validly issued, fully paid,
nonassessable, and free of preemptive rights, liens, taxes and charges with
respect to the issuance thereof. The Company shall take all such actions as may
be necessary to assure that all such shares of Common Stock may be so issued
without violation of any applicable law or governmental regulation or any
requirements of any domestic securities exchange upon which shares of Common
Stock may be listed (except for official notice of issuance which shall be
immediately delivered by the Company upon each such issuance). The Company shall
from time to time take all such action as may be necessary to assure that the
par value per share of the unissued Common Stock acquirable upon exercise of the
Purchase Rights is at all times equal to or less than the Exercise Price then in
effect. The Company covenants and agrees that promptly after the date hereof,
the Company shall amend its certificate of incorporation to increase the
authorized and unissued shares of Common Stock of the Company to a number
sufficient to allow for the exercise of all of the Purchase Rights, the Existing
Warrants, the Barington Option and the Existing Options. The Company shall at
all times thereafter reserve and keep available out of its authorized and
unissued Common Stock, solely for the purpose of providing for the exercise of
the Purchase Rights, such number of shares of Common
5
<PAGE>
Stock as shall, from time to time, be sufficient therefor and the Company shall
not thereafter take any action which would cause the number of authorized but
unissued shares of Common Stock to be less than the number of such shares
required to be reserved hereunder for issuance upon exercise of the Purchase
Rights.
6. (a) In case the Company shall (i) declare a dividend or make a
distribution on its outstanding shares of Common Stock in shares of Common
Stock, (ii) subdivide or reclassify its outstanding shares of Common Stock into
a greater number of shares, or (iii) combine or reclassify its outstanding
shares of Common Stock into a smaller number of shares, the Exercise Price in
effect at the time of the record date for such dividend or distribution or of
the effective date of such subdivision, combination or reclassification shall be
adjusted so that it shall equal the price determined by multiplying the Exercise
Price by a fraction, the denominator of which shall be the number of shares of
Common Stock outstanding after giving effect to such action, and the numerator
of which shall be the number of shares of Common Stock outstanding immediately
prior to such action. Such adjustment shall be made successively whenever any
event listed above shall occur. In addition, to the extent any shares of Common
Stock have been issued upon exercise of the Barington Option, the Number of
Shares issuable upon exercise of the Purchase Rights shall be proportionately
adjusted to reflect such dividend, subdivision or combination.
(b) In case the Company shall fix a record date for the issuance of rights
or warrants to all holders of its Common Stock entitling them to subscribe for
or purchase shares of Common Stock (or securities convertible into Common Stock)
at a price (the "Subscription Price") (or having a conversion price per share)
less than (i) the current market price of the Common Stock (as defined in
Section 7(h) below) on the record date mentioned below, or (ii) the Exercise
Price on such record date, the Exercise Price shall be adjusted so that the same
shall equal the lower of (i) the price determined by multiplying the number of
shares then comprising the Barington Option by the product of the Exercise Price
in effect immediately prior to the date of such issuance multiplied by a
fraction, the numerator of which shall be the sum of the number of shares of
Common Stock outstanding on the record date mentioned below and the number of
additional shares of Common Stock which the aggregate offering price of the
total number of shares of Common Stock so offered (or the aggregate conversion
price of the convertible securities so offered) would purchase at such current
market price per share of the Common Stock, and the denominator of which shall
be the sum of the number of shares of Common Stock outstanding on such record
date and the number of additional shares of Common Stock offered for
subscription or purchase (or into which the convertible securities so offered
are convertible ) or (ii) in the event the Subscription Price is equal to or
higher than the current market price but is less than the Exercise Price, the
price determined by multiplying the number of shares then comprising the
Barington Option by the product of the Exercise Price in effect immediately
prior to the date of issuance multiplied by a fraction, the numerator of which
shall be the sum of the number of shares outstanding on the record date
mentioned below and the number of additional shares of Common Stock which the
aggregate offering price of the total number of shares of Common Stock so
offered (or the aggregate conversion price of the convertible
6
<PAGE>
securities so offered) would purchase at the Exercise Price in effect
immediately prior to the date of such issuance, and the denominator of which
shall be the sum of the number of shares of Common Stock outstanding on the
record date mentioned below and the number of additional shares of Common Stock
offered for subscription or purchase (or into which the convertible securities
so offered are convertible). Such adjustment shall be made successively whenever
such rights or warrants are issued and shall become effective immediately after
the record date for the determination of shareholders entitled to receive such
rights or warrants; and to the extent that shares of Common Stock are not
delivered (or securities convertible into Common Stock are not delivered) after
the expiration of such rights or warrants the Exercise Price shall be readjusted
to the Exercise Price which would then be in effect had the adjustments made
upon the issuance of such rights or warrants been made upon the basis of deliver
of only the number of shares of Common Stock (or securities convertible into
Common Stock) actually delivered.
(c) In case the Company shall hereafter distribute to the holders of its
Common Stock evidences of its indebtedness or assets (excluding cash dividends
or distributions and dividends or distributions referred to in Section 7(a)
above) or subscription rights or warrants (excluding those referred to in
Section 7(b) above), then in each such case the Exercise Price in effect
thereafter shall be determined by multiplying the number of shares then
comprising the Barington Option by the product of the Exercise Price in effect
immediately prior thereto multiplied by a fraction, the numerator of which shall
be the total number of shares of Common Stock outstanding multiplied by the
current market price per share of Common Stock (as defined in Section 7(h)
below), less the fair market value (as determined by the Company's Board of
Directors) of said assets or evidences of indebtedness so distributed or of such
rights or warrants, and the denominator of which shall be the total number of
shares of Common Stock outstanding multiplied by such current market price per
share of Common Stock. Such adjustment shall be made successively whenever such
a record date is fixed. Such adjustment shall be made whenever any such
distribution is made and shall become effective immediately after the record
date for the determination of shareholders entitled to receive such
distribution.
(d) In case the Company shall have issued at any time after April 26, 1996
or shall issue shares of its Common Stock (excluding shares issued (i) in any of
the transactions described in subsections (a), (b), (c) or (e) of this Section
7; (ii) upon exercise of options granted to the Company's employees under a plan
or plans adopted by the Company's Board of Directors and approved by its
shareholders, if such shares would otherwise be included in this subsection (d)
(but only to the extent that the aggregate number of shares excluded hereby and
issued after the date hereof, shall not exceed 10% of the Company's Common Stock
outstanding at the time of any issuance); (iii) upon exercise of options and
warrants or upon conversion of convertible securities outstanding at March 5,
1996, and the Barington Option; (iv) to shareholders of any corporation which
merges into the Company in proportion to their stock holdings of such
corporation immediately prior to such merger, upon such merger, or (v) in a bona
fide public offering pursuant to a firm commitment underwriting; but only if no
adjustment is required pursuant to any other specific subsection of this Section
7 (without regard to
7
<PAGE>
subsection (i) below) with respect to the transaction giving rise to such
rights) for a consideration per share (the "Offering Price") less than (i) the
current market price per share (as defined in subsection (h) below) on the date
the Company fixes the offering price of such additional shares, or (ii) the
Exercise Price, then the Exercise Price shall be adjusted immediately thereafter
so that it shall equal the lower of (i) the price determined by multiplying the
number of shares then comprising the Barington Option by the product of the
Exercise Price in effect immediately prior thereto multiplied by a fraction, the
numerator of which shall be the sum of the number of shares of Common Stock
outstanding immediately prior to the issuance of such additional shares and the
number of shares of Common Stock which the aggregate consideration received
(determined as provided in Subsection (g) below) for the issuance of such
additional shares would purchase at such current market price per share of
Common Stock, and the denominator of which shall be the number of shares of
Common Stock outstanding immediately after the issuance of such additional
shares or (ii) in the event the Offering Price is equal to or higher than the
current market price per share but less than the Exercise Price, the price
determined by multiplying the number of shares then comprising the Barington
Option by the product of the Exercise Price in effect immediately prior to the
date of issuance multiplied by a fraction, the numerator of which shall be the
number of shares of Common Stock outstanding immediately prior to the issuance
of such additional shares and the number of shares of Common Stock which the
aggregate consideration received (determined as provided in subsection (g)
below) for the issuance of such additional shares would purchase at the Exercise
Price in effect immediately prior to the date of such issuance, and the
denominator of which shall be the number of shares of Common Stock outstanding
immediately after the issuance of such additional shares. Such adjustment shall
be made successively whenever such an issuance is made. Notwithstanding the
foregoing, there shall be no adjustment in the Exercise Price resulting solely
from the issuance of securities offered to the investors pursuant to the
Company's 1996 unit private placement.
(e) In case the Company shall have issued at any time after April 26, 1996
or shall issue any securities convertible into or exchangeable for its Common
Stock (excluding securities issued in transactions described in subsections (b)
and (c) above) for a consideration per share of Common Stock (the "Conversion
Price") initially deliverable upon conversion or exchange of such securities
(determined as provided in subsection (g) below) less than (i) the current
market price per share (as defined in Subsection (h) below) in effect
immediately prior to the issuance of such securities, or (ii) the Exercise
Price, then the Exercise Price shall be adjusted immediately thereafter so that
it shall equal the lower of (i) the price determined by multiplying the number
of shares then comprising the Barington Option by the product of the Exercise
Price then in effect immediately prior thereto multiplied by a fraction, the
numerator of which shall be the sum of the number of shares of Common Stock
outstanding immediately prior to the issuance of such securities and the number
of shares of Common Stock which the aggregate consideration received (determined
as provided in subsection (g) below) for such securities would purchase at such
current market price per share of Common Stock, and the denominator of which
shall be the sum of the number of shares of Common Stock outstanding immediately
prior to such issuance and the maximum
8
<PAGE>
number of shares of Common Stock of the Company deliverable upon conversion of
or in exchange for such securities at the initial conversion or exchange price
or rate, or (ii) in the event the Conversion Price is equal to or higher than
the current market price per share but less than the Exercise Price, the price
determined by multiplying the number of shares then comprising the Barington
Option by the product of the Exercise Price in effect immediately prior to the
date of issuance multiplied by a fraction, the numerator of which shall be the
sum of the number of shares outstanding immediately prior to the issuance of
such securities and the number of shares of Common Stock which the aggregate
consideration received (determined as provided in Subsection (g) below) for such
securities would purchase at the Exercise Price in effect immediately prior to
the date of such issuance, and the denominator of which shall be the sum of the
number of shares of Common Stock outstanding immediately prior to the issuance
of such securities and the maximum number of shares of Common Stock of the
Company deliverable upon conversion of or in exchange for such securities at the
initial conversion or exchange price or rate. Such adjustment shall be made
successively whenever such an issuance is made.
(f) Intentionally omitted.
(g) For purposes of any computation respecting consideration received
pursuant to Subsections (d) and (e) above, the following shall apply:
(i) in the case of the issuance of shares of Common Stock for cash, the
consideration shall be the amount of such cash, provided that in no case
shall any deduction be made for any commissions, discounts or other
expenses incurred by the Company for any underwriting of the issue or
otherwise in connection therewith;
(ii) in the case of the issuance of shares of Common Stock for a
consideration in whole or in part other than cash, the consideration other
than cash shall be deemed to be the fair market value thereof as determined
in good faith by the Board of Directors of the Company (irrespective of the
accounting treatment thereof), whose determination shall be conclusive; and
(iii) in the case of the issuance of securities convertible into or
exchangeable for shares of Common Stock, the aggregate consideration
received therefor shall be deemed to be the consideration received by the
Company for the issuance of such securities plus the additional minimum
consideration, if any, to be received by the Company upon the conversion or
exchange thereof (the consideration in each case to be determined in the
same manner as provided in clauses (A) and (B) of this subsection (g)).
(h) For the purpose of any computation under Subsections (b), (c), (d) and
(e) above, the current market price per share of Common Stock at any date shall
be deemed to be the average of the daily closing prices for 30 consecutive
business days before such date. The closing price for each day shall be the
last sale price regular
9
<PAGE>
way or, in case no such reported sale takes place on such day, the average of
the last reported bid and asked prices regular way, in either case on the
principal national securities exchange, including the Nasdaq National Market, on
which the Common Stock is admitted to trading or listed, or if not listed or
admitted to trading on such exchange or market, the average of the highest
reported bid and lowest reported asked prices as reported by Nasdaq, or other
similar organization if Nasdaq is no longer reporting such information, or if
not so available, the fair market price as determined by the Board of
Directors .
(i) All calculations under this Section 7 shall be made to the nearest cent
or to the nearest one-hundredth of a share, as the case may be. Anything in
this Section 7 to the contrary notwithstanding, the Company shall be entitled,
but shall not be required, to make such changes in the Exercise Price, in
addition to those required by this Section 7, as it shall determine, in its sole
discretion, to be advisable in order that any dividend or distribution in shares
of Common Stock, or any subdivision, reclassification or combination of Common
Stock, hereafter made by the Company shall not result in any Federal Income tax
liability to the holders of Common Stock or securities convertible into Common
Stock.
(j) Whenever the Exercise Period is adjusted, as herein provided, the
Company shall promptly but no later than 10 days after any request for such an
adjustment by the Holder, cause a notice setting forth the adjusted Exercise
Price and, if requested, information describing the transactions giving rise to
such adjustments, to be mailed to the Holders, at the address set forth herein,
and shall cause a certified copy thereof to be mailed to its transfer agent, if
any. The Company may retain a firm of independent certified public accountants
selected by the Board of Directors (who may be the regular accountants employed
by the Company) to make any computation required by this Section 7, and a
certificate by such firm shall be conclusive evidence of the correctness of such
adjustment.
(k) In the event that at any time, as a result of an adjustment made
pursuant to Subsection (a) above, the Holder thereafter shall become entitled to
receive any shares of the Company, other than Common Stock, thereafter the
number of such other shares so receivable upon exercise of the Purchase Rights
shall be subject to adjustment from time to time in a manner and on terms as
nearly equivalent as practicable to the provisions with respect to the Common
Stock contained in Subsections (a) to (i), inclusive, above.
(l) In case any event shall occur as to which the other provisions of this
Section 7 hereof are not strictly applicable but as to which the failure to make
any adjustment would not fairly protect the Purchase Rights in accordance with
the essential intent and principles hereof then, in each case, the Holder
representing the right to purchase a majority of the Common Stock issuable upon
exercise of the Purchase Rights may appoint a firm of independent public
accountants reasonably acceptable to the Company, which shall give their opinion
as to the adjustment, if any, on a basis consistent with the essential intent
and principles established herein, necessary to
10
<PAGE>
preserve the Purchase Rights. Upon receipt of such opinion, the Company will
promptly mail a copy thereof to the Holder and shall make the adjustments
described therein. The fees and expenses of such independent public accountants
shall be borne by the Company.
(m) The Company shall not be required to issue fractions of shares of
Common Stock of the Company upon the exercise of the Purchase Rights. If any
fraction of a share would be issuable on the exercise of the Purchase Rights (or
specified portions thereof), the Company shall purchase such fraction for an
amount in cash equal to the same fraction of the Current Market Price of such
share of Common Stock on the date of exercise of the Purchase Rights.
7. In case of any consolidation with or merger of the Company with or into
another corporation (other than a merger or consolidation in which the Company
is the surviving or continuing corporation), or in case of any sale, lease, or
conveyance to another corporation of the property and assets of any nature of
the Company as an entirety or substantially as an entirety, such successor,
leasing, or purchasing corporation, as the case may be, shall (i) execute with
the Holder an agreement providing that the Holder shall have the right
thereafter to receive upon exercise of the Purchase Rights solely the kind and
amount of shares of stock and other securities, property, cash, or any
combination thereof receivable upon such consolidation, merger, sale, lease, or
conveyance by a holder of the number of shares of Common Stock for which the
Purchase Rights might have been exercised immediately prior to such
consolidation, merger, sale, lease, or conveyance, and (ii) make effective
provision in its certificate of incorporation or otherwise, if necessary, to
effect such agreement. Such agreement shall provide for adjustments which shall
be as nearly equivalent as practicable to the adjustments in Section 7.
(a) case of any reclassification or change of the shares of Common Stock
issuable upon exercise of the Purchase Rights (other than a change in par value
or from no par value to a specified par value, or as a result of a subdivision
or combination, but including any change in the shares into two or more classes
or series of shares), or in case of any consolidation or merger of another
corporation into the Company in which the Company is the continuing corporation
and in which there is a reclassification or change (including a change to the
right to receive cash or other property) of the shares of Common Stock (other
than a change in par value, or from no par value to a specified par value, or as
a result of a subdivision or combination, but including any change in the shares
into two or more classes or series of shares), the Holder shall have the right
thereafter to receive upon exercise of the Purchase Rights solely the kind and
amount of shares of stock and other securities, property, cash, or any
combination thereof receivable upon such reclassification, change,
consolidation, or merger by a holder of the Number of Shares for which the
Purchase Rights might have been exercised immediately prior to such
reclassification, change, consolidation, or merger. Thereafter, appropriate
provision shall be made for adjustments which shall be as nearly equivalent as
practicable to the adjustments in Section 7.
11
<PAGE>
(b) The above provisions of this Section 8 shall similarly apply to
successive reclassifications and changes of shares of Common Stock and to
successive consolidations, mergers, sales, leases, or conveyances.
(c) If any event occurs of the type contemplated by the provisions of this
Section 8 but not expressly provided for by such provisions, then the Company's
board of directors shall make an appropriate adjustment in the Exercise Price
and the Number of Shares obtainable upon exercise of the Purchase Rights so as
to protect the rights of the Company and the holders of the Purchase Rights;
provided that no such adjustment shall increase the Exercise Price or decrease
the Number of Shares obtainable as otherwise determined pursuant to this
Agreement without the prior written consent of the holders of a majority of the
Shares issued or issuable upon exercise of the Purchase Rights (which consent
will not be unreasonably withheld).
8. (a) In case at any time the Company shall issue any shares of Common
Stock upon the exercise of any of the Existing Warrants, the Barington Option or
Existing Options, then the Company shall give written notice thereof, (i) by
telecopy to the Holder at the telecopy number of such Holder as it shall appear
on the Company's books and records, such notice to be sent as of the date of
such issuance and (ii) by certified mail, postage prepaid, to the Holder at the
Holder's address as it shall appear in the purchase rights register, such notice
to be mailed no later than one day after such issuance. Each such notice shall
state (A) the name of the party or parties exercising any such Existing
Warrants, the Barington Option or Existing Options, (B) the number of shares of
Common Stock issued upon such exercise, (C) the purchase price per share of
Common Stock issued upon such exercise, (D) the number of Shares exercisable
under this Agreement after giving effect to such issuance, (E) the Exercise
Price then in effect under this Agreement after giving effect to such issuance
and (F) the remaining Number of Shares as of the date of such notice.
(b) In case at any time the Company shall propose to:
(i) pay any dividend or make any distribution on shares of Common Stock
in shares of Common Stock or make any other distribution (other than
regularly scheduled cash dividends which are not in a greater amount per
share than the most recent such cash dividend) to all holders of Common
Stock; or
(ii) issue any rights, warrants, or other securities to all holders of
Common Stock entitling them to purchase any additional shares of Common
Stock or any other rights, warrants, or other securities; or
(iii) effect any reclassification or change of outstanding shares of
Capital Stock, or any consolidation, merger, sale, lease, or conveyance of
property, described in Section 8 hereof; or
12
<PAGE>
(iv) effect any liquidation, dissolution, or winding-up of the Company;
or
(v) take any other action which would cause an adjustment to the
Exercise Price;
then, and in any one or more of such cases, the Company shall give written
notice thereof, by certified mail, postage prepaid, to the Holder at the
Holder's address as it shall appear in the purchase rights register, mailed at
least 15 days prior to (A) the date as of which the holders of record of shares
of Common Stock to be entitled to receive any such dividend, distribution,
rights, warrants, or other securities are to be determined, (B) the date on
which any such reclassification, change of outstanding shares of Common Stock,
consolidation, merger, sale, lease, conveyance of property, liquidation,
dissolution, or winding-up is expected to become effective, and the date as of
which it is expected that holders of record of shares of Common Stock shall be
entitled to exchange their shares for securities or other property, if any,
deliverable upon such reclassification, change of outstanding shares,
consolidation, merger, sale, lease, conveyance of property, liquidation,
dissolution, or winding-up, or (C) the date of such action which would require
an adjustment to the Exercise Price.
9. The issuance of any shares or other securities upon the exercise of the
Purchase Rights, and the delivery of certificates or other instruments
representing such shares or other securities, shall be made without charge to
the Holder for any tax or other charge in respect of such issuance or for any
other cost of the Company incurred in connection with such issuance and
delivery. The Company shall not, however, be required to pay any tax which may
be payable in respect of any transfer or delivery of the Purchase Rights to a
person other than, or the issuance and delivery of any certificate in a name
other than that of the registered Holder and the Company shall not be required
to issue or deliver any such certificate unless and until the person or persons
requesting the issue thereof shall have paid to the Company the amount of such
tax or shall have established to the satisfaction of the Company that such tax
has been paid.
10. The Shares shall be entitled to benefit of the provisions of that
certain Registration Rights Agreement, of even date herewith, by and among the
Company and the persons purchasing securities pursuant to the Purchase
Agreement.
11. Subject to the conditions set forth below, the Company agrees to
indemnify and hold harmless each Holder, its officers, directors, partners,
employees, agents, and counsel, and each person, if any, who controls any such
person within the meaning of Section 15 of the Act or Section 20(a) of the
Exchange Act, from and against any and all loss, liability, charge, claim,
damage, and expense whatsoever (which shall include, for all purposes of this
Section 12, without limitation, reasonable attorneys' fees and any and all
expense whatsoever incurred in investigating, preparing, or defending against
any litigation, commenced or threatened, or any claim whatsoever, and any and
all amounts paid in settlement of any claim or litigation), as and when
incurred, arising out of, based upon, or in connection with, any breach of any
representation, warranty,
13
<PAGE>
covenant, or agreement of the Company contained in this Agreement. The foregoing
agreement to indemnify shall be in addition to any liability the Company may
otherwise have, including liabilities arising under the Purchase Rights.
If any action is brought against any Holder or any of its officers,
directors, partners, employees, agents, or counsel, or any controlling persons
of such person (an "indemnified party") in respect of which indemnity may be
sought against the Company pursuant to the foregoing paragraph, such indemnified
party or parties shall promptly notify the Company in writing of the institution
of such action (but the failure so to notify shall not relieve the Company from
any liability under this Section 12 unless the Company shall have been
materially prejudiced by such failure or relieve the Company from any liability
other than pursuant to this Section 12) and the Company shall promptly assume
the defense of such action, including the employment of counsel (reasonably
satisfactory to such indemnified party or parties) and payment of expenses.
Such indemnified party or parties shall have the right to employ its or their
own counsel in any such case, but the fees and expenses of such counsel shall be
at the expense of such indemnified party or parties unless the employment of
such counsel shall have been authorized in writing by the Company in connection
with the defense of such action or the Company shall not have employed counsel
reasonably satisfactory to such indemnified party or parties to have charge of
the defense of such action or such indemnified party or parties shall have
reasonably concluded that there may be one or more legal defenses available to
it or them or to other indemnified parties which are different from or
additional to those available to the Company, in any of which events such fees
and expenses shall be borne by the Company and the Company shall not have the
right to direct the defense of such action on behalf of the indemnified party or
parties. Anything in this Section 12 to the contrary notwithstanding, the
Company shall not be liable for any settlement of any such claim or action
effected without its written consent, which shall not be unreasonably withheld.
12. Unless registered pursuant to the provisions of the registration rights
agreement referred to in Section 11 hereof, the Shares issued upon exercise of
the Purchase Rights shall be subject to a stop transfer order and the
certificate or certificates evidencing such Shares shall bear the following
legend:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY STATE
SECURITIES LAWS AND NEITHER SUCH SECURITIES NOR ANY INTEREST THEREIN MAY BE
OFFERED, SOLD, PLEDGED, ASSIGNED OR OTHERWISE TRANSFERRED UNLESS (1) A
REGISTRATION STATEMENT WITH RESPECT THERETO IS EFFECTIVE UNDER THE ACT AND
ANY APPLICABLE STATE SECURITIES LAWS, OR (2) THE COMPANY RECEIVES AN
OPINION OF
14
<PAGE>
COUNSEL TO THE HOLDER OF SUCH SECURITIES, WHICH COUNSEL AND OPINION ARE
REASONABLY SATISFACTORY TO THE COMPANY, THAT SUCH SECURITIES MAY BE
OFFERED, SOLD, PLEDGED, ASSIGNED OR TRANSFERRED IN THE MANNER CONTEMPLATED
WITHOUT AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR APPLICABLE
STATE SECURITIES LAWS."
13. Upon receipt of evidence satisfactory to the Company of the loss,
theft, destruction, or mutilation of this Agreement or any similar agreements
issued upon the assignment or transfer of all or any portion of the Purchase
Rights (and upon surrender of any such agreement if mutilated), including an
affidavit of the Holder thereof that this Agreement or any similar agreements
issued upon the assignment or transfer of all or any portion of the Purchase
Rights has been lost, stolen, destroyed or mutilated, together with an indemnity
against any claim that may be made against the Company on account of such lost
stolen, destroyed or mutilated agreement, and upon reimbursement of the
Company's reasonable incidental expenses, the Company shall execute and deliver
to the Holder thereof a new agreement of like date, tenor, and denomination.
14. The Holder of any Purchase Rights shall not have solely on account of
such status, any rights of a stockholder of the Company, either at law or in
equity, or to any notice of meetings of stockholders or of any other proceedings
of the Company, except as provided in this Agreement. No provision hereof, in
the absence of affirmative action by the Holder to purchase Common Stock, and no
enumeration herein of the rights or privileges of the Holder shall give rise to
any liability of such holder for the Exercise Price of Common Stock acquirable
by exercise hereof or as a stockholder of the Company.
15. The Purchase Rights shall not be transferable without the prior written
consent of the Company except in connection with (i) the transfer of shares of
Common Stock acquired pursuant to the purchase agreement (the "Purchase
Agreement") between the Company and the original Holder, dated April 25, 1997
and in such event, in a percentage equal to the percentage of Common Stock
transferred determined by dividing the number of shares being transferred by the
number of shares purchased under the Purchase Agreement; (ii) any Sale of the
Company; or (iii) a sale of all remaining Common Stock owned by the Holder.
16. This Agreement shall be construed in accordance with the laws of the
State of Delaware applicable to contracts made and performed within such State,
without regard to principles governing conflicts of law.
17. Any notice or other communication required or permitted to be given
hereunder shall be in writing and shall be mailed by certified mail, return
receipt requested, or by Federal Express, Express Mail or similar overnight
delivery or courier
15
<PAGE>
service or delivered (in person or by telecopy, telex or similar
telecommunications equipment) against receipt to the party to whom it is to be
given, (i) if to the Company, at 645 Fifth Avenue, East Wing, New York, New York
10022, Attention: President, (ii) if to the Holder, at its address set forth on
the signature page hereof, or (iii) in either case, to such other address as the
party shall have furnished in writing in accordance with the provisions of this
Section 18. Notice to the estate of any party shall be sufficient if addressed
to the party as provided in this Section 18. Any notice or other communication
given by certified mail shall be deemed given at the time of certification
thereof, except for a notice changing a party's address which shall be deemed
given at the time of receipt thereof. Any notice given by other means permitted
by this Section 18 shall be deemed given at the time of receipt thereof.
18. No course of dealing and no delay or omission on the part of the Holder
in exercising any right or remedy shall operate as a waiver thereof or otherwise
prejudice the Holder's rights, powers or remedies. No right, power or remedy
conferred by this Agreement upon the Holder shall be exclusive of any other
right, power or remedy referred to herein or now or hereafter available at law,
in equity, by statute or otherwise, and all such remedies may be exercised
singly or concurrently.
19. This Agreement may be amended only by a written instrument executed by
the Company and the Holder hereof. Any amendment shall be endorsed upon this
Agreement, and all future Holders shall be bound thereby.
* * * *
16
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Equity Protection
Agreement as of the date first written above.
UC TELEVISION NETWORK CORP.
By: /s/ Peter Kauff
-------------------------------------------
Name: Peter Kauff
Title: Chairman of the Board and
Chief Executive Officer
Address: 645 Fifth Avenue, East Wing
New York, New York 10022
U-C HOLDINGS, L.L.C.
By: WILLIS STEIN & PARTNERS, L.P.
Its Managing Member
By: Willis Stein & Partners, L.L.C.
Its General Partner
By: /s/ Avy H. Stein
--------------------------------------
Avy H. Stein
Its Manager
Address: 227 West Monroe Street
Suite 4300
Chicago, Illinois 60606
17
<PAGE>
FORM OF ASSIGNMENT
(To be executed by the registered holder if such holder desires to transfer any
Purchase Rights granted pursuant to the attached Agreement.)
FOR VALUE RECEIVED, ______________________ hereby sells, assigns, and
transfers unto ___________________ the right to purchase __________ shares of
Common Stock, par value $0.001 per share, of UC Television Network Corp. (the
"Company"), together with all right, title, and interest therein, and does
hereby irrevocably constitute and appoint the secretary of the Company attorney
to transfer such rights on the books of the Company, with full power of
substitution.
Dated: ____________________
Signature
-----------------------------
---------------------------------------
Signature Guarantee
NOTICE
The signature on the foregoing Assignment must correspond to the name
as written upon the face of this Agreement in every particular, without
alteration or enlargement or any change whatsoever.
18
<PAGE>
To: UC TELEVISION NETWORK CORP.
645 Fifth Avenue
East Wing
New York, New York 10022
ELECTION TO EXERCISE
The undersigned hereby exercises his or its rights to purchase _____
Shares covered by the within Agreement and tenders payment herewith of the
Aggregate Exercise Price in accordance with the terms thereof, and requests that
certificates for such securities be issued in the name of, and delivered to:
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(Print Name, Address and Social Security
or Tax Identification Number)
and that this Agreement containing a notation as to the Number of Shares issued
upon such exercise be registered in the name of, and delivered to, the
undersigned at the address stated below.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(Print Name, Address and Social Security
or Tax Identification Number)
19
<PAGE>
Dated: ____________________
Name:
----------------------------------
(Print)
---------------------------------------
(Signature)
---------------------------------------
(Signature Guarantee)
---------------------------------------
(Signature Guarantee)
20
<PAGE>
EXHIBIT 4.5
EQUITY PROTECTION AGREEMENT
THIS EQUITY PROTECTION AGREEMENT (this "Agreement") is made as of
April 25, 1997, by an among UC Television Network Corp., a Delaware corporation
(the "Company"), and U-C Holdings, L.L.C., a Delaware limited liability company
("Holdings" and including any permitted transferees or assigns of any rights
under this Agreement, the "Holder"). As used herein the term "this Agreement"
shall mean and include this Agreement and any agreement or agreements hereafter
entered into as a consequence of the exercise or transfer in whole or in part of
any of the Purchase Rights (as hereinafter defined) granted pursuant to this
Agreement.
WHEREAS, the Company and Holdings are parties to that certain Purchase
Agreement, dated as of the date hereof, pursuant to which Holdings purchased
shares of the Company's Common Stock and a Class C Warrant of the Company; and
WHEREAS, the Company and Holdings desire to enter into this Agreement
in order to protect Holdings from the dilution of its equity position in the
Company upon the exercise of any outstanding warrants or options to purchase
Common Stock of the Company.
NOW, THEREFORE, in consideration of the mutual covenants set forth
herein and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto hereby agree as follows:
1. The following terms shall have the following meanings:
(A) the term "Number of Shares" shall mean, as of any particular date,
the number of shares of Common Stock issuable upon exercise of the Purchase
Rights (the "Shares") equal to the sum of (i) the product of (a) one and (b) the
aggregate number of shares of Common Stock which have been issued by the Company
upon the exercise of the Barington Option (as hereinafter defined) and (c) the
Applicable Percentage, minus (ii) the product of (a) the aggregate number of
shares of Common Stock issued as of such particular date in connection with any
prior exercises of the Purchase Rights and (b) the Applicable Percentage;
(B) the term "Existing Warrants" shall mean, collectively, all
warrants to purchase shares of Common Stock of the Company outstanding as of the
date hereof and any warrant or warrants issued as a consequence of the exercise
or transfer of such warrants in whole or part, including, without limitation,
any of the Company's Class A Redeemable Warrants,
<PAGE>
Class B Redeemable Warrants, any of the warrants issued pursuant to the private
placement of securities of the Company on April 26, 1996 and May 28, 1996.
(C) the term "Existing Options" shall mean, collectively, all options
and other rights to purchase shares of Common Stock of the Company (other than
the Existing Warrants) outstanding as of the date hereof and any option or
options issued as a consequence of the exercise or transfer of such options in
whole or part, including, without limitation, any options granted pursuant to
the Company's 1990 Performance Equity Plan, 1996 Stock Incentive Plan, Outside
Directors 1996 Stock Option Plan and the nonqualified option for 337,500 shares
of Common Stock granted to Peter Kauff (as such nonqualified option has been or
shall be amended, modified or increased);
(D) the term "Barington Option" shall mean the unit purchase option
issued to Barington Capital Group, L.P. ("Barington") dated April 26, 1996 and
any warrants subsequently issued to Barington or its transferees pursuant to the
exercise of such unit purchase option.
(E) the term "Applicable Percentage" shall mean, (i) initially, 100%
and (ii) after any partial transfer of the Purchase Rights, the percentage of
the total Number of Shares represented by this Agreement (for example, if the
right to purchase 30% of the Number of Shares is transferred, the Applicable
Percentage for this Agreement shall be 70% of the Applicable Percentage then in
effect with respect to this Agreement and the Applicable Percentage for any new
equity protection agreement issued upon such transfer shall be 30% of the
Applicable Percentage then in effect with respect to this Agreement);
(F) the term "Common Stock" shall mean the Company's common stock, par
value $.001 per share, and any capital stock of any class of the Company
hereafter authorized which is not limited to a fixed sum or percentage of par or
stated value in respect to the rights of the holders thereof to participate in
dividends or in the distribution of assets upon any liquidation, dissolution or
winding up of the Company;
(G) the term "Sale of the Company" shall mean the sale of the Company
to an Independent Third Party or group of Independent Third Parties pursuant to
which such party or parties acquire (i) capital stock of the Company possessing
the voting power under normal circumstances to elect a majority of the Company's
board of directors (whether by merger, consolidation, recapitalization, sale or
transfer of the Company's capital stock or otherwise) or (ii) all or
substantially all of the Company's assets determined on a consolidated basis;
(H) the term "Independent Third Party" shall mean any person or entity
who, immediately prior to the contemplated transaction, does not own in excess
of 5% of the Company's Common Stock on a fully-diluted basis (a "5% Owner"), who
is not controlling, controlled by or under common control with any such 5% Owner
and who is not the spouse or descendent (by birth or adoption) of any such 5%
Owner or a trust for the benefit of such 5% Owner and/or such other persons or
entities;
2
<PAGE>
(I) the term "New Warrants" shall mean the Class C Warrant issued
pursuant to the Purchase Agreement and any warrants issued upon the exercise or
transfer in whole or part of such warrant; and
(J) the term "Purchase Rights" shall mean the right to purchase Shares
granted pursuant to this Agreement.
2. The Company hereby grants to the Holder the right to subscribe
for and purchase from Company, upon the terms and conditions set forth herein,
at any time or from time to time before 5:00 P.M. on April 25, 2004, New York
time (the "Exercise Period"), the Number of Shares at a price per share equal to
$.70 (as the same may be adjusted from time to time in accordance with the terms
of this Agreement, the "Exercise Price").
3. The Purchase Rights may be exercised during the Exercise Period,
as to the whole or any lesser number of whole Shares, by the surrender of this
Agreement for notation as to the Number of Shares so purchased (with the
"Election to Exercise" attached hereto, duly executed) to the Company at its
office at 645 Fifth Avenue, East Wing, New York, New York 10022, or at such
other place as is designated in writing by the Company. In connection with any
exercise of the Purchase Rights, the Holder shall deliver to the Company either
(a) cash (by wire transfer of immediately available funds to the Company's
account) or a certified or bank cashier's check payable to the order of the
Company in an amount equal to the product of the Exercise Price multiplied by
the number of Shares being purchased upon such exercise (the "Aggregate Exercise
Price"), (b) the surrender to the Company of debt or equity securities of the
Company having a Current Market Price (as defined in Section 7(e)) equal to the
Aggregate Exercise Price of the Common Stock being purchased upon such exercise
(provided that for purposes of this subparagraph, the Current Market Price of
any note or other debt security or any preferred stock shall be deemed to be
equal to the aggregate outstanding principal amount or liquidation value thereof
plus all accrued and unpaid interest thereon or accrued or declared and unpaid
dividends thereon) or (c) a written notice to the Company that the Holder is
exercising the Purchase Rights (or a portion thereof) by authorizing the Company
to withhold from issuance a number of shares of Common Stock issuable upon such
exercise of the Purchase Rights which when multiplied by the Current Market
Price of the Common Stock is equal to the Aggregate Exercise Price (and such
withheld shares shall no longer be issuable under this Agreement). All Purchase
Rights which are not exercised prior to 5:00 p.m. on April 25, 2004 New York
time shall become null and void and all such Purchase Rights shall cease as of
such time. At least 30 days prior to the end of the Exercise Period, the
Company shall give the Holder written notice of (i) the expiration of the
Exercise Period, (ii) the Number of Shares issuable upon exercise of the
Purchase Rights as of the date of such notice and (iii) the Exercise Price in
effect as of such date.
4. Upon receipt by the Company of this Agreement, the "Election to
Exercise," and the Aggregate Exercise Price for the Shares, the Holder shall be
deemed to be the holder of record of the Shares issuable upon such exercise;
provided, however, that if the date of such receipt is a date upon which the
transfer books of the Company are closed, the Holder shall be deemed to be the
record holder on the next succeeding business day on which such books are open.
The Company shall not close its books against the transfer of the Purchase
Rights or of
3
<PAGE>
any Shares issued or issuable upon the exercise of the Purchase Rights in any
manner which interferes with the timely exercise of the Purchase Rights. As
soon as practicable after each such exercise of the Purchase Rights, the Company
shall issue and cause to be delivered to the Holder a certificate or
certificates for the Shares issuable upon such exercise, registered in the name
of the Holder or its designee. Unless this Agreement shall have expired, the
Company shall, upon surrender of this Agreement in connection with any exercise
of the Purchase Rights, return this Agreement to the Holder after notation of
the Number of Shares issued upon such exercise.
5. (a) Any Purchase Rights which are assigned or otherwise
transferred shall be recorded by the Company on a purchase rights register as
such Purchase Rights are assigned or transferred. Such Purchase Rights shall
only be assigned in accordance with the provisions of Section 16. The Company
shall be entitled to treat the registered holder of any Purchase Rights on such
register as the owner in fact thereof for all purposes and shall not be bound to
recognize any equitable or other claim to or interest in such Purchase Rights on
the part of any other person, and shall not be liable for any registration or
transfer of such Purchase Rights which are registered or to be registered in the
name of a fiduciary or the nominee of a fiduciary unless made with the actual
knowledge that a fiduciary or nominee is committing a breach of trust in
requesting such registration or transfer, or with the knowledge of such facts
that its participation therein amounts to bad faith. The Purchase Rights shall
be transferable only on the books of the Company upon delivery hereof duly
endorsed by the Holder or by his duly authorized attorney or representative, or
accompanied by proper evidence of succession, assignment, or authority to
transfer. In all cases of transfer by an attorney, executor, administrator,
guardian, or other legal representative, duly authenticated evidence of his or
its authority shall be produced. Upon any registration of transfer, the Company
shall cause to be delivered a new agreement or agreements substantially
identical to this Agreement to the person entitled thereto. This Agreement may
be exchanged, at the option of the Holder hereof, for another agreement, or
other agreements of different denominations, of like tenor and representing in
the aggregate the right to purchase the Applicable Percentage of the Number of
Shares represented by such agreement or agreements, upon surrender to the
Company or its duly authorized agent. Notwithstanding the foregoing, the
Company shall have no obligation to cause the Purchase Rights to be transferred
on its books to any person if, in the opinion of counsel to the Company, such
transfer does not comply with the provisions of the Securities Act of 1933, as
amended (the "Act"), and the rules and regulations thereunder.
(b) The Holder acknowledges that such Holder has been advised by the
Company that neither the Purchase Rights nor the Shares have been registered
under the Act, that the Purchase Rights are being or have been granted and the
Shares may be issued on the basis of the statutory exemption provided by Section
4(2) of the Act or Regulation D promulgated thereunder, or both, relating to
transactions by an issuer not involving any public offering, and that the
Company's reliance thereon is based in part upon the representations made by the
original Holder in the Purchase Agreement. The Holder acknowledges that such
Holder is familiar with the nature of the limitations imposed by the Act and the
rules and regulations thereunder on the transfer of securities. In particular,
the Holder agrees that no sale, assignment or transfer of the Purchase Rights or
the Shares issuable upon exercise thereof shall be valid or effective, and the
Company shall not be required to give any effect to any such sale, assignment
4
<PAGE>
or transfer, unless (i) the sale, assignment or transfer of the Purchase Rights
or such Shares is registered under the Act, it being understood that neither the
Purchase Rights nor such Shares are currently registered for sale and that the
Company has no obligation or intention to so register the Purchase Rights or
such Shares except as specifically provided in the registration rights agreement
referred to in Section 11, or (ii) the Purchase Rights or such Shares are sold,
assigned or transferred in accordance with all the requirements and limitations
of Rule 144 under the Act, it being understood that Rule 144 is not available as
of the date hereof for the sale of the Purchase Rights or such Shares and that
there can be no assurance that Rule 144 sales will be available at any
subsequent time, or (iii) such sale, assignment, or transfer is otherwise exempt
from registration under the Act. Notwithstanding any other provision hereof, if
an exercise of the Purchase Rights or any portion thereof is to be made in
connection with a registered public offering or the sale of the Company, the
exercise of the Purchase Rights or any portion thereof may, at the election of
the Holder, be conditioned upon the consummation of the public offering or sale
of the Company in which case such exercise shall not be deemed to be effective
until the consummation of such transaction. The Company shall assist and
cooperate with any Holder required to make any governmental filings or obtain
any governmental approvals prior to or in connection with any exercise of the
Purchase Rights (including, without limitation, making any filings required to
be made by the Company).
6. The Company covenants that the Shares, upon receipt by the
Company of the Aggregate Exercise Price therefor, shall be validly issued, fully
paid, nonassessable, and free of preemptive rights, liens, taxes and charges
with respect to the issuance thereof. The Company shall take all such actions
as may be necessary to assure that all such shares of Common Stock may be so
issued without violation of any applicable law or governmental regulation or any
requirements of any domestic securities exchange upon which shares of Common
Stock may be listed (except for official notice of issuance which shall be
immediately delivered by the Company upon each such issuance). The Company
shall from time to time take all such action as may be necessary to assure that
the par value per share of the unissued Common Stock acquirable upon exercise of
the Purchase Rights is at all times equal to or less than the Exercise Price
then in effect. The Company covenants and agrees that promptly after the date
hereof, the Company shall amend its certificate of incorporation to increase the
authorized and unissued shares of Common Stock of the Company to a number
sufficient to allow for the exercise of all of the Purchase Rights, the Existing
Warrants, the Barington Option and the Existing Options. The Company shall at
all times thereafter reserve and keep available out of its authorized and
unissued Common Stock, solely for the purpose of providing for the exercise of
the Purchase Rights, such number of shares of Common Stock as shall, from time
to time, be sufficient therefor and the Company shall not thereafter take any
action which would cause the number of authorized but unissued shares of Common
Stock to be less than the number of such shares required to be reserved
hereunder for issuance upon exercise of the Purchase Rights.
7. (a) In case the Company shall (i) declare a dividend or make a
distribution on its outstanding shares of Common Stock in shares of Common
Stock, (ii) subdivide or reclassify its outstanding shares of Common Stock into
a greater number of shares, or (iii) combine or reclassify its outstanding
shares of Common Stock into a smaller number of shares, the Exercise Price in
effect at the time of the record date for such dividend or distribution
5
<PAGE>
or of the effective date of such subdivision, combination or reclassification
shall be adjusted so that it shall equal the price determined by multiplying the
Exercise Price by a fraction, the denominator of which shall be the number of
shares of Common Stock outstanding after giving effect to such action, and the
numerator of which shall be the number of shares of Common Stock outstanding
immediately prior to such action. Such adjustment shall be made successively
whenever any event listed above shall occur. In addition, to the extent any
shares of Common Stock have been issued upon exercise of the Barington Option,
the Number of Shares issuable upon exercise of the Purchase Rights shall be
proportionately adjusted to reflect such dividend, subdivision or combination.
(b) In case the Company shall fix a record date for the issuance of
rights or warrants to all holders of its Common Stock entitling them to
subscribe for or purchase shares of Common Stock (or securities convertible into
Common Stock) at a price (the "Subscription Price") (or having a conversion
price per share) less than (i) the current market price of the Common Stock (as
defined in Section 7(h) below) on the record date mentioned below, or (ii) the
Exercise Price on such record date, the Exercise Price shall be adjusted so that
the same shall equal the lower of (i) the price determined by multiplying the
number of shares then comprising the Barington Option by the product of the
Exercise Price in effect immediately prior to the date of such issuance
multiplied by a fraction, the numerator of which shall be the sum of the number
of shares of Common Stock outstanding on the record date mentioned below and the
number of additional shares of Common Stock which the aggregate offering price
of the total number of shares of Common Stock so offered (or the aggregate
conversion price of the convertible securities so offered) would purchase at
such current market price per share of the Common Stock, and the denominator of
which shall be the sum of the number of shares of Common Stock outstanding on
such record date and the number of additional shares of Common Stock offered for
subscription or purchase (or into which the convertible securities so offered
are convertible ) or (ii) in the event the Subscription Price is equal to or
higher than the current market price but is less than the Exercise Price, the
price determined by multiplying the number of shares then comprising the
Barington Option by the product of the Exercise Price in effect immediately
prior to the date of issuance multiplied by a fraction, the numerator of which
shall be the sum of the number of shares outstanding on the record date
mentioned below and the number of additional shares of Common Stock which the
aggregate offering price of the total number of shares of Common Stock so
offered (or the aggregate conversion price of the convertible securities so
offered) would purchase at the Exercise Price in effect immediately prior to the
date of such issuance, and the denominator of which shall be the sum of the
number of shares of Common Stock outstanding on the record date mentioned below
and the number of additional shares of Common Stock offered for subscription or
purchase (or into which the convertible securities so offered are convertible).
Such adjustment shall be made successively whenever such rights or warrants are
issued and shall become effective immediately after the record date for the
determination of shareholders entitled to receive such rights or warrants; and
to the extent that shares of Common Stock are not delivered (or securities
convertible into Common Stock are not delivered) after the expiration of such
rights or warrants the Exercise Price shall be readjusted to the Exercise Price
which would then be in effect had the adjustments made upon the issuance of such
rights or warrants been made upon the basis of deliver of only
6
<PAGE>
the number of shares of Common Stock (or securities convertible into Common
Stock) actually delivered.
(c) In case the Company shall hereafter distribute to the holders of
its Common Stock evidences of its indebtedness or assets (excluding cash
dividends or distributions and dividends or distributions referred to in Section
7(a) above) or subscription rights or warrants (excluding those referred to in
Section 7(b) above), then in each such case the Exercise Price in effect
thereafter shall be determined by multiplying the number of shares then
comprising the Barington Option by the product of the Exercise Price in effect
immediately prior thereto multiplied by a fraction, the numerator of which shall
be the total number of shares of Common Stock outstanding multiplied by the
current market price per share of Common Stock (as defined in Section 7(h)
below), less the fair market value (as determined by the Company's Board of
Directors) of said assets or evidences of indebtedness so distributed or of such
rights or warrants, and the denominator of which shall be the total number of
shares of Common Stock outstanding multiplied by such current market price per
share of Common Stock. Such adjustment shall be made successively whenever such
a record date is fixed. Such adjustment shall be made whenever any such
distribution is made and shall become effective immediately after the record
date for the determination of shareholders entitled to receive such
distribution.
(d) In case the Company shall have issued at any time after April 26,
1996 or shall issue shares of its Common Stock (excluding shares issued (i) in
any of the transactions described in subsections (a), (b), (c) or (e) of this
Section 7; (ii) upon exercise of options granted to the Company's employees
under a plan or plans adopted by the Company's Board of Directors and approved
by its shareholders, if such shares would otherwise be included in this
subsection (d) (but only to the extent that the aggregate number of shares
excluded hereby and issued after the date hereof, shall not exceed 10% of the
Company's Common Stock outstanding at the time of any issuance); (iii) upon
exercise of options and warrants or upon conversion of convertible securities
outstanding at March 5, 1996, and the Barington Option; (iv) to shareholders of
any corporation which merges into the Company in proportion to their stock
holdings of such corporation immediately prior to such merger, upon such merger,
or (v) in a bona fide public offering pursuant to a firm commitment
underwriting; but only if no adjustment is required pursuant to any other
specific subsection of this Section 7 (without regard to subsection (i) below)
with respect to the transaction giving rise to such rights) for a consideration
per share (the "Offering Price") less than (i) the current market price per
share (as defined in subsection (h) below) on the date the Company fixes the
offering price of such additional shares, or (ii) the Exercise Price, then the
Exercise Price shall be adjusted immediately thereafter so that it shall equal
the lower of (i) the price determined by multiplying the number of shares then
comprising the Barington Option by the product of the Exercise Price in effect
immediately prior thereto multiplied by a fraction, the numerator of which shall
be the sum of the number of shares of Common Stock outstanding immediately prior
to the issuance of such additional shares and the number of shares of Common
Stock which the aggregate consideration received (determined as provided in
Subsection (g) below) for the issuance of such additional shares would purchase
at such current market price per share of Common Stock, and the denominator of
which shall be the number of shares of Common Stock outstanding immediately
after the issuance of such additional shares or (ii) in the event the Offering
Price is equal to or higher than the current
7
<PAGE>
market price per share but less than the Exercise Price, the price determined by
multiplying the number of shares then comprising the Barington Option by the
product of the Exercise Price in effect immediately prior to the date of
issuance multiplied by a fraction, the numerator of which shall be the number of
shares of Common Stock outstanding immediately prior to the issuance of such
additional shares and the number of shares of Common Stock which the aggregate
consideration received (determined as provided in subsection (g) below) for the
issuance of such additional shares would purchase at the Exercise Price in
effect immediately prior to the date of such issuance, and the denominator of
which shall be the number of shares of Common Stock outstanding immediately
after the issuance of such additional shares. Such adjustment shall be made
successively whenever such an issuance is made. Notwithstanding the foregoing,
there shall be no adjustment in the Exercise Price resulting solely from the
issuance of securities offered to the investors pursuant to the Company's 1996
unit private placement.
(e) In case the Company shall have issued at any time after April 26,
1996 or shall issue any securities convertible into or exchangeable for its
Common Stock (excluding securities issued in transactions described in
subsections (b) and (c) above) for a consideration per share of Common Stock
(the "Conversion Price") initially deliverable upon conversion or exchange of
such securities (determined as provided in subsection (g) below) less than (i)
the current market price per share (as defined in Subsection (h) below) in
effect immediately prior to the issuance of such securities, or (ii) the
Exercise Price, then the Exercise Price shall be adjusted immediately thereafter
so that it shall equal the lower of (i) the price determined by multiplying the
number of shares then comprising the Barington Option by the product of the
Exercise Price then in effect immediately prior thereto multiplied by a
fraction, the numerator of which shall be the sum of the number of shares of
Common Stock outstanding immediately prior to the issuance of such securities
and the number of shares of Common Stock which the aggregate consideration
received (determined as provided in subsection (g) below) for such securities
would purchase at such current market price per share of Common Stock, and the
denominator of which shall be the sum of the number of shares of Common Stock
outstanding immediately prior to such issuance and the maximum number of shares
of Common Stock of the Company deliverable upon conversion of or in exchange for
such securities at the initial conversion or exchange price or rate, or (ii) in
the event the Conversion Price is equal to or higher than the current market
price per share but less than the Exercise Price, the price determined by
multiplying the number of shares then comprising the Barington Option by the
product of the Exercise Price in effect immediately prior to the date of
issuance multiplied by a fraction, the numerator of which shall be the sum of
the number of shares outstanding immediately prior to the issuance of such
securities and the number of shares of Common Stock which the aggregate
consideration received (determined as provided in Subsection (g) below) for such
securities would purchase at the Exercise Price in effect immediately prior to
the date of such issuance, and the denominator of which shall be the sum of the
number of shares of Common Stock outstanding immediately prior to the issuance
of such securities and the maximum number of shares of Common Stock of the
Company deliverable upon conversion of or in exchange for such securities at the
initial conversion or exchange price or rate. Such adjustment shall be made
successively whenever such an issuance is made.
(f) Intentionally omitted.
8
<PAGE>
(g) For purposes of any computation respecting consideration received
pursuant to Subsections (d) and (e) above, the following shall apply:
(i) in the case of the issuance of shares of Common Stock
for cash, the consideration shall be the amount of such cash, provided
that in no case shall any deduction be made for any commissions,
discounts or other expenses incurred by the Company for any
underwriting of the issue or otherwise in connection therewith;
(ii) in the case of the issuance of shares of Common Stock
for a consideration in whole or in part other than cash, the
consideration other than cash shall be deemed to be the fair market
value thereof as determined in good faith by the Board of Directors of
the Company (irrespective of the accounting treatment thereof), whose
determination shall be conclusive; and
(iii) in the case of the issuance of securities convertible
into or exchangeable for shares of Common Stock, the aggregate
consideration received therefor shall be deemed to be the
consideration received by the Company for the issuance of such
securities plus the additional minimum consideration, if any, to be
received by the Company upon the conversion or exchange thereof (the
consideration in each case to be determined in the same manner as
provided in clauses (A) and (B) of this subsection (g)).
(h) For the purpose of any computation under Subsections (b), (c), (d)
and (e) above, the current market price per share of Common Stock at any date
shall be deemed to be the average of the daily closing prices for 30 consecutive
business days before such date. The closing price for each day shall be the
last sale price regular way or, in case no such reported sale takes place on
such day, the average of the last reported bid and asked prices regular way, in
either case on the principal national securities exchange, including the Nasdaq
National Market, on which the Common Stock is admitted to trading or listed, or
if not listed or admitted to trading on such exchange or market, the average of
the highest reported bid and lowest reported asked prices as reported by Nasdaq,
or other similar organization if Nasdaq is no longer reporting such information,
or if not so available, the fair market price as determined by the Board of
Directors.
(i) All calculations under this Section 7 shall be made to the nearest
cent or to the nearest one-hundredth of a share, as the case may be. Anything
in this Section 7 to the contrary notwithstanding, the Company shall be
entitled, but shall not be required, to make such changes in the Exercise Price,
in addition to those required by this Section 7, as it shall determine, in its
sole discretion, to be advisable in order that any dividend or distribution in
shares of Common Stock, or any subdivision, reclassification or combination of
Common Stock, hereafter made by the Company shall not result in any Federal
Income tax liability to the holders of Common Stock or securities convertible
into Common Stock.
9
<PAGE>
(j) Whenever the Exercise Period is adjusted, as herein provided, the
Company shall promptly but no later than 10 days after any request for such an
adjustment by the Holder, cause a notice setting forth the adjusted Exercise
Price and, if requested, information describing the transactions giving rise to
such adjustments, to be mailed to the Holders, at the address set forth herein,
and shall cause a certified copy thereof to be mailed to its transfer agent, if
any. The Company may retain a firm of independent certified public accountants
selected by the Board of Directors (who may be the regular accountants employed
by the Company) to make any computation required by this Section 7, and a
certificate by such firm shall be conclusive evidence of the correctness of such
adjustment.
(k) In the event that at any time, as a result of an adjustment made
pursuant to Subsection (a) above, the Holder thereafter shall become entitled to
receive any shares of the Company, other than Common Stock, thereafter the
number of such other shares so receivable upon exercise of the Purchase Rights
shall be subject to adjustment from time to time in a manner and on terms as
nearly equivalent as practicable to the provisions with respect to the Common
Stock contained in Subsections (a) to (i), inclusive, above.
(l) In case any event shall occur as to which the other provisions of
this Section 7 hereof are not strictly applicable but as to which the failure to
make any adjustment would not fairly protect the Purchase Rights in accordance
with the essential intent and principles hereof then, in each case, the Holder
representing the right to purchase a majority of the Common Stock issuable upon
exercise of the Purchase Rights may appoint a firm of independent public
accountants reasonably acceptable to the Company, which shall give their opinion
as to the adjustment, if any, on a basis consistent with the essential intent
and principles established herein, necessary to preserve the Purchase Rights.
Upon receipt of such opinion, the Company will promptly mail a copy thereof to
the Holder and shall make the adjustments described therein. The fees and
expenses of such independent public accountants shall be borne by the Company.
(m) The Company shall not be required to issue fractions of shares of
Common Stock of the Company upon the exercise of the Purchase Rights. If any
fraction of a share would be issuable on the exercise of the Purchase Rights (or
specified portions thereof), the Company shall purchase such fraction for an
amount in cash equal to the same fraction of the Current Market Price of such
share of Common Stock on the date of exercise of the Purchase Rights.
8. (a) In case of any consolidation with or merger of the Company
with or into another corporation (other than a merger or consolidation in which
the Company is the surviving or continuing corporation), or in case of any sale,
lease, or conveyance to another corporation of the property and assets of any
nature of the Company as an entirety or substantially as an entirety, such
successor, leasing, or purchasing corporation, as the case may be, shall (i)
execute with the Holder an agreement providing that the Holder shall have the
right thereafter to receive upon exercise of the Purchase Rights solely the kind
and amount of shares of stock and other securities, property, cash, or any
combination thereof receivable upon such consolidation, merger, sale, lease, or
conveyance by a holder of the number of shares of Common
10
<PAGE>
Stock for which the Purchase Rights might have been exercised immediately prior
to such consolidation, merger, sale, lease, or conveyance, and (ii) make
effective provision in its certificate of incorporation or otherwise, if
necessary, to effect such agreement. Such agreement shall provide for
adjustments which shall be as nearly equivalent as practicable to the
adjustments in Section 7.
(b) In case of any reclassification or change of the shares of Common
Stock issuable upon exercise of the Purchase Rights (other than a change in par
value or from no par value to a specified par value, or as a result of a
subdivision or combination, but including any change in the shares into two or
more classes or series of shares), or in case of any consolidation or merger of
another corporation into the Company in which the Company is the continuing
corporation and in which there is a reclassification or change (including a
change to the right to receive cash or other property) of the shares of Common
Stock (other than a change in par value, or from no par value to a specified par
value, or as a result of a subdivision or combination, but including any change
in the shares into two or more classes or series of shares), the Holder shall
have the right thereafter to receive upon exercise of the Purchase Rights solely
the kind and amount of shares of stock and other securities, property, cash, or
any combination thereof receivable upon such reclassification, change,
consolidation, or merger by a holder of the Number of Shares for which the
Purchase Rights might have been exercised immediately prior to such
reclassification, change, consolidation, or merger. Thereafter, appropriate
provision shall be made for adjustments which shall be as nearly equivalent as
practicable to the adjustments in Section 7.
(c) The above provisions of this Section 8 shall similarly apply to
successive reclassifications and changes of shares of Common Stock and to
successive consolidations, mergers, sales, leases, or conveyances.
(e) If any event occurs of the type contemplated by the provisions of
this Section 8 but not expressly provided for by such provisions, then the
Company's board of directors shall make an appropriate adjustment in the
Exercise Price and the Number of Shares obtainable upon exercise of the Purchase
Rights so as to protect the rights of the Company and the holders of the
Purchase Rights; provided that no such adjustment shall increase the Exercise
Price or decrease the Number of Shares obtainable as otherwise determined
pursuant to this Agreement without the prior written consent of the holders of a
majority of the Shares issued or issuable upon exercise of the Purchase Rights
(which consent will not be unreasonably withheld).
9. (a) In case at any time the Company shall issue any shares of
Common Stock upon the exercise of any of the Existing Warrants, the Barington
Option or Existing Options, then the Company shall give written notice thereof,
(i) by telecopy to the Holder at the telecopy number of such Holder as it shall
appear on the Company's books and records, such notice to be sent as of the date
of such issuance and (ii) by certified mail, postage prepaid, to the Holder at
the Holder's address as it shall appear in the purchase rights register, such
notice to be mailed no later than one day after such issuance. Each such notice
shall state (A) the name of the party or parties exercising any such Existing
Warrants, the Barington Option or Existing Options, (B) the number of shares of
Common Stock issued upon such exercise, (C) the purchase price per
11
<PAGE>
share of Common Stock issued upon such exercise, (D) the number of Shares
exercisable under this Agreement after giving effect to such issuance, (E) the
Exercise Price then in effect under this Agreement after giving effect to such
issuance and (F) the remaining Number of Shares as of the date of such notice.
(b) In case at any time the Company shall propose to:
(i) pay any dividend or make any distribution on shares of
Common Stock in shares of Common Stock or make any other distribution
(other than regularly scheduled cash dividends which are not in a
greater amount per share than the most recent such cash dividend) to
all holders of Common Stock; or
(ii) issue any rights, warrants, or other securities to all
holders of Common Stock entitling them to purchase any additional
shares of Common Stock or any other rights, warrants, or other
securities; or
(iii) effect any reclassification or change of outstanding
shares of Capital Stock, or any consolidation, merger, sale, lease, or
conveyance of property, described in Section 8 hereof; or
(iv) effect any liquidation, dissolution, or winding-up of
the Company; or
(v) take any other action which would cause an adjustment to
the Exercise Price;
then, and in any one or more of such cases, the Company shall give written
notice thereof, by certified mail, postage prepaid, to the Holder at the
Holder's address as it shall appear in the purchase rights register, mailed at
least 15 days prior to (A) the date as of which the holders of record of shares
of Common Stock to be entitled to receive any such dividend, distribution,
rights, warrants, or other securities are to be determined, (B) the date on
which any such reclassification, change of outstanding shares of Common Stock,
consolidation, merger, sale, lease, conveyance of property, liquidation,
dissolution, or winding-up is expected to become effective, and the date as of
which it is expected that holders of record of shares of Common Stock shall be
entitled to exchange their shares for securities or other property, if any,
deliverable upon such reclassification, change of outstanding shares,
consolidation, merger, sale, lease, conveyance of property, liquidation,
dissolution, or winding-up, or (C) the date of such action which would require
an adjustment to the Exercise Price.
10. The issuance of any shares or other securities upon the exercise
of the Purchase Rights, and the delivery of certificates or other instruments
representing such shares or other securities, shall be made without charge to
the Holder for any tax or other charge in respect of such issuance or for any
other cost of the Company incurred in connection with such issuance and
delivery. The Company shall not, however, be required to pay any tax which may
be
12
<PAGE>
payable in respect of any transfer or delivery of the Purchase Rights to a
person other than, or the issuance and delivery of any certificate in a name
other than that of the registered Holder and the Company shall not be required
to issue or deliver any such certificate unless and until the person or persons
requesting the issue thereof shall have paid to the Company the amount of such
tax or shall have established to the satisfaction of the Company that such tax
has been paid.
11. The Shares shall be entitled to benefit of the provisions of that
certain Registration Rights Agreement, of even date herewith, by and among the
Company and the persons purchasing securities pursuant to the Purchase
Agreement.
12. Subject to the conditions set forth below, the Company agrees to
indemnify and hold harmless each Holder, its officers, directors, partners,
employees, agents, and counsel, and each person, if any, who controls any such
person within the meaning of Section 15 of the Act or Section 20(a) of the
Exchange Act, from and against any and all loss, liability, charge, claim,
damage, and expense whatsoever (which shall include, for all purposes of this
Section 12, without limitation, reasonable attorneys' fees and any and all
expense whatsoever incurred in investigating, preparing, or defending against
any litigation, commenced or threatened, or any claim whatsoever, and any and
all amounts paid in settlement of any claim or litigation), as and when
incurred, arising out of, based upon, or in connection with, any breach of any
representation, warranty, covenant, or agreement of the Company contained in
this Agreement. The foregoing agreement to indemnify shall be in addition to
any liability the Company may otherwise have, including liabilities arising
under the Purchase Rights.
If any action is brought against any Holder or any of its officers,
directors, partners, employees, agents, or counsel, or any controlling persons
of such person (an "indemnified party") in respect of which indemnity may be
sought against the Company pursuant to the foregoing paragraph, such indemnified
party or parties shall promptly notify the Company in writing of the institution
of such action (but the failure so to notify shall not relieve the Company from
any liability under this Section 12 unless the Company shall have been
materially prejudiced by such failure or relieve the Company from any liability
other than pursuant to this Section 12) and the Company shall promptly assume
the defense of such action, including the employment of counsel (reasonably
satisfactory to such indemnified party or parties) and payment of expenses.
Such indemnified party or parties shall have the right to employ its or their
own counsel in any such case, but the fees and expenses of such counsel shall be
at the expense of such indemnified party or parties unless the employment of
such counsel shall have been authorized in writing by the Company in connection
with the defense of such action or the Company shall not have employed counsel
reasonably satisfactory to such indemnified party or parties to have charge of
the defense of such action or such indemnified party or parties shall have
reasonably concluded that there may be one or more legal defenses available to
it or them or to other indemnified parties which are different from or
additional to those available to the Company, in any of which events such fees
and expenses shall be borne by the Company and the Company shall not have the
right to direct the defense of such action on behalf of the indemnified party or
parties. Anything in this Section 12 to the contrary notwithstanding, the
Company shall not be liable for any settlement of any such claim or action
effected without its written consent, which shall not be unreasonably withheld.
13
<PAGE>
13. Unless registered pursuant to the provisions of the registration
rights agreement referred to in Section 11 hereof, the Shares issued upon
exercise of the Purchase Rights shall be subject to a stop transfer order and
the certificate or certificates evidencing such Shares shall bear the following
legend:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"),
OR ANY STATE SECURITIES LAWS AND NEITHER SUCH SECURITIES NOR ANY
INTEREST THEREIN MAY BE OFFERED, SOLD, PLEDGED, ASSIGNED OR OTHERWISE
TRANSFERRED UNLESS (1) A REGISTRATION STATEMENT WITH RESPECT THERETO
IS EFFECTIVE UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS,
OR (2) THE COMPANY RECEIVES AN OPINION OF COUNSEL TO THE HOLDER OF
SUCH SECURITIES, WHICH COUNSEL AND OPINION ARE REASONABLY SATISFACTORY
TO THE COMPANY, THAT SUCH SECURITIES MAY BE OFFERED, SOLD, PLEDGED,
ASSIGNED OR TRANSFERRED IN THE MANNER CONTEMPLATED WITHOUT AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR APPLICABLE STATE
SECURITIES LAWS."
14. Upon receipt of evidence satisfactory to the Company of the loss,
theft, destruction, or mutilation of this Agreement or any similar agreements
issued upon the assignment or transfer of all or any portion of the Purchase
Rights (and upon surrender of any such agreement if mutilated), including an
affidavit of the Holder thereof that this Agreement or any similar agreements
issued upon the assignment or transfer of all or any portion of the Purchase
Rights has been lost, stolen, destroyed or mutilated, together with an indemnity
against any claim that may be made against the Company on account of such lost
stolen, destroyed or mutilated agreement, and upon reimbursement of the
Company's reasonable incidental expenses, the Company shall execute and deliver
to the Holder thereof a new agreement of like date, tenor, and denomination.
15. The Holder of any Purchase Rights shall not have solely on
account of such status, any rights of a stockholder of the Company, either at
law or in equity, or to any notice of meetings of stockholders or of any other
proceedings of the Company, except as provided in this Agreement. No provision
hereof, in the absence of affirmative action by the Holder to purchase Common
Stock, and no enumeration herein of the rights or privileges of the Holder shall
give rise to any liability of such holder for the Exercise Price of Common Stock
acquirable by exercise hereof or as a stockholder of the Company.
14
<PAGE>
16. The Purchase Rights shall not be transferable without the prior
written consent of the Company except in connection with (i) the transfer of
shares of Common Stock acquired pursuant to the purchase agreement (the
"Purchase Agreement") between the Company and the original Holder, dated April
25, 1997 and in such event, in a percentage equal to the percentage of Common
Stock transferred determined by dividing the number of shares being transferred
by the number of shares purchased under the Purchase Agreement; (ii) any Sale of
the Company; or (iii) a sale of all remaining Common Stock owned by the Holder.
17. This Agreement shall be construed in accordance with the laws of
the State of Delaware applicable to contracts made and performed within such
State, without regard to principles governing conflicts of law.
18. Any notice or other communication required or permitted to be
given hereunder shall be in writing and shall be mailed by certified mail,
return receipt requested, or by Federal Express, Express Mail or similar
overnight delivery or courier service or delivered (in person or by telecopy,
telex or similar telecommunications equipment) against receipt to the party to
whom it is to be given, (i) if to the Company, at 645 Fifth Avenue, East Wing,
New York, New York 10022, Attention: President, (ii) if to the Holder, at its
address set forth on the signature page hereof, or (iii) in either case, to such
other address as the party shall have furnished in writing in accordance with
the provisions of this Section 18. Notice to the estate of any party shall be
sufficient if addressed to the party as provided in this Section 18. Any notice
or other communication given by certified mail shall be deemed given at the time
of certification thereof, except for a notice changing a party's address which
shall be deemed given at the time of receipt thereof. Any notice given by other
means permitted by this Section 18 shall be deemed given at the time of receipt
thereof.
19. No course of dealing and no delay or omission on the part of the
Holder in exercising any right or remedy shall operate as a waiver thereof or
otherwise prejudice the Holder's rights, powers or remedies. No right, power or
remedy conferred by this Agreement upon the Holder shall be exclusive of any
other right, power or remedy referred to herein or now or hereafter available at
law, in equity, by statute or otherwise, and all such remedies may be exercised
singly or concurrently.
20. This Agreement may be amended only by a written instrument
executed by the Company and the Holder hereof. Any amendment shall be endorsed
upon this Agreement, and all future Holders shall be bound thereby.
* * * *
15
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Equity Protection
Agreement as of the date first written above.
UC TELEVISION NETWORK CORP.
By: /s/ Peter Kauff
------------------
Name: Peter Kauff
Title: Chairman of the Board and
Chief Executive Officer
Address: 645 Fifth Avenue, East Wing
New York, New York 10022
U-C HOLDINGS, L.L.C.
By: WILLIS STEIN & PARTNERS, L.P.
Its Managing Member
By: Willis Stein & Partners, L.L.C.
Its General Partner
By: /s/ Avy H. Stein
-------------------
Avy H. Stein
Its Manager
Address: 227 West Monroe Street
Suite 4300
Chicago, Illinois 60606
16
<PAGE>
FORM OF ASSIGNMENT
(To be executed by the registered holder if such holder desires to transfer any
Purchase Rights granted pursuant to the attached Agreement.)
FOR VALUE RECEIVED, hereby sells, assigns, and
-----------------------
transfers unto the right to purchase shares of
-------------------- ----------
Common Stock, par value $0.001 per share, of UC Television Network Corp. (the
"Company"), together with all right, title, and interest therein, and does
hereby irrevocably constitute and appoint the secretary of the Company attorney
to transfer such rights on the books of the Company, with full power of
substitution.
Dated:
----------------
Signature
-------------------------
-----------------------------------
Signature Guarantee
NOTICE
The signature on the foregoing Assignment must correspond to the name
as written upon the face of this Agreement in every particular, without
alteration or enlargement or any change whatsoever.
17
<PAGE>
To: UC TELEVISION NETWORK CORP.
645 Fifth Avenue
East Wing
New York, New York 10022
ELECTION TO EXERCISE
The undersigned hereby exercises his or its rights to purchase
-------
Shares covered by the within Agreement and tenders payment herewith of the
Aggregate Exercise Price in accordance with the terms thereof, and requests that
certificates for such securities be issued in the name of, and delivered to:
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(Print Name, Address and Social Security
or Tax Identification Number)
and that this Agreement containing a notation as to the Number of Shares issued
upon such exercise be registered in the name of, and delivered to, the
undersigned at the address stated below.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(Print Name, Address and Social Security
or Tax Identification Number)
18
<PAGE>
Dated:
---------------------------
Name:
--------------------------
(Print)
-------------------------------
(Signature)
-------------------------------
(Signature Guarantee)
-------------------------------
(Signature Guarantee)
19
<PAGE>
EXHIBIT 10.1
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT made as of April 29, 1997, between UC Television
Network Corp., a Delaware corporation (the "Company"), UC Holdings, L.L.C., a
Delaware limited liability company ("Holdings") and Jason Elkin ("Executive").
In consideration of the mutual covenants contained herein and other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. Employment. The Company shall employ Executive, and Executive accepts
----------
employment with the Company, upon the terms and conditions set forth in this
Agreement for the period beginning on the date hereof and ending as provided in
paragraph 5 hereof (the "Employment Period").
2. Position and Duties.
-------------------
(a) During the Employment Period, Executive shall serve as the
Chairman of the Board of Directors and Chief Executive Officer of the Company
and shall have the normal duties, responsibilities and authority of the Chairman
of the Board of Directors and Chief Executive Officer, subject to the direction
of the Company's board of directors (the "Board"). In connection with such
duties, Executive shall maintain an office in Atlanta, Georgia and shall be
reimbursed by the Company for all reasonable expenses incurred in maintaining
such office. Executive shall not be required by the Company to re-locate his
principal office to any location outside of the metropolitan Atlanta, Georgia
area during the Employment Period.
(b) Executive shall report to the Board, and Executive shall devote
his full business time, attention and skills to the business and affairs of the
Company, except as otherwise approved by the Board. Notwithstanding the
foregoing, nothing in this Agreement shall restrict Executive from (i) owning
and operating WFXP-TV in Erie, Pennsylvania and (ii) managing his personal
portfolio of investments so long as such activities do not materially interfere
or compete with the Company's business as presently constituted or as conducted
during the Employment Period. If Executive wishes to undertake additional
business ventures which may detract from his time at the Company, Executive
shall obtain the consent of Avy Stein, who is a member of the Compensation
Committee to the Board.
3. Reimbursement of Investment Expenses. The Company shall reimburse
-------------------------------------
Executive for all reasonable expenses incurred by Executive and not previously
reimbursed prior to the date of this Agreement in connection with Holdings
investment in the Company up to a maximum amount for such expenses of $50,000.
Such reimbursement shall be payable by the Company to Executive in cash within
ten (10) days after of the date of this Agreement.
4. Base Salary and Benefits.
------------------------
(a) During the Employment Period, Executive's base salary shall be
Three Hundred Thousand and No/100 Dollars ($300,000.00) per annum or such higher
rate as the Board may designate from time to time (the "Base Salary"), which
salary shall be payable semi-
<PAGE>
monthly in regular installments in accordance with the Company's general payroll
practices. The Base Salary shall be increased on an annual basis by at least
ten percent (10%) over the Base Salary paid to Executive during the previous
year of the Employment Period, to be increased on each anniversary date of this
Agreement.
(b) The Company shall reimburse Executive for all reasonable expenses
incurred by him in the course of performing his duties under this Agreement
which are consistent with the Company's policies in effect from time to time
with respect to travel, entertainment and other business expenses, subject to
the Company's requirements with respect to reporting and documentation of such
expenses. Company shall also pay the rent with respect to 5784 Lake Forrest
Drive, Suite 275, Atlanta, Georgia 30328 and the reasonable operating expenses
of such office (including the salary a reasonable staff at such office). In
addition, during the Employment Period, the Company shall provide Executive with
an automobile allowance of Seven Hundred Fifty and No/100 Dollars ($750.00) per
month for the monthly payments, maintenance and operating expenses for any
automobile used by Executive.
(c) In addition to the Base Salary, Executive shall receive an annual
bonus in an amount to be determined by the Board of Directors of the Company,
based upon the reconsideration of the Compensation Committee.
(d) In addition to the Base Salary and any Bonus payable to Executive
pursuant to this paragraph 4, Executive shall be entitled to participate in all
employee benefit plans and programs of the Company for which senior executive
officers of the Company are eligible, including, to the extent available or
established by the Company, any:
(i) family health insurance, disability insurance, and dental
insurance coverage;
(ii) 401(k), retirement or similar benefit plans; and
(iii) stock option plans of the Company; and
(iv) Executive shall be entitled to such sick leave and vacation
as he believes appropriate given his responsibilities and duties.
5. Term.
----
(a) The Employment Period shall commence on the date hereof and end on
the fourth anniversary of the date of this Agreement (the "Expiration Date");
provided, however, that the Employment Period shall be automatically extended
for one year on the Expiration Date and at the end of each subsequent year of
the Executive's employment (an "Extension Period"; any such Extension Periods
shall be included in the definition of Employment Period) unless at least six
(6) months prior to the Expiration Date or the end of the then current Extension
Period, either the Company or the Executive shall give written notice to the
other that this Agreement shall not be so extended; and provided further that
--------
(i) the Employment Period shall terminate prior to such date upon Executive's
permanent disability or incapacity (determined as set forth below), resignation
or death and (ii) the Employment Period may be terminated by the Company
2
<PAGE>
at any time prior to such date for Cause (as defined below) or without Cause.
Permanent Disability or incapacity shall occur if Executive misses sixty (60)
consecutive days of work and it is determined by an independent physician that
such disability or incapacity is permanent.
(b) If the Employment Period is terminated due to the Executive's
death, disability or incapacity, Executive shall be entitled to receive an
aggregate amount equal to twice his Base Salary. This amount shall be payable
by the Company in equal monthly installments over a period of two years
following termination of the Employment Period.
(c) If the Employment Period is terminated by the Company without
Cause, Executive shall be entitled to receive an aggregate amount equal to the
lesser of (i) four times his Base Salary and Performance Bonus (regardless of
the Company's performance), or (ii) his Base Salary and Performance Bonus
(regardless of the Company's performance) payable for the remainder of the
Employment Period. This amount shall be payable by the Company in equal monthly
installments over a period which is the lesser of (y) four years following
termination of the Employment Period or (z) the remainder of the Employment
Period, so long as Executive has not breached any of the provisions of
Paragraphs 9, 10 or 11 hereof.
(d) If the Employment Period is terminated by the Company for Cause,
upon the Executive's resignation or upon the expiration of the Employment Period
after either party has given notice of non-extension pursuant to Paragraph 5(a),
Executive shall be entitled to receive his Base Salary through the date of
termination and shall not be entitled to any other amounts hereunder.
(e) All of Executive's rights to fringe benefits hereunder (if any)
accruing at any time prior to or after the termination of the Employment Period
shall cease upon such termination; provided, however, that if Executive is
--------
terminated by the Company without Cause, the Company shall use its best efforts
to maintain such health insurance policies as are then in place with respect to
the Executive; provided that such insurance policies can be maintained at a
--------
reasonable cost to the Company; and provided further, that the Company shall
--------
only maintain such insurance policies until the earlier of (y) the end of the
period for which Executive is receiving severance payments pursuant to paragraph
5 hereof and (z) the date Executive accepts other employment and is covered
under such employer's health plan. If the Employment Period is terminated due
to the Executive's death or disability, the Company shall pay Executive,
pursuant to the terms and conditions of paragraph 3(b) of this Agreement, such
Performance Bonuses as are then due and payable.
(f) For purposes of this Agreement, "Cause" shall mean (i) the
conviction of a felony or a crime involving moral turpitude or the conviction of
any other act involving dishonesty, disloyalty or fraud with respect to the
Company or Holdings, (ii) gross negligence or willful misconduct with respect to
the Company, or (iii) any other material breach of this Agreement; or (iv) the
repeated failure to perform Executive's duties as directed by the Board;
3
<PAGE>
provided, however, that with respect to clause (iii) or (iv) above, if such
- --------
failure or breach is capable of cure, such failure or breach, as the case may
be, shall not be deemed to constitute Cause unless such failure or breach
remains uncured after the expiration of 15 days after notice thereof to
Executive.
6. Vesting of Executive Securities.
-------------------------------
(a) All of the Investor Units will be fully vested as of the date of
purchase and shall not be subject to repurchase except as set forth in the LLC
Agreement. Except as otherwise provided in paragraph 6(b) below, the Management
Units will become vested, if, as of each such date, Executive is employed by the
Company, in equal proportions on the two anniversary dates following the date of
this Agreement (50% each anniversary date).
(b) If the Termination Date (as defined below) occurs prior to the
date when all Management Units shall become fully vested as provided in
paragraph 6(a) above, the cumulative percentage of the Management Units that
will become vested will be determined on a pro rata basis according to the
number of days elapsed since the prior anniversary date. Upon a Sale of the
Company or a Sale of Holdings, all of the Management Units, which have not yet
become vested shall become vested at the time of such event. All of the
Management Units which have become vested pursuant to this paragraph 6 are
referred to herein as "Vested Executive Securities", and all Unvested Management
Units are referred to herein as "Unvested Executive Securities."
7. Repurchase Option.
-----------------
(a) General Repurchase Option. Upon the occurrence of the Termination
-------------------------
Date the Unvested Executive Securities (whether held by Executive or one or more
of Executive's Permitted Transferees) shall be subject to repurchase by Holdings
pursuant to the terms and conditions set forth in this paragraph 7 (the
"Repurchase Option"). The date on which Executive ceases to be employed by the
Company for any reason, other than termination without cause, is referred to
herein as the "Termination Date."
(b) Termination For Other Than Cause. Notwithstanding anything herein
--------------------------------
to the contrary, if Executive is terminated without Cause he shall be entitled
to retain all Vested and Unvested Executive Securities and there shall be no
right of repurchase.
(c) Purchase Price. Subject to paragraph 7(g) below, the purchase
--------------
price for the Unvested Executive Securities on the Termination Date will be the
Executive's Original Cost; provided, however, that if Executive ceases to be an
employee of the Company for any reason other than due to his termination for
Cause or his resignation prior to the fourth anniversary of the date hereof
(excluding termination without Cause in which case there is no repurchase
option), then the Purchase Price for the Executive Securities shall be the Fair
Market Value for such Executive Securities, as of the date of termination.
(d) Repurchase Option. Holdings may elect to purchase all of the
-----------------
Unvested Executive Securities by delivering written notice (the "Holdings
Repurchase Notice") to the holder or holders of the Unvested Executive
Securities within 90 days after the Termination Date. The Repurchase Notice will
set forth the number of Unvested Executive Securities to be
4
<PAGE>
acquired from each holder, the aggregate consideration to be paid for such
Unvested Executive Securities and the time and place for the closing of the
transaction. The number of Unvested Executive Securities to be repurchased by
Holdings shall first be satisfied to the extent possible from the Unvested
Executive Securities held by Executive at the time of delivery of the Repurchase
Notice. If the number of Unvested Executive Securities then held by Executive
is less than the total number of Unvested Executive Securities Holdings has
elected to purchase, Holdings shall purchase the remaining Unvested Executive
Securities elected to be purchased from the other holder(s) of Unvested
Executive Securities under this paragraph 7, pro rata according to the number of
Unvested Executive Securities held by such other holder(s), respectively, at the
time of delivery of the Repurchase Notice (determined as nearly as practicable
to the nearest unit or other applicable denomination).
(e) Closing. Subject to paragraph 7(f) below, the closing of the
-------
purchase of the Unvested Executive Securities pursuant to the Repurchase Option
shall take place on the date designated by Holdings in the Repurchase Notice,
which date shall not be more than 60 days nor less than five days after the
later of (i) the delivery of such notice(s) or (ii) the Fair Market Valuation
Date. Payment for the Unvested Executive Securities to be purchased pursuant to
the Repurchase Option shall be made by Holdings in four (4) equal installments,
the first installment payable on the closing of such purchase, the second
payable four (4) months after the closing, the third payable eight (8) months
after the closing and the fourth payable twelve (12) months after the closing,
each such payment made by check or wire transfer of funds, at the option of
Holdings. Notwithstanding anything to the contrary contained in this Agreement,
Holdings may withdraw their Repurchase Notice at any time prior to the closing
of a purchase of the Unvested Executive Securities pursuant to the Repurchase
Option.
(f) Termination of Repurchase Option. The right of Holdings to
--------------------------------
repurchase Unvested Executive Securities pursuant to this paragraph 7 shall
terminate upon the first to occur of (i) the Sale of Holdings, or (ii) the Sale
-----------------
of the Company. The Repurchase Option set forth in this paragraph 7 will
continue with respect to the Unvested Executive Securities following any
transfer thereof other than a transfer to Holdings.
(g) Repurchase Restrictions. Notwithstanding anything to the contrary
-----------------------
contained in this Agreement, all repurchases of Unvested Executive Securities
by Holdings shall be subject to applicable restrictions contained in the General
Corporate Law of the State of Delaware. If any such restrictions prohibit the
repurchase of the Unvested Executive Securities hereunder which Holdings is
otherwise entitled or required to make, Holdings may make such repurchases as
soon as it is permitted to do so under such restrictions.
(h) Section 38B Election. Within 30 days after Executive purchases
--------------------
any Executive Securities from Holdings, Executive may make an effective election
with the Internal Revenue Service under Section 83(b) of the Internal Revenue
Code and the regulations promulgated thereunder.
5
<PAGE>
8. Definitions.
-----------
"Executive Securities" mean: (i) any Investor Units acquired by
Executive, (ii) any Management Units acquired by Executive, and (iii) any equity
or debt securities issued or issuable directly or indirectly with respect to the
Executive Securities referred to in clauses (i) and (ii), above by any of a
conversion, split, distribution or dividend or in connection with a combination
of securities, recapitalization, merger, consolidation or other reorganization.
Executive Securities shall continue to be Executive Securities in the hands of
any holder thereof (other than Holdings or any of its members).
"Fair Market Valuation Date" with respect to any Executive Securities
means the date on which its Fair Market Value is finally determined pursuant to
the definition of "Fair Market Value."
"Fair Market Value" of the Executive Securities means the Fair Market
Value as shall be determined jointly in good faith by Holdings and Executive;
provided that if Holdings and Executive cannot so agree, then such value shall
- --------
be determined by an independent investment banking firm of national or regional
reputation utilizing valuation techniques then commonly used for the valuation
of such investment interests, which investment banking firm will be jointly
selected by Holdings and Executive in good faith, or if such parties cannot
agree on an investment banking firm, then such value shall be determined by an
investment banking firm selected by lot from a group of six firms possessing the
above described qualifications (three of whom shall be selected by Holdings and
three of whom shall be selected by Executive) from which one firm designated as
objectionable by each of Holdings and Executive has been eliminated (in either
case, the investment banking firm's determination shall be conclusive). The
expenses of any such appraisal shall be borne equally by the Holdings and
Executive. In determining the Fair Market Value of Executive Securities to be
purchased pursuant to the exercise of the Repurchase Option, the parties or the
investment bank, as the case may be, shall use the average of the thirty (30)
day trading price of Common Stock of the Company. There shall be no discount in
value to reflect minority interest, and it shall be assumed for purposes of such
determination that there are no restrictions on transfer of any Executive
Securities, that a willing buyer exists for purchase of the same and that the
Executive is under no compulsion to sell any Executive Securities. References
in this definition to Executive shall mean Executive's personal representative
if he is deceased or incapacitated.
"Investor Units" shall have the meaning ascribed to it in the LLC
Agreement.
"LLC Agreement" shall mean the Limited Liability Company Agreement of
U-C Holdings, L.L.C. dated April 25, 1997.
"Management Units" shall have the meaning ascribed to it in the LLC
Agreement.
6
<PAGE>
"Original Cost" of the Executive Securities will be the price per such
security paid by Executive pursuant to this Agreement or otherwise (in each
case, as proportionately
adjusted for all subsequent security splits, security dividends, security
distributions and other recapitalizations affecting the Executive Securities).
"Securities Act" means the Securities Act of 1933, as amended from
time to time.
9. Confidential Information. The Executive acknowledges that the
------------------------
information, observations and data obtained by him while employed by the Company
concerning the business or affairs of the Company ("Confidential Information")
are the property of the Company. Therefore, Executive agrees that, except in
the performance of duties for the Company, he shall not disclose to any
unauthorized person or use for his own account any Confidential Information
without prior written consent of the Board, except (i) to the extent that the
aforementioned matters become generally known to and available for use by the
public other than as a result of Executive's acts or omissions to act, (ii) as
necessary to comply with compulsory legal process, provided that Executive shall
--------
provide prior notice to the Company regarding such disclosure and the Company,
as applicable, shall have the right to contest such disclosure, (iii) as
necessary to counsel and other professional advisors retained by the Executive,
subject to the attorney/client privilege or a valid and binding non-disclosure
agreement between Executive and such professional and (iv) disclosures of
information obtained from a third party free of restrictions or disclosure of
information in Executive's possession prior to the date hereof which was
obtained from a source other than the Company or its predecessors. Executive
shall deliver to the Company at the termination of the Employment Period, all
memoranda, notes, plans, records, reports, computer tapes and software and other
documents and data (and copies thereof) relating to Confidential Information,
Work Product or the business of the Company which he may then possess or have
under his control.
10. Inventions and Patents. Executive agrees that all ideas, concepts,
----------------------
marketing strategies, management techniques, product development, methods,
designs, analyses, drawings, reports, and all similar or related information
which relates to the Company's actual or anticipated business, research and
development or existing or future products or services and which are conceived,
developed or made by Executive while employed by the Company ("Work Product")
belong to the Company. Executive will promptly disclose such Work Product to
the Board and perform all actions reasonably requested by the Board (whether
during or after the Employment Period) to establish and confirm such ownership
(including, without limitation, assignments, consents, powers of attorney and
other instruments).
11. Non-Compete, Non-Solicitation.
-----------------------------
(a) Executive acknowledges that in the course of his employment with
the Company he will become familiar with the Company's trade secrets and with
other confidential information concerning the Company and that his services will
be of special, unique and extraordinary value to the Company. Therefore,
Executive agrees that, during the Employment Period, during any period in which
he is receiving payments pursuant to paragraph 5 or for which he has received a
lump sum payment pursuant to this Agreement or any subsequent agreement, and, if
terminated for Cause or by Executive's resignation before the Expiration Date,
for two years after such termination (the "Non-Compete Period"), he shall not
directly or indirectly own, manage, control, participate in, consult with,
render services for, or in any manner engage in any
7
<PAGE>
business competing with the businesses of the Company as such businesses exist
or are in process on the date of the termination of Executive's employment,
within any geographical area in which the Company engages or plans to engage in
such businesses, including without limitation, hold a significant management
position with any information or entertainment network which markets to colleges
or universities or any direct broadcast satellite operator serving markets where
the Company operates (including markets in which, during the Employment Period,
the Company has executed or was in the process of negotiating a written
agreement to acquire such an operator). Notwithstanding the foregoing, nothing
herein shall prohibit Executive from (i) continuing his ownership, management
and/or control of any business in which and to the extent which he held such
interests prior to the Non-Compete Period, or (ii) being a passive owner of not
more than 5% of the outstanding stock of any class of a company which is
publicly traded, so long as Executive has no active participation in the
management or the business of such company.
(b) During the Employment Period and for eighteen months thereafter,
Executive shall not directly or indirectly through another entity (i) solicit,
encourage, interview, entice, discuss with or induce or attempt to induce any
employee of the Company to leave the employ of the Company, or in any way
interfere with the relationship between the Company and any employee thereof,
(ii) hire any person who was an employee of the Company at any time during the
Employment Period or (iii) induce or attempt to induce or attempt to induce any
customer, supplier, licensee or other business relation of the Company to cease
doing business with the Company, or in any way interfere with the relationship
between any such customer, supplier, licensee or business relation and the
Company.
12. Enforcement. If, at the time of enforcement of paragraphs 9, 10 or 11
-----------
of this Agreement, a court holds that the restrictions stated herein are
unreasonable under circumstances then existing, the parities hereto agree that
the maximum period, scope or geographical area reasonable under such
circumstances shall be substituted for the stated period, scope and area.
Because Executive's services are unique and because Executive has access to
Confidential Information and Work Product, the parties hereto agree that money
damages would be an inadequate remedy for any breach of this Agreement.
Therefore, in the event a breach or threatened breach of this Agreement, the
Company or its successors or assigns may, in addition to other rights and
remedies existing in their favor, apply to any court of competent jurisdiction
for specific performance and/or injunctive or other relief in order to enforce,
or prevent any violations of, the provision hereof (without posting a bond or
other security).
13. Executive Representations. Executive hereby represents and warrants
-------------------------
to the Company that (i) the execution, delivery and performance of this
Agreement by Executive does not and will not conflict with, breach, violate or
cause a default under any contract, agreement, instrument, order, judgment or
decree to which Executive is a party or by which he is bound, (ii) Executive is
not a party to or bound by any employment agreement, non-compete agreement or
confidentiality agreement with any other person or entity, which would prohibit
his performance under this Agreement and (iii) upon the execution and delivery
of this Agreement by the Company, this Agreement shall be valid and binding
obligation of Executive, enforceable in accordance with its terms.
8
<PAGE>
14. Survival. Paragraphs 9, 10, 11, 12 and 13 shall survive and continue
--------
in full force in accordance with their terms notwithstanding any termination of
the Employment Period.
15. Notices. Any notice provided for in this Agreement shall be in
-------
writing and shall be either personally delivered, mailed by first class mail
(postage prepaid and return receipt requested) or sent by telecopy or reputable
overnight courier service (charges prepaid) to the recipient at the address or
telecopy number below indicated:
Notices to Holdings:
U-C Holdings, L.L.C.
c/o Willis Stein & Partners, L.P.
227 W. Monroe Street, Suite 4300
Chicago, Illinois 60606
Telecopy No.: 312) 42202424
Attention: Avy H. Stein
With a copy to:
Kirkland & Ellis
200 East Randolph Drive
Chicago, Illinois 60601
Telecopy No.:(312) 861-2200
Attention: Margaret Gibson, Esq.
Notices to Executive:
Jason Elkin
5784 Lake Forrest Drive, Suite 275
Atlanta, Georgia 30328
Telecopy No.: (404) 257-9517
9
<PAGE>
Notices to Company:
UC Television Network Corp.
645 Fifth Avenue, East Wing
New York, New York 10022
Telecopy No.: (212) 755-5992
Attention: Peter Kauff
With a copy to:
Kirkland & Ellis
200 East Randolph Drive
Chicago, Illinois 60601
Telecopy No.:(312) 861-2200
Attention: Margaret Gibson, Esq.
or such other address or telecopy number or to the attention of such other
person as the recipient party shall have specified by prior written notice to
the sending party. any notice under this Agreement will be deemed to have been
given when so delivered or sent or, if mailed, five days after deposit in the
U.S. mail.
16. Severability. Whenever possible, each provision of this agreement will
------------
be interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Agreement is held to be invalid, illegal or
unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability will not affect
any other provision or any other jurisdiction, but this Agreement will be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision had never been contained herein.
17. Complete Agreement. This Agreement and those documents expressly
------------------
referred to herein and other documents of even date herewith embody the complete
agreement and understanding among the parties and supersede and preempt any
prior understandings, agreements or representations by or among the parties,
written or oral, which may have related to the subject matter hereof in any way.
18. Counterparts. This Agreement may be executed in separate
------------
counterparts, each of which to be an original and all of which taken together
constitute one and the same agreement.
19. Successors and Assigns. This Agreement is intended to bind and inure
----------------------
to the benefit of and be enforceable by all parties and their respective heirs,
successors and assigns, except that Executive may not assign his rights or
delegate his obligations hereunder without the prior written consent of the
Company.
20. Choice of Law. This Agreement will be governed by the internal law,
-------------
and not the laws of conflicts, of the State of Georgia.
10
<PAGE>
21. Amendment and Waiver. The provisions of this Agreement may be amended
--------------------
or waived with the prior written consent of the Company and Executive, and no
course of conduct or failure or delay in enforcing the provisions of this
Agreement shall affect the validity binding effect or enforceability of this
Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written above.
UC TELEVISION NETWORK CORP.
By: /s/ Peter Kauff
------------------
Peter Kauff,
Chairman of the Board and
Chief Executive Officer
U-C HOLDINGS, L.L.C.
By: WILLIS STEIN & PARTNERS, L.P.
Its: Managing Member
By: Willis Stein & Partners, L.L.C.
Its: General Partner
By: /s/ Avy H. Stein
-------------------
Avy H. Stein
Its: Manager
/s/ Jason Elkin
------------------
JASON ELKIN
11
<PAGE>
EXHIBIT 10.2
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT made as of April 29, 1997 and effective as of the
Effective Date (as defined below), between UC Television Network Corp., a
Delaware corporation (the "Company"), UC Holdings, L.L.C., a Delaware limited
liability company ("Holdings") and Joseph D. Gersh ("Executive").
In consideration of the mutual covenants contained herein and other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. Employment. The Company shall employ Executive, and Executive accepts
----------
employment with the Company, upon the terms and conditions set forth in this
Agreement for the period beginning on the date hereof and ending as provided in
paragraph 5 hereof (the "Employment Period").
2. Position and Duties.
-------------------
(a) During the Employment Period, Executive shall serve as the Vice
Chairman of the Board of Directors of the Company and shall have such duties,
responsibilities and authority as delegated to him by the Chairman of the Board
of Directors and Chief Executive Officer, subject to the direction of the
Company's board of directors (the "Board"). In connection with such duties,
Executive shall maintain an office in Atlanta, Georgia. Executive shall not be
required by the Company to re-locate his principal office to any location
outside of the metropolitan Atlanta, Georgia area during the Employment Period.
(b) Executive shall report to the Board Chairman and Chief Executive
Officer, and Executive shall devote his full business time, attention and skills
to the business and affairs of the Company, except as otherwise approved by the
Board. Notwithstanding the foregoing, nothing in this Agreement shall restrict
Executive from (i) owning and operating WFXP-TV in Erie, Pennsylvania and (ii)
managing his personal portfolio of investments so long as such activities do not
materially interfere or compete with the Company's business as presently
constituted or as conducted during the Employment Period.
3. [INTENTIONALLY OMITTED]
4. Base Salary and Benefits.
------------------------
(a) During the Employment Period, Executive's base salary shall be Two
Hundred Thousand and No/100 Dollars ($200,000.00) per annum or such higher rate
as the Board may designate from time to time (the "Base Salary"), which salary
shall be payable in regular installments in accordance with the Company's
general payroll practices. The Base Salary shall be increased on an annual
basis by at least ten percent
<PAGE>
(10%) over the Base Salary paid to Executive during the previous year of the
Employment Period, to be increased on each anniversary date of this Agreement.
(b) The Company shall reimburse Executive for all reasonable expenses
incurred by him in the course of performing his duties under this Agreement
which are consistent with the Company's policies in effect from time to time
with respect to travel, entertainment and other business expenses, subject to
the Company's requirements with respect to reporting and documentation of such
expenses. Company shall also pay the rent with respect to 5784 Lake Forrest
Drive, Suite 275, Atlanta, Georgia 30328, and the reasonable operating expenses
of such office (including the salary of reasonable staff at such office) only to
the extent such expenses are principally related to the conduct of Company's
business and affairs. In addition, during the Employment Period, the Company
shall provide Executive with an automobile allowance of Five Hundred and No/100
Dollars ($500.00) per month for the monthly payments, maintenance and operating
expenses for any automobile used by Executive.
(c) In addition to the Base Salary, Executive shall receive an annual
bonus in an amount to be determined by the Board of Directors of the Company,
based upon the recommendation of the Compensation Committee.
(d) In addition to the Base Salary and any Bonus payable to Executive
pursuant to this paragraph 4, Executive shall be entitled to participate in all
employee benefit plans and programs of the Company for which senior executive
officers of the Company are eligible, including, to the extent available or
established by the Company, any:
(i) family health insurance, disability insurance, and dental
insurance coverage;
(ii) 401(k), retirement or similar benefit plans;
(iii) stock option plans of the Company; and
(iv) Executive shall be entitled to such vacation days as he
believes appropriate given his responsibilities and duties, not to exceed a
maximum of 25 business days.
5. Term.
----
(a) The Employment Period shall commence on the Effective Day (as
defined in the Action of Board of Directors of the Company, dated April 25,
1995, pursuant to which the directors elected Executive to the office of Vice
Chairman and end on the fourth anniversary of the date of this Agreement (the
"Expiration Date"); provided, however, that the Employment Period shall be
automatically extended for one year on the Expiration Date and at the end of
each subsequent year of the Executive's employment
2
<PAGE>
(an "Extension Period"; any such Extension Periods shall be included in the
definition of Employment Period) unless at least six (6) months prior to the
Expiration Date or the end of the then current Extension Period, either the
Company or the Executive shall give written notice to the other that this
Agreement shall not be so extended; and provided further that (i) the Employment
--------
Period shall terminate prior to such date upon Executive's permanent disability
or incapacity (determined as set forth below), resignation or death and (ii) the
Employment Period may be terminated by the Company at any time prior to such
date for Cause (as defined below) or without Cause. Permanent Disability or
incapacity shall occur if Executive misses sixty (60) consecutive days of work
and it is determined by an independent physician that such disability or
incapacity is permanent.
(b) If the Employment Period is terminated due to the Executive's
death, disability or incapacity, Executive shall be entitled to receive an
aggregate amount equal to twice his Base Salary. This amount shall be payable by
the Company in equal monthly installments over a period of two years following
termination of the Employment Period.
(c) If the Employment Period is terminated by the Company without
Cause, Executive shall be entitled to receive an aggregate amount equal to his
Base Salary payable for the remainder of the Employment Period. This amount
shall be payable by the Company in equal monthly installments over the remainder
of the Employment Period, so long as Executive has not breached any of the
provisions of Paragraphs 9, 10 or 11 hereof.
(d) If the Employment Period is terminated by the Company for Cause,
upon the Executive's resignation or upon the expiration of the Employment Period
after either party has given notice of non-extension pursuant to Paragraph 5(a),
Executive shall be entitled to receive his Base Salary through the date of
termination and shall not be entitled to any other amounts hereunder.
(e) All of Executive's rights to fringe benefits hereunder (if any)
accruing at any time prior to or after the termination of the Employment Period
shall cease upon such termination; provided, however, that if Executive is
--------
terminated by the Company without Cause, the Company shall permit Executive to
continue to receive benefits under the Company's health insurance policies to
the extent permitted by such policies and applicable law, provided that such
--------
insurance coverage can be maintained at a reasonable cost to the Company; and
provided further, that the Company shall only maintain such insurance coverage
- --------
until the earlier of (y) the end of the period for which Executive is receiving
severance payments pursuant to paragraph 5 hereof and (z) the date Executive
accepts other employment.
(f) For purposes of this Agreement, "Cause" shall mean (i) the
conviction of a felony or a crime involving moral turpitude or the conviction of
any other crime involving dishonesty, disloyalty or fraud with respect to the
Company or Holdings, (ii) gross negligence or willful misconduct with respect to
the Company, (iii) any other
3
<PAGE>
material breach of this Agreement; or (iv) the repeated failure to perform
Executive's duties as directed by the Board; provided, however, that with
--------
respect to clause (iii) or (iv) above, if such failure or breach is capable of
cure, such failure or breach, as the case may be, shall not be deemed to
constitute Cause unless such failure or breach remains uncured after the
expiration of 15 days after notice thereof to Executive.
6. Vesting of Executive Securities.
-------------------------------
(a) All of the Investor Units will be fully vested as of the date of
purchase and shall not be subject to repurchase. Except as otherwise provided
in paragraph 6(b) below, the Management Units will become vested over the 30
month period after the date hereof, in equal proportions on each six month
anniversary date following the date of this Agreement if, as of such anniversary
date, Executive is employed by Company (i.e. 20% on the anniversary of each 6
month period).
(b) Upon a Sale of the Company, as defined in the Class C Warrant, or a
Sale of Holdings, all of the Management Units, which have not yet become vested
shall become vested at the time of such event. All of the Management Units
which have become vested pursuant to this paragraph 6 are referred to herein as
"Vested Executive Securities", and all Unvested Management Units are referred to
herein as "Unvested Executive Securities."
7. Repurchase Option.
-----------------
(a) General Repurchase Option. Upon the occurrence of the Termination
-------------------------
Date the Executive Securities (whether held by Executive or one or more of
Executive's Permitted Transferees) shall be subject to repurchase by Holdings
pursuant to the terms and conditions set forth in this paragraph 7 (the
"Repurchase Option"). The date on which Executive ceases to be employed by the
Company for any reason, is referred to herein as the "Termination Date."
(b) Termination For Other Than Cause. Notwithstanding anything herein
--------------------------------
to the contrary, if Executive is terminated without Cause all Unvested Executive
Securities shall become Vested Executive Securities and such Executive
Securities shall be subject to repurchase at Fair Market Value of such Executive
Securities.
(c) Termination for Cause or Resignation. Subject to paragraph 7(g)
------------------------------------
below, the purchase price for the Unvested Executive Securities on the
Termination Date if Executive is terminated for Cause, death, permanent
disability or he resigns, will be the Executive's Original Cost; and the
purchase price for the Vested Executive Securities shall be the Fair Market
Value for such Vested Executive Securities, as of the date of termination.
(d) Repurchase Option. As set forth above, Holdings may elect to
-----------------
purchase the applicable Executive Securities by delivering written notice (the
"Holdings
4
<PAGE>
Repurchase Notice") to the holder or holders of such Executive Securities within
90 days after the Termination Date. The Repurchase Notice will set forth the
number of such Executive Securities to be acquired from each holder, the
aggregate consideration to be paid for such Executive Securities and the time
and place for the closing of the transaction. The number of such Executive
Securities to be repurchased by Holdings shall first be satisfied to the extent
possible from the Unvested Executive Securities held by Executive at the time of
delivery of the Repurchase Notice. If the number of such Executive Securities
then held by Executive is less than the total number of Executive Securities
Holdings has elected to purchase, Holdings shall purchase the remaining
Executive Securities elected to be purchased from the other holder(s) of such
Executive Securities under this paragraph 7, pro rata according to the number of
such Executive Securities held by such other holder(s), respectively, at the
time of delivery of the Repurchase Notice (determined as nearly as practicable
to the nearest unit or other applicable denomination).
(e) Closing. Subject to paragraph 7(f) below, the closing of the
-------
purchase of the applicable Executive Securities pursuant to the Repurchase
Option shall take place on the date designated by Holdings in the Repurchase
Notice, which date shall not be more than 60 days nor less than five days after
the later of (i) the delivery of such notice(s) or (ii) the Fair Market
Valuation Date. Payment for such Executive Securities to be purchased pursuant
to the Repurchase Option shall be made by Holdings in four (4) equal
installments, the first installment payable on the closing of such purchase, the
second payable four (4) months after the closing, the third payable eight (8)
months after the closing and the fourth payable twelve (12) months after the
closing, each such payment made by check or wire transfer of funds, at the
option of Holdings. Notwithstanding anything to the contrary contained in this
Agreement, Holdings may withdraw their Repurchase Notice at any time prior to
the closing of a purchase of such Executive Securities pursuant to the
Repurchase Option.
(f) Termination of Repurchase Option. The right of Holdings to
--------------------------------
repurchase Executive Securities pursuant to this paragraph 7 shall terminate
upon the first
-----
to occur of (i) the Sale of Holdings, or (ii) the Sale of the Company. The
- -----------
Repurchase Option set forth in this paragraph 7 will continue with respect to
such Executive Securities following any transfer thereof other than a transfer
to Holdings.
(g) Repurchase Restrictions. Notwithstanding anything to the contrary
-----------------------
contained in this Agreement, all repurchases of Executive Securities by
Holdings shall be subject to applicable restrictions contained in the General
Corporate Law of the State of Delaware. If any such restrictions prohibit the
repurchase of the Executive Securities hereunder which Holdings is otherwise
entitled or required to make, Holdings may make such repurchases as soon as it
is permitted to do so under such restrictions.
(h) Section 83B Election. Within 30 days after Executive purchases
--------------------
any Executive Securities from Holdings, Executive shall make an effective
election with
5
<PAGE>
the Internal Revenue Service under Section 83(b) of the Internal Revenue Code
and the regulations promulgated thereunder.
8. Definitions.
-----------
"Executive Securities" mean: (i) any Management Units acquired by
Executive, and (ii) any equity or debt securities issued or issuable directly or
indirectly with respect to the Executive Securities referred to in clauses (i)
above by any of a conversion, split, distribution or dividend or in connection
with a combination of securities, recapitalization, merger, consolidation or
other reorganization. Executive Securities shall continue to be Executive
Securities in the hands of any holder thereof (other than Holdings or any of its
members).
"Fair Market Valuation Date" with respect to any Executive Securities
means the date on which its Fair Market Value is finally determined pursuant to
the definition of "Fair Market Value."
"Fair Market Value" of the Executive Securities means the Fair Market
Value as shall be determined jointly in good faith by Holdings and Executive;
provided that if Holdings and Executive cannot so agree, then such value shall
- --------
be determined by an independent investment banking firm of national or regional
reputation utilizing valuation techniques then commonly used for the valuation
of such investment interests, which investment banking firm will be jointly
selected by Holdings and Executive in good faith, or if such parties cannot
agree on an investment banking firm, then such value shall be determined by an
investment banking firm selected by lot from a group of six firms possessing the
above described qualifications (three of whom shall be selected by Holdings and
three of whom shall be selected by Executive) from which one firm designated as
objectionable by each of Holdings and Executive has been eliminated (in either
case, the investment banking firm's determination shall be conclusive). The
expenses of any such appraisal shall be borne equally by the parties. In
determining the Fair Market Value of Executive Securities to be purchased
pursuant to the exercise of the Repurchase Option, the parties or the investment
bank, as the case may be, shall use the average of the thirty (30) day trading
price of Common Stock of the Company as a partial determining factor. There
shall be no discount in value to reflect minority interest, and it shall be
assumed for purposes of such determination that there are no restrictions on
transfer of any Executive Securities, that a willing buyer exists for purchase
of the same and that the Executive is under no compulsion to sell any Executive
Securities. It is the intent of the parties that the value shall be the value of
the securities owned by Holdings in the Company multiplied by Executive's
Ownership Interest in Holdings. References in this definition to Executive shall
mean Executive's personal representative if he is deceased or incapacitated.
"Investor Units" shall have the meaning ascribed to it in the LLC
Agreement.
6
<PAGE>
"LLC Agreement" shall mean the Limited Liability Company Agreement of
U-C Holdings, L.L.C. dated April 25, 1997.
"Management Units" shall have the meaning ascribed to it in the LLC
Agreement.
"Original Cost" of the Executive Securities will be the price per such
security paid by Executive pursuant to this Agreement or otherwise (in each
case, as proportionately adjusted for all subsequent security splits, security
dividends, security distributions and other recapitalizations affecting the
Executive Securities).
"Sale of Holdings" shall mean the sale of substantially all of the
equity interest of Holdings or the sale of all or substantially all the assets
of Holdings in Company.
"Securities Act" means the Securities Act of 1933, as amended from time
to time.
9. Confidential Information. The Executive acknowledges that the
------------------------
information, observations and data obtained by him while employed by the
Company, or during the due diligence process in connection with Holdings
investment in the Company, concerning the business or affairs of the Company
("Confidential Information") are the property of the Company. Therefore,
Executive agrees that, except in the performance of duties for the Company, he
shall not disclose to any unauthorized person or use for his own account any
Confidential Information without prior written consent of the Board, except (i)
to the extent that the aforementioned matters become generally known to and
available for use by the public other than as a result of Executive's wrongful
acts or omissions to act, (ii) as necessary to comply with compulsory legal
process, provided that Executive shall provide prior notice to the Company
--------
regarding such disclosure and the Company, as applicable, shall have the right
to contest such disclosure, (iii) as necessary to counsel and other professional
advisors retained by the Executive, subject to the attorney/client privilege or
a valid and binding non-disclosure agreement between Executive and such
professional and (iv) disclosures of information obtained from a third party
free of restrictions or disclosure of information in Executive's possession
prior to the date hereof which was obtained from a source other than the Company
or its predecessors. Executive shall deliver to the Company at the termination
of the Employment Period, all memoranda, notes, plans, records, reports,
computer tapes and software and other documents and data (and copies thereof)
relating to Confidential Information, Work Product or the business of the
Company which he may then possess or have under his control.
10. Inventions and Patents. Executive agrees that all ideas, concepts,
----------------------
marketing strategies, management techniques, product development, methods,
designs, analyses, drawings, reports, and all similar or related information
which relates to the Company's actual or anticipated business, research and
development or existing or future
7
<PAGE>
products or services and which are conceived, developed or made by Executive
while employed by the Company ("Work Product") belong to the Company. Executive
will promptly disclose such Work Product to the Board and perform all actions
reasonably requested by the Board (whether during or after the Employment
Period) to establish and confirm such ownership (including, without limitation,
assignments, consents, powers of attorney and other instruments).
11. Non-Compete, Non-Solicitation.
-----------------------------
(a) Executive acknowledges that in the course of his employment with
the Company he will become familiar with the Company's trade secrets and with
other confidential information concerning the Company and that his services will
be of special, unique and extraordinary value to the Company. Therefore,
Executive agrees that, during the Employment Period, during any period in which
he is receiving payments pursuant to paragraph 5 or for which he has received a
lump sum payment pursuant to this Agreement or any subsequent agreement, and, if
terminated for Cause or by Executive's resignation before the Expiration Date,
for two years after such termination (the "Non-Compete Period"), he shall not
directly or indirectly own, manage, control, participate in, consult with,
render services for, or in any manner engage in any business competing with the
businesses of the Company as such businesses exist or are in process on the date
of the termination of Executive's employment, within any geographical area in
which the Company engages or plans to engage in such businesses, including
without limitation, hold a significant management position with any information
or entertainment network which markets to colleges or universities or any direct
broadcast satellite operator serving markets where the Company operates
(including markets in which, during the Employment Period, the Company has
executed or was in the process of negotiating a written agreement to acquire
such an operator). Notwithstanding the foregoing, nothing herein shall prohibit
Executive from (i) continuing his ownership, management and/or control of any
business in which and to the extent which he held such interests and managed
such interests prior to the Non-Compete Period, or (ii) being a passive owner of
not more than 5% of the outstanding stock of any class of a company which is
publicly traded, so long as Executive has no active participation in the
management or the business of such company.
(b) During the Employment Period and for eighteen months thereafter,
Executive shall not directly or indirectly through another entity (i) solicit,
encourage, interview, entice, discuss with or induce or attempt to induce any
employee of the Company to leave the employ of the Company, or in any way
interfere with the relationship between the Company and any employee thereof,
(ii) hire any person who was an employee of the Company at any time during the
Employment Period or (iii) induce or attempt to induce or attempt to induce any
customer, supplier, licensee or other business relation of the Company to cease
doing business with the Company, or in any way interfere with the relationship
between any such customer, supplier, licensee or business relation and the
Company.
8
<PAGE>
12. Enforcement. If, at the time of enforcement of paragraphs 9, 10 or 11
-----------
of this Agreement, a court holds that the restrictions stated herein are
unreasonable under circumstances then existing, the parities hereto agree that
the maximum period, scope or geographical area reasonable under such
circumstances shall be substituted for the stated period, scope and area.
Because Executive's services are unique and because Executive has access to
Confidential Information and Work Product, the parties hereto agree that money
damages would be an inadequate remedy for any breach of this Agreement.
Therefore, in the event a breach or threatened breach of this Agreement, the
Company or its successors or assigns may, in addition to other rights and
remedies existing in their favor, apply to any court of competent jurisdiction
for specific performance and/or injunctive or other relief in order to enforce,
or prevent any violations of, the provision hereof (without posting a bond or
other security).
13. Executive Representations. Executive hereby represents and warrants
-------------------------
to the Company that (i) the execution, delivery and performance of this
Agreement by Executive does not and will not conflict with, breach, violate or
cause a default under any contract, agreement, instrument, order, judgment or
decree to which Executive is a party or by which he is bound, (ii) Executive is
not a party to or bound by any employment agreement, non-compete agreement or
confidentiality agreement with any other person or entity, which would prohibit
his performance under this Agreement and (iii) upon the execution and delivery
of this Agreement by the Company, this Agreement shall be valid and binding
obligation of Executive, enforceable in accordance with its terms.
14. Survival. Paragraphs 9, 10, 11, 12 and 13 shall survive and continue
--------
in full force in accordance with their terms notwithstanding any termination of
the Employment Period.
15. Notices. Any notice provided for in this Agreement shall be in
-------
writing and shall be either personally delivered, mailed by first class mail
(postage prepaid and return receipt requested) or sent by telecopy or reputable
overnight courier service (charges prepaid) to the recipient at the address or
telecopy number below indicated:
Notices to Holdings:
U-C Holdings, L.L.C.
c/o Willis Stein & Partners, L.P.
227 W. Monroe Street, Suite 4300
Chicago, Illinois 60606
Telecopy No.: (312) 422-2424
Attention: Avy H. Stein
9
<PAGE>
With a copy to:
Kirkland & Ellis
200 East Randolph Drive
Chicago, Illinois 60601
Telecopy No.:(312) 861-2200
Attention: Margaret Gibson, Esq.
Notices to Executive:
Joseph D. Gersh
5784 Lake Forrest Drive, Suite 275
Atlanta, Georgia 30328
Telecopy No.: (404) 257-9517
With a copy to:
Morris, Manning and Martin, L.L.P.
1600 Atlanta Financial Center
3343 Peachtree Road, NE
Telecopy No.: (404) 365-9532
Attention: Neil H. Dickson, Esq.
Notices to Company:
UC Television Network Corp.
c/o Willis Stein & Partners, L.P.
227 W. Monroe Street
Suite 4300
Chicago, Illinois 60606
Telecopy No.: (312) 422-2424
With a copy to:
Kirkland & Ellis
200 East Randolph Drive
Chicago, Illinois 60601
Telecopy No.:(312) 861-2200
Attention: Margaret Gibson, Esq.
or such other address or telecopy number or to the attention of such other
person as the recipient party shall have specified by prior written notice to
the sending party. any notice under this Agreement will be deemed to have been
given when so delivered or sent or, if mailed, five days after deposit in the
U.S. mail.
10
<PAGE>
16. Severability. Whenever possible, each provision of this agreement will
------------
be interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Agreement is held to be invalid, illegal or
unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability will not affect
any other provision or any other jurisdiction, but this Agreement will be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision had never been contained herein.
17. Complete Agreement. This Agreement and those documents expressly
------------------
referred to herein and other documents of even date herewith embody the complete
agreement and understanding among the parties and supersede and preempt any
prior understandings, agreements or representations by or among the parties,
written or oral, which may have related to the subject matter hereof in any way.
18. Counterparts. This Agreement may be executed in separate
------------
counterparts, each of which to be an original and all of which taken together
constitute one and the same agreement.
19. Successors and Assigns. This Agreement is intended to bind and inure
----------------------
to the benefit of and be enforceable by all parties and their respective heirs,
successors and assigns, except that Executive may not assign his rights or
delegate his obligations hereunder without the prior written consent of the
Company.
20. Choice of Law. This Agreement will be governed by the internal law,
-------------
and not the laws of conflicts, of the State of New York.
21. Amendment and Waiver. The provisions of this Agreement may be amended
--------------------
or waived with the prior written consent of the Company and Executive, and no
course of conduct or failure or delay in enforcing the provisions of this
Agreement shall affect the validity binding effect or enforceability of this
Agreement.
11
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written above.
UC TELEVISION NETWORK CORP.
By: /s/ Peter Kauff
------------------
Peter Kauff
Chief Executive Officer and
Chairman of the Board
U-C HOLDINGS, L.L.C.
By: Willis Stein & Partners, L.P.
Its: Managing Partner
By: Willis Stein & Partners, L.L.C
Its: General Partner
By: /s/ Avy H. Stein
-------------------
Avy H. Stein
Its Manager
/s/ Joseph D. Gersh
----------------------
Joseph D. Gersh
12
<PAGE>
EXHIBIT 10.3
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT made as of April 29, 1997, between UC Television
Network Corp., a Delaware corporation (the "Company"), UC Holdings, L.L.C., a
Delaware limited liability company ("Holdings") and John T. Dobson III
("Executive").
In consideration of the mutual covenants contained herein and other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. Employment. The Company shall employ Executive, and Executive accepts
----------
employment with the Company, upon the terms and conditions set forth in this
Agreement for the period beginning on the date hereof and ending as provided in
paragraph 5 hereof (the "Employment Period").
2. Position and Duties.
-------------------
(a) During the Employment Period, Executive shall serve as the President of
the Company and shall have such duties, responsibilities and authority of the
President, subject to the direction of the Company's Chairman of the Board,
Chief Executive Officer, Vice Chairman, Chief Operating Officer and board of
directors (the "Board").
(b) Executive shall report to the Chairman of the Board, Chief Executive
Officer, Vice Chairman, Chief Operating Officer and the Board, and Executive
shall devote his full business time, attention and skills to the business and
affairs of the Company, except as otherwise approved by the Board.
Notwithstanding the foregoing, nothing in this Agreement shall restrict
Executive from managing his personal portfolio of investments so long as such
activities do not materially interfere or compete with the Company's business as
presently constituted or as conducted during the Employment Period.
3. [INTENTIONALLY OMITTED]
4. Base Salary and Benefits.
------------------------
(a) During the Employment Period, Executive's base salary shall be Two
Hundred Seventy-Five Thousand and No/100 Dollars ($275,000.00) per annum or such
higher rate as the Board may designate from time to time (the "Base Salary"),
which salary shall be payable semi-monthly in regular installments in accordance
with the Company's general payroll practices. The Base Salary shall be
increased on an annual basis by at least seven percent (7%) over the Base Salary
paid to Executive during the previous year of the Employment Period, to be
increased on each anniversary date of this Agreement.
<PAGE>
(b) The Company shall reimburse Executive for all reasonable expenses
incurred by him in the course of performing his duties under this Agreement
which are consistent with the Company's policies in effect from time to time
with respect to travel, entertainment and other business expenses, subject to
the Company's requirements with respect to reporting and documentation of such
expenses. In addition, during the Employment Period, the Company shall provide
Executive with an automobile allowance of Four Hundred and No/100 Dollars
($400.00) per month for the monthly payments, maintenance and operating expenses
for any automobile used by Executive. The Company shall pay for Executive's
apartment, including agency fee, in New York City up to $4,000 per month.
(c) In addition to the Base Salary, Executive shall receive an annual bonus
of up to One Hundred Thousand and No/100 Dollars ($100,000) (the "Performance
Bonus") within 15 days following receipt by the Board of the results of the
yearly audit financial statements performed by the Company's independent
auditors of each fiscal year during the Employment Period if Company achieves at
least 100% of its gross revenues projection for such fiscal year, which
projections are attached hereto as EXHIBIT A and are subject to adjustment by
the Board in its judgment from time to time to account for acquisitions,
divestitures, asset sales or asset purchases. Such Performance Bonus shall be
payable in advance in quarterly installments within 45 days following the end of
each of the first three quarters over the course of the fiscal year against
which gross revenues projection are being measured if Company shall have
achieved its projections for such fiscal quarter and set forth on EXHIBIT A. If
Company has failed to meet such quarterly projections as of the end of such
fiscal quarter, such quarterly installment on the Performance Bonus shall not be
payable. If, however, at the end of any subsequent fiscal quarter of the same
fiscal year or at the end of such year Company achieves at least 100% of the
cumulative projections for the 3 month, 6 month, 9 month or year fiscal period
then ending, any portion of the Performance Bonus which was not paid in any
previous quarter (of the same fiscal year) due to Company's failure to achieve
such performance measure shall be paid to Executive along with the then current
quarterly installment or end of year payment. If, at the end of any fiscal year
the performance conditions shall not have been satisfied as of the end of such
fiscal year, any quarterly installments paid on the Performance Bonus in such
fiscal year shall be, at the option of the Board, (w) set off against Base
Salary payable to Executive in equal semi-monthly deductions over the following
fiscal year, (x) set off against any future bonuses otherwise due to Executive
hereunder, (y) set off against any payments due to Executive pursuant to this
paragraph 4 and/or (z) refunded to the Company by Executive within 30 days after
having received written notice from the Board. The Performance Bonus or any
repayments thereof are subject to adjustment in accordance with the annual audit
performed by Company's independent auditors. Executive agrees to accept the
judgment of the independent auditors with regard to the attainment of Company's
projections as final and binding. The Board may also from time to time, in its
sole discretion, award Executive bonuses in addition to those defined in this
paragraph 4(c) notwithstanding Company's failure to achieve the projections set
forth in EXHIBIT A.
2
<PAGE>
(d) In addition to the Base Salary and any Performance Bonus payable to
Executive pursuant to this paragraph 4, Executive shall be entitled to
participate in all employee benefit plans and programs of the Company for which
senior executive officers of the Company are eligible, including, to the extent
available or established by the Company, any:
(i) family health insurance, disability insurance, and dental insurance
coverage;
(ii) 401(k), retirement or similar benefit plans; and
(iii) stock option plans of the Company; and
(iv) Executive shall be entitled to twenty (20) vacation days per year.
5. Term.
----
(a) The Employment Period shall commence on the Effective Date (as defined
in the Action of Board of Directors of the Company, dated April 25, 1997,
pursuant to which the directors elected Executive to the Office of the President
and end on the fourth anniversary of the date of this Agreement (the "Expiration
Date"); provided, however, that the Employment Period shall be automatically
extended for one year on the Expiration Date and at the end of each subsequent
year of the Executive's employment (an "Extension Period"; any such Extension
Periods shall be included in the definition of Employment Period) unless at
least six (6) months prior to the Expiration Date or the end of the then current
Extension Period, either the Company or the Executive shall give written notice
to the other that this Agreement shall not be so extended; and provided further
--------
that (i) the Employment Period shall terminate prior to such date upon
Executive's permanent disability or incapacity (determined as set forth below),
resignation or death and (ii) the Employment Period may be terminated by the
Company at any time prior to such date for Cause (as defined below) or without
Cause. Permanent Disability or incapacity shall occur if Executive misses sixty
(60) consecutive days of work and it is determined by an independent physician
that such disability or incapacity is permanent.
(b) If the Employment Period is terminated due to the Executive's death,
disability or incapacity, Executive shall be entitled to receive an aggregate
amount equal to twice his Base Salary. This amount shall be payable by the
Company in equal monthly installments over a period of two years following
termination of the Employment Period.
(c) If the Employment Period is terminated by the Company without Cause,
Executive shall be entitled to receive an aggregate amount equal to his Base
Salary, payable for the remainder of the Employment Period. This amount shall
be payable by the Company in equal monthly installments over the remainder of
the
3
<PAGE>
Employment Period, so long as Executive has not breached any of the provisions
of Paragraphs 9, 10 or 11 hereof.
(d) If the Employment Period is terminated by the Company for Cause, upon
the Executive's resignation or upon the expiration of the Employment Period
after either party has given notice of non-extension pursuant to Paragraph 5(a),
Executive shall be entitled to receive his Base Salary through the date of
termination and shall not be entitled to any other amounts hereunder.
(e) All of Executive's rights to fringe benefits hereunder (if any)
accruing at any time prior to or after the termination of the Employment Period
shall cease upon such termination; provided, however, that if Executive is
--------
terminated by the Company without Cause, the Company shall permit Executive to
continue to receive benefits under the Company's health insurance policies to
the extent permitted by such policies and applicable law, provided that such
--------
insurance coverage can be maintained at a reasonable cost to the Company; and
provided further, that the Company shall only maintain such insurance coverage
- --------
until the earlier of (y) the end of the period for which Executive is receiving
severance payments pursuant to paragraph 5 hereof and (z) the date Executive
accepts other employment. If the Employment Period is terminated due to the
Executive's death or disability, the Company shall pay Executive, pursuant to
the terms and conditions of paragraph 3(b) of this Agreement, such Performance
Bonuses as are then due and payable.
(f) For purposes of this Agreement, "Cause" shall mean (i) the conviction
of a felony or a crime involving moral turpitude or the conviction of any other
crime involving dishonesty, disloyalty or fraud with respect to the Company or
Holdings, (ii) gross negligence or willful misconduct with respect to the
Company, or (iii) any other material breach of this Agreement; or (iv) the
repeated failure to perform Executive's duties as directed by the Board;
provided, however, that with respect to clause (iii) or (iv) above, if such
- --------
failure or breach is capable of cure, such failure or breach, as the case may
be, shall not be deemed to constitute Cause unless such failure or breach
remains uncured after the expiration of 15 days after notice thereof to
Executive. In addition, the Employment Period may be terminated for "Cause" (A)
by action of the Board of Directors of the Company within 90 days after the end
of the Company's fiscal year in the event of the failure of Company to achieve
at least 85% of its projected gross revenues (according to the projections
attached hereto as Exhibit A) during the fiscal year preceding such action, or
(B) by either the Chairman of the Board or Vice Chairman of the Board, in his
sole discretion, within 90 days after the end of the Company's fiscal year in
the event of the failure of Company to achieve at least 90% of its projected
gross revenues (according to the projections attached hereto as Exhibit A)
during the fiscal year preceding such termination.
4
<PAGE>
6. Vesting of Executive Securities.
-------------------------------
(a) All of the Investor Units will be fully vested as of the date of
purchase and shall not be subject to repurchase. Except as otherwise provided
in paragraph 6(b) below, the Management Units will become vested, over the 48
month period after the date hereof, in equal proportions on each six month
anniversary date following the date of this Agreement if, as of such anniversary
date, Executive is employed by Company (i.e. 12.5% on the anniversary of each 6
month period).
(b) Upon a Sale of the Company, as defined in the Class C Warrant, or a
Sale of Holdings, all of the Management Units, which have not yet become vested
shall become vested at the time of such event. All of the Management Units
which have become vested pursuant to this paragraph 6 are referred to herein as
"Vested Executive Securities", and all Unvested Management Units are referred to
herein as "Unvested Executive Securities."
7. Repurchase Option.
-----------------
(a) General Repurchase Option. Upon the occurrence of the Termination Date
-------------------------
the Executive Securities (whether held by Executive or one or more of
Executive's Permitted Transferees) shall be subject to repurchase by Holdings
pursuant to the terms and conditions set forth in this paragraph 7 (the
"Repurchase Option"). The date on which Executive ceases to be employed by the
Company for any reason, is referred to herein as the "Termination Date."
(b) Termination For Other Than Cause. Notwithstanding anything herein to
--------------------------------
the contrary, if Executive is terminated without Cause all Unvested Executive
Securities shall become Vested Executive Securities and such Executive
Securities shall be subject to repurchase at Fair Market Value of such Executive
Securities.
(c) Termination for Cause or Resignation. Subject to paragraph 7(g) below,
------------------------------------
the purchase price for the Unvested Executive Securities on the Termination Date
if Executive is terminated for Cause, death, permanent disability or his
resigning, will be the Executive's Original Cost; and the purchase price for the
Vested Executive Securities shall be the Fair Market Value for such Vested
Executive Securities, as of the date of termination.
(d) Repurchase Option. As set forth above, Holdings may elect to purchase
-----------------
the applicable Executive Securities by delivering written notice (the "Holdings
Repurchase Notice") to the holder or holders of such Executive Securities within
90 days after the Termination Date. The Repurchase Notice will set forth the
number of such Executive Securities to be acquired from each holder, the
aggregate consideration to be paid for such Executive Securities and the time
and place for the closing of the transaction. The number of such Executive
Securities to be repurchased by Holdings shall first be satisfied to the extent
possible from the Unvested Executive Securities held by
5
<PAGE>
Executive at the time of delivery of the Repurchase Notice. If the number of
such Executive Securities then held by Executive is less than the total number
of Executive Securities Holdings has elected to purchase, Holdings shall
purchase the remaining Executive Securities elected to be purchased from the
other holder(s) of such Executive Securities under this paragraph 7, pro rata
according to the number of such Executive Securities held by such other
holder(s), respectively, at the time of delivery of the Repurchase Notice
(determined as nearly as practicable to the nearest unit or other applicable
denomination).
(e) Closing. Subject to paragraph 7(f) below, the closing of the purchase
-------
of the applicable Executive Securities pursuant to the Repurchase Option shall
take place on the date designated by Holdings in the Repurchase Notice, which
date shall not be more than 60 days nor less than five days after the later of
(i) the delivery of such notice(s) or (ii) the Fair Market Valuation Date.
Payment for such Executive Securities to be purchased pursuant to the Repurchase
Option shall be made by Holdings in four (4) equal installments, the first
installment payable on the closing of such purchase, the second payable four (4)
months after the closing, the third payable eight (8) months after the closing
and the fourth payable twelve (12) months after the closing, each such payment
made by check or wire transfer of funds, at the option of Holdings.
Notwithstanding anything to the contrary contained in this Agreement, Holdings
may withdraw their Repurchase Notice at any time prior to the closing of a
purchase of such Executive Securities pursuant to the Repurchase Option.
(f) Termination of Repurchase Option. The right of Holdings to repurchase
--------------------------------
Unvested Executive Securities pursuant to this paragraph 7 shall terminate upon
the first to occur of (i) the Sale of Holdings, or (ii) the Sale of the Company.
-----------------
The Repurchase Option set forth in this paragraph 7 will continue with respect
to such Executive Securities following any transfer thereof other than a
transfer to Holdings.
(g) Repurchase Restrictions. Notwithstanding anything to the contrary
-----------------------
contained in this Agreement, all repurchases of Executive Securities by
Holdings shall be subject to applicable restrictions contained in the General
Corporate Law of the State of Delaware. If any such restrictions prohibit the
repurchase of the Executive Securities hereunder which Holdings is otherwise
entitled or required to make, Holdings may make such repurchases as soon as it
is permitted to do so under such restrictions.
(h) Section 83B Election. Within 30 days after Executive purchases any
--------------------
Executive Securities from Holdings, Executive shall make an effective election
with the Internal Revenue Service under Section 83(b) of the Internal Revenue
Code and the regulations promulgated thereunder.
8. Definitions.
-----------
"Executive Securities" mean: (i) any Management Units acquired by
Executive, and (ii) any equity or debt securities issued or issuable directly or
indirectly
6
<PAGE>
with respect to the Executive Securities referred to in clauses (i) above by any
of a conversion, split, distribution or dividend or in connection with a
combination of securities, recapitalization, merger, consolidation or other
reorganization. Executive Securities shall continue to be Executive Securities
in the hands of any holder thereof (other than Holdings or any of its members).
"Fair Market Valuation Date" with respect to any Executive Securities means
the date on which its Fair Market Value is finally determined pursuant to the
definition of "Fair Market Value."
"Fair Market Value" of the Executive Securities means the Fair Market Value
as shall be determined jointly in good faith by Holdings and Executive; provided
--------
that if Holdings and Executive cannot so agree, then such value shall be
determined by an independent investment banking firm of national or regional
reputation utilizing valuation techniques then commonly used for the valuation
of such investment interests, which investment banking firm will be jointly
selected by Holdings and Executive in good faith, or if such parties cannot
agree on an investment banking firm, then such value shall be determined by an
investment banking firm selected by lot from a group of six firms possessing the
above described qualifications (three of whom shall be selected by Holdings and
three of whom shall be selected by Executive) from which one firm designated as
objectionable by each of Holdings and Executive has been eliminated (in either
case, the investment banking firm's determination shall be conclusive). The
expenses of any such appraisal shall be borne equally by the parties. In
determining the Fair Market Value of Executive Securities to be purchased
pursuant to the exercise of the Repurchase Option, the parties or the investment
bank, as the case may be, shall use the average of the thirty (30) day trading
price of Common Stock of the Company as a partial determining factor. There
shall be no discount in value to reflect minority interest, and it shall be
assumed for purposes of such determination that there are no restrictions on
transfer of any Executive Securities, that a willing buyer exists for purchase
of the same and that the Executive is under no compulsion to sell any Executive
Securities. It is the intent of the parties that the value shall be the value
of the securities of the Company's owned by Holdings in Company multiplied by
Executive's Ownership in Holdings. References in this definition to Executive
shall mean Executive's personal representative if he is deceased or
incapacitated.
"Investor Units" shall have the meaning ascribed to it in the LLC
Agreement.
"LLC Agreement" shall mean the Limited Liability Company Agreement of U-C
Holdings, L.L.C. dated April 25, 1997.
"Management Units" shall have the meaning ascribed to it in the LLC
Agreement.
7
<PAGE>
"Original Cost" of the Executive Securities will be the price per such
security paid by Executive pursuant to this Agreement or otherwise (in each
case, as proportionately adjusted for all subsequent security splits, security
dividends, security distributions and other recapitalizations affecting the
Executive Securities).
"Sale of Holdings" shall mean the sale of substantially all of the equity
interest of Holdings or the sale of all or substantially all the assets of
Holdings in Company.
"Securities Act" means the Securities Act of 1933, as amended from time to
time.
9. Confidential Information. The Executive acknowledges that the
------------------------
information, observations and data obtained by him while employed by the
Company, or during the due diligence process in connection with Holdings
investment in the Company, concerning the business or affairs of the Company
("Confidential Information") are the property of the Company. Therefore,
Executive agrees that, except in the performance of duties for the Company, he
shall not disclose to any unauthorized person or use for his own account any
Confidential Information without prior written consent of the Board, except (i)
to the extent that the aforementioned matters become generally known to and
available for use by the public other than as a result of Executive's wrongful
acts or omissions to act, (ii) as necessary to comply with compulsory legal
process, provided that Executive shall provide prior notice to the Company
--------
regarding such disclosure and the Company, as applicable, shall have the right
to contest such disclosure, (iii) as necessary to counsel and other professional
advisors retained by the Executive, subject to the attorney/client privilege or
a valid and binding non-disclosure agreement between Executive and such
professional and (iv) disclosures of information obtained from a third party
free of restrictions or disclosure of information in Executive's possession
prior to the date hereof which was obtained from a source other than the Company
or its predecessors. Executive shall deliver to the Company at the termination
of the Employment Period, all memoranda, notes, plans, records, reports,
computer tapes and software and other documents and data (and copies thereof)
relating to Confidential Information, Work Product or the business of the
Company which he may then possess or have under his control.
10. Inventions and Patents. Executive agrees that all ideas, concepts,
----------------------
marketing strategies, management techniques, product development, methods,
designs, analyses, drawings, reports, and all similar or related information
which relates to the Company's actual or anticipated business, research and
development or existing or future products or services and which are conceived,
developed or made by Executive while employed by the Company ("Work Product")
belong to the Company. Executive will promptly disclose such Work Product to
the Board and perform all actions reasonably requested by the Board (whether
during or after the Employment Period) to establish and confirm such ownership
(including, without limitation, assignments, consents, powers of attorney and
other instruments).
8
<PAGE>
11. Non-Compete, Non-Solicitation.
-----------------------------
(a) Executive acknowledges that in the course of his employment with the
Company he will become familiar with the Company's trade secrets and with other
confidential information concerning the Company and that his services will be of
special, unique and extraordinary value to the Company. Therefore, Executive
agrees that, during the Employment Period, during any period in which he is
receiving payments pursuant to paragraph 5 or for which he has received a lump
sum payment pursuant to this Agreement or any subsequent agreement, and, if
terminated for Cause or by Executive's resignation before the Expiration Date,
for two years after such termination (the "Non-Compete Period"), he shall not
directly or indirectly own, manage, control, participate in, consult with,
render services for, or in any manner engage in any business competing with the
businesses of the Company as such businesses exist or are in process on the date
of the termination of Executive's employment, within any geographical area in
which the Company engages or plans to engage in such businesses, including
without limitation, hold a significant management position with any information
or entertainment network which markets to colleges or universities serving
markets where the Company operates (including markets in which, during the
Employment Period, the Company has executed or was in the process of negotiating
a written agreement to acquire such an operator). Notwithstanding the
foregoing, nothing herein shall prohibit Executive from (i) continuing his
ownership, management and/or control of any business in which and to the extent
which he held such interests and managed such interests prior to the Non-Compete
Period, or (ii) being a passive owner of not more than 5% of the outstanding
stock of any class of a company which is publicly traded, so long as Executive
has no active participation in the management or the business of such company.
(b) During the Employment Period and for eighteen months thereafter,
Executive shall not directly or indirectly through another entity (i) solicit,
encourage, interview, entice, discuss with or induce or attempt to induce any
employee of the Company to leave the employ of the Company, or in any way
interfere with the relationship between the Company and any employee thereof,
(ii) hire any person who was an employee of the Company at any time during the
Employment Period or (iii) induce or attempt to induce or attempt to induce any
customer, supplier, licensee or other business relation of the Company to cease
doing business with the Company, or in any way interfere with the relationship
between any such customer, supplier, licensee or business relation and the
Company.
12. Enforcement. If, at the time of enforcement of paragraphs 9, 10 or 11
-----------
of this Agreement, a court holds that the restrictions stated herein are
unreasonable under circumstances then existing, the parities hereto agree that
the maximum period, scope or geographical area reasonable under such
circumstances shall be substituted for the stated period, scope and area.
Because Executive's services are unique and because Executive has access to
Confidential Information and Work Product, the parties hereto agree that money
damages would be an inadequate remedy for any breach of this Agreement.
9
<PAGE>
Therefore, in the event a breach or threatened breach of this Agreement, the
Company or its successors or assigns may, in addition to other rights and
remedies existing in their favor, apply to any court of competent jurisdiction
for specific performance and/or injunctive or other relief in order to enforce,
or prevent any violations of, the provision hereof (without posting a bond or
other security).
13. Executive Representations. Executive hereby represents and warrants
-------------------------
to the Company that (i) the execution, delivery and performance of this
Agreement by Executive does not and will not conflict with, breach, violate or
cause a default under any contract, agreement, instrument, order, judgment or
decree to which Executive is a party or by which he is bound, (ii) Executive is
not a party to or bound by any employment agreement, non-compete agreement or
confidentiality agreement with any other person or entity, which would prohibit
his performance under this Agreement and (iii) upon the execution and delivery
of this Agreement by the Company, this Agreement shall be valid and binding
obligation of Executive, enforceable in accordance with its terms.
14. Survival. Paragraphs 9, 10, 11, 12 and 13 shall survive and continue
--------
in full force in accordance with their terms notwithstanding any termination of
the Employment Period.
15. Notices. Any notice provided for in this Agreement shall be in
-------
writing and shall be either personally delivered, mailed by first class mail
(postage prepaid and return receipt requested) or sent by telecopy or reputable
overnight courier service (charges prepaid) to the recipient at the address or
telecopy number below indicated:
Notices to Holdings:
U-C Holdings, L.L.C.
c/o Willis Stein & Partners, L.P.
227 W. Monroe Street, Suite 4300
Chicago, Illinois 60606
Telecopy No.: (312) 422-2424
Attention: Avy H. Stein
With a copy to:
Kirkland & Ellis
200 East Randolph Drive
Chicago, Illinois 60601
Telecopy No.: (312) 861-2200
Attention: Margaret Gibson, Esq.
10
<PAGE>
Notices to Executive:
John T. Dobson III
2660 Peachtree Rd, NW
No. 17-G
Atlanta, GA 30305
Telecopy No.: (404) 869-7899
With a copy to:
Morris, Manning and Martin, L.L.P.
1600 Atlanta Financial Center
3343 Peachtree Road, NE
Telecopy No.: (404) 365-9532
Attention: Neil H. Dickson, Esq.
Notices to Company:
UC Television Network Corp.
5784 Lake Forrest Drive
Suite 275
Atlanta, GA 30328
Telecopy No.: (404) 257-9517
With a copy to:
Kirkland & Ellis
200 East Randolph Drive
Chicago, Illinois 60601
Telecopy No.: (312) 861-2200
Attention: Margaret Gibson, Esq.
or such other address or telecopy number or to the attention of such other
person as the recipient party shall have specified by prior written notice to
the sending party. any notice under this Agreement will be deemed to have been
given when so delivered or sent or, if mailed, five days after deposit in the
U.S. mail.
16. Severability. Whenever possible, each provision of this agreement will
------------
be interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Agreement is held to be invalid, illegal or
unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability will not affect
any other provision or any other jurisdiction, but this Agreement will be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision had never been contained herein.
11
<PAGE>
17. Complete Agreement. This Agreement and those documents expressly
------------------
referred to herein and other documents of even date herewith embody the complete
agreement and understanding among the parties and supersede and preempt any
prior understandings, agreements or representations by or among the parties,
written or oral, which may have related to the subject matter hereof in any way.
18. Counterparts. This Agreement may be executed in separate
------------
counterparts, each of which to be an original and all of which taken together
constitute one and the same agreement.
19. Successors and Assigns. This Agreement is intended to bind and inure
----------------------
to the benefit of and be enforceable by all parties and their respective heirs,
successors and assigns, except that Executive may not assign his rights or
delegate his obligations hereunder without the prior written consent of the
Company.
20. Choice of Law. This Agreement will be governed by the internal law,
-------------
and not the laws of conflicts, of the State of New York.
21. Amendment and Waiver. The provisions of this Agreement may be amended
--------------------
or waived with the prior written consent of the Company and Executive, and no
course of conduct or failure or delay in enforcing the provisions of this
Agreement shall affect the validity binding effect or enforceability of this
Agreement.
12
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written above.
UC TELEVISION NETWORK CORP.
By: /s/ Peter Kauff
------------------
Peter Kauff
Chief Executive Officer and
Chairman of the Board
U-C HOLDINGS, L.L.C.
By: Willis Stein & Partners, L.P.
Its: Managing Member
By: Willis Stein & Partners, L.L.C.
Its: General Partner
By: /s/ Avy H. Stein
-------------------
Avy H. Stein
Its: Manager
/s/ John T. Dobson III
-------------------------
John T. Dobson III
13
<PAGE>
EXHIBIT A
---------
<TABLE>
1997 1998 1999 2000 2001
------------ ------------ ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Gross Revenue $3,000,000 $7,000,000 $12,000,000 $22,000,000 $40,000,000
</TABLE>
14
<PAGE>
EXHIBIT 10.4
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT made as of April 25, 1997, between UC Television
Network Corp., a Delaware corporation (the "Company") and Peter Kauff
("Executive").
In consideration of the mutual covenants contained herein and other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. Employment. The Company shall employ Executive, and Executive accepts
----------
employment with the Company, upon the terms and conditions set forth in this
Agreement for the period beginning on the date hereof and ending as provided in
paragraph 4 hereof (the "Employment Period").
2. Position and Duties.
-------------------
(a) During the Employment Period, Executive shall serve as Chief
Operating Officer of the Company and shall have the normal duties,
responsibilities and authority of the Chief Operating Officer, subject to the
direction of the Company's Chief Executive Officer, Vice-Chairman and board of
directors (the "Board"). Executive shall not be required by the Company to re-
locate his office to any location outside of the metropolitan New York, New York
area during the Employment Period and the Company shall provide an office for
Executive, with adequate secretarial assistance. Executive shall also receive a
private office suitable for his position.
(b) Executive shall report to the Board, the Chief Executive Officer
and Vice-Chairman of the Board, and Executive shall devote his full business
time, attention and skills to the business and affairs of the Company.
3. Base Salary and Benefits.
------------------------
(a) During the Employment Period, Executive's base salary shall be Two
Hundred Seventy-Five Thousand and No/100 Dollars ($275,000.00) per annum or such
higher rate as the Board may designate from time to time (the "Base Salary"),
which salary shall be payable semi-monthly in regular installments in accordance
with the Company's general payroll practices. Executive's Base Salary shall be
increased annually by that percentage, if any, by which the Consumer Price
Index, Urban Wage Earners, for the New York, New York Metropolitan area,
published by the United States Government for the month beginning on such April
1, exceeds such Index for the preceding April. The parties hereto hereby agree
that if the above index is not readily available, they will agree on a
reasonable equivalent thereof.
(b) The Company shall reimburse Executive for all reasonable expenses
incurred by him in the course of performing his duties under this Agreement
which are consistent with the Company's policies in effect from time to time
with respect
<PAGE>
to travel, entertainment and other business expenses, subject to the Company's
requirements with respect to reporting and documentation of such expenses.
Executive shall be entitled to utilize first-class travel and first-class
accommodations. In addition, during the Employment Period, the Company shall
provide Executive with an automobile allowance of Five Hundred and No/100
Dollars ($500.00) per month for the monthly payments, maintenance and operating
expenses for any automobile used by Executive.
(c) In addition to the Base Salary and any Bonus payable to Executive
pursuant to this paragraph 3, Executive shall be entitled to participate in all
employee benefit plans and programs of the Company for which senior executive
officers of the Company are eligible, including, to the extent available or
established by the Company, any:
(i) family health insurance, disability insurance, and dental
insurance coverage;
(ii) 401(k), retirement or similar benefit plans;
(iii) stock option plans of the Company; and
(iv) Executive shall be entitled to twenty (20) business days
vacation per year and he shall be entitled to be absent from the office for one-
half days on each Friday from Memorial Day to Labor Day, provided such vacation
time does not interfere with the operations of the Company in the reasonable
judgement of the Executive.
(d) Executive owns the securities in the Company listed below:
25,000 shares of common stock
250,325 Options under 1990 Plan
199,633 Options under 1996 Plan
1,350,000 Nonqualified Options under outside Plans
Executive acknowledges that he is not entitled to or guaranteed any
other options, securities or warrants and that there is no requirement that the
Board authorize or provide any other anti-dilution rights to Executive in
connection with his current options or warrants, except as provided to all other
such option or warrant holders. Company acknowledges that all of Executive's
Options are presently fully vested, by reason of the change in control occurring
pursuant to the purchase agreement with U-C Holdings, L.L.C.
2
<PAGE>
4. Term.
----
(a) The Employment Period shall commence on the release under that
certain Escrow Agreement, dated April 29, 1997, among the Company; U-C Holdings,
L.L.C. and LaSalle National Bank, as escrow agent (the "Escrow Agreement")
release of the Escrow Deposit in which the Company receives the purchase price
for 29,290,909 shares of its Common Stock pursuant to Section 5 of the Escrow
Agreement (the "Effective Date") and end on the fourth anniversary of the date
of this Agreement (the "Expiration Date"); provided, however, that the
Employment Period shall be automatically extended for one year on the Expiration
Date and at the end of each subsequent year of the Executive's employment (an
"Extension Period"; any such Extension Periods shall be included in the
definition of Employment Period) unless at least six (6) months prior to the
Expiration Date or the end of the then current Extension Period, either the
Company or the Executive shall give written notice to the other that this
Agreement shall not be so extended; and provided further that (i) the Employment
--------
Period shall terminate prior to such date upon Executive's permanent disability
or incapacity (determined as set forth below), resignation or death and (ii) the
Employment Period may be terminated by the Company at any time prior to such
date for Cause (as defined below) or without Cause. Permanent Disability or
incapacity shall occur if Executive misses sixty (60) consecutive days of work
and it is determined by an independent physician that such disability or
incapacity is permanent. If the purchase and sale of 29,090,909 shares to U-C
Holdings, L.L.C., is rescinded, this Agreement shall be of no further force of
effect.
(b) If Employment Period is terminated due to the Executive's death,
disability or incapacity, Executive shall be entitled to receive an aggregate
amount equal to twice his Base Salary. This amount shall be payable by the
Company in equal monthly installments over a period of two years following
termination of the Employment Period.
(c) If either Company or Executive terminates the Agreement for any
reason prior to the first anniversary of the Effective Date of this Agreement,
Executive shall be entitled to receive the sum of $500,000 in a lump sum payment
without set-offs except for cash advances owed to Company, within 10 days of
termination. If Company terminates this Agreement prior to such first
anniversary, Executive shall also receive his Base Salary for the remaining
period of time to such first anniversary paid in equal monthly installments.
This shall be Executive's sole severance upon such termination.
(d) After the first anniversary of this Agreement, if the Employment
Period is terminated by the Company without Cause, Executive shall be entitled
to receive an aggregate amount equal to his Base Salary payable for the
remainder of the Employment Period. This amount shall be payable by the Company
in equal monthly installments over the remainder of the Employment Period, so
long as Executive has not materially breached any of the provisions of
Paragraphs 5, 6 or 7 hereof.
(e) If the Employment Period is terminated by the Company for Cause,
upon the Executive's resignation after the first anniversary of this Agreement
or
3
<PAGE>
upon the expiration of the Employment Period after either party has given
notice of non-extension pursuant to Paragraph 4(a), Executive shall be entitled
to receive his Base Salary through the date of termination and shall not be
entitled to any other amounts hereunder.
(f) All of Executive's rights to fringe benefits hereunder (if any)
shall cease upon such termination; provided, however, that if Executive is
--------
terminated by the Company without Cause after the first anniversary the Company
shall permit Executive to continue to receive benefits under the Company's
health insurance policies to the extent permitted by such policies and
applicable law, provided that such insurance coverage can be maintained at a
--------
reasonable cost to the Company; and provided further, that the Company shall
--------
only maintain such insurance coverage until the earlier of (y) the end of the
period for which Executive is receiving severance payments pursuant to paragraph
4 hereof and (z) the date Executive accepts other employment.
(g) For purposes of this Agreement, "Cause" shall mean (i) the
conviction of a felony or a crime involving moral turpitude or the conviction of
any other crime involving dishonesty, disloyalty or fraud with respect to the
Company or Holdings, (ii) gross negligence or willful misconduct with respect to
the Company, (iii) any other material breach of this Agreement, or (iv) the
repeated failure to perform Executive's duties as directed by the Board, Chief
Executive Officer or Vice-Chairman; provided, however, that with respect to
--------
clause (ii), (iii) or (iv) above, if such failure or breach is capable of cure,
such failure or breach, as the case may be, shall not be deemed to constitute
Cause unless such failure or breach remains uncured after the expiration of 15
days after notice thereof to Executive.
(h) The Executive shall not be under a duty to mitigate the Company's
damages by seeking other employment, as a condition to receiving payments
specified herein.
5. Confidential Information. The Executive acknowledges that the
------------------------
information, observations and data obtained by him while employed by the Company
concerning the business or affairs of the Company ("Confidential Information")
are the property of the Company. Therefore, Executive agrees that, except in
the performance of duties for the Company, he shall not disclose to any
unauthorized person or use for his own account any Confidential Information
without prior written consent of the Board, except (i) to the extent that the
aforementioned matters become generally known to and available for use by the
public other than as a result of Executive's wrongful acts or omissions to act,
(ii) as necessary to comply with compulsory legal process, provided that
--------
Executive shall provide prior notice to the Company regarding such disclosure
and the Company, as applicable, shall have the right to contest such disclosure,
(iii) as necessary to counsel and other professional advisors retained by the
Executive, subject to the attorney/client privilege or a valid and binding non-
disclosure agreement between Executive and such professional and (iv)
disclosures of information obtained from a third party free of restrictions or
disclosure of information in Executive's possession prior to the date hereof
which was obtained from a source other than the Company or its predecessors.
Executive shall deliver to the Company at the termination of the
4
<PAGE>
Employment Period, all memoranda, notes, plans, records, reports, computer tapes
and software and other documents and data (and copies thereof) relating to
Confidential Information, Work Product or the business of the Company which he
may then possess or have under his control.
6. Inventions and Patents. Executive agrees that all ideas, concepts,
----------------------
marketing strategies, management techniques, product development, methods,
designs, analyses, drawings, reports, and all similar or related information
which relates to the Company's actual or anticipated business, research and
development or existing or future products or services relating to the Company's
business of College television networks and which are conceived, developed or
made by Executive while employed by the Company ("Work Product") belong to the
Company. Executive will promptly disclose such Work Product to the Board and
perform all actions reasonably requested by the Board (whether during or after
the Employment Period) to establish and confirm such ownership (including,
without limitation, assignments, consents, powers of attorney and other
instruments).
7. Non-Compete, Non-Solicitation.
-----------------------------
(a) Executive acknowledges that in the course of his employment with
the Company he will become familiar with the Company's trade secrets and with
other confidential information concerning the Company and that his services will
be of special, unique and extraordinary value to the Company. Therefore,
Executive agrees that, during the Employment Period and during any period in
which he is receiving payments pursuant to paragraph 4 or for which he has
received a lump sum payment pursuant to this Agreement (the period for payment
pursuant to Section 4(c) shall be deemed to be 18 months plus the period of time
of monthly payments, if any) or any subsequent agreement, and, if terminated for
Cause or by Executive's resignation before the Expiration Date or expiration on
the Expiration Date, for the lesser of: (i) two years after such termination or
(ii) if the Employment Period expires, one year from expiration (the "Non-
Compete Period"), he shall not directly or indirectly own, manage, control,
participate in, consult with, render services for, or in any manner engage in
any business competing with the businesses of the Company as such businesses
exist or are in process on the date of the termination of Executive's
employment, within any geographical area in which the Company engages or plans
to engage in such businesses, including without limitation, hold a significant
management position with any information or entertainment network which markets
to limited population segments, where the Company operates (including markets in
which, during the Employment Period, the Company has executed or was in the
process of negotiating a written agreement to acquire such an operator).
Notwithstanding the foregoing, nothing herein shall prohibit Executive from (i)
continuing his ownership, management and/or control of any business in which and
to the extent which he held such interests prior to the Non-Compete Period, or
(ii) being a passive owner of not more than 5% of the outstanding stock of any
class of a company which is publicly traded, so long as Executive has no active
participation in the management or the business of such company; or (iii) being
involved, in any manner or capacity, in the general television cable, "DBS," or
radio broadcast industry, as contrasted with television transmission to a
specialized segments of the market such as university,
5
<PAGE>
school or industrial locations; or current production, record production or
distribution; or movie, television and theatrical productions.
(b) During the Employment Period and for eighteen months thereafter,
Executive shall not directly or indirectly through another entity (i) solicit,
encourage, interview, entice, discuss with or induce or attempt to induce any
employee of the Company to leave the employ of the Company, or in any way
interfere with the relationship between the Company and any employee thereof,
(ii) hire any person who was an employee of the Company at any time during the
Employment Period or (iii) induce or attempt to induce or attempt to induce any
customer, supplier, licensee or other business relation of the Company to cease
doing business with the Company, or in any way interfere with the relationship
between any such customer, supplier, licensee or business relation and the
Company.
8. Enforcement. If, at the time of enforcement of paragraphs 5, 6 or 7
-----------
of this Agreement, a court holds that the restrictions stated herein are
unreasonable under circumstances then existing, the parities hereto agree that
the maximum period, scope or geographical area reasonable under such
circumstances shall be substituted for the stated period, scope and area.
Because Executive's services are unique and because Executive has access to
Confidential Information and Work Product, the parties hereto agree that money
damages would be an inadequate remedy for any breach of this Agreement.
Therefore, in the event a breach or threatened breach of this Agreement, the
Company or its successors or assigns may, in addition to other rights and
remedies existing in their favor, apply to any court of competent jurisdiction
for specific performance and/or injunctive or other relief in order to enforce,
or prevent any violations of, the provision hereof (without posting a bond or
other security).
9. Executive Representations. Executive hereby represents and warrants
-------------------------
to the Company that (i) the execution, delivery and performance of this
Agreement by Executive does not and will not conflict with, breach, violate or
cause a default under any contract, agreement, instrument, order, judgment or
decree to which Executive is a party or by which he is bound, (ii) Executive is
not a party to or bound by any employment agreement, non-compete agreement or
confidentiality agreement with any other person or entity, which would prohibit
his performance under this Agreement and (iii) upon the execution and delivery
of this Agreement by the Company, this Agreement shall be valid and binding
obligation of Executive, enforceable in accordance with its terms.
10. Survival. Paragraphs 5, 6, 7 8 and 9 shall survive and continue in
--------
full force in accordance with their terms notwithstanding any termination of the
Employment Period.
11. Notices. Any notice provided for in this Agreement shall be in
-------
writing and shall be either personally delivered, mailed by first class mail
(postage prepaid and return receipt requested) or sent by telecopy or reputable
overnight courier service (charges prepaid) to the recipient at the address or
telecopy number below indicated:
6
<PAGE>
Notices to Executive:
Peter Kauff
c/o Richard Marlin
Kramer Levin Naftalis & Frankel
919 Third Avenue
New York, NY 10022
Telecopy No.: 212-715-8000
Notices to Company:
Willis Stein & Partners
227 West Monroe Street
Suite 4300
Chicago, IL 60606
Telecopy No.: (312) 422-2424
Attention: Avy H. Stein
With a copy to:
Morris, Manning & Martin, L.L.P.
3343 Peachtree Road, N.E.
1600 Atlanta Financial Center
Atlanta, Georgia 30326
Telecopy No.: (404) 365-9532
Attention:Neil H. Dickson, Esq.
Kirkland & Ellis
200 East Randolph Drive
Chicago, Illinois 60601
Telecopy No.:(312) 861-2424
Attention: Margaret Gibson, Esq.
or such other address or telecopy number or to the attention of such other
person as the recipient party shall have specified by prior written notice to
the sending party. Any notice under this Agreement will be deemed to have been
given when so delivered or sent or, if mailed, five days after deposit in the
U.S. mail.
12. Severability. Whenever possible, each provision of this agreement will
------------
be interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Agreement is held to be invalid, illegal or
unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability will not affect
any other provision or any other jurisdiction, but this Agreement will be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision had never been contained herein.
7
<PAGE>
13. Complete Agreement. This Agreement and those documents expressly
------------------
referred to herein and other documents of even date herewith embody the complete
agreement and understanding among the parties and supersede and preempt any
prior understandings, agreements or representations by or among the parties,
written or oral, which may have related to the subject matter hereof in any way.
14. Counterparts. This Agreement may be executed in separate
------------
counterparts, each of which to be an original and all of which taken together
constitute one and the same agreement.
15. Successors and Assigns. This Agreement is intended to bind and inure
----------------------
to the benefit of and be enforceable by all parties and their respective heirs,
successors and assigns, except that Executive may not assign his rights or
delegate his obligations hereunder without the prior written consent of the
Company.
16. Choice of Law. This Agreement will be governed by the internal law,
-------------
and not the laws of conflicts, of the State of New York. The parties consent to
submit to the jurisdiction of the federal or state courts in New York, New York
in connection with any dispute arising hereunder.
17. Amendment and Waiver. The provisions of this Agreement may be amended
--------------------
or waived with the prior written consent of the Company and Executive, and no
course of conduct or failure or delay in enforcing the provisions of this
Agreement shall affect the validity binding effect or enforceability of this
Agreement.
18. Expenses. If the parties resort to litigation to resolve a dispute
--------
between the parties, the losing party shall pay the legal fees and court costs
of the prevailing party.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written above.
UC TELEVISION NETWORK CORP.
By: /s/ Alan Pearl
-----------------
Its: Chief Financial Officer
/s/ Peter Kauff
------------------
PETER KAUFF
8
<PAGE>
EXHIBIT 10.5
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT is made as of September 10, 1997 between UC
Television Network Corp., a Delaware corporation (the "Company") and Patrick G.
Doran ("Employee").
In consideration of the mutual covenants contained herein and other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. Employment. The Company shall employ Employee, and Employee accepts
----------
employment with the Company, upon the terms and conditions set forth in this
Agreement for the period beginning on the Effective Date and ending as provided
in paragraph 4 hereof (the "Employment Period").
2. Position and Duties.
-------------------
During the Employment Period, Employee shall serve as the Chief
Financial Officer of the Company and have duties consistent with such position
and shall be employed by the Company on a full-time basis and shall devote his
full business and professional efforts to the conduct of Company's business.
Employee shall not render services to any other business or entity without the
prior written consent of the Company's Board of Directors ("Board"). Employee
shall not be required to move from Atlanta, Georgia; provided, however, that
travel is required as part of Employee's duties.
3. Base Salary and Benefits.
------------------------
(a) During the Employment Period, Employee's base salary shall be ONE
HUNDRED FIFTY THOUSAND DOLLARS AND NO/100 ($150,000.00) per annum for the period
of time from the Effective Date, subject to increase in the discretion of the
Board (the "Base Salary"). The Base Salary shall be payable in regular
installments in accordance with the Company's general payroll practices.
(b) The Company shall reimburse Employee for all reasonable expenses
incurred by him in the course of performing his duties under this Agreement
which are consistent with the Company's policies in effect from time to time
with respect to travel, entertainment and other business expenses, subject to
the Company's requirements with respect to reporting and documentation of such
expenses.
(c) In addition to the Base Salary, Employee shall receive an annual
bonus to be determined by the Company on a yearly basis (the "Annual Bonus").
The amount and calculation of the Annual Bonus is: (i) $20,000 if the Company
achieves 80% of its affiliate relations goal (to be determined by the Company);
(ii) $20,000 if the Company achieves 80% of its stated sales goal (to be
determined by the Company); the above goals will be communicated to Employee in
writing within sixty (60) days after the Effective Date and annually thereafter;
and (iii) $20,000 at the discretion of the Chief Executive Officer of the
Company and the Board.
<PAGE>
(d) In addition to the Base Salary and any Annual Bonus payable to
Employee pursuant to this paragraph 3, Employee shall be entitled to participate
in all employee benefit plans and programs of the Company for which officers of
the Company are eligible, including, to the extent available or established by
the Company, any:
(i) family health insurance, disability insurance, and dental
insurance (Company shall reimburse Employee for COBRA payments to his old
employer during the waiting period (if any) for health and dental insurance);
(ii) 401(k), retirement or similar benefit plans; and
(iii) stock options for 151,000 shares pursuant to the Company's
Stock Option Plan.
(e) During the Employment Period, the Company shall provide Employee
with an automobile allowance of Four Hundred Seventeen and No/100 Dollars
($417.00) per month for the monthly payments, maintenance and operating expenses
for any automobile used by Employee.
(f) During the Employment Period, Employee shall receive fifteen (15)
days paid vacation per annum.
4. Term.
----
(a) The Employment Period shall commence on September 10, 1997 (the
"Effective Date"). The Employment Period shall commence on the Effective Date
and end on September 9, 2000 (the "Expiration Date"). The Employment Period may
be extended by the mutual consent of the parties; (an "Extension Period"; any
such Extension Periods shall be included in the definition of Employment Period)
(if the Company does not elect to offer an Extension Period, such notification
shall be sent to Employee in writing at least one hundred twenty (120) days
prior to the expiration of the Employment Period); and provided further that (i)
--------
the Employment Period shall terminate prior to such date upon Employee's
permanent disability or incapacity (determined as set forth below), resignation
or death, and (ii) the Employment Period may be terminated by the Company at any
time prior to such date for Cause (as defined below) or without Cause.
Permanent Disability or incapacity shall occur if Employee misses sixty (60)
consecutive days of work and it is determined by an independent physician that
such disability or incapacity is permanent.
(b) If the Employment Period is terminated by the Company for Cause or
upon the Employee's resignation, Employee shall be entitled to receive his Base
Salary and unpaid earned vacation and other benefits through the date of
termination and shall not be entitled to any other amounts hereunder.
(c) If the Employment Period is terminated by reason of the Employee's
death or Permanent Disability or upon the expiration of the Employment Period
after either party has
2
<PAGE>
given notice of non-extension pursuant to Paragraph 4(a), Employee shall be
entitled to receive his Base Salary and unpaid earned vacation and other
benefits through the date of termination.
(d) If the Employment Period is terminated by the Company without
Cause, Employee shall be entitled to receive his base salary plus benefits and
bonus for the remainder of the Employment Period.
(e) For purposes of this Agreement, "Cause" shall mean (i) the
conviction of a felony or a crime involving moral turpitude or the conviction of
any other crime involving dishonesty, disloyalty or fraud with respect to the
Company, (ii) gross negligence or willful misconduct with respect to the
Company, or (iii) any other material breach of this Agreement, or (iv) the
repeated failure to perform Employee's duties as directed by the Board (which
duties shall be consistent with Employee's position and duties as set forth in
Section 1 and 2 above); provided, however, that with respect to clause (iii) or
--------
(iv) above, if such failure or breach is capable of cure, such failure or
breach, as the case may be, shall not be deemed to constitute Cause unless such
failure or breach remains uncured after the expiration of ten (10) days after
notice thereof to Employee.
(f) Notwithstanding the foregoing, Employee shall have the obligation
to mitigate damages and obtain other employment upon termination, which will
reduce and offset the payments hereunder.
5. Confidential Information. The Employee acknowledges that the
------------------------
information, observations and data obtained by him while employed by the Company
concerning the business or affairs of the Company ("Confidential Information")
are the property of the Company. Therefore, Employee agrees that, except in the
performance of duties for the Company, he shall not during the Employment Period
or for two (2) years after the Termination Date, for any reason whatsoever,
disclose to any unauthorized person or use for his own account any Confidential
Information without prior written consent of the Board, except (i) to the extent
that the aforementioned matters become generally known to and available for use
by the public other than as a result of Employee's wrongful acts or omissions to
act, (ii) as necessary to comply with compulsory legal process, provided that
Employee shall provide prior notice to the Company regarding such disclosure and
the Company, as applicable, shall have the right to contest such disclosure,
(iii) as necessary to counsel and other professional advisors retained by the
Employee, subject to the attorney/client privilege or a valid and binding non-
disclosure agreement between Employee and such professional and (iv) disclosures
of information obtained, to Employee's knowledge from a third party free of
restrictions or disclosure of information in Employee's possession prior to the
date hereof which was obtained from a source other than the Company or its
predecessors. Employee shall deliver to the Company at the termination of the
Employment Period, all memoranda, notes, plans, records, reports, computer tapes
and software and other documents and data (and copies thereof) relating to
Confidential Information, Work Product or the business of the Company which he
may then possess or have under his control.
6. Inventions and Patents. Employee agrees that all ideas, concepts,
----------------------
marketing strategies, management techniques, product development, methods,
designs, analyses, drawings, reports, and all similar or related information
which relates to the Company's actual or
3
<PAGE>
anticipated business, research and development or existing or future products or
services and which are conceived, developed or made by Employee while employed
by the Company ("Work Product") belong to the Company. Employee will promptly
disclose such Work Product to the Board and perform all actions reasonably
requested by the Board (whether during or after the Employment Period) to
establish and confirm such ownership (including, without limitation,
assignments, consents, powers of attorney and other instruments).
7. Non-Compete, Non-Solicitation.
-----------------------------
(a) Employee acknowledges that in the course of his employment with
the Company he will become familiar with the Company's trade secrets and with
other confidential information concerning the Company and that his services will
be of special, unique and extraordinary value to the Company. Therefore,
Employee agrees that, during the Employment Period and for two years after the
Termination Date, such termination being for any reason whatsoever (the "Non-
Compete Period"), he shall not directly or indirectly manage, control, consult
with or render services as an executive officer or financial officer for any
business competing with the business of the Company, which is an information or
entertainment network which markets to colleges or universities (the "Business")
within any geographical area in which the Company engages or plans to engage in
such businesses, which is in the United States of America. Notwithstanding the
foregoing, nothing herein shall prohibit Employee from being a passive owner of
not more than 5% of the outstanding stock of any class of a company which is
publicly traded, so long as Employee has no active participation in the
management or the business of such company.
(b) During the Non-Compete Period, Employee shall not directly or
indirectly, on behalf of any Person in the Business solicit, encourage, entice
or induce (or attempt to do any of the foregoing) a customer of Company with
whom Employee had contact while employed with the Company to cease doing
business with Company.
(c) During the Employment Period and for eighteen months thereafter,
Employee shall not directly or indirectly through another entity (i) solicit,
encourage, interview, entice, discuss with or induce or attempt to induce any
employee of the Company to leave the employ of the Company, or in any way
interfere with the relationship between the Company and any employee thereof,
(ii) hire any person who was an employee of the Company at any time during the
Employment Period or (iii) induce or attempt to induce or attempt to induce any
customer, supplier, licensee or other business relation of the Company to cease
doing business with the Company, or in any way interfere with the relationship
between any such customer, supplier, licensee or business relation and the
Company.
8. Enforcement. If, at the time of enforcement of paragraphs 5, 6 or 7 of
-----------
this Agreement, a court holds that the restrictions stated herein are
unreasonable under circumstances then existing, the parities hereto agree that
the maximum period, scope or geographical area reasonable under such
circumstances shall be substituted for the stated period, scope and area.
Because Employee's services are unique and because Employee has access to
Confidential Information and Work Product, the parties hereto agree that money
damages would be an inadequate remedy for any breach of this Agreement.
Therefore, in the event a breach or
4
<PAGE>
threatened breach of this Agreement, the Company or its successors or assigns
may, in addition to other rights and remedies existing in their favor, apply to
any court of competent jurisdiction for specific performance and/or injunctive
or other relief in order to enforce, or prevent any violations of, the provision
hereof (without posting a bond or other security).
9. Employee Representations. Employee hereby represents and warrants to
------------------------
the Company that (i) the execution, delivery and performance of this Agreement
by Employee does not and will not conflict with, breach, violate or cause a
default under any contract, agreement, instrument, order, judgment or decree to
which Employee is a party or by which he is bound, and (ii) Employee is not a
party to or bound by any consulting agreement, employment agreement, non-compete
agreement or confidentiality agreement with any other person or entity, which
would prohibit his performance under this Agreement.
10. Notices. Any notice provided for in this Agreement shall be in
-------
writing and shall be either personally delivered, mailed by first class mail
(postage prepaid and return receipt requested) or sent by telecopy or reputable
overnight courier service (charges prepaid) to the recipient at the address or
telecopy number below indicated:
Notice to Employee:
Patrick G. Doran
4395 Windsor Oaks Circle
Marietta, Georgia 30066
Notices to Company:
UC Television Network Corp.
5784 Lake Forrest Drive, Suite 275
Atlanta, Georgia 30328
Telecopy No.: (404) 257-9517
Attention: Jason Elkin
With a Copy to:
Morris, Manning and Martin, LLP
1600 Atlanta Financial Center
3343 Peachtree Road, NE
Telecopy No.: (404) 365-9532
Attention: Neil H. Dickson, Esq.
or such other address or telecopy number or to the attention of such other
person as the recipient party shall have specified by prior written notice to
the sending party. any notice under this Agreement will be deemed to have been
given when so delivered or sent or, if mailed, five days after deposit in the
U.S. mail.
11. Severability. Whenever possible, each provision of this agreement
------------
will be interpreted in such manner as to be effective and valid under applicable
law, but if any provision of this Agreement is held to be invalid, illegal or
unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability will not
5
<PAGE>
affect any other provision or any other jurisdiction, but this Agreement will be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision had never been contained herein.
12. Complete Agreement. This Agreement and those documents expressly
------------------
referred to herein and other documents of even date herewith embody the complete
agreement and understanding among the parties and supersede and preempt any
prior understandings, agreements or representations by or among the parties,
written or oral, which may have related to the subject matter hereof in any way.
13. Counterparts. This Agreement may be executed in separate
------------
counterparts, each of which to be an original and all of which taken together
constitute one and the same agreement.
14. Successors and Assigns. This Agreement is intended to bind and
----------------------
inure to the benefit of and be enforceable by all parties and their respective
heirs, successors and assigns, except that Employee may not assign his rights or
delegate his obligations hereunder without the prior written consent of the
Company.
15. Choice of Law. This Agreement will be governed by the internal
-------------
law, and not the laws of conflicts, of the State of Georgia.
16. Amendment and Waiver. The provisions of this Agreement may be
--------------------
amended or waived with the prior written consent of the Company and Employee,
and no course of conduct or failure or delay in enforcing the provisions of this
Agreement shall affect the validity binding effect or enforceability of this
Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written above.
UC TELEVISION NETWORK CORP.
By: /s/ Jason Elkin
------------------
Jason Elkin
Chief Executive Officer and
Chairman of the Board
/s/ Patrick G. Doran
-----------------------
Patrick G. Doran
6
<PAGE>
EXHIBIT 10.12
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT, DATED AS OF APRIL 25, 1997, BY AND AMONG UC
TELEVISION NETWORK CORP., A DELAWARE CORPORATION ("COMPANY"), AND U-C HOLDINGS,
L.L.C. (THE "PURCHASER").
W I T N E S S E T H:
-------------------
WHEREAS, Company and Purchaser have entered into that certain Purchase
Agreement, dated as of the date hereof (the "Purchase Agreement"), pursuant to
which Company has agreed to issue and sell to Purchaser, and Purchaser has
agreed to purchase from Company, an aggregate of 29,090,909 shares of Common
Stock, $0.001 par value per share ("Common Stock") and a Class C Warrant for
3,863,662 shares of Common Stock and certain purchase rights pursuant to the
Equity Protection Agreements; and
WHEREAS, in order to induce Purchaser to enter into the Purchase Agreement,
the Transaction Documents and to purchase such shares of Common Stock, the Class
C Warrant and certain purchase rights pursuant to the Equity Protection
Agreements, Company has agreed to provide registration rights with respect
thereto and to the shares of Common Stock of Company held by Purchaser;
NOW, THEREFORE, in consideration of the premises and the covenants
hereinafter contained, it is agreed as follows:
1. Definitions. Unless otherwise defined herein, terms defined in the
-----------
Purchase Agreement are used herein as therein defined, and the following shall
have (unless otherwise provided elsewhere in this Registration Rights Agreement)
the following respective meanings (such meanings being equally applicable to
both the singular and plural form of the terms defined):
"Agreement" shall mean this Registration Rights Agreement, including all
amendments, modifications and supplements and any exhibits or schedules to any
of the foregoing, and shall refer to the Agreement as the same may be in effect
at the time such reference becomes operative.
"Business Day" shall mean any day that is not a Saturday, a Sunday or a day
on which banks are required or permitted to be closed in the State of New York.
"Commission" shall mean the Securities and Exchange Commission or any other
federal agency then administering the Securities Act and other federal
securities laws.
"Conversion Shares" shall mean shares of Common Stock issued or issuable
upon exercise of the Class C Warrant.
<PAGE>
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended,
or any similar federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect from time to time.
"Holder" shall mean the holder of Conversion Shares or shares of Common
Stock held by Purchaser or their respective transferees.
"Majority Holders" shall mean Holders holding at the time, shares of
Conversion Shares or Common Stock representing more than 50% of all Registrable
Securities.
"NASD" shall mean the National Association of Securities Dealers, Inc., or
any successor corporation thereto.
"Registrable Securities" shall mean the shares of Common Stock held by
Purchaser or its transferees, or shares of Common Stock from time to time issued
or issuable to the holders of the Class C Warrant upon the exercise thereof or
to the holders of the purchase rights pursuant to the Equity Protection
Agreements, or hereafter acquired by Purchaser or which they hereafter obtain
the right to acquire. As to any particular Registrable Securities, such
securities shall cease to be Registrable Securities when they have been
distributed to the public pursuant to the an offering registered under the
Securities Act or sold to the public through a broker, dealer or market maker in
compliance with Rule 144 under the Securities Act (or similar rule then in
force) or repurchased by the Company or any Subsidiary. For purposes of this
Agreement, a Person shall be deemed to be a holder of Registrable Securities,
and the Registrable Securities shall be deemed to be in existence, whenever such
Person has the right to acquire directly or indirectly such Registrable
Securities (upon conversion or exercise in connection with a transfer of
securities or otherwise, but disregarding any restrictions or limitations upon
the exercise of such right), whether or not such acquisition has actually been
effected, and such Person shall be entitled to exercise the rights of a holder
of Registrable Securities hereunder.
"Securities Act" shall mean the Securities Act of 1933, as amended, or any
similar federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect from time to time.
2. Required Registration. After receipt of a written request from the
---------------------
Holders of Registrable Securities requesting that Company effect a registration
under the Securities Act covering at least 20% of the Registrable Securities
initially outstanding, and specifying the intended method or methods of
disposition thereof, Company shall promptly notify all Holders in writing of the
receipt of such request and each such Holder, in lieu of exercising its rights
under Section 3 may elect (by written notice sent to Company within 10 Business
Days from the date of such Holder's receipt of the aforementioned Company's
notice) to have Registrable Securities included in such registration thereof
pursuant to this Section 2, provided, however, that no Holder will deliver a
request for a demand registration during the six (6) month period following the
effective date of a Registration Statement filed in respect of a previous demand
registration. Thereupon Company shall, as expeditiously as is possible and at
its expense, use its best efforts to effect the registration under the
Securities Act of all shares of Registrable Securities which Company has been so
requested to register by such Holders for sale, all to the extent required to
2
<PAGE>
permit the disposition (in accordance with the intended method or methods
thereof, as aforesaid) of the Registrable Securities so registered; provided,
--------
however, that Company shall not be required to effect more than two (2)
- -------
registrations of any Registrable Securities pursuant to this Section 2 for the
Purchaser, unless Company shall be eligible at any time to file a registration
statement on Form S-3 (or other comparable short form) under the Securities Act,
in which event there shall be no limit on the number of such registrations
pursuant to this Section 2. The rights of the Holders under this Section 2
shall be effective immediately after the date hereof. If the managing
underwriter shall determine that it cannot register all of the Registrable
Securities in any registration of Registrable Securities shall have priority
over any other securities requested to be included in such registration.
3. Incidental Registration. If Company at any time proposes to file
-----------------------
on its behalf and/or on behalf of any of its security holders (the "Demanding
Security Holders") a Registration Statement under the Securities Act on any form
(other than a Registration Statement on Form S-4 or S-8 or any successor form
for securities to be offered in a transaction of the type referred to in Rule
145 under the Securities Act or to employees of Company pursuant to any employee
benefit plan, respectively) for the registration of securities, it will give
written notice to all Holders at least 30 days before the initial filing with
the Commission of such Registration Statement, which notice shall set forth the
intended method of disposition of the securities proposed to be registered by
Company. The notice shall offer to include in such filing the aggregate number
of shares of Registrable Securities as such Holders may request.Each Holder
desiring to have Registrable Securities registered under this Section 3 shall
advise Company in writing within 10 Business Days after the date of receipt of
such offer from Company, setting forth the amount of such Registrable Securities
for which registration is requested. Company shall thereupon include in such
filing the number of shares of Registrable Securities for which registration is
so requested, subject to the next sentence, and shall use its best efforts to
effect registration under the Securities Act of such shares. If the managing
underwriter of a proposed public offering shall advise Company in writing that,
in its opinion, the distribution of the Registrable Securities requested to be
included in the registration concurrently with the securities being registered
by Company, the other security holders of the Company or such Demanding Security
Holder would materially and adversely affect the distribution of such securities
by Company, the other security holders of the Company or such Demanding Security
Holder, then all selling security holders (including the Holder who initially
requested such registration) shall reduce the amount of securities each intended
to distribute through such offering on a pro rata basis. Except as otherwise
provided in Section 5, all expenses of such registration shall be borne by
Company.
4. Registration Procedures. If Company is required by the provisions
-----------------------
of Section 2 or 3 to use its best efforts to effect the registration of any of
its securities under the Securities Act, Company will, as expeditiously as
possible:
(a) prepare and file with the Commission a Registration Statement with
respect to such securities and use its best efforts to cause such Registration
Statement to become and remain effective for a period of time required for the
disposition of such securities by the holders thereof, but not to exceed 180
days;
3
<PAGE>
(b) prepare and file with the Commission such amendments and
supplements to such Registration Statement and the prospectus used in connection
therewith as may be necessary to keep such Registration Statement effective and
to comply with the provisions of the Securities Act with respect to the sale or
other disposition of all securities covered by such Registration Statement until
the earlier of such time as all of such securities have been disposed of in a
public offering or the expiration of 180 days;
(c) furnish to such selling security holders such number of copies of
a summary prospectus or other prospectus, including a preliminary prospectus, in
conformity with the requirements of the Securities Act, and such other
documents, as such selling security holders may reasonably request;
(d) use its best efforts to register or qualify the securities covered
by such Registration Statement under such other securities or blue sky laws of
such jurisdictions within the United States and Puerto Rico as each holder of
such securities shall request (provided, however, that Company shall not be
-------- -------
obligated to qualify as a foreign corporation to do business under the laws of
any jurisdiction in which it is not then qualified), and do such other
reasonable acts and things as may be required of it to enable such holder to
consummate the disposition in such jurisdiction of the securities covered by
such Registration Statement;
(e) furnish, at the request of any Holder requesting registration of
Registrable Securities pursuant to Section 2, on the date that such shares of
Registrable Securities are delivered to the underwriters for sale pursuant to
such registration or, if such Registrable Securities are not being sold through
underwriters, on the date that the Registration Statement with respect to such
shares of Registrable Securities becomes effective, (1) an opinion, dated such
date, of the independent counsel representing Company for the purposes of such
registration, addressed to the underwriters, if any, and if such Registrable
Securities are not being sold through underwriters, then to the Holders making
such request, in customary form and covering matters of the type customarily
covered in such legal opinions; and (2) a comfort letter dated such date, from
the independent certified public accountants of Company, addressed to the
underwriters, if any, and if such Registrable Securities are not being sold
through underwriters, then to the Holder making such request and, if such
accountants refuse to deliver such letter to such Holder, then to Company, in a
customary form and covering matters of the type customarily covered by such
comfort letters and as the underwriters or such Holder shall reasonably request.
Such opinion of counsel shall additionally cover such other legal matters with
respect to the registration in respect of which such opinion is being given as
such Holders may reasonably request. Such letter from the independent certified
public accountants shall additionally cover such other financial matters
(including information as to the period ending not more than five Business Days
prior to the date of such letter) with respect to the registration in respect of
which such letter is being given as the Holders of a majority of the Registrable
Securities being so registered may reasonably request;
(f) enter into customary agreements (including an underwriting
agreement in customary form) and take such other actions as are reasonably
required in order to expedite or facilitate the disposition of such Registrable
Securities; and
4
<PAGE>
(g) otherwise use its best efforts to comply with all applicable rules
and regulations of the Commission, and make available to its security holders,
as soon as reasonably practicable, but not later than 18 months after the
effective date of the Registration Statement, an earnings statement covering the
period of at least 12 months beginning with the first full month after the
effective date of such Registration Statement, which earnings statement shall
satisfy the provisions of Section 11(a) of the Securities Act.
It shall be a condition precedent to the obligation of Company to take any
action pursuant to this Agreement in respect of the securities which are to be
registered at the request of any Holder that such Holder shall furnish to
Company such information regarding the securities held by such Holder and the
intended method of disposition thereof as Company shall reasonably request and
as shall be required in connection with the action taken by Company.
5. Expenses. All reasonable expenses incurred in complying with this
--------
Agreement, including, without limitation, all registration and filing fees
(including all expenses incident to filing with the NASD), printing expenses,
fees and disbursements of counsel for Company, the reasonable fees and expenses
of counsel for the selling security holders (selected by those holding a
majority of the shares being registered), expenses of any special audits
incident to or required by any such registration and expenses of complying with
the securities or blue sky laws of any jurisdiction pursuant to Section 4(d),
shall be paid by Company, except that:
(a) all such expenses in connection with any amendment or supplement
to the Registration Statement or prospectus filed more than 180 days after the
effective date of such Registration Statement because any Holder has not
effected the disposition of the securities requested to be registered shall be
paid by such Holder; and
(b) Company shall not be liable for any fees, discounts or commissions
to any underwriter or any fees or disbursements of counsel for any underwriter
in respect of the securities sold by such Holder.
6. Indemnification and Contribution.
--------------------------------
(a) In the event of any registration of any Registrable Securities
under the Securities Act pursuant to this Agreement, Company shall indemnify and
hold harmless the holder of such Registrable Securities, such holder's directors
and officers, and each other person (including each underwriter) who
participated in the offering of such Registrable Securities and each other
person, if any, who controls such holder or such participating person within the
meaning of the Securities Act, against any losses, claims, damages or
liabilities, joint or several, to which such holder or any such director or
officer or participating person or controlling person may become subject under
the Securities Act or any other statute or at common law, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon (i) any alleged untrue statement of any material fact
contained, on the effective date thereof, in any Registration Statement under
which such securities were registered under the Securities Act, any preliminary
prospectus or final prospectus contained therein, or any amendment or supplement
thereto, or (ii) any alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading,
and shall reimburse
5
<PAGE>
such holder or such director, officer or participating person or controlling
person for any legal or any other expenses reasonably incurred by such holder or
such director, officer or participating person or controlling person in
connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that Company shall not be liable in any
-------- -------
such case to the extent that any such loss, claim, damage or liability arises
out of or is based upon any actual or alleged untrue statement or actual or
alleged omission made in such Registration Statement, preliminary prospectus,
prospectus or amendment or supplement in reliance upon and in conformity with
written information furnished to Company by such holder specifically for use
therein or (in the case of any registration pursuant to Section 2) so furnished
for such purposes by any underwriter. Such indemnity shall remain in full force
and effect regardless of any investigation made by or on behalf of such holder
or such director, officer or participating person or controlling person, and
shall survive the transfer of such securities by such holder.
(b) Each Holder, by acceptance hereof, agrees to indemnify and hold
harmless Company, its directors and officers and each other person, if any, who
controls Company within the meaning of the Securities Act against any losses,
claims, damages or liabilities, joint or several, to which Company or any such
director or officer or any such person may become subject under the Securities
Act or any other statute or at common law, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon information in writing provided to Company by such Holder specifically for
use in the following documents and contained, on the effective date thereof, in
any Registration Statement under which securities were registered under the
Securities Act at the request of such Holder, any preliminary prospectus or
final prospectus contained therein, or any amendment or supplement thereto.
Notwithstanding the provisions of this paragraph (b) or paragraph (c) below, no
Holder shall be required to indemnify any person pursuant to this Section 6 or
to contribute pursuant to paragraph (c) below in an amount in excess of the
amount of the aggregate net proceeds received by such Holder in connection with
any such registration under the Securities Act.
(c) If, as a matter of law, the indemnification provided for in this
Section 6 from the indemnifying party is unavailable to an indemnified party
hereunder in respect of any losses, claims, damages, liabilities or expenses
referred to therein, then the indemnifying party, in lieu of indemnifying such
indemnified party, shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages, liabilities or
expenses in such proportion as is appropriate to reflect the relative fault of
the indemnifying party and indemnified parties in connection with the actions
which resulted in such losses, claims, damages, liabilities or expenses, as well
as any other relevant equitable considerations. The relative fault of such
indemnifying party and indemnified parties shall be determined by reference to,
among other things, whether any action in question, including any untrue or
alleged untrue statement of a material fact or omission or alleged omission to
state a material fact, has been made by, or relates to information supplied by,
such indemnifying party or indemnified parties, and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such action. The amount paid or payable by a party as a result of the losses,
claims, damages, liabilities and expenses referred to above shall be deemed to
include any legal or other fees or expenses reasonably incurred by such party in
connection with any investigation or proceeding.
6
<PAGE>
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 6(c) were determined by pro rata
allocation or by any other method of allocation which does not take account of
the equitable considerations referred to in the immediately preceding paragraph.
No Person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any Person
who was not guilty of such fraudulent misrepresentation.
7. Certain Limitations on Registration Rights. Notwithstanding the
------------------------------------------
other provisions of this Agreement:
(a) Company shall have the right to delay the filing or effectiveness
of a registration statement required pursuant to Section 2 hereof during one or
more periods aggregating not more than 60 days in any twelve month period in the
event that (i) Company would, in accordance with the advice of its counsel, be
required to disclose in the prospectus information not otherwise then required
by law to be publicly disclosed and (ii) in the judgment of Company's Board of
Directors, there is a reasonable likelihood that such disclosure, or any other
action to be taken in connection with the prospectus, would materially and
adversely affect any existing or prospective material business or financial
situation, transaction or negotiation, including, but not limited to any
financing, acquisition or corporate reorganization, or otherwise materially and
adversely affect Company.
8. Selection of Managing Underwriters. Subject to the obligations of
----------------------------------
the Company under agreements existing on the date hereof, the managing
underwriter or underwriters for any offering of Registrable Securities to be
registered pursuant to Section 2 shall be selected by the holders of a majority
of the shares being so registered and shall be reasonably acceptable to Company.
No person may participate in any underwritten offering hereunder unless such
person: (i) agrees to sell its Registrable Securities on the basis provided in
any underwriting arrangements approved by the Persons entitled hereunder to
approve such arrangements, and (ii) completes and executes powers of attorney,
indemnities, underwriting agreements and other documents required under the
terms of such underwriting arrangements.
9. Miscellaneous.
-------------
(a) No Inconsistent Agreements. Company will not, without the written
--------------------------
consent of Majority Holders, such consent not to be unreasonably withheld,
hereafter enter into any agreement with respect to its securities which is
inconsistent with the rights granted to the Holders in this Agreement. Except
as set forth in the Purchase Agreement, Company has not previously entered into
any agreement with respect to any of its securities granting any registration
rights to any person.
(b) Remedies. Each Holder, in addition to being entitled to exercise
--------
all rights granted by law, including recovery of damages, will be entitled to
specific performance of its rights under this Agreement. Company agrees that
monetary damages would not be adequate compensation for any loss incurred by
reason of a breach by it of the provisions of this Agreement and hereby agrees
to waive the defense in any action for specific performance that a remedy at law
would be adequate. In any action or proceeding brought to enforce any provision
7
<PAGE>
of this Agreement or where any provision hereof is validly asserted as a
defense, the successful party shall be entitled to recover reasonable attorneys'
fees in addition to any other available remedy.
(c) Amendments and Waivers. Except as otherwise provided herein, the
----------------------
provisions of this Agreement may not be amended, modified or supplemented, and
waivers or consents to departure from the provisions hereof may not be given
unless Company has obtained the written consent of the Majority Holders and
Company has been obtained.
(d) Notice Generally. Whenever it is provided herein that any notice,
----------------
demand, request, consent, approval, declaration or other communication shall or
may be given to or served upon any of the parties by another, or whenever any of
the parties desires to give or serve upon another any such communication with
respect to this Agreement, each such notice, demand, request, consent, approval,
declaration or other communication shall be in writing and either shall be
delivered in person with receipt acknowledged or by registered or certified
mail, return receipt requested, postage prepaid, or by telecopy and confirmed by
telecopy answerback addressed as follows:
(i) If to any Holder, at its last known address appearing on the
books of Company maintained for such purpose.
(ii) If to Company, at
UC Television Network Corp.
c/o Willis Stein & Partners, L.P.
227 W. Monroe Street, Suite 4300
Chicago, Illinois 60606
Attention: Avy H. Stein
Telecopy Number: 312-422-2424
or at such other address as may be substituted by notice given as herein
provided. The giving of any notice required hereunder may be waived in writing
by the party entitled to receive such notice. Every notice, demand, request,
consent, approval, declaration or other communication hereunder shall be deemed
to have been duly given or served on the date on which personally delivered,
with receipt acknowledged by overnight courier, with delivery acknowledged,
telecopied and confirmed by telecopy answerback, or three (3) Business Days
after the same shall have been deposited with the United States mail.
(e) Successors and Assigns. This Agreement shall inure to the benefit
----------------------
of and be binding upon the successors and assigns of each of the parties hereto
including any person to whom Registrable Securities are transferred.
(f) Headings. The headings in this Agreement are for convenience of
--------
reference only and shall not limit or otherwise affect the meaning hereof.
8
<PAGE>
(g) Governing Law; Jurisdiction. This Agreement shall be governed by,
---------------------------
construed and enforced in accordance with the laws of the State of Delaware
without giving effect to the conflict of laws provisions thereof.
(h) Severability. Wherever possible, each provision of this Agreement
------------
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement shall be prohibited by or
invalid under applicable law, such provision shall be ineffective to the extent
of such prohibition or invalidity, without invalidating the remainder of such
provision or the remaining provisions of this Agreement.
(i) Entire Agreement. This Agreement, together with the Purchase
----------------
Agreement, represents the complete agreement and understanding of the parties
hereto in respect of the subject matter contained herein and therein. This
Agreement supersedes all prior agreements and understandings between the parties
with respect to the subject matter hereof.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
COMPANY:
Attest: UC TELEVISION NETWORK CORP.
By: /s/ Alan Pearl By: /s/ Peter Kauff
------------------- ---------------------
Alan Pearl Peter Kauff
Secretary Chief Executive Officer and
Chairman of the Board
[Corporate Seal]
PURCHASER:
U-C HOLDINGS, L.L.C.
By: Willis Stein & Partners, L.P.
Its: Managing Member
By: Willis Stein & Partners, L.L.C.
Its: General Partner
By: /s/ Avy H. Stein
----------------
Avy H. Stein
Its Manager
9
<PAGE>
EXHIBIT 10.13
PURCHASE AGREEMENT
DATED AS OF
APRIL 25, 1997
BY AND BETWEEN
UC TELEVISION NETWORK CORP.
AND
U-C HOLDINGS, L.L.C.
<PAGE>
EXHIBIT 10.13
TABLE OF CONTENTS
-----------------
DEFINITIONS................................................................1
THE PURCHASE OF PURCHASED SECURITIES.......................................8
Authorization of Issue....................................................8
Purchase of Purchased Securities..........................................8
Closing...................................................................8
Escrow....................................................................8
PURCHASER'S REPRESENTATIONS................................................9
Investment Intention......................................................9
Accredited Investor.......................................................9
Corporate Existence.......................................................9
Corporate Power: Authorization: Enforceable Obligations...................9
Information in Purchaser Proposal.........................................9
Use of Proceeds..........................................................10
Declaration of Dividends.................................................10
COMPANY'S REPRESENTATIONS AND WARRANTIES..................................10
Authorized and Outstanding Shares of Capital Stock.......................10
Authorization and Issuance of Purchased Securities.......................11
Corporate Existence: Compliance with Law.................................12
Subsidiaries.............................................................12
Corporate Power: Authorization: Enforceable Obligations..................12
Financial Statements.....................................................13
Ownership of Property....................................................14
Material Contracts: Indebtedness.........................................14
Environmental Protection.................................................15
Labor Matters............................................................15
Other Ventures...........................................................16
Taxes....................................................................16
No Litigation............................................................17
Brokers..................................................................17
Employment and Labor Agreements..........................................17
Patents. Trademarks, Copyrights and Licenses.............................17
No Material Adverse Effect...............................................18
ERISA....................................................................18
Registration Rights......................................................20
Ordinary Course of Business..............................................20
Full Disclosure..........................................................20
COVENANTS.................................................................20
Director and Officer Liability Insurance.................................20
Indemnification of Officer and Directors.................................20
Amendment to Certificate of Incorporation................................20
Schedule 14F-1 Information Statement.....................................21
------------------------------------
CONDITIONS PRECEDENT......................................................21
Conditions Precedent.....................................................21
SECURITIES LAW MATTERS....................................................23
Legends..................................................................23
Transfer of Restricted Securities........................................23
EXPENSES..................................................................24
LIMITATION ON CLAIMS OF PURCHASER.........................................25
Limitation...............................................................25
MISCELLANEOUS.............................................................25
Notices..................................................................25
<PAGE>
Binding Effect: Benefits.................................................26
Amendment................................................................26
Successors and Assigns: Assignability....................................26
Remedies.................................................................27
Section and Other Headings...............................................27
Severability.............................................................27
Entire Agreement.........................................................27
Counterparts.............................................................27
Publicity................................................................27
Governing Law............................................................27
Expenses.................................................................28
Negotiations.............................................................28
ii
<PAGE>
Schedules
---------
Schedule 1.0 Annual Report
Schedule 1.1 Copies of Form Warrants
Schedule 4.1 Stock, Preferred Stock, Options and Warrants
Schedule 4.7 Financial Statements; Other Obligations
Schedule 4.8 Ownership of Property
Schedule 4.9 Material Contracts
Schedule 4.10 Environmental Matters
Schedule 4.14 Litigation
Schedule 4.16 Employment Contracts
Schedule 4.17 Patents, Trademarks, Etc.
Schedule 4.18 Material Adverse Effect
Schedule 4.19 ERISA
Schedule 4.20 Registration Rights
Exhibit A Form of Class C Warrant
Exhibit B-1 Equity Protection Agreement
Exhibit B-2 Equity Protection Agreement
Exhibit B-3 Equity Protection Agreement
Exhibit B-4 Equity Protection Agreement
Exhibit C Escrow Agreement
Exhibit D Registration Rights Agreement
Exhibit E Opinion of Company Counsel
Exhibit F Kauff Employment Agreement
Exhibit G Elkin Employment Agreement
Exhibit H Gersh Employment Agreement
Exhibit I Dobson Employment Agreement
iii
<PAGE>
EXHIBIT 10.13
PURCHASE AGREEMENT
------------------
THIS PURCHASE AGREEMENT, dated as of April 25, 1997, by and among UC
Television Network Corp., a Delaware corporation having an office at 645 Fifth
Avenue, East Wing, New York, New York 10022 ("Company"), and U-C Holdings,
L.L.C., a Delaware limited liability company ("Purchaser").
W I T N E S S E T H
-------------------
WHEREAS, Company has agreed to issue and sell to Purchaser, and Purchaser
has agreed to purchase from Company, upon the terms and conditions hereinafter
provided, 29,090,909 shares of Company's Common Stock, $0.001 par value per
share, a Class C Warrant to purchase 3,863,662 shares of Common Stock and the
Equity Protection Agreements (as defined below) (collectively, the "Purchased
Securities");
NOW, THEREFORE, in consideration of the premises and the covenants
hereinafter contained, it is agreed as follows:
I. DEFINITIONS
"Affiliate" shall mean, with respect to any Person, (i) each Person that,
directly or indirectly, owns or controls, whether beneficially, or as a trustee,
guardian or other fiduciary, 5% or more of the Stock having ordinary voting
power in the election of directors of such Person, (ii) each Person that
controls, is controlled by or is under common control with such Person or any
Affiliate of such Person, (iii) each of such Person's officers, directors, joint
venturers and partners, (iv) any trust or beneficiary of a trust of which such
Person is the sole trustee or (v) any lineal descendants, ancestors, spouse or
former spouses (as part of a marital dissolution) of such Person (or any trust
for the benefit of such Person). For the purpose of this definition, "control"
of a Person shall mean the possession, directly or indirectly, of the power to
direct or cause the direction of its management or policies, whether through the
ownership of voting securities, by contract or otherwise.
"Affiliated Group" means an affiliated group as defined in Section 1504 of
the Code (or any analogous combined, consolidated or unitary group defined under
state, local or foreign income tax law) of which Company is or has been a
member.
"Annual Report" shall mean the Annual Report of the Company on Form 10-KSB
for the fiscal year ended October 31, 1996, which has been filed with the SEC, a
copy of which is attached hereto as Schedule 1.0.
"Business Day" shall mean any day that is not a Saturday, a Sunday or a day
on which banks are required or permitted to be closed in the State of New York.
"Charges" shall mean (A) all federal, state, county, city, municipal,
local, foreign or other governmental (including, without limitation, PBGC) taxes
at the time due and payable, levies,
<PAGE>
assessments, charges, liens, claims or encumbrances upon or relating to (i)
Company's employees, payroll, income or gross receipts, (ii) Company's ownership
or use of any of its assets, or (iii) any other aspect of Company's business; or
(B) any liability of Company for the payment of any amounts of the type
described in clause (A) arising as a result of being (or ceasing to be) a member
of any Affiliated Group (or being included (or required to be included) in any
tax return relating thereto).
"Class C Warrant" shall mean the Class C Warrant to be issued to Purchaser
to purchase 3,863,662 shares of Common Stock, subject to adjustment, in the form
of Exhibit "A" attached hereto.
"Closing" shall have the meaning set forth in Section 2.3 hereof.
"Closing Date" shall have the meaning set forth in Section 2.3 hereof.
"COBRA" shall have the meaning set forth in Section 4.19(m) hereof.
"Common Stock" shall mean the common stock, $0.001 par value per share, of
Company.
"Company Certificate of Incorporation" shall mean the Certificate of
Incorporation of Company, as amended.
"Environmental Laws" shall mean all federal, state and local laws,
statutes, ordinances and regulations, now or hereafter in effect, and in each
case as amended or supplemented from time to time, and any judicial or
administrative interpretation thereof, including, without limitation, any
applicable judicial or administrative order, consent decree or judgment,
relative to the applicable Real Estate, relating to the regulation and
protection of human health, safety, the environment and natural resources
(including, without limitation, ambient air, surface water, groundwater,
wetlands, land surface or subsurface strata, wildlife, aquatic species and
vegetation). Environmental Laws include but are not limited to the Comprehensive
Environmental Response, Compensation, and Liability Act of 1980, as amended (42
U.S.C. (S) 9601 et seq.) ("CERCLA"); the Hazardous Material Transportation Act,
as amended (49 U.S.C. (S) 1801 et seq.); the Federal Insecticide, Fungicide, and
Rodenticide Act, as amended (7 U.S.C. (S) 136 et seq. ); the Resource
Conservation and Recovery Act, as amended (42 U.S.C. (S) 6901 et seq.) ("RCRA");
the Toxic Substance Control Act, as amended (15 U.S.C. (S) 2601 et seq.); the
Clean Air Act, as amended (42 U.S.C. (S) 740 et seq.); the Federal Water
Pollution Control Act, as amended (33 U.S.C. (S) 1251 et seq.); the Occupational
---
Safety and Health Act, as amended (29 U.S.C. (S) 651 et sec.) ("OSHA"); and the
-- ---
Safe Drinking Water Act, as amended (42 U.S.C. (S) 300f et seq.), and any and
all regulations promulgated thereunder, and all analogous state and local
counterparts or equivalents and any transfer of ownership notification or
approval statutes.
"Environmental Liabilities and Costs" shall mean all liabilities,
obligations, responsibilities, remedial actions, losses, damages, punitive
damages, consequential damages, treble damages, costs and expenses (including,
without limitation, all fees, disbursements and expenses of counsel, experts and
consultants and costs of investigation and feasibility studies),
2
<PAGE>
fines, penalties, sanctions and interest incurred as a result of any claim,
suit, action or demand by any Person, whether based in contract, tort, implied
or express warranty, strict liability, criminal or civil statute or common law
(including, without limitation, any thereof arising under any Environmental Law,
permit, order or agreement with any Governmental Authority) and which relate to
any health or safety condition regulated under any Environmental Law or in
connection with any other environmental matter or Spill or the presence of a
hazardous substance or threatened Spill of any Hazardous Substance.
"Equity Protection Agreements" shall mean the Equity Protection Agreements
of even date between Company and Purchaser, in the form of Exhibits "B-1", "B-
2", "B-3" and "B-4" attached hereto.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974 (or
any successor legislation thereto), as amended from time to time and any
regulations promulgated thereunder.
"ERISA Affiliate" shall mean, with respect to Company, any trade or
business (whether or not incorporated) under common control with Company and
which, together with Company, are treated as a single employer within the
meaning of Section 414(b), (c), (m) or (o) of the IRC, excluding Purchaser and
each other person which would not be an ERISA Affiliate if Purchaser did not own
any issued and outstanding shares of Stock of Company.
"Escrow Agreement" shall mean the Escrow Agreement dated April 25, 1997
between Purchaser, Company and LaSalle National Bank, escrow agent, in the form
of Exhibit "C" attached hereto.
"Escrow Release Date" shall be the date the Purchased Securities are
released from escrow to Purchaser in accordance with the Escrow Agreement.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended,
and all rules and regulations promulgated thereunder.
"Financials" shall mean the financial statements referred to in Section 4.7
hereof.
"Fiscal Year" shall mean the twelve month period ending October 31.
Subsequent changes of the fiscal year of Company shall not change the term
"Fiscal Year," unless the Purchaser shall consent in writing to such change.
"GAAP" shall mean generally accepted accounting principles in the United
States of America as in effect from time to time.
"Governmental Authority" shall mean any nation or government, any state or
other political subdivision thereof, and any agency, department or other entity
exercising executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government.
3
<PAGE>
"Guaranteed Indebtedness" shall mean, as to any Person, any obligation of
such Person guaranteeing any Indebtedness, lease, dividend, or other obligation
("primary obligations") of any other Person (the "primary obligor'') in any
manner including, without limitation, any obligation or arrangement of such
Person (a) to purchase or repurchase any such primary obligation, (b) to advance
or supply funds (i) for the purchase or payment of any such primary obligation
or (ii) to maintain working capital or equity capital of the primary obligor or
otherwise to maintain the net worth or solvency or any balance sheet condition
of the primary obligor, (c) to purchase property, securities or services
primarily for the purpose of assuring the owner of any such primary obligation
of the ability of the primary obligor to make payment of such primary
obligation, or (d) to indemnify the owner of such primary obligation against
loss in respect thereof.
"Guaranty" shall mean the guaranty of the obligations of the Purchaser
under the Note, executed by Willis Stein & Partners, L.P., Jason Elkin, Joseph
D. Gersh and John T. Dobson III on the date hereof.
"Hazardous Substances" shall have the meaning set forth in Section 4.10
hereof.
"Indebtedness" of any Person shall mean (i) all indebtedness of such Person
for borrowed money or for the deferred purchase price of property or services
(including, without limitation, reimbursement and all other obligations with
respect to surety bonds, letters of credit and bankers acceptances, whether or
not matured, but not including obligations to trade creditors incurred in the
ordinary course of business), (ii) all obligations evidenced by notes, bonds,
debentures or similar instruments, (iii) all indebtedness created or arising
under any conditional sale or other title retention agreements with respect to
property acquired by such Person (even though the rights and remedies of the
seller or lender under such agreement in the event of default are limited to
repossession or sale of such property), (iv) all capital lease obligations
required to be capitalized in accordance with GAAP, (v) all Guaranteed
Indebtedness, (vi) all Indebtedness referred to in clause (i), (ii), (iii), (iv)
or (v) above secured by (or for which the holder of such Indebtedness has an
existing right, contingent or otherwise, to be secured by) any Lien upon or in
property (including, without limitation, accounts and contract rights) owned by
such Person, even though such Person has not assumed or become liable for the
payment of such Indebtedness and (vii) all liabilities under Title IV of ERISA.
"IRC" shall mean the Internal Revenue Code of 1986, as amended, and any
successor thereto.
"IRS" shall mean the Internal Revenue Service, or any successor thereto.
"Lien" shall mean any mortgage or deed of trust, pledge, hypothecation,
assignment, deposit arrangement, lien, charge, claim, security interest,
easement or encumbrance, or preference, priority or other security agreement or
preferential arrangement of any kind or nature whatsoever (including, without
limitation, any title retention agreement, any financing lease having
substantially the same economic effect as any of the foregoing, and the filing
of, or agreement to give, any financing statement perfecting a security interest
as to assets owned by the relevant Person under the Uniform Commercial Code or
comparable law of any jurisdiction).
4
<PAGE>
"Material Adverse Effect" shall mean material adverse effect on the
business, assets, operations, prospects or financial or other condition of
Company.
"Material Contracts" means (i) all of Company's contracts, agreements,
leases or other instruments to which Company is a party or by which Company or
its properties are bound, which in Company's good faith judgment are required to
be disclosed as exhibits to the Company's annual report on Form 10-KSB, (ii) all
of Company's loan agreements, bank lines of credit agreements, indentures,
mortgages, deeds of trust, pledge and security agreements, factoring agreements,
conditional sales contracts, letters of credit or other debt instruments, (iii)
all material operating or capital leases for equipment to which Company is a
party, (iv) all non-competition and similar agreements other than as contained
in employment agreements to which Company is a party, (v) all contracts for the
employment of any officer or employee, (vi) all consulting agreements, (vii) any
guarantees by the Company, (viii) all distributor and sales agency agreements,
(ix) all other material contracts not made in the ordinary course of business,
and (x) all material contracts relating to the operation of Company or, the
production of or programming for Company or related to the technology utilized
by Company.
"Multiemployer Plan" shall mean a "multiemployer plan" as defined in
Section 4001(a)(3) of ERISA, and to which Company or any ERISA Affiliate is
making, is obligated to make, has made or been obligated to make, contributions
on behalf of participants who are or were employed by any of them.
"Note" shall have the meaning set forth in Section 2.4 hereof.
"Options" shall mean the options granted pursuant to Company's 1990
Performance Equity Plan, 1996 Stock Incentive Plan; Outside Directors Stock
Option Plan and the nonqualified options for 1,350,000 shares granted to Peter
Kauff.
"PBGC" shall mean the Pension Benefit Guaranty Corporation or any successor
thereto.
"Pension Plan" shall have the meaning set forth in Section 4.19 hereof.
"Permitted Indebtedness" means, with respect to Company, (i) taxes or
assessments or other governmental charges or levies, either not yet due and
payable or to the extent that nonpayment thereof is permitted by the terms of
this Agreement; (ii) obligations under workmen's compensation, unemployment
insurance, social security or public liability laws or similar legislation;
(iii) bids, tenders, contracts (other than contracts for the payment of money)
or leases to which Company is a party as lessee made in the ordinary course of
business; (iv) public or statutory obligations of Company; (v) all deferred
taxes and (vi) all unfunded pension fund and other employee benefit plan
obligations and liabilities but only to the extent permitted to remain unfunded
under applicable law.
5
<PAGE>
"Person" shall mean any individual, sole proprietorship, partnership,
limited liability company, joint venture, trust, unincorporated organization,
association, corporation, institution, public benefit corporation, entity or
government (whether federal, state, county, city, municipal or otherwise,
including, without limitation, any instrumentality, division, agency, body or
department thereof).
"Plan" shall have the meaning set forth in Section 4.19 hereof.
"Purchased Securities" shall have the meaning set forth in the first
"Whereas" clause hereof.
"Preferred Stock" shall mean the preferred stock, $0.001 par value per
share of the Company.
"Registration Rights Agreement" shall mean the Registration Rights
Agreement between Company and Purchaser, substantially in the form attached
hereto as Exhibit "D," as such agreement may be amended, supplemented or
otherwise modified from time to time in accordance with the terms thereof.
"Restricted Securities" means (i) the Purchased Securities issued
hereunder, and (ii) any securities issued and exchanged with respect to the
securities referred to in clause (i) by way of a stock dividend or stock split
or in connection with a combination of shares, recapitalization, merger,
consolidation or other reorganization. As to any particular Restricted
Securities, such securities shall cease to be Restricted Securities when they
have been (a) effectively registered under the Securities Act and disposed of in
accordance with the registration statement covering them, (b) been distributed
to the public through a broker, dealer or market maker pursuant to Rule 144 (or
any similar provision then in force) under the Securities Act or become eligible
for sale pursuant to Rule 144(k) (or any similar provision then in force) under
the Securities Act or (c) been otherwise transferred and new certificates for
them not bearing the Securities Act legend set forth in Section 7.1 have been
delivered by Company in accordance with Section 7.2. Whenever any particular
securities cease to be Restricted Securities, the holder thereof shall be
entitled to receive from Company, without expense, new securities of like tenor
nor bearing a Securities Act legend of the character set forth in Section 7.1.
"Retiree Welfare Plan" shall refer to any Welfare Plan providing for
continuing coverage or benefits for any participant or any beneficiary of a
participant after such participant's termination of employment, other than
continuation coverage provided pursuant to Section 4980B of the IRC and at the
sole expense of the participant or the beneficiary of the participant.
"SEC" shall mean the U.S. Securities and Exchange Commission, or any
successor thereto.
"Securities Act" shall mean the Securities Act of 1933, as amended, and all
rules and regulations promulgated thereunder.
6
<PAGE>
"Spill" shall have the meaning set forth in Section 4.10.
"Stock" shall mean all shares, options, warrants, general or limited
partnership interests, limited liability company membership interest,
participations or other equivalents (regardless of how designated) of or in a
corporation, partnership, limited liability company or equivalent entity whether
voting or nonvoting, including, without limitation, common stock, preferred
stock, or any other equity security (as such term is defined in Rule 3a11-1 of
the General Rules and Regulations promulgated by the SEC under the Exchange
Act).
"Subsidiary" shall mean, with respect to any Person, (a) any corporation of
which an aggregate of more than 50% of the outstanding Stock having ordinary
voting power to elect a majority of the board of directors of such corporation
(irrespective of whether, at the time, Stock of any other class or classes of
such corporation shall have or might have voting power by reason of the
happening of any contingency) is at the time, directly or indirectly, owned
legally or beneficially by such Person and/or one or more Subsidiaries of such
Person, and (b) any partnership or other entity in which such Person and/or one
or more Subsidiaries of such Person shall have an interest (whether in the form
of voting or participation in profits or capital contribution) of more than 50%.
"Transaction Documents" shall mean this Agreement, the Registration Rights
Agreement, the Class C Warrant, the Equity Protection Agreements, the Escrow
Agreement, the Employment Agreements, the Guaranty, the Note and all
certificates and other documents related to the transactions contemplated by
this Agreement.
"Unit Purchase Option" shall mean the option, dated April 26/May 28, 1996,
issued to Barington Capital Group, L.P. for the purchase of the aggregate of
3.44 units at an exercise price of $100,000 per unit, each unit consisting of
142,857 shares of Common Stock and one warrant to purchase 142,857 shares of
Common Stock at an exercise price of $1.29.
"Warrants" shall mean Company's Class A Redeemable Warrants; Class B
Redeemable Warrants; and, to the extent presently unexercised, Units consisting
of two (2) shares of Common Stock, one (1) Class A Redeemable Warrant and one
(1) Class B Redeemable Warrant; and Private Placement Warrants, copies of which
forms are attached hereto as Schedule 1.1.
"Welfare Plan" shall mean any welfare plan, as defined in Section 3(1) of
ERISA, which is maintained or contributed to by Company or any ERISA Affiliate.
References to this "Agreement" shall mean this Purchase Agreement,
including all amendments, modifications and supplements and any exhibits or
scheduler to any of the foregoing, and shall refer to the Agreement as the same
may be in effect at the time such reference becomes operative.
Any accounting term used in this Agreement shall have, unless otherwise
specifically provided herein, the meaning customarily given such term in
accordance with GAAP, and all financial computations hereunder shall be
computed, unless otherwise specifically provided herein, in accordance with GAAP
consistently applied. That certain terms or computations are
7
<PAGE>
explicitly modified by the phrase "in accordance with GAAP" shall in no way be
construed to limit the foregoing. The words "herein," "hereof" and "hereunder"
and other words of similar import refer to this Agreement, as a whole, including
the Exhibits and Schedules hereto, as the same may from time to time be amended,
modified or supplemented, and not to any particular section, subsection or
clause contained in this Agreement. Wherever from the context it appears
appropriate, each term stated in either the singular or plural shall include the
singular and the plural, and pronouns stated in the masculine, feminine or
neuter gender shall include the masculine, the feminine and the neuter.
II. THE PURCHASE OF PURCHASED SECURITIES
2.1 Authorization of Issue. Prior to the Closing, Company shall have
----------------------
duly authorized the issuance and sale of the Purchased Securities.
2.2 Purchase of Purchased Securities. Subject to the terms and
--------------------------------
conditions set forth in this Agreement, Purchaser does hereby subscribe for and
purchase from Company, and Company agrees to issue and sell to Purchaser, on the
Closing Date an aggregate of 29,090,909 shares of Common Stock, the Class C
Warrant and the purchase rights granted pursuant to the Equity Protection
Agreements.
The aggregate purchase price for the Common Stock subscribed for by
Purchaser is $16,000,000, payable in full on the Closing Date as follows:
$29,090.91 in cash at Closing and $15,970,909.09 pursuant to the Note; and the
aggregate purchase price for the Class C Warrant and the purchase rights granted
pursuant to the Equity Protection Agreements shall be $200,000 payable on the
Closing Date pursuant to the Note. The aggregate principal amount of the Note
shall be $16,170,909.09.
2.3 Closing. The closing of the purchase and sale of the Purchased
-------
Securities (the "Closing") shall take place simultaneously with the execution of
this Agreement (the "Closing Date") at the offices of Kirkland & Ellis, 153 East
53rd Street, New York, New York, or such other place as shall be mutually agreed
to by the parties hereto.
On the Closing Date, Company will deliver to the Purchaser a certificate
representing the Common Stock, the Class C Warrant and the executed Equity
Protection Agreements representing the Purchased Securities to be purchased by
the Purchaser registered in the name of Purchaser against delivery by Purchaser
of the purchase price therefor by payment of cash and delivery of the Note to
Company in accordance with Section 2.2 hereof.
2.4 Escrow. On the date hereof, Purchaser shall place in escrow
------
pursuant to the terms of the Escrow Agreement the Purchased Securities and
Company shall place in escrow pursuant to the terms of the Escrow Agreement the
cash and Promissory Note payable to Company from Purchaser as partial payment of
the Purchase Price (the "Note") for the Purchased Securities and the rights and
benefits pursuant to the Equity Protection Agreements. The Purchased Securities
shall be released from escrow in accordance with the terms and provisions of the
Escrow Agreement. Purchaser shall also place into escrow resignations of the
officers and directors
8
<PAGE>
appointed pursuant to Section 6.1(i) hereof to be effective if the purchase and
sale is rescinded in accordance with the terms of the Escrow Agreement.
III. PURCHASER'S REPRESENTATIONS
Purchaser makes the following representations and warranties to Company,
each and all of which shall survive the execution and delivery of this Agreement
and the Closing hereunder:
3.1 Investment Intention. Purchaser is purchasing the Purchased
--------------------
Securities for its own account, for investment purposes and not with a view to
the distribution thereof. Purchaser will not, directly or indirectly, offer,
transfer, sell, assign, pledge, hypothecate or otherwise dispose of any of the
Purchased Securities (or solicit any offers to buy, purchase, or otherwise
acquire any of the Purchased Securities), except in compliance with the
Securities Act.
3.2 Accredited Investor. Purchaser is an "accredited investor" (as that
-------------------
term is defined in Rule 501 of Regulation D under the Securities Act) and by
reason of its business and financial experience, it has such knowledge,
sophistication and experience in business and financial matters as to be capable
of evaluating the merits and risks of the prospective investment, is able to
bear the economic risk of such investment and it is able to afford a complete
loss of such investment.
3.3 Corporate Existence. Purchaser is a limited liability company duly
-------------------
organized, validly existing and in good standing under the laws of its
jurisdiction of formation.
3.4 Corporate Power: Authorization: Enforceable Obligations. The
-------------------------------------------------------
execution, delivery and performance by Purchaser of the Transaction Documents to
be executed by it: (i) are within Purchaser's power, as applicable; (ii) have
been duly authorized by all necessary action, as applicable; (iii) are not in
contravention of any provision of Purchaser's governing documents, as
applicable; and (iv) will not violate any law or regulation, or any order or
decree of any court or governmental instrumentality binding on Purchaser.
Purchaser has full power and authority to perform its obligations under the
Transaction Documents. The Transaction Documents to which Purchaser is a party
have each been duly executed and delivered by Purchaser and constitute the
legal, valid and binding obligations of Purchaser, enforceable against it in
accordance with their respective terms, subject to applicable bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium and similar laws
affecting creditors' rights and remedies generally, and subject, as to
enforceability, to general principles of equity, including principles of
commercial reasonableness, good faith and fair dealing (regardless of whether
enforcement is sought in a proceeding at law or in equity).
3.5 Information in Purchaser Proposal. The factual information
---------------------------------
pertaining to Willis Stein & Partners, L.P., Jason Elkin and Joseph Gersh and
their respective affiliates contained in the brochure prepared by Willis Stein &
Partners, L.P., dated March 20, 1997, is correct in all material respects.
9
<PAGE>
3.6 Use of Proceeds. As of the Closing Date, the Purchaser intends to
---------------
cause Company to use the proceeds of the investment contemplated hereunder for
building and installing equipment at additional campus locations as and when
contracted; additional personnel; program development; and working capital
needs.
3.7 Declaration of Dividends. As of the Closing Date, the Purchaser has
------------------------
no present intention of causing Company to pay dividends or distribute funds to
it.
IV. COMPANY'S REPRESENTATIONS AND WARRANTIES
Company makes the following representations and warranties to each
Purchaser, each and all of which shall survive the execution and delivery of
this Agreement and the Closing hereunder:
4.1 Authorized and Outstanding Shares of Capital Stock. After giving
--------------------------------------------------
effect to the Closing, the authorized capital stock of Company consists of
50,000,000 shares of Common Stock, $0.001 par value per share, of which
40,075,766 shares will be issued and outstanding on the Closing Date, including
the Purchased Securities, of which 376,945 shares are reserved for issuance upon
exercise of the Class A Warrants; 2,951,027 shares are reserved for issuance
upon exercise of the Class B Warrants; 4,914,283 shares are reserved for
issuance upon the exercise of the Private Placement Warrants; 2,076,591 shares
are reserved for issuance upon exercise of the Options and 982,856 shares are
reserved for issuance upon the exercise of the Unit Purchase Options. No shares
will be reserved for the Class C Warrant on the Closing Date. The following
table sets forth the capital structure as it relates to outstanding Warrants and
Options of the Company after giving effect to the issuance of the Purchased
Securities on April 25, 1997.
<TABLE>
<CAPTION>
Number Stock Stock Exercisable Exercise Price Prior Exercise Price
Outstanding Exercisable into into after Closing to Closing After Closing
prior to Closing
<S> <C> <C> <C> <C> <C>
Class A Warrants 144,979 376,945 376,945 $ 11.51611 $ 11.51611
Class B Warrants 2,270,021 2,951,027 2,951,027 $ 6.9096 $ 6.9096
IPO Unit 133,929/2/ 790,181 790,181/1/ $ 25.4817/1/ $ 25.4817/1/
Purchase Options
Private 4,914,293 4,914,293 4,914,293 $ 1.2900 $ 1.2900
Placement Warrants
Unit 3.44 982,856 1,001,482 $284,285.4300 $280,661.9974/1/
Purchase Options
Barington
Options prior 1,064,091
after 2,076,591
</TABLE>
* For all of Stock, not per share.
1. Represents amount payable to exercise unit and underlying warrants.
10
<PAGE>
2. Originally 105,000 and adjusted to 133,929 as a result of interim anti-
dilution adjustments (Expires 6/10/97). Each Unit Purchase Option represents
two Common Shares and one Class A and one Class B Warrant.
Before giving effect to this transaction, each Class A Warrant is
exercisable into 1.3 shares of Common Stock and 1 Class B Warrant. Each Class B
Warrant is exercisable into 1.3 shares of Common Stock. Each Private Placement
Warrant is exercisable for 1.0 shares of Common Stock. Each Unit Purchase
Option is exercisable for 142,857 shares of Common Stock and one (1) Warrant to
purchase 142,857 shares of Common Stock for each unit and there are 3.44 units
outstanding.
There are also 2,000,000 shares of Preferred Stock, $0.001 par value per
share authorized, of which 3,333 shares will be issued and outstanding on the
Closing Date. All of such issued and outstanding Stock of the Company,
including, without limitation, the 29,090,909 shares of Common Stock included as
part of the Purchased Securities, is validly issued, fully paid and non-
assessable. Schedule 4.1 hereto or the Annual Report contains a complete and
correct list of all stockholders of Company owning, to the knowledge of Company,
more than 5% of the outstanding Stock of Company and the number of shares or
warrants owned by each. All Options and the holders of each of the Options and
certain other information pertaining to the Options are listed on Schedule 4.1.
Except as set forth on Schedule 4.1 or the Annual Report or the outstanding
Warrants or the Unit Purchase Options referenced above or the Equity Protection
Agreements, (i) there is no existing option, warrant, call, commitment or other
agreement to which Company is a party requiring, and there are no convertible
securities of Company outstanding which upon conversion would require, the
issuance of any additional shares of Stock of Company or other securities
convertible into shares of equity securities of Company, (ii) there are no
agreements or obligations (contingent or otherwise) requiring Company to
repurchase or otherwise acquire or retire any shares of its capital stock or any
warrants, options or other rights to acquire its capital stock, and (iii) there
are no agreements to which Company is a party or, to the knowledge of Company,
to which any stockholder or warrant holder of Company is a party, with respect
to the voting or transfer of the Stock of Company. Except as set forth on
Schedule 4.1 or the Annual Report, there are no stockholders' preemptive rights
or rights of first refusal or other similar rights with respect to the issuance
of the Purchased Securities by Company. True and correct copies of the
certificate of incorporation and by-laws of Company have been delivered to
Purchaser.
4.2 Authorization and Issuance of Purchased Securities. The issuance of
--------------------------------------------------
the Purchased Securities has been duly authorized by all necessary corporate
action on the part of Company and, upon delivery to Purchaser of certificates
therefor against payment in accordance with the terms hereof, the Purchased
Securities and the purchase rights granted pursuant to the Equity Protection
Agreements will have been validly issued and fully paid and non-assessable, free
and clear of all pledges, liens, encumbrances and preemptive rights. Subject to
the amendment of the Certificate of Incorporation of the Company increasing the
number of authorized shares of Common Stock, the issuance of shares upon
exercise of the Class C Warrant and the purchase rights granted pursuant to the
Equity Protection Agreements has been duly authorized by all necessary corporate
action on the part of Company and, when issued upon exercise of the Class C
Warrant and the purchase rights granted pursuant to the Equity Protection
11
<PAGE>
Agreements and payment of the exercise price, such Common Stock will have been
validly issued and fully paid and non-assessable. Subject to increase in
authorized Common Stock, the Company has duly reserved 3,863,662 shares of
Common Stock for issuance pursuant to the terms of the Class C Warrant.
4.3 Securities Laws. In reliance on the representations of Purchaser
---------------
contained in Section 3.1 and 3.2, the offer, issuance, sale and delivery of the
Purchased Securities, as provided in this Agreement, are exempt from the
registration requirements of the Securities Act and all applicable state
securities laws, and are otherwise in compliance with such laws. Neither Company
nor any Person acting on its behalf has taken or will take any action
(including, without limitation, any offering of any securities of Company under
circumstances which would require the integration of such offering with the
offering of the Purchased Securities under the Securities Act and the rules and
regulations of the SEC thereunder) which might subject the offering, issuance or
sale of the Purchased Securities including, but not limited to, the purchase
rights granted pursuant to the Equity Protection Agreements to the registration
requirements of Section 5 of the Securities Act. No information contained in
the documents filed with the SEC contains any untrue statement of a material
fact, or omits to state a material fact necessary to make the statements
contained therein not misleading in light of the circumstances under which made.
4.4 Corporate Existence: Compliance with Law. Company (i) is a
----------------------------------------
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware (ii) except as indicated on Schedule 4.4 is duly
qualified as a foreign corporation and in good standing under the laws of
Massachusetts and New York and each jurisdiction where its ownership or lease of
property or the conduct of its business requires such qualification (except for
jurisdictions in which such failure to so qualify or to be in good standing
would not have a Material Adverse Effect); (iii) has the requisite corporate
power and authority and the legal right to own, pledge, mortgage or otherwise
encumber and operate its properties, to lease the property it operates under
lease, and to conduct its business as now being conducted in all material
respects; (iv) has, or has applied for, all material licenses, permits, consents
or approvals from or by, and has made all material filings with, and has given
all material notices to, all Governmental Authorities having jurisdiction, to
the extent required for such ownership, operation and conduct; (v) is in
compliance with its certificate of incorporation and by-laws in all material
respects; and (vi) is in compliance with all applicable provisions of applicable
laws, including, but not limited to, the Securities Act and the Exchange Act,
except for such non-compliance which would not have a Material Adverse Effect.
The Company has timely filed all reports with the SEC as is required by the
Securities Act and Exchange Act; and the Rule 144 exemption is available to
qualified holders of Stock of the Company.
4.5 Subsidiaries. There currently exist no Subsidiaries of Company and
------------
Company has no equity interest in any other Person.
4.6 Corporate Power: Authorization: Enforceable Obligations. The
-------------------------------------------------------
execution, delivery and performance by Company of this Agreement, the other
Transaction Documents to which it is a party and all instruments and documents
to be delivered by Company, the issuance
12
<PAGE>
and sale of the Purchased Securities and the consummation of the other
transactions contemplated by any of the foregoing: (i) are within Company's
corporate power and authority; (ii) have been duly authorized by all necessary
or proper corporate action; (iii) are not in contravention of any provision of
Company's Certificate of Incorporation or by-laws; (iv) will not violate any law
or regulation, or any order or decree of any court or governmental
instrumentality; (v) subject to the terms of that certain Agreement with
Barington Capital Group, L.P., dated April 26, 1996, and the obligation of
Company to reserve Common Stock for the exercise of the Warrants and Options,
will not conflict with or result in the breach or termination of, constitute a
default under or accelerate any performance required by, any indenture,
mortgage, deed of trust, lease, agreement or other instrument to which Company
is a party or by which Company or any of their property is bound; (vi) will not
result in the creation or imposition of any Lien upon the capital stock or any
of the property of Company; and (vii) do not require the consent or approval of,
or any filing with, any Governmental Authority or any other Person (except to
the extent previously obtained or made). The execution, delivery and performance
of this Agreement and the transactions contemplated herein do not require
approval or consent of the shareholders or other holders of Stock of Company or
the approval or authorization of any Governmental Authority, NASDAQ, other
securities exchange or any other Person. At or prior to the Closing Date, each
of this Agreement and the other Transaction Documents shall have been duly
executed and delivered by Company and each shall then constitute a legal, valid
and binding obligation of Company, enforceable against it in accordance with its
terms, subject to applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and similar laws affecting creditors' rights and
remedies generally, and subject, as to enforceability, to general principles of
equity, including principles of commercial reasonableness, good faith and fair
dealing (regardless of whether enforcement is sought in a proceeding at law or
in equity).
4.7 Financial Statements.
--------------------
(a) The audited financial statements of the Company dated as of
October 31, 1996 (the "Financials") have been prepared in accordance with the
books and records of the Company, present fairly the financial condition of
Company as of the respective dates indicated and the results of operations for
the respective periods indicated, and have been prepared in accordance with GAAP
applied on a consistent basis.
(b) Company has delivered to Purchaser copies of the Annual Report.
In addition, Company has delivered to Purchaser a copy of its Annual Report to
Shareholders with respect to the fiscal year ended October 31, 1996, proxy
statements relating to the 1997 annual meeting of shareholders and copies of its
quarterly reports filed with the SEC of Form 10-QSB for the periods ended
January 31, 1997, July 31, 1996, April 30, 1996 and January 31, 1996; and the
Annual Report on Form 10-KSB as filed with the SEC for the fiscal years ended
October 31, 1996 and October 31, 1995 and the related annual report to
shareholders with respect to said fiscal year ended and the proxy statement
related to the 1996 annual meeting of stockholders.
(c) Except as set forth on Schedule 4.7 or the Annual Report, Company
has no material obligations, contingent or otherwise, including, without
limitation, liabilities for
13
<PAGE>
Charges, long-term leases or long-term commitments which are not reflected in
the Financials, other than those incurred since October 31, 1996, in the
ordinary course of business (none of which is a liability resulting from breach
of contract, breach of warranty, tort, infringement, or any claim or lawsuit).
(d) No dividends or other distributions have been declared, paid or
made upon any Stock of Company, nor has any Stock of Company been redeemed,
retired, purchased or otherwise acquired for value by Company since October 31,
1996.
4.8 Ownership of Property.
---------------------
(a) The Company does not own any real estate. Except as set forth on
Schedule 4.8, Company owns, has a valid leasehold interest in, or has a valid
license to use, all material assets, properties and rights, whether tangible or
intangible, necessary for the conduct of its business as presently conducted and
as presently proposed to be conducted.
(b) All real property leased by Company is set forth on Schedule 4.8
or the Annual Report. Each of such leases is valid and enforceable in accordance
with its terms (subject to applicable bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium and similar laws affecting creditors'
rights and remedies generally, and subject, as to enforceability, to general
principles of equity, including principles of commercial reasonableness, good
faith and fair dealing (regardless of whether enforcement is sought in a
proceeding at law or in equity)) and is in full force and effect. Company has
delivered to Purchaser true and complete copies of each of such leases set forth
on Schedule 4.8(b) or the Annual Report and all documents affecting the rights
or obligations of Company, including, without limitation, any non-disturbance
and recognition agreements, subordination agreements, attornment agreements and
agreements regarding the term or rental of any of the leases. Except as set
forth on Schedule 4.8 or the Annual Report, the Company is not in default of its
obligations under any material lease or has it delivered or received any notice
of default under any such lease, nor to the knowledge of the Company has any
event occurred which, with the giving of notice, the passage of time or both,
would constitute a default under any such lease.
(c) Except as disclosed on Schedule 4.8 or the Annual Report, Company
is not obligated under or a party to, any option, right of first refusal or any
other contractual right to purchase, acquire, sell, assign or dispose of any
real property leased by Company.
4.9 Material Contracts: Indebtedness. Schedule 4.9 or the Annual Report
--------------------------------
contains a true, correct and complete list and description of all Material
Contracts. Each Material Contract is a valid and binding agreement of Company
enforceable against Company in accordance with its terms (subject to applicable
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and
similar laws affecting creditors' rights and remedies generally, and subject, as
to enforceability, to general principles of equity, including principles of
commercial reasonableness, good faith and fair dealing (regardless of whether
enforcement is sought in a proceeding at law or in equity)), and Company has no
knowledge that any Material Contract is not a valid and binding agreement
against the other parties thereto. Except as set forth in
14
<PAGE>
Schedule 4.9 or the Annual Report, Company is not in material default or breach
(whether with or without the passage of time, the giving of notice or both) or
in receipt of any claims of default or breach, nor to Company's knowledge is any
third party in default or breach, under or with respect to any
Material Contract. Except as set forth on Schedule 4.9 or the Annual Report,
Company has no Indebtedness, except Permitted Indebtedness.
4.10 Environmental Protection.
------------------------
(a) To Company's actual knowledge (for purposes of this Section 4.10
the actual knowledge of the Company shall mean the actual knowledge of Peter
Kauff or Alan Pearl after due inquiry), all real property owned, leased or
otherwise operated by Company (a "Facility") is free of contamination from any
substance, waste or material (i) currently identified to be toxic or hazardous
pursuant to, or which may result in liability under, any Environmental Law or
(ii) within the definition of a substance which is toxic or hazardous under any
Environmental Law, including, without limitation, any asbestos, PCB, radioactive
substance, methane, volatile hydrocarbons, industrial solvents, oil or petroleum
or chemical liquids or solids, liquid or gaseous products, or any other material
or substance which has in the past or could at any time in the future cause or
constitute a health, safety, or environmental hazard to any Person or property
or result in any Environmental Liabilities and Costs ("Hazardous Substance") of
more than $10,000 or which, in either case, could have a Material Adverse
Effect. Neither Company has caused or suffered to occur any release, Spill,
migration, leakage, discharge, spillage, uncontrolled loss, seepage, or
filtration of Hazard Substances at or from the Facility (a "Spill") which could
result in Environmental Liabilities and Costs in excess of $10,000.
(b) Company and each Subsidiary has generated, treated, stored and
disposed of any Hazardous Substances in full compliance with applicable
Environmental Laws, except for such non-compliances which would not have a
Material Adverse Effect.
(c) Company and each Subsidiary has obtained, or has applied for, and
is in full compliance with and in good standing under all permit required under
Environmental Laws (except for such failures which would not have a Material
Adverse Effect) and neither Company has any knowledge of any proceedings to
substantially modify or to revoke any such permit.
(d) There are no investigations, proceedings or litigation pending or,
to Company's knowledge, threatened, affecting or against Company or the
Facilities relating to Environmental Laws or Hazardous Substances.
(e) Since January 1, 1996, the Company has not received any
communication or notice (including, without limitation, requests for
information) indicating the potential of Environmental Liabilities and Costs
against Company.
4.11 Labor Matters.
-------------
(a) There are no strikes or other labor disputes against Company
pending or, to Company's knowledge, threatened. Hours worked by and payment made
to employees of
15
<PAGE>
Company have not been in violation of the Fair Labor Standards Act or any other
applicable law dealing with such matters. All payments due from Company on
account of employee health and welfare insurance have been paid or accrued as a
liability on the books of Company. There is no organizing activity involving
Company pending or, to Company's knowledge, threatened by any labor union or
group of employees. There are no representation proceedings pending or, to
Company's knowledge, threatened with the National Labor Relations Board, and no
labor organization or group of employees of Company has made a pending demand
for recognition. There are no complaints or charges against Company pending or,
to Company's knowledge, threatened to be filed with any federal, state, local or
foreign court, governmental agency or arbitrator based on, arising out of, in
connection with, or otherwise relating to the employment or termination of
employment by Company of any individual.
(b) The Company is not, and during the five years preceding the date
hereof was not, a party to any labor or collective bargaining agreement and
there are no labor or collective bargaining agreements which pertain to
employees of Company.
4.12 Other Ventures. The Company is not engaged in any joint venture or
--------------
partnership with any other Person.
4.13 Taxes. All federal, state, local and foreign tax returns, reports
-----
and statements required to be filed by Company and each Affiliated Group have
been timely filed with the appropriate Governmental Authority except where the
failure to file such report or statement would not have a Material Adverse
Effect and all such returns, reports and statements are true, correct and
complete in all material respects. All Charges and other impositions due and
payable for the periods covered by such returns, reports and statements have
been paid prior to the date on which any fine, penalty, interest or late charge
may be added thereto for nonpayment thereof, or any such fine, penalty, interest
or late charge has been paid. Proper and accurate amounts have been withheld by
Company from its employees, independent contractors, or other third parties for
all periods in full and complete compliance with the tax, social security and
unemployment withholding provisions of applicable federal, state, local and
foreign law and such withholdings have been timely paid to the respective
governmental agencies. Company is not a member of an Affiliated Group. Company
has not executed or filed with the IRS or any other Governmental Authority any
agreement or other document extending, or having the effect of extending, the
period for assessment or collection of any Charges. No tax audits or other
administrative or judicial proceedings are pending or threatened with regard to
any Charges for which Company may be liable and no assessment of Charges is
proposed against the Company. Company has not filed a consent pursuant to IRC
Section 341(f) or agreed to have IRC Section 341(f)(2) apply to any dispositions
of subsection (f) assets (as such term is defined in IRC Section 341(f)(4)).
None of the property owned by Company is property which such company is required
to treat as being owned by any other Person pursuant to the provisions of
Section 168(f)(8) of the Internal Revenue Code of 1954, as amended, and in
effect immediately prior to the enactment of the Tax Reform Act of 1986 or is
"tax-exempt" use property, within the meaning of IRC Section 168(h). Company
has not agreed or has been requested to make any adjustment under IRC Section
481(a) by reason of a change in accounting method or otherwise. Company has no
obligation under any written tax sharing agreement. Company is not a party to
16
<PAGE>
or bound by any tax allocation or tax sharing agreement and has no current or
potential contractual obligation to indemnify any other person with respect to
any Charges. Company has not made any payments, and is not and will not become
obligated (under any contract entered into on or before the Closing Date) to
make any payments, that will be non-deductible under Section 280G of the IRC (or
any corresponding provision of state, local or foreign income tax law). Company
will not be required (A) as a result of a change in method of accounting for a
taxable period ending on or prior to the Closing Date, to include any adjustment
in taxable income for any taxable period (or portion thereof) ending after the
Closing Date or (B) as a result of any deferred intercompany gain described in
Treasury Regulation Sections 1.1502-13 of former Treasury Regulations Section
1.1502-14 or any excess loss account described in Treasury Regulation Section
1.1502-19 (or any corresponding or similar provision or administrative rule of
federal, state, local or foreign income tax law), to include any item of income
in taxable income for any taxable period (or portion thereof) ending after the
Closing Date. Company has not been a member of an Affiliated Group other than
one of which Company was the common parent, or filed or been included in a
combined, consolidated or unitary income tax return, other than one filed by
Company.
4.14 No Litigation. Except as set forth on Schedule 4.14, no action,
-------------
claim or proceeding is now pending or, to the knowledge of Company, threatened
against Company (or to Company's knowledge, pending or threatened against or
affecting any of the officers, directors or employees of Company with respect to
its business or proposed business activities), or pending or threatened by
Company against any third party, at law, in equity or otherwise, before any
court, board, commission, agency or instrumentality of any federal, state, or
local government or of any agency or subdivision thereof, or before any
arbitrator or panel of arbitrators.
4.15 Brokers. No broker or finder acting on behalf of Company brought
-------
about the consummation of the transactions contemplated pursuant to this
Agreement and Company has no obligation to any Person in respect of any finder's
or brokerage fees (or any similar obligation) in connection with the
transactions contemplated by this Agreement. Company is solely responsible for
the payment of all such finder's or brokerage fees.
4.16 Employment and Labor Agreements. Except as set forth on Schedule
-------------------------------
4.16 or the Annual Report, there are no employment, consulting or management
agreements covering management of Company.
4.17 Patents. Trademarks, Copyrights and Licenses. Company owns all
--------------------------------------------
licenses, patents, patent applications, copyrights, service marks, trademarks
and registrations and applications for registration thereof, and trade names
necessary to continue to conduct its business as heretofore conducted by it and
now being conducted by it, each of which is listed, together with Patent and
Trademark Office or Copyright Office application or registration numbers, where
applicable, on Schedule 4.17 hereto or the Annual Report. To Company's
knowledge, Company conducts its businesses without infringement or claim of
infringement of any license, patent, copyright, service mark, trademark, trade
name, trade secret or other intellectual property right of others and Company
has received no notices claiming any such infringement. To Company's knowledge,
there is no infringement by others of any license,
17
<PAGE>
patent, copyright, service mark, trademark, trade name, trade secret or other
intellectual property right of Company.
4.18 No Material Adverse Effect. To the Company's knowledge, no event
--------------------------
has occurred since October 31, 1996 which has had or could be reasonably
expected to have a Material Adverse Effect; provided, however, Purchaser
acknowledges that it has been advised that the Company has operated at a loss
and has had negative cash flow since October 31, 1996.
4.19 ERISA.
-----
(a) Schedule 4.19 sets forth: (i) all "employee benefit plans", as
defined in Section 3(3) of ERISA, and any other employee benefit arrangements or
payroll practices, including, without limitation, severance pay, sick leave,
vacation pay, salary continuation for disability, consulting or other
compensation agreements, retirement, deferred compensation, bonus, stock
purchase, hospitalization, medical insurance, life insurance and scholarship
programs (the "Plans") maintained by Company or to which Company contributed,
contributes or is obligated to contribute thereunder, and (ii) all "employee
pension plans ", as defined in Section 3(2) of ERISA (the "Pension Plans"),
maintained by Company or any of its ERISA Affiliates to which Company or any of
its ERISA Affiliates contributed, contributes or is obligated to contribute
thereunder.
(b) Purchaser will not have (i) any obligation to make any
contribution to any Multiemployer Plan or (ii) any withdrawal liability from any
such Multiemployer Plan under Section 4201 of ERISA which it would not have had
it not purchased the Purchased Securities from Company at the Closing in
accordance with the terms of this Agreement.
(c) The Pension Plans and the trusts maintained pursuant thereto are
exempt from federal income taxation under Section 501 of the IRC, and nothing
has occurred with respect to the operation of the Pension Plans which could
cause the loss of such qualification or exemption or the imposition of any
liability, penalty, or tax under ERISA or the IRC.
(d) All contributions required by law or pursuant to the terms of the
Plans (without regard to any waivers granted under Section 412 of the IRC) to
any funds or trusts established thereunder or in connection therewith have been
made by the due date thereof (including any valid extension) and no accumulated
funding deficiencies exist in any of the Pension Plans subject to Section 412 of
the IRC.
(e) There is no "amount of unfunded benefit liabilities" as defined in
Section 4001(a) (18) of ERISA in any of the respective Pension Plans, which are
subject to Title IV of ERISA. Each of the respective Pension Plans are fully
funded in accordance with the actuarial assumptions used by the PBGC to
determine the level of funding required in the event of the termination of the
Pension Plan and all benefit liabilities do not exceed the assets of such
Pension Plans.
18
<PAGE>
(f) There have been no "reportable events" as that term is defined in
Section 4043 of ERISA and the regulations thereunder with respect to the Pension
Plans subject to Title IV of ERISA which would require the giving of notice, or
any event requiring disclosure under Sections 4041(c)(3)(C), 4063(a) or 4068(f)
of ERISA.
(g) There is no material violation of ERISA with respect to the filing
of applicable reports, documents, and notice. regarding the Plans with the
Secretary of Labor and the Secretary of the Treasury or the furnishing of such
documents to the participants or beneficiaries of the Plans.
(h) True, correct and complete copies of the following documents, with
respect to each of the Plans, have been made available or delivered to Purchaser
by Company: (A) any plans and related trust documents, and amendments thereto,
(B) the most recent Forms 5500, (C) the last IRS determination letter, (D)
summary plan descriptions, (E) written communications to employees relating to
the Plans and (F) written descriptions of all non-written agreements relating to
the Plans.
(i) There are no pending actions, claims or lawsuits which have been
asserted or instituted against the Plans, the assets of any of the trusts under
such Plans or the plan sponsor or the plan administrator, or against any
fiduciary of the Plans with respect to the operation of such Plans (other than
routine benefit claims), nor does Company have knowledge of facts which could
form the basis for any such claim or lawsuit.
(j) All amendments and actions required to bring the Plans into
conformity in all material respects with all of the applicable provisions of
ERISA and other applicable laws have been made or taken except to the extent
that such amendments or actions are not required by law to be made or taken
until a date after the Closing Date.
(k) The Plans have been maintained, in all material respects, in
accordance with their terms and with all provisions of ERISA (including rules
and regulations thereunder) and other applicable Federal and state law, and
Company or "party in interest" or "disqualified person" with respect to the
Plans has engaged in a "prohibited transaction" within the meaning of Section
4975 of the IRC or Section 406 of ERISA.
(l) Neither Company nor any ERISA Affiliate has terminated any Pension
Plan subject to Title IV, or incurred any outstanding liability under Section
4062 of ERISA to the PBGC, or to a trustee appointed under Section 4042 of
ERISA.
(m) Neither Company nor any ERISA Affiliate maintains retiree life and
retiree health insurance plans which are Welfare Plans and which provide for
continuing benefits or coverage for any participant or any beneficiary of a
participant except as may be required under the Consolidated Omnibus Budget
Reconciliation Act of 1985, as amended ("COBRA") and at the expense of the
participant or the participant's beneficiary. Company and each ERISA Affiliate
which maintains a Welfare Plan has complied with the notice and continuation
requirements of COBRA and the regulations thereunder.
19
<PAGE>
(n) Neither Company nor any ERISA Affiliate has contributed or been
obligated to contribute to a Multiemployer Plan as of the Closing.
(o) Neither Company nor any ERISA Affiliate has withdrawn in a
complete or partial withdrawal from any Multiemployer Plan prior to the Closing
Date, nor has any of them incurred any liability due to the termination or
reorganization of a Multiemployer Plan.
(p) Neither Company, any ERISA Affiliate or any organization to which
Company is a successor or parent corporation, within the meaning of Section
4069(b) of ERISA, has engaged in any transaction, within the meaning of Section
4069 of ERISA.
4.20 Registration Rights. Except as set forth on Schedule 4.20, pursuant
-------------------
to the Registration Rights Agreement or as set forth in the Annual Report,
Company is not under obligation to register any of its securities pursuant to
the Securities Act.
4.21 Ordinary Course of Business. Since October 31, 1996, Company has
---------------------------
conducted its operations only in the ordinary course of business consistent with
past practice.
4.22 Full Disclosure. No information contained in this Agreement, any
---------------
other Transaction Document, the Financial Statements or any written statement
furnished by or on behalf of Company pursuant to the terms of this Agreement
contains any untrue statement of a material fact or omits to state a material
fact necessary to make the statements contained herein or therein not misleading
in light of the circumstances under which made.
V. COVENANTS
5.1 Director and Officer Liability Insurance. After the Closing Date
----------------------------------------
and until December 31, 2000, Purchaser shall use commercially reasonable best
efforts to cause the Company to keep in full force and effect the Company's
director and officer liability insurance policy in effect on the date hereof or
such other policy which provides as good or better coverage for the Company's
current and past directors.
5.2 Indemnification of Officer and Directors. After the Closing,
----------------------------------------
Purchaser shall take no action, and shall use its best efforts to prevent the
board of directors of Company from taking any action to amend the corporate
charter or by-laws in such a way as to impair the rights to indemnification that
such officers and directors of the Company have on the date hereof except as
otherwise required by law. Purchaser consents to the amendment of Article XIX
of the Company's By-laws effected April 8, 1997 by the Board of Directors, with
respect to advancement of legal fees and expenses.
5.3 Amendment to Certificate of Incorporation. After the Closing,
-----------------------------------------
Company shall use its commercially reasonable best efforts to amend its
Certificate of Incorporation within fifty (50) days after the Closing Date so as
to increase the authorized Common Stock of Company to 100,000,000 shares, $0.001
par value per share.
20
<PAGE>
5.4 Schedule 14F-1 Information Statement . Within seven days after the
------------------------------------
Closing, Company shall mail the Schedule 14F-1 Information Statement to all
shareholders of Company and file the Information Statement with the SEC and
NASDAQ to reflect the change in directors of the Company pursuant to Section
6.1(i) hereof.
VI. CONDITIONS PRECEDENT
6.1 Conditions Precedent. The obligation of Purchaser to purchase the
--------------------
Purchased Securities pursuant to Section 2.2 hereof, is subject to the condition
that Purchaser shall have received and the following shall be delivered to
Purchaser on the Closing Date, each dated the Closing Date unless otherwise
indicated, in form and substance satisfactory to Purchaser, and the following
actions shall occur on or before the Closing Date, unless waived by Purchaser:
(a) A favorable opinion of Kramer, Levin, Naftalis & Frankel, counsel
to Company, substantially in the form attached hereto as Exhibit E, it being
understood that to the extent that such opinion of counsel to Company shall rely
upon any other opinion of counsel, each such other opinion shall be in form and
substance reasonably satisfactory to the Purchaser and shall provide that
Purchaser may rely thereon.
(b) Resolutions of the board of directors of Company, certified by the
Secretary or Assistant Secretary of Company, as of the Closing Date, to be duly
adopted and in full force and effect on such date, authorizing, in the case of
the board of directors, (i) the consummation of each of the transactions
contemplated by this Agreement and (ii) officers to execute and deliver this
Agreement and each other Transaction Document to which it is a party.
(c) A copy of governmental certificate, dated the most recent
practicable date prior to the Closing Date, with telegram updates where
available, showing that Company is organized and in good standing in the State
of Delaware and is qualified as a foreign corporation and in good standing in
all other jurisdictions in which it is qualified to transact business.
(d) A copy of the organizational charter and all amendments thereto of
Company, certified as of a recent date by the Secretary of State of the State of
Delaware, and copies of Company's by-laws, certified by the Secretary or
Assistant Secretary of Company as true and correct as of the Closing Date.
(e) Certificates of the Secretary or an Assistant Secretary of
Company, dated the Closing Date, as to the incumbency and signatures of the
officers of Company executing this Agreement, the Purchased Securities, each
other Transaction Document to which it is a party and any other certificate or
other document to be delivered pursuant hereto or thereto, together with
evidence of the incumbency of such Secretary or Assistant Secretary.
(f) A copy of all third party consents and approvals, if any, that are
necessary for the consummation of the transactions contemplated hereby or that
are required in order to prevent a breach of or default under, a termination or
modification of, or acceleration of the
21
<PAGE>
terms of, any contract, agreement or document required to be listed on the
attached Schedule 4.9 or the Annual Report, in each case on terms and conditions
reasonably satisfactory to Purchaser, except for additional reservation of
Common Stock for issuance of the Warrants and Options.
(g) A copy of all governmental and regulatory consents and approvals
that are necessary for the consummation of the transactions contemplated hereby,
in each case on terms and conditions satisfactory to Purchaser.
(h) No suit, action or other proceeding shall be pending before any
court or governmental regulatory body or authority in which it is sought to
restrain or prohibit the transactions contemplated hereby, or that could have a
Material Adverse Effect, and no injunction, judgment, order, decree or ruling
with respect thereto shall be in effect.
(i) Company shall have taken such action so that (a) Jason Elkin,
Joseph Gersh, Avy H. Stein, John T. Dobson III and Beth F. Johnston shall have
been appointed to the Board of Directors of the Company and (b) Jason Elkin
shall be appointed Chairman and CEO, Joseph Gersh shall be appointed Vice-
Chairman, Peter Kauff shall be appointed COO and John Dobson shall be appointed
President, such appointments to be effective ten (10) days after Company mails
the Schedule 14F-1 Information Statement to the shareholders of Company and
files such Information Statement with the SEC and NASDAQ (or such later date as
may be required by the SEC); all in accordance with the Certificate of
Incorporation and by-laws of the Company and in compliance with all applicable
laws, including, but not limited to, the Securities Act and the Exchange Act.
(j) Edward McLaughlin and Edward Weinberger shall have resigned as
directors of the Company effective as of the Closing Date.
(k) Company shall have delivered to Purchaser a copy of the fairness
opinion relating to the transaction contemplated herein from MJ Whitman, Inc. to
Purchaser, which fairness opinion shall indicate that the price for the Common
Stock including the Class C Warrant and Equity Protection Agreements, is fair to
Company and which report shall set forth the value of the Common Stock, and of
the Class C Warrant and Equity Protection Agreements.
(l) The Purchased Securities shall be delivered to Purchaser.
(m) Peter Kauff shall have entered into a new Employment Agreement in
the form of Exhibit "F" attached hereto; terminating his existing employment
agreement with the Company and waiving any termination or change in control
payment thereunder on the terms stated therein and Jason Elkin, Joseph Gersh and
John T. Dobson III shall have entered into Employment Agreements in the form of
Exhibits "G," "H" and "I," respectively (collectively, the "Employment
Agreements").
(n) The execution and delivery of the Escrow Agreement.
22
<PAGE>
(o) A copy of the Director's and Officer's Insurance of Company in
effect on the Closing Date.
VII. SECURITIES LAW MATTERS
7.1 Legends.
-------
(a) Each certificate representing the Purchased Securities shall bear
a legend substantially in the following form:
"THE STOCK REPRESENTED BY THIS CERTIFICATE HAS BEEN ACQUIRED BY THE
HOLDER FOR ITS OWN ACCOUNT, FOR INVESTMENT PURPOSES AND NOT WITH A
VIEW TO THE DISTRIBUTION OF SUCH STOCK. THE SHARES HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "ACT") AND MAY NOT BE
SOLD OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE ACT OR AN EXEMPTION THEREFROM."
(b) The Class C Warrant shall bear a legend substantially in the
following form:
THE WARRANT REPRESENTED BY THIS CERTIFICATE AND THE SHARES ISSUABLE
UPON EXERCISE HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE "ACT"), OR ANY STATE SECURITIES LAWS AND
NEITHER SUCH SECURITIES NOR ANY INTEREST THEREIN MAY BE OFFERED, SOLD,
PLEDGED, ASSIGNED OR OTHERWISE TRANSFERRED UNLESS (1) A REGISTRATION
STATEMENTS WITH RESPECT THERETO IS EFFECTIVE UNDER THE ACT AND ANY
APPLICABLE STATE SECURITIES LAWS, OR (2) THE COMPANY RECEIVES AN
OPINION OF COUNSEL TO THE HOLDER OF SUCH SECURITIES, WHICH COUNSEL AND
OPINION ARE REASONABLY SATISFACTORY TO THE COMPANY, THAT SUCH
SECURITIES MAY BE OFFERED, SOLD, PLEDGED, ASSIGNED OR TRANSFERRED IN
THE MANNER CONTEMPLATED WITHOUT AN EFFECTIVE REGISTRATION STATEMENTS
UNDER THE ACT OR APPLICABLE STATE SECURITIES LAWS.
7.2 Transfer of Restricted Securities.
---------------------------------
(a) Restricted Securities are transferable only pursuant to (i) public
offerings registered under the Securities Act, (ii) Rule 144 or Rule 144A of the
Securities and Exchange
23
<PAGE>
Commission (or any similar rule or rules then in force) if such rule is
available and (iii) subject to the conditions specified in subparagraph (b)
below, any other legally available means to transfer.
(b) In connection with the transfer of any Restricted Securities
(other than a transfer described in clause (i) or (ii) of subparagraph (a)
above), the holder thereof shall deliver written notice to Company describing in
reasonable detail the transfer or proposed transfer, together with an opinion of
counsel which (to Company's reasonable satisfaction) is knowledgeable in
securities law matters to the effect that such transfer of Restricted Securities
may be effected without registration of such Restricted Securities under the
Securities Act. In addition, if the holder of the Restricted Securities
delivers to Company an opinion of counsel that no subsequent transfer of such
Restricted Securities shall require registration under the Securities Act,
Company shall promptly upon such contemplated transfer deliver new certificates
or instruments, as the case may be, for such Restricted Securities which do not
bear the Securities Act legend set forth in Section 7.1 above. If Company is
not required to deliver new certificate or instruments, as the case may be, for
such Restricted Securities not bearing such legend, the holder thereof shall not
transfer the same until the prospective transferee has confirmed to Company in
writing its agreement to be bound by the conditioned contained in this Section
7.2.
(c) Upon the request of a holder of Restricted Securities, Company
shall promptly supply to such holder or such holder's prospective transferees
all information regarding Company required to be delivered in connection with a
transfer pursuant to Rule 144 or 144A of the Securities and Exchange Commission.
(d) If any Restricted Securities become eligible for sale pursuant to
Rule 144(k), Company shall, upon the request of the holder of such Restricted
Securities, remove the legend set forth in Section 7.1 from the certificates or
instruments, as the case may be, representing such Restricted Securities.
VIII. EXPENSES
If and only if the purchase and sale of securities pursuant to this
Agreement is not rescinded pursuant to the Escrow Agreement, Company shall pay
all reasonable out-of-pocket expenses of (i) Purchaser in connection with the
preparation of the Transaction Documents and the transactions contemplated
thereby including all due diligence, legal and accounting expenses, (ii) stamp
and other taxes which may be payable in respect of the execution and delivery of
this Agreement, the issuance and delivery of the Purchased Securities, and the
issuance and delivery of any Common Stock upon the exercise of the Class C
Warrant and the rights granted pursuant to the Equity Protection Agreements, and
(iii) the Purchaser in connection with (A) any amendment, modification or
waiver, or consent with respect to, any of the Transaction Documents, and (B)
any attempt to enforce any rights of Purchaser against Company or any other
Person, that may be obligated to any Purchaser by virtue of any of the
Transaction Document (including the reasonable fees and expenses of all of its
counsel and consultants retained in connection with the Transaction Documents
and the transactions contemplated thereby).
24
<PAGE>
IX. LIMITATION ON CLAIMS OF PURCHASER
9.1 Limitation.
----------
(a) Purchaser shall not bring any action or claim against the Company
for damages for a breach of any representation, warranty or covenant contained
herein by the Company until such damages exceed $100,000 at which time Purchaser
may bring an action for all claims.
(b) Company shall not bring any action or claims against Purchaser for
damages for a breach of any representation, warranty or covenant contained
herein by Purchaser until such damages exceed $100,000, at which time Company
may bring an action for all claims.
X. MISCELLANEOUS
10.2 Notices. Whenever it is provided herein that any notice, demand,
-------
request, consent, approval, declaration or other communication shall or may be
given to or served upon any of the parties by another, or whenever any of the
parties desires to give or serve upon another any such communication with
respect to this Agreement, each such notice, demand, request, consent, approval,
declaration or other communication shall be in writing and either shall be
delivered in person with receipt acknowledged or by registered or certified
mail, return receipt requested, postage prepaid, or by telecopy and confirmed by
telecopy answerback addressed as follows:
If to Purchaser:
U-C Holdings, L.L.C.
227 W. Monroe Street, Suite 4300
Chicago, Illinois 60606
Attn: Avy H. Stein
Telecopy No.: (312) 422-2424
with a copy to:
Morris, Manning & Martin, L.L.P.
3343 Peachtree Rod, N.E.
1600 Atlanta Financial Center
Atlanta, Georgia 30326
Attn: Neil H. Dickson, Esq.
Telecopy No.: (404) 365-9532
Kirkland & Ellis
200 E. Randolph Street
Chicago, Illinois 60601
Attn: Margaret A. Gibson, Esq.
Telecopy No.: (312) 861-2200
25
<PAGE>
If to Company:
UC Television Network Corp.
645 Fifth Avenue, East Wing
New York, New York 10022
Attn: Peter Kauff
Telecopy No.: (212) 755-5992
with copies to:
Kramer, Levin, Naftalis & Frankel
919 Third Avenue
New York, New York 10022
Attention: Richard Marlin
Telecopy No.: (212) 715-8000
or at such other address as may be substituted by notice given as herein
provided. The giving of any notice required hereunder may be waived in writing
by the party entitled to receive such notice. Every notice, demand, request,
consent, approval, declaration or other communication hereunder shall be deemed
to have been duly given or served on the date on which personally delivered,
with receipt acknowledged, telecopied and confirmed by telecopy answerback, or
three (3) Business Days after the same shall have been deposited with the United
States mail.
10.2 Binding Effect: Benefits. Except as otherwise provided herein, this
------------------------
Agreement shall be binding upon and inure to the benefit of the parties to this
Agreement and their respective successors and permitted assigns. Nothing in this
Agreement, express or implied, is intended or shall be construed to give any
person other than the parties to this Agreement or their respective successors
or assigns any legal or equitable right, remedy or claim under or in respect of
any agreement or any provision contained herein.
10.3 Amendment. No amendment or waiver of any provision of this Agreement
---------
or any other Transaction Document nor consent to any departure by Company
therefrom, shall in any event be effective unless the same shall be in writing
and signed by Company and the Purchaser, and then such waiver or consent shall
be effective only in the specific instance and for the specific purpose for
which given. No action taken pursuant to this Agreement, including, without
limitation, any investigation by or on behalf of any party, shall be deemed to
constitute a waiver by the party taking such action, of compliance with any
representations, warranties, covenants or agreements contained herein. The
waiver by any party hereto of a breach of any provision of this Agreement shall
not operate or be construed as a waiver of any preceding or succeeding breach
and no failure by either party to exercise any right or privilege hereunder
shall be deemed a waiver of such party's rights or privileges hereunder or shall
be deemed a waiver of such party's rights to exercise the same at any subsequent
time or times hereunder.
10.4 Successors and Assigns: Assignability. Neither this Agreement nor
-------------------------------------
any right, remedy, obligation or liability arising hereunder or by reason hereof
shall be assignable by Company without the prior written consent of the
Purchaser. All covenants contained herein shall bind and inure to the benefit
of the parties hereto and their respective successors and assigns
26
<PAGE>
(including any subsequent holder of any of the Purchased Securities or any
Common Stock issuable upon exercise of the Purchased Securities).
10.5 Remedies. Purchaser, in addition to being entitled to exercise all
--------
rights granted by law, including recovery of damages, will be entitled to
specific performance of its rights under this Agreement. Company agrees that
monetary damages would not be adequate compensation for any loss incurred by
reason of a breach of the provisions of this Agreement and hereby agrees to
waive the defense in any action for specific performance that a remedy at law
would be adequate. In any action or proceeding brought to enforce any provision
of this Agreement or where any provision hereof is validly asserted as a
defense, the successful party shall be entitled to recover reasonable attorneys'
fees in addition to any other available remedy.
10.6 Section and Other Headings. The section and other headings
--------------------------
contained in this Agreement are for reference purposes only and shall not affect
the meaning or interpretation of this Agreement.
10.7 Severability. In the event that any one or more of the provisions
------------
contained in this Agreement shall be determined to be invalid, illegal or
unenforceable in any respect for any reason, the validity, legality and
enforceability of any such provision or provisions in every other respect and
the remaining provisions of this Agreement shall not be in any way impaired.
10.8 Entire Agreement. This Agreement and the agreements and documents
----------------
referred to herein contain the entire agreement and understanding between the
parties with respect to the subject matter hereof and supersede all prior
agreements and understandings, whether written or oral, relating to such subject
matter in any way.
10.9 Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be deemed to be an original and all of which
together shall be deemed to be one and the same instrument.
10.10 Publicity. Neither Purchaser nor Company shall issue any press
---------
release or make any public disclosure regarding the transactions contemplated
hereby unless such press release or public disclosure is approved by the other
party in advance. Notwithstanding the foregoing, each of the parties hereto may,
in documents required to be filed by it with the SEC or other regulatory bodies,
make such statements with respect to the transactions contemplated hereby as
each may be advised by counsel is legally necessary or advisable, and may make
such disclosure as it is advised by its counsel is required by law.
10.11 Governing Law. This Agreement shall be governed by, construed and
-------------
enforced in accordance with, the laws of the Delaware without regard to the
principles thereof relating to conflict of laws. Service of process on the
parties in any action arising out of or relating to this Agreement shall be
effective if mailed to the parties in accordance with Section 10.1 hereof. The
parties hereto waive all right to trial by jury in any action or proceeding to
enforce or defend any rights under this Agreement.
27
<PAGE>
10.12 Expenses. If this transaction is rescinded pursuant to the Escrow
--------
Agreement, because Barington Capital Group, L.P. exercises its right of first
refusal, Company agrees to pay to Purchaser the amount of Purchaser's expenses
incurred in connection with this transaction, including, but not limited to,
legal and accounting fees and third party expenses and fees incurred in due
diligence, up to $250,000. If the transaction is rescinded pursuant to the
Escrow Agreement for any other reason, the Company and the Purchaser shall each
pay their own expenses. Nothing herein shall limit Company's obligations
pursuant to Article VIII hereof in the event the transactions contemplated
hereby are not rescinded pursuant to the Escrow Agreement. Upon presentation by
Purchaser of documentation for such expenses, reimbursement shall be payable by
wire transfer of immediately available funds within ten (10) Business Days.
10.13 Negotiations. The parties hereto do hereby acknowledge that the
------------
Agreement and the Transaction Documents have been negotiated extensively by the
parties and neither party shall be deemed to be the party which prepared or
drafted this Agreement.
28
<PAGE>
IN WITNESS WHEREOF, Company and each Purchaser has executed this Agreement
as of the day and year first above written.
COMPANY:
UC TELEVISION NETWORK CORP.
By: /s/ Peter Kauff
------------------
Peter Kauff,
Chairman of the Board and
Chief Executive Officer
Attest: /s/ Alan Pearl
-----------------
By: Alan Pearl
Secretary
[Corporate Seal]
PURCHASER:
U-C HOLDINGS, L.L.C.
By: WILLIS STEIN & PARTNERS, L.P.
Its: Managing Member
By: Willis Stein & Partners, L.L.C.
Its: General Partner
By: /s/ Avy H. Stein
-------------------
Avy H. Stein
Its: Manager
29
<PAGE>
EXHIBIT 10.15
STATE OF GEORGIA
COUNTY OF FULTON
THIS LEASE, made this 13th day of June, 1997 between THE ATLANTA BOARD OF
REALTORS EDUCATIONAL FOUNDATION, INC., having its principle office at 5784 Lake
Forrest Drive, Suite 100, Atlanta, Georgia 30328 (hereinafter called "Landlord")
and UC TELEVISION NETWORK CORP., having its principle office at 5784 Lake
Forrest Drive, Suite 275, Atlanta, Georgia 30328 (hereinafter called "Tenant")
and LILLY REALTY ASSOCIATES, INC., having its principle office at 5784 Lake
Forrest Drive, Atlanta, Georgia 30328 (hereinafter called "Agent").
1. Premises and Term. Landlord hereby leases to Tenant and Tenant hereby
rents and leases from Landlord the following described space in Atlanta Realtors
Center Tommie Jackson Building (herein called the "Building") being
approximately 3,616 rentable square feet located in 255, 265, & 275 5784 Lake
Forrest Drive, Fulton County, Georgia (herein called the "Premises"); Premises
being more particularly shown and outlined on the plan attached hereto as
Exhibit "A" and made a part hereof, FOR A TERM of 36.5 MONTHS to commence on the
15 day of July, 1997 and to end at 6:00 P.M. on the last day of July, 2000
(herein called the "Term"). No easement for light and air is granted hereunder.
2. Rental and Covenants to Pay Rent. (a) Tenant shall pay to Landlord
through Lilly Realty Associates, Inc. or at such other place as Landlord may
designate in writing without demand, deduction or set-off, annual rental at the
rate of $61,465.20 per year (herein called "Base Rental"), payable in equal
monthly installments of $5,122.10 in advance on the first day of each calendar
month during Term, subject to adjustment as provided in this paragraph.
However, the rental shall be no less than the initial base rental as specified
above. (A prorated monthly installment shall be due on the first and last month
of Term should Term begin or end on other than the first or last day of the
calendar month.)
(b) Commencing with the second lease year of the Term hereof, and in each
lease year in which the Consumer Price Index For All Urban Consumers, U.S. City
Average for all items (1967 = 100), or its successor index, published by the
United States Bureau of Labor Statistics (herein called the "Index") for the
first full calendar month of such year shows an increase in the cost of living
over the level of the cost of living in the first full calendar month of the
first lease year of the term hereof (the "Base Month"). Tenant shall pay to
Landlord in each month of such lease year an amount or average rent computed as
follows (i) Determine the percentage increase in the cost of living as shown by
such Index from its level for the Base Month to its level for the first calendar
month of such later lease year (the "Average Percentage"); (ii) Multiply the
Average Percentage times the base monthly rental to find the average rent. Such
average rent shall be paid at the same time as payment of the base monthly
rental. No average rent shall be payable hereunder until Landlord shall have
delivered to Tenant a copy of the Index for the Base Month and for the first
calendar month of each lease year during the lease term for which average rent
is sought, together with a computation of the amount of average rent payable for
each month for such lease year. Pending the determination of the additional
amount if any, to be paid by the Tenant, Tenant shall continue to pay the base
monthly rental and when the amount of the average rent for each month has been
determined, Tenant, on the first day of the month immediately following the
furnishing by Landlord to Tenant of the computations hereof shall pay to
Landlord the number of installments that shall have elapsed
<PAGE>
from the commencement of the lease year in question up to and including the
first day of such month. The average rent plus the previous Base Rent becomes
the New Base Rent to be escalated the following year.
3. Additional Rental. All payments, other than those previously specified
above, as required in this Lease by Landlord to Tenant shall be deemed to be and
shall become additional rent hereunder, whether or not the same shall be
designated as such and shall be due and payable along with usual rental payments
subject to the same conditions and remedies as exist for said rental payments.
4. Late Charges. Any rental due Landlord under this Lease shall be
considered past due for purposes hereof on the tenth day of any month, and shall
incur a monthly service charge of 1 1/2% per month for that and each subsequent
month past due. Any other amounts payable to Landlord under this Lease, with the
exception of rent, shall be considered past due 30 days from Landlord's billing
date and shall incur a monthly service charge of 1 1/2% for that and each
subsequent month past due. (A monthly rate of 1 1/2% is equivalent to an annual
percentage rate of 18%.)
5. Security Deposit. Prior to occupancy, Tenant will pay to Landlord, as a
security deposit, the amount of $75,122.10. Such deposit is refundable to
Tenant within 30 days following satisfactory completion of all terms of this
Lease and provided that no defective conditions, other than normal wear and tear
are left unrepaired by Tenant and that Tenant does not owe Landlord any debts.
Any portion of said deposit not required to reimburse Landlord for Landlord's
expense in repairing defective conditions caused by Tenant or for paying amounts
owed by Tenant to Landlord, shall be refunded to Tenant as provided above, in
case of foreclosure or deed in lieu of foreclosure by any lender such as lender
is not liable to return escrow deposit placed with Landlord, however, lender
must comply with all obligations to Tenant under this Lease and Georgia Law.
6. Acceptance of Premises. Landlord or Landlord's agents have made no
representations or promises with respect to the said building, leased premises,
or this Agreement except as herein expressly set forth. The taking possession
of the leased premises by Tenant shall be conclusive evidence, as against
Tenant, that Tenant accepts same "as is" and that said premises and the building
of which the same form a part are called for the use intended by Tenant and were
in good and satisfactory condition at the time such possession was so taken.
7. Commencement. The date on which possession of the leased premises is
taken by Tenant will establish the commencement of rent on this Lease if
possession is taken before the 15th day of July, 1997. If for any reason
Landlord fails to deliver the leased premises ready for occupancy on the above
date, this Lease shall remain in full force and effect and Landlord shall have
no liability to Tenant due to delay in occupancy and rental shall commence when
said premises are ready for occupancy. If a delay in having premises ready for
occupancy is occasioned by Tenant, or if leased premises are ready for occupancy
on the above date but Tenant does not like occupancy, rental in either case
still commences as of the above date. Moreover, the Term of this Lease shall be
proportionately extended for an additional period of time to the end that this
Lease shall provide for a full Term as herein provided.
-2-
<PAGE>
8. Surrender of Premises. Upon the expiration or other termination of this
Lease, tenant shall quit and surrender to Landlord the premises, broom clean,
and in the same condition as on the commencement of the term, normal wear and
tear only excepted, and Tenant shall remove all of its property. Tenant's
obligation to observe or perform this covenant shall survive the expiration or
other termination of this Lease. If the last day of the term of the Lease or
any renewal thereof falls on Sunday, this Lease shall expire on the business day
immediately preceding.
9. Repair by Tenant and Removal of Improvements and Alterations Upon
Termination. (a) Tenant accepts Premises in their present condition as suited
for the use intended by Tenant. Tenant will, at Tenant's expense, take good
care of Premises and the fixture and appurtenances therein, and will suffer no
active or permissive waste or injury thereof; and Tenant shall, at Tenant's
expense, but under the direction of Landlord, promptly repair any injury or
damage to Premises or Building caused by the misuse or neglect thereof, or by
persons permitted on Premises by Tenant or Tenant moving in or out of Premises.
(b) Tenant will not, without Landlord's written consent, make any
alterations, additions or improvements in or about Premises and will not do
anything to or on the Premises which will increase the rate of fire insurance on
the Building. All alterations, additions or improvements (including but not
limited to, carpets, drapes and drape hardware) made or installed by Tenant to
Premises shall become the property of Landlord at the expiration of this Lease.
Landlord reserves the right to require Tenant to remove any improvements or
additions made to the Premises by Tenant; Tenant further agrees to do so prior
to the expiration of Term or within thirty )3-_ days after expiration of this
Lease.
(c) No later than the last day of Term, Tenant will remove all Tenant's
personal property and repair all injury done by or in connection with
installation or removal of said property and surrender Premises (together with
all keys to Premises) in as good a condition as they were at the beginning of
Term, reasonable wear and damage by fire, the elements or casually excepted.
All property of Tenant remaining on Premises after expiration of Term shall be
deemed conclusively abandoned and may be removed by Landlord, and Tenant shall
reimburse Landlord for cost of removing the same, subject however, to Landlord's
rights to require Tenant to remove any improvements or additions made to
Premises by Tenant pursuant to the preceding subparagraph (b).
(d) In doing any work of any nature in, to or about Premises, Tenant will
use only contractors or workmen approved by Landlord. Tenant shall promptly
remove any lien for material or labor claimed to be furnished to Premises on
Tenant's or any subtenant's credit.
10. Maintaining Food or Drink Machines on Premises. (a) Tenant shall
maintain no food or drink coin operating vending machines within Premises or
Building without the written consent of Landlord; such consent shall not
preclude Landlord from charging Tenant for utility costs thereof under Paragraph
13(c).
(b) Tenant agrees that all personal property, including machines permitted
by Landlord under the preceding subparagraph (a), brought into the Premises by
Tenant, its employees, licensees and invitees shall be at the sole risk of
Tenant and Landlord shall not be
-3-
<PAGE>
liable for theft thereof or of money deposited therein or for any damages
thereto; such theft or damage being the sole responsibility of Tenant.
11. Repairs by Landlord. Landlord shall not be required to make any repairs
to Premises except repairs necessary for safety and tenantability.
12. Purpose. Tenant shall use and occupy Premises as Office only. Tenant's
use of Premises shall not violate any ordinance, law or regulation of any
governmental body at the "Rules and Regulations" of Landlord, as made a part
hereof, and shall not create any nuisance or trespass. Moreover, Tenant agrees
to conduct its business in a manner according to the generally accepted written
code of ethics or business principles of the business or profession in which
Tenant is engaged.
13. Services - Water, Cleaning and Electricity. Landlord shall furnish the
following services without charge:
(a) Air conditioning in Landlord's judgment sufficient to reasonably cool
or heat the Premises, at the proper season, during reasonable hours (8:00 A.M.
to 6:00 P.M. on Mondays through Fridays, inclusive and 8:30 A.M. to 1:00 P.M. on
Saturdays) on normal business days, except holidays observed by national banks
in Atlanta, Georgia as legal holidays.
(b) Restroom: facilities including water, paper towels, and toilet tissue
reasonably used on the premises.
(c) Janitorial services each Monday through Friday, except holidays
observed by national banks in Atlanta, Georgia as legal holidays.
(d) Electric current for lighting and for small business machines only
(e.g. typewriters and other small office equipment) using 110 volt, 20 AMP
circuits. Tenant will not use any electrical equipment which in Landlord's
opinion will overload the wiring installations or interfere with the reasonable
use thereof by other users in the Building. Tenant will not, without Landlord's
prior written consent in each instance (which shall not be unreasonably
withheld) connect any additional items (such as electric heaters, data
processing equipment or copy machines) to the Buildings electrical distribution
system, or make any alterations or addition to such system. Should Landlord
grant such consent, all additional circuits or equipment required therefor shall
be provided by Landlord and the reasonable cost thereof shall be paid by Tenant
upon Landlord's demand
(e) If Tenant uses an excessive amount of any of the services enumerated in
this Paragraph, then Landlord reserves the right to charge Tenant as additional
rent a reasonable sum for such excess.
(f) Landlord shall in no way be liable for cessation of any of the above
services caused by strike, accident or reasonable breakdown, nor shall Landlord
be liable for damages from any of the fixtures or equipment in the Building
being out of repair, or for injury to person or property, caused by any defects
in the electrical equipment, heating, ventilating and air conditioning system,
water apparatus, or for any damages arising out of failure to furnish the
services enumerated in this Paragraph 13.
-4-
<PAGE>
14. Destruction or Damage to Premises. If Premises are totally destroyed
(or so substantially damaged as to be untenantable) by storm, fire, earthquake,
or other casualty, this Lease shall terminate as of the date of such destruction
or damage and rental shall be accounted for as between Landlord and Tenant as of
that date. If Premises are damaged but not rendered wholly untenantable by any
such casualty, rental shall abate in proportion as the Premises have been
damaged and Landlord shall restore as speedily as practicable, whereupon full
rent shall re-commence.
15. Rules and Regulations. Tenant will observe and comply with the "Rules
and Regulations" attached hereto and made a part hereof, and such further
reasonable rules and regulations as Landlord may prescribe, on written notice to
Tenant, for the safety, care and cleanliness of the Building and the comfort,
quietness and convenience of other occupants of the Building.
16. Default Clause. If Tenant defaults for 3 days after written notice
thereof in paying said rent; or if Tenant defaults for 30 days after written
notice thereof in performing any other or his obligations hereunder; or if
Tenant is adjudicated a bankrupt, or if a permanent receiver is appointed for
Tenant's property, including Tenant's interest in Premises, and such receiver is
not removed within 60 days after written notice from Landlord to Tenant to
obtain such removal; or if, whether voluntarily or involuntarily, Tenant takes
advantage of any debtor relief proceedings under any present or future law,
whereby the rent or any part thereof is, or is proposed to be, reduced or
payment thereof deferred; or if Tenant makes an assignment for benefit of
creditors; or if Premises or Tenant's effects or interest therein should be
levied upon or attached under process against Tenant, not satisfied or dissolved
within 30 days after written notice from Landlord to Tenant to obtain
satisfaction thereof, then, and in any of the said events, Landlord at his
option may at once, or anytime thereafter (but only during continuance of such
default or condition) terminate this Lease by written notice to Tenant;
whereupon this Lease shall end. After an authorized assignment of subletting,
the occurring of any of the foregoing defaults or events shall effect this Lease
only if caused by or happening to the assignee or sublessee. Upon such
termination by Landlord, Tenant will at once surrender possession of Premises to
Landlord and remove all of Tenant's effects therefrom; and Landlord may
forthwith re-enter the Premises and repossess himself thereof, and remove all
persons and effects therefrom, using such forces as may be necessary without
being guilty of trespass, forcible entry or detainer of other tort.
17. Re-Letting by Landlord. Landlord, as Tenant's agent, without
Termination of this Lease, upon Tenant's breaching this Agreement, may at
Landlord's option enter upon and rent Premises at the best price obtainable by
reasonable effort, without advertisement, and by private negotiations and for
any term Landlord deems proper. Tenant shall be liable to Landlord for the
deficiency, if any, between Tenant's rent hereunder and the price obtained by
Landlord on re-letting.
18. Early Termination. No termination of this Lease prior to the normal
ending thereof by lapse of time or otherwise shall affect Landlord's right to
collect rent for the period prior to termination thereof.
19. Assignment and Subletting. Tenant may not, without the prior written
consent of Landlord endorsed hereon, assign this lease or any interest
thereunder, or sublet Premises or any
-5-
<PAGE>
part thereof, or permit the use of Premises by any party other than Tenant.
Landlord shall not unreasonably withhold said consent. Consent by Landlord to
one assignment or sublease shall not destroy or waive this provision, and all
later assignments and subleases shall likewise be made only upon prior written
consent of Landlord. Sublessees or assignees shall become liable directly to
Landlord for all obligations of Tenant hereunder without relieving Tenant's
liability. In the event Tenant notifies Landlord of Tenant's intent to sublease
or assign this lease, Landlord shall within thirty (30) days from receipt of
such notice (i) consent to such proposed subletting, or (ii) refuse such
consent, or (iii) elect to cancel this lease. In the event of Landlord's
election to cancel, Tenant shall have ten (10) days from receipt of such notice
to notify Landlord's of Tenant's acceptance of such cancellation or Tenant's
desire to remain in possession of premises under the terms and conditions and
for the remainder of the Term of this Lease. In the event Tenant fails to so
notify Landlord of Tenant's election to accept termination or to continue as
Tenant hereunder, such failure shall be deemed an election to terminate and such
termination shall be effective as of the end of the 10-day period provided for
in Landlord's notice as hereinabove provided. No assignment or subletting shall
apply or be permitted other than during the initial Term of this Lease. Options
or extensions, if any, are available exclusively to the original Tenant.
20. Eminent Domain. If all or any part of Premises or the land on which
Building stands or any estate therein are taken by virtue of eminent domain or
conveyed or leased in lieu of such taking, this Lease shall expire on the date
when title shall vest, or the term of such lease shall commence, and any rent
paid for any period beyond said date shall be repaid to Tenant. Tenant shall
not be entitled to any part of the award or any payment in lieu thereof,
provided, however, that widening of streets abutting the land on which the
Building stands shall not effect this Lease, provided no part of the Building is
so taken.
21. Entry for Carding and Repairs. Landlord may enter Premises at
reasonable hours with prospective purchasers or tenants or to inspect Premises
or to make repairs required by Landlord under the terms hereof or repairs to
adjoining space within the Building.
22. Transfer of Tenants. Landlord reserves the right, if premises contain
less than 1,500 square feet, at its option and upon giving 30 days written
notice in advance to the Tenant to transfer and remove the Tenant from Premises
to any other available rooms and offices of substantially equal size and area
and equivalent rental in the Building of which Premises are a part. Landlord
shall bear the expense of said removal as well as the expense of any renovations
or alterations necessary to make the new space substantially conform in layout
and appointment with the original Premises.
23. Subordination. This Lease shall be subject and subordinate to all
underlying leases and to security deeds which may now or hereafter affect this
Lease or the real property of which Premises form a part, and also to all
renewals, modifications, consolidations and replacements of such underlying
leases and such security deeds; provided, however, that should this Lease or
rights to collect rent hereunder be assigned to a holder of any security deed as
security for any loans, then this Lease shall not be subordinate to such
security deed. In confirmation of the subordinate set forth in this Paragraph
23, Tenant shall, at Landlord's request, execute and deliver such further
instruments as may be desired by any holder of a security deed or by any lessor
under any underlying letter.
-6-
<PAGE>
24. Indemnity and Hold Harmless. Notwithstanding that joint concurrent
liability may be imposed upon Landlord by law, Tenant shall indemnify, defend
and hold harmless the Landlord and Premises, at Tenant's expense against (i) any
default by Tenant or sub-tenant hereunder; or (ii) any act of negligence of
Tenant or its agents, contractors, employees, invitees or licensees; or (iii)
all claims for damages to persons or property by reason of the use or occupancy
of Premises. Moreover, Landlord shall not be liable for any damage or injury to
Premises, to Tenant's property, to Tenant, its agents, contractors, employees,
invitees or licensees, arising from any use or condition of Premises, the
Building, or any sidewalk or entranceway serving the Building, or the act of
neglect of co-tenants or the malfunction of any equipment or apparatus serving
the Building. Any and all claims for any damages referred to in this Paragraph
are hereby waived by Tenant.
25. Tenant's Fire and Extended Insurance Coverage and Waiver of Subrogation
Thereunder. Tenant shall carry fire and extended coverage insurance insuring
its interest in Tenant's improvements in Premises and its interest in its office
furniture, equipment and supplies, and Tenant hereby waives any rights of action
against Landlord for loss or damage covered by such insurance and Tenant
covenants and agrees with Landlord that it will obtain a waiver from the carrier
of such insurance releasing carrier's subrogation rights as against Landlord.
26. Remedies Cumulative. The rights given to Landlord herein are in
addition to any rights that may be given to Landlord by any statute or
otherwise.
27. Holding Over. In the event of holding over by Tenant subsequent to the
expiration or other termination of this Lease and without regard to Landlord's
acquiescence or consent, Tenant shall pay as liquidated damages a monthly rent
double the monthly rent payable immediately prior to such expiration or
termination of this Lease for the duration of such period. Additionally, during
such holding over without Landlord's acquiescence and without any express
agreement of the parties, the Tenant shall be a tenant on a month-to-month basis
which tenancy shall be terminated absolutely and without remedy upon thirty (30)
days written notice of such intent by either party. There shall be no renewal
of this Lease by operation of law.
28. No Waiver or Changes. The failure of either party to insist in any
instance on strict performance of any covenant or condition hereof, or to
exercise any option herein contained, shall not be construed as a waiver of such
covenant, condition or option in any other instance. This Lease cannot be
changed or terminated orally.
29. Marginal Notations. The marginal notations in this Lease are included
for convenience only and shall not be taken into consideration in any
construction or interpretation of this Lease or any of its provisions.
30. Notice. (a) Any notice by either party to the other shall be valid only
if in writing and shall be deemed to be duly given only if delivered personally
or sent by registered or certified mail addressed (i) if to Tenant, at the
Building, and (ii) if to Landlord's address set forth above, or at such other
address for either party as that party may designate by notice to the other;
notice shall be deemed given, if delivered personally, upon delivery thereof,
and if mailed, upon the mailing thereof.
-7-
<PAGE>
(b) Tenant hereby appoints as its agent to receive service of all
dispossessory or distraint proceedings, the person in charge of Premises at the
time or occupying Premises; and if there is no person in charge of occupying
same, then such services may be made by attachment thereof on the main entrance
to Premises.
31. Heirs and Assigns. The provisions of this Lease shall bind and endure
to the benefit of Landlord and Tenant, and their respective successors, heirs,
legal representatives and assigns; it being understood that the term "landlord",
as used in this Lease, means only the owner, or the mortgagor in possession or
the lessee for the time being of the land and Building of which Premises are a
part, so that in the event of any sale or sales of said property or of any lease
thereof, or if the mortgagee shall take possession thereof, the Landlord named
herein shall be and hereby is entirely freed and relieved of all covenants and
obligations of Landlord hereunder accruing thereafter, and agreed to carry out
any and all covenants and obligations of Landlord hereunder during the period
such party has possession of the land and Building. Should the land and the
entire Building be severed as to ownership by sale and/or lease, then the owner
of the entire Building or lessee of the entire Building that has the right to
lease space in the Building to tenants shall be deemed "Landlord."
32. Entire Agreement. This Lease contains the entire agreement of the
parties hereto and no representations, inducements, promises or agreements, oral
or otherwise, between the parties not embodied herein, shall be of any force or
effect.
33. Attorney's Fees and Homestead. If any rent owing under this Lease is
collected by or through an attorney at law, Tenant agrees to pay fifteen per
cent (15%) thereof as attorney's fees. Tenant waives all homestead rights and
exemptions which he may have under any law as against any obligation owing under
this Lease. Tenant hereby assigns to Landlord his homestead and exemption.
34. The Parties. "Landlord" and "Tenant" and "Agent", and pronouns relating
thereto, as used herein, shall include male, female, singular and plural,
corporation, partnership or individual , as may fit the particular parties.
35. No Estate In Land. Tenant has only usufruct under this Agreement, not
subject to levy and sale; no estate shall pass out of Landlord.
36. Time of Essence. Time is of the essence of this Agreement.
37. Commission Agreement. Landlord and Tenant hereby acknowledge that a
Commission has been negotiated between Landlord and Agent on the Lease and that
the terms of said Commission are detailed in the Special Stipulations which are
attached herein.
38. Special Stipulations. Special Stipulations shall control if in conflict
with any of the foregoing provisions of this Lease.
-8-
<PAGE>
IN WITNESS WHEREOF, the parties herein have hereunto set their hands and
seals, in quadruplicate, the day and year first above written.
Signed, sealed and delivered UC TELEVISION NETWORK CORP.
in the presence of:**
/s/ Neil H. Dickson /s/ Jason Elkin (SEAL)
- ----------------------------- ------------------------------
Witness (Authorized Signature)
/s/ Shannon Wiggins (SEAL)
- ----------------------------- ------------------------------
Notary Public (Authorized Signature)
Signed, sealed and delivered LANDLORD:
in the presence of:**
/s/ R.J. McCrory II (SEAL)
- ----------------------------- ------------------------------
Witness By Landlord (or its authorized agent)
(SEAL)
- ----------------------------- ------------------------------
Notary Public By Landlord (or its authorized agent)
Signed, sealed and delivered AGENT:
in the presence of:**
/s/ Ben Lilly (SEAL)
- ----------------------------- ------------------------------
Witness
- -----------------------------
Notary Public
FOLLOWING THE EXECUTION, THE ORIGINAL AND ONE COPY HEREOF SHALL BE RETURNED TO
LANDLORD
NOTE: * If Tenant is a corporation, two authorized officers must execute this
Lease in their appropriate capacity for Tenant, affixing the Corporate Seal.
** Two witnesses are required, one of whom must be a Notary Public, who
must affix his notarial seal and stamp indicating the expiration of his
commission.
-9-
<PAGE>
RULES AND REGULATIONS
(which are referred to in the within Lease and made a part hereof)
1. The sidewalks, entry passages, corridors, halls, and stairways shall not be
obstructed by Tenant, or used by them for any purpose other then those of
ingress and egress.
2. The water closet and other water apparatus, shall not be used for any other
purpose than those for which they were constructed, and no sweepings,
rubbish, or other obstructing substances shall be thrown therein.
3. No advertisement or other notice shall be inscribed, painted or affixed on
any part of the outside or inside of the Building. Window shades, blinds or
curtains of a uniform color and pattern only, as specified by Landlord, shall
be used throughout the Building to give a uniform color exposure through
exterior windows. No awnings shall be placed on Building.
4. No tenant shall do or permit to be done in Building, or bring or keep
anything thereon, which shall in any way obstruct or interfere with the
rights of other tenants, or in any way injure or annoy them, or conflict with
the laws relating to fires, or with the regulations of the Fire Department,
or any part thereof, or conflict with any of the rules and ordinances of the
Board of Health. Tenants, their invitees and employees shall maintain order
in the Building, shall not make or permit any improper noise in Building or
interfere in any way with other tenants or those having business with them.
No rooms shall be occupied or used as sleeping or lodging apartments at any
time without permission of Landlord. No part of Building shall be used or in
any way appropriated for gambling, immoral or other unlawful practices. No
intoxicating liquor or liquors shall be sold in the Building by Tenant
without Landlord's permission.
5. Tenants shall not employ any persons other than the janitors of Landlord (who
will be provided with pass-keys into the offices) for the purpose of cleaning
or taking care of Premises.
6. No animals, birds, bicycles, or other vehicles shall be allowed into the
offices, halls, corridors, or elsewhere in the Building.
7. No painting shall be done, nor shall any alterations be made, to any part of
Building by putting up or changing any partitions, doors or windows, nor
shall there be any nailing, boring or screwing into the woodwork, ceiling,
floor or walls, nor shall any connections be made to the electric wire or gas
or electric fixtures, without the consent in writing on each occasion of
Landlord or its agent. All glass, locks and trimmings in or upon the doors
and windows of Building shall be kept whole, and when any part thereof shall
be broken, the same shall immediately be replaced and put in order under
direction and to the satisfaction of Landlord, or its agent, and shall be
left whole and in good repair. Tenant shall not deface Building, the
woodwork or the walls of the Premises.
8. No more than two keys or security cards for each office (or the equivalent of
one key for each approximately 400 square feet) will be furnished tenants
without charge. Tenants shall not, under any circumstances, have duplicate
keys made. No additional locks or latches shall be
-10-
<PAGE>
put upon any door without the written consent of Landlord. Tenants at the
termination of their Lease of the Premises shall return to Landlord all keys
and security cards to doors in Building.
9. Landlord in all cases retains power to prescribe the weight and position of
iron safes, files having excessive weight, or other heavy articles. Any
damage done to Building or to tenants or to other persons by taking a safe or
other heavy article in or out of Premises, for overloading a floor, or in any
other manner shall be paid for by Tenant causing such damage.
10. If tenants require wiring for a bell or security buzz system, such wiring
shall be done by electrician of Building only, and no outside wiring men
shall be allowed to do work of this kind unless by the written permission of
Landlord. If telegraphic or telephone services are desired, the wiring for
same shall be done as directed by the electrician of Building, or by some
employee of Landlord who may be instructed by the superintendent of Building
to supervise them, and no boring or cutting for wiring shall be done unless
approved by Landlord or its agents.
11. Parking facilities supplied by Landlord for Tenants shall be used for
vehicles that may occupy a standard parking area only (i.e. 8' x 15').
Moreover, the use of such parking facilities shall be limited to normal
business parking and shall not be used for a continuous parking of any
vehicle or trailer regardless of size.
12. Tenants shall use chair pads under all roller equipped chairs to protect
carpeting from undue wear and tear.
13. The Landlord shall not be responsible to any Tenant for the non-observance
or violations of any of these Rules and Regulations by any other tenants.
-11-
<PAGE>
EXHIBIT "B"
ATLANTA BOARD OF REALTORS BUILDING
SPECIAL STIPULATIONS
1. Paragraph 16 (Default Clause) of the Standard Office Building Lease is
deleted in its entirety and the following is substituted in lieu thereof:
16. Events of Default. The happening of any one or more of the
following events (hereinafter any one of which may be referred to as
an "Event of Default") during the term of this Lease, or any renewal
or extension thereof, shall constitute a breach of this Lease on the
part of the Tenant: (1) Tenant fails to pay the rental as provided for
herein; (2) Tenant abandons or vacates the Premises; (3) Tenant fails
to comply with or abide by and perform any other obligation imposed
upon Tenant under this Lease; (4) Tenant is adjudicated bankrupt; (5)
a permanent receiver is not removed within sixty (60) days after
written notice from Landlord to Tenant to obtain such removal; (6)
Tenant, either voluntarily or involuntarily, takes advantage of any
debtor relief proceedings for benefit of creditors; or (7) Tenant's
effects are levied upon or attached under process against Tenant,
which is not satisfied or dissolved within thirty (30) days after
written notice from Landlord to Tenant to obtain satisfaction thereof.
2. Paragraph 17 (Re-Letting by Landlord) of the Standard Office Building
Lease is deleted in its entirety and the following is substituted in lieu
thereof:
17. Remedies Upon Default. Upon the occurrence of any Event of
Default, Landlord may pursue any one or more of the following
remedies, separately or concurrently, without any notice (except as
specifically provided here) and without prejudice to any other remedy
herein provided or provided by law; (a) if the Event of Default
involves nonpayment of rental, and Tenant fails to cure such default
within three (3) days after receipt of written notice thereof from
Landlord, or if the Event of Default involves a default in performing
any of the terms of provisions of this Lease other than the payment or
rental, and Tenants fails to cure such default within thirty (3) days
after the receipt of written notice of default from Landlord, Landlord
may terminate this Lease by giving written notice to Tenant and, upon
such termination, shall be entitled to recover from the Tenant damages
in an amount equal to all rental which is then due and would otherwise
have become due throughout the remaining term of this Lease, or any
renewal or extension thereof (as if this Lease had not been
terminated); or (b) if the Event of Default involves any matter other
than those set forth in items (a) of this Paragraph 17, Landlord may
terminate this Lease by giving written notice to Tenant, and upon such
termination, shall be entitled to recover from the Tenant damages in
an amount equal to all rental which is then due and which would
otherwise have become due throughout the remaining term of this Lease,
or any renewal or extension
-12-
<PAGE>
thereof (as if this Lease had not been terminated) or upon any Event
of Default Landlord may give to Tenant written notice of such default
and advise Tenant that unless such default is cured within ten days
after receipt of such notice, the entire amount of the rental for the
remainder of the term of this Lease, or any renewal or extension
thereof, shall immediately become due and payable upon the expiration
of the ten day period, and thereafter, unless all the terms and
provisions of this Lease are fully complied with by the Tenant with
said ten-day period, the entire amount of said rental thereupon become
immediately due and payable without further notice to Tenant; or (d)
upon any Event of Default, Landlord, as Tenant's agent, without
terminating this lease may enter upon and rent the Premises, in whole
or in part, at the best price obtainable by reasonable effort, without
advertisement and by private negotiations and for any term Landlord
deems proper, with Tenant being liable to Landlord for the deficiency,
if any, between Tenant's rent hereunder and the price obtained by
Landlord on reletting; provided, however, that Landlord, shall not be
considered to be under any duty by reason of this provision to take
any action to mitigate damages by reason of Tenant's default. Upon
such termination by Landlord, Tenant will at once surrender possession
of the Premises to Landlord and remove all of Tenant's effects
therefrom; and Landlord may forthwith reenter the Premises and
repossess itself thereof, using such force as may be necessary without
being guilty of trespass, forcible entry or detainer or other tort.
3. Paragraph 3 (Late Charges) of the Standard Office Building Lease is
deleted in its entirety and the following is substituted in lieu thereof:
4. Late Charges. Time is of the essence of this agreement and if
Landlord elects to accept rent after the tenth (10th) day of the
month, a late charge of five percent (5%) of the monthly rent will be
due as additional rent. Tenant agrees to tender all late rents to
management in the form of cashier's check, certified check, or money
order. In the event Tenant's rent check is dishonored by the bank,
Tenant agrees to pay Landlord $25.00 as a handling charge and, if
appropriate, the late charge. Returned checks must be redeemed by
cashier's check, certified check or money order. In the event more
than one check is returned, Tenant agrees to pay all future rents and
charges in the form of cashier's check, certified check or money
order. Any other amounts payable to Landlord under this lease with
the exception of rent, shall be considered past due 30 days from
Landlord's billing date and each subsequent month past due. (A
monthly rate of 5% is equivalent to an annual percentage rate of 60%.)
5. Lilly Realty Associates, Inc. is representing the Landlord in this
lease and shall be paid a commission by Landlord as follows:
-13-
<PAGE>
AGENT'S COMMISSION. Landlord agrees to pay Lilly Realty Associates,
------------------
Inc., hereinafter called Agent, as compensation for services rendered
in procuring this lease, five percent (5%) of all rentals thereafter
paid by Tenant to Landlord. Landlord, with consent of Tenant, hereby
assigns to Agent the above described base rents hereunder. Landlord
agrees if this lease is extended, or if new lease is entered into
between Landlord and Tenant covering the premises, or any part
thereof, or if Tenant remains in leased premises as a tenant at will,
without a written lease, then in either of said events, Landlord in
consideration of Agent's having procured Tenant hereunder, agrees to
pay Agent five percent (5%) of all rentals paid to Landlord by Tenant
under such extension, new lease, or continuance. Agent agrees that,
in the event Landlord should sell the premises, and upon Landlord's
furnishing Agent with an agreement signed by the purchaser assuming
Landlord's obligations to Agent hereunder, Agent will release Landlord
named herein from any further obligations to Agent hereunder. Tenant
agrees that if this lease is validly assigned by him, Tenant will
secure from assignee an agreement in writing recognizing assignment
held by Agent, and agreeing to pay rental to Agent herein named during
period covered by this lease. Agent is a party to this contract
solely for the purpose of enforcing his rights under this paragraph
and it is understood by all parties hereto that Agent is acting solely
in the capacity as Agent for Landlord, to whom Tenant must look as
regards all covenants, agreements and warranties herein contained, and
that Agent shall never be liable to Tenant in regard to any matter
which may arise by virtue of this lease. Any voluntary cancellation
of this lease shall not nullify Agent's right to collect the
commission due for the remaining term hereof.
6. The Floor Plan, marked Exhibit "A", shows that the area in Suites 255,
265 and 275 is 3,616 rentable square feet. Both parties acknowledge that the
actual rentable square feet shall be defined as the actual usable square feet
using the BOMA standard of measurements times a common area factor of 1.15, and
that the actual usable square feet shall be approximately 3,144 usable square
feet.
7. The cost to Tenant for extra hours HVAC shall be $10/hour per
thermostat.
8. As to certain existing Tenant improvements, the terms and conditions of
that certain letter dated October 12, 1993, shall remain in full force and
effect and Tenant shall be entitled to keep the items set forth in said letter,
except for the double entrance doors, which shall remain at the Premises.
9. The Lease shall supersede and replace all prior leases between Tenant
and Landlord.
10. Landlord shall provide up to $4.00 per usable square feet ($12,576.00)
as tenant allowance for improving the premises. Tenant desires to have a rest
room constructed in existing right front office in Suite 275 and a doorway
connecting between Suite 265 and 275. All tenant
-14-
<PAGE>
improvements shall be approved and supervised by Landlord and the cost for any
tenant improvements which exceed the said tenant finish allowance shall be paid
for by tenant by monthly payments to the Landlord calculated by taking the
excess of the total tenant improvement costs and subtracting the said tenant
improvement allowances, then amortizing that difference over the remaining term
of the lease (to the nearest month) at an annual percentage rate of 10% per
annum in equal monthly payments which shall be due and payable on the first day
of each month during the remaining lease term.
-15-
<PAGE>
ATLANTA REALTORS CENTER TOMMIE JACKSON BUILDING
ATLANTA, GEORGIA
STATE OF GEORGIA
COUNTY OF FULTON
LEASE ADDENDUM
--------------
WHEREAS THE ATLANTA BOARD OF REALTORS EDUCATIONAL FOUNDATION, INC. jointly and
severally, first party (hereinafter called "Landlord"); and UC TELEVISION
NETWORK CORP., jointly and severally, second party, (hereinafter called
"Tenant") entered into a lease agreement dated the 13th day of June, 1997,
covering a certain area located in the Atlanta REALTORS Center Tommie Jackson
Building located at 5784 Lake Forrest Drive, Atlanta, Georgia 30328 known as
Suite 255, 265 and 275, to which lease agreement reference is hereby made as
though the same were a part hereof; and
WHEREAS, the parties hereto desire to change the said lease, effective November
1, 1997 in accordance with the terms and conditions hereinafter set forth.
NOW, THEREFORE, for and in consideration of the sum of TEN DOLLARS ($10.00), and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged the parties hereto agree as follows:
1. PARAGRAPH 1 (PREMISES AND TERM) shall be amended as follows:
The second line of Paragraph 1 that reads "being approximately 3,616
rentable square feet located in 255, 265 and 275" shall be changed to read
"being approximately 4,656 rentable square feet located in Suites 255, 265, 275
----- --------------------
and 295 ..."
- -------
2. PARAGRAPH 2 (RENTAL AND COVENANTS TO PAY RENT) shall be amended as
follows:
The first sentence that reads "...annual rental rate of $61,465.20 per
year (herein called "Base Rental"), payable in equal monthly installments of
$5,122.10 ..." shall be amended to read "...annual rental rate of 79,162.20 per
---------
year (herein called "Base Rental", payable in equal monthly installments of
$6,596.85 ...".
- ---------
3. The intent of this Amendment is to add Suite 295 to the existing lease
and incorporate that area in Suite 295 and the rental rate for the area into one
inclusive lease. Exhibit "A-1" of this amendment is the floor plan of Suite 295
and is attached hereto and made a part hereof.
4. Paragraph 6 of Exhibit "B" Special Stipulations of the lease shall be
deleted in its entirety and the following added in its place:
The Floor Plans, marked Exhibit "A" and "A-1" show that the area in Suite
255, 265, 275 and 295 is 4,656 rentable square feet. Both parties acknowledge
that the actual rentable square feet shall be defined as the actual usable
square feet using the BOMA standard of measurements
-16-
<PAGE>
times a common area factor of 1.15, and that the actual usable square feet shall
be approximately 4,049 usable square feet.
5. All other terms and conditions of the aforesaid lease shall remain
unchanged.
IN WITNESS WHEREOF, the parties hereto have duly executed this agreement on
this 31st day of October, 1997.
TENANT
ATTEST UC TELEVISION NETWORK CORP.
/s/ Tracy Howard By: /s/ Jason Elkin
- ---------------------------- -----------------------------
Witness Its Chief Executive Officer
/s/ Nancy L. Elliott
- ----------------------------
Notary Public
LANDLORD
The Atlanta Board of REALTORS
Educational Foundation, Inc.
/s/ Tracy Howard By: /s/ R.J. McCrory II
- ---------------------------- -----------------------------
Witness Executive Vice President
/s/ Thomas Body
- ----------------------------
Notary Public
-17-
<PAGE>
EXHIBIT 16.1
[EISNER & CO. LETTERHEAD]
Securities and Exchange Commission
450 Fifth Street
Washington, D.C. 20549
The undersigned served as the certifying accountant for UC Television
Network Corp. (the "Company") From October, 1991 until June 24, 1997. The
Company has furnished the undersigned with a copy of the Form 8-K which the
Company intends to file with the Securities and Exchange Commission on July 1,
1997, and the undersigned agrees, in all material respects, with the statements
made by the Company in Item 4 of such report except for the Company's
relationship with Price Waterhouse as to which the undersigned has no knowledge.
Richard A. Eisner & Company, L.L.P.
By: /s/ Richard A. Eisner & Company
-------------------------------
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-END> OCT-31-1997
<CASH> 13,094,472
<SECURITIES> 0
<RECEIVABLES> 1,008,790
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 14,230,289
<PP&E> 4,497,664
<DEPRECIATION> 2,588,692
<TOTAL-ASSETS> 1,908,972
<CURRENT-LIABILITIES> 1,478,603
<BONDS> 0
3,333
0
<COMMON> 40,076
<OTHER-SE> 14,521,046
<TOTAL-LIABILITY-AND-EQUITY> 16,157,364
<SALES> 2,808,658
<TOTAL-REVENUES> 3,229,662
<CGS> 1,784,436
<TOTAL-COSTS> 1,784,436
<OTHER-EXPENSES> 5,448,816
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (4,003,590)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,003,590)
<EPS-PRIMARY> (.77)
<EPS-DILUTED> (.77)
</TABLE>
