<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 20, 1996
REGISTRATION NO. 333-
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
-----------
ACCESS TELEVISION NETWORK, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
DELAWARE 7319 33-0543220
<S> <C> <C>
(State or other jurisdiction
of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
2600 MICHELSON DRIVE IRVINE, CALIFORNIA 92715 (714) 263-9900
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
WILLIAM R. CULLEN CHAIRMAN OF THE BOARD ACCESS TELEVISION NETWORK, INC. 2600
MICHELSON DRIVE IRVINE, CALIFORNIA 92715 (714) 263-9900
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
-----------
with copies to:
<TABLE>
<S> <C>
PAUL JACOBS, ESQ. RICHARD A. GOLDBERG, ESQ.
FULBRIGHT & JAWORSKI L.L.P. SHEREFF, FRIEDMAN, HOFFMAN
666 FIFTH AVENUE & GOODMAN, LLP
NEW YORK, NEW YORK 10103 919 THIRD AVENUE
(212) 318-3000 NEW YORK, NEW YORK 10022
(212) 758-9500
</TABLE>
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [X]
CALCULATION OF REGISTRATION FEE
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TITLE OF EACH CLASS OF PROPOSED MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED OFFERING PRICE (1) REGISTRATION FEE
- -----------------------------------------------------------------------------------------
<S> <C> <C>
Common Stock, $.01 par value per
share................................ $25,300,000 $8,724.14
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(1)Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(o) under the Securities Act of 1933.
-----------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
ACCESS TELEVISION NETWORK, INC.
----------------
CROSS REFERENCE SHEET SHOWING LOCATION IN
PROSPECTUS OF INFORMATION REQUIRED
BY ITEMS OF FORM S-1
----------------
<TABLE>
<CAPTION>
FORM S-1 ITEM NUMBER AND HEADING LOCATION IN PROSPECTUS
-------------------------------- ----------------------
<S> <C>
1. Forepart of the Registration Statement
and Outside Front Cover Page of
Prospectus ............................ Outside Front Cover Page; Inside
Front Cover Page of Prospectus
2. Inside Front and Outside Back Cover
Pages of Prospectus................... Inside Front Cover Page and
Outside Back Cover Page of
Prospectus
3. Summary Information, Risk Factors
and Ratio of Earnings to
Fixed Charges......................... Prospectus Summary; Risk Factors;
Selected Financial Information
4. Use of Proceeds........................ Use of Proceeds
5. Determination of Offering Price........ Underwriting
6. Dilution............................... Dilution
7. Selling Security Holders............... Not Applicable
8. Plan of Distribution................... Underwriting
9. Description of Securities to
Be Registered.......................... Outside Front Cover Page;
Prospectus Summary;
Description of Capital Stock
10. Interests of Named Experts
and Counsel........................... Not Applicable
11. Information with Respect to
the Registrant:
(a) Description of Business........... Prospectus Summary; Management's
Discussion and Analysis of
Financial Condition and Results
of Operations; Business
(b) Description of Property........... Business--Facilities
(c) Legal Proceedings................. Business--Legal Proceedings
(d) Market Price of and Dividends
on the Registrant's Common Equity
and Related Stockholder Matters... Description of Capital Stock;
Dividend Policy; Shares
Eligible for Future Sale
(e) Financial Statements.............. Financial Statements
(f) Selected Financial Data........... Prospectus Summary; Selected Financial
Information
(g) Supplementary Financial
Information....................... Not Applicable
(h) Management's Discussion and Analysis
of Financial Condition and Results
of Operations..................... Management's Discussion and
Analysis of Financial
</TABLE> Condition and Results of Operations
i
<PAGE>
ACCESS TELEVISION NETWORK, INC.
----------------
CROSS REFERENCE SHEET SHOWING LOCATION IN
PROSPECTUS OF INFORMATION REQUIRED
BY ITEMS OF FORM S-1
----------------
<TABLE>
<CAPTION>
FORM S-1 ITEM NUMBER AND HEADING LOCATION IN PROSPECTUS
-------------------------------- ----------------------
<S> <C>
(i)Changes in and Disagreements With
Accountants on Accounting and
Financial Disclosure................. Not Applicable
(j)Directors and Executive Officers...... Management
Management--Compensation of Executive
(k)Executive Compensation................ Officers
(l)Security Ownership of Certain
Beneficial Owners and Management..... Principal Stockholders
Management--Compensation Committee
Interlocks
(m)Certain Relationships and Related and Insider Participation; --Indebtedness
Transactions......................... of Management; Certain Transactions
12. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities.............................Not Applicable
</TABLE>
ii
<PAGE>
SUBJECT TO COMPLETION, DATED SEPTEMBER 20, 1996
SHARES
ACCESS TELEVISION NETWORK, INC.
[ACCESS TELEVISION COMMON STOCK
NETWORK LOGO APPEARS HERE] -----------
All of the shares of the Common Stock (the "Common Stock") offered hereby are
being sold by Access Television Network, Inc. ("Access TV" or the "Company").
Prior to this offering, there has been no public market for the Common Stock.
It is currently estimated that the initial public offering price will be
between $ and $ per share. See "Underwriting" for a discussion of factors
to be considered in determining the initial public offering price. The Company
intends to apply to have the Common Stock approved for quotation on The Nasdaq
National Market under the symbol "ASTV." Following the consummation of this
offering, the directors and executive officers of the Company and their
affiliated entities as a group will beneficially own approximately % of the
Common Stock. See "Principal Stockholders."
SEE "RISK FACTORS" COMMENCING ON PAGE 6 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED
HEREBY.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURI-
TIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1)(2) COMPANY(3)
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share........................ $ $ $
- ----------------------------------------------------------------------------
Total(4)......................... $ $ $
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
</TABLE>
(1) Excludes the value of warrants to purchase up to shares of Common
Stock to be issued to the representatives of the Underwriters as additional
compensation. See "Underwriting."
(2) See "Underwriting" for information concerning indemnification of the
Underwriters and other matters.
(3) Before deducting expenses payable by the Company estimated at $920,000.
(4) The Company has granted to the Underwriters a 45-day option to purchase up
to additional shares of Common Stock solely to cover over-allotments,
if any. If the Underwriters exercise this option in full, the Price to
Public will total $ , the Underwriting Discounts and Commissions will
total $ and the Proceeds to Company will total $ . See
"Underwriting."
-----------
This Common Stock is offered by the Underwriters, subject to prior sale,
when, as and if accepted by the Underwriters and subject to certain conditions.
It is expected that delivery of the certificates for the shares of Common Stock
will be made against payment therefor at the offices of Southcoast Capital
Corporation, 277 Park Avenue, New York, New York 10172, on or about ,
1996.
-----------
SOUTHCOAST LADENBURG, THALMANN & CO. INC.
CAPITAL
CORPORATION
The date of this Prospectus is , 1996
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws of
any such State.
<PAGE>
[ART]
-------------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
OF THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, IN
THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY
BE DISCONTINUED AT ANY TIME.
-------------------
The Company intends to furnish its stockholders with annual reports
containing financial statements audited by independent public accountants and
with quarterly reports for the first three fiscal quarters of each fiscal year
containing unaudited financial information.
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the Financial Statements of the Company (including the Notes
thereto) appearing elsewhere in this Prospectus. Unless otherwise indicated,
all information in this Prospectus (i) is adjusted to reflect a one-for-10.4976
reverse stock split with respect to the Common Stock to be effected prior to
the consummation of this offering, (ii) gives effect to the conversion upon the
consummation of this offering of all outstanding shares of the Company's Series
A Convertible Preferred Stock into 142,890 shares of Common Stock (the
"Preferred Stock Conversion"), (iii) assumes no exercise of warrants to be
issued to the representatives of the Underwriters upon the closing of this
offering (the "Representatives' Warrants") and (iv) assumes no exercise of the
Underwriters' over-allotment option.
THE COMPANY
Access TV operates the largest network exclusively dedicated to the cablecast
of infomercials and other long-form paid programming in the U.S. The Company
currently distributes this programming to cable television operators of
approximately 200 cable systems reaching over 18 million U.S. households,
representing approximately 26% of the approximately 68 million households in
the U.S. which receive cable television, for an average of approximately 11.4
hours a day. The Company has contracted with most of the nation's largest
multiple cable system operators ("MSOs"), including Tele-Communications Inc.
("TCI"), Time Warner, Inc. ("Time Warner") and Continental Cablevision Inc.
("Continental"), for blocks of underutilized ("remnant") time. The Company
packages this remnant time, which typically exists across several channels at
various times of day ("dayparts"), to create a national distribution medium
(the "Access Network") for use by producers of infomercial and infotainment
content. The Access Network distributes programming via its two digitally
compressed satellite feeds for cablecast by local cable television systems over
available channels for times ranging from 1/2 hour to 24 hours per day.
Customers include major producers and distributors of infomercials, notably
those for Nordic Track, Health Rider, Victoria Principal and Lexus. The Access
Network, when measured by the quantity and quality of time made available to
it, currently reaches the equivalent of approximately five million households
on a full-time equivalent ("FTE") basis. FTE is a Company derived measurement
which converts the number of households reached part-time by the Access Network
into an approximate number of full-time equivalent households taking into
account the quantity and the quality of time in the Access Network. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business--Affiliates and Access Network."
The Access Network provides advertisers with a cost-effective way to reach a
national cable audience and increases the value of remnant time for local cable
television systems by offering a new source of incremental, non-subscriber
based revenue. The Company compensates the cable systems participating in the
Access Network ("Cable Affiliates") by paying them the greater of a guaranteed
minimum or a percentage of the revenues that the Access Network derives from
the sale of time to advertisers. By providing an infomercial-based revenue
stream to local cable system operators, the Access Network enables cable
systems to benefit directly from what has been one of the fastest growing
segments of the advertising industry.
In 1995, more than $800 million was spent on media advertising by the
infomercial industry. National cable networks received 40% of this amount while
local cable television systems received only 4%. The Company believes that this
disparity is due principally to the administrative burden faced by infomercial
producers and distributors in advertising on multiple local cable systems. The
Access Network offers local cable television systems the ability to compete for
such spending by streamlining the process and providing a single point of
purchase for producers and distributors of infomercials to reach the cable
audience. In so doing, the Company believes the Access Network will direct an
increased percentage of infomercial media spending to local cable television
systems. The Company believes that its record of reliable operations, together
with the size and sophistication of the Access Network, position the Company to
benefit from continued growth in long-form paid programming, the potential
expansion of cable systems' channel capacity and the growth of alternative
multi-channel video distribution methods.
3
<PAGE>
The Company's goal is to become the premier outlet for long-form paid
programming. Key elements of the Company's strategy are to:
EXPAND THE ACCESS NETWORK. The Company is focused on enhancing the
value of the Access Network to advertisers and cable operators. The
Company is working with cable operators to: (i) increase its
household reach by establishing new, as well as expanding existing,
Cable Affiliate relationships; (ii) obtain longer-term affiliate
commitments; and (iii) secure the availability of both a greater
quantity and a higher quality of time. Currently, the majority of
time made available to the Access Network is from midnight to 9:00
a.m. Better time will allow the Company to increase its rates and
attract additional infomercial advertisers.
BROADEN THE USE OF THE ACCESS NETWORK. The Company is expanding its
marketing efforts to producers and distributors of infomercials and
other types of long-form paid programming such as image-based
advertising and political, charitable and religious programming. The
Company believes that the expansion of the Access Network in terms
of households, markets and available time will enable the Company to
offer advertisers both greater flexibility in distributing their
content in specific dayparts and a vehicle for targeted distribution
to demographically and geographically distinct cable households. The
Company believes that these features will appeal to a broader
universe of potential clients and command premium pricing.
MAINTAIN STATE-OF-THE-ART TECHNOLOGY. The Company's distribution
system includes the placement of compatible state-of-the-art
equipment at the headend of Cable Affiliates. The Company believes
that there is limited capacity on the part of Cable Affiliates to
accommodate the equipment of potential competitors and, therefore,
this incumbency provides the Company with a competitive advantage.
The Company was formed as a Delaware corporation in January 1993. Access TV
is staffed by former cable television executives with extensive experience in
marketing and advertising sales. This group includes its Chairman and Chief
Executive Officer, William R. Cullen, former head of a multi-system cable
television operating division of United Artists Communications, Inc. ("United
Artists"), and its President, William H. Bernard, former Director of
Advertising Sales for United Artists. The Company's principal executive offices
are located at 2600 Michelson Drive, Irvine, California 92715, and its
telephone number is (714) 263-9900. The Company maintains a world wide web site
on the Internet at http://www.accesstv.com.
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company............. shares
Common Stock to be outstanding after the
offering........................................ shares(1)
Use of proceeds................................. For capital expenditures to expand and
upgrade the Access Network, for repayment
of outstanding indebtedness and for
general corporate purposes, including
working capital.
Proposed Nasdaq National Market Symbol.......... ASTV
</TABLE>
- --------
(1) Does not include (i) 271,491 shares of Common Stock issuable upon the
exercise of outstanding options, at exercise prices ranging from $6.82 to
$8.40 per share, (ii) 87,448 additional shares of Common Stock reserved for
issuance pursuant to the Company's Equity Incentive Plan and Stock Bonus
Plan, (iii) 472,601 shares of Common Stock issuable upon the exercise of
outstanding warrants, at exercise prices ranging from $5.25 to $8.40 per
share, (iv) 200,000 shares of Common Stock issuable upon the exercise of
outstanding warrants, at a per share exercise price equal to the initial
public offering price set forth on the cover page of this Prospectus and
(v) shares of Common Stock issuable upon the exercise of the
Representatives' Warrants. See "Management," "Description of Capital
Stock--Warrants" and "Underwriting."
4
<PAGE>
SUMMARY FINANCIAL INFORMATION AND OTHER DATA
(IN THOUSANDS, EXCEPT SHARE AND HOUSEHOLD DATA)
<TABLE>
<CAPTION>
THREE MONTHS
FISCAL YEAR ENDED MARCH 31, ENDED JUNE 30,
------------------------------------ ------------------------
1994 1995 1996 1995 1996
---------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS
DATA:
Revenues............... $ 120 $ 3,921 $ 8,930 $ 1,341 $ 3,016
Net revenues........... 102 3,238 7,595 1,130 2,564
Cable Affiliate fees... 178 4,886 4,510 671 1,757
Income (loss) after
Cable Affiliate
fees................ (76) (1,648) 3,085 459 807
Operating expenses..... 439 3,622 5,192 1,351 1,523
Loss from operations... (515) (5,270) (2,107) (892) (716)
Net loss............... $ (512) $ (5,492) $ (3,143) $ (1,034) $ (1,006)
========== =========== =========== =========== ===========
Net loss per common and $ (.34) $ (2.00) $ (.84) $ (.28) $ (.24)
equivalent share(1). ========== =========== =========== =========== ===========
Weighted average number
of shares
outstanding......... 1,490,348 2,742,423 3,745,250 3,714,935 4,127,776
OTHER DATA:
EBITDA(2).............. $ (498) $ (4,192) $ (751) $ (566) $ (369)
Number of households... 1,419,000 11,175,000 16,139,000 11,815,000 18,060,000
Number of FTE
households(3)....... -- 2,023,000 4,250,000 2,524,000 5,212,000
Revenues per average
FTE households(4)... -- -- $ 2.85 $ .59 $ .64
</TABLE>
<TABLE>
<CAPTION>
AS OF JUNE 30, 1996
-----------------------
AS
ACTUAL ADJUSTED(5)
--------- ------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.............................. $ 769 $
Working capital (deficit).............................. (1,880)
Total assets........................................... 12,216
Capital lease obligation, including current portion.... 10,103 10,103
Stockholders' equity (deficit)......................... (155)
</TABLE>
- --------
(1) Net loss per share was calculated by dividing the net loss by the weighted
average number of common shares outstanding. Common equivalent shares are
excluded from the computation as their effect is anti-dilutive, except
that, pursuant to the Securities and Exchange Commission Staff Accounting
Bulletin No. 83, common stock and common equivalent shares (stock options
and warrants) issued or granted during the 12 month period immediately
preceding the initial filing of the proposed public offering have been
included in the calculation of the shares used in computing net loss per
common and equivalent share as if they were outstanding for all periods
presented (using an assumed public offering price of $ per share).
(2) EBITDA represents loss from operations plus depreciation and amortization
plus, in fiscal 1995, the write-down of machinery and equipment. EBITDA is
included herein because management believes that certain investors find it
to be a useful valuation parameter; however, EBITDA does not represent cash
flow from operations, as defined by generally accepted accounting
principles, and should not be considered as a substitute for net earnings
as an indicator of the Company's operating performance or cash flow as a
measure of liquidity.
(3) A Company derived measurement developed in fiscal 1996 which converts the
number of households reached part-time by the Access Network into an
approximate number of full-time equivalent households taking into account
the quantity and the quality of time in the Access Network. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business--Affiliates and Access Network."
(4) Average FTE households represents the average of the number of FTE
households at the beginning and end of the fiscal year and fiscal quarter,
respectively.
(5) As adjusted to reflect the sale of the Common Stock offered by the Company
hereby (at an assumed initial public offering price of $ per share) and
the application of the net proceeds therefrom as set forth in "Use of
Proceeds." See "Use of Proceeds."
5
<PAGE>
RISK FACTORS
An investment in the shares of Common Stock offered hereby involves a high
degree of risk. Prospective investors should carefully consider the following
risk factors, in addition to the other information contained in this
Prospectus, in evaluating an investment in the shares of Common Stock offered
hereby. This Prospectus contains forward-looking statements which involve
risks and uncertainties. The Company's actual results may differ significantly
from the results discussed in the forward-looking statements. Factors that
might cause such a difference include, but are not limited to, those discussed
below.
HISTORY OF LOSSES; UNCERTAINTY OF PROFITABILITY
The Company was formed in January 1993 and commenced operations shortly
thereafter. Prospective investors, therefore, have limited historical
financial information about the Company upon which to base an evaluation of
the Company's performance and an investment in the Common Stock offered
hereby. The Company is subject to all the risks associated with developing
businesses including, without limitation, unforeseen problems, expenses,
complications and delays frequently encountered by early stage businesses, a
rapidly changing regulatory environment and the highly competitive nature of
the advertising and cable television industries. Many of these factors are
beyond the Company's control. For the fiscal years ended March 31, 1994, 1995
and 1996 and the fiscal quarter ended June 30, 1996, the Company incurred net
losses of $512,214, $5,492,047, $3,143,441 and $1,006,118, respectively. The
Company anticipates that it will continue to operate at a loss through at
least the remainder of the fiscal year ending March 31, 1997, and there can be
no assurance that it will not continue to incur losses thereafter. At June 30,
1996, the Company had an accumulated deficit of $10,167,172. There can be no
assurance that the Company will be able to achieve profitability on a
quarterly or annual basis or at all or that it will be able to sustain or
increase its revenue growth in future periods. See "-- Seasonality; Potential
Fluctuations in Operating Results."
DEPENDENCE ON SIZE OF ACCESS NETWORK AND AVAILABILITY AND QUALITY OF TIME
The Company's growth strategy depends upon its ability to increase the
number of households reached by, and advertisers utilizing, the Access
Network, to increase the rates it charges advertisers and to obtain better
quality dayparts. The Company's ability to satisfy any of these factors
depends in large part on its ability to accomplish all of these factors, and
the Company's failure to achieve any one of these objectives could have a
material adverse effect on the Company. See "--Initial Focus on Infomercial
Market; Dependence on Ability to Attract Advertisers."
The Company's ability to expand its advertiser base will depend on the
Company's ability to increase the number of cable systems and subscribers
available to the Access Network. The number of households reached by the
Access Network is also a significant factor in attracting infomercials earlier
in their life cycle, for which the Company is more likely to receive higher
fees. The inability of the Company to increase the number of cable systems in
and households reached by the Access Network could have a material adverse
effect on the Company. See "Business--Affiliates and Access Network."
Pursuant to affiliation agreements with MSOs, the Company receives remnant
time from local cable television systems. Typically, these affiliation
agreements are cancelable by the local cable television systems upon 30 to 90
days' notice. The Company depends upon the availability of cablecasting time
on local cable television systems for the development and growth of the Access
Network. Changes in channel alignment, increased programming on cable
television networks, termination of affiliation agreements, regulatory changes
and similar events, however, could reduce the supply of, and could increase
the cost of, time available on local cable television systems for inclusion in
the Access Network, which would have a material adverse effect on the Company.
Some cable networks have been attempting to preclude local cable systems from
preempting their networks' programming in favor of the Company and other
programmers, although the Company has not been adversely impacted to date. The
success of cable networks in stopping preemption may adversely affect the
Company's ability to obtain sufficient cablecasting time. During the fiscal
year ended March 31, 1996, 80% of the cablecasting time on the Access Network
resulted from preemption of network programming by local cable
6
<PAGE>
systems. In addition, proposed revisions to rules adopted under the Cable
Communications Policy Act of 1984 (the "1984 Cable Act") and the Cable
Television Consumer Protection and Competition Act of 1992 (the "1992 Cable
Act") could significantly reduce "leased access" rates, thereby making "leased
access" a more attractive option for third party programmers, thus reducing
some or all of the time available for the Company's infomercial programming.
The proposed rules under consideration would be particularly attractive to
home shopping and other infomercial providers, including part-time providers
of such programming, which could lead to a substantial increase in competition
to the Company. See "Business--Affiliates and Access Network" and "Government
Regulation."
The Company currently provides an average of approximately 11.4 hours of
programming per subscriber household each day. However, the dayparts provided
to the Company by the local cable systems generally have been the overnight
hours (midnight to 9:00 a.m.). The dayparts between 2:00 a.m. and 6:00 a.m.
are less desirable to infomercial advertisers because there are fewer
potential viewers during these hours and, as the number of cable television
networks offering infomercial programming has increased, more infomercial
programming is being run during these hours. The Company believes that
obtaining more desirable dayparts is necessary in order for it to raise the
rates it charges advertisers. There can be no assurance that the Company will
be able to obtain more desirable dayparts. The inability of the Company to
obtain more desirable dayparts could have a material adverse effect on the
Company.
INITIAL FOCUS ON INFOMERCIAL MARKET; DEPENDENCE ON ABILITY TO ATTRACT
ADVERTISERS
The Company's initial focus is on the sale of time to infomercial
advertisers. Although the infomercial market has grown rapidly over the past
several years, there can be no assurance that the infomercial format will
continue to be acceptable to advertisers or consumers. While the Company
intends to market the Access Network for other programming in the future, at
the current stage of the Company's development the Company is dependent upon
sales to infomercial advertisers. As a result, should infomercials cease to
remain a popular form of advertising, the Company could be materially
adversely affected. There can be no assurance that the Company will be able to
continue to attract infomercial advertisers to purchase all or a portion of
its available time or at prices consistent with profitable operations or that
in the future it will be successful in attracting other long-form paid
programming. In November 1994, the Company entered into a service agreement
pursuant to which a third party provides infomercial sales representative
services to the Company on a non-exclusive basis. The agreement has a five
year term, with automatic renewal periods unless prior notice of termination
is given. Substantially all of the Company's sales of time to infomercial
advertisers are made by such sales representative. To the extent that such
sales representative devoted less time to the Company or terminated his
agreement, the Company could be materially adversely affected, unless such
sales representative could be replaced, of which there can be no assurance.
See "Business--Advertisers and Advertising Sales." An industry index published
by Response TV magazine reported a year-over-year decline of approximately 4%
in infomercial advertising rates for the three months ended June 30, 1996,
which decline has continued in the third quarter of 1996. There can be no
assurance that advertising rates will not continue to decline. If rates
continue to decline, the Company's margins and results of operations will be
materially adversely affected.
COMPETITION
National Media Corporation and Guthy-Renker Corporation, two large producers
of infomercials, have entered into agreements for the distribution of
infomercials, primarily produced by them, to cable households. In the case of
National Media, such distribution is in the form of the bulk purchase of
limited dayparts from the owner of a national cable network. National Media
and Positive Response Television, Inc., a significant customer of the Company,
have recently merged. The Company does not believe that this merger will have
an adverse effect on its business, although no assurance can be given. See "--
Industry Concentration." Guthy-Renker's distribution is achieved through an
agreement with two MSOs which grant certain carriage privileges with respect
to overnight time. Guthy-Renker has announced its intention to distribute
infomercial programming 24 hours a day. Guthy-Renker accounted for
approximately 4% of the Company's net revenues in fiscal 1996, although it has
not distributed long-form paid programming through the Access Network since
November 1995.
7
<PAGE>
Jones Intercable Inc. and Cox Communications, Inc., two large MSOs, have
established, through a joint venture, a 24-hour infomercial channel
distributed largely to their own cable affiliates which presently has more
limited distribution than that of the Access Network and requires a dedicated
channel. Paxson Communications Corporation initiated efforts to build a 24-
hour infomercial cable channel but has ceased further development of it.
However, Paxson Communications has created a network of owned and affiliated
UHF stations which it programs largely with infomercials and which, in some
cases, must be carried by local cable systems under federal law. The Company
believes that this programming is currently available to approximately 14
million cable households. The Company is also aware of at least 30 cable
television networks, many of which have a substantial number of subscribers,
that distribute infomercial programming. Many of these companies are larger
and have greater resources than the Company. See "Business--Competition."
As there are no legal barriers or proprietary rights to prevent entry into
the Company's business, the Company could in the future face competition from
new competitors offering services similar to that of the Company. These future
competitors could have significantly more resources available for the creation
of such a business than the Company.
The Company also competes against other forms of advertisements for
advertising dollars, such as broadcast television, radio and other media.
There can be no assurance that the infomercial concept will continue to be
acceptable to advertisers and consumers or that it will be able to compete
against other forms of advertising. See "--Initial Focus on Infomercial
Market; Dependence on Ability to Attract Advertisers" and "Business--
Government Regulation."
INDUSTRY CONCENTRATION
The ownership of cable systems on which the Company is focused (i.e., those
having 25,000 or more subscribers) is concentrated among a small number of
MSOs. Additionally, a substantial number of infomercials are produced by a
small number of producers, and the Company believes this industry is
undergoing consolidation. To date, the Company has focused on attracting
large, national MSOs and large infomercial producers. At June 30, 1996 and at
March 31, 1996 and 1995, TCI, Time Warner and Continental, three large MSOs,
accounted for 37%, 32% and 8%, respectively, 40%, 32% and 7%, respectively,
and 34%, 30% and 9%, respectively, of the households reached by the Access
Network. For the quarter ended June 30, 1996 and the fiscal years ended March
31, 1996 and 1995, approximately 52%, 57% and 75%, respectively, of the
Company's net revenues were derived from sales to six infomercial producers
(three of which were the same in each period). For the quarter ended June 30,
1996 and the fiscal year ended March 31, 1996, Positive Response and Mercury
Media, Inc. accounted for approximately 24% and 18%, respectively, and 18% and
12%, respectively, of the Company's net revenues. For the fiscal year ended
March 31, 1995, Positive Response, World Media Television, Inc., Alexander
Communications, Inc. and Hawthorne Communications, Inc. accounted for
approximately 20%, 18%, 18% and 10%, respectively, of the Company's net
revenues. The Company does not have long-term contractual relationships with
any of these infomercial producers. The loss of one or more of these producers
could have a material adverse effect on the Company. The decision by a major
infomercial producer not to use the Access Network or of an MSO to cancel or
not renew its affiliation agreement with the Company would have a material
adverse effect on the Company. See "Business--Advertisers and Advertising
Sales" and "Business--Affiliates and Access Network."
EXTENSIVE REGULATION OF CABLE TELEVISION INDUSTRY
The cable television industry is subject to extensive federal, state and
local regulation. Regulation can take the form of price controls, programming
carriage requirements and programming content restrictions. Such regulation
could affect the availability of time on local cable television systems for
sale by the Company as well as the price at which such time is available.
There can be no assurance that material adverse changes in regulations
affecting the cable television industry, in general, or the Company, in
particular, will not occur in the future. See "Business--Government
Regulation."
8
<PAGE>
ABILITY TO MANAGE GROWTH
The Company is currently experiencing a period of rapid growth and expansion
which could place a significant strain on the Company's management, services
and support operations, sales and administrative personnel and financial and
other resources. Successful implementation of the Company's business strategy
will require management of growth, which will result in an increase in the
level of responsibility of management personnel. To manage its growth
effectively, the Company will be required to continue to implement and improve
its operating and financial systems and controls and to expand, train and
manage its employee base. There can be no assurance that the management,
systems and controls currently in place or to be implemented will be adequate
to manage such growth or that any steps taken to hire personnel or improve
such systems and controls will be sufficient. The failure to manage growth
effectively could have a material adverse effect on the Company.
SEASONALITY; POTENTIAL FLUCTUATIONS IN OPERATING RESULTS
In general, the frequency of infomercial programming and the rates which the
Company charges infomercial advertisers are highest during the third and
fourth quarters of its fiscal year. Consequently, the Company sells time on
the Access Network at relatively lower rates during the first and second
quarters of its fiscal year. The Company's operating results are affected by
this trend, with relatively higher levels of its revenues generated during the
third and fourth quarters of its fiscal year. In addition, the Company's
quarterly and annual results of operations are affected by a wide variety of
factors, many of which are outside the Company's control, which could
materially and adversely affect profitability. These factors include the
timing and the volume of infomercials shown on the Access Network, the number
of cable systems and FTEs added to the Access Network and general economic
conditions. Accordingly, the Company's results of operations for any quarter
should not be considered indicative of the Company's performance for any
future period. Further, it is possible that in some future quarter the
Company's revenues or operating results will be below the expectations of
public market analysts and investors. In such event, the price of the Common
Stock could be materially adversely affected. See "--No Prior Public Market;
Possible Volatility of Stock Price," "Selected Financial Information" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
DEPENDENCE ON KEY PERSONNEL
The Company believes that its future success will depend to a significant
extent upon its senior management. The loss of the services of any key
personnel, including William R. Cullen and William H. Bernard, the Company's
Chairman and President, respectively, could have a material adverse effect
upon the Company. The Company has entered into employment agreements with each
of Messrs. Cullen and Bernard, and the Company carries key-man life insurance
of $1 million on each of them. The Company's future success will also depend
upon its ability to attract and retain qualified management and technical
employees to support its future growth. Competition for such personnel is
intense, and there can be no assurance that the Company will be successful in
attracting or retaining such personnel. The failure to attract and/or retain
such persons could have a material adverse effect on the Company. See "--
Ability to Manage Growth" and "Management."
DEPENDENCE ON DELIVERY SYSTEM
The Company subleases satellite transponder time for delivery of the
Company's programming. The sublease provides that the Company's programming
may be preempted in the event of certain technical failures which precludes a
third party from utilizing the satellite to broadcast its programming.
Although the sublease provides that the sublessor will use reasonable efforts
to place the Company's programming on a replacement satellite in the event of
preemption, there can be no assurance that such party will be able to do so,
and the sublessor's failure to do so would have a material adverse effect on
the Company until an alternative delivery system could be established. In
addition, there can be no assurance that the satellite will continue to
function as intended, in which case the Company will have to find an alternate
satellite, which may not be available, or to use a more costly alternative
delivery system, which would also have a material adverse effect on the
Company. See "Business--Delivery System Methods."
9
<PAGE>
DISCRETIONARY USE OF PROCEEDS
The Company will use approximately $1.7 million of the net proceeds from
this offering for capital expenditures to expand and upgrade the Access
Network and approximately $1.0 million to repay amounts outstanding under a
bridge financing. The Company expects to use the remaining net proceeds
(approximately $ million, assuming an initial public offering price of $
per share) for general corporate purposes, including working capital. The
Company will have broad discretion in using the unallocated net proceeds of
this offering. See "Use of Proceeds."
CONTROL BY CERTAIN PRINCIPAL STOCKHOLDERS; EFFECT OF CERTAIN ANTI-TAKEOVER
PROVISIONS
Following completion of this offering, the Company's executive officers and
directors and their affiliated entities as a group will beneficially own
approximately % of the outstanding Common Stock. As a result, Access TV's
executive officers and directors as a group will have a significant influence
over, and may in fact control, the outcome of all matters submitted to a vote
of the Company's stockholders, including the election of directors and
significant corporate transactions. The shares beneficially owned by the
Company's executive officers, directors and their affiliates, combined with
the ability of the Company's Board of Directors to issue shares of preferred
stock without further vote or action by the stockholders, may have the effect
of delaying, deferring or preventing a change in control of the Company
without further action by the stockholders, which could adversely affect the
market price of the Common Stock. In addition, Section 203 of the Delaware
General Corporation Law, which is applicable to the Company, contains
provisions that restrict certain business combinations with interested
stockholders which may have the effect of inhibiting a non-negotiated merger
or other business combination. See "Principal Stockholders," "Description of
Capital Stock--Preferred Stock" and "--Delaware Anti-Takeover Law."
NO PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to this offering, there has been no public market for the Common Stock
and there can be no assurance that an active trading market in the Common
Stock will develop or be sustained after this offering. The initial public
offering price will be determined through negotiations between the Company and
the Representatives of the Underwriters and may not be indicative of the
market price for the Common Stock after this offering. In addition, factors
such as announcements by the Company of variations in its quarterly financial
results and general market and economic conditions, or the failure to meet
securities analysts' expectations, among other things, could cause the market
price of the Common Stock to fluctuate significantly. Further, in recent years
the stock market in general, and the market for shares of small capitalization
stocks in particular, have experienced extreme price fluctuations, which have
often been unrelated to the operating performance of affected companies. Such
fluctuations could adversely affect the market price of the Common Stock. In
the past, following periods of volatility in the market price of publicly
traded securities, securities class action litigation has often been initiated
against the issuer of those securities. Litigation of this nature could result
in substantial costs and a diversion of management's attention and resources,
which could have a material adverse effect on the Company. See "--Seasonality;
Potential Fluctuations in Operating Results" and "Underwriting."
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of Common Stock in the public market, or the
perception that such sales may occur, could adversely affect the prevailing
market price of the Common Stock and the ability of the Company to raise
capital through a public offering of its equity securities. Upon completion of
this offering, the shares of Common Stock sold in this offering (
shares if the Underwriters' over-allotment option is exercised in full) will
be freely tradeable without restriction (except as to affiliates of the
Company) or further registration under the Securities Act of 1933, as amended
(the "Securities Act"). The Company's directors and executive officers and
certain other stockholders who hold in the aggregate approximately shares
of Common Stock have agreed not to offer to sell, sell or otherwise dispose of
any shares of Common Stock prior to the expiration of 180 days from the date
of this Prospectus, subject to certain exceptions. Southcoast Capital
Corporation ("Southcoast") may, in its sole discretion and at any time without
notice, release all or any portion of the securities subject to lock-up
agreements. Beginning 91 days after the date hereof, approximately
10
<PAGE>
shares of Common Stock will be eligible for sale in the public market
without registration, subject to certain volume and other limitations,
pursuant to Rule 144 under the Securities Act, and an additional shares
of Common Stock will become eligible for sale pursuant to Rule 144 following
the expiration of the 180 day lock-up period. All shares of Common Stock
outstanding on the date of this Prospectus will be eligible for sale to
certain qualified institutional buyers in accordance with Rule 144A under the
Securities Act, subject to lock-up agreements. In , approximately
shares of Common Stock will be eligible for sale in the public market without
limitation pursuant to Rule 144(k) under the Securities Act. The Securities
and Exchange Commission has proposed an amendment to Rule 144 under the
Securities Act which, if adopted as currently proposed, would permit the sale
of such shares of Common Stock held by non-affiliates without
restriction beginning 181 days after the date of this Prospectus, rather than
. Additional shares, including shares issuable upon exercise of options and
warrants, will also become available for sale in the public market from time
to time in the future. Moreover, certain of the Company's stockholders and
warrantholders have the right to cause the Company to register their shares
under the Securities Act and to include their shares in any future
registration of securities effected by the Company under the Securities Act.
If such holders, by exercising their demand registration rights, cause a large
number of shares to be registered and sold in the public market, such sales
may have an adverse effect on the market price of the Common Stock. If the
Company is required to include in a Company-initiated registration shares held
by such holders pursuant to the exercise of their piggyback registration
rights, such sales may have an adverse effect on the Company's ability to
raise needed capital. See "Principal Stockholders," "Description of Capital
Stock--Registration Rights," "Shares Eligible for Future Sale" and
"Underwriting."
DILUTION TO NEW INVESTORS
Investors participating in this offering will incur immediate and
substantial dilution of $ in the net tangible book value of their
investment. See "Dilution."
USE OF PROCEEDS
The net proceeds to the Company from the sale of the shares of Common
Stock offered by the Company in this offering are estimated to be $
($ if the Underwriters' over-allotment option is exercised in full),
assuming an initial public offering price of $ per share, after deducting
the estimated underwriting discounts and commissions and offering expenses
payable by the Company. The Company intends to use approximately $1,700,000 of
the net proceeds for capital expenditures to expand and upgrade the Access
Network. The Company also intends to use a portion of the net proceeds to
repay all amounts outstanding under a $1,000,000 revolving credit facility
provided to the Company by certain of its stockholders, directors and
executive officers. At September 12, 1996, no amounts were outstanding under
this facility. The remainder of such net proceeds will be used for working
capital and other general corporate purposes, including potential acquisitions
and possible expansion into complementary businesses. The Company has not
identified any potential acquisitions or possible expansion opportunities.
Borrowings under the revolving credit facility bear interest at the rate of 9%
per annum and mature on the earlier of December 12, 1996 or the closing of
this offering. Approximately $420,000 of the estimated offering expenses have
been paid or incurred through June 30, 1996 and are included as other assets
on the June 30, 1996 balance sheet. See Note 1(e) of Notes to Financial
Statements. See "Certain Transactions."
Pending such uses, the net proceeds will be invested in short-term,
investment grade, interest-bearing securities.
DIVIDEND POLICY
Access TV has never declared or paid any cash dividends on the Common Stock.
The Company anticipates that all future earnings will be retained by the
Company for the development of its business. Accordingly, Access TV does not
anticipate paying cash dividends on the Common Stock in the foreseeable
future. The payment of any future dividends will be at the discretion of the
Company's Board of Directors and will depend upon, among other things, future
earnings, operations, capital requirements and the general financial condition
of the Company and general business conditions. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources."
11
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of June
30, 1996, and as adjusted to give effect to (i) the sale by the Company of the
shares of Common Stock offered hereby (at an assumed initial public offering
price of $ per share) and (ii) the Preferred Stock Conversion. The table
set forth below should be read in conjunction with "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and the
financial statements and notes thereto of the Company included elsewhere in
this Prospectus.
<TABLE>
<CAPTION>
AS OF JUNE 30, 1996 (1)
-------------------------
AS
ACTUAL ADJUSTED
----------- ------------
($ IN THOUSANDS)
<S> <C> <C>
Current portion of capital lease obligation.......... $ 431 $ 431
=========== ===========
Capital lease obligation, net of current portion..... $ 9,672 $ 9,672
Stockholders' equity (deficit):
Preferred Stock, $0.01 par value, 4,000,000 shares
authorized; 1,000 shares of Series A Convertible
Preferred Stock issued and outstanding as of June
30, 1996; no shares issued and outstanding as
adjusted.......................................... -- --
Common stock, $0.01 par value, 25,000,000 shares
authorized; 3,683,595 shares issued and
outstanding as of June 30, 1996; shares
issued and outstanding as adjusted(2)............. 37
Additional paid-in capital......................... 10,096
Accumulated deficit................................ (10,167) (10,167)
Less--Notes receivable from stockholders........... (121) (121)
----------- -----------
Total stockholders' equity (deficit)............. (155)
----------- -----------
Total capitalization............................ $ 9,517 $
=========== ===========
</TABLE>
- --------
(1) In September 1996 the Company entered into a $1,000,000 revolving credit
facility with certain of its stockholders, directors and executive
officers. At September 12, 1996, no amounts were outstanding under this
facility. The Company intends to use a portion of the proceeds from this
offering to repay all amounts outstanding under this facility. See "Use of
Proceeds" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Liquidity and Capital Resources."
(2) Does not include (i) 271,491 shares of Common Stock issuable upon the
exercise of outstanding options, at exercise prices ranging from $6.82 to
$8.40 per share, (ii) 87,448 additional shares of Common Stock reserved
for issuance pursuant to the Company's Equity Incentive Plan and Stock
Bonus Plan, (iii) 472,601 shares of Common Stock issuable upon the
exercise of outstanding warrants, at exercise prices ranging from $5.25 to
$8.40 per share, (iv) 200,000 shares of Common Stock issuable upon the
exercise of outstanding warrants, at a per share exercise price equal to
the initial public offering price set forth on the cover page of this
Prospectus and (v) shares of Common Stock issuable upon the exercise
of the Representatives' Warrants. See "Management," "Description of
Capital Stock--Warrants" and "Underwriting."
12
<PAGE>
DILUTION
The net tangible book value of the Company at June 30, 1996 was $(154,742)
or $(0.04) per share of outstanding Common Stock after giving effect to the
Preferred Stock Conversion. Net tangible book value per share represents total
tangible assets of the Company less total liabilities, divided by the number
of shares of Common Stock outstanding. After giving effect as of June 30, 1996
to the receipt of the estimated net proceeds from the Company's sale of the
shares of Common Stock offered hereby at an assumed initial public
offering price of $ per share (after deducting the estimated underwriting
discounts and commissions and offering expenses payable by the Company) and
the Preferred Stock Conversion, the net tangible book value of the Company
would have been approximately $ , or $ per share of outstanding Common
Stock, at June 30, 1996. This represents an immediate increase in net tangible
book value of $ per share to existing stockholders and an immediate dilution
of $ per share to investors purchasing shares of Common Stock in this
offering at the assumed initial public offering price. The following table
illustrates this dilution to new investors:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share................. $
Net tangible book value per share before the offering......... $(0.04)
Increase per share attributable to new investors.............
------
Net tangible book value per share after the offering............
---
Dilution per share to new investors............................. $
---
</TABLE>
The following table sets forth at June 30, 1996 the number of shares of
Common Stock purchased from the Company and the total consideration and
average price per share paid by existing stockholders of the Company and by
new investors purchasing shares from the Company in this offering, at an
assumed initial public offering price of $ per share, before deducting the
estimated underwriting discounts and commissions and offering expenses payable
by the Company:
<TABLE>
<CAPTION>
AVERAGE
SHARES PURCHASED TOTAL CONSIDERATION PRICE
----------------- ------------------- PER
NUMBER PERCENT AMOUNT PERCENT SHARE
--------- ------- ----------- ------- -------
<S> <C> <C> <C> <C> <C>
Existing stockholders(1).......... 3,826,485 $10,867,534 % $ 2.84
New investors..................... $ % $
--------- ----- ----------- -----
Total........................... 100.0% $ 100.0%
========= ===== =========== =====
</TABLE>
- --------
(1) Does not include (i) 271,491 shares of Common Stock issuable upon the
exercise of outstanding options, at exercise prices ranging from $6.82 to
$8.40 per share, (ii) 87,448 additional shares of Common Stock reserved
for issuance pursuant to the Company's Equity Incentive Plan and Stock
Bonus Plan, (iii) 472,601 shares of Common Stock issuable upon the
exercise of outstanding warrants, at exercise prices ranging from $5.25 to
$8.40 per share, (iv) 200,000 shares of Common Stock issuable upon the
exercise of outstanding warrants, at a per share exercise price equal to
the initial public offering price set forth on the cover page of this
Prospectus and (v) shares of Common Stock issuable upon the exercise
of the Representatives' Warrants. See "Management," "Description of
Capital Stock--Warrants" and "Underwriting."
13
<PAGE>
SELECTED FINANCIAL INFORMATION
The following tables set forth selected statements of operations and balance
sheet data derived from the financial statements of the Company for the
periods indicated. Such financial statements as of and for the three years
ended March 31, 1996 and the period ended March 31, 1993 have been audited by
Arthur Andersen LLP, independent public accountants. The report of Arthur
Andersen LLP with respect to the financial statements of the Company as of
March 31, 1995 and 1996, and for each of the years in the three year period
ended March 31, 1996, is included in the financial statements of the Company
appearing elsewhere in this Prospectus. The selected financial data as of June
30, 1995 and 1996 have been derived from the unaudited financial statements of
the Company and, in the opinion of management, include all adjustments
consisting only of normal recurring adjustments, necessary for a fair
presentation of the results of operations for such period. The results of
operations for the three months ended June 30, 1996 are not necessarily
indicative of the results that may be achieved for the fiscal year ended March
31, 1997. The following tables should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the financial statements and related notes thereto of the
Company included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
FOR THE PERIOD THREE MONTHS
FROM INCEPTION FISCAL YEAR ENDED MARCH 31, ENDED JUNE 30,
(JANUARY 12, 1993) ------------------------------- --------------------
TO MARCH 31, 1993 1994 1995 1996 1995 1996
------------------ --------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS
DATA:
Revenues.............. $ -- $ 120 $ 3,921 $ 8,930 $ 1,341 $ 3,016
Less: Agency
commissions........... -- 18 683 1,335 211 451
------- --------- --------- --------- --------- ---------
Net revenues.......... -- 102 3,238 7,595 1,130 2,564
Cable Affiliate fees.. -- 178 4,886 4,510 671 1,757
------- --------- --------- --------- --------- ---------
Income (loss) after
Cable Affiliate
fees................ -- (76) (1,648) 3,085 459 807
------- --------- --------- --------- --------- ---------
General and
administrative
expenses.............. 12 254 1,123 1,388 356 389
Selling and marketing
expenses.............. -- 71 649 982 355 350
Engineering expenses.. -- 97 772 1,466 314 437
Depreciation and
amortization.......... -- 17 497 1,356 326 347
Provision for write-
down of machinery and
equipment............ -- -- 581 -- -- --
------- --------- --------- --------- --------- ---------
Total operating
expenses............. 12 439 3,622 5,192 1,351 1,523
Loss from operations.. (12) (515) (5,270) (2,107) (892) (716)
Interest (expense),
income net............ -- 4 (221) (1,035) (141) (290)
------- --------- --------- --------- --------- ---------
Loss before provision
for state income
taxes................ (12) (511) (5,491) (3,142) (1,033) (1,006)
Provision for state
income taxes.......... 1 1 1 1 1 --
------- --------- --------- --------- --------- ---------
Net loss.............. $ (13) $ (512) $ (5,492) $ (3,143) $ (1,034) $ (1,006)
======= ========= ========= ========= ========= =========
Net loss per common
and equivalent $ (.02) $ (.34) $ (2.00) $ (.84) $ (.28) $ (.24)
share(1).............. ======= ========= ========= ========= ========= =========
Weighted average
number of shares
outstanding.......... 777,551 1,490,348 2,742,423 3,745,250 3,714,935 4,127,776
</TABLE>
<TABLE>
<CAPTION>
AS OF MARCH 31, AS OF JUNE 30,
--------------------------- --------------
1993 1994 1995 1996 1996
---- ------ ------- ------- --------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents........ $119 $ 513 $ 1,964 $ 1,462 $ 769
Working capital (deficit)........ 111 295 143 (803) (1,880)
Total assets..................... 122 1,016 13,651 12,881 12,216
Capital lease obligation,
including current portion........ -- -- 10,574 10,203 10,103
Stockholders' equity (deficit)... 111 768 1,475 783 (155)
</TABLE>
- -------
(1) Net loss per share was calculated by dividing the net loss by the weighted
average number of common shares outstanding. Common equivalent shares are
excluded from the computation as their effect is anti-dilutive, except
that, pursuant to the Securities and Exchange Commission Staff Accounting
Bulletin No. 83, common stock and common equivalent shares (stock options
and warrants) issued or granted during the 12 month period immediately
preceding the initial filing of the proposed public offering have been
included in the calculation of the shares used in computing net loss per
common and equivalent share as if they were outstanding for all periods
presented (using an assumed public offering price of $ per share).
14
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
OVERVIEW
The Company operates the largest network exclusively dedicated to the
cablecast of infomercials and other long-form paid programming in the U.S. The
Company distributes this programming to cable television operators of
approximately 200 cable systems and currently reaches over 18 million U.S.
households for an average of approximately 11.4 hours a day. The Company's
financial performance is largely determined by the net revenues (defined as
gross revenues less agency commissions, customarily 15%) it generates from the
distribution of infomercial programming through the Access Network.
Most of the Company's customers, namely infomercial producers and
distributors, are prepared to pay for the distribution of their programming
based on the anticipated orders or inquiries ("cost per order" or "cost per
inquiry") rather than on the more traditional measure of media cost, "cost per
thousand households" reached. The Company believes that the number of orders
and inquiries received is related to the quantity of hours, the quality of
those hours in terms of their various dayparts, and the number of households
into which the Access Network is cablecast.
In order to measure its revenue performance in a manner that reflects both
the growth of the Access Network and the part-time nature of its access to
households, in fiscal 1996, the Company began to utilize a measure of the
reach of the Access Network that accounts for both the quantity and quality of
time available to the Access Network. To derive this full-time equivalent
household base ("FTE"), the Company has measured the relative value of each
daypart to the infomercial market. It then uses this weighting to value its
part-time household base. In general, as the Company obtains better quality
dayparts, 9:00 a.m. to midnight, the ratio of FTEs to total households will
increase. While the weighting of each daypart has a subjective element, the
Company believes that changes in the number of FTEs provide the best measure
of the growth of the Access Network. Accordingly, the Company analyzes the
revenue per average FTE household as its measure of pricing and revenue
performance. The Company believes that revenue per average FTE household will
increase as the size of the Access Network increases. As the number of FTEs
increases over time, the Company believes it will become an even more cost-
effective distribution system and will offer advertisers increased
opportunities for targeted distribution by daypart to demographically and
geographically distinct cable households.
The principal element in the Company's cost structure is the amount it pays
to Cable Affiliates to have its programming cablecast to a household. The
Company's affiliate agreements set a different guarantee and affiliate
commission rate for each daypart, which currently ranges from 40% to 65% of
net revenues with an average affiliate commission rate of 59% for all dayparts
in the fiscal year ended March 31, 1996. The Company expects all other
operating expenses to increase at a lesser rate than increases in its
revenues. Cable Affiliate fees are matched against revenues based upon the
estimated full year amount of affiliate fees as a percentage of estimated full
year revenue.
The Company anticipates that it will continue to operate at a loss through
at least the remainder of the fiscal year ending March 31, 1997, and there can
be no assurance that it will not continue to incur losses thereafter. At June
30, 1996, the Company had an accumulated deficit of $10,167,172. See "Risk
Factors--History of Losses; Uncertainty of Profitability."
15
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated selected financial
data of the Company expressed as a percentage of net revenues.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
FISCAL YEAR ENDED MARCH 31, JUNE 30,
--------------------------------- ---------------
1994 1995 1996 1995 1996
--------- --------- --------- ------ ------
<S> <C> <C> <C> <C> <C>
Revenues................. 117.7% 121.1% 117.6% 118.7% 117.6%
--------- --------- --------- ------ ------
Net revenues............. 100.0% 100.0% 100.0% 100.0% 100.0%
--------- --------- --------- ------ ------
Cable Affiliate fees..... 174.5% 150.9% 59.4% 59.4% 68.5%
Selling, marketing,
engineering, general and
administrative expenses. 413.9% 78.6% 50.5% 90.7% 45.9%
Depreciation and amorti-
zation expense.......... 16.5% 33.3% 17.9% 28.9% 13.6%
Other (income) expense,
net..................... (3.5)% 6.8% 13.6% 12.5% 11.3%
--------- --------- --------- ------ ------
Net loss................. (502.2)% (169.6)% (41.4)% (91.6)% (39.2)%
========= ========= ========= ====== ======
</TABLE>
COMPARISON OF THREE MONTHS ENDED JUNE 30, 1996 AND JUNE 30, 1995
Revenues. Revenues (revenues before agency commissions are deducted) for the
three months ended June 30, 1996 were $3,015,580 compared to $1,340,998 for
the same period of 1995.
Net Revenues. Net revenues, which exclude agency commissions of
approximately 15%, were $2,564,323, for the three months ended June 30, 1996,
an increase of $1,434,405 or 127% compared to net revenues of $1,129,918 for
the same period of 1995. Net revenues increased on both an absolute and a per
household basis, reflecting increases in the Access Network's reach, increased
advertising rates, and improvement in the quality of time made available to
advertisers. The number of Cable Affiliates grew from approximately 122
representing 11.8 million subscriber homes as of June 30, 1995, to
approximately 182, representing over 18 million subscriber homes as of June
30, 1996.
Revenue per Average FTE. The Access Network was carried for an average of
approximately 11.4 hours a day as of June 30, 1996 compared to approximately
9.2 hours as of June 30, 1995. As a result of this increase in time, coupled
with an increase in the number of households reached by the Access Network,
the Company increased its FTEs from approximately 2,524,000 as of June 30,
1995 to approximately 5,212,000 as of June 30, 1996, an increase of 2,688,000
or 107%. Revenue per average FTE household was $0.64 for the quarter ended
June 30, 1996 compared to $0.59 for the quarter ended June 30, 1995.
Cable Affiliate Fees. Cable Affiliate fees for the three months ended June
30, 1996 were $1,756,561 compared to $671,057 for the same period of 1995. The
increase of $1,085,504, or 162%, is related to the growth in subscriber
households reached by the Access Network and the improved quality of time
received from Cable Affiliates, for which the Company pays higher fees.
Selling, Marketing, Engineering, General and Administrative
Expenses. Selling, marketing, engineering, general and administrative expenses
for the three months ended June 30, 1996 were $1,176,459 compared to
$1,024,679 for the same period of 1995. The increase of $151,780, or 15%, is
due primarily to the uplink and playback costs associated with the activation
of a second satellite channel in August 1995 ($108,900).
Depreciation and Amortization Expense. Depreciation and amortization expense
for the three months ended June 30, 1996 totaled $347,342 compared to $326,625
for the same period of 1995. The $20,717, or 6%, increase is due to the impact
of capital expenditures subsequent to June 30, 1995.
Other Expense, Net. Other expense, net for the three months ended June 30,
1996 was $290,079 compared to $141,237 for the same period of 1995. This
increase of $148,842, or 105%, is due to the loss of fees received
16
<PAGE>
for a temporary three month lease of excess satellite transponder capacity for
the three months ended June 30, 1995 ($165,000).
Net Loss. The Company's net loss for the three months ended June 30, 1996
was $1,006,118 compared to $1,034,480 for the same period of 1995. This
$28,362, or 3%, improvement is due to the above mentioned factors.
COMPARISON OF FISCAL YEARS ENDED MARCH 31, 1996 AND MARCH 31, 1995
Revenues. Revenues (revenues before agency commissions are deducted) for the
fiscal year ended March 31, 1996 were $8,929,827 compared to $3,920,731 for
the fiscal year ended March 31, 1995.
Net Revenues. Net revenues exclude agency commissions of approximately 15%
and, in fiscal 1995, credits which the Company discontinued in fiscal 1996.
For the fiscal year ended March 31, 1996, net revenues were $7,594,636, an
increase of $4,356,374, or 135%, compared to net revenues of $3,238,262 for
the fiscal year ended March 31, 1995. Net revenues increased on both an
absolute and a per household basis, reflecting the greater reach of the Access
Network coupled with increased advertising rates and the improved quality of
time which made the Access Network more attractive to advertisers. The number
of Cable Affiliates grew from approximately 118 representing over 11 million
subscriber homes at fiscal year end 1995, to approximately 171, representing
over 16 million subscriber homes at fiscal year end 1996.
Revenue per Average FTE. The Access Network was carried for an average of
approximately 10.7 hours a day as of March 31, 1996 compared to approximately
9.4 hours as of March 31, 1995. As a result of this increase in time, coupled
with an increase in the number of households reached by the Access Network,
the Company increased its FTEs by approximately 2,227,000, or 110%, from
approximately 2,023,000 at fiscal year end 1995 to approximately 4,250,000 at
fiscal year end 1996. The Company generated revenue per average FTE household
of $2.85 in fiscal 1996.
Cable Affiliate Fees. Cable Affiliate fees for the fiscal year ended March
31, 1996 were $4,510,445, a decrease of $375,692 from $4,886,137 for the
fiscal year ended March 31, 1995. On January 1, 1995, the Company restructured
its Cable Affiliate agreements in an effort to make the payment structure more
closely reflect the value of the dayparts provided by the Cable Affiliates.
This revised formula, while increasing the amount paid for dayparts for which
there is greater advertiser demand, provides for lower fees during the
overnight periods during which most of the cablecasting time is made available
to the Company.
Selling, Marketing, Engineering, General and Administrative
Expenses. Selling, marketing, engineering, general and administrative expenses
for the fiscal year ended March 31, 1996 totaled $3,835,247, an increase of
$1,290,846, or 51%, compared to $2,544,401 for the fiscal year ended March 31,
1995. In addition, the Company entered into service agreements in January 1995
whereby third parties provide playback services in connection with the
Company's distribution of infomercials. The amount spent under these
agreements in fiscal 1996 was $932,000, or $796,500 more than the $135,500
spent in fiscal 1995. See "Business--Delivery System Methods." This increase
was also attributable to additional infrastructure related costs of
approximately $395,000 to support the Company's growth, which included the
hiring of sales, marketing and engineering personnel.
Depreciation and Amortization Expense. Depreciation and amortization expense
for the fiscal year ended March 31, 1996 totaled $1,356,452 as compared to
$496,769 for the fiscal year ended March 31, 1995, an increase of $859,683 or
173%. Substantially all of this increase is accounted for by the full year
amortization of the Company's capitalized transponder lease compared to three
months of amortization in fiscal 1995. Effective January 1995, the Company
entered into a capital lease agreement which provides the Company with
satellite transponder time for delivery of its programming. The balance of the
increase is due to capital expenditures related to growth of the Access
Network. See "Business--Delivery System Methods."
17
<PAGE>
Other Expense, Net. Other expense, net for the fiscal year ended March 31,
1996 totaled $1,035,133 as compared to $220,860 for the fiscal year ended
March 31, 1995. This increase is related to the Company's capitalized
transponder lease. Capitalized lease interest expense of $1,253,411 in fiscal
1996 was $933,390 higher than the fiscal 1995 charge of $320,021.
Income Taxes. The Company's income taxes are primarily California state
franchise taxes. At March 31, 1996, the Company had accumulated approximately
$7,865,000 and $3,932,000 of net operating loss carryforwards for federal and
state income tax purposes, respectively. Realization of future tax benefits
from utilization of the net operating loss carryforwards may be subject to
certain limitations if ownership changes occur in the future. See Note 5 of
Notes to Financial Statements.
Net Loss. The Company's net loss for the fiscal year ended March 31, 1996
was $3,143,441, an improvement of $2,348,606 when compared to the net loss of
$5,492,047 for the fiscal year ended March 31, 1995, due to the above
mentioned factors.
COMPARISON OF FISCAL YEARS ENDED MARCH 31, 1995 AND MARCH 31, 1994
During the first ten months of fiscal 1994, the Company focused on start-up
operations and no revenues were generated. Accordingly, comparisons between
the fiscal years ended March 31, 1995 and 1994 are not necessarily meaningful.
Revenues. Revenues (revenues before agency commissions are deducted) for the
fiscal year ended March 31, 1995 were $3,920,731 compared to $120,000 for the
fiscal year ended March 31, 1994.
Net Revenues. Net revenues exclude agency commissions of approximately 15%
and credits. For the fiscal year ended March 31, 1995, net revenues were
$3,238,262, an increase of $3,136,262 compared to net revenues of $102,000 for
the fiscal year ended March 31, 1994. This increase primarily resulted from
the impact of 12 months of operations in fiscal 1995 compared with only two
months of operations in fiscal year 1994. In fiscal 1995, the number of Cable
Affiliates increased from approximately 12, representing over 1.5 million
subscriber homes at fiscal year end 1994, to approximately 118, representing
over 11 million subscriber homes at fiscal year end 1995. The size of the
Access Network on an FTE basis at fiscal year end 1994 is not available.
Cable Affiliate Fees. Cable Affiliate fees for the fiscal year ended March
31, 1995 were $4,886,137, an increase of $4,708,179 from $177,958 for the
fiscal year ended March 31, 1994. This increase was due primarily to a full
year of operations, as well as the increase in the number of households
reached by the Access Network. These fees exceeded the Company's net revenues
in fiscal 1995 and 1994 by $1,647,875 and $75,958, respectively, because of
the affiliate guarantee program then in effect. On January 1, 1995, the
Company modified the affiliate guarantees to more accurately reflect the
revenue potential of dayparts committed to the Access Network.
Selling, Marketing, Engineering, General and Administrative
Expenses. Selling, marketing, engineering, general and administrative expenses
for the fiscal year ended March 31, 1995 totaled $2,544,401, an increase of
$2,122,196 compared to $422,205 for the fiscal year ended March 31, 1994. This
increase was attributable to a full year of operations and additional
infrastructure related costs incurred to support the Company's growth, which
included the hiring of additional personnel. In addition, in August 1994 the
Company entered into a sublease agreement that provides the Company with the
use of one satellite transponder on the Hughes Communication Galaxy, Inc.'s
new satellite, Galaxy VII, for delivery of programming. The related uplink and
playback fees totaled approximately $135,500 in fiscal 1995.
Depreciation and Amortization Expense. Depreciation and amortization expense
for the fiscal year ended March 31, 1995 totaled $496,769, compared to $16,853
for the fiscal year ended March 31, 1994, an increase of $479,916. This
increase was due to additional capital expenditures related to affiliate
system growth as well as
18
<PAGE>
the amortization of the Company's capitalized transponder lease. The three
months of transponder amortization totaled $222,000 in fiscal 1995; there was
no lease in fiscal 1994.
In fiscal 1995, the Company wrote-down machinery and equipment by $581,342
to adjust the carrying value of the tape-based distribution equipment to its
estimated net realizable value. This write-down resulted from the decision to
replace tape-based distribution equipment with more efficient satellite-based
distribution equipment. See "Business--Delivery System Methods."
Other Expense, Net. Other expense, net for the fiscal year ended March 31,
1995 totaled $220,860, as compared to interest income of $3,602 for the fiscal
year ended March 31, 1994. This increase was related to the Company's
capitalized transponder lease, reflecting three months of payments offset by
interest earned on bank accounts on higher cash balances held by the Company
in fiscal 1995.
Income Taxes. The Company's income taxes primarily represent California
state franchise taxes.
Net Loss. The Company's net loss for the fiscal year ended March 31, 1995
was $5,492,047, compared to the net loss of $512,214 for the fiscal year ended
March 31, 1994, due to the above mentioned factors.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary capital needs have been related to funding a portion
of operating expenses and working capital requirements. To date, the Company's
primary source of financing has been through private placements of equity
securities. Net cash used in operating activities was $287,775 in fiscal 1994,
$3,327,206 in fiscal 1995, $1,741,024 in fiscal 1996 and $343,848 in the three
months ended June 30, 1996.
For fiscal 1994, 1995 and 1996 and the three months ended June 30, 1996, the
Company's capital expenditures were $489,874, $1,343,175, $988,628 and
$293,309, respectively. These expenditures were primarily for the purchase of
equipment used for program delivery at local cable television system headend
facilities. Purchased equipment costs decreased in fiscal 1996 due to a change
from a tape-based delivery system to a satellite-based delivery system. This
change resulted in annual expenditures of $541,571, $2,556,488 and $735,337
for fiscal 1995 and 1996 and the three months ended June 30, 1996,
respectively, for capitalized lease payments, third party playback and uplink
facilities. However, these expenditures are reflected as operating,
depreciation, engineering and interest expenses, rather than capital
expenditures.
At March 31, 1996 and June 30, 1996, the Company had cash and cash
equivalents of $1,462,479 and $769,413, respectively, and a net working
capital (deficit) of $(802,586) and $(1,879,643), respectively. The Company
has budgeted capital expenditures of approximately $1,700,000 in fiscal 1997
for the expansion of the Access Network, and intends to use a portion of the
net proceeds from this offering to fund these capital expenditures. In
September 1996, the Company entered into a $1,000,000 revolving credit
facility with certain of its stockholders, directors and executive officers.
Borrowings under this facility bear interest at 9% per annum and are due on
the earlier of December 12, 1996 or the closing of this offering. Borrowings
under this facility will be used for working capital purposes. At September
12, 1996, no amounts were outstanding under this facility. In connection with
this facility, the Company issued to the lenders warrants to purchase an
aggregate of 200,000 shares of Common Stock at a per share exercise price
equal to the initial public offering price set forth on the cover page of this
Prospectus and agreed to pay the lenders fees aggregating $65,000. The Company
intends to use a portion of the net proceeds from this offering to repay all
amounts outstanding under this facility. See "Use of Proceeds" and "Certain
Transactions." The Company anticipates that the funds available from this
offering, together with cash flows from operations, will be sufficient to
support its operating plans for the foreseeable future. See "Use of Proceeds"
and "Business--Delivery System Methods."
19
<PAGE>
BUSINESS
GENERAL
Access TV operates the largest network exclusively dedicated to the
cablecast of infomercials and other long-form paid programming in the U.S. The
Company currently distributes this programming to cable television operators
of approximately 200 cable systems reaching over 18 million U.S. households,
representing approximately 26% of the approximately 68 million households in
the U.S. which receive cable television, for an average of approximately 11.4
hours a day. The Company has contracted with most of the nation's largest
multiple cable system operators ("MSOs"), including TCI, Time Warner and
Continental, for blocks of underutilized ("remnant") time. The Company
packages this remnant time, which typically exists across several channels at
various times of day ("dayparts"), to create a national distribution medium
(the "Access Network") for use by producers of infomercial and infotainment
content. The Access Network distributes programming via its two digitally
compressed satellite feeds for cablecast by local cable television systems
over available channels for times ranging from 1/2 hour to 24 hours per day.
Customers include major producers and distributors of infomercials, notably
those for Nordic Track, Health Rider, Victoria Principal and Lexus. The Access
Network, when measured by the quantity and quality of time made available to
it, reaches the equivalent of approximately five million households on a full-
time equivalent ("FTE") basis. FTE is a Company derived measurement which
converts the number of households reached part-time by the Access Network into
an approximate number of full-time equivalent households taking into the
account the quantity and the quality of the time in the Access Network. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "--Affiliates and Access Network."
The Access Network provides advertisers with a cost-effective way to reach a
national cable audience and increases the value of remnant time for local
cable television systems by offering a new source of incremental, non-
subscriber based revenue. The Company compensates the cable systems
participating in the Access Network ("Cable Affiliates") by paying them the
greater of a guaranteed minimum or a percentage of the revenues that the
Access Network derives from the sale of time to advertisers. By providing an
informercial-based revenue stream to local cable system operators, the Access
Network enables cable systems to benefit directly from what has been one of
the fastest growing segments of the advertising industry.
In 1995, more than $800 million was spent on media advertising by the
infomercial industry. National cable networks received 40% of this amount
while local cable television systems received only 4%. The Company believes
that this disparity is due principally to the administrative burden faced by
infomercial producers and distributors in advertising on multiple local cable
systems. The Access Network offers local cable television systems the ability
to compete for such spending by streamlining the process and providing a
single point of purchase for producers and distributors of infomercials to
reach the cable audience. In so doing, the Company believes the Access Network
will direct an increased percentage of infomercial media spending to local
cable television systems. The Company believes that its record of reliable
operations, together with the size and sophistication of the Access Network,
position the Company to benefit from continued growth in long-form paid
programming, the potential expansion of cable systems' channel capacity and
the growth of alternative multi-channel video distribution methods.
COMPANY STRATEGY
The Company's goal is to become the premier outlet for long-form paid
programming. Key elements of the Company's strategy are to:
EXPAND THE ACCESS NETWORK. The Company is focused on enhancing the value of
the Access Network to advertisers and cable operators. The Company is
working with cable operators to: (i) increase its household reach by
establishing new, as well as expanding existing, Cable Affiliate
relationships; (ii) obtain longer-term affiliate commitments; and (iii)
secure the availability of both a greater quantity and a higher quality of
time. Currently, the majority of time made available to the Access Network
is from midnight to 9:00 a.m. Better time will allow the Company to
increase its rates and attract infomercial advertisers.
20
<PAGE>
BROADEN THE USE OF THE ACCESS NETWORK. The Company is expanding its
marketing efforts to producers and distributors of infomercials and other
types of long-form paid programming such as image-based advertising and
political, charitable and religious programming. The Company believes that
the expansion of the Access Network in terms of households, reach and
available time will enable the Company to offer advertisers both greater
flexibility in distributing their content in specific dayparts and a
vehicle for targeted distribution to demographically and geographically
distinct cable households. The Company believes that these features will
appeal to a broader universe of potential clients and command premium
pricing.
MAINTAIN STATE-OF-THE-ART TECHNOLOGY. The Company's distribution system
includes the placement of compatible state-of-the-art equipment at the
headends of Cable Affiliates. The Company believes that there is limited
capacity on the part of Cable Affiliates to accommodate the equipment of
potential competitors and, therefore, this incumbency provides the Company
with a competitive advantage.
OVERVIEW
Infomercial Industry
Infomercials typically are 30-minute television commercials produced in
either a documentary or a talk show format featuring educational, self-
improvement, fitness, kitchen and consumer products. The most common form of
infomercial is for consumer products that are readily subject to impulse
purchases such as kitchen gadgets or exercise equipment. These infomercials
discuss and demonstrate the products and then provide an "800" number for
purchases. Infomercials have also been used to foster brand awareness for
automobiles, mutual funds and other products and services. In addition,
infomercials have been used by politicians as well as educational and
religious institutions and are one of the fastest growing forms of television
advertising.
The infomercial concept stems from direct response television advertising
which flourished in the 1970's with two minute commercials generally
advertising inexpensive kitchen tools and appliances. The infomercial industry
emerged in 1984 as the Federal Communications Commission ("FCC") removed
restrictions on the amount of commercial air time television stations could
sell. Industry sources estimate that for the year ended December 31, 1995, the
amount of products and services sold through infomercials was more than $1.6
billion and the infomercial industry purchased more than $800 million of
advertising time. This compares with $1.3 billion in products and services
sold in 1994 and approximately $660 million of advertising time purchased in
1994.
Since its inception, the infomercial industry has experienced dramatic
growth. According to an article in the April, 1996 issue of Electronic
Retailing magazine, "[t]he number of companies buying long-form advertising
has increased nearly 400% in the last five years and broadcast rates have
continued to escalate in response to the increased demands." The early success
in this relatively young industry has also caught the attention of several
major manufacturers and service companies which are seeking to promote brand
awareness, including Saturn, Volvo, Ford, Nissan, Lexus, AT&T, Corning,
Johnson & Johnson, Time-Life, H&R Block, Microsoft, Magnavox, Apple Computer,
Phillips and Fidelity Investments which have produced infomercials to promote
their products and services. The Company believes that infomercials are
evolving into a more entertainment-oriented medium as producers and consumers
have become more sophisticated. In addition, infomercial producers are
increasingly viewing the infomercial as part of a broader, multi-channel,
retail product introduction strategy. See "Risk Factors--Initial Focus on
Infomercial Market; Dependence on Ability to Attract Advertisers."
Cable Industry and Traditional Infomercial Delivery Methods
The cable television industry began in the late 1940's and early 1950's to
serve the needs of predominantly rural areas. Since that time, the cable
industry has expanded to metropolitan areas due to, among other things, the
better reception cable television often provides and increased programming.
There are currently more than 9,000 cable television systems in the United
States, of which approximately 900 have 25,000 or more subscribers. Cable
television operators range from large, national MSOs such as TCI, Time Warner
and Continental, which serve millions of households, to smaller, independent
local cable systems that serve as few as several thousand households. Cable
television networks (such as Discovery, Lifetime and CNN) provide content to
cable households throughout the country through carriage agreements with cable
system operators at either the MSO or local level.
21
<PAGE>
Both cable television networks and cable operators recognize the revenue
potential of infomercial programming. In 1995, over $350 million was spent by
infomercial advertisers on national cable networks and local cable systems to
reach cable audiences. The Company is aware of at least 30 cable television
networks, many of which have a substantial number of subscribers, that
distribute infomercial programming and account for a substantial percentage of
infomercial media spending on cable television. Cable operators typically pay
cable television networks a fee to obtain original programming content for
their systems. Accordingly, they tend to view unfavorably the distribution of
infomercials by those networks whose time was purchased for other purposes and
for which the cable operators typically receive no revenue. As a result, where
permitted by their contracts with cable television networks, cable operators
have often preempted network overnight time and made it available through the
Access Network or directly to producers of infomercials. In turn, cable
television networks have, in certain cases, sought to limit the ability of the
cable operators to preempt their programming. The Company believes that its
ability to provide, through the Access Network, an unregulated, infomercial-
based revenue stream for local cable systems has positioned the Company as an
ally of the cable operators in this aspect of their relationships with certain
of the larger cable television networks.
Infomercial advertisers sometimes contract for program time at the local
cable television system level by purchasing "leased access" or "local
origination" time. As an attempt to lessen the degree of control by the cable
system operators over programming choices, the 1984 Cable Act requires that
cable system operators allocate a portion of their channel capacity for
"leased access" time for sale to third parties. The allocated capacity is
determined by the total number of channels carried on each system. Systems
with between 36 and 54 channels are required to dedicate 10% of their channels
remaining after "must carry" obligations are satisfied to "leased access" and
systems with 55 or more channels must make available 15% of their non-"must
carry" channels for "leased access." The 1992 Cable Act sets maximum allowable
rates that cable operators can charge for "leased access," although this
provision of this Act is currently being challenged by potential commercial
leased access programmers. See "--Government Regulation."
AFFILIATES AND ACCESS NETWORK
The Company intends to expand the Access Network by continuing to enter into
affiliation agreements with Cable Affiliates, pursuant to which the Company
contracts for the use of Cable Affiliates' inventory of remnant time. The
Company has entered into agreements with, and installed equipment at headends
of, approximately 200 Cable Affiliates having a total of approximately 18
million subscribers, including approximately 12.5 million subscribers served
by approximately 130 Cable Affiliates owned by TCI, Time Warner and
Continental. The Access Network distributes 36 hours of programming a day via
its two digitally compressed satellite feeds to Cable Affiliates. In order to
measure the reach of the Access Network, both in terms of the number of
subscribers of, and the quantity and quality of time received from, Cable
Affiliates, the Company has developed the full time equivalent ("FTE")
measurement. By taking into account the quantity and quality of time, the FTE
measurement converts the number of households reached part-time by the Access
Network into an approximate equivalent number of full-time households. To
calculate the FTE measurement, the Company assigns a value to each three hour
daypart received from Cable Affiliates. Generally, dayparts from 9:00 a.m. to
midnight have the highest value, since these hours tend to attract a greater
number of viewers than dayparts from midnight to 9:00 a.m. The Company then
multiplies the assigned values by the number of the Cable Affiliate's
subscribers. For example, a 50,000 subscriber cable system that provided 24-
hours of continuous cablecasting time to the Company would yield 50,000 FTE
households. Alternatively, a 50,000 subscriber cable system that provided time
between 12:00 a.m. and 6:00 a.m., which dayparts have a total relative value
of 11.7%, would contribute 5,850 FTE households. Using the FTE measurement,
the Access Network currently reaches approximately five million FTE
households. Since inception, the majority of time made available to Access TV
has been in "overnight" dayparts.
22
<PAGE>
The following table sets forth the relative value which the Company has
assigned to each half-hour daypart in the FTE calculation:
<TABLE>
<CAPTION>
HALF-HOURS RELATIVE
DURING DAYPART VALUE
-------------- --------
<S> <C>
12:00 a.m.-3:00 a.m. 9.6%
3:00 a.m.-6:00 a.m. 2.1
6:00 a.m.-9:00 a.m. 8.4
9:00 a.m.-12:00 p.m. 14.1
12:00 p.m.-3:00 p.m. 16.8
3:00 p.m.-6:00 p.m. 18.1
6:00 p.m.-9:00 p.m. 16.8
9:00 p.m.-12:00 a.m. 14.1
-----
24 hours 100.0%
=====
</TABLE>
Set forth below are the number, at June 30, 1996, of (i) households reached
by each cable system operating in the U.S., (ii) households within each system
that are reached by the Access Network and (iii) FTE households within each
system that are reached by the Access Network:
<TABLE>
<CAPTION>
SUBSCRIBER SATURATION BY CABLE SYSTEM
---------------------------------------
CABLE
OPERATORS ACCESS NETWORK
----------- ----------------------
TOTAL* HOUSEHOLDS FTES
----------- ---------- ---------
<S> <C> <C> <C>
TCI................................... 13,300,000 6,667,881 1,771,534
Time Warner........................... 11,500,000 5,764,638 1,186,022
Continental........................... 4,185,000 1,393,952 388,373
Cox................................... 3,202,000 1,047,328 503,444
TKR................................... 800,000 720,366 261,887
Prime................................. 620,000 475,208 329,057
US West............................... 531,000 530,621 278,151
Marcus................................ 1,269,000 328,650 75,535
Cablevision........................... 2,567,000 220,800 122,317
Charter............................... 1,000,000 157,867 65,214
C-TEC................................. 316,000 100,000 11,690
Other................................. 28,932,000 652,740 218,681
----------- ----------- ----------
Total................................. 68,222,000 18,060,051 5,211,905
=========== =========== ==========
</TABLE>
- --------
* Source: Paul Kagan Associates. Includes subscribers reached by systems with
less than 25,000 subscribers.
The Company is focused on increasing the number of Cable Affiliates which
participate in the Access Network as well as increasing the quantity and
quality of time which the Company purchases from Cable Affiliates. Typically,
the Company seeks to add Cable Affiliates that have 25,000 or more
subscribers. In the United States, approximately 900 systems have 25,000 or
more subscribers, including the approximately 200 systems which are already
Cable Affiliates. The Company, therefore, believes it has the opportunity to
increase substantially the size of the Access Network, although there can be
no assurance it will be able to do so.
The Company's relations with Cable Affiliates are governed by affiliation
agreements, usually with the Cable Affiliates' parent MSO. Pursuant to these
agreements, the Company pays Cable Affiliates the greater of a percentage of
the net advertising revenue paid to the Company for cablecasting during
specific dayparts or a minimum monthly guarantee based on dayparts made
available to the Access Network. The net advertising revenue is reconciled
against the minimum guarantee on a quarterly basis. Typically, these
affiliation agreements
23
<PAGE>
can be cancelled by either party upon 30 to 90 days' notice. The Company
offers to Cable Affiliates various plans pursuant to which the Company will
prepay all or a portion of the minimum guarantees in exchange for time
dedicated by the Cable Affiliate to the Access Network for at least one year;
however, to date no Cable Affiliate has entered into such an arrangement. The
Company has been able to sell time on the Access Network for approximately
$2.85 per average FTE household while the minimum guarantee paid to a Cable
Affiliate for such time is approximately $1.43. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Overview."
At the present time, approximately 80% of the cablecasting time made
available to the Access Network by Cable Affiliates has resulted from
preemption of cablecasting time from national cable networks. The Company
believes that an increasing proportion of incremental daytime parts will be
made available from other sources of remnant time. Although remnant time on
cable systems is rarely available contiguously on one channel, there are
blocks of available time (two to six hours per day) on a variety of channels.
These include "leased access" time, non-broadcasting hours of national
satellite networks and broadcast stations, channel time "blacked-out" because
of contractual restrictions or duplicated programming, as well as text-only
bulletin board and similar types of channels. Over the past nine months, the
Company has expanded its marketing efforts by hiring personnel responsible for
marketing the benefits of the Access Network to Cable Affiliates and assisting
the Cable Affiliates in identifying these sources of remnant time.
The Company believes that infomercial programming is evolving from its
original form as a product oriented, direct marketing tool into a medium more
focused on information and entertainment. The Company believes that as these
newer forms of long-form paid programming develop, the Access Network would
benefit from the greater identification that a fixed channel location would
provide and believes that its leadership in providing all forms of long-form
paid programming to the cable industry have well positioned it to obtain a
full time, fixed channel if channel capacity constraints are mitigated by
cable system build-outs and upgrades, although there can be no assurance of
this.
Access TV screens all programs for quality, content and National Infomercial
Marketing Association certification. Each Cable Affiliate, however, retains
the right to refuse to cablecast any infomercial not meeting its local
standards.
ADVERTISERS AND ADVERTISING SALES
The production and distribution of infomercials is concentrated among a
relatively small number of companies. As a result, for the quarter ended June
30, 1996 and for each of the fiscal years ended March 31, 1996 and 1995,
approximately 52%, 57% and 75%, respectively, of the Company's net revenues
were derived from sales to two different groups of six infomercial advertisers
(three of which were the same in each period). See "Risk Factors--Industry
Concentration." For the three months ended June 30, 1996 and the fiscal year
ended March 31, 1996, Positive Response and Mercury Media accounted for
approximately 24% and 18%, respectively, and 18% and 12%, respectively, of the
Company's net revenues. For the fiscal year ended March 31, 1995, Positive
Response, World Media TV, Alexander Communications and Hawthorne
Communications accounted for approximately 20%, 18%, 18% and 10%,
respectively, of the Company's net revenues. Substantially all of the
Company's sales of time to infomercial advertisers are made by a third party
on a non-exclusive basis. To the extent that such sales representative devoted
less time to the Company or terminated his agreement with the Company, the
Company could be materially adversely affected unless such sales
representative could be replaced, of which there can be no assurance.
Generally, advertisers that use the Access Network are either seeking to
induce impulse purchases for specific items, where the efficacy of the
infomercial is measured by the level of increased sales, or to build brand
awareness, where the efficacy of the infomercial can be, but is not always,
measured by the number of requests for additional information. The level of
this response, as well as the comparative convenience and cost efficiencies of
distribution through a mechanism with broad reach, are major determinants of
the amount that the Company's customers will pay for advertising on the Access
Network, both absolutely and relative to other channels of cable and broadcast
distribution. Although the preponderance of infomercials are used to sell
products, infomercials are also used to develop brand awareness and by
politicians and by charitable and religious institutions. See "Risk Factors--
Initial Focus on Infomercial Market; Dependence on Ability to Attract
Advertisers."
24
<PAGE>
At the present time, the Company does not offer individual dayparts to
advertisers, but offers advertisers a rotation, consisting of one or more
cablecasts per day for up to 30 days at varying times, which represents a
cross section of the market the advertiser wishes to reach. As the Access
Network expands, the Company anticipates that it will be able to offer
advertisers some ability to select specific air time to cablecast programming.
To date, the Company's strategy of offering rotations has been successful in
balancing supply, demand and price and allows the Company to package more
desirable dayparts with those of lesser value so that all available
advertising inventory is sold each month. However, there can be no assurance
that the Company will be able to continue to successfully balance supply,
demand and price as it expands the Access Network. In its limited operations
to date, the Company has been able to sell to infomercial advertisers all of
the available time on the Access Network each month. The Company believes that
the cost of distribution on the Access Network is lower than rates charged by
cable television networks and broadcast stations, and that lower rates have
contributed significantly to its ability to sell time. The Company is seeking
to increase the time cable systems make available for sale to an average of 18
hours per day and to obtain dayparts more attractive to infomercial
advertisers. However, there can be no assurance that the Company will be
successful in acquiring more time and better dayparts for sale to infomercial
advertisers. The Company believes that an increase in the amount and an
improvement in the quality of dayparts available will make the Access Network
more attractive to its advertisers, thereby increasing the Company's
advertising revenue on both a per FTE and a per household basis. See "Risk
Factors--Dependence on Size of Access Network and Availability and Quality of
Time," "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Overview" and "--Affiliates and Access Network."
As the Company expands the Access Network, both in terms of household reach
and dayparts available, it believes it will be able to sell time on specified
cable systems that match the targeted demographics desired by its particular
long-form advertisers. In addition, the Company believes it will be able to
"package" cable systems by geography, ownership or size to provide unique
pricing and delivery strategies to advertisers. The Company believes that
advertisers will be willing to pay higher rates for these services, although
there can be no assurance they will do so.
The Company believes that the capabilities of an expanded Access Network
will allow it to appeal to many types of long-form paid programming, including
product promotions, development of brand awareness, consumer information,
government and political information, charitable fund raising, religious
programming and public service. To date, the Company has not attempted to
market the Access Network for such programming and there can be no assurance
that it will be able to do so. See "Risk Factors--Initial Focus on Infomercial
Market; Dependence on Ability to Attract Advertisers."
DELIVERY SYSTEM METHODS
The Company delivers programming utilizing state-of-the-art technology which
is compatible with that of Cable Affiliates and which facilitates use of the
Access Network.
In July 1994, Access TV entered into a sublease agreement with Triumph
Communications, Inc. ("Triumph") to provide satellite transponder time for
delivery of the Company's programming on one of Hughes Communications Galaxy,
Inc.'s ("HCG") new satellites, Galaxy VII. Galaxy VII is a dual C/Ku band
satellite specifically for use by cable operators. The satellite, which allows
the Company to distribute programming instantaneously, provides coverage to
any location in the North American continent, Hawaii, Central America and the
Caribbean. Effective January 1995, the Company entered into an uplinking
service agreement with Time Warner's Home Box Office ("HBO") teleport. HBO
provides program origination and uplink transmission for the Company to Galaxy
VII. In July 1995, the Company launched two channels of digitally compressed
programming on the transponder, utilizing General Instrument Corporation's
DigiCipher I technology. General Instrument Corporation is considered the
industry leader in digital compression technology. DigiCipher I allows the
Company to transmit four digitally compressed full time feeds on the
transponder, while still maintaining broadcast quality standards. The Company
is currently seeking to sublease its two unused digitally compressed channels
on the transponder to other cable programmers, although there can be no
assurance that it will be able to do so.
25
<PAGE>
The Company's satellite-based distribution system requires two components at
the headend of the cable system. These components consist of a digital
integrated receiver/decoder (IRD) and a program switcher. The Company compiles
the client's video tapes which are sent to the satellite uplink site, HBO,
with scheduling information indicating when and on which digital program feed
the spots should run. HBO uplinks the Company's programming 24 hours per day
on one compressed channel feed and daily from 12:00 a.m. to 12:00 p.m. Eastern
Standard Time on the second compressed channel feed. The satellite feeds are
received at the cable system headend and the programming is switched onto
channels selected by the cable operator using the switching units.
Equipment at the headend for the channel and full switching capability
currently has an installed cost of approximately $12,000 and generally can be
installed by the cable system's technical personnel with assistance from the
Company. The Company anticipates minimal maintenance costs associated with
this equipment. Should maintenance be required, the Company's engineering
department provides 24 hour support to the cable system technician and pays
any costs. The Company maintains a reserve pool of equipment should a
replacement be required at the cable system headend.
The Triumph sublease provides full time usage, 7 days a week, 24 hours a day
for 12 years (end of life), and requires that if there is a failure of Galaxy
VII during the term of the lease, HCG will provide a back-up satellite onto
which the Company's programming will be moved within seven days. The sublease
also provides that HCG may preempt the Company's use of the satellite in the
event of a Fox Basic Cable, Inc. transponder failure and neither a C-Band
Transponder spare nor a C-Band Reserve Transponder is available for the use by
Fox Basic Cable, Inc. In the event of such preemption, Triumph will
immediately make every reasonable effort to place Access TV on a comparable
replacement satellite. In the event of preemption, Triumph is entitled to
terminate the agreement. If the Company for any reason is unable to use the
Galaxy VII satellite, its business would be materially adversely affected
until the Company is placed on a replacement satellite or alternate delivery
arrangements are established. The Company believes that alternative satellite
transponders will be available to it should it be preempted by HCG, although
it may be required to modify the headend components at the cable system. See
"Risk Factors--Dependence on Delivery System." The transponder sublease rate
is $145,000 per month (not including playback and uplink fees associated with
24 hour programming) until December 31, 1998, when the rate will increase to
$155,000 per month until the end of the contract.
Substantially all Cable Affiliates receive the Company's programming by
satellite, and the Company intends to install satellite receiving equipment at
the headend of the other Cable Affiliates that currently receive programming
by tape.
The Company intends to purchase from General Instrument Corporation a
DigiCipher II ("DC II") digital encoder, which the Company expects will be
available during the last quarter of calendar 1996. The Company will have the
continued use of its DigiCipher I digital encoder if purchase of the DC II is
delayed. This encoder utilizes the new MPEG II video compression technology.
The DC II encoder allows for delivery of up to six MPEG II digitally
compressed feeds and 24 digital data streams on a single transponder, while
still maintaining broadcast quality standards. The Company believes
implementation of DC II technology will keep the Company current with industry
standards. The Company will seek to sublease the unneeded channels to third
parties, although there can be no assurance it will be able to do so.
The Company believes the enhanced digital data streams to be provided by the
DC II and continued development of "store and forward" technology will allow
the Company to deliver specific programming to targeted cable audiences,
although there can be no assurance that it will be able to do so.
Additionally, by positioning itself as a provider of DC II programming, the
Company believes it will be able to take advantage of such emerging digital
technologies as store and forward, fiber-to-the-home (FTTH) architecture and
providing program content for cable subscribers using cable modems and
interactive digital set-top converters.
26
<PAGE>
COMPETITION
National Media and Guthy-Renker, two large producers of infomercials, have
entered into agreements for the distribution of infomercials, primarily
produced by them, to cable households. In the case of National Media, such
distribution is in the form of the bulk purchase of limited dayparts from the
owner of a national cable network. National Media and Positive Response, a
significant customer of the Company, have recently merged. The Company does
not believe that this merger will have an adverse effect on its business,
although no assurance can be given. See "Risk Factors--Industry
Concentration." Guthy-Renker's distribution is achieved through an agreement
with two MSOs which grant certain carriage privileges with respect to
overnight time. Guthy-Renker has announced its intention to distribute
infomercial programming 24 hours a day. Guthy-Renker accounted for
approximately 4% of the Company's net revenues in fiscal 1996, although it has
not distributed long-form paid programming through the Access Network since
November 1995. Jones Intercable and Cox Communications, two large MSOs, have
established, through a joint venture, a 24-hour infomercial channel
distributed largely to their own cable affiliates which presently has more
limited distribution than that of the Access Network and requires a dedicated
channel. Paxson Communications initiated efforts to build a 24-hour
infomercial cable channel but has ceased further development of it. However,
Paxson Communications has created a network of owned and affiliated UHF
stations which it programs largely with infomercials and which, in some cases,
must be carried by local cable systems under federal law. The Company believes
that this programming is currently available to 14 million cable households.
The Company is also aware of at least 30 cable television networks, many of
which have a substantial number of subscribers, that distribute infomercial
programming. Many of these companies are larger and have greater resources
than the Company.
The Company believes that its strategy and operations differ in important
respects from those of its existing competitors. The Access Network was
founded as a vehicle through which MSOs could share in the economic benefits
of efficient distribution of long-form advertising to cable households. The
Company believes that its primary potential competitors for aggregating
remnant time, either because they are producers of infomercial content who
stand to benefit from lower media rates or, because they choose not share
revenues with the MSOs, have interests which are not as strictly aligned with
those of the MSOs or the cable industry and that this commonality of interest
between the Company and the cable industry may assist the Company in
developing the Access Network.
GOVERNMENT REGULATION
On February 8, 1996, the President signed into law the Telecommunications
Act of 1996 ("1996 Telecom Act"). This new law alters federal, state and local
laws and regulations regarding telecommunications and cable television service
providers. The 1996 Telecom Act eases certain aspects of cable television rate
regulation, which may give cable operators more flexibility to add new
channels and invest in additional programming. In addition, the 1996 Telecom
Act allows telephone companies to compete directly with cable operators by
repealing the telephone company-cable company cross-ownership ban. This will
allow local exchange carriers ("LECs"), including the Bell Operating
Companies, to compete with cable operators both inside and outside their
telephone service areas. LEC owned programming services may provide additional
outlets for the Company's infomercial programming, although competition for
the provision of video service could reduce the subscriber base of traditional
cable systems and thereby adversely affect the Company.
The 1996 Telecom Act provides that registered utility holding companies and
subsidiaries may provide telecommunications services (including cable
television) notwithstanding the Public Utilities Holding Company Act. It is
anticipated that large utility holding companies will become significant
competitors to both cable television and other telecommunications providers.
Such competition could potentially provide additional outlets for the
Company's business with regard to traditional cable systems.
The 1992 Cable Act contains broadcast signal carriage requirements that
allow local commercial television broadcast stations to elect once every three
years to require a cable system to carry the station or to attempt to
negotiate for payments from the cable operator for "retransmission consent" to
carry the station. A cable system
27
<PAGE>
generally is required to devote up to one-third of its activated channel
capacity for the mandatory carriage of local commercial television stations.
Local non-commercial television stations are also given mandatory carriage
rights. The constitutionality of the must carry requirements has been
challenged and is awaiting a decision from the U.S. Supreme Court. Such
requirements could limit channel capacity otherwise available for the
Company's programming. The Company, however, may be able to provide
programming to fill remnant time on "must carry" channels, when the
originating broadcast stations go off the air.
The 1984 Cable Act and 1992 Cable Act permit franchise authorities to
require cable operators to set aside certain channels for public, educational
and governmental access programming. The 1984 Cable Act and 1992 Cable Act
also require a cable system with 36 or more channels to designate a portion of
its channel capacity (up to 15% in some cases) for commercial leased access by
third parties to provide programming that may compete with services offered by
the cable operator. The FCC has adopted rules regulating the terms, conditions
and maximum reasonable rate a cable operator may charge for commercial use of
the designated channel capacity. Such rules are currently under
reconsideration by the FCC. Proposed revisions could reduce rates
significantly and make "leased access" a more attractive option for third
party programmers, thus reducing some or all of the time available for the
Company's infomercial programming. The proposed rules currently under
consideration by the FCC would be particularly attractive to home shopping and
other infomercial providers, including part-time providers of such
programming, which could lead to a substantial increase in competition to the
Company, although the Company could benefit from reduced leased access rates
by itself gaining access to an expanded number of cable systems.
Pursuant to the 1992 Cable Act, the FCC adopted rules prescribing limits on
the number of channels that can be occupied on a cable system by a video
programmer in which the cable operator has an attributable interest.
Specifically, a cable system cannot devote more than 40% of its activated
channels to affiliated program services, meaning a national program service in
which there is a common ownership of 5% or more with the cable system. Local
and regional program services are not subject to these limitations, nor are
cable systems with more than 75 activated channels. Such limitations could
limit carriage of the Company's programming if a cable operator obtains an
ownership interest of 5% or more in the Company, and if the Company's
infomercial programming is held to be subject to these limitations.
The 1992 Cable Act also precludes video programmers affiliated with cable
companies from favoring cable operators over competitors and requires such
programmers to sell their programming to other multi-channel video
distributors. This provision limits the ability of cable program suppliers
affiliated with cable companies to offer exclusive programming arrangements to
cable companies. The 1992 Cable Act also provides protections to programmers
from cable operators demanding a financial interest in, or exclusive
distribution of, a programming service or otherwise unfairly restraining a
programmer's ability to compete.
FACILITIES
The Company currently leases a 6,000 square foot office located in Irvine,
California. The Company anticipates that this leased space will be adequate
for its operations for the foreseeable future. The Company's current annual
lease payments are approximately $81,000.
EMPLOYEES
As of September 1, 1996, the Company had a total of 20 employees, of which 6
were employed in executive capacities, 4 were employed in sales and marketing
and 10 were employed in technical capacities. The Company's future success is
dependent on its ability to attract and retain key employees, of which there
can be no assurance. None of the Company's employees is represented by a labor
union, and the Company considers its employee relations to be good. See "Risk
Factors--Dependence on Key Personnel."
LEGAL PROCEEDINGS
The Company is not a party to any legal proceedings.
28
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
William R. Cullen....... 55 Chairman of the Board of Directors and
Chief Executive Officer
William H. Bernard...... 40 President and Director
Jeri Lee Amstutz........ 40 Vice President of Affiliate Sales and Marketing
Roger Monaco............ 47 Vice President of Finance, Chief Financial Officer,
Secretary and Treasurer
Mark R. Russo........... 37 Vice President of Engineering
George H. Henry......... 42 Director
William H. Ingram....... 55 Director
Nimrod J. Kovacs........ 46 Director
Earl A. Samson III...... 38 Director
Frederick G.P. Thorne... 60 Director
</TABLE>
WILLIAM R. CULLEN joined the Company in May 1994 as Chairman of the Board of
Directors and Chief Executive Officer. Previously, Mr. Cullen was President
and Chief Executive Officer of the California News Channel, a unit of Cox
Cable Communications, Inc., from 1991 until he joined the Company. From 1983
to 1991, Mr. Cullen held various management positions in the cable operations
of United Artists and its predecessor, United Cable. During that period, he
had responsibility for one of United Artists' largest cable television
divisions. He has held various leadership roles in cable television industry
organizations including: Chairman, California Cable Television Association
(1990-1992); President, Southern California Cable Television Association
(1984-1986); Chairman, AdLink, Inc. (1988-1992); and a member of the Board of
Trustees of the Walter Kaitz Foundation since 1991. Among various honors, Mr.
Cullen was recognized as Marketing Executive of the Year by Cable T.V.
Business Magazine in 1991.
WILLIAM H. BERNARD, the founder of the Company, has served as President and
a director since the Company's formation in January 1993 and served as Chief
Executive Officer from January 1993 to May 1994. Mr. Bernard has been involved
in the cable television and advertising businesses since 1978. Prior to
forming the Company, he served as a consultant for Kabel Rep, an advertising
supported channel in Europe, with primary responsibility for establishing an
advertising supported national cable television channel. From May 1989 to
December 1991, Mr. Bernard was the Director of Advertising Sales for United
Artists. Prior thereto, Mr. Bernard created and managed United Cable
Advertising, a subsidiary of United Cable that ran local advertising sales
operations nationwide for 26 cable television systems. Prior to joining United
Cable in 1985, Mr. Bernard held three other positions in an advertising sales
capacity, including the creation of his own advertising sales consulting firm.
JERI LEE AMSTUTZ joined the Company as Vice President of Affiliate Sales and
Marketing in September 1995. Prior to joining the Company, Ms. Amstutz was
Vice President, Sales and Affiliate Marketing for Digital Music Express, a
music programming service, since 1990. From 1988 to 1989, Ms. Amstutz was
Director of National Accounts for Cable Value Network, a home shopping
network.
ROGER T. MONACO joined the Company as Vice President of Finance and Chief
Financial Officer in April 1996 and was elected Secretary and Treasurer in May
1996. Mr. Monaco has been involved in the cable television industry since
1983. He served as Vice President, Financial Planning and Analysis of the
Times Mirror Company's consumer media division from February 1995 until he
joined the Company, and as Vice President, Corporate Planning and Financial
Analysis for the Times Mirror Company's cable television division from January
1983 to February 1995. Mr. Monaco is a certified public accountant.
29
<PAGE>
MARK R. RUSSO has served as Vice President of Engineering since joining the
Company in March 1994. From January 1993 to March 1994, Mr. Russo was the
Regional Advertising Engineer for TCI Cable Advertising/Cable AdNet, where he
was responsible for all design, purchasing, installation and maintenance for
its engineering, traffic and MIS departments. From December 1991 to January
1993, he was an Area Engineer for TCI West, responsible for all engineering
activities for its advertising sales departments in Southern California. From
May 1989 to December 1991, he was the District Engineer for United Artists in
Los Angeles. From August 1988 to May 1989, he was a Systems Engineer for
United Cable Advertising, a subsidiary company of United Cable Television.
From February 1986 to July 1988, he was a Broadcast Engineer for the CBS
Network in Los Angeles. Mr. Russo has a degree in Telecommunications
Engineering and holds numerous engineering and technical certifications
related to his field.
GEORGE H. HENRY became a director of the Company in March 1994. Mr. Henry
has been a Managing Director of G. Howard Associates, Inc. ("GHA"), a private
investment firm, since 1986. Prior to joining that firm, Mr. Henry spent six
years with the predecessor of Schroder Wertheim & Co. Incorporated, an
investment banking firm, where he was a Vice President in the Corporate
Finance Department from 1983. Mr. Henry has been a director of several
publicly held companies and is currently a director of Biovail Corporation
International, a pharmaceutical company, and PhoneTel Technologies, Inc., a
telecommunications company. Mr. Henry is also a trustee of Mitchell College.
WILLIAM H. INGRAM became a director of the Company in March 1995. Since
1973, Mr. Ingram has been the President and Chief Executive Officer of Sutton
Capital, an investment company, having overall responsibility for all of
Sutton's activities, including evaluating financing and the securing of debt
and equity for proposed projects. From 1971 to 1973, Mr. Ingram was in charge
of the Corporate Finance Department of Lombard, Nelson & McKenna, Inc., a
member of the New York Stock Exchange. Prior to that time, he was a certified
public accountant with Touche Ross & Co. Mr. Ingram serves on the Board of
Directors of Horizon Cellular Telephone Company, L.P.
NIMROD J. KOVACS has served as a director of the Company since its formation
in January 1993 and as Chairman of the Board of Directors from September 1993
to May 1994. Mr. Kovacs has been president of the Eastern Europe Electronics
Distribution and Global Programming Group of United International Holdings,
Inc. ("UIHI") since April 1996. Prior to that time he served as Senior Vice
President Central/Eastern Europe and was responsible for development and
management of UIHI investments in Hungary and the Czech Republic and the
development opportunities in Romania and Bulgaria. Mr. Kovacs had served in
this capacity since joining UIHI in March 1991. From October 1989 until
joining UIHI, Mr. Kovacs was president of NJK International, a multi-channel
television consulting firm. He was Vice President-Marketing of United Cable
from 1985 until its merger with United Artists in May 1989 and was employed by
United Artists until October 1989. At United Cable, Mr. Kovacs helped develop
The Discovery Channel, The Discovery Channel Europe, The Movietime Channel,
Think Entertainment, Republic Pictures, Preview Guide, Bravo U.K. and several
shopping channel investments.
EARL A. SAMSON III became a director of the Company in July 1994. Since
1987, Mr. Samson has been President and is a founder of Compton Capital
Partners, Inc., an investment firm in New York City. Prior to 1987, he was
involved in the banking industry, first in the Corporate and International
Divisions of Chase Manhattan Bank, N.A. (from 1980 to 1985), and then as a
Vice President in the Private Banking and Investment Division of Citibank,
N.A. (from 1985 to 1987). Mr. Samson is Chairman of the Board of Trustees of
the Darrow School in New Lebanon, New York. He is a director of Mobex
Communications, Inc., a radio communications company. Mr. Samson is a former
member of The Board of Trustees of the Mount Lebanon Heritage Foundation and
The Mount Lebanon Shaker Village as well as a former director of Magnetic
Resonance Corporation.
FREDERICK G.P. THORNE became a director of the Company in April 1996. Mr.
Thorne founded Harbor Capital Management Company, Inc. in 1979, and currently
serves as its Chairman of the Board, Chief Investment Officer and Managing
Director. Mr. Thorne serves as Trustee and Member of the Investment Committee
of Bowdoin College, Trustee of the Massachusetts Eye & Ear Infirmary, Director
and Treasurer of the World Peace
30
<PAGE>
Foundation, Trustee of Northeast Health Systems, Inc. and Trustee of the
Boston Security Analysts Society, Inc. and is a member of the Boston Economic
Club.
COMPENSATION OF DIRECTORS
To date, the non-employee directors of the Company have not received cash
compensation for serving as directors. The current non-employee directors of
the Company have been granted options to purchase an aggregate of 47,630
shares of Common Stock at an average exercise price of $6.82-$8.40. See "--
Non-Employee Director Stock Options."
COMPENSATION OF EXECUTIVE OFFICERS
Summary Compensation. The following table sets forth information concerning
all cash and non-cash compensation awarded to, earned by or paid to the
Company's Chief Executive Officer and the other executive officers of the
Company who earned in excess of $100,000 during the fiscal year ended March
31, 1996.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL LONG TERM
COMPENSATION COMPENSATION
---------------- ------------
SECURITIES
UNDERLYING
NAME AND PRINCIPAL POSITION SALARY BONUS OPTIONS/SARS
- --------------------------- -------- ------- ------------
<S> <C> <C> <C>
William R. Cullen............................ $300,000 $25,000(1) 61,919
Chairman of the Board and Chief Executive
Officer
William H. Bernard........................... $180,000 $25,000(1) 28,578
President
Mark R. Russo................................ $103,500 $ 8,438 4,763
Vice President of Engineering
</TABLE>
- --------
(1) Represents a bonus earned in fiscal 1995 but paid in fiscal 1996.
Employment Agreements
Each of Messrs. Cullen and Bernard are parties to a two-year employment
agreement with the Company that commenced on April 1, 1995. Under Mr. Cullen's
agreement, he was paid an annual base salary of $300,000 during the first year
of the agreement and is currently paid $330,000 per year. The Company has the
option to extend Mr. Cullen's agreement for up to two additional years, with
the base salary increasing to $360,000 for the third year and $390,000 for the
fourth year. Under Mr. Bernard's agreement, he was paid an annual base salary
of $180,000 during the first year and is currently paid $200,000 per year. The
Company has the option to extend Mr. Bernard's agreement for up to two
additional years, with a base salary of $220,000 and $240,000 during the third
and fourth years, respectively. The Board of Directors may defer annual
increases in Mr. Cullen's and Mr. Bernard's base salary for up to one year
based upon the Company's financial condition at the time of the scheduled
increase. Upon a "change of control" of the Company, Messrs. Cullen and
Bernard are each entitled to a severance payment equal to 24 months of the
scheduled base salary if his employment is terminated or if he elects not to
continue employment following the "change of control." For purposes of the
agreements, "change of control" means a merger or consolidation of the Company
or the sale of all or substantially all of its assets or another transaction
in which more than 50% of the Company's outstanding stock is exchanged for
securities, cash or other property of another corporation or business entity.
Each of Messrs. Cullen and Bernard are subject to a non-competition provision
under his agreement for two years following the term of the agreement.
Messrs. Cullen, Bernard, Russo, Monaco and Tyler (the Company's Controller)
are entitled to participate in the Company's Annual Bonus Plan (the "Bonus
Plan"). The Bonus Plan is administered by the Compensation
31
<PAGE>
Committee and provides for incentive awards based upon the Company obtaining
specified performance targets as well as the participant's contributions to
the Company.
Options Grants. The following table sets forth certain summary information
concerning individual grants of stock options made during the fiscal year
ended March 31, 1996 to each of the Company's executive officers named in the
Summary Compensation Table.
OPTION GRANTS IN FISCAL YEAR ENDED MARCH 31, 1996
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE VALUE
AT ASSUMED
ANNUAL RATES OF
STOCK PRICE
APPRECIATION FOR
OPTION TERM(2)
-----------------
% OF TOTAL
NUMBER OF OPTIONS
SHARES GRANTED TO EXERCISE
UNDERLYING EMPLOYEES OR BASE
OPTIONS IN FISCAL PRICE PER EXPIRATION
NAME GRANTED 1996 SHARE(1) DATE 5% 10%
- ---- ---------- ---------- --------- -------------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
William R. Cullen....... 61,919 56.5% $8.40 April 28, 2005 $286,759 $706,298
William H. Bernard...... 28,578 26.1% $8.40 April 28, 2005 $132,350 $325,984
Mark R. Russo........... 4,763 4.3% $8.40 April 28, 2005 $ 22,058 $ 54,331
</TABLE>
- --------
(1) The exercise price per share of all options granted equaled the fair
market value per share of Common Stock on the date of grant. Each option
becomes exercisable as to 50% of the shares on the first anniversary of
the date of grant and as to the remaining 50% of the shares in equal
monthly installments over the second year period.
(2) These amounts represent assumed rates of appreciation in the price of the
Common Stock during the terms of the options in accordance with rates
specified in applicable federal securities regulations. Actual gains, if
any, on stock option exercises will depend on the future price of the
Common Stock and overall stock market conditions. There is no
representation that the rates of appreciation reflected in this table will
be achieved.
Option Holdings. The following table sets forth at March 31, 1996 the number
of options and the value of unexercised options held by each of the executive
officers named in the Summary Compensation Table:
AGGREGATED YEAR END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SHARES VALUE OF UNEXERCISED
SUBJECT TO UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT YEAR END AT YEAR END(1)
------------------------- -------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
William R. Cullen........... 26,196 92,879 $ $
William H. Bernard.......... 11,411 40,982 $ $
Mark R. Russo............... 2,282 7,244 $ $
</TABLE>
- --------
(1) The dollar values have been calculated by determining the difference
between the fair market value of the Common Stock underlying the options
at March 31, 1996 and the exercise prices of the options. Solely for
purposes of determining the value of options at March 31, 1996, the
Company has assumed that the fair market value of the Common Stock
issuable upon exercise of option was $ per share, the assumed initial
public offering price, since the Common Stock was not traded in an
established market prior to this offering.
Equity Incentive Plan
The Company has adopted the Access TV Equity Incentive Plan (the "Equity
Incentive Plan"). The Equity Incentive Plan provides for the grant of non-
qualified stock options, incentive stock options, stock appreciation
32
<PAGE>
rights, restricted stock and stock units. Under the Equity Incentive Plan the
maximum number and kind of shares as to which options, stock appreciation
rights, restricted stock or stock units may be granted (subject to adjustment
in certain events), is 285,780 shares of Common Stock. Upon the expiration,
termination or cancellation (in whole or in part) of unexercised non-qualified
or incentive stock options, the shares of Common Stock subject thereto will
again be available for issuance under the Equity Incentive Plan; however,
shares of Common Stock covered by an option, or portion thereof, that are
surrendered upon exercise of a stock appreciation right, and shares of
restricted stock that are subsequently forfeited, will thereafter be
unavailable for issuance under the Equity Incentive Plan. Upon any change in
control of the Company (as defined in the Equity Incentive Plan), vesting of
all awards under the plan will be accelerated.
Equity Incentive Plan participation is limited to employees or consultants
of the Company who are responsible for the Company's growth and profitability.
Directors who are not employees or consultants are not eligible. The Equity
Incentive Plan is administered by the Company's Compensation Committee, which
currently consists of Messrs. Henry, Samson and Kovacs, none of whom is
eligible to participate in the Equity Incentive Plan.
Options, stock appreciation rights, restricted stock and stock units may be
granted by the Compensation Committee to eligible employees and consultants in
such number and at such times during the term of the Equity Incentive Plan as
the Compensation Committee shall determine. In granting options, stock
appreciation rights, restricted stock and stock units, the Compensation
Committee will take into account such factors as it may deem relevant in order
to accomplish the Equity Incentive Plan's purposes, including one or more of
the following: the extent to which performance goals have been met, the duties
of the respective employees and consultants and their present and potential
contributions to the Company's success.
As of the date hereof, the Compensation Committee has granted incentive
options ("Incentive Options") to purchase a total of 118,772 shares of Common
Stock at $6.82 to $8.40 per share and non-qualified options to purchase an
aggregate of 86,036 shares of Common Stock at $6.82 to $8.40 per share (the
"Non-Qualified Options"). Incentive Options have been granted to the following
employees and consultants of the Company on the date and with respect to the
number of shares of Common Stock listed after each person's name: William R.
Cullen, May 9, 1994, 57,156 shares at $6.82 per share, and April 28, 1995,
61,919 shares at $8.40 per share; William H. Bernard, April 1, 1994, 23,815
shares at $6.82 per share, and April 28, 1995, 28,578 shares at $8.40 per
share; Mark Russo, April 1, 1994, 4,763 shares at $6.82 per share, and April
28, 1995, 4,763 shares at $8.40 per share; the Company's Vice President for
Marketing, Jeri Amstutz, September 12, 1995, 7,144 shares at $8.40 per share;
the Company's Chief Financial Officer, Roger Monaco, April 1, 1996, 9,526
shares at $8.40 per share; and the Company's Controller, Tim Tyler, April 28,
1995, 7,144 shares at $8.40 per share. Generally, the Incentive Options are
exercisable with respect to 25% of the shares covered thereby after the first
anniversary of the effective date of grant and with respect to the remaining
75% in equal monthly increments over the three-year period thereafter. The
Non-Qualified Options become exercisable in two equal installments upon the
first and second anniversary of the dates of grant.
NON-EMPLOYEE DIRECTOR STOCK OPTIONS
Non-Employee Director Stock Option Plan. The Company adopted the Access TV
Stock Option Plan for Non-Employee Directors (the "Director Plan") to provide
for an automatic grant of an option (a "Director's Option") to acquire 9,526
shares of Common Stock to each member of the Board of Directors who is not
also an employee of the Company (a "non-employee director"). A total of 28,578
shares are available under the Director Plan. A Director's Option to purchase
9,526 shares was granted to each of Messrs. Henry, Kovacs and Moses (a former
director), the non-employee directors of the Company at the time the Director
Plan was adopted, at an exercise price of $6.82 per share. The Director's
Options are exercisable with respect to 25% of the shares covered thereby
after the first anniversary of the effective date of grant and with respect to
the remaining 75% in equal monthly increments over the three-year period
thereafter. Exercisability will be accelerated upon a change of control of the
Company as defined in the Director Plan.
Non Plan Director Options. Each of Messrs. Masters (a former director),
Ingram, Samson and Thorne was granted an option to purchase 9,526 shares of
Common Stock at an exercise price per share of $6.82, $8.40,
33
<PAGE>
$6.82 and $8.40, respectively, effective April 1994, February 1995, April 1994
and May 1996, respectively. These options are exercisable with respect to 25%
of the shares covered thereby after the first anniversary of the effective
date of grant and with respect to the remaining 75% in equal monthly
increments over the three-year period thereafter. Exercisability will be
accelerated upon a change of control of the Company as defined in the Director
Plan.
Stock Bonus Plan
In April 1996, the Company adopted a Stock Bonus Plan providing for the
grant of shares of Common Stock to non-executive employees as bonuses and as
performance incentives in recognition of loyal and exemplary service. The plan
is administered by the Chief Executive Officer of the Company, or by such
other officer as the Board of Directors may designate. A total of 9,526 shares
are available for issuance under the plan. If the recipient of shares under
the Stock Bonus Plan proposes to sell such shares within one year of the date
of grant of the shares under the plan, the shares must first be re-offered to
the Company at fair market value before the recipient can sell such shares. To
date, an aggregate of 3,049 shares have been issued to 13 employees under the
Stock Bonus Plan.
INDEBTEDNESS OF MANAGEMENT
William R. Cullen, the Company's Chairman of the Board and Chief Executive
Officer, is indebted to the Company in the amount of approximately $83,300.
Such indebtedness bears interest at rates ranging from 4.0% to 7.2% annually
and was incurred to fund Mr. Cullen's purchase of certain securities of the
Company. See "Certain Transactions."
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee currently consists of George H. Henry, Nimrod J.
Kovacs and Earl A. Samson III. Each of Messrs. Henry, Kovacs and Samson has
received options to purchase 9,526 shares of Common Stock. See "--Non-Employee
Director Stock Options."
Each of Messrs. Henry and Samson, or entities with which they are
affiliated, received compensation in connection with the Company's private
placements of equity securities. See "Certain Transactions."
CERTAIN TRANSACTIONS
See "Management--Compensation Committee Interlocks and Insider
Participation."
In February and March 1993, the Company issued an aggregate of 407,192
shares of Common Stock to its founders, including Messrs. Bernard, Henry,
Kovacs and Moses, for nominal consideration and, at this time, conducted a
private offering to its existing stockholders and other investors of an
aggregate of 440,241 shares of Common Stock at $0.64 per share. The offering
raised $123,940 of net proceeds. The purpose of the offering was to provide
the necessary working capital to begin negotiations with the leading cable
television operators.
In November and December 1993, the Company sold an aggregate of 378,326
shares of Common Stock at a purchase price of $1.36 per share, of which
143,587 shares were purchased by the Company's officers, directors and 5%
stockholders.
On February 7, 1994, the stockholders of the Company approved an amendment
to the Company's Certificate of Incorporation, pursuant to which the Company
was recapitalized. Each outstanding share of Common Stock was converted into
52.96 shares of Common Stock and .04321 shares of Series A Convertible
Preferred Stock. A total of 1,000 shares of Series A Convertible Preferred
Stock was issued in the recapitalization. Each share of Series A Convertible
Preferred Stock was initially automatically convertible into 286 shares of
Common Stock upon the Company's obtainment of certain financial thresholds on
or before March 31, 1998. As a result of negotiations with the holders of the
Series A Convertible Preferred Stock, subject to stockholder approval, all of
the Series A Convertible Preferred Stock will be converted into 142,890 shares
of Common Stock upon consummation of this offering. See "Description of
Capital Stock--Preferred Stock."
Immediately following the recapitalization of the Company, the Company sold
204,333 shares of Common Stock, at a purchase price of $1.36 per share, to
Access Partners, an affiliate of Spencer Trask Securities
34
<PAGE>
Incorporated, a former placement agent for a proposed offering of the
Company's securities. A 360-day promissory note in the amount of $128,850 (the
"Access Partners' Note") was delivered in payment of a portion of the purchase
price and the balance was paid in cash. The Access Partners' Note bears
interest at 3.96% per annum and was initially due February 28, 1995. The
Company has granted Access Partners "piggyback" registration rights to include
all of Access Partners' shares of Common Stock in any registration statement
filed by the Company to register its securities under the Securities Act. An
underwriter in any such offering, however, may limit the number of Access
Partners' shares in such registration. See "Description of Capital Stock--
Registration Rights." George Henry, a director and principal stockholder of
the Company, was paid a $7,500 fee in connection with this sale of stock.
On April 8, 1994, Access Partners sold 86,389, 86,389 and 7,740 of its
shares to Messrs. Henry, Moses and Bernard, respectively, for an aggregate of
$150,000 in cash and their assumption of $58,445, $58,445 and $11,960,
respectively, principal amount of the Access Partners' Note. Effective May 1,
1994, Mr. Cullen purchased 13,375, 10,003 and 7,739 of the shares of Common
Stock acquired by Messrs. Moses, Henry and Bernard, respectively, from Access
Partners in exchange for his assumption of $20,667, $15,452 and $11,960 of
their respective obligations they had assumed under the Access Partners' Note.
At the same time, Mr. Cullen purchased 3,637 and 3,340 shares of Common Stock
from Messrs. Moulton and Masters in exchange for the payments of $5,727.30 and
$5,272.65, respectively. As a result of these transactions, Messrs. Cullen and
Moses owe the Company $48,079 and $37,778, respectively, plus accrued interest
in respect of the Access Partners' Note. The maturity date of these notes has
been extended to February 28, 1997.
In March, April and May 1994, the Company sold an aggregate of 118,789
shares of Common Stock at a purchase price of $5.25 per share. The persons and
entities who purchased shares of Common Stock in such placement have been
granted registration rights. GHA acted as placement agent in the transaction,
and the Company paid GHA and its dealers fees and commissions of $51,850 and
granted certain dealers of GHA warrants to purchase an aggregate of 4,954
shares of Common Stock at $5.25 per share. George Henry, a director and
principal stockholder of the Company, is a managing director of GHA. See
"Management" and "Principal Stockholders."
From April through early November 1994, the Company sold an aggregate of
502,496 shares of Common Stock at $6.82 per share. The persons and entities
who purchased shares of Common Stock in such placement have been granted
registration rights. Axiom Partners Inc. ("Axiom") acted as placement agent in
the transaction, and the Company paid Axiom and its dealers fees and
commissions of $342,875 and granted them warrants to purchase an aggregate of
50,250 shares of Common Stock at $6.82 per share. William Moses, a former
director and principal stockholder of the Company, was a managing director of
Axiom at the time of the placement. See "Principal Stockholders."
In January and February 1995, the Company consummated a rights offering to
its then existing stockholders (the "Rights Offering"). Under the terms of the
Rights Offering, each stockholder was offered the right to acquire 0.095
shares of Common Stock at a price of $2.10 per whole share for each 0.191
shares of Common Stock held by such stockholder. These purchase rights were
transferable among existing stockholders. The Company sold a total of
1,025,342 shares of Common Stock in the Rights Offering for aggregate cash
consideration of approximately $2,200,000. No commissions were paid in
connection with the Rights Offering. In connection with the Rights Offering,
the Company loaned William R. Cullen, the Company's Chairman and Chief
Executive Officer, $30,000 to fund his exercise of rights to acquire 14,289
shares of Common Stock. The loan bears interest at the rate of 7.19% per annum
and is payable in three equal annual installments of principal and accrued
interest commencing January 20, 1997.
From late November 1994 through February 1995, the Company sold 124,870
shares of Common Stock at a price of $8.40 per share and, for each 1.91 shares
acquired in such private placement, the right to acquire .095 shares of Common
Stock at $2.10 per share. In total, the Company sold 187,303 shares. Axiom
acted as placement agent in the transaction, and the Company paid Axiom and
its dealers, including Prima Partners, L.P. and Prima Management Corp., fees
and commissions of $104,867 and granted them warrants to purchase an
35
<PAGE>
aggregate of 12,487 shares of Common Stock at $8.40 per share. Earl Samson, a
director of the Company, is an officer of Prima Management Corp. Prima
Management Corp. and Prima Partners, L.P. are principal stockholders of the
Company. See "Management" and "Principal Stockholders."
From October 1995 through March 1996, the Company sold an aggregate of
385,803 units, each unit consisting of one share of Common Stock and a warrant
to purchase one share of Common Stock at $6.30 per share, for a purchase price
of $6.30 per unit. The persons and entities who purchased units in such
placement have been granted registration rights. Hanifen, Imhoff Inc.
("Hanifen") acted as placement agent in the transaction, and the Company paid
Hanifen and various placement agents fees and commissions of $116,831 and
granted them warrants to purchase an aggregate of 6,248 shares of Common Stock
at $6.30 per share. Prima Management Corp. and Prima Partners, L.P., principal
stockholders of the Company, collectively, and Mr. Henry each received 6,430
shares of Common Stock and warrants to purchase 6,430 shares of Common Stock
at a purchase price of $6.30 per share in connection with this private
placement. Earl Samson III, a director of the Company, is an officer of Prima
Management Corp. See "Management" and "Principal Stockholders."
In fiscal 1996, the Company loaned Mr. Cullen $5,273 to fund the purchase of
shares of Common Stock from Mr. Masters, a former director. This loan bears
interest at 7.19% per annum and is due January 20, 1997.
In September 1996, the Company entered into a $1,000,000 revolving credit
facility with certain of its stockholders, directors and executive officers.
Loans under this facility bear interest at 9% per annum and are due on the
earlier of December 12, 1996 or the closing of this offering. Borrowings under
this facility will be used for working capital purposes. At September 12,
1996, no amounts were outstanding under this facility. In connection with this
facility, the Company issued to the lenders warrants to purchase an aggregate
of 200,000 shares of Common Stock at a per share exercise price equal to the
initial public offering price set forth on the cover page of this Prospectus
and agreed to pay the lenders fees aggregating $65,000. The Company intends to
use a portion of the net proceeds from this offering to repay all amounts
outstanding under this facility. G. Howard Associates, Inc., a stockholder of
the Company of which George Henry, a director of the Company, is a Managing
Director, and Mr. Monaco, Mr. Ingram, Mr. Thorne, Mr. Tim Tyler, Mr. Bernard,
Mr. Cullen and Ms. Jeri Lee Amstutz committed to loan $590,000, $250,000,
$50,000, $50,000, $30,000, $10,000, $10,000 and $10,000, respectively,
received warrants to purchase 118,000 shares, 50,000 shares, 10,000 shares,
10,000 shares, 6,000 shares, 2,000 shares, 2,000 shares and 2,000 shares,
respectively, of Common Stock and will receive fees of $38,350, $16,250,
$3,250, $3,250, $1,950, $650, $650 and $650, respectively. See "Use of
Proceeds."
36
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of Common Stock as of September 12, 1996 by (i) each person known to
the Company to be the beneficial owner of more than 5% of the outstanding
Common Stock, (ii) each of the Company's directors, (iii) each of the
executive officers of the Company named in the Summary Compensation Table and
(iv) all directors and executive officers of the Company as a group. Unless
otherwise indicated below, the persons named below have sole voting and
investment power with respect to the number of shares set forth opposite their
names, subject to community property laws where applicable.
<TABLE>
<CAPTION>
PERCENT OF
OWNERSHIP
-----------------
NUMBER OF SHARES PRIOR TO AFTER
NAME BENEFICIALLY OWNED(1) OFFERING OFFERING
- ---- --------------------- -------- --------
<S> <C> <C> <C>
Prima Partners, L.P. (2)............... 468,643 12.2% %
William D. Moses, Jr. (3).............. 317,123 8.3% %
William H. Bernard (4)................. 307,192 8.0% %
William R. Cullen (5).................. 131,776 3.3% %
George H. Henry (6).................... 417,910 10.9% %
William H. Ingram (7).................. 160,095 4.2% %
Nimrod J. Kovacs (8)................... 33,449 * *
Earl A. Samson III (9)................. 468,643 12.2% %
Frederick G.P. Thorne (10)............. 35,722 * *
Mark R. Russo (11)..................... 6,053 * *
All directors and executive officers as
a group (10 persons) (12).............. 1,562,626 40.6% %
</TABLE>
- --------
* Less than 1%.
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission (the "Commission") which attribute
beneficial ownership of securities to persons who possess sole or shared
voting power and/or investment power with respect to those securities.
(2) Includes (i) 5,755 shares of Common Stock issuable upon the exercise of
options held by Prima Partners, L.P. and its affiliate, Prima Management
Corp. (collectively, "Prima"), that are exercisable within 60 days of
September 12, 1996 and (ii) 38,763 shares of Common Stock issuable upon
exercise of warrants held by Prima. The address of Prima Partners, L.P.
and Prima Management Corp. is 115 East 69th Street, New York, New York
10021.
(3) Includes 5,755 shares of Common Stock issuable upon the exercise of
options that are exercisable within 60 days of September 12, 1996. The
address of Mr. Moses is 1330 Foothill Road, Ojai, CA 93023.
(4) Includes 33,440 shares of Common Stock issuable upon the exercise of
options that are exercisable within 60 days of September 12, 1996. Mr.
Bernard's address is c/o the Company, 2600 Michelson Drive, Irvine, CA
92715.
(5) Includes 74,620 shares of Common Stock issuable upon the exercise of
options that are exercisable within 60 days of September 12, 1996.
(6) Includes (i) 5,755 shares of Common Stock issuable upon the exercise of
options that are exercisable within 60 days of September 12, 1996 and (ii)
54,688 shares of Common Stock issuable upon the exercise of warrants held
by GHA. Mr. Henry is a Managing Director of GHA. Mr. Henry's address is
c/o G. Howard Associates, Inc., 1725 York Avenue, New York, New York
10120. See "Management."
(7) Includes (i) 3,771 shares of Common Stock issuable upon the exercise of
options that are exercisable within 60 days of September 12, 1996 and (ii)
5,877 shares of Common Stock issuable upon the exercise of warrants.
(8) Includes (i) 5,755 shares of Common Stock issuable upon the exercise of
options held by that are exercisable within 60 days of September 12, 1996
and (ii) 3,572 shares of Common Stock issuable upon the exercise of
warrants.
37
<PAGE>
(9) Consists of shares of Common Stock beneficially owned by Prima (see note 2
above). Mr. Samson, a director of the Company, is an officer of Prima
Management Corp., the general partner of Prima Partners, L.P., and may be
deemed to beneficially own the shares beneficially owned by Prima by
reason of having investment and voting power with respect to such shares.
Mr. Samson disclaims beneficial ownership of all the shares of Common
Stock owned by Prima other than the shares attributable to his general and
limited partnership interest therein. The address of Mr. Samson is c/o
Prima Management Corp., 115 East 69th Street, New York, New York 10021.
(10) Includes 3,572 shares of Common Stock issuable upon the exercise of
warrants.
(11) Consists of 6,053 shares of Common Stock issuable upon the exercise of
options that are exercisable within 60 days of September 12, 1996.
(12) Includes (i) 136,936 shares of Common Stock issuable upon the exercise of
options that are exercisable within 60 days of September 12, 1996, (ii)
116,473 shares of Common Stock issuable upon the exercise of warrants and
(iii) 468,643 shares of Common Stock beneficially owned by Prima.
38
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The Company's authorized capital stock consists of 25,000,000 shares of
Common Stock, $0.01 par value, and 4,000,000 shares of Preferred Stock, $0.01
par value. There are 3,683,595 shares of Common Stock outstanding, which are
held of record by 152 stockholders, and 1,000 shares of Series A Convertible
Preferred Stock outstanding. Upon the closing of this offering, and after
giving effect to the issuance of shares of Common Stock offered by the
Company hereby and the automatic conversion of the Series A Convertible
Preferred Stock into 142,890 shares of Common Stock, there will be shares
of Common Stock outstanding and no shares of Preferred Stock outstanding.
COMMON STOCK
Holders of Common Stock are entitled to one vote for each share held on all
matters submitted to a vote of stockholders. The Common Stock does not have
cumulative voting rights, and, as a result, the holders of a majority of the
shares of Common Stock entitled to vote in any election of directors may elect
all of the directors standing for election, and, in that event, the holders of
the remaining shares will not be able to elect any directors. Subject to the
rights and preferences of any preferred stock which may be issued, the holders
of Common Stock are entitled to receive ratably such dividends, if any, as may
be declared by the Board of Directors out of funds legally available therefor
and, upon the liquidation, dissolution or winding up of the Company, the
holders of Common Stock are entitled to receive ratably the net assets of the
Company available after the payment of all debts and other liabilities.
Holders of Common Stock have no preemptive, subscription, redemption or
conversion rights. The outstanding shares of Common Stock are, and the shares
offered by the Company in this offering will be, when issued and paid for,
fully paid and nonassessable. The rights, privileges and preferences of
holders of Common Stock will be subject to, and may be adversely affected by,
the rights of the holders of any shares of preferred stock which the Company
may designate and issue in the future.
At present, there is no active trading market for the Common Stock. The
Company intends to apply to have the Common Stock approved for quotation on
The Nasdaq National Market under the symbol "ASTV". See "Risk Factors--No
Prior Public Market; Possible Volatility of Stock Price."
PREFERRED STOCK
The Series A Convertible Preferred Stock has no voting rights, dividend
rights or preferences upon liquidation. Each share of Series A Convertible
Preferred Stock initially was to convert into approximately 286 shares of
Common Stock if, on or before March 31, 1998, the Company reported annual net
income before taxes of $12,000,000 or the closing price of the Common Stock,
as traded on a national securities exchange or quoted in an inter-dealer
quotation system, was $41.99 or greater for twenty consecutive business days.
If neither threshold had been met by March 31, 1998, the Series A Convertible
Preferred Stock would have been cancelled. The conversion ratio of the Series
A Convertible Preferred Stock was to be automatically adjusted to account for
stock splits, stock dividends and certain other dilutive events. The
conversion ratio was subsequently adjusted to provide that each share of
Series A Convertible Preferred Stock will automatically convert into
approximately 142,890 shares of Common Stock upon the consummation of this
offering.
The Board of Directors has the authority to issue 4,000,000 shares of
preferred stock in one or more series and to fix the rights, preferences,
privileges and restrictions, including dividend, conversion, voting,
redemption (including sinking fund provisions), and other rights, liquidation
preferences, and the number of shares constituting any series and the
designations of such series, without any further vote or action by the
stockholders of the Company. Following the consummation of this offering,
preferred stock could be issued by the Board of Directors with voting and
conversion rights that could adversely affect the voting power of the holders
of the Common Stock. In addition, because the terms of the preferred stock may
be fixed by the Board of Directors of the Company without stockholder action,
the preferred stock could be issued quickly with terms calculated to defeat or
delay a proposed takeover of the Company, or to make the removal of the
management of the Company
39
<PAGE>
more difficult. Under certain circumstances, this would have the effect of
decreasing the market price of the Common Stock. The Company has no present
plans to issue any preferred stock. See "Risk Factors--Control by Certain
Principal Stockholders; Effect of Certain Anti-Takeover Provisions."
WARRANTS
In connection with certain of the Company's private offerings of Common
Stock during fiscal 1994, 1995 and 1996, the Company issued a total of 472,601
warrants to purchase shares of Common Stock to certain placement agents and to
stockholders. The exercise prices of the warrants ranges from $5.25 to $8.40
per share, subject to adjustment in defined circumstances. The warrants are
exercisable at the earlier of an initial public offering, upon notice of any
merger, consolidation or other defined transaction or January 1, 1999 for
warrants issued during fiscal 1994 and 1995 and October 15, 1999 for warrants
issued during fiscal 1996. The warrants terminate at the later of July 1, 1999
for warrants issued in fiscal 1994 and 1995 and October 15, 2000 for warrants
issued in fiscal 1996, or the third anniversary of the closing of an initial
public offering if closed prior to January 1, 1999 and October 15, 1999,
respectively. In September 1996, the Company issued warrants to purchase
200,000 shares of Common Stock at a per share exercise price equal to the
initial public offering price set forth on the cover page of this Prospectus.
These warrants are exercisable on the earliest to occur of (i) September 12,
1997, (ii) 180 days following the closing of this offering or (iii) the
business day preceding the consummation of a transaction constituting the sale
of the Company. These warrants expire in September 2001. Warrantholders have
demand and piggyback registration rights. See "Certain Transactions."
REGISTRATION RIGHTS
Certain stockholders and warrantholders of the Company have been granted
certain demand and/or piggyback registration rights with respect to the
registration of approximately shares of Common Stock (the "Registrable
Securities") under the Securities Act. Beginning 180 days after consummation
of this offering, upon the request of those stockholders holding a majority of
the Registrable Securities, the Company is obligated on one occasion to
prepare and file a registration statement under the Securities Act with
respect to such Registrable Securities. In addition, if the Company proposes
to register any of its securities under the Securities Act for its own
account, the holders of the Registrable Securities may require the Company to
include all or a portion of the Registrable Securities in the registration,
provided, among other conditions, that the managing underwriter (if any) of
such offering has the right, subject to certain conditions, to limit the
number of Registrable Securities included in the registration. The Company
will bear the expenses of the registration of the Registrable Securities,
other than underwriting discounts and commissions. The rights of the holders
of Registrable Securities to demand or participate in such registrations
terminate with respect to each holder of Registrable Securities when such
holder would be permitted to sell Registrable Securities pursuant to Rule 144
under the Securities Act. If the holders of Registrable Securities exercise
their demand registration rights, such sales may have an adverse effect on the
market price of the Common Stock. If the Company is required to include in a
Company initiated registration Registrable Securities pursuant to the exercise
of piggyback registration rights, such sales may have an adverse effect on the
Company's ability to raise needed capital. The holders of the Representatives'
Warrants have also been granted certain demand and piggyback registration
rights. See "Risk Factors--Shares Eligible for Future Sale" and
"Underwriting."
DELAWARE ANTI-TAKEOVER LAW
Under Section 203 of the Delaware General Corporation Law (the "Delaware
anti-takeover law"), certain "business combinations" between a Delaware
corporation whose stock generally is publicly traded or held of record by more
than 2,000 stockholders and an "interested stockholder" are prohibited for a
three-year period following the date that such stockholder became an
interested stockholder, unless (i) the corporation has elected in its
certificate of incorporation or bylaws not to be governed by the Delaware
anti-takeover law (the Company has not made such an election), (ii) either the
business combination or the transaction which resulted in the stockholder
becoming an "interested stockholder" was approved by the board of directors of
the corporation
40
<PAGE>
before the other party to the business combination became an interested
stockholder, (iii) upon consummation of the transaction that made it an
interested stockholder, the interested stockholder owned at least 85% of the
voting stock of the corporation outstanding at the commencement of the
transaction (excluding voting stock owned by directors who are also officers
or held in employee stock plans in which the employees do not have a right to
determine confidentially whether to tender or vote stock held by the plan), or
(iv) the business combination was approved by the board of directors of the
corporation and ratified by 66 2/3% of the voting stock which the interested
stockholder did not own. The three-year prohibition does not apply to certain
business combinations proposed by an interested stockholder following the
announcement or notification of certain extraordinary transactions involving
the corporation and a person who had not been an interested stockholder during
the previous three years or who became an interested stockholder with the
approval of a majority of the corporation's directors. The term "business
combination" is defined generally to include mergers or consolidations between
a Delaware corporation and an interested stockholder, transactions with an
interested stockholder involving the assets or stock of the corporation or its
majority-owned subsidiaries and transactions which increase an interested
stockholder's percentage ownership of stock. The term "interested stockholder"
is defined generally as a stockholder who becomes the beneficial owner of 15%
or more of a Delaware corporation's voting stock. Section 203 could have the
effect of delaying, deferring or preventing a change in control of the
Company.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
The Company's Certificate of Incorporation provides that directors of the
Company shall not be personally liable to the Company or its stockholders for
monetary damages for breach of fiduciary duty as a director, except for
liability (i) for any breach of the director's duty of loyalty to the Company
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 Delaware General Corporation Law, relating to prohibited
dividends or distributions or the repurchase or redemption of stock, or (iv)
for any transaction from which the director derives an improper personal
benefit. The provision does not apply to claims against a director for
violations of certain laws, including federal securities laws. If the Delaware
General Corporation Law is amended to authorize the further elimination or
limitation of directors' liability, then the liability of directors of the
Company shall automatically be limited to the fullest extent provided by law.
The Company's Certificate of Incorporation also contains provisions requiring
the Company to indemnify its directors, officers, employees or other agents to
the fullest extent permitted by the Delaware General Corporation Law. These
provisions and agreements may have the practical effect in certain cases of
eliminating the ability of stockholders to collect monetary damages from
directors. The Company believes that these provisions in its Certificate of
Incorporation are necessary to attract and retain qualified persons as
directors and officers.
TRANSFER AGENT
The Transfer Agent for the Common Stock is .
41
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for the Common
Stock, and no prediction can be made as to the effect, if any, that market
sales of shares or the availability of such shares for sale will have on the
market price of the Common Stock prevailing from time to time. Sales of
substantial amounts of Common Stock, or the perception that such sales could
occur, could adversely affect the prevailing market price of the Common Stock
and the ability of the Company to raise capital through a sale of its
securities.
Upon completion of this offering, the Company will have shares of
Common Stock outstanding ( shares if the Underwriters' over-allotment
option is exercised in full). Of those shares, the shares sold in this
offering ( shares if the Underwriters' over-allotment option is exercised
in full) will be freely tradeable without restriction (except as to affiliates
of the Company) or further registration under the Securities Act. The
remaining 3,826,485 shares of Common Stock were sold by the Company in
reliance on exemptions from the registration requirements of the Securities
Act and are "restricted securities" within the meaning of Rule 144 under the
Securities Act ("Restricted Securities").
In general, under Rule 144 under the Securities Act as currently in effect,
a person (or persons whose shares are aggregated) who has beneficially owned
Restricted Securities for at least two years, including the holding period of
any prior owner except an affiliate of the Company, would be entitled to sell
within any three-month period a number of shares that does not exceed the
greater of 1% of the then outstanding shares of Common Stock or the average
weekly trading volume of the Common Stock on The Nasdaq National Market during
the four calendar weeks preceding such sale. Sales under Rule 144 are also
subject to certain manner of sale provisions, notice requirements and the
availability of current public information about the Company. Any person (or
persons whose shares are aggregated) who is not deemed to have been an
affiliate of the Company at any time during the three months preceding a sale,
and who has beneficially owned such shares for at least three years (including
any period of ownership of preceding non-affiliated holders), would be
entitled to sell such shares under Rule 144(k) without regard to the volume
limitations, manner of sale provisions, public information requirements or
notice requirements. An "affiliate" is a person that directly, or indirectly
through one or more intermediaries, controls, or is controlled by, or is under
common control with, such issuer.
Rule 144A under the Securities Act as currently in effect generally permits
unlimited resales of certain Restricted Securities of any issuer provided that
the purchaser is a qualified institution that owns and invests on a
discretionary basis at least $100 million in securities (and in the case of a
bank or savings and loan association, has a net worth of at least $25 million)
or is a registered broker-dealer that owns and invests on a discretionary
basis at least $10 million in securities. Rule 144A allows certain existing
stockholders of the Company to sell their shares of Common Stock to such
institutions and registered broker-dealers without regard to any volume or
other restrictions. There can be no assurance that the availability of such
resale exemption will not have an adverse effect on the trading price of the
Common Stock.
The Company, its directors and executive officers and certain other
stockholders have agreed not to offer to sell, sell or otherwise dispose of,
any shares of Common Stock owned by them prior to the expiration of 180 days
from the date of this Prospectus, except (i) in the case of the Company, for
the issuance of shares of Common Stock upon the exercise of outstanding
options or warrants, or the grant of options to purchase shares of Common
Stock under the Equity Incentive Plan and Stock Bonus Plan, and (ii) in the
case of the directors and executive officers of the Company, for the exercise
by such individuals of outstanding options. These individuals and entities
collectively hold shares of Common Stock. Southcoast may, in its sole
discretion and at any time without notice, release all or any portion of the
securities subject to lock-up agreements. Beginning 91 days after the date
hereof, approximately shares of Common Stock will be eligible for sale in
the public market without registration, subject to certain volume and other
limitations, pursuant to Rule 144 under the Securities Act and an additional
shares of Common Stock will become eligible for sale pursuant to Rule 144
following the expiration of the 180 day lock-up period. All shares of Common
Stock outstanding on the date of this Prospectus will be eligible for sale to
certain qualified institutional buyers in accordance with Rule 144A under the
Securities Act, subject to lock-up agreements. In ,
42
<PAGE>
approximately shares of Common Stock held by non-affiliates will be
eligible for sale in the public market without limitation under Rule 144(k)
under the Securities Act. The Securities and Exchange Commission has proposed
an amendment to Rule 144 under the Securities Act which, if adopted as
currently proposed, would permit the sale of such shares of Common Stock
held by non-affiliates without restriction beginning 181 days after the date
of this Prospectus, rather than . Additional shares, including
shares issuable upon exercise of options and warrants, will also become
available for sale in the public market from time to time in the future.
Certain of the Company's stockholders and warrantholders have the right to
cause the Company to register their shares under the Securities Act and to
include their shares in any future registration of securities effected by the
Company under the Securities Act. If such holders, by exercising their demand
registration rights, cause a large number of shares to be sold in the public
market, such sales may have an adverse effect on the market price of the
Common Stock. If the Company is required to include in a Company-initiated
registration shares held by such holders pursuant to the exercise of their
piggyback registration rights, such sales may have an adverse effect on the
Company's ability to raise needed capital. See "Risk Factors--Shares Eligible
for Future Sale" and "Description of Capital Stock--Registration Rights."
The Company intends to file registration statements under the Securities Act
registering the shares of Common Stock reserved for issuance under the Equity
Incentive Plan, the Director Plan, the options granted to non-employee
directors outside of plans and the Stock Bonus Plan. See "Management." These
registration statements are expected to be filed soon after the closing of
this offering and will become effective automatically upon filing.
Accordingly, shares registered under such registration statements will be
available for sale in the open market, unless such shares are subject to
vesting restrictions with the Company and/or lock-up agreements.
43
<PAGE>
UNDERWRITING
The Underwriters named below, for whom Southcoast Capital Corporation and
Ladenburg, Thalmann & Co. Inc. are acting as the representatives (the
"Representatives"), have severally agreed, subject to the terms and conditions
of an underwriting agreement (the "Underwriting Agreement"), to purchase the
respective number of shares of Common Stock set forth opposite their names
below:
<TABLE>
<CAPTION>
NUMBER
UNDERWRITERS OF SHARES
------------ ---------
<S> <C>
Southcoast Capital Corporation.....................................
Ladenburg, Thalmann & Co. Inc. ....................................
----
Total............................................................
====
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the shares of Common Stock
offered hereby are subject to approval of certain legal matters by their
counsel and to certain other conditions. The Underwriters are obligated to
take and pay for all the shares of Common Stock if any are taken.
The Representatives have advised the Company that the Underwriters propose
to offer the shares of Common Stock offered hereby initially at the public
offering price per share set forth on the cover page of this Prospectus and in
part, through the Representatives, to certain other dealers at such price less
a concession not in excess of $ per share; that the Underwriters may allow,
and such dealers may reallow, a discount not in excess of $ per share on
sales to other dealers; and that after the initial public offering, the public
offering price, concession and the discount selling terms may be changed by
the Representatives. The Underwriters have informed the Company that they do
not intend to confirm sales to any accounts over which they exercise
discretionary authority.
The Company has granted the Underwriters an option, exercisable for 45 days
from the date of this Prospectus, to purchase up to an additional shares
of Common Stock, at the initial public offering price less underwriting
discounts. The Underwriters may exercise such option only for the purpose of
covering over-allotments, if any, incurred in connection with the sale of the
Common Stock offered hereby. To the extent that the Underwriters exercise such
option, each Underwriter will become obligated, subject to certain conditions,
to purchase the same percentage of such additional shares as the number of
other shares of Common Stock to be purchased by that Underwriter shown on the
foregoing table bears to the total number of shares initially offered hereby.
The Company has agreed to issue to the Representatives for nominal
consideration warrants to purchase from the Company up to shares of
Common Stock at an exercise price per share equal to 120% of the offering
price (the "Representatives' Warrants"). The Representatives' Warrants are
exercisable for a period of four years beginning one year after the date of
this offering. The Representatives' Warrants may not be transferred, sold,
assigned or hypothecated for a period of one year commencing from the date of
this offering, except that they may be transferred to successors of the holder
and may be assigned in whole or in part to any person who is an officer,
partner or employee of the holder or to any of the several Underwriters or
members of the selling group and/or the officers, partners or employees
thereof during such period, subject to compliance with applicable securities
laws, and contain provisions for appropriate adjustments in the event of stock
splits, stock dividends, combinations, reorganizations, recapitalizations and
other customary anti-dilution provisions. The holders of shares of Common
Stock issued upon exercise of the Representatives' Warrants will have certain
rights to obtain the registration of those shares under the Securities Act. If
the Company registers any shares of
44
<PAGE>
Common Stock for its own account or for the account of other holders for a
period of seven years commencing with the date of this offering, the holders
of shares issued upon exercise of the Representatives' Warrants are entitled
to include their shares of Common Stock in the registration, subject to, in
the event of an underwritten offering, customary underwriters' cutbacks. The
holders of the shares of Common Stock issued upon exercise of the
Representatives' Warrants may also require the Company to register such
shares, subject to certain timing limitations set forth in the
Representatives' Warrants, on one occasion during the five year period
commencing with the date of this offering. The Company will bear all fees,
costs and expenses of such registrations (other than underwriting discounts
and commissions), subject to certain limitations. To the extent that the
Representatives realize any gain from the resale of shares underlying the
Representatives' Warrants, such gain may be deemed additional underwriting
compensation.
The Company has granted the Representatives the right of first refusal to
act as co-managing underwriters in connection with any future secondary public
offerings involving the Company or any subsidiaries for a period of 24 months
from the date of consummation of this offering.
The Company, its directors and executive officers and certain other
stockholders of the Company have agreed with the Underwriters, subject to
limited exceptions, not to offer, sell, pledge, contract to sell, grant any
other option to purchase or otherwise dispose of any shares of Common Stock or
any securities convertible into or exchangeable or exercisable for, or
warrants, rights or options to acquire, shares of Common Stock for a period of
180 days after the date of this Prospectus without the prior written consent
of Southcoast. Southcoast may, in its sole discretion and at any time without
notice, release all or any portion of the securities subject to lock-up
agreements.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act, or to contribute
to payments that they may be required to make in respect thereof.
Prior to this offering, there has been no public trading market for the
Common Stock. The Company intends to apply to have the Common Stock approved
for quotation on The Nasdaq National Market under the symbol "ASTV."
The initial public offering price will be determined through negotiations
between the Company and the Representatives. Among the factors to be
considered in such negotiations will be the Company's results of operations,
current financial condition, future prospects and earnings potential, the
state of the markets for the Company's services, the experience of its
management, the economics of the industry in general, the general condition of
the equity securities market, the demand for similar securities of companies
considered comparable to the Company and other relevant factors. There can be
no assurance that an active trading market will develop for the Common Stock
or that the Common Stock will trade in the public market subsequent to this
offering at or above the initial offering price.
LEGAL MATTERS
Certain legal matters with respect to the legality of the issuance of the
shares of Common Stock offered hereby will be passed upon for the Company by
Fulbright & Jaworski L.L.P., 666 Fifth Avenue, New York, New York 10103.
Attorneys at Fulbright & Jaworski L.L.P. beneficially own an aggregate of
17,861 shares of Common Stock. Certain legal matters in connection with the
Common Stock offered hereby will be passed upon for the Underwriters by
Shereff, Friedman, Hoffman & Goodman, LLP, 919 Third Avenue, New York, New
York 10022.
EXPERTS
The financial statements included in this Prospectus and elsewhere in the
Registration Statement have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their report with respect thereto, and are
included herein and in the Registration Statement in reliance upon the
authority of said firm as experts in giving said report.
45
<PAGE>
ADDITIONAL INFORMATION
A Registration Statement on Form S-1 relating to the Common Stock offered
hereby has been filed by the Company with the Securities and Exchange
Commission (the "Commission"), Washington, D.C. This Prospectus does not
contain all the information set forth in the Registration Statement and the
exhibits and schedules thereto. Statements contained in this Prospectus as to
the contents of any contract or any other document referred to are not
necessarily complete and in each instance reference is made to the copy of
such contract or other document filed as an exhibit to the Registration
Statement, each such statement being qualified in all respects by such
reference. For further information with respect to the Company and the Common
Stock offered hereby, reference is hereby made to the Registration Statement
and to the exhibits and schedules thereto. Copies of the Registration
Statement may be inspected by anyone without charge and may be obtained at
prescribed rates at the Commission at the Public Reference Section of the
Commission, maintained by the Commission at its principal office located at
450 Fifth Street, N.W., Washington, D.C. 20549, the New York Regional Office
located at Seven World Trade Center, New York, New York 10048, and the Chicago
Regional Office located at Northwestern Atrium Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661. The Commission maintains a
worldwide web site on the Internet at http://www.sec.gov that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the Commission.
46
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Public Accountants.................................. F-2
Balance Sheets as of March 31, 1995 and 1996 and June 30, 1996 (Unau-
dited)................................................................... F-3
Statements of Operations For Each of the Three Years in the Period Ended
March 31, 1996 and For the Three Month Periods Ended June 30, 1995 and
1996 (Unaudited)......................................................... F-4
Statements of Stockholders' Equity (deficit) For Each of the Three Years
in the Period Ended March 31, 1996 and For the Three Month Period Ended
June 30, 1996 (Unaudited)................................................ F-5
Statements of Cash Flows For Each of the Three Years in the Period Ended
March 31, 1996 and For the Three Month Periods Ended June 30, 1995 and
1996 (Unaudited)......................................................... F-6
Notes to Financial Statements............................................. F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Access Television Network, Inc.:
We have audited the accompanying balance sheets of ACCESS TELEVISION
NETWORK, INC. (a Delaware corporation) as of March 31, 1995 and 1996, and the
related statements of operations, stockholders' equity and cash flows for each
of the three years in the period ended March 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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Access Television Network,
Inc. as of March 31, 1995 and 1996, and the results of its operations and its
cash flows for each of the three years in the period ended March 31, 1996, in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Orange County, California
May 1, 1996
F-2
<PAGE>
ACCESS TELEVISION NETWORK, INC.
BALANCE SHEETS--MARCH 31, 1995 AND 1996 AND JUNE 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30,
MARCH 31, MARCH 31, 1996
1995 1996 (UNAUDITED)
----------- ----------- -----------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.............. $ 1,964,316 $ 1,462,479 $ 769,413
Accounts and other receivables......... 88,031 31,799 25,501
Prepaid expenses....................... 62,923 16,012 23,408
----------- ----------- -----------
Total current assets................. 2,115,270 1,510,290 818,322
----------- ----------- -----------
PROPERTY AND EQUIPMENT:
Satellite transponder.................. 10,660,148 10,660,148 10,660,148
Machinery and equipment................ 1,732,723 2,216,995 2,408,172
Furniture, fixtures and computer
equipment.............................. 76,157 114,698 140,854
Leasehold improvements................. 14,205 14,205 72,936
----------- ----------- -----------
12,483,233 13,006,046 13,282,110
Less--Accumulated depreciation and
amortization........................... 1,092,577 2,131,380 2,462,477
----------- ----------- -----------
11,390,656 10,874,666 10,819,633
----------- ----------- -----------
OTHER ASSETS............................ 145,000 495,584 577,577
----------- ----------- -----------
$13,650,926 $12,880,540 $12,215,532
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT)
CURRENT LIABILITIES:
Current portion of capital lease
obligation............................. $ 371,078 $ 418,140 $ 430,810
Accounts payable....................... 268,432 257,163 376,421
Accrued affiliate fees................. 320,658 653,233 1,013,139
Customer prepaids...................... 385,099 225,186 244,858
Accrued liabilities.................... 627,141 759,154 632,737
----------- ----------- -----------
Total current liabilities............ 1,972,408 2,312,876 2,697,965
----------- ----------- -----------
CAPITAL LEASE OBLIGATION, net of current
portion................................. 10,203,020 9,784,881 9,672,309
----------- ----------- -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (DEFICIT):
Preferred stock, $.01 par value--
Authorized--4,000,000 shares; 1,000
shares
Series A convertible, issued and
outstanding
at March 31, 1995 and 1996 and June
30, 1996............................ 10 10 10
Common stock, $.01 par value--
Authorized--25,000,000 shares;
3,264,022, 3,680,546
and 3,683,595 shares issued and
outstanding at
March 31, 1995 and 1996 and June 30,
1996, respectively.................. 32,640 36,805 36,836
Additional paid-in capital............. 7,619,311 10,071,145 10,096,714
Accumulated deficit.................... (6,017,613) (9,161,054) (10,167,172)
Less--Notes receivable from
stockholders........................... (158,850) (164,123) (121,130)
----------- ----------- -----------
Total stockholders' equity
(deficit)........................... 1,475,498 782,783 (154,742)
----------- ----------- -----------
$13,650,926 $12,880,540 $12,215,532
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
F-3
<PAGE>
ACCESS TELEVISION NETWORK, INC.
STATEMENTS OF OPERATIONS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED MARCH 31, 1996 AND FOR THE
THREE
MONTH PERIODS ENDED JUNE 30, 1995 AND 1996 (UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30, JUNE 30,
MARCH 31, MARCH 31, MARCH 31, 1995 1996
1994 1995 1996 (UNAUDITED) (UNAUDITED)
---------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
REVENUES................ $ 120,000 $ 3,920,731 $ 8,929,827 $ 1,340,998 $ 3,015,580
LESS: AGENCY
COMMISSIONS............. 18,000 682,469 1,335,191 211,080 451,257
---------- ----------- ----------- ----------- -----------
NET REVENUES............ 102,000 3,238,262 7,594,636 1,129,918 2,564,323
CABLE AFFILIATE FEES.... 177,958 4,886,137 4,510,445 671,057 1,756,561
---------- ----------- ----------- ----------- -----------
Income (loss) after
Cable Affiliate
fees............. (75,958) (1,647,875) 3,084,191 458,861 807,762
---------- ----------- ----------- ----------- -----------
COSTS AND EXPENSES:
General and
administrative......... 254,245 1,122,757 1,388,007 355,732 389,431
Selling and marketing.. 71,088 649,185 981,791 355,054 349,809
Engineering............ 96,872 772,459 1,465,449 313,893 437,219
Depreciation and
amortization........... 16,853 496,769 1,356,452 326,625 347,342
Provision for write-
down of machinery
and equipment....... -- 581,342 -- -- --
---------- ----------- ----------- ----------- -----------
439,058 3,622,512 5,191,699 1,351,304 1,523,801
---------- ----------- ----------- ----------- -----------
Loss from
operations.......... (515,016) (5,270,387) (2,107,508) (892,443) (716,039)
---------- ----------- ----------- ----------- -----------
OTHER INCOME (EXPENSE):
Other income........... -- 62,972 163,049 165,000 --
Interest income........ 3,602 36,189 55,229 12,628 15,020
Interest expense....... -- (320,021) (1,253,411) (318,865) (305,099)
---------- ----------- ----------- ----------- -----------
3,602 (220,860) (1,035,133) (141,237) (290,079)
---------- ----------- ----------- ----------- -----------
Loss before
provision for
state income
taxes............ (511,414) (5,491,247) (3,142,641) (1,033,680) (1,006,118)
---------- ----------- ----------- ----------- -----------
PROVISION FOR STATE
INCOME TAXES........... 800 800 800 800 --
---------- ----------- ----------- ----------- -----------
NET LOSS................ $ (512,214) $(5,492,047) $(3,143,441) $(1,034,480) $(1,006,118)
========== =========== =========== =========== ===========
NET LOSS PER COMMON AND
EQUIVALENT SHARE....... $ (.34) $ (2.00) $ (.84) $ (.28) $ (.24)
---------- ----------- ----------- ----------- -----------
WEIGHTED AVERAGE NUMBER
OF COMMON AND
EQUIVALENT SHARES
OUTSTANDING............ 1,490,348 2,742,423 3,745,250 3,714,935 4,127,776
========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
ACCESS TELEVISION NETWORK, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED MARCH 31, 1996
AND FOR THE THREE MONTHS ENDED JUNE 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK
----------------- -----------------
NOTES
ADDITIONAL RECEIVABLE
PAID-IN ACCUMULATED FROM
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT STOCKHOLDERS TOTAL
-------- ------- --------- ------- ----------- ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, March 31, 1993. -- $ -- 847,433 $ 8,474 $ 115,466 $ (13,352) $ -- $ 110,588
Issuance of common
stock, net of related
offering costs........ -- -- 695,732 6,957 1,291,112 -- (128,850) 1,169,219
Issuance of Series A
convertible preferred
stock................. 1,000 10 -- -- (10) -- -- --
Net loss............... -- -- -- -- -- (512,214) -- (512,214)
-------- ------- --------- ------- ----------- ------------ --------- -----------
BALANCE, March 31, 1994. 1,000 10 1,543,165 15,431 1,406,568 (525,566) (128,850) 767,593
Issuance of common
stock, net of related
offering costs........ -- -- 1,720,857 17,209 6,212,743 -- (30,000) 6,199,952
Net loss............... -- -- -- -- -- (5,492,047) -- (5,492,047)
-------- ------- --------- ------- ----------- ------------ --------- -----------
BALANCE, March 31, 1995. 1,000 10 3,264,022 32,640 7,619,311 (6,017,613) (158,850) 1,475,498
Issuance of common
stock, net of related
offering costs........ -- -- 416,524 4,165 2,451,834 -- -- 2,455,999
Issuance of note
receivable to
stockholder for
purchase of common
shares................ -- -- -- -- -- -- (5,273) (5,273)
Net loss............... -- -- -- -- -- (3,143,441) -- (3,143,441)
-------- ------- --------- ------- ----------- ------------ --------- -----------
BALANCE, March 31, 1996. 1,000 10 3,680,546 36,805 10,071,145 (9,161,054) (164,123) 782,783
Issuance of common
stock in connection
with Stock Bonus Plan. -- -- 3,049 31 25,569 -- -- 25,600
Payment on note
receivable from
Stockholder........... -- -- -- -- -- -- 42,993 42,993
Net loss............... -- -- -- -- -- (1,006,118) -- (1,006,118)
-------- ------- --------- ------- ----------- ------------ --------- -----------
BALANCE, June 30, 1996
(unaudited)............ 1,000 $ 10 3,683,595 $36,836 $10,096,714 $(10,167,172) $(121,130) $ (154,742)
======== ======= ========= ======= =========== ============ ========= ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
ACCESS TELEVISION NETWORK, INC.
STATEMENTS OF CASH FLOWS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED MARCH 31, 1996 AND FOR THE
THREE MONTH PERIODS ENDED JUNE 30, 1995 AND 1996 (UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30, JUNE 30,
MARCH 31, MARCH 31, MARCH 31, 1995 1996
1994 1995 1996 (UNAUDITED) (UNAUDITED)
---------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net loss............... $ (512,214) $(5,492,047) $(3,143,441) $(1,034,480) $(1,006,118)
Adjustments to
reconcile net loss to
net cash
used in operating
activities--
Depreciation and
amortization.......... 16,853 496,769 1,356,452 326,625 347,342
Provision for write-
down of machinery
and equipment....... -- 581,342 -- -- --
Changes in operating
assets and
liabilities--
Accounts and other
receivables........ (9,900) (78,131) 56,232 (90,683) 6,298
Prepaid expenses... (19,904) (43,019) 46,911 (101,812) (7,396)
Other assets....... -- (145,000) (350,584) (34,761) (81,993)
Accounts payable... 117,895 139,477 (11,269) (28,684) 119,258
Accrued affiliate
fees............... 45,451 275,207 332,575 (26,586) 359,906
Customer prepaids.. -- 385,099 (159,913) 80,172 19,672
Accrued 74,044 553,097 132,013 (64,046) (100,817)
liabilities........ ---------- ----------- ----------- ----------- -----------
Net cash used in
operating (287,775) (3,327,206) (1,741,024) (974,255) (343,848)
activities........ ---------- ----------- ----------- ----------- -----------
CASH FLOWS FROM
INVESTING ACTIVITIES:
Purchases of property
and equipment.......... (489,874) (1,343,175) (988,628) (97,861) (293,309)
Proceeds from sale of
property and equipment. -- 7,577 148,166 -- 1,000
Issuance of notes
receivable............. -- -- (5,273) -- --
Repayments of notes 2,785 -- -- -- 42,993
receivable............. ---------- ----------- ----------- ----------- -----------
Net cash used in
investing (487,089) (1,335,598) (845,735) (97,861) (249,316)
activities........ ---------- ----------- ----------- ----------- -----------
CASH FLOWS FROM
FINANCING ACTIVITIES:
Proceeds from issuance
of common stock, net
of related offering
costs................. 1,169,219 6,199,952 2,455,999 -- --
Payments on capital -- (86,050) (371,077) (88,658) (99,902)
lease obligation....... ---------- ----------- ----------- ----------- -----------
Net cash provided
by (used in)
financing 1,169,219 6,113,902 2,084,922 (88,658) (99,902)
activities........ ---------- ----------- ----------- ----------- -----------
NET INCREASE (DECREASE)
IN CASH AND
CASH EQUIVALENTS....... 394,355 1,451,098 (501,837) (1,160,774) (693,066)
CASH AND CASH
EQUIVALENTS, beginning 118,863 513,218 1,964,316 1,964,316 1,462,479
of period.............. ---------- ----------- ----------- ----------- -----------
CASH AND CASH
EQUIVALENTS, end of $ 513,218 $ 1,964,316 $ 1,462,479 $ 803,542 $ 769,413
period.................. ========== =========== =========== =========== ===========
SUPPLEMENTAL DISCLOSURES
OF CASH FLOW
INFORMATION:
Cash paid during the
period for:
Interest............. $ -- $ 320,021 $ 1,253,411 $ 318,865 $ 305,099
========== =========== =========== =========== ===========
Income taxes......... $ -- $ -- $ 1,600 $ 800 $ --
========== =========== =========== =========== ===========
SUPPLEMENTAL DISCLOSURE
OF NONCASH INVESTING
AND FINANCING
ACTIVITIES:
Issuance of 12,860
shares of common stock
as
compensation to $ -- $ -- $ 81,000 $ -- $ --
placement agents...... ========== =========== =========== =========== ===========
Capital lease $ -- $10,660,148 $ -- $ -- $ --
obligation............ ========== =========== =========== =========== ===========
Notes receivable
received in
connection
with the issuance of $ 128,850 $ 30,000 $ -- $ -- $ --
common stock......... ========== =========== =========== =========== ===========
Issuance of Series A
convertible preferred $ 10 $ -- $ -- $ -- $ --
stock................ ========== =========== =========== =========== ===========
Issuance of common
stock in connection
with Stock Bonus $ -- $ -- $ -- $ -- $ 25,600
Plan................. ========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
ACCESS TELEVISION NETWORK, INC.
NOTES TO FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Organization
Access Television Network, Inc., formerly Access TV (the Company), was
incorporated in the State of Delaware on January 12, 1993. The Company
operates a national network exclusively dedicated to the cablecast of
infomercials and other long-form paid programming on local cable television
systems (Cable Affiliates).
Through March 31, 1994, the Company had generated minimal revenues and was
considered to be in the development stage.
The Company has incurred operating losses since its incorporation and has an
accumulated deficit and a working capital deficit as of March 31, 1996. For
the three month period ended June 30, 1996, the Company generated an operating
loss and continues to have an accumulated deficit and a working capital
deficit as of June 30, 1996. The Company has taken steps to improve its
operating performance including restructuring agreements with its Cable
Affiliates which has resulted in reduced cable affiliate fees (See Note 6).
During fiscal 1996, the Company's revenues increased in part as a result of an
increase in the volume of advertisers and advertising rates made possible by
an increase in the households reached by the Company and the improved quality
of time made available to the Company.
The Company's viability and growth is dependent upon its ability to continue
to increase the number of households it reaches, advertisers utilizing its
network and the advertising rates it charges to advertisers and to obtain
better quality dayparts. The Company's ability to expand its advertiser base
will depend on the Company's ability to increase the number of cable systems
and households available to it. The number of households reached by the
Company is also a significant factor in attracting infomercials earlier in
their life cycle for which management believes the Company is more likely to
receive higher fees. The Company is currently attempting to achieve these
objectives by, among other things, establishing new, as well as expanding
existing affiliate relationships, obtaining longer term affiliate commitments
and securing the availability of both a greater quantity and a higher quality
of time. The Company's failure to achieve any one of these objectives, among
others, could have a material adverse effect on the Company and its
operations.
The Company plans to finance its operations through its existing capital
resources and proceeds from debt or equity offerings, including the Company's
proposed initial public offering. The Company will require additional funds to
achieve the objectives discussed above. Should the proposed initial public
offering not be completed, the Company anticipates that its existing capital
resources and the proceeds from a private debt or equity offering will be
adequate to fund its capital needs for at least a twelve month period (See
Note 12).
b. Accounting Estimates
The preparation of 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 and
disclosures of contingencies at the date of the financial statements and the
reported amounts of revenues and expenses during the reported period. Actual
results could differ from estimated amounts.
c. Cash Equivalents
The Company considers all highly liquid temporary cash investments with an
initial maturity of three months or less to be cash equivalents. In all years
presented the carrying amount of cash equivalents approximates their fair
value because of the short maturity period.
F-7
<PAGE>
ACCESS TELEVISION NETWORK, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
d. Property and Equipment
Depreciation and amortization of property and equipment are provided using
the straight-line method over the following estimated useful lives:
<TABLE>
<S> <C>
Satellite transponder..................... 12 years
Machinery and equipment................... 3 to 5 years
Furniture, fixtures and computer
equipment................................. 5 years
Leasehold improvements.................... Lesser of remaining term of
lease or estimated useful life
</TABLE>
Maintenance, repairs and minor renewals are charged directly to expense as
incurred. Additions and betterments to property and equipment are capitalized.
When assets are disposed of, the applicable cost and accumulated depreciation
and amortization thereon are removed from the accounts and any resulting gain
or loss is included in operations.
e. Other Assets
As of March 31, 1996, other assets includes $345,584 of direct costs
incurred relating to a proposed initial public offering of the Company's
common stock and $150,000 of deposits. The $345,584 of direct costs will be
offset against the proceeds of the initial public offering at the completion
of the offering or expensed if the offering is not completed.
f. Revenue Recognition
Revenue is recorded upon the cablecasting of paid programming. The Company
records revenues based on the prices charged to its advertisers less credits,
if applicable. The Company does not receive the amount reported as revenues,
but rather receives the net revenue amount from the applicable advertising
agency. Net revenues represent revenues less an approximately 15 percent
advertising commission to outside advertising agencies.
g. Cable Affiliate Fees
Cable Affiliate fees are matched against revenues based upon the estimated
full year amount of affiliate fees as a percentage of estimated full year
revenue.
h. Income Taxes
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes."
i. Postretirement and Postemployment Benefits
The Company has no benefit plans that qualify under Statement of Financial
Accounting Standards No. 106, "Employers' Accounting for Postretirement
Benefits other than Pensions" or Statement of Financial Accounting Standards
No. 112, "Employers' Accounting for Postemployment Benefits."
j. Net Loss Per Common and Equivalent Share
Except as noted below, net loss per common and equivalent share is computed
using the weighted average number of common shares outstanding. Common
equivalent shares are excluded from the computation as their effect is
antidilutive, except that, pursuant to the Securities and Exchange Commission
(SEC) Staff Accounting Bulletin No. 83, common and common equivalent shares
(stock options and warrants) issued or granted during the period commencing 12
months prior to the initial filing of a proposed public offering at prices
below the assumed public offering price have been included in the calculation
as if they were outstanding for all periods presented using the treasury stock
method at an assumed public offering price (see Note 8).
F-8
<PAGE>
ACCESS TELEVISION NETWORK, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
k. Stock Splits
On October 20, 1993, the Board of Directors declared a four for one common
stock split effective November 1, 1993.
On February 7, 1994, the Board of Directors declared a 556 for one common
stock split and also issued .04321 shares of Series A convertible preferred
stock for each share of common stock held immediately prior to the split (see
Note 8).
Subsequent to year end, the Board of Directors approved a one for 10.497587
common stock split.
All share and per share data have been retroactively restated to give effect
to the four for one, 556 for one and one for 10.497587 common stock splits.
l. Impact of Recently Issued Accounting Standards
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 121 "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." SFAS No.
121 requires that long-lived assets and certain identifiable intangibles to be
held and used be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable based on the estimated future cash flows (undiscounted and without
interest charges). SFAS No. 121 also requires that long-lived assets and
certain identifiable intangibles to be disposed of be reported at the lower of
carrying amount or fair value less costs to sell. The Company plans to adopt
SFAS No. 121 as of April 1, 1996, and believes the effect of adoption will not
be material to the financial statements.
In October 1995, the Financial Accounting Standards Board issued SFAS No.
123 "Accounting for Stock-Based Compensation." Under SFAS No. 123, companies
have the option to implement a fair value-based accounting method or continue
to account for employee stock options and stock purchase plans using the
intrinsic value-based method of accounting as prescribed by Accounting
Principles Board (APB) Opinion No. 25 "Accounting for Stock Issued to
Employees." Entities electing to remain under APB Opinion No. 25 must make pro
forma disclosures of net income or loss and earnings per share as if the fair
value-based method of accounting defined in SFAS No. 123 had been applied.
SFAS No. 123 is effective for financial statements for fiscal years beginning
after December 15, 1995. The Company has not yet determined whether it will
implement the fair value-based accounting method or continue accounting for
stock options under APB Opinion No. 25.
m. Basis of Presentation for Unaudited Financial Statements as of June 30,
1996 and for the Three Month Periods Ended June 30, 1996 and 1995
(unaudited)
The accompanying interim financial statements have been prepared by the
Company in accordance with generally accepted accounting principles. Certain
disclosures and information normally included in financial statements have
been condensed or omitted. In the opinion of the management of the Company,
these financial statements contain all adjustments (consisting only of normal
recurring adjustments) necessary for a fair presentation of the interim
periods. These statements should be read in conjunction with the financial
statements and notes thereto for the year ended March 31, 1996.
2. WRITE-DOWN OF MACHINERY AND EQUIPMENT
During fiscal 1995, the Company recorded a charge of $581,342 to adjust the
carrying value of tape-based distribution equipment to estimated net
realizable value. The provision resulted from the decision to replace tape-
based distribution equipment with satellite-based distribution equipment. The
Company replaced the majority of
F-9
<PAGE>
ACCESS TELEVISION NETWORK, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
the tape-based distribution systems during fiscal 1996 and the replacement of
the remaining equipment is anticipated to be completed during fiscal 1997.
3. CAPITAL LEASE
Effective January 1995, the Company entered into a lease agreement which
provides the Company with satellite transponder time for delivery of its
programming. The lease provides for full time usage for 12 years and requires
that if there is a failure of the satellite during the term of the lease, a
back-up satellite will be attempted, onto which the Company's programming will
be moved within a reasonable period of time. The lease provides that the
Company's use of the transponder may be preempted to satisfy obligations to
provide the Company's transponder to a television network, in the event the
transponder the other television network is leasing fails and no other
designated reserve transponder is available. In the event of preemption, the
lessor has agreed to use its reasonable efforts to place the Company on a
comparable replacement satellite. Although the lease provides that such lessor
will use reasonable efforts to place the Company's programming on a
replacement satellite in the event of preemption, there can be no assurance
that such party will be able to do so, and the failure to do so would have a
material adverse effect on the Company until an alternative delivery system
could be established. In addition, there can be no assurance that the
satellite will continue to function as intended, in which case the Company
will have to find an alternate satellite, which may not be available, or use a
more costly alternative delivery system, which could also have a material
adverse effect on the Company.
The transponder lease rate is $145,000 per month (not including playback and
uplink fees associated with 24 hour programming), until December 31, 1998,
when the rate will increase to $155,000 per month until the end of the lease.
Future minimum payments under this capital lease at March 31, 1996, together
with the present value of the minimum lease payments, are as follows:
<TABLE>
<S> <C>
Fiscal year ending March 31:
1997....................................................... $ 1,740,000
1998....................................................... 1,740,000
1999....................................................... 1,770,000
2000....................................................... 1,860,000
2001....................................................... 1,860,000
Thereafter................................................. 10,695,000
-----------
Future minimum payments...................................... 19,665,000
Less--Amount representing interest........................... 8,171,979
-----------
11,493,021
Less--Executory costs........................................ 1,290,000
-----------
Present value of minimum lease payments...................... 10,203,021
Less--Current portion........................................ 418,140
-----------
$ 9,784,881
===========
</TABLE>
Below is a summary of the equipment which has been capitalized under capital
leases as of March 31, 1995 and 1996:
<TABLE>
<CAPTION>
1995 1996
----------- -----------
<S> <C> <C>
Cost............................................. $10,660,148 $10,660,148
Less--Accumulated depreciation................... 222,086 1,110,432
----------- -----------
Net property under capital leases................ $10,438,062 $ 9,549,716
=========== ===========
</TABLE>
F-10
<PAGE>
ACCESS TELEVISION NETWORK, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
4. ACCRUED LIABILITIES
Accrued liabilities consist of the following at March 31, 1995 and 1996 and
June 30, 1996:
<TABLE>
<CAPTION>
JUNE 30,
MARCH 31, MARCH 31, 1996
1995 1996 (UNAUDITED)
--------- --------- -----------
<S> <C> <C> <C>
Accrued credits due to advertisers....... $121,029 $ 61,792 $ 67,174
Accrued salaries and bonuses............. 142,000 296,000 233,700
Accrued property taxes................... 109,198 144,098 160,098
Accrued uplink charges................... -- 106,250 --
Other accrued liabilities................ 254,914 151,014 171,765
-------- -------- --------
$627,141 $759,154 $632,737
======== ======== ========
</TABLE>
5. INCOME TAXES
The components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Current:
Federal.................................................. $-- $-- $--
State.................................................... 800 800 800
---- ---- ----
$800 $800 $800
==== ==== ====
</TABLE>
The reported provision for income taxes differs from the amount computed by
applying the statutory Federal income tax rate of 34 percent to the loss
before provision for income taxes as follows:
<TABLE>
<CAPTION>
1994 1995 1996
--------- ----------- -----------
<S> <C> <C> <C>
Benefit computed at statutory rate..... $(173,745) $(1,867,296) $(1,068,498)
State income taxes..................... 800 800 800
Nondeductible expenses................. 1,042 11,226 22,837
Book loss for which no tax benefit is
available.............................. 172,703 1,856,070 1,045,661
--------- ----------- -----------
$ 800 $ 800 $ 800
========= =========== ===========
</TABLE>
The components of the Company's net deferred income tax asset (liability)
are as follows:
<TABLE>
<CAPTION>
1995 1996
----------- -----------
<S> <C> <C>
Net operating loss carryforwards.................. $ 2,080,976 $ 3,161,822
Provision for write-down of machinery and
equipment......................................... 232,537 169,976
Capital lease..................................... 54,414 261,322
Accrued credits due to advertisers................ 48,412 24,716
Accrued salaries and bonuses...................... -- 38,463
Depreciation and amortization..................... (22,212) (69,685)
Other............................................. (2,413) 56,228
Valuation allowance............................... (2,391,714) (3,642,842)
----------- -----------
$ -- $ --
=========== ===========
</TABLE>
A valuation allowance is provided when it is more likely than not that some
portion or all of the deferred tax asset will not be realized.
F-11
<PAGE>
ACCESS TELEVISION NETWORK, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
At March 31, 1996, the Company had federal and state net operating loss
carryforwards of approximately $7,865,000 and $3,932,000, respectively,
expiring in years 2008 through 2011 and 1998 through 2001, respectively.
Realization of future tax benefits from utilization of the net operating loss
carryforwards may be subject to certain limitations if ownership changes occur
in the future.
6. COMMITMENTS AND CONTINGENCIES
Operating Leases
The Company leases certain facilities and equipment under noncancellable
operating lease agreements which expire at various dates through March 1999.
Rental expense for the fiscal years ended March 31, 1994, 1995 and 1996, was
$5,780, $37,598 and $48,247, respectively.
As of March 31, 1996, future minimum rental commitments under noncancellable
operating leases are as follows:
<TABLE>
<S> <C>
Fiscal Year Ending March 31:
1997........................................................... $ 75,808
1998........................................................... 86,873
1999........................................................... 61,479
--------
$224,160
========
</TABLE>
Service Agreements
In January 1995, the Company entered into a service agreement whereby a
third party will provide playback services in connection with the Company's
broadcasting of paid programming. The term of this agreement is three years
with monthly payments of approximately $41,500. In the event of default by the
Company, as defined, all sums due to the third party, as well as the balance
due for the remainder of the term of the agreement will be due. The amounts
expensed under this agreement for fiscal years 1995 and 1996 were $83,000 and
$498,000, respectively.
During January 1995, the Company entered into an agreement, which was
subsequently amended, whereby a third party will provide program origination
and uplink transmission of the Company's programming to the Company's
satellite transponder (see Note 3). The term of this agreement is five years.
Under the amended terms, the third party will provide program origination
services as well as uplinking services for $36,025 per month for three years
increasing to $38,963 and $41,900 per month for years four and five,
respectively. In addition to other charges for services that are incidental to
the uplink and program origination services, the Company may add additional
channels with this provider for additional fees, as defined. Amounts expensed
under this arrangement for fiscal years 1995 and 1996 were approximately
$52,500 and $434,000, respectively.
In November 1994, the Company entered into a service agreement whereby a
third party will provide infomercial sales representative services to the
Company on a non-exclusive basis. The third party became a stockholder of the
Company in March 1996. The term of this agreement is for five years, with
automatic renewal periods of one year, unless written notice of termination is
given by either party 90 or more days before the expiration date. Commissions
are to be paid based upon a defined percentage of accounts receivable
collections. Substantially all of the Company's sales of time to infomercial
advertisers are made by such sales representative. To the extent that such
sales representative devoted less time to the Company or terminated his
agreement, the Company could be materially adversely affected, unless such
sales representative could be replaced. Amounts expensed under this
arrangement for fiscal years 1995 and 1996 were $184,738 and $366,281,
respectively.
F-12
<PAGE>
ACCESS TELEVISION NETWORK, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Cable Affiliates
The Company contracts with local cable television systems (Cable Affiliates)
for blocks of underutilized time. The Company's agreements with Cable
Affiliates typically have a five year term, but the Company or the Cable
Affiliates may cancel the agreement upon 30 to 90 days notice, with or without
cause, and also may terminate the agreements at any time if commissions paid
under the agreements do not meet certain threshold levels or if the Cable
Affiliates' system is not generating sufficient advertiser response. During
fiscal 1995, the Company restructured its Cable Affiliates agreements in an
effort to make the payment structure more closely reflect the value of the
dayparts provided by the Cable Affiliates. Pursuant to these agreements, the
Company pays its Cable Affiliates the greater of a percentage of the net
advertising revenue recognized by the Company or a minimum monthly guarantee
based upon the time of day programming is aired. This restructuring has
resulted in reduced Cable Affiliate fees.
Employment Agreements
On April 1, 1995, the Company entered into employment agreements with two of
its officers that provide for a defined level of compensation, additional
compensation in the form of bonuses based on performance and life insurance
coverage. The agreements are for two years, with a Company option to extend
for an additional period of two years and provide for severance benefits in
the event of termination without cause or a change in control, as defined. The
agreements specify minimum guaranteed salaries aggregating $530,000 for fiscal
1997. If the Company exercises its option, the officers would be guaranteed
minimum salaries aggregating $580,000 and $630,000 for fiscal 1998 and 1999,
respectively. The agreements also called for 90,497 stock options to be
granted at $8.40 per share which vest over a two year period.
Stock Bonus Plan
In April 1996, the Company adopted a Stock Bonus Plan (the Plan) providing
for the grant of shares of common stock to non-executive employees as bonuses
and as performance incentives in recognition of loyal and exemplary service.
The Plan is administered by the Chief Executive Officer of the Company, or by
such other officer as the Board of Directors may designate. A total of 9,526
shares are available for issuance under the Plan. If the recipient of shares
under the Plan proposes to sell such shares within one year of the date of
grant of shares under the Plan, the shares must first be re-offered to the
Company at fair market value before the recipient can sell such shares. The
Company expensed $25,600 under the Plan during fiscal 1996 in anticipation of
the Plan being adopted and during the three month period ended June 30, 1996,
the Company issued 3,049 shares under the Plan.
Bonus Plan
On March 31, 1995, the Company finalized an annual bonus plan program (the
Plan) for key management personnel. Beginning in fiscal 1996, the Plan
provides bonuses based upon the achievement of various targets, both financial
and non-financial, as well as the participants' contributions to the Company.
The Company expensed approximately $147,500 under the Plan for fiscal 1996
which amount is unpaid and reflected in accrued liabilities in the
accompanying balance sheets as of March 31, 1996.
Regulations
The cable television industry is subject to extensive federal, state and
local regulation. Regulation can take the form of price controls, programming
carriage requirements and programming content restrictions. Such regulation
could affect the availability of time on local cable television systems for
sale by the Company as well as the price at which such time is available.
There can be no assurance that material adverse changes in regulations
affecting the cable television industry, in general, or the Company, in
particular, will not occur in the future.
F-13
<PAGE>
ACCESS TELEVISION NETWORK, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
7. CAPITAL TRANSACTIONS
In October 1993, the Company changed the par value of its common stock from
$1.00 to $.01. All amounts in the accompanying financial statements are
reflected with a $.01 par value.
In fiscal 1994, the Company had several private offerings of its common
stock to its existing stockholders and selected outside investors. Total
proceeds from these offerings were $1,298,069, net of offering costs of
$74,281, for 695,732 shares at prices ranging from $1.36 to $5.25 per share
(estimated market value at dates sold). A portion of the purchase price for
94,417 shares was funded by the issuance of a note receivable of $128,850,
bearing interest at approximately four percent per annum.
In fiscal 1995, the Company completed several private offerings of its
common stock. Total proceeds from these offerings were $6,229,952, net of
offering costs of $561,292, for 1,720,857 shares at prices ranging from $2.10
to $6.82 per share (estimated market value at dates sold). The Company loaned
an officer $30,000 to fund his purchase of 14,289 shares of common stock. This
note bears interest at approximately 7 percent per annum.
In connection with certain of the above transactions, 67,690 warrants were
issued to certain placement agents involved in the offerings at prices ranging
from $5.25 to $8.40 per share (see Note 9). Additionally, certain of the above
shares have piggyback registration rights or other registration rights.
In fiscal 1996, the Company completed two private offerings of its common
stock. Total proceeds from these offerings were $2,455,999, net of offering
costs of $124,001, for 416,524 shares at prices ranging from $6.30 to $8.40
per share (estimated market value at dates sold). All shares issued have
piggyback registration rights and other registration rights.
In connection with one of the private offerings during fiscal 1996, the
Company issued 404,911 warrants to stockholders and placement agents. The
warrants have piggyback and demand registration rights and are exercisable at
$6.30 per share (see Note 9).
During fiscal 1996, the Company loaned an officer $5,273 to fund the
purchase of shares of common stock from another stockholder. This note bears
interest at 7.19 percent per annum.
Subsequent to year end, the Company approved a decrease in its authorized
number of common shares to 25,000,000.
8. PREFERRED STOCK
The Company's Certificate of Incorporation currently authorizes the issuance
of up to 1,000,000 shares of preferred stock, $.01 par value per share, of
which 1,000 shares have been designated as Series A convertible preferred
stock and 999,000 shares remain undesignated.
Subsequent to year end, the Company approved an increase in its authorized
number of Preferred Stock to 4,000,000.
As noted in Note 1.k., on February 1, 1994, the Company issued .04321 shares
of Series A convertible preferred stock for each share of common stock then
held.
The Series A convertible preferred stock has no voting rights, dividend
rights or preferences upon liquidation. Each share of Series A preferred stock
will be automatically converted into 286 shares of common stock if, on or
before March 31, 1998, the Company reports annual net income before taxes of
$12 million or the closing price of the common stock, as traded on a national
securities exchange or quoted in an inter-dealer
F-14
<PAGE>
ACCESS TELEVISION NETWORK, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
quotation system, is $41.99 or greater for twenty consecutive business days.
If neither threshold has been met by March 31, 1998, the Series A preferred
stock will be canceled. The conversion ratio of the Series A preferred stock
is automatically adjusted to account for stock splits, stock dividends and
certain other dilutive events. The Series A preferred stock may be canceled at
any time upon the approval by the Board of Directors of the Company and
holders of a majority of the outstanding Series A preferred stock.
Subsequent to year end, the Board of Directors approved a resolution to
convert the 1,000 preferred shares to 142,890 common shares. For purposes of
net loss per common and equivalent share, the 142,890 converted common shares
were treated as outstanding for all periods presented.
9. STOCK OPTION PLANS AND WARRANTS
a. Stock Options
In April 1994, the Company adopted the Equity Incentive Plan (the "Equity
Incentive Plan"). The Equity Incentive Plan provides for the grant of non-
qualified stock options, incentive stock options, stock appreciation rights,
restricted stock and stock units. Under the Equity Incentive Plan the maximum
number and kind of shares as to which options, stock appreciation rights,
restricted stock or stock units may be granted (subject to adjustment in
certain events), is 285,780 shares of common stock. Upon the expiration,
termination or cancellation (in whole or in part) of unexercised non-qualified
or incentive stock options, the shares of common stock subject thereto will
again be available for issuance under the Equity Incentive Plan. Shares of
common stock covered by an option, or portion thereof, that are surrendered
upon exercise of a stock appreciation right, and shares of restricted stock
that are subsequently forfeited, will thereafter be unavailable for issuance
under the Equity Incentive Plan. Upon any change in control of the Company (as
defined), vesting of all awards under the Equity Incentive Plan will be
accelerated.
Participation in the Equity Incentive Plan is limited to employees or
consultants of the Company who are responsible for the Company's growth and
profitability. Directors who are not employees or consultants will not be
eligible. The Equity Incentive Plan is administered by the Compensation
Committee of the Company's Board of Directors, none of whose members is
eligible to participate in the Equity Incentive Plan.
Also, in April 1994, the Company adopted the Stock Option Plan for Non-
Employee Directors. Options for a total of 28,578 shares of common stock were
granted under such plan. The Company also granted options for 28,578 shares of
common stock to other non-employee directors of the Company outside the plan.
Upon any change in control of the Company, as defined, vesting of all options
granted to non-employee directors will be accelerated.
As of March 31, 1996, all issuances under the Equity Incentive Plan and to
non-employee directors were either non-qualified or incentive stock options.
Options under the above plans are granted at prices not less than the fair
market value at the date of grant and can become exercisable in installments
ranging up to 10 years from the date of grant. The vesting periods of the
options outstanding as of March 31, 1996 range from two to four years.
F-15
<PAGE>
ACCESS TELEVISION NETWORK, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The following is a summary of transactions relating to the above grants for
the fiscal years ended March 31, 1995 and 1996:
<TABLE>
<CAPTION>
SHARES PRICE
------- -----------
<S> <C> <C>
Outstanding at March 31, 1994....................... -- $ --
Granted............................................. 204,809 6.82
Exercised........................................... -- --
Canceled............................................ (61,919) 6.82
------- -----------
Outstanding at March 31, 1995....................... 142,890 6.82
Granted............................................. 109,549 8.40
Exercised........................................... -- --
Canceled............................................ -- --
------- -----------
Outstanding at March 31, 1996....................... 252,439 $6.82-$8.40
======= ===========
</TABLE>
As of March 31, 1996, options to acquire 66,880 shares were exercisable, and
options to acquire 90,498 shares remained available for grant under the Equity
Incentive Plan.
In April 1996, the Board of Directors granted under the Equity Incentive
Plan 9,526 incentive stock options to an officer and, in addition, granted
options for 9,526 shares to a non-employee director at $8.40 per share.
b. Warrants
In connection with certain of the Company's private offerings of common
stock during fiscal 1994, 1995 and 1996, the Company has issued a total of
472,601 warrants to purchase shares of the Company's common stock to certain
placement agents and to stockholders. The exercise price of the warrants
ranges from $5.25 to $8.40 per share, as adjusted for antidilution provisions
triggered in defined circumstances. The warrants are exercisable at the
earlier of an initial public offering, upon notice of any merger,
consolidation or other defined transaction or January 1, 1999 for warrants
issued during fiscal 1994 and 1995 and October 15, 1999 for warrants issued
during fiscal 1996. The warrants terminate at the later of July 1, 1999 for
fiscal 1994 and 1995 warrants and October 15, 2000 for fiscal 1996 warrants,
or the third anniversary of the closing of an initial public offering if
closed prior to January 1, 1999 and October 15, 1999, respectively. The
warrantholders also have demand, piggyback and other registration rights.
10. RELATED PARTY TRANSACTIONS
The following summarizes various related party transactions for the fiscal
years ended March 31, 1994, 1995 and 1996:
<TABLE>
<CAPTION>
1994 1995 1996
------- -------- --------
<S> <C> <C> <C>
Amounts paid to a director and stockholder for
consulting services.................................. $23,076 $ 45,362 $130,814
Amounts paid to a stockholder for accounting
services............................................. $21,500 $ 6,858 $ --
Fees paid to various companies affiliated with
stockholders and/or directors for providing services
in connection with various stock offerings........... $56,350 $472,398 $461,146
Amounts paid to stockholder for sales commissions
(see Note 6)......................................... $ -- $ -- $366,281
</TABLE>
Approximately $95,000 of the fees paid during fiscal 1996 related to the
stock offerings have been offset against the applicable proceeds. The majority
of the remaining balance has been capitalized as deferred costs, which are
included in other assets in the accompanying balance sheets at March 31, 1996.
For the fiscal years ended March 31, 1994 and 1995, the fees paid related to
the stock offerings have been offset against the applicable proceeds.
F-16
<PAGE>
ACCESS TELEVISION NETWORK, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
During fiscal 1996, the Company issued 12,860 shares of common stock and
12,860 warrants to two directors as compensation for their services rendered
as placement agents for a private offering.
In addition, in May 1994, a director and stockholder loaned the Company
approximately $52,000, with interest at 10 percent per annum. This loan was
repaid, with interest of $285, in June 1994.
11. MAJOR CUSTOMERS AND SUPPLIERS
For the three month period ended June 30, 1996, the Company derived net
revenues of $605,132 and $454,933, or 24 percent and 18 percent, respectively,
of net revenues from two major infomercial advertisers.
For the three month period ended June 30, 1996, the Company incurred cable
affiliate fees of $612,209 and $389,885, or 35 percent and 22 percent,
respectively, of aggregate cable affiliate fees to two Cable Affiliates.
For the fiscal year ended March 31, 1996, the Company derived net revenues
of $1,373,295 and $917,740, or 18 percent and 12 percent, respectively, of net
revenues from two major infomercial advertisers.
For the fiscal year ended March 31, 1996, the Company incurred cable
affiliate fees of $1,718,287 and $1,456,470, or 38 percent and 32 percent,
respectively, of aggregate cable affiliate fees to two Cable Affiliates.
For the fiscal year ended March 31, 1995, the Company derived net revenues
of $630,605, $580,656, $571,791 and $328,952, or 20 percent, 18 percent, 18
percent and 10 percent, respectively, of net revenues from four advertisers.
For the fiscal year ended March 31, 1995, the Company incurred cable
affiliate fees of $1,704,555 and $1,590,227, or 35 percent and 33 percent,
respectively, of aggregate cable affiliate fees to two Cable Affiliates.
The ownership of cable affiliates on which the Company is focused is
concentrated among a small number of multiple cable systems operators (MSO's).
Additionally, a substantial number of infomercials are produced by a small
number of producers and the Company believes this industry will undergo
further consolidation. To date, the Company has focused on attracting large
infomercial advertisers and large national MSO's. As a result, for fiscal
years ended March 31, 1995 and 1996, approximately 75 percent and 57 percent,
respectively, of the Company's net revenues were derived from sales to six
infomercial advertisers (three of which were the same in each period). In the
event that one of these major infomercial advertisers decided not to use the
Company to cablecast their advertisements or should one of these major MSO's
decide to cancel or not renew its affiliation agreement with the Company, it
could result in a material adverse effect to the Company.
12. SUBSEQUENT EVENT (UNAUDITED)
In September 1996, the Company entered into a $1,000,000 revolving credit
facility with certain of its stockholders, directors and executive officers.
Loans under this facility will bear interest at 9% per annum and will be due
the earlier of December 12, 1996 or upon the closing of the Company's initial
public offering. In connection with this facility, the Company issued warrants
to purchase an aggregate of 200,000 shares of its common stock at a per share
exercise price equal to the initial public offering price and agreed to pay
the lenders fees of $65,000.
F-17
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO DEALER, SALES REPRESENTATIVE OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS OFFER-
ING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH
OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY
SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS
OF ANY TIME SUBSEQUENT TO ITS DATE. THIS PROSPECTUS DOES NOT CONSTITUTE AN OF-
FER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE
REGISTERED SECURITIES TO WHICH IT RELATES, OR AN OFFER TO SELL OR A SOLICITA-
TION OF AN OFFER TO BUY SUCH SECURITIES IN ANY JURISDICTION IN WHICH SUCH OF-
FER OR SOLICITATION IS UNLAWFUL.
-------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 6
Use of Proceeds........................................................... 11
Dividend Policy........................................................... 11
Capitalization............................................................ 12
Dilution.................................................................. 13
Selected Financial Information............................................ 14
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 15
Business.................................................................. 20
Management................................................................ 29
Certain Transactions...................................................... 34
Principal Stockholders.................................................... 37
Description of Capital Stock.............................................. 39
Shares Eligible for Future Sale........................................... 42
Underwriting.............................................................. 44
Legal Matters............................................................. 45
Experts................................................................... 45
Additional Information.................................................... 46
Index to Financial Statements............................................. F-1
</TABLE>
-------------
UNTIL , 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS EF-
FECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT PARTICIPAT-
ING IN THE DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS RE-
QUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS
WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
LOGO
ACCESS TELEVISION NETWORK, INC.
SHARES OF COMMON STOCK
-------------
PROSPECTUS
-------------
SOUTHCOAST CAPITAL CORPORATION
LADENBURG THALMANN & CO. INC.
, 1996
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth an itemized statement of all estimated
expenses in connection with the issuance and distribution of the securities
being registered:
<TABLE>
<S> <C>
SEC filing fee.............................................. $ 8,724.14
NASD filing fee............................................. $ 3,030.00
Nasdaq National Market Listing Fee.......................... $
Printing and engraving expenses............................. $100,000.00*
Legal fees and expenses..................................... $165,000.00*
Accounting fees and expenses................................ $100,000.00*
Blue Sky expenses and counsel fees.......................... $ 15,000.00*
Transfer agent and registrar fees........................... $ 40,000.00*
Consulting Fees............................................. $281,831.00
Miscellaneous............................................... $206,414.86*
-----------
Total................................................... $920,000.00*
===========
</TABLE>
- --------
*Estimated.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145(a) of the General Corporation Law of the State of Delaware
("GCL") provides that a Delaware corporation may indemnify any person who was
or is a party or is threatened to be made a party to any threatened, pending
or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right of
the corporation), by reason of the fact that he is or was a director, officer,
employee or agent of the corporation or is or was serving at the request of
the corporation as a director, officer, employee or agent of another
corporation or enterprise, against expenses, judgments, fines and amounts paid
in settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
cause to believe his conduct was unlawful.
Section 145(b) of the GCL provides that a Delaware corporation may indemnify
any person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that such
person acted in any of the capacities set forth above, against expenses
actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted under similar standards, except
that no indemnification may be made in respect of any claim, issue or matter
as to which such person shall have been adjudged to be liable to the
corporation unless and only to the extent that the court in which such action
or suit was brought shall determine that, despite the adjudication of
liability, such person is fairly and reasonably entitled to be indemnified for
such expenses which the court shall deem proper.
Section 145 of the GCL further provides that to the extent a director or
officer of a corporation has been successful in the defense of any action,
suit or proceeding referred to in subsections (a) and (b) or in the defense of
any claim, issue or matter therein, he shall be indemnified against expenses
actually and reasonably incurred by him in connection therewith; that
indemnification provided for by Section 145 of the GCL shall not be deemed
exclusive of any other rights to which the indemnified party may be entitled;
and that the corporation may purchase and maintain insurance on behalf of any
person who is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of
II-1
<PAGE>
another corporation or enterprise, against any liability asserted against him
or incurred by him in any such capacity or arising out of his status as such
whether or not the corporation would have the power to indemnify him against
such liabilities under such Section 145.
The Company's Certificate of Incorporation provides that the Company shall
indemnify certain persons, including officers, directors, employees and
agents, to the fullest extent permitted by Section 145 of the GCL. Reference
is made to the Certificate of Incorporation filed as Exhibit 3.1. The
Company's directors and officers are insured against losses arising from any
claim against them as such for wrongful acts or omission, subject to certain
limitations.
Under Section of the Underwriting Agreement, the Underwriters are
obligated, under certain circumstances, to indemnify officers, directors and
controlling persons of the Company against certain liabilities, including
liabilities under the Securities Act. Reference is made to the form of
Underwriting Agreement filed as Exhibit 1.1 hereto.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
There have been no issuances of the Company's securities within the past
three years except as follows:
In February and March 1993, the Company issued an aggregate of 847,433
shares for an aggregate consideration of $123,940.
In November and December 1993, the Company issued an aggregate of 378,333
shares for an aggregate consideration of $500,000.
In February 1994, the Company issued 1,000 shares of Series A Convertible
Preferred Stock in connection with a recapitalization of the Company.
Contemporaneously, the Company sold 204,353 shares of Common Stock to an
affiliate of Spencer Trask Securities Incorporated for an aggregate
consideration of $278,850.
In March, April and May 1994, the Company sold an aggregate of 118,789
shares of Common Stock for an aggregate consideration of $623,500 and issued
warrants to placement agent to purchase 4,954 shares at $5.25 per share.
In April through November 1994, the Company sold an aggregate of 502,496
shares of Common Stock for an aggregate consideration of $3,428,750 and issued
warrants to placement agents to purchase 50,250 shares at $6.82 per share.
In January and February 1995, the Company issued 1,025,342 shares of Common
Stock pursuant to a rights offering made to its existing stockholders for an
aggregate consideration of $2,152,744.
In November 1994 through February 1995, the Company sold an aggregate of
124,870 shares of Common Stock for an aggregate consideration of $1,179,750
and issued rights to acquire 62,433 shares to the purchasers and warrants to
the placement agent to acquire 12,487 shares at $8.40 per share.
In May 1995, certain principals of Waller Capital Corporation purchased
17,861 shares of Common Stock for an aggregate consideration of $150,000.
From October 1995 through March 1996, the Company sold an aggregate of
385,803 shares of Common Stock for an aggregate consideration of $2,430,000
and (including 385,803 warrants to purchase 385,803 shares at a per warrant
exercise price of $6.30) issued warrants to the placement agents to purchase
12,860 shares at $6.30 per share.
In September 1996, the Company issued warrants to purchase an aggregate of
200,000 shares of Common Stock at a per share exercise price equal to the
initial public offering price of this offering in connection with certain of
its stockholders, directors, and executive officers making available to the
Company a $1 million revolving credit facility.
The foregoing transactions were exempt from registration pursuant to Section
4(2) of the Securities Act of 1933, as amended. All share amounts have been
adjusted to reflect all stock splits.
II-2
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits.
<TABLE>
<CAPTION>
NO. DESCRIPTION
----- -----------
<C> <S>
1.1 Form of Underwriting Agreement.+
3.1 Certificate of Incorporation.+
3.2 By-laws.
4 Specimen Stock Certificate.+
5 Opinion of Fulbright & Jaworski L.L.P.+
10.1 Letter Agreement of Employment, dated April 27, 1995, for William R.
Cullen.
10.2 Letter Agreement of Employment, dated April 27, 1995, for William H.
Bernard.
10.3 Equity Incentive Plan.
10.4 Stock Option Plan for Non-Employee Directors.
10.5 Stock Bonus Plan.
10.6 Standard Sublease, dated March 21, 1996.
10.7 Consent to Sublease and Amendment to Lease, dated March 21, 1996.
10.8 Standard Office Lease, dated April 2, 1996.
10.9 Transponder Lease Agreement between Triumph Communications, Inc. and
the Company for Hughes Communications' Galaxy VII, dated August 1,
1994, expiring December 31, 2006.
10.10 Agreement between the Company and Chelsea Television Studios, Inc. for
the provision of playback services, dated January 16, 1995.
10.11 Uplinking Service Agreement between the Company and Home Box Office,
effective as of January 18, 1995, as amended February 1996.
10.12 Consulting Agreement, between the Company and Donald Masters.
10.13 Standard Form of Affiliation Agreement.
10.14 Form of Affiliation Agreement with Time Warner.+
10.15 Form of Affiliation Agreement with TCI.+
10.16 Loan Agreement, dated as of September 12, 1996, among the Company and
the lenders named therein.+
10.17 Agreement between the Company and Universal Direct Television Inc.,
dated November 7, 1994.+
23.1 Consent of Arthur Andersen LLP
23.2 Consent of Fulbright & Jaworski L.L.P. (included in its opinion filed
as Exhibit 5).+
24 Power of Attorney (included on the signature page to this Registration
Statement).
27 Financial Data Schedule.
</TABLE>
- --------
+ To be filed by amendment.
ITEM 17. UNDERTAKINGS
A. Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers, and controlling persons
of the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question of
whether such indemnification by it is against public policy as expressed in
the Act and will be governed by the final adjudication of such issue.
II-3
<PAGE>
B. The undersigned Registrant hereby undertakes to provide to the
underwriters at the closing specified in the Underwriting Agreement,
certificates in such denominations and registered in such names as required by
the underwriters to permit prompt delivery to each purchaser.
C. The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post--effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in Irvine, California, on September 20,
1996.
ACCESS TELEVISION NETWORK, INC.
/s/ William R. Cullen
By: _________________________________
William R. Cullen Chairman of the
Board and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each individual whose signature appears
below and on the following page constitutes and appoints each of William R.
Cullen and William H. Bernard as his true and lawful attorney-in-fact and
agent, each acting alone, with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities, to sign
any and all amendments to this Registration Statement, including post-effective
amendments, and to file the same, with all exhibits thereto, and all documents
in connection therewith, with the Securities and Exchange Commission, granting
unto each said attorney-in-fact and agent full power and authority to do and
perform each and every act and thing requisite and necessary to be done in and
about the premises, as fully to all intents and purposes as he might or could
do in person, and hereby ratifies and confirms all that any said attorney-in-
fact and agent, each acting alone, or his substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ William R. Cullen Chairman of the Board, Chief September 20,
- ------------------------ Executive Officer and Director 1996
William R. Cullen (principal executive officer)
/s/ William H. Bernard President and Director September 20,
- ------------------------ 1996
William H. Bernard
/s/ Roger Monaco Vice President of Finance, Chief September 20,
- ------------------------ Financial Officer, Secretary and 1996
Roger Monaco Treasurer (principal financial
and accounting officer)
Director
/s/ George H. Henry September 20,
- ------------------------ 1996
George H. Henry
II-5
<PAGE>
SIGNATURE TITLE DATE
/s/ William H. Ingram Director September 20,
- ------------------------- 1996
William H. Ingram
/s/ Nimrod J. Kovacs Director September 20,
- ------------------------- 1996
Nimrod J. Kovacs
/s/ Earl A. Samson III Director September 20,
- ------------------------- 1996
Earl A. Samson III
/s/ Frederick G. P. Thorne Director September 20,
- ------------------------- 1996
Frederick G. P. Thorne
II-6
<PAGE>
EXHIBIT 3.2
BYLAWS
------
OF
ACCESS TV, INC.
---------------
(a Delaware corporation)
-----------------------
ARTICLE I
---------
STOCKHOLDERS
------------
1. CERTIFICATES REPRESENTING STOCK. Certificates representing
--------------------------------
stock in the corporation shall be signed by, or in the name of, the corporation
by the Chairman or Vice-Chairman of the Board of Directors, if any, or by the
President or a Vice-President and by the Treasurer or an Assistant Treasurer or
the Secretary or an Assistant Secretary of the corporation. Any or all the
signatures on any such certificate may be a facsimile. In case any officer,
transfer agent, or registrar who has signed or whose facsimile signature has
been placed upon a certificate shall have ceased to be such officer, transfer
agent, or registrar before such certificate is issued, it may be issued by the
corporation with the same effect as if he were such officer, transfer agent, or
registrar at the date of issue.
Whenever the corporation shall be authorized to issue more than one
class of stock or more than one series of any class of stock, and whenever the
corporation shall issue any shares of its stock as partly paid stock, the
certificates representing shares of any such class or series or of any such
partly paid stock shall set forth thereon the statements prescribed by the
General Corporation Law. Any restrictions on the transfer or registration of
transfer of any shares of stock of any class or series shall be noted
conspicuously on the certificate representing such shares.
The corporation may issue a new certificate of stock or uncertificated
shares in place of any certificate theretofore issued by it, alleged to have
been lost, stolen, or destroyed, and the Board of Directors may require the
owner of the lost, stolen, or destroyed certificate, or his legal
representative, to give the corporation a bond sufficient to indemnify the
corporation against any claim that may be made against it on account of the
alleged loss, theft, or destruction of any such certificate or the issuance of
any such new certificate or uncertificated shares.
<PAGE>
2. UNCERTIFICATED SHARES. Subject to any conditions imposed by
---------------------
the General Corporation Law, the Board of Directors of the corporation may
provide by resolution or resolutions that some or all of any or all classes or
series of the stock of the corporation shall be uncertificated shares. Within a
reasonable time after the issuance or transfer of any uncertificated shares, the
corporation shall send to the registered owner thereof any written notice
prescribed by the General Corporation Law.
3. FRACTIONAL SHARE INTERESTS. The corporation may, but shall not
--------------------------
be required to, issue fractions of a share. If the corporation does not issue
fractions of a share, it shall (1) arrange for the disposition of fractional
interests by those entitled thereto, (2) pay in cash the fair value of fractions
of a share as of the time when those entitled to receive such fractions are
determined, or (3) issue scrip or warrants in registered form (either
represented by a certificate or uncertificated) or bearer form (represented by
a certificate) which shall entitle the holder to receive a full share upon the
surrender of such scrip or warrants aggregating a full share. A certificate for
a fractional share or an uncertificated fractional share shall, but scrip or
warrants shall not unless otherwise provided therein, entitle the holder to
exercise voting rights, to receive dividends thereon, and to participate in any
of the assets of the corporation in the event of liquidation. The Board of
Directors may cause scrip or warrants to be issued subject to the conditions
that they shall become void if not exchanged for certificates representing the
full shares or uncertificated full shares before a specified date, or subject to
the conditions that the shares for which scrip or warrants are exchangeable may
be sold by the corporation and the proceeds thereof distributed to the holders
of scrip or warrants, or subject to any other conditions which the Board of
Directors may impose.
4. STOCK TRANSFERS. Upon compliance with provisions restricting
---------------
the transfer or registration of transfer of shares of stock, if any, transfers
or registration of transfers of shares of stock of the corporation shall be made
only on the stock ledger of the corporation by the registered holder thereof, or
by his attorney thereunto authorized by power of attorney duly executed and
filed with the Secretary of the corporation or with a transfer agent or a
registrar, if any, and, in the case of shares represented by certificates, on
surrender of the certificate or certificates for such shares of stock properly
endorsed and the payment of all taxes due thereon.
-2-
<PAGE>
5. RECORD DATE FOR STOCKHOLDERS. 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, the Board of Directors may fix a
record date, which record date shall not precede the date upon which the
resolution fixing the record date is adopted by the Board of Directors, and
which record date shall not be more than sixty nor less than ten days before the
date of such meeting. If no record date is fixed by the Board of Directors, the
record date for determining stockholders entitled to notice of or to vote at a
meeting of stockholders shall be at the close of business on the day next
preceding the day on which notice is given, or, if notice is waived, at the
close of business on the day next preceding the day on which the meeting is
held. 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. In order that the corporation may determine the stockholders
entitled to consent to corporate action in writing without a meeting, the Board
of Directors may fix a record date, which record date shall not precede the date
upon which the resolution fixing the record date is adopted by the Board of
Directors, and which date shall not be more than ten days after the date upon
which the resolution fixing the record date is adopted by the Board of
Directors. If no record date has been fixed by the Board of Directors, the
record date for determining the stockholders entitled to consent to corporate
action in writing without a meeting, when no prior action by the Board of
Directors is required by the General Corporation Law, shall be the first date on
which a signed written consent setting forth the action taken or proposed to be
taken is 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 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. If no record date has been fixed by the Board of Directors and prior
action by the Board of Directors is required by the General Corporation Law, the
record date for determining stockholders entitled to consent to corporate action
in writing without a meeting shall be at the close of business on the day on
which the Board of Directors adopts the resolution taking such prior action. In
order that the corporation may determine the stockholders entitled to receive
payment of any dividend or other distribution or allotment of any rights or the
stockholders 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 a record date, which record
date shall not precede the date upon which the resolution fixing the record date
is adopted, and which record date shall be not more than sixty days prior to
such action. If no record date is fixed, the record date for determining
stockholders for any such purpose shall be at the close of business on the day
on which the Board of Directors adopts the resolution relating thereto.
6. MEANING OF CERTAIN TERMS. As used herein in respect of the
------------------------
right to notice of a meeting of stockholders or a waiver thereof or to
participate or vote thereat or to consent or dissent in writing in lieu of a
meeting, as the case may be, the term "share" or "shares" or "share of stock" or
"shares of stock" or "stockholder" or "stockholders" refers to an outstanding
share or shares of stock and to a holder or holders of record of outstanding
shares of stock when the corporation is authorized to issue only one class of
shares of stock, and said reference is also intended to include any outstanding
share or shares of stock and any holder or holders of record of outstanding
shares of stock of any class upon which or upon whom the certificate of
incorporation confers such rights where there are two or more classes or series
of shares of stock or upon which or upon whom the General Corporation Law
confers such rights notwithstanding that the certificate of incorporation may
provide for more than one class or series of shares of stock, one or more of
which are limited or denied such rights thereunder; provided, however, that no
such right shall vest in the event of an increase or a decrease in the
authorized number of shares of stock of any class or series which is otherwise
denied voting rights under the provisions of the certificate of incorporation,
except as any provision of law may otherwise require.
7. STOCKHOLDER MEETINGS.
--------------------
- TIME. The annual meeting shall be held on the date and at the time
----
fixed, from time to time, by the directors, provided, that the first annual
meeting shall be held on a date within thirteen months after the organization of
the corporation, and each successive annual meeting shall be held on a date
within thirteen months after the date of the preceding annual meeting. A
special meeting shall be held on the date and at the time fixed by the
directors.
- PLACE. Annual meetings and special meetings shall be held at such
-----
place, within or without the State of Delaware, as the directors may, from time
to time, fix. Whenever the directors shall fail to fix such place, the meeting
shall be held at the registered office of the corporation in the State of
Delaware.
-4-
<PAGE>
- CALL. Annual meetings and special meetings may be called by the
-----
directors or by any officer instructed by the directors to call the meeting.
- NOTICE OR WAIVER OF NOTICE. Written notice of all meetings shall be
---------------------------
given, stating the place, date, and hour of the meeting and stating the place
within the city or other municipality or community at which the list of
stockholders of the corporation may be examined. The notice of an annual
meeting shall state that the meeting is called for the election of directors and
for the transaction of other business which may properly come before the
meeting, and shall (if any other action which could be taken at a special
meeting is to be taken at such annual meeting) state the purpose or purposes.
The notice of a special meeting shall in all instances state the purpose or
purposes for which the meeting is called. The notice of any meeting shall also
include, or be accompanied by, any additional statements, information, or
documents prescribed by the General Corporation Law. Except as otherwise
provided by the General Corporation Law, a copy of the notice of any meeting
shall be given, personally or by mail, not less than ten days nor more than
sixty days before the date of the meeting, unless the lapse of the prescribed
period of time shall have been waived, and directed to each stockholder at his
record address or at such other address which he may have furnished by request
in writing to the Secretary of the corporation. Notice by mail shall be deemed
to be given when deposited, with postage thereon prepaid, in the United States
Mail. If a meeting is adjourned to another time, not more than thirty days
hence, and/or to another place, and if an announcement of the adjourned time
and/or place is made at the meeting, it shall not be necessary to give notice of
the adjourned meeting unless the directors, after adjournment, fix a new record
date for the adjourned meeting. Notice need not be given to any stockholder who
submits a written waiver of notice signed by him before or after the time stated
therein. Attendance of a stockholder at a meeting of stockholders shall
constitute a waiver of notice of such meeting, except when the stockholder
attends the meeting for the express purpose of objecting, at the beginning of
the meeting, to the transaction of any business because the meeting is not
lawfully called or convened. Neither the business to be transacted at, nor the
purpose of, any regular or special meeting of the stockholders need be specified
in any written waiver of notice.
- STOCKHOLDER LIST. The officer who has charge of the stock ledger of
-----------------
the corporation shall prepare and make, at least ten days before every meeting
of stockholders, a complete list of the stockholders, arranged in alphabetical
order, and showing the address of each stockholder and the
-5-
<PAGE>
number of shares registered in the name of each stockholder. Such list shall
be open to the examination of any stockholder, for any purpose germane to the
meeting, during ordinary business hours, for a period of at least ten days prior
to the meeting, either at a place within the city or other municipality or
community where the meeting is to be held, which place shall be specified in the
notice of the meeting, or if not so specified, at the place where the meeting is
to be held. The list shall also be produced and kept at the time and place of
the meeting during the whole time thereof, and may be inspected by any
stockholder who is present. The stock ledger shall be the only evidence as to
who are the stockholders entitled to examine the stock ledger, the list required
by this section or the books of the corporation, or to vote at any meeting of
stockholders.
- CONDUCT OF MEETING. Meetings of the stockholders shall be presided
-------------------
over by one of the following officers in the order of seniority and if present
and acting - the Chairman of the Board, if any, the Vice-Chairman of the Board,
if any, the President, a Vice-President, or, if none of the foregoing is in
office and present and acting, by a chairman to be chosen by the stockholders.
The Secretary of the corporation, or in his absence, an Assistant Secretary,
shall act as secretary of every meeting, but if neither the Secretary nor an
Assistant Secretary is present the Chairman of the meeting shall appoint a
secretary of the meeting.
- PROXY REPRESENTATION. Every stockholder may authorize another person
---------------------
or persons to act for him by proxy in all matters in which a stockholder is
entitled to participate, whether by waiving notice of any meeting, voting or
participating at a meeting, or expressing consent or dissent without a meeting.
Every proxy must be signed by the stockholder or by his attorney-in-fact. No
proxy shall be voted or acted upon after three years from its date unless such
proxy provides for a longer period. A duly executed proxy shall be irrevocable
if it states that it is irrevocable and, if, and only as long as, it is coupled
with an interest sufficient in law to support an irrevocable power. A proxy may
be made irrevocable regardless of whether the interest with which it is coupled
is an interest in the stock itself or an interest in the corporation generally.
- INSPECTORS. The directors, in advance of any meeting, may, but need
-----------
not, appoint one or more inspectors of election to act at the meeting or any
adjournment thereof. If an inspector or inspectors are not appointed, the person
presiding at the meeting may, but need not, appoint one or more inspectors. In
case any person who may
-6-
<PAGE>
be appointed as an inspector fails to appear or act, the vacancy may be filled
by appointment made by the directors in advance of the meeting or at the meeting
by the person presiding thereat. Each inspector, if any, before entering upon
the discharge of his duties, shall take and sign an oath faithfully to execute
the duties of inspectors at such meeting with strict impartiality and according
to the best of his ability. The inspectors, if any, shall determine the number
of shares of stock outstanding and the voting power of each, the shares of stock
represented at the meeting, the existence of a quorum, the validity and effect
of proxies, and shall receive votes, ballots, or consents, hear and determine
all challenges and questions arising in connection with the right to vote, count
and tabulate all votes, ballots, or consents, determine the result, and do such
acts as are proper to conduct the election or vote with fairness to all
stockholders. On request of the person presiding at the meeting, the inspector
or inspectors, if any, shall make a report in writing of any challenge,
question, or matter determined by him or them and execute a certificate of any
fact found by him or them. Except as otherwise required by subsection (e) of
Section 231 of the General Corporation Law, the provisions of that Section shall
not apply to the corporation.
- QUORUM. The holders of a majority of the outstanding shares of stock
-------
shall constitute a quorum at a meeting of stockholders for the transaction of
any business. The stockholders present may adjourn the meeting despite the
absence of a quorum.
- VOTING. Each share of stock shall entitle the holders thereof to one
------
vote. Directors shall be elected by a plurality of the votes of the shares
present in person or represented by proxy at the meeting and entitled to vote on
the election of directors. Any other action shall be authorized by a majority
of the votes cast except where the General Corporation Law prescribes a
different percentage of votes and/or a different exercise of voting power, and
except as may be otherwise prescribed by the provisions of the certificate of
incorporation and these Bylaws. In the election of directors, and for any other
action, voting need not be by ballot.
8. STOCKHOLDER ACTION WITHOUT MEETINGS. Any action required by
-----------------------------------
the General Corporation Law to be taken at any annual or special meeting of
stockholders, or any action which may be taken at any annual or special meeting
of stockholders, may be taken without a meeting, without prior notice and
without a vote, if a consent in writing, setting forth the action so taken,
shall be signed by the holders of outstanding stock having not less than the
-7-
<PAGE>
minimum number of votes that would be necessary to authorize or take such action
at a meeting at which all shares entitled to vote thereon were present and
voted. 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. Action taken pursuant to this paragraph shall be
subject to the provisions of Section 228 of the General Corporation Law.
ARTICLE II
----------
DIRECTORS
---------
1. FUNCTIONS AND DEFINITION. The business and affairs of the
------------------------
corporation shall be managed by or under the direction of the Board of Directors
of the corporation. The Board of Directors shall have the authority to fix the
compensation of the members thereof. The use of the phrase "whole board" herein
refers to the total number of directors which the corporation would have if
there were no vacancies.
2. QUALIFICATIONS AND NUMBER. A director need not be a
-------------------------
stockholder, a citizen of the United States, or a resident of the State of
Delaware. The initial Board of Directors shall consist of three persons.
Thereafter the number of directors constituting the whole board shall be at
least one. Subject to the foregoing limitation and except for the first Board
of Directors, such number may be fixed from time to time by action of the
stockholders or of the directors, or, if the number is not fixed, the number
shall be three. The number of directors may be increased or decreased by action
of the stockholders or of the directors.
3. ELECTION AND TERM. The first Board of Directors, unless the
-----------------
members thereof shall have been named in the certificate of incorporation, shall
be elected by the incorporator or incorporators and shall hold office until the
first annual meeting of stockholders and until their successors are elected and
qualified or until their earlier resignation or removal. Any director may
resign at any time upon written notice to the corporation. Thereafter,
directors who are elected at an annual meeting of stockholders, and directors
who are elected in the interim to fill vacancies and newly created
directorships, shall hold office until the next annual meeting of stockholders
and until their successors are elected and qualified or until their earlier
resignation or removal. Except as the General Corporation Law may otherwise
require, in the interim between annual meetings of stockholders or of special
meetings of stockholders called for the election of directors and/or for the
removal of one or more directors
-8-
<PAGE>
and for the filling of any vacancy in that connection, newly created
directorships and any vacancies in the Board of Directors, including unfilled
vacancies resulting from the removal of directors for cause or without cause,
may be filled by the vote of a majority of the remaining directors then in
office, although less than a quorum, or by the sole remaining director.
4. MEETINGS.
---------
- TIME. Meetings shall be held at such time as the Board shall fix,
-----
except that the first meeting of a newly elected Board shall be held as soon
after its election as the directors may conveniently assemble.
- PLACE. Meetings shall be held at such place within or without the
------
State of Delaware as shall be fixed by the Board.
- CALL. No call shall be required for regular meetings for which the
-----
time and place have been fixed. Special meetings may be called by or at the
direction of the Chairman of the Board, if any, the Vice-Chairman of the Board,
if any, of the President, or of a majority of the directors in office.
NOTICE OR ACTUAL OR CONSTRUCTIVE WAIVER. No notice shall be required
----------------------------------------
for regular meetings for which the time and place have been fixed. Written,
oral, or any other mode of notice of the time and place shall be given for
special meetings in sufficient time for the convenient assembly of the directors
thereat. Notice need not be given to any director or to any member of a
committee of directors who submits a written waiver of notice signed by him
before or after the time stated therein. Attendance of any such person at a
meeting shall constitute a waiver of notice of such meeting, except when he
attends a meeting for the express purpose of objecting, at the beginning of the
meeting, to the transaction of any business because the meeting is not lawfully
called or convened. Neither the business to be transacted at, nor the purpose
of, any regular or special meeting of the directors need be specified in any
written waiver of notice.
- QUORUM AND ACTION. A majority of the whole Board shall constitute a
------------------
quorum except when a vacancy or vacancies prevents such majority, whereupon a
majority of the directors in office shall constitute a quorum, provided, that
such majority shall constitute at least one-third of the whole Board. A
majority of the directors present, whether or not a quorum is present, may
adjourn a meeting to another time and place. Except as herein otherwise
-9-
<PAGE>
provided, and except as otherwise provided by the General Corporation Law, the
vote of the majority of the directors present at a meeting at which a quorum is
present shall be the act of the Board. The quorum and voting provisions herein
stated shall not be construed as conflicting with any provisions of the General
Corporation Law and these Bylaws which govern a meeting of directors held to
fill vacancies and newly created directorships in the Board or action of
disinterested directors.
Any member or members of the Board of Directors or of any committee
designated by the Board, may participate in a meeting of the Board, or any such
committee, as the case may be, by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other.
- CHAIRMAN OF THE MEETING. The Chairman of the Board, if any and if
------------------------
present and acting, shall preside at all meetings. Otherwise, the Vice-Chairman
of the Board, if any and if present and acting, or the President, if present and
acting, or any other director chosen by the Board, shall preside.
5. REMOVAL OF DIRECTORS. Except as may otherwise be provided by
---------------------
the General Corporation Law, any director or the entire Board of Directors may
be removed, with or without cause, by the holders of a majority of the shares
then entitled to vote at an election of directors.
6. COMMITTEES. The Board of Directors may, by resolution passed
-----------
by a majority of the whole Board, designate one or more committees, each
committee to consist of one or more of the directors of the corporation. The
Board may designate one or more directors as alternate members of any committee,
who may replace any absent or disqualified member at any meeting of the
committee. In the absence or disqualification of any member of any such
committee or committees, the member or members thereof present at any meeting
and not disqualified from voting, whether or not he or they constitute a quorum,
may unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified member. Any such
committee, to the extent provided in the resolution of the Board, shall have and
may exercise the powers and authority of the Board of Directors in the
management of the business and affairs of the corporation with the exception of
any authority the delegation of which is prohibited by Section 141 of the
General Corporation Law, and may authorize the seal of the corporation to be
affixed to all papers which may require it.
-10-
<PAGE>
7. WRITTEN ACTION. Any action required or permitted to be taken
--------------
at any meeting of the Board of Directors or any committee thereof may be taken
without a meeting if all members of the Board or 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 or committee.
ARTICLE III
-----------
OFFICERS
--------
The officers of the corporation shall consist of a President, a
Secretary, a Treasurer, and, if deemed necessary, expedient, or desirable by the
Board of Directors, a Chairman of the Board, a Vice-Chairman of the Board, an
Executive Vice-President, one or more other Vice-Presidents, one or more
Assistant Secretaries, one or more Assistant Treasurers, and such other officers
with such titles as the resolution of the Board of Directors choosing them shall
designate. Except as may otherwise be provided in the resolution of the Board
of Directors choosing him, no officer other than the Chairman or Vice-Chairman
of the Board, if any, need be a director. Any number of offices may be held by
the same person, as the directors may determine.
Unless otherwise provided in the resolution choosing him, each officer
shall be chosen for a term which shall continue until the meeting of the Board
of Directors following the next annual meeting of stockholders and until his
successor shall have been chosen and qualified.
All officers of the corporation shall have such authority and perform
such duties in the management and operation of the corporation as shall be
prescribed in the resolutions of the Board of Directors designating and choosing
such officers and prescribing their authority and duties, and shall have such
additional authority and duties as are incident to their office except to the
extent that such resolutions may be inconsistent therewith. The Secretary or an
Assistant Secretary of the corporation shall record all of the proceedings of
all meetings and actions in writing of stockholders, directors, and committees
of directors, and shall exercise such additional authority and perform such
additional duties as the Board shall assign to him. Any officer may be removed,
with or without cause, by the Board of Directors. Any vacancy in any office may
be filled by the Board of Directors.
-11-
<PAGE>
ARTICLE IV
----------
CORPORATE SEAL
--------------
The corporate seal shall be in such form as the Board of Directors
shall prescribe.
ARTICLE V
---------
FISCAL YEAR
-----------
The fiscal year of the corporation shall be fixed, and shall be subject
to change, by the Board of Directors.
ARTICLE VI
----------
CONTROL OVER BYLAWS
-------------------
Subject to the provisions of the certificate of incorporation and the
provisions of the General Corporation Law, the power to amend, alter, or repeal
these Bylaws and to adopt new Bylaws may be exercised by the Board of Directors
or by the stockholders.
I HEREBY CERTIFY that the foregoing is a full, true, and correct copy
of the Bylaws of ACCESS TV, INC., a Delaware corporation, as in effect on the
date hereof.
Dated: 1/22/93
/s/ Roger Monaco
-------------------------------
Secretary of
ACCESS TV, INC.
(SEAL)
-12-
<PAGE>
EXHIBIT 10.1
ACCESS TELEVISION NETWORK, INC.
April 27, 1995
William R. Cullen
2062 Business Center Drive, Suite 230
Irvine, CA 92715
Dear Mr. Cullen:
Access Television Network ("ATN" or the "Corporation"), a Delaware corporation
with its principal place of business at 2062 Business Center Drive, Suite 230,
Irvine, California 92715, desires to secure for itself your continued services
and expertise as Chairman of the Board of Directors and Chief Executive Officer.
This letter is to establish in writing the terms and conditions of your
continued employment with the Corporation.
1. You will be responsible for providing leadership, direction, and control
for all aspects of the Corporation's operations in order to realize optimum
performance compatible with the best long- and short-term interests of the
stockholders. You will also be responsible for presiding at, and setting the
agenda for, all meetings of the Board of Directors.
2. In accepting this position, you agree that this responsibility shall be
your full-time and primary means of employment and that you will apply your
professional energies on a full-time basis to the execution of your
responsibilities with the Corporation.
3. In your role as Chairman and CEO, you will be the recipient of information
of a confidential nature regarding the Corporation. You agree that you shall not
make use of or otherwise reveal any such trade secret or confidence of the
Corporation, including any information about the Corporation or its business
which is not generally available to the public including, but not limited to,
any such information involving planning, analysis or strategy, or any investor,
customer, supplier, financial, legal, or other proprietary information. Upon
termination of employment, you agree to promptly surrender all documents, maps,
records, data and other information representing, reflecting or containing trade
secrets or confidences. The provisions of this paragraph shall survive the term
of your employment with the Corporation. It is acknowledged that, in the event
of a breach of this confidentiality agreement, the Corporation's remedies at law
may be inadequate and that the Corporation will therefore be entitled to
injunctive or other equitable remedies in addition to all other legal remedies.
4. Your initial period of employment ("Initial Period") under this agreement
will commence on April 1, 1995 and continue under the terms of this Agreement
through March 31, 1997. The Corporation shall reserve an irrevocable option to
extend the term of this contract, on generally the same terms and conditions,
for a maximum of one additional successive period of
<PAGE>
William R. Cullen
April 27, 1995
Page 2
two years. Notice to exercise such option ("Option Period") shall be provided
to you 180 days prior to the expiration of the initial period of employment.
5. You will be compensated for services rendered as follows:
(a) During the Initial Period, the Corporation shall pay you an annual
base salary of $300,000 per year, payable biweekly at $11,538.47 gross and
subject to the proper withholding as per the W-4 on file with the Corporation.
On April 1, 1996, your base salary shall be increased to $330,000 per year.
During the Option Period, your base salary would be increased to not less than
$360,000 per year for the third year of employment and to $390,000 for the
fourth year of employment. Notwithstanding the above, annual increases in base
salary in the Initial and Option Periods may be deferred by the Board of
Directors for up to one year based upon the Company's financial condition at the
time the base salary is otherwise scheduled to be increased.
(b) In addition to base salary you will be eligible to participate
in the Corporation's Annual Executive Bonus Plan (see Attachment A which is
attached hereto and made a part hereof).
(c) Stock options will be granted (the "second grant") as of the
date hereof, subject to the terms of the Corporation's Equity Incentive Plan, in
the amount of 650,000 shares at an exercise price of $0.80 per share. Vesting
shall occur according to a vesting, schedule of 325,000 shares one year from the
date of grant and 325,000 shares two years from the date of grant. The terms of
this option will be more fully set forth in a separate option certificate
between ATN and you. None of the above precludes the Compensation Committee of
the Board of Directors from granting, additional options or equity at its
discretion.
6. The Corporation will provide non-contributory family health insurance
for your spouse and your dependents, if any, at the same level of coverage as
provided to the Corporation's other employees in accordance with the health
insurance plan maintained by the Corporation. In addition, the Corporation will
reimburse you for any expense not fully covered by this health insurance plan
which you incur for a complete annual physical examination.
7. The Corporation will provide you during your employment under this
Agreement with $750,000 of form life insurance.
8. If during the term of this Agreement you become disabled or
incapacitated, mentally or physically, the Corporation will pay your base salary
for up to 180 days commencing with the first day you are determined to be
disabled. The term "disabled or incapacitated," as used herein, shall mean that
you are unable to perform all or substantially all of the duties and
<PAGE>
William R. Cullen
April 27, 1995
Page 3
responsibilities required of you by the Corporation under the terms of this
Agreement. Such disability shall be certified by a qualified physician jointly
selected by you and the Corporation. If you are unable or unwilling to
designate a physician, you shall make yourself available for examination by a
qualified physician designated by the company.
9. You shall be entitled to five weeks' vacation with pay during each
full year of the term of this Agreement. In addition you shall be entitled to
holidays and other time off with pay, e.g., bereavement, jury duty, as provided
other employees of the Corporation.
10. If your employment as Chairman of the Board of Directors and CEO is
terminated by the Company during the Initial Period of employment for any
reason other than fraud, dishonesty, breach of any covenant herein, or gross
misconduct, the Corporation shall, for the balance of the employment term, but
in no event less than one year from the expiration of the Initial Period: (1)
continue to pay you the base salary on a monthly basis; (2) continue your health
insurance as described in paragraph 6 above unless and until you commence full-
time reemployment.
11. In the event of a Change of Control of ATN during the Initial
Period of Employment, you will be entitled to the terms described in paragraph
10, except that the severance pay shall not be less than twenty-four months of
base salary, unless you elect to continue employment with the successor company,
at your sole discretion. "Change of Control" shall mean a consolidation or
merger involving ATN, or sale of all or substantially all of the assets of ATN,
or other transaction in which more than 50 percent of the outstanding shares of
ATN Stock are exchanged for securities, cash or other property of any other
corporation or business entity.
12. You covenant and agree that during the term of this agreement and
for a period of two years thereafter, you shall neither directly or indirectly:
(a) Divert, attempt to divert, or assist others in diverting to any
other competitive establishment, by direct or indirect inducement, solicitation,
or otherwise, any customer, supplier or client of the Corporation;
(b) Use or employ any confidential information regarding employees,
suppliers or clients of the Corporation in diverting or attempting to divert
those clients, suppliers or employees to another entity that competes with the
Corporation; or
(c) Be employed by, maintain, engage in, participate in, or have any
interest in the operation of any enterprise in the same or substantially similar
business as that conducted
<PAGE>
William R. Cullen
April 27, 1995
Page 4
by the Corporation located within the United States, without the Corporation's
prior written approval.
You and we hereby acknowledge and agree that the duration and area for which the
covenant not to compete set forth above is to be effective are fair and
reasonable and are reasonably required for the protection of the Corporation.
In the event that any court determines that the time period or the area, or both
of them, are unreasonable and that such covenant is to that extent
unenforceable, you and we hereby agree that this paragraph shall be deemed
amended to delete therefrom such provisions or portions adjudicated to be
unenforceable so that the covenant shall remain in full force and effect for the
greatest time period and in the greatest area that would not render it
unenforceable.
13. Neither the obligation or rights of William R. Cullen hereunder shall
be assignable or transferable, whether by pledge, creation of a security
interest or otherwise, but the obligations and rights of ATN hereunder shall be
binding upon, and inure to the benefit of, any successor or assignee of ATN.
14. This agreement is intended to contain the entire agreement among
the parties. All prior negotiations, agreements, and understandings are
superseded.
15. This agreement can be amended only in writing signed by both
parties and shall in all respects be construed and enforced in accordance with,
and governed by, the laws of the state of California.
<PAGE>
William R. Cullen
April 27, 1995
Page 5
If you are in agreement with the terms and conditions of your continuing
employment contained herein, please execute this Agreement by signing a copy and
returning it to the undersigned.
Sincerely,
ACCESS TELEVISION NETWORK, INC.
By: /s/ William H. Bernard
-----------------------
William H. Bernard
President
By: /s/ Earl A. Samson III
-----------------------
Earl A. Samson III
Chairman, Compensation Committee of the
Board of Directors
Accepted and agreed to this
27th day of April 1995.
/s/ William R. Cullen
- ---------------------------
William R. Cullen
<PAGE>
(Attachment A)
March 1, 1995
ACCESS TELEVISION NETWORK, INC.
ANNUAL BONUS PLAN
DESCRIPTION
PURPOSE
To provide management of the corporation with an incentive to achieve planned
financial goals and strategic objectives so as to increase shareholder value.
PARTICIPATION
Prior to the beginning of each performance year, the Chief Executive Officer
(CEO) will recommend to the Compensation Committee of the Board ("Committee") a
list of proposed participants in the Plan for that year. Participants that are
selected shall be notified accordingly.
Participants shall be those persons holding senior level positions which most
significantly affect overall corporate operating results and provide the
greatest opportunity to contribute to current earnings and the future success
of the company.
During the year, other positions may be added because of promotion or for other
reasons warranting their inclusion, or participants may be excluded because of
demotion or other reasons warranting their exclusion.
ADMINISTRATION
This plan shall be administered by the "committee." The committee shall have
full power to prescribe, amend, and rescind rules and regulations for
carrying out this plan and to make changes from time to time, it deems proper
and in the best interests of the company.
Any decision or interpretation adopted by the committee shall be final and
conclusive.
PLAN YEAR
The plan year shall be the fiscal year of the company. Awards will be
attributable to the corporation's fiscal year performance.
<PAGE>
INCENTIVE AWARDS
The size of a participant's incentive award under this plan shall be determined
as follows:
(Eligible Base Salary Earnings) x (Target Incentive Percent)
x (Individual Contribution Factor) x (Corporate Performance
Rating) = (Incentive Award)
ELIGIBLE BASE SALARY EARNINGS
The Eligible Base Salary Earnings is the total amount of regular base pay
actually paid to a Plan participant during the portion of the year the
participant is covered by the Plan.
TARGET INCENTIVE PERCENT
The Target Incentive Percent will be determined by the committee based on the
job responsibilities of the participant at the time participation in the plan
commences (see Exhibit A, attached).
INDIVIDUAL CONTRIBUTION FACTOR
An important factor in determining the size of a participant's incentive award
is the evaluation of individual contribution during the plan year.
(a) At the beginning of the plan year, each plan participant will submit to
his/her superior written objectives for the year, which are directly related to
their specific job accountabilities. For the Chief Executive Officer, such
objectives will be reviewed and approved by the committee.
(b) Near the end of each plan year, each participant's superior will rate
the participant's contribution against objectives and accountabilities as
follows:
Contribution Level Individual Factor
------------------ -----------------
Below Expectations 0
Met Expectations .6 to 1.0
Above Expectations 1.0 to 1.3
Outstanding Results 1.3 to 1.5
CORPORATE PERFORMANCE RATING
At the end of the plan performance year the Chief Executive Officer will submit
to the committee a written report which outlines the performance of the company
against the specific goals and objectives in the Company's Business Plan. The
committee will then determine the final
-2-
<PAGE>
corporate performance rating and the individual awards of each participant (see
Exhibits B and B-1 attached).
INCENTIVE AWARD FUND
Calculation of an Incentive Award Fund ("Fund") is made at the end of the plan
performance year and is equal to the total of the individual target incentive
awards in dollars multiplied by the appropriate corporate performance rating.
In no event will the aggregate awards exceed 150 percent of the total of the
target incentive awards.
PAYMENT OF AWARDS
All earned awards will be paid to participants in a lump sum as soon as possible
after the end of the performance year. The award sum earned for performance
above target will be paid to participants in Restricted Stock Grants.
SPECIAL CONSIDERATION
If a participant's employment is terminated due to death or long,-term
disability prior to the end of the performance year, the participant or the
participant's beneficiary may receive a pro rata portion of the award that would
have been received had the participant been active for the full year.
If a participant's employment is terminated for reasons other than those
described above, including resignation or discharge, prior to the date of
payment, any rights to an award will be forfeited.
LIMITATIONS
Participation in the plan neither implies nor guarantees continuance of
employment. No part of the plan shall be construed as a compensation contract,
explicit/implied.
-3-
<PAGE>
EXHIBIT A
ACCESS TELEVISION NETWORK, INC.
ANNUAL BONUS PLAN
% OF AWARD BASED ON
TARGET AWARD UNIT ACHIEVEMENT
POSITION PERCENTAGE CORP./DIVISION
- -------- ------------ -------------------
CEO 50 100
PRESIDENT 50 100
VICE-PRESIDENT
LEVEL POSITIONS 25 80 20
EXECUTIVE MGRS
(non-officer positions) 20 80 20
-4-
<PAGE>
EXHIBIT B
ACCESS TELEVISION NETWORK, INC.
ANNUAL BONUS PLAN
GOALS/TARGETS
1996 GOALS/TARGETS
* TARGET WEIGHT
1. ACHIEVE NET OPERATING EARNINGS
per Business Plan of Record TBD 50%
2. Achieve Planned Number of
Subscriber Homes 25M 25%
3. Successfully complete IPO ** TBD 25%
* See Exhibit B-1
** Defined as either in registration or effective.
-5-
<PAGE>
EXHIBIT B-1
ACCESS TELEVISION NETWORK, INC.
ANNUAL BONUS PLAN
CORPORATE PERFORMANCE RATING
GOALS 1 AND 2 (Performance rating applied to each Goal separately)
Performance Level Award Percentage
--------------------- ----------------
less than 75% -0-
75% 50%
100% (Target) 100%
125% 125%
150% 150% (Maximum)
GOAL 3:
IPO effective or in draft a
March 31, 1996 earns 100
-6-
<PAGE>
EXHIBIT 10.2
ACCESS TELEVISION NETWORK, INC.
April 27, 1995
William H. Bernard
2062 Business Center Drive, Suite 23O
Irvine, CA 92715
Dear Mr. Bernard:
Access Television Network ("ATN" or the "Corporation"), a Delaware
corporation with its principal place of business at 2062 Business Center Drive,
Suite 230, Irvine, California 92715, desires to secure for itself your
continued services and expertise as President and Chief Operating Officer.
This letter is to establish in writing the terms and conditions of your
continued employment with the Corporation.
1 . You will be responsible, under the direction of the Board of
Directors, for the planning, implementation and management of all sales and
related operational activities and strategies necessary to achieve the short-and
long-term goals of the Corporation.
2. In accepting this position, you agree that this responsibility shall
be your full-time and primary means of employment and that you will apply your
professional energies on a full-time basis to the execution of your
responsibilities with the Corporation.
3. In your role as President and COO, you will be the recipient of
information of a confidential nature regarding the Corporation. You agree that
you shall not make use of or otherwise reveal any such trade secret or
confidence of the Corporation, including any information about the Corporation
or its business which is not generally available to the public including, but
not limited to, any such information involving planning, analysis or strategy,
or any investor, customer, supplier, financial, legal, or other proprietary
information. Upon termination of employment, you agree to promptly surrender
all documents, maps, records, data and other information representing,
reflecting or containing trade secrets or confidences. The provisions of this
paragraph shall survive the term of your employment with the Corporation. It
is acknowledged that, in the event of a breach of this confidentiality
agreement, the Corporation's remedies at law may be inadequate and that the
Corporation will therefore be entitled to injunctive or other equitable
remedies in addition to all other legal remedies.
4. Your initial period of employment ("Initial Period") under this
agreement will commence on April 1, 1995 and continue under the terms of this
Agreement through March 31, 1997. The Corporation shall reserve an irrevocable
option to extend the term of this contract, on generally the same terms and
conditions, for a maximum of one additional successive period of
<PAGE>
William H. Bernard
April 27, 1995
Page 2
two years. Notice to exercise such option ("Option Period") shall be provided
to you 180 days prior to the expiration of the initial period of employment.
5. You will be compensated for services rendered as follows:
(a) During the Initial Period, the Corporation shall pay you an annual
base salary of $180,000 per year, payable biweekly at $6,923.08 gross and
subject to the proper withholding as per the W-4 on file with the Corporation.
On April 1, 1996, your base salary shall be increased to $200,000 per year.
During the Option Period, your base salary would be increased to not less than
$220,000 per year for the third year of employment and to $240,000 for the
fourth year of employment. Notwithstanding the above, annual increases in base
salary in the Initial and Option Periods may be deferred by the Board of
Directors for up to one year based upon the Company's financial condition at the
time the base salary is otherwise scheduled to be increased.
(b) In addition to base salary you will be eligible to participate in
the Corporation's Annual Executive Bonus Plan (see Attachment A which is
attached hereto and made a part hereof).
(c) Stock options will be granted (the "second grant") as of the date
hereof, subject to the terms of the Corporation's Equity Incentive Plan, in the
amount of 300,000 shares at an exercise price of $0.80 per share. Vesting
shall occur according to a vesting schedule of 150,000 shares one year from the
date of grant and 150,000 shares two years from the date of grant. The terms
of this option will be more fully set forth in a separate option certificate
between ATN and you. None of the above precludes the Compensation Committee of
the Board of Directors from granting additional options or equity at its
discretion.
6. The Corporation will provide non-contributory family health insurance
for your spouse and your dependents, if any, at the same level of coverage as
provided to the Corporation's other employees in accordance with the health
insurance plan maintained by the Corporation. In addition, the Corporation will
reimburse you for any expense not fully covered by this health insurance plan
which you incur for a complete annual physical examination.
7. The Corporation will provide you during your employment under this
Agreement with $450,000 of form life insurance.
8. If during the term of this Agreement you become disabled or
incapacitated, mentally or physically, the Corporation will pay your base salary
for up to 180 days commencing with the first day you are determined to be
disabled. The term "disabled or incapacitated," as used herein, shall mean that
you are unable to perform all or substantially all of the duties and
<PAGE>
William H. Bernard
April 27, 1995
Page 3
responsibilities required of you by the Corporation under the terms of this
Agreement. Such disability shall be certified by a qualified physician jointly
selected by you and the Corporation. If you are unable or unwilling to designate
a physician, you shall make yourself available for examination by a qualified
physician designated by the company.
9. You shall be entitled to five weeks' vacation with pay during each
full year of the term of this Agreement. In addition you shall be entitled to
holidays and other time off with pay, e.g., bereavement, jury duty, as provided
other employees of the Corporation.
10. If your employment as President and COO is terminated by the Company
during, the Initial Period of employment for any reason other than fraud,
dishonesty, breach of any covenant herein, or gross misconduct, the Corporation
shall, for the balance of the employment term, but in no event less than one
year from the expiration of the Initial Period: (1) continue to pay you the
base salary on a monthly basis; (2) continue your health insurance as described
in paragraph 6 above unless and until you commence full-time reemployment.
11. In the event of a Change of Control of ATN during the Initial Period
of Employment, you will be entitled to the terms described in paragraph 10,
except that the severance pay shall not be less than twenty-four months of base
salary, unless you elect to continue employment with the successor company, at
your sole discretion. "Change of Control" shall mean a consolidation or merger
involving ATN, or sale of all or substantially all of the assets of ATN, or
other transaction in which more than 50 percent of the outstanding shares of
ATN Stock are exchanged for securities, cash or other property of any other
corporation or business entity.
12. You covenant and agree that during the term of this agreement and for
a period of two years thereafter, you shall neither directly or indirectly:
(a) Divert, attempt to divert, or assist others in diverting to any
other competitive establishment, by direct or indirect inducement,
solicitation, or otherwise, any customer, supplier or client of the
Corporation;
(b) Use or employ any confidential information regarding employees,
suppliers or clients or the Corporation in diverting or attempting to divert
those clients, suppliers or employees to another entity that competes with the
Corporation; or
(c) Be employed by, maintain, engage in, participate in, or have any
interest in the operation of any enterprise in the same or substantially
similar business as that conducted by the Corporation located within the United
States, without the Corporation's prior written approval.
<PAGE>
William H. Bernard
April 27, 1995
Page 4
You and we hereby acknowledge and agree that the duration and area for which the
covenant not to compete set forth above is to be effective are fair and
reasonable and are reasonably required for the protection of the Corporation.
In the event that any court determines that the time period or the area, or both
of them, are unreasonable and that such covenant is to that extent
unenforceable, you and we hereby agree that this paragraph shall be deemed
amended to delete therefrom such provisions or portions adjudicated to be
unenforceable so that the covenant shall remain in full force and effect for the
greatest time period and in the greatest area that would not render it
unenforceable.
13. Neither the obligation or rights of William H. Bernard hereunder
shall be assignable or transferable, whether by pledge, creation of a security
interest or otherwise, but the obligations and rights of ATN hereunder shall be
binding upon, and inure to the benefit of, any successor or assignee of ATN.
14. This agreement is intended to contain the entire agreement among the
parties. All prior negotiations, agreements, and understandings are superseded.
15. This agreement can be amended only in writing, signed by both parties
and shall in all respects be construed and enforced in accordance with, and
governed by, the laws of the state of California.
If you are in agreement with the terms and conditions of your continuing
employment contained herein, please execute this Agreement by signing a copy
and returning it to the undersigned.
Sincerely,
ACCESS TELEVISION NETWORK, INC.
By: /s/ William R. Cullen
---------------------------
William R. Cullen
Chairman of the Board of Directors and
Chief Executive Officer
<PAGE>
William H. Bernard
April 27, 1995
Page 5
Accepted and agreed to this
27 day of April 1995.
- ----
/s/ William H. Bernard
- -------------------------
William H. Bernard
<PAGE>
(Attachment A)
March 31, 1995
ACCESS TELEVISION NETWORK, INC.
ANNUAL BONUS PLAN
DESCRIPTION
PURPOSE
To provide management of the corporation with an incentive to achieve planned
financial goals and strategic objectives so as to increase shareholder value.
PARTICIPATION
Prior to the beginning of each performance year, the Chief Executive Officer
(CEO) will recommend to the Compensation Committee of the Board ("Committee") a
list of proposed participants in the Plan for that year. Participants that are
selected shall be notified accordingly.
Participants shall be those persons holding senior level positions which most
significantly affect overall corporate operating results and provide the
greatest opportunity to contribute to current earnings and the future success
of the company.
During the year, other positions may be added because of promotion or for other
reasons warranting their inclusion, or participants may be excluded because of
demotion or other reasons warranting their exclusion.
ADMINISTRATION
This plan shall be administered by the "committee." The committee shall have
full power to prescribe, amend, and rescind rules and regulations for
carrying out this plan and to make changes from time to time, it deems proper
and in the best interests of the company.
Any decision or interpretation adopted by the committee shall be final and
conclusive.
PLAN YEAR
The plan year shall be the fiscal year of the company. Awards will be
attributable to the corporation's fiscal year performance.
<PAGE>
INCENTIVE AWARDS
The size of a participant's incentive award under this plan shall be determined
as follows:
(Eligible Base Salary Earnings) x (Target Incentive Percent)
x (Individual Contribution Factor) x (Corporate Performance
Rating) = (Incentive Award)
ELIGIBLE BASE SALARY EARNINGS
The Eligible Base Salary Earnings is the total amount of regular base pay
actually paid to a Plan participant during the portion of the year the
participant is covered by the Plan.
TARGET INCENTIVE PERCENT
The Target Incentive Percent will be determined by the committee based on the
job responsibilities of the participant at the time participation in the plan
commences (see Exhibit A, attached).
INDIVIDUAL CONTRIBUTION FACTOR
An important factor in determining the size of a participant's incentive award
is the evaluation of individual contribution during the plan year.
(a) At the beginning of the plan year, each plan participant will submit to
his/her superior written objectives for the year, which are directly related to
their specific job accountabilities. For the Chief Executive Officer, such
objectives will be reviewed and approved by the committee.
(b) Near the end of each plan year, each participant's superior will rate
the participant's contribution against objectives and accountabilities as
follows:
Contribution Level Individual Factor
------------------ -----------------
Below Expectations 0
Met Expectations .6 to 1.0
Above Expectations 1.0 to 1.3
Outstanding Results 1.3 to 1.5
CORPORATE PERFORMANCE RATING
At the end of the plan performance year the Chief Executive Officer will submit
to the committee a written report which outlines the performance of the company
against the specific goals and objectives in the Company's Business Plan. The
committee will then determine the final
-2-
<PAGE>
corporate performance rating and the individual awards of each participant (see
Exhibits B and B-1 attached).
INCENTIVE AWARD FUND
Calculation of an Incentive Award Fund ("Fund") is made at the end of the plan
performance year and is equal to the total of the individual target incentive
awards in dollars multiplied by the appropriate corporate performance rating.
In no event will the aggregate awards exceed 150 percent of the total of the
target incentive awards.
PAYMENT OF AWARDS
All earned awards will be paid to participants in a lump sum as soon as possible
after the end of the performance year. The award sum earned for performance
above target will be paid to participants in Restricted Stock Grants.
SPECIAL CONSIDERATION
If a participant's employment is terminated due to death or long-term
disability prior to the end of the performance year, the participant or the
participant's beneficiary may receive a pro rata portion of the award that would
have been received had the participant been active for the full year.
If a participant's employment is terminated for reasons other than those
described above, including resignation or discharge, prior to the date of
payment, any rights to an award will be forfeited.
LIMITATIONS
Participation in the plan neither implies nor guarantees continuance of
employment. No part of the plan shall be construed as a compensation contract,
explicit/implied.
-3-
<PAGE>
EXHIBIT A
ACCESS TELEVISION NETWORK, INC.
ANNUAL BONUS PLAN
% OF AWARD BASED ON
TARGET AWARD UNIT ACHIEVEMENT
POSITION PERCENTAGE CORP./DIVISION
- -------- ------------ -------------------
CEO 50 100
PRESIDENT 50 100
VICE-PRESIDENT
LEVEL POSITIONS 25 80 20
EXECUTIVE MGRS
(non-officer positions) 20 80 20
-4-
<PAGE>
EXHIBIT B
ACCESS TELEVISION NETWORK, INC.
ANNUAL BONUS PLAN
GOALS/TARGETS
1996 GOALS/TARGETS
* TARGET WEIGHT
1. Achieve Net Operating Earnings
per Business Plan of Record $1.72M 50%
2. Achieve Planned Number of
Subscriber Homes 25M 25%
3. Successfully complete IPO ** 3/31/96 25%
* See Exhibit B-1
** Defined as either in registration or effective.
-5-
<PAGE>
EXHIBIT B-1
ACCESS TELEVISION NETWORK, INC.
ANNUAL BONUS PLAN
CORPORATE PERFORMANCE RATING
GOALS 1 AND 2 (Performance rating applied to each Goal separately)
Performance Level Award Percentage
--------------------- ----------------
less than 75% -0-
75% 50%
100% (Target) 100%
125% 125%
150% 150% (Maximum)
GOAL 3:
IPO effective or in draft registration by
March 31, 1996 earns 100% award percentage.
-6-
<PAGE>
EXHIBIT 10.3
================================================================================
ACCESS TV, INC.
EQUITY INCENTIVE PLAN
================================================================================
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
Page
ARTICLE I - Introduction.................................................... 1
1.1 Establishment........................................................ 1
1.2 Purposes............................................................. 1
1.3 Effective Date....................................................... 1
ARTICLE II - Definitions 1
2.1 Definitions..................................................... 1
2.2 Gender and Number............................................... 3
ARTICLE III - Plan Administration........................................... 3
ARTICLE IV - Stock Subject to the Plan...................................... 4
4.1 Number of Shares................................................ 4
4.2 Other Shares of Stock........................................... 4
4.3 Adjustments for Stock Split, Stock Dividend, Etc................ 4
4.4 Other Distributions and Changes in the Stock.................... 4
4.5 General Adjustment Rules........................................ 5
4.6 Determination by the Committee, Etc............................. 5
ARTICLE V - Corporate Reorganization......................................... 5
5.1 Reorganization.................................................. 5
5.2 Required Notice................................................. 6
5.3 Acceleration of Exercisability.................................. 6
5.4 Limitation on Payments.......................................... 6
ARTICLE VI - Participation................................................... 7
ARTICLE VII - Grant of Options............................................... 7
7.1 Grant of Options................................................ 7
7.2 Stock Option Certificates....................................... 7
7.3 Restrictions on Incentive Options............................... 11
7.4 Shareholder Privileges.......................................... 11
ARTICLE VIII - Restricted Stock Awards....................................... 12
8.1 Grant of Restricted Stock Awards................................ 12
8.2 Restrictions.................................................... 12
8.3 Privileges of a Shareholder, Transferability.................... 12
8.4 Enforcement of Restrictions..................................... 12
</TABLE>
-i-
<PAGE>
<TABLE>
<S> <C>
ARTICLE IX - STOCK UNITS.................................... 13
ARTICLE X - Stock Appreciation Rights....................... 13
10.1 Persons Eligible................................. 13
10.2 Grant............................................ 13
10.3 Exercise......................................... 13
10.4 Number of Shares or Amount of Cash............... 13
10.5 Effect of Exercise............................... 14
10.6 Termination of Employment........................ 14
ARTICLE XI - Other Common Stock Grants...................... 14
ARTICLE XII - Change in Control.............................. 14
12.1 In General............................................ 14
12.2 Definition............................................ 14
ARTICLE XIII - Rights of Employees; Participants............. 15
13.1 Employment............................................ 15
13.2 Nontransferability.................................... 15
13.3 No Plan Funding....................................... 15
ARTICLE XIV - General Restrictions........................... 16
14.1 Investment Representations............................ 16
14.2 Compliance with Securities Laws....................... 16
14.3 Changes in Accounting Rules........................... 16
ARTICLE XV - Other Employee Benefits......................... 16
ARTICLE XVI - Plan Amendment, Modification and Termination... 17
ARTICLE XVII - Withholding................................... 17
17.1 Withholding Requirement............................... 17
17.2 Withholding With Stock................................ 17
ARTICLE XVIII - Requirements of Law.......................... 18
18.1 Requirements of Law................................... 18
18.2 Federal Securities Law Requirements................... 18
18.3 Governing Law......................................... 18
ARTICLE XIX - Duration of the Plan........................... 18
</TABLE>
-ii-
<PAGE>
ACCESS TV, INC.
EQUITY INCENTIVE PLAN
ARTICLE I
INTRODUCTION
1.1 Establishment. Access TV, Inc., a Delaware corporation
-------------
(hereinafter referred to, together with its Affiliated Corporations (as defined
in subsection 2.l(a)) as the "Company" except where the context otherwise
requires), hereby establishes the Access TV Inc. Equity Incentive Plan (the
"Plan") for certain key employees of the Company. The Plan permits the grant of
stock options, restricted stock awards, stock appreciation rights, stock units
and other stock grants to certain key employees of the Company.
1.2 Purposes. The purposes of the Plan are to provide the key
--------
employees selected for participation in the Plan with added incentives to
continue in the service of the Company and to create in such employees a more
direct interest in the future success of the operations of the Company by
relating incentive compensation to the achievement of long-term corporate
economic objectives, so that the income of the key employees is more closely
aligned with the income of the Company's shareholders. The Plan is also
designed to attract key employees and to retain and motivate participating
employees by providing an opportunity for investment in the Company.
1.3 Effective Date. The effective date of the Plan shall be as set
---------------
forth in subsection 2.1(g) (the "Effective Date"), subject to approval by the
shareholders of the Company in accordance with the requirements of Section 422
of the Code (as defined in subsection 2.1(d)) within twelve (12) months before
or after the Effective Date. If the shareholders of the Company do not approve
the Plan as specified above, Awards (as defined in subsection 2.1(b)) made under
the Plan shall be deemed to be rescinded without any further action by the Board
or the Company, and the Plan shall automatically terminate.
ARTICLE II
DEFINITIONS
2.1 Definitions. The following terms shall have the meanings set
-----------
forth below:
(a) "Affiliated Corporation" means any corporation or other entity
(including but not limited to a partnership) that is affiliated with Access TV,
Inc. through stock ownership or otherwise and is treated as a common employer
under the provisions of Sections 414(b) and (c) of the Code and for purposes of
Incentive Options granted pursuant to the Plan, means any parent or subsidiary
of the Company as defined in Section 424 of the Code.
-1-
<PAGE>
(b) "Award" means an Option, a Restricted Stock Award, a Stock
Appreciation Right, a Stock Unit, grants of Stock pursuant to Article XI or
other issuances of Stock hereunder.
(c) "Board" means the Board of Directors of the Company.
(d) "Code" means the Internal Revenue Code of 1986, as it may be
amended from time to time.
(e) "Committee" means the committee appointed pursuant to Article
III.
(f) "Disabled" or "Disability" shall have the meaning given to such
terms in Section 22(e)(3) of the Code.
(g) "Effective Date" means the effective date of the Plan, April
1, 1994.
(h) "Eligible Employees" means those key employees (including,
without limitation, officers and directors who are also employees) of the
Company or any division thereof, upon whose judgment, initiative and efforts the
Company is, or will become, largely dependent for the successful conduct of its
business.
(i) "Fair Market Value" of a share of Stock for purposes of the
grant of Options under the Plan shall be determined by the Committee in good
faith pursuant to the requirements of Section 422 of the Code.
(j) "Incentive Option" means an Option designated as such and
granted in accordance with Section 422 of the Code.
(k) "Non-Qualified Option" means any Option other than an Incentive
Option.
(l) "Option" means a right to purchase Stock at a stated or formula
price for a specified period of time. Options granted under the Plan shall be
either Incentive Options or Non-Qualified Options.
(m) "Option Certificate" shall have the meaning given to such
term in Section 7.2 hereof.
(n) "Option Holder" means a Participant who has been granted one or
more Options under the Plan.
(o) "Option Price" means the price at which shares of Stock subject
to an Option may be purchased, determined in accordance with subsection 7.2(b).
(p) "Participant" means an Eligible Employee designated by the
Committee from time to time during the term of the Plan to receive one or more
of the Awards provided under the Plan.
-2-
<PAGE>
(q) "Restricted Stock Award" means an award of Stock granted to a
Participant pursuant to Article VIII that is subject to certain restrictions
imposed in accordance with the provisions of such Section.
(r) "Share" means a share of Stock.
(s) "Stock" means the common stock, $.01 par value, of the
Company.
(t) "Stock Appreciation Right" means the right, granted by the
Committee pursuant to the Plan, to receive a payment equal to the increase in
the Fair Market Value of a Share of Stock subsequent to the grant of such
Award.
(u) "Stock Unit" means a measurement component equal to the Fair
Market Value of one share of Stock on the date for which a determination is
made pursuant to the provisions of this Plan.
2.2 Gender and Number. Except when otherwise indicated by the
-----------------
context, the masculine gender shall also include the feminine gender, and the
definition of any term herein in the singular shall also include the plural.
ARTICLE III
PLAN ADMINISTRATION
The Plan shall be administered by the Committee. Tle Committee shall
consist of members of the Board who are empowered hereunder to take actions in
the administration of the Plan. Members of the Committee shall be appointed
from time to time by the Board, shall serve at the pleasure of the Board and
may resign at any time upon written notice to the Board. In accordance with
the provisions of the Plan, the Committee shall, in its sole discretion, select
the Participants from among the Eligible Employees, determine the Awards to be
made pursuant to the Plan, the number of Stock Units, Stock Appreciation Rights
or shares of Stock to be issued thereunder and the time at which such Awards
are to be made, fix the Option Price, period and manner in which an Option
becomes exercisable, establish the duration and nature of Restricted Stock
Award restrictions, establish the terms and conditions applicable to Stock
Units, and establish such other terms and requirements of the various
compensation incentives under the Plan as the Committee may deem necessary or
desirable and consistent with the terms of the Plan. The Committee shall
determine the form or forms of the agreements with Participants that shall
evidence the particular provisions, terms, conditions, rights and duties of the
Company and the Participants with respect to Awards granted pursuant to the
Plan, which provisions need not be identical except as may be provided herein.
The Committee may from time to time adopt such rules and regulations for
carrying out the purposes of the Plan as it may deem proper and in the best
interests of the Company. The Committee may correct any defect, supply any
omission or reconcile any inconsistency in the Plan or in any agreement entered
into hereunder in the manner and to the extent it shall deem expedient and it
shall be the sole and final judge of such expediency. No member of the
Committee shall be liable for any action or determination made in good faith.
The determinations,
-3-
<PAGE>
interpretations and other actions of the Committee pursuant to the provisions of
the Plan shall be binding and conclusive for all purposes and on all persons.
ARTICLE IV
STOCK SUBJECT TO THE PLAN
4.1 Number of Shares. The number of shares of Stock that are
----------------
authorized for issuance under the Plan in accordance with the provisions of the
Plan and subject to such restrictions or other provisions as the Committee may
from time to time deem necessary shall not exceed 67,737. This authorization
may be increased from time to time by approval of the Board and by the
shareholders of the Company if, in the opinion of counsel for the Company,
shareholder approval is required. Shares of Stock that may be issued upon
exercise of Options, or Stock Appreciation Rights, that are issued as Restricted
Stock Awards, that are issued with respect to Stock Units, and that are issued
as incentive compensation or other stock gants under the Plan shall be applied
to reduce the maximum number of shares of Stock remaining available for use
under the Plan. The Company shall at all times during the term of the Plan and
while any Options or Stock Units are outstanding retain as authorized and
unissued Stock at least the number of shares from time to time required under
the provisions of the Plan, or otherwise assure itself of its ability to perform
its obligations hereunder.
4.2 Other Shares of Stock. Any shares of Stock that are subject to
---------------------
an Option that expires or for any reason is terminated unexercised shall
automatically become available for use under the Plan. Any shares of Stock that
are subject to an Award (other than an Option) and that are forfeited and any
shares of Stock withheld for the payment of taxes or received by the Company as
payment of the exercise price of an Option shall not be available for use under
the Plan for Awards.
4.3 Adjustments for Stock Split, Stock Dividend, Etc. If the
------------------------------------------------
Company shall at any time increase or decrease the number of its outstanding
shares of Stock or change in any way the rights and privileges of such shares by
means of the payment of a stock dividend or any other distribution upon such
shares payable in Stock, or through a stock split, subdivision, consolidation,
combination, reclassification or recapitalization involving the Stock, then in
relation to the Stock that is affected by one or more of the above events, the
numbers, rights and privileges of the following shall be increased, decreased or
changed in like manner as if they had been issued and outstanding, fully paid
and nonassessable at the time of such occurrence: (i) the shares of Stock as to
which Awards may be granted under the Plan and (ii) the shares of the Stock then
included in each outstanding Award granted hereunder.
4.4 Other Distributions and Changes in the Stock. If
--------------------------------------------
(a) the Company shall at any time distribute with respect to the
Stock assets or securities of persons other than the Company (excluding cash or
distributions referred to in Section 4.3), or
-4-
<PAGE>
(b) the Company shall at any time grant to the holders of its Stock rights
to subscribe pro rata for additional shares thereof or for any other securities
of the Company, or
(c) there shall be any other change (except as described in Section 4.3) in
the number or kind of outstanding shares of Stock or of any stock or other
securities into which the Stock shall be changed or for which it shall have been
exchanged,
and if the Committee shall in its discretion determine that the event described
in subsection (a), (b), or (c) above equitably requires an adjustment in the
number or kind of shares subject to an Option or other Award, an adjustment in
the Option Price or the taking of any other action by the Committee, including
without limitation, the setting aside of any property for delivery to the
Participant upon the exercise of an Option or the full vesting of an Award, then
such adjustments shall be made, or other action shall be taken, by the Committee
and shall be effective for all purposes of the Plan and on each outstanding
Option or Award that involves the particular type of stock for which a change
was effected. Notwithstanding the foregoing provisions of this Section 4.4,
pursuant to Section 8.3 below, a Participant holding Stock received as a
Restricted Stock Award shall have the right to receive all amounts, including
cash and property of any kind, distributed with respect to the Stock upon the
Participant's becoming a holder of record of the Stock.
4.5 General Adjustment Rules. No adjustment or substitution provided for in
this Article IV shall require the Company to sell a fractional share of Stock
under any Option, or otherwise issue a fractional share of Stock, and the total
substitution or adjustment with respect to each Option and other Award shall be
limited by deleting any fractional share. In the case of any such substitution
or adjustment, the total Option Price for the shares of Stock then subject to an
Option shall remain unchanged but the Option Price per share under each such
Option shall be equitably adjusted by the Committee to reflect the greater or
lesser number of shares of Stock or other securities into which the Stock
subject to the Option may have been changed, and appropriate adjustments shall
be made to other Awards to reflect any such substitution or adjustment.
4.6 Determination by the Committee, Etc.. Adjustments under this Article IV
shall be made by the Committee, whose determinations with regard thereto shall
be final and binding upon all parties thereto.
ARTICLE V
CORPORATE REORGANIZATION
5.1 Reorganization. Upon the occurrence of any of the following events, if
the notice required by Section 5.2 shall have first been given, the Plan and all
Options then outstanding hereunder shall automatically terminate and be of no
further force and effect whatsoever, and other Awards then outstanding shall be
treated as described in Sections 5.2 and 5.3, without the necessity for any
additional notice or other action by the Board or the Company: (a) the merger or
consolidation of the Company with or into another corporation or other
reorganization (other than a reorganization under the United States Bankruptcy
Code) of the Company (other than a consolidation, merger, or
-5-
<PAGE>
reorganization in which the Company is the continuing corporation and which does
not result in any reclassification or change of outstanding shares of Stock); or
(b) the sale or conveyance of the property of the Company as an entirety or
substantially as an entirety (other than a sale or conveyance in which the
Company continues as holding company of an entity or entities that conduct the
business or business formerly conducted by the Company); or (c) the dissolution
or liquidation of the Company.
5.2 Required Notice. At least 30 days' prior written notice of any event
described in Section 5.1 shall be given by the Company to each Option Holder and
Participant unless (a) in the case of the events described in clauses (a) or (b)
of Section 5.1, the Company, or the successor or purchaser, as the case may be,
shall make adequate provision for the assumption of the outstanding Options or
the substitution of new options for the outstanding Options on terms comparable
to the outstanding Options except that the Option Holder shall have the right
thereafter to purchase the kind and amount of securities or property or cash
receivable upon such merger, consolidation, other reorganization, sale or
conveyance by a holder of the number of Shares that would have been receivable
upon exercise of the Option immediately prior to such merger, consolidation,
sale or conveyance (assuming such holder of Stock failed to exercise any rights
of election and received per share the kind and amount received per share by a
majority of the non-electing shares), or (b) the Company, or the successor or
purchaser, as the case may be, shall make adequate provision for the adjustment
of outstanding Awards (other than Options) so that such Awards shall entitle the
Participant to receive the kind and amount of securities or property or cash
receivable upon such merger, consolidation, other reorganization, sale or
conveyance by a holder of the number of Shares that would have been receivable
with respect to such Award immediately prior to such merger, consolidation,
other reorganization, sale or conveyance (assuming such holder of Stock failed
to exercise any rights of election and received per share the kind and amount
received per share by a majority of the non-electing shares). The provisions of
this Article V shall similarly apply to successive mergers, consolidations,
reorganizations, sales or conveyances. Such notice shall be deemed to have been
given when delivered personally to a Participant or when mailed to a Participant
by registered or certified mail, postage prepaid, at such Participant's address
last known to the Company.
5.3 Acceleration of Exercisability. Participants notified in accordance
with Section 5.2 may exercise their Options at any time before the occurrence of
the event requiring the giving of notice (but subject to occurrence of such
event), regardless of whether all conditions of exercise relating to length of
service, attainment of financial performance goals or otherwise have been
satisfied. Upon the giving of notice in accordance with Section 5.2, all
restrictions with respect to Restricted Stock and other Awards shall lapse
immediately, all Stock Units shall become payable immediately and all Stock
Appreciation Rights shall become exercisable. Any Options, Stock Appreciation
Rights or Stock Units that are not assumed or substituted under clauses (a) or
(b) of Section 5.2 that have not been exercised prior to the event described in
Section 5.1 shall automatically terminate upon the occurrence of such event.
5.4 Limitation on Payments. If the provisions of this Article V would
result in the receipt by any Participant of a payment within the meaning of
Section 280G of the Code and the regulations promulgated thereunder and if the
receipt of such payment by any Participant would, in the opinion of independent
tax counsel of recognized standing
-6-
<PAGE>
selected by the Company, result in the payment by such Participant of any excise
tax provided for in Sections 280G and 4999 of the Code, then the amount of such
payment shall be reduced to the extent required, in the opinion of independent
tax counsel, to prevent the imposition of such excise tax; provided, however,
that the Committee, in its sole discretion, may authorize the payment of all or
any portion of the amount of such reduction to the Participant.
ARTICLE VI
PARTICIPATION
Participants in the Plan shall be those Eligible Employees who, in the
judgment of the Committee, are performing, or during the term of their incentive
arrangement will perform, vital services in the management, operation and
development of the Company or an Affiliated Corporation, and significantly
contribute, or are expected to significantly contribute, to the achievement of
long-term corporate economic objectives. Participants may be granted from time
to time one or more Awards; provided, however, that the grant of each such Award
shall be separately approved by the Committee, and receipt of one such Award
shall not result in automatic receipt of any other Award. Upon determination by
the Committee that an Award is to be granted to a Participant, written notice
shall be given to such person, specifying the terms, conditions, rights and
duties related thereto. Each Participant shall, if required by the Committee,
enter into an agreement with the Company, in such form as the Committee shall
determine and which is consistent with the provisions of the Plan, specifying
such terms, conditions, rights and duties. Awards shall be deemed to be granted
as of the date specified in the grant resolution of the Committee, which date
shall be the date of any related agreement with the Participant. In the event of
any inconsistency between the provisions of the Plan and any such agreement
entered into hereunder, the provisions of the Plan shall govern.
ARTICLE VII
OPTIONS
7.1 Grant of Options. Coincident with or following designation for
participation in the Plan, a Participant may be granted one or more Options. The
Committee in its sole discretion shall designate whether an Option is an
Incentive Option or a Non-Qualified Option. The Committee may grant both an
Incentive Option and a Non-Qualified Option to an Eligible Employee at the same
time or at different times. Incentive Options and Non-Qualified Options, whether
granted at the same time or at different times, shall be deemed to have been
awarded in separate grants and shall be clearly identified, and in no event
shall the exercise of one Option affect the right to exercise any other Option
or affect the number of shares for which any other Option may be exercised,
except as provided in subsection 7.2(j). An Option shall be considered as having
been granted on the date specified in the grant resolution of the Committee.
7.2 Stock Option Certificates. Each Option granted under the Plan shall be
evidenced by a written stock option certificate (an "Option Certificate"). An
Option
-7-
<PAGE>
Certificate shall be issued by the Company in the name of the Participant to
whom the Option is granted (the "Option Holder") and in such form as may be
approved by the Committee. The Option Certificate shall incorporate and conform
to the conditions set forth in this Section 7.2 as well as such other terms and
conditions that are not inconsistent as the Committee may consider appropriate
in each case.
(a) Number of Shares. Each Option Certificate shall state that it covers a
specified number of shares of Stock, as determined by the Committee.
Notwithstanding any other provision of this Plan, the maximum number of shares
of Stock to be granted subject to Options to any one Participant during the term
of this Plan shall be 500,000 shares of Stock.
(b) Price. The price at which each share of Stock covered by an Option may
be purchased shall be determined in each case by the Committee and set forth in
the Option Certificate, but in no event shall the price be less than 100 percent
of the Fair Market Value of the Stock on the date the Option (both Incentive and
Non-Qualified) is granted.
(c) Duration of Options; Restrictions on Exercise. Each Option Certificate
shall state the period of time, determined by the Committee, within which the
Option may be exercised by the Option Holder (the "Option Period"). The Option
Period must end, in all cases, not more than ten years from the date the Option
is granted. The Option Certificate shall also set forth any installment or other
restrictions on Option exercise during such period, if any, as may be determined
by the Committee; however, no Option may be exercised for at least six months
after the date of grant. Each Option shall become exercisable (vest) over such
period of time, if any, or upon such events, as determined by the Committee.
(d) Termination of Employment, Death, Disability, Etc. The Committee may
specify the period, if any, after which an Option may be exercised following
termination of the Option Holder's employment. The effect of this subsection
7.2(d) shall be limited to determining the consequences of a termination and
nothing in this subsection 7.2(d) shall restrict or otherwise interfere with the
Company's discretion with respect to the termination of any individual's
employment. If the Committee does not otherwise specify, the following shall
apply:
(i) If the employment of the Option Holder terminates for any reason
other than death or Disability within six months after the date the Option
is granted or if the employment of the Option Holder is terminated within
the Option Period for "cause", as determined by the Company, the Option
shall thereafter be void for all purposes. As used in this subsection
7.2(d), "cause" shall mean a gross violation, as determined by the Company,
of the Company's established policies and procedures.
(ii) If the Option Holder becomes Disabled, the Option may be
exercised by the Option Holder, or in the case of death by the persons
specified in subsection (iii) of this subsection 7.2(d), within one year
following his or her Disability (provided that such exercise must occur
within the Option Period), but not thereafter. In any such case, the Option
may be exercised only as to the shares as to which the
-8-
<PAGE>
Option had become exercisable on or before the date of the Option Holder's
termination of employment because of Disability.
(iii) If the Option Holder dies during the Option Period while still
employed or within the one year period referred to in (ii) above or the
three-month period referred to in (iv) below, the Option may be exercised
by those entitled to do so under the Option Holder's will or by the laws of
descent and distribution within one year following the Option Holder's
death (provided that such exercise must occur within the Option Period),
but not thereafter. In any such case, the Option may be exercised only as
to the shares as to which the Option had become exercisable on or before
the date of the Option Holder's death.
(iv) If the employment of the Option Holder by the Company is
terminated (which for this purpose means that the Option Holder is no
longer employed by the Company or by an Affiliated Corporation) within the
Option Period for any reason other than cause, Disability or the Option
Holder's death, and such termination occurs more than six months after the
Option is granted, the Option may be exercised by the Option Holder within
three months following the date of such termination (provided that such
exercise must occur within the Option Period), but not thereafter. In any
such case, the Option may be exercised only as to the shares as to which
the Option had become exercisable on or before the date of termination of
employment.
(e) Transferability. Each Option shall not be transferable by the Option
Holder except by will or pursuant to the laws of descent and distribution. Each
Option is exercisable during the Option Holder's lifetime only by him or her, or
in the event of disability or incapacity, by his or her guardian or legal
representative.
(f) Consideration for Grant of Option. Each Option Holder agrees to remain
in the employment of the Company, at the pleasure of the Company, for a
continuous period of at least one year after the date the Option is granted, at
the salary rate in effect on the date of such agreement or at such changed rate
as may be fixed, from time to time, by the Company. Nothing in this paragraph
shall limit or impair the Company's right to terminate the employment of any
employee.
(g) Exercise, Payments, Etc
(i) Manner of Exercise. The method for exercising each Option granted
hereunder shall be by delivery to the Company of written notice specifying
the number of Shares with respect to which such Option is exercised. The
purchase of such Shares shall take place at the principal offices of the
Company within thirty days following delivery of such notice, at which time
the Option Price of the Shares shall be paid in full by any of the methods
set forth below or a combination thereof. Except as set forth in the next
sentence, the Option shall be exercised when the Option Price for the
number of shares as to which the Option is exercised is paid to the Company
in full. If the Option Price is paid by means of a broker's loan
transaction described in subsection 7.2(g)(ii)(D), in whole or in part, the
closing of the purchase of the Stock under the Option shall take place (and
the Option shall be treated as exercised) on the date on which, and only
if, the sale of Stock upon which the broker's loan was
-9-
<PAGE>
based has been closed and settled, unless the Option Holder makes an
irrevocable written election, at the time of exercise of the Option, to
have the exercise treated as fully effective for all purposes upon receipt
of the Option Price by the Company regardless of whether or not the sale of
the Stock by the broker is closed and settled. A properly executed
certificate or certificates representing the Shares shall be delivered to
or at the direction of the Option Holder upon payment therefor. If Options
on less than all shares evidenced by an Option Certificate are exercised,
the Company shall deliver a new Option Certificate evidencing the Option on
the remaining shares upon delivery of the Option Certificate for the Option
being exercised.
(ii) The exercise price shall be paid by any of the following methods
or any combination of the following methods at the election of the Option
Holder, or by any other method approved by the Committee upon the request
of the Option Holder:
(A) in cash;
(B) by certified, cashier's check or other check acceptable to
the Company, payable to the order of the Company;
(C) by delivery to the Company of certificates representing the
number of shares then owned by the Option Holder, the Fair Market
Value of which equals the purchase price of the Stock purchased
pursuant to the Option, properly endorsed for transfer to the Company;
provided however, that no Option may be exercised by delivery to the
Company of certificates representing Stock, unless such Stock has been
held by the Option Holder for more than six months; for purposes of
this Plan, the Fair Market Value of any shares of Stock delivered in
payment of the purchase price upon exercise of the Option shall be the
Fair Market Value as of the exercise date; the exercise date shall be
the day of delivery of the certificates for the Stock used as payment
of the Option Price; or
(D) by delivery to the Company of a properly executed notice of
exercise together with irrevocable instructions to a broker to deliver
to the Company promptly the amount of the proceeds of the sale of all
or a portion of the Stock or of a loan from the broker to the Option
Holder required to pay the Option Price.
(h) Date of Grant. An Option shall be considered as having been granted on
the date specified in the grant resolution of the Committee.
(i) Withholding.
(i) Non-Qualified Options. Upon exercise of an Option, the Option
Holder shall make appropriate arrangements with the Company to provide for
the amount of additional withholding required by Sections 3102 and 3402 of
the Code and applicable state income tax laws, including payment of
-10-
<PAGE>
such taxes through delivery of shares of Stock or by withholding Stock to
be issued under the Option, as provided in Article XV.
(ii) Incentive Options. If an Option Holder makes a disposition (as
defined in Section 424(c) of the Code) of any Stock acquired pursuant to
the exercise of an Incentive Option prior to the expiration of two years
from the date on which the Incentive Option was granted or prior to the
expiration of one year from the date on which the Option was exercised, the
Option Holder shall send written notice to the Company at its principal
office of the date of such disposition, the number of shares disposed of,
the amount of proceeds received from such disposition and any other
information relating to such disposition as the Company may reasonably
request. The Option Holder shall, in the event of such a disposition, make
appropriate arrangements with the Company to provide for the amount of
additional withholding, if any, required by Sections 3102 and 3402 of the
Code and applicable state income tax laws.
(j) Issuance of Additional Option. If an Option Holder pays all or any
portion of the exercise price of an Option with Stock, or pays all or any
portion of the applicable withholding taxes with respect to the exercise of an
Option with Stock that has been held by the Option Holder for more than a
period, not shorter than six months, to be determined by the Committee, the
Committee may, in its sole discretion, grant to such Option Holder a new Option
covering the number of shares of Stock used to pay such exercise price and/or
withholding tax. The new Option shall have an Option Price per share equal to
the Fair Market Value of a share of Stock on the date of the exercise of the
Option and shall have the same terms and provisions as the exercised Option,
except as otherwise determined by the Committee in its sole discretion.
7.3 Restrictions on Incentive Options.
(a) Initial Exercise. The aggregate Fair Market Value of the Shares with
respect to which Incentive Options are exercisable for the first time by an
Option Holder in any calendar year, under the Plan or otherwise, shall not
exceed $100,000. For this purpose, the Fair Market Value of the Shares shall be
determined as of the date of grant of the Option.
(b) Ten Percent Shareholders. Incentive Options granted to an Option Holder
who is the holder of record of 10% or more of the outstanding Stock of the
Company shall have an Option Price equal to 110% of the Fair Market Value of the
Shares on the date of grant of the Option and the Option Period for any such
Option shall not exceed five years.
7.4 Shareholder Privileges. No Option Holder shall have any rights as a
shareholder with respect to any shares of Stock covered by an Option until the
Option Holder becomes the holder of record of such Stock, and no adjustments
shall be made for dividends or other distributions or other rights as to which
there is a record date preceding the date such Option Holder becomes the holder
of record of such Stock, except as provided in Article IV.
-11-
<PAGE>
ARTICLE VIII
RESTRICTED STOCK AWARDS
8.1 Grant of Restricted Stock Awards. Coincident with or following
designation for participation in the Plan, the Committee may grant a Participant
one or more Restricted Stock Awards consisting of Shares of Stock. The number of
Shares granted as a Restricted Stock Award shall be determined by the Committee.
8.2 Restrictions. A Participant's right to retain a Restricted Stock Award
granted to him under Section 8.1 shall be subject to such restrictions,
including but not limited to his continuous employment by the Company or an
Affiliated Corporation for a restriction period specified by the Committee or
the attainment of specified performance goals and objectives, as may be
established by the Committee with respect to such Award. The Committee may in
its sole discretion require different periods of employment or different
performance goals and objectives with respect to different Participants, to
different Restricted Stock Awards or to separate, designated portions of the
Stock shares constituting a Restricted Stock Award. In the event of the death or
Disability of a Participant, or the retirement of a Participant in accordance
with the Company's established retirement policy, all employment period and
other restrictions applicable to Restricted Stock Awards then held by him shall
lapse with respect to a pro rata part of each such Award based on the ratio
between the number of full months of employment completed at the time of
termination of employment from the grant of each Award to the total number of
months of employment required for such Award to be fully nonforfeitable, and
such portion of each such Award shall become fully nonforfeitable. The remaining
portion of each such Award shall be forfeited and shall be immediately returned
to the Company. In the event of a Participant's termination of employment for
any other reason, any Restricted Stock Awards as to which the employment period
or other restrictions have not been satisfied (or waived or accelerated as
provided herein) shall be forfeited, and all shares of Stock related thereto
shall be immediately returned to the Company.
8.3 Privileges of a Shareholder, Transferability. A Participant shall have
all voting, dividend, liquidation and other rights with respect to Stock in
accordance with its terms received by him as a Restricted Stock Award under this
Article VIII upon his becoming the holder of record of such Stock; provided,
however, that the Participant's right to sell, encumber, or otherwise transfer
such Stock shall be subject to the limitations of Section 13.2.
8.4 Enforcement of Restrictions. The Committee shall cause a legend to be
placed on the Stock certificates issued pursuant to each Restricted Stock Award
referring to the restrictions provided by Sections 8.2 and 8.3 and, in addition,
may in its sole discretion require one or more of the following methods of
enforcing the restrictions referred to in Sections 8.2 and 8.3:
(a) Requiring the Participant to keep the Stock certificates, duly
endorsed, in the custody of the Company while the restrictions remain in effect;
or
(b) Requiring that the Stock certificates, duly endorsed, be held in the
custody of a third party while the restrictions remain in effect.
-12-
<PAGE>
ARTICLE IX
STOCK UNITS
A Participant may be granted a number of Stock Units determined by the
Committee. The number of Stock Units, the goals and objectives to be satisfied
with respect to each grant of Stock Units, the time and manner of payment for
each Stock Unit, and the other terms and conditions applicable to a grant of
Stock Units shall be determined by the Committee.
ARTICLE X
STOCK APPRECIATION RIGHTS
10.1 Persons Eligible. The Committee, in its sole discretion, may grant
Stock Appreciation Rights to ELigible Employees.
10.2 Grant. The Committee shall determine at the time of the grant of a
Stock Appreciation Right the time period during which the Stock Appreciation
Right may be exercised, which period may not commence until six months after the
date of grant.
10.3 Exercise. A Stock Appreciation Right shall entitle a Participant to
receive a number of shares of Stock (without any payment to the Company, except
for applicable withholding taxes), cash, or Stock and cash, as determined by the
Committee in accordance with Section 10.4 below. If a Stock Appreciation Right
is issued in tandem with an Option, except as may otherwise be provided by the
Committee, the Stock Appreciation Right shall be exercisable during the period
that its related Option is exercisable. A Participant desiring to exercise a
Stock Appreciation Right shall give written notice of such exercise to the
Company, which notice shall state the proportion of Stock and cash that the
Participant desires to receive pursuant to the Stock Appreciation Right
exercised. Upon receipt of the notice from the Participant, the Company shall
deliver to the person entitled thereto (i) a certificate or certificates for
Stock and/or (ii) a cash payment, in accordance with Section 10.4 below. The
date the Company receives written notice of such exercise hereunder is referred
to in this Article X as the "exercise date". The delivery of Stock or cash
received pursuant to such exercise shall take place at the principal offices of
the Company within 30 days following delivery of such notice.
10.4 Number of Shares or Amount of Cash. Subject to the discretion of the
Committee to substitute cash for Stock or Stock for cash, the amount of Stock
which may be issued pursuant to the exercise of a Stock Appreciation Right shall
be determined by dividing: (a) the total number of shares of Stock as to which
the Stock Appreciation Right is exercised, multiplied by the amount by which the
Fair Market Value of the Stock on the exercise date exceeds the Fair Market
Value of a share of Stock on the date of grant of the Stock Appreciation Right,
by (b) the Fair Market Value of the Stock on the exercise date; provided,
however, that fractional shares shall not be issued and in lieu thereof, a cash
adjustment shall be paid. In lieu of issuing Stock upon the exercise of a Stock
Appreciation
-13-
<PAGE>
Right, the Committee in its sole discretion may elect to pay the cash equivalent
of the Fair Market Value of the Stock on the exercise date for any or all of the
shares of Stock that would otherwise be issuable upon exercise of the Stock
Appreciation Right.
10.5 Effect of Exercise. If a Stock Appreciation Right is issued in tandem
with an Option, the exercise of the Stock Appreciation Right or the related
Option will result in an equal reduction in the number of corresponding Options
or Stock Appreciation Rights which were granted in tandem with such Stock
Appreciation Rights and Options.
10.6 Termination of Employment. Upon the termination of employment of a
Participant, any Stock Appreciation Rights then held by such Participant shall
be exercisable within the time periods, and upon the same conditions with
respect to the reasons for termination of employment, as are specified in
Section 7.2(d) with respect to Options.
ARTICLE XI
OTHER COMMON STOCK GRANTS
From time to time during the duration of this Plan, the Board may, in its
sole discretion, adopt one or more incentive compensation arrangements for
Participants pursuant to which the Participants may acquire shares of Stock
whether by purchase, outright grant, or otherwise. Any such arrangements shall
be subject to the general provisions of this Plan and all shares of Stock issued
pursuant to such arrangements shall be issued under this Plan.
ARTICLE XII
CHANGE IN CONTROL
12.1 In General. Upon a change of control in the Company as defined in
Section 12.2, then (a) all options shall become immediately exercisable in full
during the remaining term thereof, and shall remain so, whether or not the
Participants to whom such Options have been granted remain employees of the
Company or an Affiliated Corporation; (b) all restrictions with respect to
outstanding Restricted Stock Awards shall immediately lapse; (c) all Stock Units
shall become immediately payable; and (d) all other Awards shall immediately
become exercisable or shall vest, as the case may be, without any further action
or passage of time.
12.2 Definition. For purposes of this Plan, a "change in control" shall be
deemed to have occurred if (a) a person (as such term is used in Section 13(d)
of the 1934 Act) becomes the beneficial owner (as defined in Rule 13d-3 under
the 1934 Act) of shares of the Company or the Company's successor having 30% or
more of the total number of votes that may be cast for the election of directors
of the Company without the prior approval of at least a majority of the members
of the Company's Board of Directors unaffiliated with such person (unless such
person beneficially owns shares with at least 15% of such votes on the Effective
Date), or (b) individuals who constitute the directors of the
-14-
<PAGE>
Company at the beginning of a 24-month period cease to constitute at least two-
thirds of all directors at any time during such period, unless the election of
any new or replacement directors was approved by a vote of at least a majority
of the members of the Company's Board of Directors in office immediately prior
to such period and of the new and replacement directors so approved.
ARTICLE XIII
RIGHTS OF EMPLOYEES; PARTICIPANTS
13.1 Employment. Nothing contained in the Plan or in any Award granted
under the Plan shall confer upon any Participant any right with respect to the
continuation of his employment by the Company or any Affiliated Corporation, or
interfere in any way with the right of the Company or any Affiliated
Corporation, subject to the terms of any separate employment agreement to the
contrary, at any time to terminate such employment or to increase or decrease
the compensation of the Participant from the rate in existence at the time of
the grant of an Award. Whether an authorized leave of absence, or absence in
military or government service, shall constitute a termination of employment
shall be determined by the Committee at the time.
13.2 Nontransferability. No right or interest of any Participant in an
Option, a Stock Appreciation Right, a Restricted Stock Award (prior to the
completion of the restriction period applicable thereto), a Stock Unit, or other
Award granted pursuant to the Plan, shall be assignable or transferable during
the lifetime of the Participant, either voluntarily or involuntarily, or
subjected to any lien, directly or indirectly, by operation of law, or
otherwise, including execution, levy, garnishment, attachment, pledge or
bankruptcy. In the event of a Participant's death, a Participant's rights and
interests in Options, Stock Appreciation Rights, Restricted Stock Awards, other
Awards, and Stock Units shall, to the extent provided in Articles VII, VIII, IX,
X and XI, be transferable by will or the laws of descent and distribution, and
payment of any amounts due under the Plan shall be made to, and exercise of any
Options may be made by, the Participant's legal representatives, heirs or
legatees. If in the opinion of the Committee a person entitled to payments or to
exercise rights with respect to the Plan is disabled from caring for his affairs
because of mental condition, physical condition or age, payment due such person
may be made to, and such rights shall be exercised by, such person's guardian,
conservator or other legal personal representative upon furnishing the Committee
with evidence satisfactory to the Committee of such status.
13.3 No Plan Funding. Obligations to Participants under the Plan will not
be funded, trusteed, insured or secured in any manner. The Participants under
the Plan shall have no security interest in any assets of the Company or any
Affiliated Corporation, and shall be only general creditors of the Company.
-15-
<PAGE>
ARTICLE XIV
GENERAL RESTRICTIONS
14.1 Investment Representations. The Company may require any person to whom
an Option, Stock Appreciation Right, Restricted Stock Award, Stock Unit, or
Stock is granted, as a condition of exercising such Option or Stock Appreciation
Right, or receiving such Restricted Stock Award, Stock Unit, or Stock, to give
written assurances in substance and form satisfactory to the Company and its
counsel to the effect that such person is acquiring the Stock for his own
account for investment and not with any present intention of selling or
otherwise distributing the same, and to such other effects as the Company deems
necessary or appropriate in order to comply with Federal and applicable state
securities laws.
14.2 Compliance with Securities Laws. Each Option, Stock Appreciation
Right, Restricted Stock Award, Stock Unit, and Stock grant shall be subject to
the requirement that, if at any time counsel to the Company shall determine that
the listing, registration or qualification of the shares subject to such Option,
Stock Appreciation Right, Restricted Stock Award, Stock Unit, or Stock grant
upon any securities exchange or under any state or federal law, or the consent
or approval of any governmental or regulatory body, is necessary as a condition
of, or in connection with, the issuance or purchase of shares thereunder, such
Option, Stock Appreciation Right, Restricted Stock Award, Stock Unit or Stock
grant may not be accepted or exercised in whole or in part unless such listing,
registration, qualification, consent or approval shall have been effected or
obtained on conditions acceptable to the Committee. Nothing herein shall be
deemed to require the Company to apply for or to obtain such listing,
registration or qualification.
14.3 Changes in Accounting Rules. Notwithstanding any other provision of
the Plan to the contrary, if, during the term of the Plan, any changes in the
financial or tax accounting rules applicable to Options, Stock Appreciation
Rights, Restricted Stock Awards, Stock Units or other Awards shall occur which,
in the sole judgment of the Committee, may have a material adverse effect on the
reported earnings, assets or liabilities of the Company, the Committee shall
have the right and power to modify as necessary, any then outstanding and
unexercised Options, Stock Appreciation Rights, outstanding Restricted Stock
Awards, outstanding Stock Units and other outstanding Awards as to which the
applicable employment or other restrictions have not been satisfied.
ARTICLE XV
OTHER EMPLOYEE BENEFITS
The amount of any compensation deemed to be received by a Participant as a
result of the exercise of an Option or Stock Appreciation Right, the sale of
shares received upon such exercise, the vesting of any Restricted Stock Award,
distributions with respect to Stock Units, or the grant of Stock shall not
constitute "earnings" or "compensation" with respect to which any other employee
benefits of such employee are determined, including
-16-
<PAGE>
without limitation benefits under any pension, profit sharing, life insurance or
salary continuation plan.
ARTICLE XVI
PLAN AMENDMENT, MODIFICATION AND TERMINATION
The Board may at any time terminate, and from time to time may amend or
modify the Plan; provided, however, that no amendment or modification may become
effective without approval of the amendment or modification by the shareholders
if shareholder approval is required to enable the Plan to satisfy any applicable
statutory or regulatory requirements, or if the Company, on the advice of
counsel determines that shareholder approval is otherwise necessary or
desirable.
No amendment, modification or termination of the Plan shall in any manner
adversely affect any Options, Stock Appreciation Rights, Restricted Stock
Awards, Stock Units, Stock or other Award theretofore granted under the Plan,
without the consent of the Participant holding such Options, Stock Appreciation
Rights, Restricted Stock Awards, Stock Units, Stock or other Awards.
ARTICLE XVII
WlTHHOLDING
17.1 Withholding Requirement. The Company's obligations to deliver shares
of Stock upon the exercise of any Option, or Stock Appreciation Right, the
vesting of any Restricted Stock Award, payment with respect to Stock Units, or
the grant of Stock shall be subject to the Participant's satisfaction of all
applicable federal, state and local income and other tax withholding
requirements.
17.2 Withholding With Stock. At the time the Committee grants an Option,
Stock Appreciation Right, Restricted Stock Award, Stock Unit, other Award, or
Stock it may, in its sole discretion, grant the Participant an election to pay
all such amounts of tax withholding, or any part thereof, by electing to
transfer to the Company, or to have the Company withhold from shares otherwise
issuable to the Participant, shares of Stock having a value equal to the amount
required to be withheld or such lesser amount as may be elected by the
Participant. All elections shall be subject to the approval or disapproval of
the Committee. The value of shares of Stock to be withheld shall be based on the
Fair Market Value of the Stock on the date that the amount of tax to be withheld
is to be determined (the "Tax Date"). Any such elections by Participants to have
shares of Stock withheld for this purpose will be subject to the following
restrictions:
(a) All elections must be made prior to the Tax Date.
(b) All elections shall be irrevocable.
-17-
<PAGE>
(c) If the Participant is an officer or director of the Company within the
meaning of Section 16 of the 1934 Act ("Section 16"), to the extent Section 16
is applicable the Participant must satisfy the requirements of such Section 16
and any applicable Rules thereunder with respect to the use of Stock to satisfy
such tax withholding obligation.
ARTICLE XVIII
REQUIREMENTS OF LAW
18.1 Requirements of Law. The issuance of Stock and the payment of cash
pursuant to the Plan shall be subject to all applicable laws, rules and
regulations.
18.2 Federal Securities Law Requirements. If a Participant is an officer or
director of the Company within the meaning of Section 16, to the extent Section
16 is applicable, Awards granted hereunder shall be subject to all conditions
required under Rule 16b-3, or any successor rule promulgated under the 1934 Act,
to qualify the Award for any exception from the provisions of Section 16(b) of
the 1934 Act available under that Rule. Such conditions shall be set forth in
the agreement with the Participant which describes the Award or other document
evidencing or accompanying the Award.
18.3 Governing Law. The Plan and all agreements hereunder shall be
construed in accordance with and governed by the laws of the State of Colorado.
ARTICLE XIX
DURATION OF THE PLAN
Unless sooner terminated by the Board of Directors, the Plan shall
terminate on (10 years from the Effective Date) and no Option, Stock
Appreciation Right, Restricted Stock Award, Stock Unit, other Award or Stock
shall be granted, or offer to purchase Stock made, after such termination.
Options, Stock Appreciation Rights, Restricted Stock Awards, other Awards, and
Stock Units outstanding at the time of the Plan termination may continue to be
exercised, or become free of restrictions, or paid, in accordance with their
terms.
Dated: April 1,1994
ACCESS TV, INC., a Delaware corporation
By: /s/ William H. Bernard
--------------------------------
William H. Bernard, President
-18-
<PAGE>
EXHIBIT 10.4
================================================================================
ACCESS TV, INC.
STOCK OPTION PLAN
FOR NON-EMPLOYEE DIRECTORS
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
Page
----
ARTICLE I GENERAL.......................................................... 1
1.1 Definition......................................................... 1
1.2 Nature of Options.................................................. 1
ARTICLE II OPTIONS......................................................... 1
2.1 Participation...................................................... 1
2.2 Grant.............................................................. 2
2.3 Terms.............................................................. 2
ARTICLE III AUTHORIZED STOCK............................................... 4
3.1 The Stock.......................................................... 4
3.2 Adjustments for Stock Split, Stock Dividend, Etc................... 5
3.3 Adjustments for Certain Distributions of Property.................. 5
3.4 Distributions of Capital Stock and Indebtedness.................... 5
3.5 No Rights as Shareholder........................................... 5
3.6 Fractional Shares.................................................. 5
ARTICLE IV CORPORATE REORGANIZATION; CHANGE OF CONTROL..................... 6
4.1 Reorganization..................................................... 6
4.2 Required Notice.................................................... 6
4.3 Acceleration of Exercisability..................................... 6
4.4 Change of Control.................................................. 6
ARTICLE V GENERAL PROVISIONS............................................... 7
5.1 Expiration....................................................... 7
5.2 Amendments, Etc.................................................. 7
5.3 Treatment of Proceeds............................................ 7
5.4 Effectiveness.................................................... 7
5.5 Fair Market Value................................................ 7
5.6 Section Headings................................................. 8
5.7 Severability..................................................... 8
5.8 Rule 16b-3....................................................... 8
5.9 Governing Law.................................................... 8
</TABLE>
-i-
<PAGE>
ACCESS TV, INC.
STOCK OPTION PLAN
FOR NON-EMPLOYEE DIRECTORS
The board of directors of Access TV, Inc., a Delaware Corporation (the
"Company"), hereby establishes the Access TV, Inc. Stock Option Plan for Non-
Employee Directors (the "Plan"), effective April 1, 1994 (the "Effective Date").
PURPOSES
--------
The purposes of the Plan are to provide to certain directors of the
Company who are not also employees of the Company added incentive to continue in
the service of the Company and a more direct interest in the future success of
the operations of the Company by granting to such directors options ("Options")
to purchase shares of the common stock, $.Ol par value (the "Stock") of the
Company upon the terms and conditions described below.
ARTICLE I
GENERAL
-------
1.1 Definition. For purposes of the Plan and as used herein, a "non-
----------
employee director" is an individual who (a) is a member of the Board of
Directors of the Company (the "Board") and (b) is not an employee of the
Company. For purposes of the Plan, an employee is an individual whose wages are
subject to the withholding of federal income tax under section 3401 of the
Internal Revenue Code of 1986, as amended from time to time (the "Code"). A
non-employee director to whom an Option is granted is referred to herein as a
"Holder."
1.2 Nature of Options. The Options granted hereunder shall be
-----------------
options that do not satisfy the requirements of section 422 of the Code.
ARTICLE II
OPTIONS
-------
2.1 Participation. The non-employee directors on the Effective Date
-------------
and each non-employee director elected thereafter shall receive Options to
purchase Stock in accordance with Section 2.2 on the terms and conditions herein
described.
-1-
<PAGE>
2.2 Grant.
-----
(a) Initial Grant. Each individual who is a non-employee director on
the Effective Date shall automatically receive, as of the Effective Date, an
Option to purchase 6,773 shares of Stock.
(b) Newly-Elected Directors. Each non-employee director who is newly
elected to the Board after the Effective Date shall automatically receive, at
the time of such election, an Option to purchase shares of Stock. Each Option
granted pursuant to this Section 2.2(b) shall entitle the newly elected non-
employee director to purchase 6,773 shares of Stock, unless insufficient
shares are available for grant under the Plan for each director newly elected on
the same date, in which case each such director shall automatically receive an
Option to purchase his or her pro rata portion of the shares that are available
for grant under the Plan.
(c) Date of Grant. The date on which a non-employee director
receives an Option hereunder is referred to as the date of grant of such Option.
(d) Option Certificates. Each Option granted under the Plan shall be
evidenced by a written stock option certificate (an "Option Certificate") issued
in the name of the non-employee director to whom the Option is granted. The
Option Certificate shall incorporate and conform to the terms and conditions set
forth herein.
2.3 Terms. Options issued pursuant to the Plan shall have the following
-----
terms and conditions in addition to those set forth elsewhere herein:
(a) Number. Each non-employee director shall receive under the Plan
Options to purchase the number of shares of Stock specified in Section 2.2,
subject to adjustment as provided in Article III. Such grants shall be
effective at the times specified in Section 2.2.
(b) Price. The price at which each share of Stock covered by the
Option may be purchased by each non-employee director shall be the Fair Market
Value (as defined in Section 5.5) of the Stock on the date of grant, subject to
adjustment as provided in Article III.
(c) Duration of Options. The period within which each Option may be
exercised shall expire ten years from the date the Option is granted (the
"Option Period"), unless terminated sooner pursuant to subsection (d) below or
fully exercised prior to the end of such period.
(d) Termination of Service, Death, Etc. The Option shall terminate
in the following circumstances if the Holder ceases to be a director of the
Company:
(i) If the Holder is removed as a director of the Company
during the Option Period for cause, the Option shall be void thereafter for all
purposes.
-2-
<PAGE>
(ii) If the Holder ceases to be a director of the Company on
account of disability within the meaning of Section 22(e)(3) of the Code,
the Option may be exercised by the Holder (or, in case of death
thereafter, by the persons specified in Section 2.3(d)(iii)) within one
year following the date on which the Holder ceased to be a director (if
otherwise within the Option Period), but not thereafter. In any such
case, the Option may be exercised as to all shares of Stock specified
therein, notwithstanding Section 2.3(g).
(iii) If the Holder dies during the Option Period while still
serving as a director or within the three-month period referred to in
Section 2.3(d)(iv) below, the Option may be exercised by those entitled
to do so under the Holder's will or by the laws of descent and
distribution within one year following the Holder's death (if otherwise
within the Option Period), but not thereafter. In any such case, the
Option may be exercised as to all shares of Stock specified therein,
notwithstanding Section 2.3(g).
(iv) If the Holder ceases to be a director within the Option
Period for any reason other than removal for cause, disability or death,
the Option may be exercised by the Holder within three months following
the date of such termination (if otherwise within the Option Period),
but not thereafter. In any such case, the Option may be exercised only
as to the shares as to which the Option had become exercisable on or
before the date the Holder ceased to be a director.
(e) Transferability, Exercisability. Each Option granted under the
Plan shall not be transferable by a Holder other than by will or the laws of
descent and distribution and shall be exercisable during the Holder's lifetime
only by the Holder or, in the event of disability or incapacity, by the Holder's
guardian or legal representative. Notwithstanding any other provision of the
Plan, no Option may be exercised unless and until the Plan is approved by the
shareholders of the Company in accordance with Section 5.4.
(f) Exercise, Payments, Etc.
(i) The method for exercising each Option granted shall be by
delivery to the Company of written notice specifying the number of
shares with respect to which the Option is exercised. The purchase of
Stock pursuant to the Option shall take place at the principal office of
the Company within thirty days following delivery of such notice, at
which time the purchase price of the Stock shall be paid in full by any
of the methods set forth in Section 2.3(f)(ii) or a combination thereof.
If the purchase price is paid by means of a broker's loan transaction as
described in clause (C) of Section 2.3(f)(ii), in whole or in part, the
closing of the purchase of the Stock under the Option shall take place
on the date on which, and only if, the sale of Stock upon which the
broker's loan was based has been closed and settled, unless the Holder
makes an irrevocable written election, at the time of exercise of the
Option, to have the exercise treated as fully effective for all purposes
upon receipt of the purchase price by the Company regardless of whether
or not the sale of the Stock by the broker is
-3-
<PAGE>
closed and settled. A properly executed certificate or certificates
representing the Stock shall be delivered to the Holder upon payment
therefor. If Options on less than all shares evidenced by an Option
Certificate are exercised, the Company shall deliver a new Option
Certificate evidencing the Option on the remaining shares on delivery of
the outstanding Option Certificate for the Option being exercised.
(ii) The exercise price shall be paid by any of the following
methods or any combination of such methods, at the option of the Holder:
(A) cash; (B) certified, cashier's or other check acceptable to the
Company, payable to the order of the Company; or (C) delivery to the
Company of irrevocable instructions to a broker to deliver promptly to
the Company the amount of sale or loan proceeds required to pay the
purchase price of the Stock; or (D) delivery to the Company of
certificates representing the number of shares of Stock then owned by the
Holder, the Fair Market Value of which (determined as of the date the
notice of exercise is delivered to the Company) equals the price of the
Stock to be purchased pursuant to the Option, properly endorsed for
transfer to the Company. No Option may be exercised by delivery to the
Company of certificates representing Stock that has been held by the
Option Holder for less than six months or such other period as shall be
sufficient for the Company to avoid, if possible, the recognition of
expense with respect to the Option for accounting purposes.
(g) Service Required for Exercise. Except as set forth in Sections
2.3(d), 4.3, 4.4 and 5.4, each Option shall become exercisable in increments
after each month of continuous service by the Holder as a non-employee director
of the Company commencing with the twelfth month of continuous service from the
date of grant. The number of shares as to all or part of which the Option may
be exercised after twelve months of continuous service as a non-employee
director after the date of grant shall be 1/4 (12/48) of the total number of
shares covered by the Option, with an additional 1/48 being exercisable after
each additional month of continuous service as a non-employee director through
the 48th month of continuous service. Except as set forth in Sections 2.3(d),
4.3 and 4.4, the Option shall not be exercisable as to any shares as to which
the continuous service requirement has not been satisfied, regardless of the
circumstances under which the Holder ceased to be a director. The number of
shares as to which the Option may be exercised shall be cumulative, so that once
the Option becomes exercisable as to any shares it shall continue to be
exercisable as to those shares until expiration or termination of the Option as
provided in the Plan.
ARTICLE III
AUTHORIZED STOCK
----------------
3.1 The Stock. The total number of shares of Stock as to which Options
---------
may be granted pursuant to the Plan shall be 20,321 in the aggregate. The
number of shares of Stock authorized for grant hereunder shall be adjusted in
accordance with the provisions of
-4-
<PAGE>
Section 3.2. Shares of Stock underlying expired or cancelled and unexercised
Options shall again be available for grant under the Plan. However, shares
surrendered to the Company in payment of an Option exercise price shall not
increase the number of shares available for grant as Options under the Plan.
The Company shall at all times reserve a sufficient number of shares of Stock,
or otherwise assure itself of its ability to perform its obligations hereunder.
3.2 Adjustments for Stock Split, Stock Dividend, Etc. If the Company
------------------------------------------------
shall at any time increase or decrease the number of its outstanding Shares by
means of payment of a stock dividend or any other distribution upon such Shares
payable in Stock, or through a stock split, subdivision, consolidation,
combination, reclassification or recapitalization involving the Stock, or change
in any way the rights and privileges of such Shares, then the numbers, rights
and privileges of the following shall be increased, decreased or changed in like
manner as if the corresponding Shares had been issued and outstanding, fully
paid and nonassessable at the time of such occurrence: (a) the Shares as to
which Options may be granted under the Plan; and (b) the Shares then subject to
each outstanding Option. Upon any occurrence described in this Section 3.2, the
total Option Price under each then outstanding Option shall remain unchanged but
shall be apportioned ratably over the increased or decreased number of Shares
subject to the Option.
3.3 Adjustments for Certain Distributions of Property. If the Company
-------------------------------------------------
shall at any time distribute with respect to its Stock assets or securities of
other persons (excluding cash dividends or distributions payable out of capital
surplus and dividends or other distributions referred to in Sections 3.2 or
3.4), then the Option Price of outstanding Options shall be adjusted to reflect
the fair market value of the assets or securities distributed, the Company shall
provide for the delivery upon exercise of such Options of cash in an amount
equal to the fair market value of the assets or securities distributed or a
combination of such actions shall be taken, all as determined by the Committee
in its discretion. Fair market value of the assets or securities distributed
for this purpose shall be as determined by the Committee.
3.4 Distributions of Capital Stock and Indebtedness. If the Company
-----------------------------------------------
shall at any time distribute with respect to its Stock shares of its capital
stock (other than Stock) or evidences of indebtedness, then a proportionate part
of such capital stock and evidences of indebtedness shall be set aside for each
outstanding Option and, upon the exercise of such Option, delivered to the
Option Holder.
3.5 No Rights as Shareholder. An Option Holder shall have none of the
------------------------
rights of a shareholder with respect to the Shares subject to an Option until
such Shares are transferred to the Option Holder upon the exercise of such
Option. Except as provided in this Article III, no adjustment shall be made for
dividends, rights or other property distributed to shareholders (whether
ordinary or extraordinary) for which the record date is prior to the date such
Shares are so transferred.
3.6 Fractional Shares. No adjustment or substitution provided for in
-----------------
this Article III shall require the Company to issue a fractional share. The
total substitution or adjustment with respect to each Option shall be limited by
deleting any fractional share.
-5-
<PAGE>
ARTICLE IV
CORPORATE REORGANIZATION; CHANGE OF CONTROL
-------------------------------------------
4.1 Reorganization. Upon the occurrence of any of the following events,
--------------
if the notice required by Section 4.2 shall have first been given, the Plan and
all Options then outstanding hereunder shall automatically terminate and be of
no further force and effect whatsoever, without the necessity for any additional
notice or other action by the Board or the Company: (a) the merger or
consolidation of the Company with or into another corporation (other than a
consolidation or merger in which the Company is the continuing corporation and
which does not result in any reclassification or change of outstanding shares of
Stock); or (b) the sale or conveyance of the property of the Company as an
entirety or substantially as an entirety (other than a sale or conveyance in
which the Company continues as a holding company of an entity or entities that
conduct the business or businesses formerly conducted by the Company); or (c)
the dissolution or liquidation of the Company.
4.2 Required Notice. At least 30 days' prior written notice of any
---------------
event described in Section 4.1 shall be given by the Company to each Holder,
unless in the case of the events described in clauses (a) or (b) of Section 4.1,
the Company, or the successor or purchaser, as the case may be, shall make
adequate provision for the assumption of the outstanding Options or the
substitution of new options for the outstanding Options on terms comparable to
the outstanding Options except that the Holder of each Option then outstanding
shall have the right thereafter to purchase the kind and amount of shares of
stock or other securities or property or cash receivable upon such merger,
consolidation, sale or conveyance by a holder of the number of shares of Stock
that would have been receivable upon exercise of the Option immediately prior to
such merger, consolidation, sale or conveyance (assuming such holder of Stock
failed to exercise any rights of election and received per share the kind and
amount received per share by a majority of the non-electing shares). The
provisions of this Article IV shall similarly apply to successive mergers,
consolidations, sales or conveyances. Such notice shall be deemed to have been
given when delivered personally to a Holder or when mailed to a Holder by
registered or certified mail, postage prepaid, at such Holder's address last
known to the Company.
4.3 Acceleration of Exercisability. Subject to Section 5.4, Holders
------------------------------
notified in accordance with Section 4.2 may exercise their Options at any time
before the occurrence of the event requiring the giving of notice (but subject
to occurrence of such event), regardless of whether all conditions of exercise
relating to length of service as a director have been satisfied.
4.4 Change of Control. If a Change in Control (as defined
-----------------
below) occurs, all Options shall become exercisable in full, regardless of
whether all conditions of exercise relating to continuous service have been
satisfied. A "Change in Control" is deemed to have occurred if (a) a person (as
such term is used in Section 13(d) of the Securities Exchange Act of 1934 (the
"Exchange Act")) becomes the beneficial owner (as defined in Rule 13d-3 under
the Exchange Act) of shares of the Company or the Company's successor having 30%
or more of the total number of votes that may be cast for the election of
-6-
<PAGE>
directors of the Company without the prior approval of at least a majority of
the members of the Board unaffiliated with such person (unless such person
beneficially owns shares with at least 15% of such votes on the Effective Date),
or (b) individuals who constitute the directors of the Company at the beginning
of a 24-month period cease to constitute at least two-thirds of all directors at
any time during such period, unless the election of any new or replacement
directors was approved by a vote of at least a majority of the members of the
Board in office immediately prior to such period and of the new and replacement
directors so approved. Notwithstanding anything to the contrary in this Section
4.4, no Option will become exercisable by virtue of the occurrence of a Change
in Control if the Holder of that Option or any group of which that Holder is a
member is the person whose acquisition constituted the Change in Control.
ARTICLE V
GENERAL PROVISIONS
------------------
5.1 Expiration. The Plan shall terminate whenever the Board adopts a
----------
resolution to that effect. After termination, no additional Options shall be
granted under the Plan, but the Company shall continue to recognize Options
previously granted.
5.2 Amendments, Etc. The Board may from time to time amend, modify,
---------------
suspend or terminate the Plan. Nevertheless, no such amendment, modification,
suspension or termination shall impair any Option theretofore granted under the
Plan or deprive any Holder of any shares of Stock that he may have acquired
through or as a result of the Plan without the consent of the Holder. If the
Company is subject to Section 16 of the Exchange Act, the Plan may not be
amended more than once every six months with respect to the persons entitled to
be granted Options hereunder, the timing of grants for participants, the number
of shares of Stock to be granted as Options to individual participants or the
price thereof, other than amendments necessary to comport with changes in the
Code or the rules and regulations thereunder. The Company shall obtain the
approval of shareholders to any amendment or modification of the Plan to the
extent required by Rule 16b-3 under the Exchange Act ("Rule 16b-3") (or any
successor applicable rule), if applicable, or by the listing requirements of any
stock exchange on which the Company's securities are quoted or listed for
trading.
5.3 Treatment of Proceeds. Proceeds from the sale of Stock pursuant
---------------------
to Options granted under the Plan shall constitute general funds of the Company.
5.4 Effectiveness. This Plan shall be effective on the Effective Date,
-------------
subject to approval by the shareholders of the Company in accordance with
applicable law within 12 months before or after the Effective Date. If the
shareholders of the Company do not approve the Plan as specified above, Options
granted under the Plan shall be deemed to be rescinded without any further
action by the Board or the Company, and the Plan shall automatically terminate.
-7-
<PAGE>
5.5 Fair Market Value. The "Fair Market Value" of a share of Stock for
-----------------
purposes of the grant of Options under the Plan shall be determined by the
Committee in good faith.
5.6 Section Headings. The Section headings are included herein only for
----------------
convenience, and they shall have no effect on the interpretation of the Plan.
5.7 Severability. If any article, section, subsection or specific
------------
provision is found to be illegal or invalid for any reason, such illegality or
invalidity shall not affect the remaining provisions of the Plan, and the Plan
shall be construed and enforced as if such illegal and invalid provision had
never been set forth in the Plan.
5.8 Rule 16b-3. To the extent applicable, this Plan is intended to
----------
comply with the requirements of Rule 16b-3 and any successor applicable rule so
that grants under the Plan will not affect the status of non-employee directors
as disinterested persons for purposes of Rule 16b-3 and that such grants will
otherwise satisfy the requirements of Rule 16b-3. To the extent the Plan does
not conform to such requirements, it shall be deemed amended to so conform
without any further action on the part of the Board of Directors or
shareholders.
5.9 Governing Law. The Plan and all agreements hereunder shall be
construed in accordance with and governed by the laws of the State of Colorado.
Adopted as of April 18, 1994.
ACCESS TV, INC.
By: /s/ William H. Bernard
----------------------------------
William H. Bernard, President
-8-
<PAGE>
EXHIBIT 10.5
ACCESS TELEVISION NETWORK, INC.
STOCK BONUS PLAN
PURPOSE
The purpose of this Stock Bonus Plan (the "Plan") is to provide a pool of
shares of the common stock, $.01 par value per share (the "Bonus Shares"), of
Access Television Network, Inc. (the "Company") for distribution as bonuses
hereunder to employees of the Company, as a performance incentive in recognition
of loyal and exemplary service.
GOVERNlNG PROVISIONS
1. Number of Bonus Shares. The total number of shares of common stock of
the Company available for grant as Bonus Shares hereunder shall be 6,773 in
the aggregate. The number of Bonus Shares available at any time for grant
hereunder shall be adjusted for stock dividends, stock splits, subdivisions,
consolidations, combinations, reclassifications, recapitalizations and the like
affecting the Company's common stock after the effective date of the Plan. The
Company shall be under no obligation to grant all or any portion of such shares
as bonuses to employees hereunder.
2. Administration. (a) The Plan shall be administered by the Company's
Chief Executive Officer or such other officer of the Company as shall be
designated expressly by the Company's Board of Directors to administer the Plan
(the "Administrator").
(b) Subject to the other provisions of the Plan, the Administrator shall
have full and final authority and power to determine all matters relating to the
grant of Bonus Shares hereunder, including without limitation the employees of
the Company to whom Bonus Shares shall be granted, the number of shares in each
such grant, the amount of payment, if any, by the grantee for the Bonus Shares
and the applicable restrictions (including vesting schedules), if any, with
respect to such Bonus Shares. At the Administrator's discretion, a grantee may
be required to execute a Stock Bonus Agreement and other applicable
documentation, including a stock power, in form satisfactory to the
Administrator, setting forth any such applicable restrictions. If Bonus Shares
are subject to a vesting schedule, the unvested shares shall be subject, in the
Administrator's discretion, to prohibitions on transfer and to cancellation
upon the occurrence of certain circumstances more particularly described in the
Stock Bonus Agreement. Nothing herein shall be construed to give any individual
the right to be granted Bonus Shares. The Administrator shall have the
authority and power to adopt such rules and regulations and to take such other
action as is considered advisable for administration of the Plan.
3. Eligibility. Employees of the Company other than the Administrator may
be granted Bonus Shares for loyal and exemplary past or future services to the
Company. Other than initial grants of Bonus Shares made hereunder prior to May
__, 1996 (which may be made to any employee of the Company without regard to
the period he has been employed by the Company), grants of Bonus Shares may be
made hereunder only to employees who have completed one year or more as a full
time employee of the Company. Where Bonus Shares are granted as an incentive for
the performance of future services, the grantee shall agree that if his
employment with the Company is terminated for any reason other than death or
disability within six months after the date the Bonus Shares are granted, the
1
<PAGE>
Company may, in its sole discretion, rescind the transfer of any common stock to
the grantee that was made upon the grant of the Bonus Shares.
4. Reoffer of Banus Shares to the Company. Prior to any sale or other
transfer of Bonus Shares by the grantee thereof within one year of the date of
grant, the grantee shall first offer to sell such Bonus Shares to the Company at
their then Fair Market Value by delivering written notice thereof to the
Company. The "Fair Market Value" of a share of the Company's common stock shall
be the last reported sale price of the stock on Nasdaq on the day the
determination is to be made, or if no sale took place on such day, the average
of the closing bid and asked prices of the stock on Nasdaq on such day, or if
the market is closed on such day, the last day prior to the date of
determination on which the market was open for the transaction of business, as
reported by Nasdaq. If, however, the stock is listed or admitted for trading on
a national securities exchange, the Fair Market Value of a share of the stock
shall be the last sales price, or if no sales took place, the average of the
closing bid and asked prices on the day the determination is to be made, or if
the market is closed on such day, the last day prior to the date of
determination on which the market was open for the transaction of business, as
reported in the principal consolidated transaction reporting system for the
principal national securities exchange on which the stock is listed or admitted
for trading. If the Company's common stock is not listed or traded on Nasdaq or
on any national securities exchange, the Fair Market Value shall be as
determined by the Administrator, or in accordance with procedures established by
him, in good faith. If the Company does not accept the grantee's offer within 10
business days after receipt thereof, the grantee shall be free to sell such
shares to a third party at a price equal to or greater than Fair Market Value,
subject to applicable restrictions on transfer.
5. Payment of Taxes. At such time as the grant of Bonus Shares hereunder
becomes taxable for federal income tax purposes, the grantee shall make
arrangements, satisfactory to the Company, for the payment of applicable
federal, state and local taxes (including withholding taxes) that become payable
with repect to such Bonus Shares. If the grant is subject to a vesting schedule
or certain other restrictions, and the grantee files an election under Section
83(b) of the Internal Revenue Code with respect to the Bonus Shares, the grantee
shall inform the Company of such election, and shal1 furnish the Company with a
copy of such election statement within 30 days after submission thereof to the
Internal Revenue Service.
6. Term; Amendment. The Plan shall be effective from the date of its
adoption by the Board of Directors of the Company and shall terminate upon the
earlier of the grant of all shares authorized hereunder or the adoption by the
Board of Directors of a resolution to that effect. The Plan may be amended at
any time by of the Board of Directors.
Adopted this 3Oth day of April 1996
ACCESS TELEVISION NETWORK,
INC., a Delaware corporation
By: /s/ William R. Cullen
----------------------
2
<PAGE>
EXHIBIT 10.6
STANDARD SUBLEASE
American Industrial Real Estate Association
[LOGO]
1. Parties. This Sublease, dated, for reference purposes only, March 21, 1996,
is made by and between Charter Medical Corporation, a Delaware corporation
(herein called "Sublessor") and Access Television Network, Inc., a Delaware
corporation (herein called "Sublessee").
2. Premises. Sublessor hereby subleases to Sublessee and Sublessee hereby
subleases from Sublessor for the term, at the rental, and upon all of the
conditions set forth herein, that certain real property situated in the County
of Orange State of California, commonly known as the 2600 Michelson Building and
described as approximately 5,896 rentable square feet located on the sixteenth
(16th) floor of the Building and commonlY referred to as Suite 1650.
Said real property, including the land and all improvements thereon, is
hereinafter called the "Premises".
3. Term.
3.1 Term. The term of this Sublease shall be for thirty-one (31) months
commencing on May 11, 1996 or upon Sublessee's and ending on December 10, 1998
occupancy of the Premises, whichever occurs earlier unless sooner terminated
pursuant to any provision hereof.
3.2 Delay in Commencement. Notwithstanding said commencement date, if for
any reason Sublessor cannot deliver possession of the Premises to Sublessee on
said date, Sublessor shall not be subject to any liability therefore, nor shall
such failure affect the validity of this Lease or the obligations of Sublessee
hereunder or extend the term hereof, but in such case Sublessee shall not be
obligated to pay rent until possession of the Premises is rendered to Sublessee;
provided, however, that if Sublessor shall not have delivered possession of the
Premises within sixty (60) days from said commencement date, Sublessee may, at
Sublessee's option, by notice in writing to Sublessor within ten (10) days
thereafter, cancel this Sublease, in which event the parties shall be discharged
from all obligations thereunder. If Sublessee occupies the Premises prior to
said Commencement date, such occupancy shall be subject to all provisions
hereof, such occupancy shall not advance the termination date and Sublessee
shall pay rent for such period at the initial monthly rates set forth below.
4. Rent. Sublessee shall pay to Sublessor as rent for the Premises equal monthly
payments of $(See Addendum to Lease), in advance on the 1st day of each month of
the term hereof. Sublessee shall pay Sublessor upon the execution hereof
$6,780.00 as rent for the first month's rent.
Rent for any period during the term hereof which is for less than one month
shall be a pro rata portion of the monthly installment. Rent shall be payable in
lawful money of the United States to Sublessor at the address stated herein or
to such other persons or at such other places as Sublessor may designate in
writing,
5. Security Deposit. Sublessee shall deposit with Sublessor upon execution
hereof $7,500.00 as security for Sublessee's faithful performance of Sublessee's
obligations hereunder. If Sublessee fails to pay rent or other charges due
hereunder, or otherwise defaults with respect to any provision of this Sublease,
Sublessor may use, apply or retain all or any portion of said deposit for the
payment of any rent or other charge in default or for the payment of any other
sum to which Sublessor may become obligated by reason of Sublessee's default, or
to compensate Sublessor for any loss or damage which Sublessor may suffer
thereby. If Sublessor so uses or applies all or any portion of said deposit,
Sublessee shall within ten (10} days after written demand therefor deposit cash
with Sublessor in an amount sufficient to restore said deposit to the full
amount hereinabove stated and Sublessee's failure to do so shall be a material
breach of this Sublease. Sublessor shall not be required to keep said deposit
separate from its general accounts. If Sublessee performs all of Sublessee's
obligations hereunder, said deposit, or so much thereof as has not heretofore
been applied by Sublessor, shall be returned, without payment of interest or
other increment for its use to Sublessee (or at Sublessor's option, to the last
assignee, if any, of Sublessee's interest hereunder) at the expiration of the
term hereof, and after Sublessee has vacated the Premises. No trust relationship
is created herein between Sublessor and Sublessee with respect to said Security
Deposit.
6. Use.
6.1 Use. The Premises shall be used and occupied only for genera1
office use and for no other purpose
6.2 Compliance with Law.
(a) Sublessor warrants to Sublessee that the Premises, in its existing
state, but without regard to the use for which Sublessee will use the Premises,
does not violate any applicable building code regulation or ordinance at the
time that this Sublease is executed. In the event that it is determined that
this warranty has been violated, then it shall be the obligation of the
Sublessor, after written notice from Sublessee, to promptly, at Sublessor's sole
cost and expense, rectify any such violation. In the event that Sublessee does
not give to Sublessor written notice of the violation of this warranty within 1
year from the commencement of the term of this Sublease, it shall be
conclusively deemed that such violation did not exist and the correction of the
same shall be the obligation of the Sublessee.
(b) Except as provided in paragraph 6.2(a), Sublessee shall, at
Sublessee's expense, comply promptly with all applicable statutes, ordinances,
rules, regulations, orders, restrictions of record, and requirements in effect
during the term or any part of the term hereof regulating the use by Sublessee
of the Premises. Sublessee shall not use or permit the use of the Premises in
any manner that will tend to create waste or a nuisance or, if there shall be
more than one tenant of the building containing the Premises, which shall tend
to disturb such other tenants.
6.3 Condition of Premises. Except as provided in paragraph 6.2(a) Sublessee
hereby accepts the Premises in their condition existing as of the date of the
execution hereof, subject to all applicable zoning, municipal, county and state
laws, ordinances, and regulations governing and regulating the use of the
Premises, and accepts this Sublease subject thereto and to all matters disclosed
thereby and by any exhibits attached hereto. Sublessee acknowledges that neither
Sublessor nor Sublessor's agents have made any representation or warranty as to
the suitability of the Premises for the conduct of Sublessee's business.
7. Master Lease
7.1 Sublessor is the lessee of the Premises by virtue of a lease,
hereinafter referred to as the "Master Lease", a copy of which is attached
hereto marked Exhibit 1, dated September 10, 1993 wherein Michelson Company
Limited Partnership is the lessor, hereinafter referred to as the "Master
Lessor".
7.2 This Sublease is and shall be at all times subject and subordinate to
the Master Lease.
7.3 The terms, conditions and respective obligations of Sublessor and
Sublessee to each other under the Sublease shall be the terms and conditions of
the Master Lease except for those provisions of the Master Lease which are
directly contradicted by this Sublease in which event the terms of this Sublease
document shall control over the Master Lease. Therefore, for the purposes of
this Sublease, wherever in the Master Lease the word "Lessor" is used it shall
be deemed to mean the Sublessor herein and wherever in the Master Lease the word
"Lessee" is used it shall be deemed to mean the Sublessee herein.
7.4 During the term of this Sublease and for all periods subsequent for
obligations which have arisen prior to the termination of this Sublease,
Sublessee does hereby expressly assume and agree to perform and comply with, for
the benefit of Sublessor and Master Lessor, each and every obligation of
Sublessor under the Master Lease except for the following paragraphs which are
excluded therefrom: None
- --------------------------------------------------------------------------------
(c) American Industrial Real Estate Association 1978
<PAGE>
7.5 The obligations that Sublessee has assumed under paragraph 7.4 hereof
are hereinafter referred to as the "Sublessee's Assumed Obligations". The
obligations that Sublessee has not assumed under paragraph 7.4 hereof are
hereinafter referred to as the "Sublessor's Remaining Obligations".
7.6 Sublessee shall hold Sublessor free and harmless of and from all
liability, judgments, costs, damages, claims or demands. including reasonable
attorneys fees, arising out of Sublessee's failure to comply with or perform
Sublessee's Assumed Obligations.
7.7 Sublessor agrees to maintain the Master Lease during the entire term of
this Sublease, subject, however, to any earlier termination of the Master Lease
without the fault of the Sublessor and to comply with or perform Sublessor's
Remaining Obligations and to hold Sublessee free and harmless of and from all
liability, judgments, costs, damages, claims or demands arising out of
Sublessor's failure to comply with or perform Sublessor's Remaining Obligations.
7.8 Sublessor represents to Sublessee that the Master Lease is in full
force and effect and that no default exists on the part of any party to the
Master Lease
8. Assignment of Sublease and Default.
8.1 Sublessor hereby assigns and transfers to Master Lessor the Sublessor's
interest in this Sublease and all rentals and income arising therefrom, subject
however to terms of Paragraph 8.2 hereof.
8.2 Master Lessor, by executing this document, agrees that until a default
shall occur in the performance of Sublessor's Obligations under the Master
Lease, that Sublessor may receive, collect and enjoy the rents accruing under
this Sublease. However, if Sublessor shall default in the performance of its
obligations to Master Lessor then Master Lessor may, at its option, receive and
collect, directly from Sublessee, all rent owing and to be owed under this
Sublease. Master Lessor shall not, by reason of this assignment of the Sublease
nor by reason of the collection of the rents from the Sublessee, be deemed
liable to Sublessee for any failure of the Sublessor to perform and comply with
Sublessor's Remaining Obligations
8.3 Sublessor hereby irrevocably authorizes and directs Sublessee, upon
receipt at any written notice from the Master Lessor stating that a default
exists in the performance of Sublessor's obligations under the Master Lease, to
pay to Master Lessor the rents due and to become due under the Sublease.
Sublessor agrees that Sublessee shall have the right to rely upon any such
statement and request from Master Lessor, and that Sublessee shall pay such
rents to Master Lessor without any obligation or right to inquire as to whether
such default exists and notwithstanding any notice from or claim from Sublessor
to the contrary and Sublessor shall have no right or claim against Sublessee for
any such rents so paid by Sublessee.
8.4 No changes or modifications shall be made to this Sublease without the
consent of Master Lessor.
9. Consent of Master Lessor.
9.1 In the event that the Master Lease requires that Sublessor obtain the
consent of Master Lessor to any subletting by Sublessor then this Sublease
shall not be effective unless, within 10 days of the date hereof, Master Lessor
signs this Sublease thereby giving his consent to this Subletting.
9.2 In the event that the obligations of the Sublessor under the Master
Lease have been guaranteed by third parties then this Sublease, nor the Master
Lessor's consent, shall not be effective unless, within 10 days of the date
hereof, said guarantors sign this Sublease thereby giving guarantors consent to
this Sublease and the terms thereof.
9.3 In the event that Master Lessor does give such consent then:
(a) Such consent will not release Sublessor of its obligations or alter
the primary liability of Sublessor to pay the rent and perform and comply with
all of the obligations of Sublessor to be performed under the Master Lease.
(b) The acceptance of rent by Master Lessor from Sublessee or any one
else liable under the Master Lease shall not be deemed a waiver by Master Lessor
of any provisions of the Master Lease.
(c) The consent to this Sublease shall not constitute a consent to any
subsequent subletting or assignment
(d) In the event of any default of Sublessor under the Master Lease,
Master Lessor may proceed directly against Sublessor, any guarantors or any one
else liable under the Master Lease or this Sublease without first exhausting
Master Lessor's remedies against any other person or entity liable thereon to
Master Lessor.
(e) Master Lessor may consent to subsequent sublettings and assignments
of the Master Lease or this Sublease or any amendments or modifications thereto
without notifying Sublessor nor any one else liable under the Master Lease and
without obtaining their consent and such action shall not relieve such persons
from liability.
(f) In the event that Sublessor shall default in its obligations under
the Master Lease, then Master Lessor, at its option and without being obligated
to do so, may require Sublessee to attorn to Master Lessor in which event Master
Lessor shall undertake the obligations of Sublessor under this Sublease from the
time of the exercise of said option to termination of this Sublease but Master
Lessor shall not be liable for any prepaid rents nor any security deposit paid
by Sublessee, nor shall Master Lessor be liable for any other defaults of the
Sublessor under the Sublease.
9.4 The signatures of the Master Lessor and any Guarantors of Sublessor at
the end of this document shall constitute their consent to the terms of this
Sublease.
9.5 Master Lessor acknowledges that, to the best of Master Lessor's
knowledge, no default presently exists under the Master Lease of obligations to
be performed by Sublessor and that the Master Lease is in full force and effect.
9.6 In the event that Sublessor defaults under its obligations to be
performed under the Master Lease by Sublessor, Master Lessor agrees to deliver
to Sublessee a copy of any such notice of default, Sublessee shall have the
right to cure any default of Sublessor described in any notice of default within
ten days after service of such notice of default on Sublessee. If such default
is cured by Sublessee then Sublessee shall have the right of reimbursement and
offset from and against Sublessor
10. Brokers Fee.
10.1 Upon execution hereof by all parties, Sublessor shall pay to Meridian
Pacific (6%) and Alan Lukei (3%) of the total rent payable by Sublessee for
brokerage services rendered by Broker to Sublessor in this transaction.
10.2 Sublessor agrees that if Sublessee exercises any option or right of
first refusal granted by Sublessor herein, or any option or right substantially
similar thereto, either to extend the term of this Sublease, to renew this
Sublease, to purchase the Premises, or to lease or purchase adjacent property
which Sublessor may own or in which Sublessor has an interest, or if Broker is
the procuring cause of any lease, sublease, or sale pertaining to the Premises
or any adjacent property which Sublessor may own or in which Sublessor has an
interest, then as to any of said transactions Sublessor shall pay to Broker a
fee, in cash, in accordance with the schedule of Broker in effect at the time of
the execution of this Sublease. Notwithstanding the foregoing, Sublessor's
obligation under this Paragraph 10.2 is limited to a transaction in which
Sublessor is acting as a sublessor, lessor or seller.
10.3 Master Lessor agrees, by its consent to this Sublease, that if
Sublessee shall exercise any option or right of first refusal granted to
Sublessee by Master Lessor in connection with this Sublease, or any option or
right substantially similar thereto, either to extend the Master Lease, to renew
the Master Lease, to purchase the Premises or any part thereof, or to lease or
purchase adjacent property which Master Lessor may own or in which Master Lessor
has an interest, or if Broker is the procuring cause of any other lease or sale
entered into between Sublessee and Master Lessor pertaining to the Premises, any
part thereof, or any adjacent property which Master Lessor owns or in which it
has an interest, then as to any of said transactions Master Lessor shall pay to
Broker a fee, in cash, in accordance with the schedule of Broker in effect at
the time of its consent to this Sublease.
10.4 Any fee due from Sublessor or Master Lessor hereunder shall be due and
payable upon the exercise of any option to extend or renew, as to any extension
or renewal, upon the execution of any new lease, as to a new lease transaction
or the exercise of a right of first refusal to lease or at the close of escrow,
as to the exercise of any option to purchase or other sale transaction.
10.5 Any transferee of Sublessor's interest in this Sublease, or of Master
Lessor's interest in the Master Lease, by accepting an assignment thereof, shall
be deemed to have assumed the respective obligations of Sublessor or Master
Lessor under this Paragraph 10. Broker shall be deemed to be a third-party
beneficiary of this paragraph 10.
11. Attorney's fees. If any party or the Broker named herein brings an action to
enforce the terms hereof or to declare rights hereunder, the prevailing party in
any such action, on trial and appeal, shall be entitled to his reasonable
attorney's fees to be paid by the losing party as fixed by the Court. The
provision of this paragraph shall inure to the benefit of the Broker named
herein who seeks to enforce a right hereunder.
<PAGE>
12. Additional Provisions. [If there are no additional provisions draw a line
from this point to the next printed word after the space left here. If there are
additional provisions place the same here.]
See attached Addendum to Standard Office Sublease.
If this Sublease has been filled in it has been prepared for submission to your
attorney for his approval. No representation or recommendation is made by the
real estate broker or its agents or employees as to the legal sufficiency, legal
effect, or tax consequences of this Sublease or the Iransaction relating
thereto.
Executed at Charter Medical Corporatio
---------------------------- -------------------------------------
By /s/ Unintelligible
- --------------------------------------- ----------------------------------
Address By
-------------------------------- ----------------------------------
"Sublessor" (Corporate Seal)
Executed at Access Television Network, Inc.
---------------------------- -------------------------------------
By /s/ William Cullen
- --------------------------------------- ----------------------------------
Address By
-------------------------------- ----------------------------------
"Sublessee" (Corporate Seal)
Executed at Michelson Company Limited Partnership
---------------------------- -------------------------------------
By
- --------------------------------------- ----------------------------------
Address By
-------------------------------- ----------------------------------
"Master Lessor" (Corporate Seal)
Executed at
---------------------------- -------------------------------------
- --------------------------------------- -------------------------------------
Address
-------------------------------- -------------------------------------
"Guarantors"
Form 401 778
NOTE: These forms are often modified to meet changing requirements of law and
needs of the industry. Always write or call to make sure you are utilizing the
most current form: AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION, 345 So. Figueroa
St., M-1, Los Angeles, CA 90071. (213) 687-8777.
(c) 1978 - by American Industrial Real Estate Association. All rights reserved.
No part of these works may be reproduced in any form without permission in
writing
<PAGE>
Addendum to Standard Office Sublease (the "Sublease")
dated the 21st day of March, 1996 Between
Charter Medical Corporation ("Sublessor") and
Access Television Network, Inc. ("Sublessee")
12. Rent. Sublessee shall pay to Sublessor as rent for the Premises the
following monthly installments:
May 11, 1996 through June 10, 1996 .................... $6,780.00
June 11, 1996 through June 30, 1996 ................... $2,800.60
July 1, 1996 through September 30, 1996 ............... $4,422.00 per month
October 1, 1996 through October 31, 1996 .............. $6,019.63
November 1, 1996 through November 30, 1998 ............ $6,780.40 per month
December 1, 1998 through December 10, 1998 ............ $2,187.23
As noted in Paragraph 4. of the Sublease, all Rent is payable on the first (1st)
day of each month.
13. Tenant Improvements. Sublessor shall deliver the Premises to Sublessee in
"as-is" condition. However, Sublessor hereby acknowledges Sublessee's intent to
make alterations and additions to the Premises subject to Paragraph 7.3 of the
Master Lease, acknowledges receipt of the Sublessee's space plan dated March 15,
1996 (attached as Exhibit "X") and, subject to Master Lessor's written approval
of the proposed modifications, consents to Sublessee's alterations and additions
plan. Any modifications to said space plan shall be subject to prior written
approval of Sublessor and Master Lessor. All costs associated with Sublessee's
proposed alterations and additions, including but not limited to space planning
services, permits, engineering services, telecommunications wiring and suite
entry or lobby directory sign(s), shall be the responsibility of Sublessee. All
alterations and additions work shall be performed subject to the provisions of
Paragraph 7.3 of the Master Lease. In addition, Sublessee agrees to obtain
Master Lessor's written approval of the general contractor and work within
Master Lessor's tenant improvement reimbursement or pay out system.
14. Communications Equipment. Tenant shall have the right to install: (a) one
seven foot, C-Band, mesh-material satellite dish, (b) one thirty-six inch,
KU-Band satellite dish and (c) a broadcast/off-air antenna on top of the
Building. This shall include the right to route the necessary wiring from the
roof top to the Premises. All costs associated with the installation (i.e. all
necessary permits), maintenance and ultimate removal of the satellite dishes and
antenna will be the responsibility of Tenant. All installation and maintenance
work shall be performed by Tenant subject to the direction and prior approval of
Landlord. The terms of this paragraph are subject to written approval of Master
Lessor which shall be deemed granted upon Master Lessor's execution of this
Sublease and the related consent document
15. Operating Expenses & Taxes. Sublessee shall not be liable for any pass
through of building or project operating expenses and taxes during the term of
the Sublease.
16. Parking. Sublessee's parking rights shall be consistent with Sublessor's
parking rights outlined in Master Lease and Paragraph 2. of the Addendum to
Standard Office Lease dated the 10th day of September, 1993.
17. Sublessor's Option to Extend. Sublessor hereby waives any current or future
rights Sublessor may have under the Master Lease and Paragraph 1. of the
Addendum to Standard Office Lease date the 10th day of September, 1993, "Option
to Extend". Under no circumstances shall Sublessor's tenancy in the Building
continue beyond December 10, 1998.
IN WITNESS WHEREOF, the parties hereto have respectively executed this Addendum.
Sublessor: Charter Medical Corporation, a Delaware corporation
By: /s/ Unintelligible
-------------------------------------
Its: Vice President & Controller
-------------------------------------
Sublessee: Access Television Network, Inc., a Delaware corporation
By: /s/ William Cullen
-------------------------------------
Its: Chairman
-------------------------------------
Master Lessor: Michelson Company Limited Partnership, a California limited
partnership
By:
-------------------------------------
Its:
-------------------------------------
<PAGE>
[GRAPHIC OF OFFICE FLOOR PLAN APPEARS HERE]
<PAGE>
EX-10.7
CONSENT TO SUBLEASE AND AMENDMENT TO LEASE
THIS CONSENT TO SUBLEASE AND AMENDMENT TO LEASE ("Consent Agreement") dated
as of March 25, 1996, is made with reference to that certain sublease (the
"Sublease") dated March 21, 1996, by and between Charter Medical Corporation, a
Delaware corporation ("Tenant") and Access Television Network, Inc., a Delaware
corporation ("Sublessee"), and is entered into between the foregoing parties and
Michelson Company Limited Partnership, a California limited partnership
("Landlord"), having an address at 101 California Street, 2nd floor, San
Francisco, California with reference to the following facts:
A. Landlord and Tenant are the parties to that certain master lease (the
"Master Lease") dated as of September 10, 1993, respecting certain premises
("Premises") known as Suite 1650, located in the building ("Building") located
at 2600 Michelson Drive, Irvine, California.
B. Tenant and Sublessee wish to enter into the Sublease respecting the
portion of the Premises described therein (the "Sublease Premises").
C. The Master Lease provides that Tenant may not enter into any sublease
without Landlord's prior written approval.
D. Tenant and Sublessee have herewith presented the fully-excecuted
Sublease to Landlord for Landlord's approval, and Landlord is willing to approve
the same, upon all of the terms and conditions hereinafter appearing.
NOW, THEREFORE, for good and valuable consideration, the parties hereto
agree as follows:
1. Neither the Master Lease, the Sublease nor this Consent shall be deemed
to grant Sublessee any rights whatsoever against Landlord. Sublessee hereby
acknowledges and agrees that its sole remedy for any alleged or actual breach of
its rights in connection with the Sublease Premises (as defined in the Sublease)
shall be solely against Tenant.
2. This Consent shall not release Tenant from any existing or future duty,
obligation or liability to Landlord pursuant to the Master Lease, nor shall this
Consent change, modify or amend the Master Lease in any manner. This consent
shall not be deemed Landlord's consent to any further subleases.
3. In the event of Master Lease Termination (as hereinafter defined) prior
to the termination of the Sublease, at Landlord's option, Sublessee agrees to
attorn to Landlord and to recognize Landlord as Sublessee's landlord under the
Sublease, upon the terms and conditions and at the rental rate specified in the
Sublease, and for the then remaining term of the Sublease, except that Landlord
shall not be bound by any provision of the Sublease which in any way increases
Landlord's duties, obligations or liabilities to Sublessee beyond those owed to
Tenant under the Master Lease. Sublessee agrees to execute and deliver at any
time and from time to time, upon request of Landlord, any instruments which may
be necessary or appropriate to evidence such attornment. Landlord shall not (i)
be liable to Sublessee for any act, omission or breach of the Sublease by
Tenant, (ii) be subject to any offsets or defenses which Sublessee might have
against Tenant, (iii) be bound by any rent or additional rent which Sublessee
might have paid in advance to Tenant, or (iv) be bound to honor any rights of
Sublessee in any security deposit made with Tenant except to the extent Tenant
has turned over such security deposit to Landlord. Tenant hereby agrees that in
the event of Master Lease Termination, Tenant shall immediately pay or transfer
to Landlord any security deposit, rent or other sums then held by Tenant.
Landlord shall have the right, in Landlord's sole discretion, to elect not to
have Sublessee attorn to Landlord and, in this event, the Sublease shall
1
<PAGE>
be deemed terminated on the date of Master Lease Termination and, Landlord shall
have no obligation to permit Sublessee to continue to occupy the Premises.
(a) "Master Lease Termination" means any event, which by voluntary or
involuntary act or by operation of law, might cause or permit the Master Lease
to be terminated, expired, be canceled, be foreclosed against, or otherwise come
to an end, including but not limited to (1) a default by Tenant under the Master
Lease of any of the terms or provisions thereof; (2) foreclosure proceedings
brought by the holder of any mortgage or trust deed to which the Master Lease is
subject; or (3) the termination of Tenant's leasehold estate by dispossession
proceeding or otherwise.
(b) In the event of attornment hereunder, Landlord's liability shall
be limited to matters arising during Landlord's ownership of the Building, and
in the event that Landlord (or any successor owner) shall convey or dispose of
the Building to another party, such party shall thereupon be and become landlord
hereunder and shall be deemed to have fully assumed and be liable for all
obligations of this Consent or the Sublease to be performed by Landlord which
first arise after the date of conveyance, including the return of any security
deposit, and Tenant shall attorn to such other party, and landlord (or such
successor owner) shall, from and after the date of conveyance, be free of all
liabilities and obligations hereunder not then incurred. The liability of
Landlord to Sublessee for any default by landlord under this Consent or the
Sublease after such attornment, or arising in connection with Landlord's
operation, management, leasing, repair, renovation, alteration, or any other
matter relating to the Building or the Sublease Premises, shall be limited to
the interest of the Landlord in the Building (and proceeds thereof). Under no
circumstances shall any present or future general partner of Landlord (if
Landlord is a partnership) have any liability for the performance of Landlord's
obligations under this Consent or the Sublease.
4. In addition to Landlord's rights under Section 3 hereof, in the event
Tenant is in default under any of the terms and provisions of the Master Lease,
Landlord may elect to receive directly from Sublessee all sums due or payable to
Tenant by Sublessee pursuant to the Sublease, and upon receipt of Landlord's
notice, Sublessee shall thereafter pay to Landlord any and all sums becoming due
or payable under the Sublease and Tenant shall receive from Landlord a
corresponding credit for such sums against any payments then due or thereafter
becoming due from Tenant. Neither the service of such written notice nor the
receipt of such direct payments shall cause Landlord to assume any of Tenant's
duties, obligations and/or liabilities under the Sublease, nor shall such event
impose upon Landlord the duty or obligation to honor the Sublease, nor
subsequently to accept Sublessee's attornment pursuant to Section 3(a) hereof.
5. Sublessee hereby acknowledges that it has read and has knowledge of all
of the terms, provisions, rules and regulations of the Master Lease and agrees
not to do or omit to do anything which would cause Tenant to be in breach of the
Master Lease. Any such act or omission shall also constitute a breach of this
Consent Agreement and shall entitle Landlord to recover any damage, loss, cost
or expense which it thereby suffers, from Sublessee, whether or not Landlord
proceeds against Tenant.
6. In the event of any litigation between the parties hereto with respect
to the subject matter hereof, the unsuccessful party agrees to pay the
successful party all costs, expenses and reasonable attorney's fees incurred
therein by the successful party, which shall be included as a part of the
judgment therein rendered.
7. This Consent Agreement shall be binding upon and inure to the benefit of
the parties' respective successors and assigns, subject to all agreements and
restrictions contained in the Master Lease, the Sublease and herein with respect
to subleasing, assignment, or other transfer. The agreements contained herein
constitute the entire understanding between the parties with respect to the
subject matter hereof, and supersede all prior agreements, written or oral,
inconsistent herewith. No amendment, modification or change therein will be
effective unless Landlord shall have given its prior written consent thereto.
This Consent Agreement may be amended only in writing, signed by all parties
hereto.
2
<PAGE>
8. Notices required or desired to be given hereunder shall be effective
either upon personal delivery or three (3) days after deposit in the United
States mail, by certified mail, return receipt requested, addressed to the
Landlord at the address set forth above, or to Tenant or Sublessee at the
address of the Premises or of the Sublease Premises, respectively. Any party may
change its address for notice by giving notice in the manner hereinabove
provided.
9. As a condition to the effectiveness of Landlord's consent to the
Sublease, Tenant agrees to pay Landlord concurrently with Tenant's delivery of
an executed counterpart hereof, five hundred ($500) dollars in reimbursement of
Landlord's reasonable attorneys' fees and administrative expenses incurred in
connection with this Consent Agreement, as additional rent. Landlord's
acceptance of such fee shall impose no duty on Landlord to approve to execute
the Sublease. Tenant shall also promptly pay Landlord any share of bonus rents,
or other items required under the Master Lease in connection with subleases.
10. Notwithstanding anything to the contrary set forth herein or elsewhere,
if the Master Lease was guaranteed at the time of execution or at any time prior
hereto by any guarantor, then Landlord may at any time hereafter declare all of
its agreements in this Consent Agreement to be null and void and of no force and
effect unless and until Landlord receives a counterpart of this Consent
Agreement indicating approval thereof by any and all such guarantor(s), and
their spouses (if any).
11. Tenant and Sublessee agree to indemnify and hold Landlord harmless from
and against any loss, cost, expense, damage or liability, including reasonable
attorneys' fees, incurred as a result of a claim by any person or entity (i)
that it is entitled to a commission, finder's fee or like payment in connection
with the Sublease or (ii) relating to or arising out of the Sublease or any
related agreements or dealings.
12. Tenant agrees to hold any and all payments due under the Sublease as a
trust fund to be applied first to the satisfaction of all of Tenant's
obligations under the Master Lease and hereunder before using any part thereof
for any other purpose.
13. Landlord and Tenant hereby agree to amend the Master Lease in the
following manners:
i) Tenant hereby agrees to eliminate its Option to Extend. Pursuant to
this elimination, Exhibit E, Section 1 of the Master Lease between Landlord and
Tenant (dated September 10, 1993) is hereby deleted and considered of no further
force and effect.
ii) Tenant shall have the right to install and operate one (1) seven
(7) foot, C-Band, meshmaterial satellite dish, one (1) thirty-six (36) inch,
KU-Band satellite dish and one (1) broadcast/off-air antenna on the roof of the
building located at 2600 Michelson Drive. In consideration for Landlord allowing
Tenant to install and operate such communications equipment on the roof of the
Building, Tenant agrees to obtain and pay for any and all required federal, FAA,
state, and/or local governmental or other relevant agency permits,
authorizations, and/or licenses to install and operate the communications and
satellite equipment on such roof. Landlord makes no representation that or
warranty to Tenant that Tenant will be able to obtain the necessary permits
and/or licenses to install and operate the communications equipment, and
Tenant's obligations under the Lease are not contingent upon such permits and/or
licenses. If applicable permits and/or licenses cannot be obtained, then
Landlord's "Consent Agreement" shall be considered of no further force and
effect. Tenant agrees to provide Landlord with copies of all applicable permits
and/or authorizations. Tenant further agrees to have the installation of the
satellite equipment structurally engineered by a licensed engineering firm to
ensure structural soundness of the equipment with regard to its placement on the
roof. Landlord shall have the right to review and approve, which such approval
shall not be unreasonably withheld, all such engineering reports, plans, and
specifications prior to Tenant installing its communications equipment.
Furthermore, Tenant hereby agrees and understands that the installation and
operation of such communications equipment shall be considered a "Use" of
Premises, as
3
<PAGE>
defined in section 6 and shall be considered an "Indemnified Matter," as defined
in the Addendum (Exhibit E), Section 7.
iii) Regarding the installation of the communications and/or satellite
equipment and all requisite cabling and peripheral items, Tenant shall, at
Tenant's sole cost and expense, be responsible for installing such items in such
a manner that does not disturb the normal operations of the building, the
building's other tenants and invitees, and the building's operating systems.
Tenant further agrees to have the installation of the satellite equipment's
electrical systems and conduit engineered by a licensed electrical engineering
firm to ensure electrical soundness of the systems. Such conduit may not pass
through or be placed on another tenant's premises or disrupt another tenant's
electric, HVAC systems, or other operating systems. Regarding such conduit,
Landlord hereby represents that currently no electrical conduit exists which is
accessible from the building's roof. As such, Tenant accepts responsibility, at
Tenant's sole cost and expense, to install such conduit which shall be
accessible from the building's roof. Furthermore, Tenant shall be responsible,
at Tenant's sole cost and expense, for the continuing maintenance and repair of
all communications and/or satellite equipment in such a manner that conforms to
manufacturers suggestions and requirements and that does not disturb the normal
operations of the building and the building's tenants. Tenant affirms that
Landlord accepts no responsibility for installing, operating, maintaining, or
repairing the communications equipment and other related items.
iv) Tenant acknowledges that Landlord is not granting Tenant the
exclusive use of the roof to the exclusion of other users or tenants. In
addition, Tenant hereby guarantees that the aforementioned communications and
satellite equipment (1) shall not interfere with the operations of the Toyota
Motor Credit Corporation's satellite system which currently exists on the
building's roof and (2) shall not be visible to anyone observing the roof while
standing on the building's surrounding streets. If scenario (1) or (2) occurs
and is not remedied within twenty-four (24) hours of Landlord's notice, Tenant
shall be considered in Default of the Lease, as defined in Section 13 of the
Lease, and Landlord shall have the unconditional right to remove the satellite
systems at Tenant's sole cost and expense. Furthermore, Tenant shall be
responsible for coordinating and completing such removal in a safe and
structurally sound manner which does not disturb the normal operations of the
building or its tenants and for repairing any damage that such removal may cause
to the roof.
v) Tenant shall not have discretionary access to the roof. Access to
the roof shall be granted solely at the discretion of the building's Property
Management upon Tenant's request.
vi) If any act of Default, as defined in Section 13 of the Lease, by
Tenant occurs during the remainder of the Lease Term, Landlord shall have the
immediate and unconditional right to remove, at Tenant's sole cost and expense,
the satellite and communications equipment and peripheral items. Furthermore,
Tenant shall be responsible for coordinating and completing such removal in a
safe and structurally sound manner which does not disturb the normal operations
of the building or its tenants and for repairing any damage that such removal
may cause to the roof.
IN WITNESS WHEREOF, the following parties have executed this Consent
to Sublease as of the date first above written.
4
<PAGE>
TENANT:
CHARTER MEDICAL CORPORATION
a Delaware corporation
By: /s/ Howard A. Millire
_______________________________
Name: Howard A. Millire
_______________________________
Title: Vice President & Controller
_______________________________
SUBLESSEE:
ACCESS TELEVISION NETWORK, INC.
a Delaware corporation
By: /s/ W.R. Cullen
_______________________________
Name: W.R. Cullen
_______________________________
Title: Chairman
_______________________________
5
<PAGE>
LANDLORD:
MICHELSON COMPANY LIMITED
PARTNERSHIP
A California Limited Partnership
By: DW MICHELSON ASSOCIATES
A California General Partnership, its
general partner,
By: DEAN WITTER REALTY
YIELD PLUS, L.P., a Delaware
limited partnership, a general partnership
By: DEAN WITTER REALTY
YIELD PLUS, INC., A
Delaware corporation,
a general partner
By: /s/ E. Davisson Hardman, Jr.
----------------------------------------
E. Davisson Hardman, Jr.
President
By: DEAN WITTER REALTY YIELD
PLUS II, L.P., a Delaware limited
partnership, a general partner,
By: DEAN WITTER REALTY YIELD
PLUS II INC., a Delaware
corporation, a general partner,
By: /s/ E. Davisson Hardman, Jr.
----------------------------------------
E. Davisson Hardman, Jr.
President
6
<PAGE>
EXHIBIT 10.8
STANDARD OFFICE LEASE
1. Basic Lease Provisions.
1.1 Parties: This Lease, dated for reference purposes only April 2,
1996, is made by and between Michelson Company Limited
Partnership, a California corporation ("Landlord") and Access
Television Network, a Delaware corporation
1.2 Premises: Suite Number(s) 1650, as shown on Exhibit "A" attached
hereto (the "Premises").
1.3 Rentable Area of Premises: 5,896 square feet.
1.4 Building Address: 2600 Michelson, Irvine, California 92715
1.5 Use: General Office subject to the requirements and limitations
contained in section 6.
1.6 Term: 2 years and 2 months.
1.7 Commencement Date: December 11, 1998, subject to adjustment in
accordance with section 3 below.
1.8 Base Rent: $ 8,844.00 per month.
1.9 Base Rent Paid Upon Commencement Date: $ 8,844.00 for first full
month's Base Rent.
1.10 Security Deposit: $ 7,500.00 to be paid upon Commencement Date.
1.11 Tenant's Share: 2.04%.
1.12 Base Year: The calendar year 1998.
1.13 Number of Parking Spaces: Reserved: -6- Unreserved: -15- .
1.14 Initial Monthly Parking Bates Per Vehicle: Reserved: $ 50.00
Unreserved: $ 20.00
1.15 Real Estate Broker:
Landlord: None
Tenant: Meridian Pacific
1.16 Attachments to Lease in Addition to Exhibit A - "Premises,"
Exhibit B - "Verification Letter" and Exhibit C - "Rules and
Regulations": Exhibit D - "Addendum to Lease."
1.17 Address for Notices:
Landlord: Dean Witter Realty Inc.
101 California St., 2nd Floor
San Francisco, CA 94111
ATTN: Jeffrey D. Mills, V.P.
Tenant: Premises
<PAGE>
2. Premises.
2.1 Lease of Premises and Definition of Project. Landlord hereby
leases to Tenant, and Tenant hereby leases from Landlord, upon all of the
conditions set forth herein the Premises, together with certain rights to the
Common Areas as hereinafter specified. The Premises shall not include an
easement for light, air or view. The building of which the Premises is a part
(the "Building"), the Common Areas (as defined below), the land upon which the
same are located, along with all other buildings and improvements thereon or
thereunder, including all parking facilities, are herein collectively referred
to as the "Project."
2.2 Calculation of Size of Building and Premises. All provisions
included in this Lease relating to the number of rentable square feet in the
Premises, including, but not limited to, Base Rent and Tenant's Share, shall be
adjusted when Tenant occupies the Premises to reflect the actual number of
rentable square feet in the Premises. The calculation of the number of rentable
or usable square feet in the Premises shall be made by Landlord in accordance
with the methods of measuring rentable and usable square feet, as that method is
described in the American National Institute Publication ANSI Z65.1-1980, as
promulgated by the Building Owners and Managers Association. If an adjustment to
the rentable square feet in the Premises is made after this Lease is executed by
Landlord and Tenant, the Base Rent and any advance rent shall be adjusted by
multiplying the actual number of rentable square feet in the Premises by the per
square foot rental obtained by dividing the Base Rent initially set forth in
section 1.8 by the number of rentable square feet initially set forth in section
1.3. If the number of rentable square feet in the Premises is changed, Tenant's
Share shall be adjusted as provided in section 4.2(a).
2.3 Common Areas-Defined. The term "Common Areas" is defined as all
areas and facilities outside the Premises and within the exterior boundary line
of the Project that are designated by Landlord from time to time for the general
non-exclusive use of Landlord, Tenant and the other tenants of the Project and
their respective employees, suppliers, customers and invitees, including, but
not limited to, common entrances, lobbies, corridors, stairwells, public
restrooms, elevators, parking areas, loading and unloading areas, roadways and
sidewalks. Landlord may also designate other land and improvements outside the
boundaries of the Project to be a part of the Common Areas, provided that such
other land and improvements have a reasonable and functional relationship to the
Project.
3. Term.
3.1 Term and Commencement Date. The term and Commencement Date of this
Lease are as specified in sections 1.6 and 1.7. The Commencement Date set forth
in section 1.7 is an estimated Commencement Date. Subject to the limitations
contained in section 3.3 below, the actual Commencement Date shall be the date
possession of the Premises is tendered to Tenant in accordance with section 3.4
below; provided, however, that the term of this Lease shall be computed from the
first day of the calendar month following the Commencement Date. When the actual
Commencement Date is established by Landlord, Tenant shall, within five (5) days
after Landlord's request, complete and execute the letter attached hereto as
Exhibit "B" and deliver it to Landlord. Tenant's failure to execute the letter
attached hereto as Exhibit "B" within said five (5) day period shall be a
material default hereunder and shall constitute Tenant's acknowledgment of the
truth of the facts contained in the letter delivered by Landlord to Tenant.
3.2 Delay in Possession. Notwithstanding the estimated Commencement
Date specified in section 1.7, if for any reason Landlord cannot deliver
possession of the Premises to Tenant on said date, Landlord shall not be subject
to any liability therefor, nor shall such failure affect the validity of this
Lease or the obligations of Tenant hereunder; provided, however, in such a case,
Tenant shall not be obligated to pay rent or perform any other obligation of
Tenant under this Lease, except as may be otherwise provided in this Lease,
until possession of the Premises is tendered to Tenant, as defined in section
3.4. If Landlord shall not have tendered possession of the Premises to Tenant
within sixty (60) days following the estimated Commencement Date specified in
section 1.7, as the same may be adjusted in accordance with section 3.3 or in
accordance with the terms of any work letter agreement entered into by Landlord
and Tenant, Tenant may, at Tenant's option, by notice in writing to Landlord
within ten (10) days after the expiration of the sixty (60) day period,
terminate this Lease. If Tenant terminates this Lease as provided in the
preceding sentence, the parties shall be discharged from all obligations
hereunder, except that Landlord shall return any money previously deposited with
Landlord by Tenant; and provided further, that if such written notice by Tenant
is not received by Landlord within said ten (10) day period, Tenant shall not
have the right to terminate this Lease as provided above unless Landlord fails
to tender possession of the Premises to Tenant within one hundred twenty (120)
days following the estimated Commencement Date specified in section 1.7, as the
same may be adjusted in accordance with section 3.3 or in accordance with the
terms of any work letter agreement entered into by Landlord and Tenant.
3.3 Delays Caused by Tenant. There shall be no abatement of rent, and
the sixty (60) day period and the one hundred twenty (120) day period specified
in section 3.2 shall be deemed extended, to the extent of any delays caused by
acts or omissions of Tenant, Tenant's agents, employees and contractors, or for
Tenant delays as defined in any work letter agreement attached to this Lease, if
any (hereinafter "Tenant Delays"). The Commencement Date shall be accelerated
one (1) day for each day of Tenant Delay. Within thirty (30) days after Landlord
tenders possession of the Premises to Tenant, Landlord shall notify Tenant of
the accelerated Commencement Date, which date shall represent Landlord's
reasonable estimate of the date Landlord could have delivered possession of the
Premises to Tenant but for the Tenant Delays. After delivery of said notice,
Tenant shall immediately pay to Landlord any Base Rent or other charges payable
for the period of Tenant Delay, and the Commencement Date of the Lease shall be
adjusted accordingly.
3.4 Tender of Possession. Possession of the Premises shall be deemed
tendered to Tenant when Landlord's architect or agent has reasonably determined
that (a) the improvements to be provided by Landlord pursuant to a work letter
agreement, if any, are substantially completed, (b) the Project utilities are
ready for use in the Premises, (c) Tenant has reasonable access to the Premises,
and (d) three (3) days shall have expired following advance written notice to
Tenant of the occurrence of the matters described in (a), (b) and (c) above of
this section 3.4. If improvements to the Premises are constructed by Landlord,
the improvements shall be deemed "substantially" completed when the improvements
have been completed except for minor items or defects which can be completed or
remedied after Tenant occupies the Premises without causing substantial
interference with Tenant's use of the Premises.
3.5 Early Possession. If Tenant occupies the Premises prior to the
Commencement Date, such occupancy shall be subject to all provisions of this
Lease, such occupancy shall not change the termination date, and Tenant shall
pay Base Rent and all other charges provided for in this Lease during the period
of such occupancy. Provided that Tenant does not interfere with or delay the
completion by Landlord or its agents or contractors of the construction of any
tenant improvements, Tenant shall have the right to enter the Premises up to
fourteen (14) days prior to the anticipated Commencement Date for the purpose of
installing furniture. trade fixtures.
2
<PAGE>
equipment, and similar items. Tenant shall be liable for any damages or delays
caused by Tenant's activities at the Premises. Provided that Tenant has not
begun operating its business from the Premises, and subject to all of the terms
and conditions of the Lease, the foregoing activity shall not constitute the
delivery of possession of the Premises to Tenant and the Lease term shall not
commence as a result of said activities. Prior to entering the Premises Tenant
shall obtain all insurance it is required to obtain by the Lease and shall
provide certificates of said insurance to Landlord. Tenant shall coordinate such
entry with Landlord's building manager, and such entry shall be made in
compliance with all terms and conditions of this Lease and the Rules and
Regulations attached hereto.
4. Rent.
4.1 Base Rent. Subject to adjustment as hereinafter provided in
section 4.3, Tenant shall pay to Landlord the Base Rent for the Premises set
forth in section 1.8, without offset or deduction on the first day of each
calendar month. At the time of the Commencement Date of this Lease, Tenant shall
pay to Landlord the advance Base Rent described in section 1.9. Base Rent for
any period during the term hereof which is for less than one month shall be
prorated based upon the actual number of days of the calendar month involved.
Base Rent and all other amounts payable to Landlord hereunder shall be payable
to Landlord in lawful money of the United States, and Tenant shall be
responsible for delivering said amounts to Landlord at the address stated herein
or to such other persons or to such other places as Landlord may designate in
writing.
4.2 Operating Expense Increases. Tenant shall pay to Landlord during
the term hereof, in addition to the Base Rent, Tenant's Share of the amount by
which all Operating Expenses for each Comparison Year exceeds the amount of all
Operating Expenses for the Base Year. If less than 95% of the rentable square
feet in the Project is occupied by tenants or Landlord is not supplying services
to 95% of the rentable square feet of the Project at any time during any
calendar year (including the Base Year), Operating Expenses for such calendar
year shall be an amount equal to the Operating Expenses which would normally be
expected to be incurred had 95% of the Project's rentable square feet been
occupied and had Landlord been supplying services to 95% of the Project's
rentable square feet throughout such calendar year (hereinafter the "Grossed Up
Operating Expenses"). Landlord's good faith estimate of Grossed Up Operating
Expenses shall not be subject to challenge or recalculation by Tenant. Tenant's
Share of Operating Expense increases shall be determined in accordance with the
following provisions:
(a) "Tenant's Share" is defined as the percentage set forth in section
1.11, which percentage has been determined by dividing the number of rentable
square feet in the Premises by ninety-five percent (95%) of the total number of
rentable square feet in the Project and multiplying the resulting quotient by
one hundred (100). In the event that the number of rentable square feet in the
Project or the Premises changes, Tenant's Share shall be adjusted in the year
the change occurs, and Tenant's Share for such year shall be determined on the
basis of the days during such year that each Tenant's Share was in effect.
(b) "Comparison Year" is defined as each calendar year during the term
of this Lease after the Base Year. Tenant's Share of the Operating Expense
increases for the last Comparison Year of the Lease Term shall be prorated
according to that portion of such Comparison Year as to which Tenant is
responsible for a share of such increase.
(c) "Operating Expenses" shall include all costs, expenses and fees
incurred by Landlord in connection with or attributable to the Project,
including but not limited to, the following items: (i) all costs, expenses and
fees associated with or attributable to the ownership, management, operation,
repair, maintenance, improvement, alteration and replacement of the Project, or
any part thereof, including but not limited to, the following: (A) all surfaces,
coverings, decorative items, carpets, drapes, window coverings, parking areas,
loading and unloading areas, trash areas, roadways, sidewalks, stairways,
landscaped areas, striping, bumpers, irrigation systems, lighting facilities,
building exteriors and roofs, fences and gates; (B) all heating, ventilating and
air conditioning equipment ("HVAC") (including, but not limited to, the cost of
replacing or retrofitting HVAC equipment to comply with laws regulating or
prohibiting the use or release of chlorofluorocarbons or
hydrochlorofluorocarbons), plumbing, mechanical, electrical systems, life safety
systems and equipment, telecommunication equipment, elevators, escalators,
tenant directories, fire detection systems including sprinkler system
maintenance and repair; (ii) the cost of trash disposal, janitorial services and
security services and systems; (iii) the cost of all insurance purchased by
Landlord and enumerated in section 8 of this Lease, including any deductibles;
(iv) the cost of water, sewer, gas, electricity, and other utilities available
at the Project and paid by Landlord; (v) the cost of labor, salaries and
applicable fringe benefits incurred by Landlord; (vi) the cost of materials,
supplies and tools used in managing, maintaining and/or cleaning the Project;
(vii) the cost of accounting fees, management fees, legal fees and consulting
fees attributable to the ownership, operation, management, maintenance and
repair of the Project plus the cost of any space occupied by the property
manager and leasing agent (if Landlord is the property manger, Landlord shall be
entitled to receive a fair market management fee); (viii) the cost of replacing,
modifying and/or adding improvements or equipment mandated by any law, statute,
regulation or directive of any governmental agency and any repairs or removals
necessitated thereby (including, but not limited to, the cost of complying with
the Americans With Disabilities Act); (ix) payments made by Landlord under any
easement, license, operating agreement, declaration, restrictive covenant, or
instrument pertaining to the payment or sharing of costs among property owners;
(x) any business property taxes or personal property taxes imposed upon the
fixtures, machinery, equipment, furniture and personal property used in
connection with the operation of the Project; (xi) the cost of all business
licenses, any gross receipt taxes based on rental income or other payments
received by Landlord, commercial rental taxes or any similar taxes or fees;
(xii) transportation taxes, fees or assessments, including but not limited to,
mass transportation fees, metrorail fees, trip fees, regional and transportation
district fees, (xiii) all costs and expenses associated with or related to the
implementation by Landlord of any transportation demand management program or
similar program; (xiv) fees assessed by any air quality management district or
other governmental or quasi-governmental entity regulating pollution; and (xv)
the cost of any other service provided by Landlord or any cost that is elsewhere
stated in this Lease to be an "Operating Expense." Real Property Taxes shall be
paid in accordance with section 10 below and shall not be included in Operating
Expenses. Landlord shall have the right but not the obligation, from time to
time, to equitably allocate some or all of the Operating Expenses among
different tenants of the Project or among the different buildings which comprise
the Project (the "Cost Pools"). Such Cost Pools may include, but shall not be
limited to, the office space tenants of the Project and the retail space tenants
of the Project.
(d) Operating Expenses shall not include any expenses paid by any
tenant directly to third parties, or as to which Landlord is otherwise
reimbursed by any third party or by insurance proceeds.
(e) If the cost incurred in making an improvement or replacing any
equipment is not fully deductible as an expense in the year incurred in
accordance with generally accepted accounting principles, the cost shall be
amortized over the useful life of the improvement or equipment, as reasonably
determined by Landlord, together with an interest factor on the unamortized cost
of such item equal to the lesser of (i) twelve percent (12%) per annum or (ii)
the maximum rate of interest permitted by applicable law.
3
<PAGE>
(f) Tenant's Share of Operating Expense increases shall be payable by
Tenant within ten (10) days after a reasonably detailed statement of actual
expenses is presented to Tenant by Landlord. At Landlord's option, however,
Landlord may, from time to time, estimate what Tenant's Share of Operating
Expense increases will be, and the same shall be payable by Tenant monthly
during each Comparison Year of the Lease term, on the same day as the Base Rent
is due hereunder. In the event that Tenant pays Landlord's estimate of Tenant's
Share of Operating Expense increases, Landlord shall use its best efforts to
deliver to Tenant within one hundred eighty (180) days after the expiration of
each Comparison Year a reasonably detailed statement showing Tenant's Share of
the actual Operating Expense increases incurred during such year. Landlord's
failure to deliver the statement to Tenant within said period shall not
constitute Landlord's waiver of its right to collect said amounts or otherwise
prejudice Landlord's rights hereunder. If Tenant's payments under this section
4.2(f) during said Comparison Year exceed Tenant's Share as indicated on said
statement, Tenant shall be entitled to credit the amount of such overpayment
against Tenant's Share of Operating Expense increases next falling due. If
Tenant's payments under this section 4.2(f) during said Comparison Year were
less than Tenant's Share as indicated on said statement Tenant shall pay to
Landlord the amount of the deficiency within thirty (30) days after delivery by
Landlord to Tenant of said statement. Landlord and Tenant shall forthwith adjust
between them by cash payment any balance determined to exist with respect to
that portion of the last Comparison Year for which Tenant is responsible for
Operating Expense increases, notwithstanding that the Lease term may have
terminated before the end of such Comparison Year; and this provision shall
survive the expiration or earlier termination of the Lease.
(g) The computation of Tenant's Share of Operating Expense increases
is intended to provide a formula for the sharing of costs by Landlord and Tenant
and will not necessarily result in the reimbursement to Landlord of the exact
costs it has incurred.
5. Security Deposit. Tenant shall deliver to Landlord at the time of the
Commencement Date of this Lease the security deposit set forth in section 1.10
as security for Tenant's faithful performance of Tenant's obligations hereunder.
If Tenant fails to pay Base Rent or other charges due hereunder, or otherwise
defaults with respect to any provision of this Lease, Landlord may use all or
any portion of said deposit for the payment of any Base Rent or other charge due
hereunder, to pay any other sum to which Landlord may become obligated by reason
of Tenant's default, or to compensate Landlord for any loss or damage which
Landlord may suffer thereby. If Landlord so uses or applies all or any portion
of said deposit, Tenant shall within ten (10) days after written demand therefor
deposit cash with Landlord in an amount sufficient to restore said deposit to
its full amount. Landlord shall not be required to keep said security deposit
separate from its general accounts. If Tenant performs all of Tenant's
obligations hereunder, said deposit, or so much thereof as has not heretofore
been applied by Landlord, shall be returned, without payment of interest or
other amount for its use, to Tenant (or, at Landlord's option, to the last
assignee, if any, of Tenant's interest hereunder) at the expiration of the term
hereof, and after Tenant has vacated the Premises. No trust relationship is
created herein between Landlord and Tenant with respect to said security
deposit. Tenant acknowledges that the security deposit is not an advance payment
of any kind or a measure of Landlord's damages in the event of Tenant's default.
Tenant hereby waives the provisions of any law which is inconsistent with this
section 5.
6. Use.
6.1 Use. The Premises shall be used and occupied only for the purpose
set forth in section 1.5 and for no other purpose. If section 1.5 gives Tenant
the right to use the Premises for general office use, by way of example and not
limitation, general office use shall not include medical office use or any
similar use, laboratory use, classroom use, any use not characterized by
applicable zoning and land use restrictions as general office use, or any use
which would require Landlord or Tenant to obtain a conditional use permit or
variance from any federal, state or local authority. Notwithstanding any
permitted use inserted in section 1.5, Tenant shall not use the Premises for any
purpose which would violate the Project's certificate of occupancy, any
conditional use permit or variance applicable to the Project or violate any
covenants, conditions or other restrictions applicable to the Project. No
exclusive use has been granted to Tenant hereunder.
6.2 Compliance with Law.
(a) Landlord warrants to Tenant that, to the best of Landlord's
knowledge, the Premises, in the state existing on the date this Lease is
executed by Landlord and Tenant does not violate any covenants or restrictions
of record, or any applicable building code, regulation or ordinance in effect on
such date.
4
<PAGE>
(b) Tenant shall, at Tenant's sole expense, promptly comply with all
applicable laws, ordinances, rules, regulations, orders, certificates of
occupancy, conditional use or other permits, variances, covenants and
restrictions of record, the recommendations of Landlord's engineers or other
consultants, and requirements of any fire insurance underwriters, rating bureaus
or government agencies, now in effect or which may hereafter come into effect,
whether or not they reflect a change in policy from that now existing, during
the term or any part of the term hereof, relating to the use by Tenant of the
Premises. Except as provided in the Addendum to this Lease and in Section 6.2(a)
above, Tenant shall, at Tenant's sole expense, comply with all requirements of
the Americans With Disabilities Act, and all federal, state and local laws and
regulations governing occupational safety and health. Tenant shall conduct its
business and use the Premises in a lawful manner and shall not use or permit the
use of the Premises or the Common Areas in any manner that will tend to create
waste or a nuisance or shall tend to disturb other occupants of the Project.
Tenant shall obtain, at its sole expense, any permit or other governmental
authorization required to operate its business from the Premises. Landlord shall
not be liable for the failure of any other tenant or person to abide by the
requirements of this section or to otherwise comply with applicable laws and
regulations, and Tenant shall not be excused from the performance of its
obligations under this Lease due to such a failure.
6.3 Condition of Premises. Except as otherwise provided in section
6.2(a) and otherwise in this Lease, Tenant hereby accepts the Premises and the
Project in their condition existing as of the date this Lease is executed by
Landlord and Tenant, subject to all applicable federal, state and local laws,
ordinances, regulations and permits governing the use of the Premises, the
Project's certificate of occupancy, any applicable conditional use permits or
variances, and any easements, covenants or restrictions affecting the use of the
Premises or the Project. Tenant acknowledges that it has satisfied itself by its
own independent investigation that the Premises and the Project are suitable for
its intended use, and that neither Landlord nor Landlord's agents has made any
representation or warranty as to the present or future suitability of the
Premises, or the Project for the conduct of Tenant's business.
7. Maintenance, Repairs and Alterations.
7.1 Landlord's Obligations. Landlord shall keep the Project (excluding
the interior of the Premises and space leased to other occupants of the Project)
in good condition and repair. Except as provided in section 9.3, there shall be
no abatement of rent or liability to Tenant on account of any injury or
interference with Tenant's business with respect to any improvements,
alterations or repairs made by Landlord to the Project or any part thereof.
Tenant expressly waives the benefits of any statute now or hereafter in effect
which would otherwise afford Tenant the right to make repairs at Landlord's
expense or to terminate this Lease because of Landlord's failure to keep the
Project in good order, condition and repair.
7.2 Tenant's Obligations.
(a) Subject to the requirements of section 7.3, Tenant shall be
responsible for keeping the Premises in good condition and repair, at Tenant's
sole expense. By way of example, and not limitation, Tenant shall be
responsible, at Tenant's sole expense, for repairing and/or replacing, carpet,
marble, tile or other flooring, paint, wall coverings, plumbing fixtures and
pipes exclusively located in the interior of the Premises, electrical outlets
and wiring exclusively located in the interior of the Premises, corridor and
interior doors and door hardware, telephone and computer wiring and related
equipment, interior glass, window treatments, HVAC ducts and vents exclusively
located in the interior of the Premises, ceiling tiles, shelving, cabinets,
millwork and other tenant improvements. If Tenant fails to keep the Premises in
good condition and repair, Landlord may, but shall not be obligated to, make any
necessary repairs. If Landlord makes such repairs, Landlord may bill Tenant for
the reasonable cost of the repairs as additional rent, and said additional rent
shall be payable by Tenant within ten (10) days.
(b) On the last day of the term and casualty damage hereof, or on any
sooner termination, Tenant shall surrender the Premises to Landlord in the same
condition as received, ordinary wear and tear excepted, clean and free of debris
and Tenant's personal property. Tenant shall repair any damage to the Premises
occasioned by the installation or removal of Tenant's trade fixtures,
furnishings and equipment. Tenant shall leave the electrical distribution
systems, plumbing systems, lighting fixtures, HVAC ducts and vents, window
treatments, wall coverings, carpets and other floor coverings, doors and door
hardware, millwork, ceilings and other tenant improvements at the Premises and
in good condition, ordinary wear and tear excepted.
7.3 Alterations and Additions.
(a) Tenant shall not, without Landlord's prior written consent, which
may be given or withheld in Landlord's sole discretion, make any alterations,
improvements, additions, utility installations or repairs (hereinafter
collectively referred to as "Alterations") in, on or about the Premises or the
Project. Alterations shall include, but shall not be limited to, the
installation or alteration of security or fire protection systems, communication
systems, millwork, shelving, file retrieval or storage systems, carpeting or
other floor covering, window and wall coverings, electrical distribution
systems, lighting fixtures, telephone or computer system wiring, HVAC and
plumbing. At the expiration of the term, Landlord may require the removal of any
Alterations installed by Tenant and the restoration of the Premises and the
Project to their prior condition, at Tenant's expense. If a work letter
agreement is entered into by Landlord and Tenant, Tenant shall not be obligated
to remove the tenant improvements constructed in accordance with the work letter
agreement. If, as a result of any Alteration made by Tenant, Landlord is
obligated to comply with the Americans With Disabilities Act or any other law or
regulation and such compliance requires Landlord to make any improvement or
Alteration to any portion of the Project, as a condition to Landlord's consent,
Landlord shall have the right to require Tenant to pay to Landlord prior to the
construction of any Alteration by Tenant, the entire cost of any improvement or
alteration Landlord is obligated to complete by such law or regulation. Should
Landlord permit Tenant to make its own Alterations, Tenant shall use only such
contractor as has been expressly approved by Landlord, and Landlord may require
Tenant to provide to Landlord, at Tenant's sole cost and expense, a lien and
completion bond in an amount equal to one and one-half times the estimated cost
of such Alterations, to insure Landlord against any liability for mechanic's and
materialmen's liens and to insure completion of the work. Landlord shall have
the right to require Tenant to use a contractor selected by Landlord. In
addition, Tenant shall pay to Landlord a fee equal to six percent (6%) of the
cost of the Alterations to compensate Landlord for the overhead and other costs
it incurs in reviewing the plans for the Alterations and in monitoring the
construction of the Alterations. Should Tenant make any Alterations without the
prior approval of Landlord, or use a contractor not expressly approved by
Landlord, Landlord may, at any time during the term of this Lease, require that
Tenant remove all or part of the Alterations and return the Premises to the
condition it was in prior to the making of the Alternations. In the event Tenant
makes any Alterations, Tenant agrees to obtain or cause its contractor to
obtain, prior to the commencement of any work, "builders all risk" insurance in
an amount approved by Landlord and workers compensation insurance.
5
<PAGE>
(b) Any Alterations in or about the Premises that Tenant shall desire
to make shall be presented to Landlord in written form, with plans and
specifications which are sufficiently detailed to obtain a building permit. If
Landlord consents to an Alteration, the consent shall be deemed conditioned upon
Tenant acquiring a building permit from the applicable governmental agencies,
furnishing a copy thereof to Landlord prior to the commencement of the work, and
compliance by Tenant with all conditions of said permit in a prompt and
expeditious manner. Tenant shall provide Landlord with as-built plans and
specifications for any Alterations made to the Premises.
(c) Tenant shall pay, when due, all claims for labor or materials
furnished or alleged to have been furnished to or for Tenant at or for use in
the Premises, which claims are or may be secured by any mechanic's or
materialmen's lien against the Premises or the Project, or any interest therein.
If Tenant shall, in good faith, contest the validity of any such lien, Tenant
shall furnish to Landlord a surety bond satisfactory to Landlord in an amount
equal to not less than one and one half times the amount of such contested lien
claim indemnifying Landlord against liability arising out of such lien or claim.
Such bond shall be sufficient in form and amount to free the Project from the
effect of such lien. In addition, Landlord may require Tenant to pay Landlord's
reasonable attorneys' fees and costs in participating in such action.
(d) Tenant shall give Landlord not less than ten (10) days' advance
written notice prior to the commencement of any work in the Premises by Tenant,
and Landlord shall have the right to post notices of non-responsibility in or on
the Premises or the Project.
(e) All Alterations (whether or not such Alterations constitute trade
fixtures of Tenant) which may be made to the Premises by Tenant shall be paid
for by Tenant, at Tenant's sole expense, and shall be made and done in a good
and workmanlike manner and with new materials satisfactory to Landlord, and such
Alteration shall be the property of Landlord and remain upon and be surrendered
with the Premises at the expiration of the Lease term, unless Landlord requires
their removal pursuant to section 7.3(a). Provided Tenant is not in default,
notwithstanding the provisions of section 7.3(a), Tenant's personal property and
equipment, other than that which is affixed to the Premises so that it cannot be
removed without material damage to the Premises or the Project, shall remain the
property of Tenant and may be removed by Tenant subject to the provisions of
section 7.2(b).
7.4 Failure of Tenant to Remove Property. If this Lease is terminated
due to the expiration of its term or otherwise, and Tenant fails to remove its
property as required by section 7.2(b), in addition to any other remedies
available to Landlord under this Lease, and subject to any other right or remedy
Landlord may have under applicable law, Landlord may remove any property of
Tenant from the Premises and store the same elsewhere at the expense and risk of
Tenant.
8. Insurance.
8.1 Insurance- Tenant.
(a) Tenant shall obtain and keep in force during the term of this
Lease a commercial general liability policy of insurance with coverages
acceptable to Landlord, in Landlord's reasonable discretion, which, by way of
example and not limitation, protects Tenant and Landlord (as an additional
insured) against claims for bodily injury, personal injury and property damage
based upon, involving or arising out of the ownership, use, occupancy or
maintenance of the Premises and all areas appurtenant thereto. Such insurance
shall provide single limit coverage in an amount not less than $2,000,000 per
occurrence with an "Additional Insured-Managers and Landlords of Premises
Endorsement". The policy shall not contain any intra-insured exclusions as
between insured persons or organizations, but shall include coverage for
liability assumed under this Lease as an "insured contract" for the performance
of Tenant's indemnity obligations under this Lease.
(b) Tenant shall obtain and keep in force during the term of this
Lease extended coverage property insurance with coverages acceptable to
Landlord, in Landlord's reasonable discretion. Said insurance shall be written
on a one hundred percent (100%) replacement cost basis on Tenant's personal
property, all tenant improvements installed at the Premises by Landlord or
Tenant, Tenant's trade fixtures and other property. Such policies shall provide
protection against any peril included within the classification "fire and
extended coverage," against vandalism and malicious mischief, theft, sprinkler
leakage, earthquake sprinkler leakage and flood damage. If this Lease is
terminated as the result of a casualty in accordance with section 9, the
proceeds of said insurance attributable to the replacement of all tenant
improvements at the Premises shall be paid to Landlord.
(c) Tenant shall, at all times during the term hereof, maintain in
effect workers' compensation insurance as required by applicable law and
business interruption insurance satisfactory to Landlord.
8.2 Insurance-Landlord.
(a) Landlord shall obtain and keep in force a policy of general
liability insurance with coverage against such risks and in such amounts as
Landlord deems advisable insuring Landlord against liability arising out of the
ownership, operation and management of the Project.
(b) Landlord shall also obtain and keep in force during the term of
this Lease a policy or policies of insurance covering loss or damage to the
Project in the amount of not less than eighty percent (80%) of the full
replacement cost thereof, as determined by Landlord from time to time. The terms
and conditions of said policies and the perils and risks covered thereby shall
be determined by Landlord, from time to time, in Landlord's sole discretion. In
addition, at Landlord's option, Landlord shall obtain and keep in force, during
the term of this Lease, a policy of rental interruption insurance, with loss
payable to Landlord, which insurance shall, at Landlord's option, also cover all
Operating Expenses. At Landlord's option, Landlord may obtain insurance
coverages and/or bonds related to the operation of the parking areas. At
Landlord's option, Landlord may obtain coverage for flood and earthquake
damages. In addition, Landlord shall have the right to obtain such additional
insurance as is customarily carried by owners or operators of other comparable
office buildings in the geographical area of the Project. Tenant will not be
named as an additional insured in any insurance policies carried by Landlord and
shall have no right to any proceeds therefrom. The policies purchased by
Landlord shall contain such deductibles as Landlord may determine. In addition
to amounts payable by Tenant in accordance with section 4.2, Tenant shall pay
any increase in the property insurance premiums for the Project over what was
payable immediately prior to the Commencement Date to the extent the increase is
specified by Landlord's insurance carrier as being caused by the nature of
Tenant's occupancy or any act or omission of Tenant.
8.3 Insurance Policies. Tenant shall deliver to Landlord certificates
of insurance policies required under section 8.1 within fifteen (15) days prior
to the Commencement Date of this Lease, and Landlord shall have the right to
approve the terms and
6
<PAGE>
conditions of said policies. Tenant's insurance policies shall not be cancelable
or subject to reduction of coverage or other modification except after thirty
(30) days prior written notice to Landlord. Tenant shall, at least thirty (30)
days prior to the expiration of such policies, furnish Landlord with renewals
thereof. Tenant's insurance policies shall be issued by insurance companies
authorized to do business in the state in which the Project is located, and said
companies shall maintain during the policy term a "General Policyholder's
Rating" of at least B+, V (or such other rating as may be required by any lender
having a lien on the Project) as set forth in the most recent edition of "Best
Insurance Reports." All insurance obtained by Tenant shall be primary to and not
contributory with any similar insurance carried by Landlord, whose insurance
shall be considered excess insurance only. Landlord, and at Landlord's option,
the holder of any mortgage or deed of trust encumbering the Project and any
person or entity managing the Project on behalf of Landlord, shall be named as
an additional insured on all insurance policies Tenant is obligated to obtain by
section 8.1 above. Tenant's insurance policies shall not include deductibles in
excess of Twenty-Five Thousand Dollars ($25,000).
8.5 Coverage. Landlord makes no representation to Tenant that the
limits or forms of coverage specified above or approved by Landlord are adequate
to insure Tenant's property or Tenant's obligations under this Lease, and the
limits of any insurance carried by Tenant shall not limit Tenant's obligations
or liability under any indemnity provision included in this Lease or under any
other provision of this Lease.
9. Damage or Destruction.
9.1 Effect of Damage or Destruction. If all or part of the Project is
destroyed or materially damaged (as defined in section 9.2 below) by fire,
earthquake, flood, explosion, the elements, riot, the release or existence of
Hazardous Substances (as defined below) or by any other cause whatsoever,
Landlord shall have the right in its sole and complete discretion, to repair or
to rebuild the Project or to terminate this Lease. Landlord shall within ninety
(90) days after the occurrence of such damage or destruction notify Tenant in
writing of Landlord's intention to repair or to rebuild or to terminate this
Lease. Tenant shall in no event be entitled to compensation or damages on
account of annoyance or inconvenience in making any repairs, or on account of
construction, or on account of Landlord's election to terminate this Lease.
Notwithstanding the foregoing, if Landlord shall elect to rebuild or repair the
Project, but in good faith determines that the Premises cannot be rebuilt or
repaired within one hundred eighty (180) days after the date of the occurrence
of the damage or destruction, without payment of overtime or other premiums, and
the damage to the Project will render the entire Premises unusable during said
one hundred eighty (180) day period, Landlord shall notify Tenant thereof in
writing at the time of Landlord's election to rebuild or repair, and Tenant
shall thereafter have a period of fifteen (15) days within which Tenant may
elect to terminate this Lease, upon thirty (30) days' advance written notice to
Landlord. Tenant's termination right described in the preceding sentence shall
not apply if the damage was caused by the gross negligence or intentional acts
of Tenant or its employees, agents, contractors or invitees. Failure of Tenant
to exercise said election within said period shall constitute Tenant's agreement
to accept delivery of the Premises under this Lease whenever tendered by
Landlord, provided Landlord thereafter pursues reconstruction or restoration
diligently to completion, subject to delays beyond Landlord's reasonable
control. Subject to section 9.3 below, if Landlord or Tenant terminates this
Lease in accordance with this section 9.1, Tenant shall continue to pay all Base
Rent, Operating Expense increases and other amounts due hereunder which arise
prior to the date of termination.
9.2 Definition of Material Damage. Damage to the Project shall be
deemed material if, in Landlord's reasonable judgment, the uninsured cost of
repairing the damage will exceed Twenty-Five Thousand Dollars ($25,000). If
insurance proceeds are available to Landlord in an amount which is sufficient to
pay the entire cost of repairing all of the damage to the Project, the damage
shall be deemed material if the cost of repairing the damage exceeds One Hundred
Thousand Dollars ($100,000). Damage to the Project shall also be deemed material
if (a) the Project cannot be rebuilt or repaired to substantially the same
condition it was in prior to the damage due to laws or regulations in effect at
the time the repairs will be made, (b) the holder of any mortgage or deed of
trust encumbering the Project requires that insurance proceeds available to
repair the damage in excess of Twenty-Five Thousand Dollars ($25,000) be applied
to the repayment of the indebtedness secured by the mortgage or the deed of
trust, or (c) the damage occurs during the last twelve (12) months of the Lease
term.
9.3 Abatement of Rent. If Landlord elects to repair damage to the
Project and all or part of the Premises will be unusable or inaccessible to
Tenant in the ordinary conduct of its business until the damage is repaired, and
the damage was not caused by the negligence or intentional acts of Tenant or its
employees, agents, contractors or invitees, Tenant's Base Rent and Tenant's
Share of Operating Expense increases shall be abated until the repairs are
completed in proportion to the amount of the Premises which is unusable or
inaccessible to Tenant in the ordinary conduct of its business. Notwithstanding
the foregoing, there shall be no abatement of Base Rent or Tenant's Share of
Operating Expense increases by reason of any portion of the Premises being
unusable or inaccessible for a period equal to five (5) consecutive business
days or less.
9.5 Tenant's Property. As more fully set forth in section 22, Landlord
shall not be liable to Tenant or its employees, agents, contractors, invitees or
customers for loss or damage to merchandise, tenant improvements, fixtures,
automobiles, furniture, equipment, computers, files or other property
(hereinafter collectively "Tenant's property") located at the Project. Tenant
shall repair or replace all of Tenant's property at Tenant's sole cost and
expense. Tenant acknowledges that it is Tenant's sole responsibility to obtain
adequate insurance coverage to compensate Tenant for damage to Tenant's
property.
7
<PAGE>
9.6 Waiver. Landlord and Tenant hereby waive the provisions of any
present or future statutes which relate to the termination of leases when leased
property is damaged or destroyed (including, but not limited to, California
Civil Code Sections 1932(2) and 1933(4)) and agree that such event shall be
governed by the terms of this Lease.
10. Real and Personal Property Taxes.
10.1 Payment of Taxes. Tenant shall pay to Landlord during the term of
this Lease, in addition to Base Rent and Tenant's Share of Operating Expense
increases, Tenant's Share of the amount by which all "Real Property Taxes" (as
defined in section 10.2 below) for each Comparison Year exceeds the amount of
all Real Property Taxes for the Base Year. Tenant's Share of Real Property Tax
increases shall be payable by Tenant at the same time, in the same manner and
under the same terms and conditions as Tenant pays Tenant's Share of Operating
Expense increases as provided in section 4.2(f) of this Lease. Except as
expressly provided in section 10.4 below, if the Real Property Taxes incurred
during any Comparison Year are less than the Real Property Taxes incurred during
the Base Year, Tenant shall not be entitled to receive any credit, offset,
reduction or benefit as a result of said occurrence.
10.2 Definition of "Real Property Tax." As used herein, the term "Real
Property Taxes" shall include any form of real estate tax or assessment,
general, special, ordinary or extraordinary, improvement bond or bonds imposed
on the Project or any portion thereof by any authority having the direct or
indirect power to tax, including any city, county, state or federal government,
or any school, agricultural, sanitary, fire, street, drainage or other
improvement district thereof, as against any legal or equitable interest of
Landlord in the Project or in any portion thereof, unless such tax is defined as
an Operating Expense by section 4.3(c).
10.3 Personal Property Taxes. Tenant shall pay prior to delinquency
all taxes assessed against and levied upon trade fixtures, furnishings,
equipment and all other personal property of Tenant contained in the Premises or
related to Tenant's use of the Premises. If any of Tenant's personal property
shall be assessed with Landlord's real or personal property, Tenant shall pay to
Landlord the taxes attributable to Tenant within ten (10) days after receipt of
a written statement from Landlord setting forth the taxes applicable to Tenant's
property.
10.4 Reassessments. From time to time Landlord may challenge the
assessed value of the Project as determined by applicable taxing authorities
and/or Landlord may attempt to cause the Real Property Taxes to be reduced on
other grounds. If Landlord is successful in causing the Real Property Taxes to
be reduced or in obtaining a refund, rebate, credit or similar benefit
(hereinafter collectively referred to as a "reduction"), Landlord shall have the
option, in its sole discretion, to (a) retain the benefit of the reduction and
to pay, at Landlord's sole expense, the costs incurred by Landlord in causing
the reduction to be made or (b) to the extent practicable, to credit the
reduction(s) to Real Property Taxes for the calendar year to which a reduction
applies and to recalculate the Real Property Taxes owed by Tenant for years
after the year in which the reduction applies based on the reduced Real Property
Taxes (if a reduction applies to Tenant's Base Year, the Base Year Real Property
Taxes shall be reduced by the amount of the reduction and Tenant's Share of Real
Property Tax increases shall be recalculated for all Comparison Years following
the year of the reduction based on the lower Base Year amount). If Landlord
proceeds in accordance with (b) above, all costs incurred by Landlord in
obtaining the Real Property Tax reductions shall be considered an Operating
Expense and Landlord shall determine, in its sole discretion, to which years any
reductions will be applied. In addition, if Landlord proceeds in accordance with
(b) above, all accounting and related costs incurred by Landlord in calculating
new Base Years for tenants and in making all other adjustments shall be an
Operating Expense. If Landlord proceeds in accordance with (a) above, Landlord
shall not be obligated to refund to Tenant all or any portion of the reduction
or to reduce Real Property Taxes for the years to which any reductions applv.
11. Utilities.
11.1 Services Provided by Landlord. Subject to all governmental rules,
regulations and guidelines applicable thereto, Landlord shall use its best
efforts to provide HVAC to the Premises for normal office use during the times
described in section 11.3, reasonable amounts of electricity for normal office
lighting and fractional horsepower office machines, water in the Premises or in
the Common Area for reasonable and normal drinking and lavatory use, replacement
light bulbs and/or fluorescent tubes and ballasts for standard overhead
fixtures, and building standard janitorial services.
11.2 Services Exclusive to Tenant. Tenant shall pay for all water,
gas, heat, electricity, telephone and other utilities and services supplied
and/or metered exclusively to the Premises or to Tenant, together with any taxes
thereon. If any such services are not separately metered to the Premises, Tenant
shall pay, at Landlord's option, either Tenant's Share or a reasonable
proportion to be determined by Landlord of all charges jointly metered with
other premises in the Project.
11.3 Hours of Service. Building services and utilities shall be
provided Monday through Friday from 8:00 a.m. to 6:00 p.m. and Saturdays from
9:00 a.m. to 1:00 p.m. Janitorial services shall be provided Monday through
Friday. HVAC and other Building services shall not be provided at other times or
on nationally recognized holidays. Nationally recognized holidays shall include,
but shall not necessarily be limited to, New Years Day, Martin Luther King Jr.
Day, Presidents' Day, Memorial Day, Independence Day, Labor Day, Thanksgiving
Day and Christmas Day. Landlord shall use its best efforts to provide HVAC to
Tenant at times other than those set forth above subject to (a) the payment by
Tenant of Landlord's standard charge, as determined by Landlord from time to
time, in Landlord's sole discretion, for after hours HVAC and (b) Tenant
providing to Landlord at least one (1) business day's advance written notice of
Tenant's need for after hours HVAC. Landlord shall determine, from time to time,
in its reasonable discretion, the charge for after hours HVAC. Tenant shall pay
all after hours HVAC charges to Landlord within three (3) days after Landlord
bills Tenant for said charges.
11.4 Excess Usage by Tenant. Notwithstanding the use set forth in
section 1.5, Tenant shall not use Building utilities or services in excess of
those used by the average office building tenant using its premises for ordinary
office use. Tenant shall not install at the Premises office machines, lighting
fixtures or other equipment which will generate above average heat, noise or
vibration at the Premises or which will adversely effect the temperature
maintained by the HVAC system. If Tenant does use Building utilities or services
in excess of those used by the average office building tenant, Landlord shall
have the right, in addition to any other rights or remedies it may have under
this Lease, to (a) at Tenant's expense, install separate metering devices at the
Premises, and to charge Tenant for its usage, (b) require Tenant to pay to
Landlord all costs, expenses and damages incurred by Landlord as a result of
such usage, and (c) require Tenant to stop using excess utilities or services.
11.5 Interruptions. Tenant agrees that Landlord shall not be liable to
Tenant for its failure to furnish gas, electricity, telephone service, water,
HVAC or any other utility services or building services when such failure is
occasioned, in whole or in part, by repairs, replacements, or improvements, by
any strike, lockout or other labor trouble, by inability to secure electricity,
gas, water, telephone service or other utility at the Project, by any accident,
casualty or event arising from any cause whatsoever, including the
8
<PAGE>
negligence of Landlord, its employees, agents and contractors, by act,
negligence or default of Tenant or any other person or entity, or by any other
cause, and such failures shall never be deemed to constitute an eviction or
disturbance of Tenant's use and possession of the Premises or relieve Tenant
from the obligation of paying rent or performing any of its obligations under
this Lease. Furthermore, Landlord shall not be liable under any circumstances
for loss of property or for injury to, or interference with, Tenant's business,
including, without limitation, loss of profits, however occurring, through or in
connection with or incidental to a failure to furnish any such services or
utilities. Landlord may comply with voluntary controls or guidelines promulgated
by any governmental entity relating to the use or conservation of energy, water,
gas, light or electricity or the reduction of automobile or other emissions
without creating any liability of Landlord to Tenant under this Lease.
12. Assignment and Subletting.
12.1 Landlord's Consent Required. Tenant shall not voluntarily or by
operation of law assign, transfer, hypothecate, mortgage, sublet, or otherwise
transfer or encumber all or any part of Tenant's interest in this Lease or in
the Premises (hereinafter collectively a "Transfer"), without Landlord's prior
written consent, which shall not be unreasonably withheld. Landlord shall
respond to Tenant's written request for consent hereunder within thirty (30)
days after Landlord's receipt of the written request from Tenant. Any attempted
Transfer without such consent shall be void and shall constitute a material
default and breach of this Lease. Tenant's written request for Landlord's
consent shall include, and Landlord's thirty (30) day response period referred
to above shall not commence, unless and until Landlord has received from Tenant,
all of the following information: (a) financial statements for the proposed
assignee or subtenant for the past three (3) years prepared in accordance with
generally accepted accounting principles, (b) federal tax returns for the
proposed assignee or subtenant for the past three (3) years, (c) a TRW credit
report or similar report on the proposed assignee or subtenant, (d) a detailed
description of the business the assignee or subtenant intends to operate at the
Premises, (e) the proposed effective date of the assignment or sublease, (f) a
copy of the proposed sublease or assignment agreement which includes all of the
terms and conditions of the proposed assignment or sublease, (g) a detailed
description of any ownership or commercial relationship between Tenant and the
proposed assignee or subtenant and (h) a detailed description of any Alterations
the proposed assignee or subtenant desires to make to the Premises. If the
obligations of the proposed assignee or subtenant will be guaranteed by any
person or entity, Tenant's written request shall not be considered complete
until the information described in (a), (b) and (c) of the previous sentence has
been provided with respect to each proposed guarantor. "Transfer" shall also
include the transfer (a) if Tenant is a corporation, and Tenant's stock is not
publicly traded over a recognized securities exchange, of more than twenty five
percent (25%) of the voting stock of such corporation during the term of this
Lease (whether or not in one or more transfers) or the dissolution, merger or
liquidation of the corporation, or (b) if Tenant is a partnership or other
entity, of more than twenty five percent (25%) of the profit and loss
participation in such partnership or entity during the term of this Lease
(whether or not in one or more transfers) or the dissolution, merger or
liquidation of the partnership.
12.3 Standard For Approval. Landlord shall not unreasonably withhold
its consent to a Transfer provided that Tenant has complied with each and every
requirement, term and condition of this section 12. Tenant acknowledges and
agrees that each requirement, term and condition in this section 12 is a
reasonable requirement, term or condition. It shall be deemed reasonable for
Landlord to withhold its consent to a Transfer if any requirement, term or
condition of this section 12 is not complied with or: (a) the Transfer would
cause Landlord to be in violation of its obligations under another lease or
agreement to which Landlord is a party; (b) in Landlord's reasonable judgment, a
proposed assignee or subtenant has a smaller net worth than Tenant had on the
date this Lease was entered into with Tenant or is less able financially to pay
the rents due under this Lease as and when they are due and payable; (c) a
proposed assignee's or subtenant's business will impose a burden on the
Project's parking facilities, elevators, Common Areas or utilities that is
greater than the burden imposed by Tenant, in Landlord's reasonable judgment;
(d) the terms of a proposed assignment or subletting will allow the proposed
assignee or subtenant to exercise a right of renewal, right of expansion, right
of first offer, right of first refusal or similar right held by Tenant; (e) a
proposed assignee or subtenant does not, in Landlord's reasonable judgment, have
a good credit rating; (f) a subletting shall be for less than the entirety of
the Premises or for less than the entire unexpired term of the Lease; (g) a
proposed assignee or subtenant refuses to enter into a written assignment
agreement or sublease, reasonably satisfactory to Landlord, which provides that
it will abide by and assume all of the terms and conditions of this Lease for
the term of any assignment or sublease and containing such other terms and
conditions as Landlord reasonably deems necessary; (h) the use of the Premises
by the proposed assignee or subtenant will not be identical to the use permitted
by this Lease; (i) any guarantor of this Lease refuses to consent to the
Transfer or to execute a written agreement reaffirming the guaranty; (j) Tenant
is in default as defined in section 13.1 at the time of the request; (k) if
requested by Landlord, the assignee or subtenant refuses to sign a
non-disturbance and attornment agreement in favor of Landlord's lender; (1)
Landlord has sued or been sued by the proposed assignee or subtenant or has
otherwise been involved in a legal dispute with the proposed assignee or
subtenant; (m) Landlord has had a prior negative leasing experience with the
proposed assignee or subtenant; (n) the assignee or subtenant is involved in a
business which is not in keeping with the then current standards of the Project;
or (o) the proposed assignee or subtenant is an existing tenant of the Project
or is a person or entity then negotiating with Landlord for the lease of space
in the Project.
12.4 Additional Terms and Conditions. The following terms and conditions shall
be applicable to any Transfer:
(a) Regardless of Landlord's consent, no Transfer shall release Tenant
from Tenant's obligations hereunder or alter the primary liability of Tenant to
pay the rent and other sums due Landlord hereunder and to perform all other
obligations to be performed by Tenant hereunder or release any guarantor from
its obligations under its guaranty.
(b) Landlord may accept rent from any person other than Tenant pending
approval or disapproval of an assignment or subletting.
9
<PAGE>
(c) Neither a delay in the approval or disapproval of a Transfer, nor
the acceptance of rent, shall constitute a waiver or estoppel of Landlord's
right to exercise its rights and remedies for the breach of any of the terms or
conditions of this section 12.
(d) The consent by Landlord to any Transfer shall not constitute a
consent to any subsequent Transfer by Tenant or to any subsequent or successive
Transfer by an assignee or subtenant. However, Landlord may consent to
subsequent Transfers or any amendments or modifications thereto without
notifying Tenant or anyone else liable on the Lease and without obtaining their
consent, and such action shall not relieve such persons from liability under
this Lease.
(e) In the event of any default under this Lease, Landlord may proceed
directly against Tenant, any guarantors or anyone else responsible for the
performance of this Lease, including any subtenant or assignee, without first
exhausting Landlord's remedies against any other person or entity responsible
therefor to Landlord, or any security held by Landlord.
(f) Landlord's written consent to any Transfer by Tenant shall not
constitute an acknowledgment that no default then exists under this Lease nor
shall such consent be deemed a waiver of any then existing default.
(g) The discovery of the fact that any financial statement relied upon
by Landlord in giving its consent to an assignment or subletting was materially
false shall. at Landlord's election. render Landlord's consent null and void
subtenant.
(h) Landlord shall not be liable under this Lease or under any
assignment or sublease to any assignee or
(i) No assignment or sublease may be modified or amended without
Landlord's prior written consent.
(k) Any assignee of, or subtenant under, this Lease shall, by reason
of accepting such assignment or entering into such sublease, be deemed, for the
benefit of Landlord, to have assumed and agreed to conform and comply with each
and every term, covenant, condition and obligation herein to be observed or
performed by Tenant during the term of said assignment or sublease, other than
such obligations as are contrary or inconsistent with provisions of an
assignment or sublease to which Landlord has specifically consented in writing.
12.5 Additional Terms and Conditions Applicable to Subletting. The
following terms and conditions shall apply to any subletting by Tenant of all or
any part of the Premises and shall be deemed included in all subleases under
this Lease whether or not expressly incorporated therein:
(a) Tenant hereby absolutely and unconditionally assigns and transfers
to Landlord all of Tenant's interest in all rentals and income arising from any
sublease entered into by Tenant, and Landlord may collect such rent and income
and apply same toward Tenant's obligations under this Lease; provided, however,
that until a default shall occur in the performance of Tenant's obligations
under this Lease, Tenant may receive, collect and enjoy the rents accruing under
such sublease. Landlord shall not, by reason of this or any other assignment of
such rents to Landlord nor by reason of the collection of the rents from a
subtenant, be deemed to have assumed or recognized any sublease or to be liable
to the subtenant for any failure of Tenant to perform and comply with any of
Tenant's obligations to such subtenant under such sublease, including, but not
limited to, Tenant's obligation to return any security deposit. Tenant hereby
irrevocably authorizes and directs any such subtenant, upon receipt of a written
notice from Landlord stating that a default exists in the performance of
Tenant's obligations under this Lease, to pay to Landlord the rents due as they
become due under the sublease. Tenant agrees that such subtenant shall have the
right to rely upon any such statement and request from Landlord, and that such
subtenant shall pay such rents to Landlord without any obligation or right to
inquire as to whether such default exists and notwithstanding any notice from or
claim from Tenant to the contrary.
(b) In the event Tenant shall default in the performance of its
obligations under this Lease, Landlord at its option and without any obligation
to do so, may require any subtenant to attorn to Landlord, in which event
Landlord shall undertake the obligations of Tenant under such sublease from the
time of the exercise of said option to the termination of such sublease;
provided, however, Landlord shall not be liable for any prepaid rents or
security deposit paid by such subtenant to Tenant or for any other prior
defaults of Tenant under such sublease.
12.6 Transfer Premium from Assignment or Subletting. Landlord shall be
entitled to receive from Tenant (as and when received by Tenant) as an item of
additional rent fifty percent (50%) of all amounts received by Tenant from such
assignee or subtenant in excess of the amounts payable by Tenant to Landlord
hereunder (the "Transfer Premium"). "Transfer Premium" shall mean all Base Rent,
additional rent or other consideration of any type whatsoever payable by the
assignee or subtenant in excess of the Base Rent and additional rent payable by
Tenant under this Lease. If less than all of the Premises is transferred, the
Base Rent and the additional rent shall be determined on a per rentable square
foot basis. "Transfer Premium" shall also include, but not be limited to, key
money and bonus money paid by the assignee or subtenant to Tenant in connection
with such Transfer, and any payment in excess of fair market value for services
rendered by Tenant to the assignee or subtenant or for assets, fixtures,
inventory, equipment, or furniture transferred bY Tenant to the assignee or
subtenant in connection with such Transfer.
12.7 Landlord's Option to Recapture Space. Notwithstanding anything to
the contrary contained in this section 12, Landlord shall have the option, by
giving written notice to Tenant within thirty (30) days after receipt of any
request by Tenant to assign this Lease or to sublease space in the Premises, to
terminate this Lease with respect to said space as of the date thirty (30) days
after Landlord's election. In the event of a recapture by Landlord, if this
Lease shall be canceled with respect to less than the entire Premises, the Base
Rent, Tenant's Share of Operating Expense increases and the number of parking
spaces Tenant may use shall be adjusted on the basis of the number of rentable
square feet retained by Tenant in proportion to the number of rentable square
feet contained in the original Premises, and this Lease as so amended shall
continue thereafter in full force and effect, and upon request of either party,
the parties shall execute written confirmation of same. If Landlord recaptures
only a portion of the Premises, it shall construct and erect at its sole cost
such partitions as may be required to sever the space to be retained by Tenant
from the space recaptured by Landlord. Landlord may, at its option, lease any
recaptured portion of the Premises to the proposed subtenant or assignee or to
any other person or entity without liability to Tenant. Tenant shall not be
entitled to any portion of the profit, if any, Landlord may realize on account
of such termination and reletting. Tenant acknowledges that the purpose of this
section 12.7 is to enable Landlord to receive profit in the
10
<PAGE>
form of higher rent or other consideration to be received from an assignee or
subtenant, to give Landlord the ability to meet additional space requirements of
other tenants of the Project and to permit Landlord to control the leasing of
space in the Project. Tenant acknowledges and agrees that the requirements of
this section 12.7 are commercially reasonable and are consistent with the
intentions of Landlord and Tenant.
12.8 Landlord's Expenses. In the event Tenant shall assign this Lease
or sublet the Premises or request the consent of Landlord to any Transfer, then
Tenant shall pay Landlord's reasonable costs and expenses incurred in connection
therewith, including, but not limited to, attorneys', architects', accountants',
engineers' or other consultants' fees; provided, however, that said costs and
expenses shall not exceed One Thousand Dollars ($1,000) in any single
transaction.
13. Default; Remedies.
13.1 Default by Tenant. Landlord and Tenant hereby agree that the
occurrence of any one or more of the following events is a material default by
Tenant under this Lease and that said default shall give Landlord the rights
described in section 13.2. Landlord or Landlord's authorized agent shall have
the right to execute and to deliver any notice of default, notice to pay rent or
quit or any other notice Landlord gives Tenant.
(a) Tenant's failure to make any payment of Base Rent, Tenant's Share
of Operating Expense increases, parking charges, charges for after hours HVAC,
late charges, or any other payment required to be made by Tenant hereunder, as
and when due, where such failure shall continue for a period of three (3) days
after written notice thereof from Landlord to Tenant. In the event that Landlord
serves Tenant with a notice to pay rent or quit pursuant to applicable unlawful
detainer statutes, such notice shall also constitute the notice required by this
section 13.1(a).
(c) The failure of Tenant to comply with any of its obligations under
sections 6.1, 6.2(b), 7.2, 7.3, 8, 10, 11.4, 12, 18, 19, 21, 23, 24, 26, 34, 35
and 56 where Tenant fails to comply with its obligations or fails to cure any
earlier breach of such obligation within ten (10) days following written notice
from Landlord to Tenant. In the event Landlord serves Tenant with a notice to
quit or any other notice pursuant to applicable unlawful detainer statutes, said
notice shall also constitute the notice required by this section 13.1(c).
(d) The failure by Tenant to observe or perform any of the covenants,
conditions or provisions of this Lease to be observed or performed by Tenant
(other than those referenced in sections 13.1(a), (b) and (c), above), where
such failure shall continue for a period of ten (10) days after written notice
thereof from Landlord to Tenant; provided, however, that if the nature of
Tenant's non-performance is such that more than ten (10) days are reasonably
required for its cure, then Tenant shall not be deemed to be in default if
Tenant commences such cure within said ten (10) day period and thereafter
diligently pursues such cure to completion. In the event that Landlord serves
Tenant with a notice to quit or any other notice pursuant to applicable unlawful
detainer statutes, said notice shall also constitute the notice required by this
section 13.1(d).
(e) (i) The making by Tenant or any guarantor of Tenant's obligations
hereunder of any general arrangement or general assignment for the benefit of
creditors; (ii) Tenant or any guarantor becoming a "debtor" as defined in 11
U.S.C. 101 or any successor statute thereto (unless, in the case of a petition
filed against Tenant or guarantor, the same is dismissed within sixty (60)
days); (iii) the appointment of a trustee or receiver to take possession of
substantially all of Tenant's assets located at the Premises or of Tenant's
interest in this Lease, where possession is not restored to Tenant within thirty
(30) days; or (iv) the attachment, execution or other judicial seizure of
substantially all of Tenant's assets located at the Premises or of Tenant's
interest in this Lease, where such seizure is not discharged within thirty (30)
days. In the event that any provision of this section 13.1(e) is unenforceable
under applicable law, such provision shall be of no force or effect.
(f) The discovery by Landlord that any financial statement,
representation or warranty given to Landlord by Tenant, or by any guarantor of
Tenant's obligations hereunder, is or was materially false.
(g) If Tenant is a corporation or a partnership, the dissolution or
liquidation of Tenant.
(h) If Tenant's obligations under this Lease are guaranteed: (i) the
death of a guarantor, (ii) the termination of a guarantor's liability with
respect to this Lease other than in accordance with the terms of such guaranty,
(iii) a guarantor's becoming insolvent or the subject of a bankruptcy filing,
(iv) a guarantor's refusal to honor the guaranty, or (v) a guarantor's breach of
its guaranty obligation on an anticipatory breach basis.
13.2 Remedies.
(a) In the event of any material default or breach of this Lease by
Tenant, Landlord may, at any time thereafter, with or without notice or demand,
and without limiting Landlord in the exercise of any right or remedy which
Landlord may have by reason of such default:
(i) terminate Tenant's right to possession of the Premises by any
lawful means, in which case this Lease and the term hereof shall terminate
and Tenant shall immediately surrender possession of the Premises to
Landlord. If Landlord terminates this Lease, Landlord may recover from
Tenant (A) the worth at the time of award of the unpaid rent which had been
earned at the time of termination; (B) the worth at the time of award of
the amount by which the unpaid rent which would have been earned after
termination until the time of award exceeds the amount of such rental loss
that Tenant proves could have been reasonably avoided; (C) the worth at the
time of award of the amount by which the unpaid rent for the balance of the
term after the time of award exceeds the amount of such rental loss that
Tenant proves could be reasonably avoided; and (D) any other amount
necessary to compensate Landlord for all detriment proximately caused by
Tenant's failure to perform its obligations under the Lease or which in the
ordinary course of things would be likely to result therefrom, including,
but not limited to, the cost of recovering possession of the Premises,
expenses of releasing, including necessary renovation and alteration of the
Premises, reasonable attorneys' fees, any real estate commissions actually
paid by Landlord and the unamortized value of any free rent, reduced rent,
tenant improvement allowance or other economic concessions provided by
Landlord. The "worth at time of award" of the amounts referred to in
section 13.2(a)(i)(A) and (B) shall be computed by allowing interest at the
lesser of ten percent (10%) per annum or the maximum interest rate
permitted by applicable law. The worth at
11
<PAGE>
the time of award of the amount referred to in section 13.2(a)(i)(C) shall
be computed by discounting such amount at the discount rate of the Federal
Reserve Bank of San Francisco at the time of award plus one percent (1%).
For purposes of this section 13.2(a)(i), "rent" shall be deemed to be all
monetary obligations required to be paid by Tenant pursuant to the terms of
this Lease.
(ii) maintain Tenant's right of possession in which event Landlord
shall have the remedy described in California Civil Code Section 1951.4
which permits Landlord to continue this Lease in effect after Tenant's
breach and abandonment and recover rent as it becomes due. In the event
Landlord elects to continue this Lease in effect, Tenant shall have the
right to sublet the Premises or assign Tenant's interest in the Lease
subject to the reasonable requirements contained in section 12 of this
Lease and provided further that Landlord shall not require compliance with
any standard or condition contained in section 12 that has become
unreasonable at the time Tenant seeks to sublet or assign the Premises
pursuant to this section 13.2(a)(ii).
(iii) collect sublease rents (or appoint a receiver to collect such
rent) and otherwise perform Tenant's obligations at the Premises, it being
agreed, however, that the appointment of a receiver for Tenant shall not
constitute an election by Landlord to terminate this Lease.
(iv) pursue any other remedy now or hereafter available to Landlord
under the laws or judicial decisions of the state in which the Premises are
located.
(b) No remedy or election hereunder shall be deemed exclusive, but
shall, wherever possible, be cumulative with all other remedies at law or in
equity. The expiration or termination of this Lease and/or the termination of
Tenant's right to possession of the Premises shall not relieve Tenant of
liability under any indemnity provisions of this Lease as to matters occurring
or accruing during the term of the Lease or by reason of Tenant's occupancy of
the Premises.
(c) If Tenant abandons or vacates the Premises, Landlord may re-enter
the Premises and such re-entry shall not be deemed to constitute Landlord's
election to accept a surrender of the Premises or to otherwise relieve Tenant
from liability for its breach of this Lease. No surrender of the Premises shall
be effective against Landlord unless Landlord has entered into a written
agreement with Tenant in which Landlord expressly agrees to (i) accept a
surrender of the Premises and (ii) relieve Tenant of liability under the Lease.
The delivery by Tenant to Landlord of possession of the Premises shall not
constitute the termination of the Lease or the surrender of the Premises.
13.3 Default by Landlord. Landlord shall not be in default under this
Lease unless Landlord fails to perform obligations required of Landlord within
ten (10) days after written notice by Tenant to Landlord and to the holder of
any mortgage or deed of trust encumbering the Project whose name and address
shall have theretofore been furnished to Tenant in writing, specifying wherein
Landlord has failed to perform such obligation; provided, however, that if the
nature of Landlord's obligation is such that more than ten (10) days are
required for its cure, then Landlord shall not be in default if Landlord
commences performance within such ten (10) day period and thereafter diligently
pursues the same to completion. This Lease and the obligations of Tenant
hereunder shall not be affected or impaired because Landlord is unable to
fulfill any of its obligations hereunder or is delayed in doing so, if such
inability or delay is caused by reason of strike or other labor problems, acts
of God, riot, insurrection, governmental actions or requirements, or any other
cause beyond the reasonable control of Landlord, and the time for Landlord's
performance shall be extended for the period of any such delay.
13.4 Late Charges. Tenant hereby acknowledges that late payment by
Tenant to Landlord of Base Rent, Tenant's Share of Operating Expense increases,
parking charges, after hours HVAC charges, or other sums due hereunder will
cause Landlord to incur costs not contemplated by this Lease, the exact amount
of which will be extremely difficult to ascertain. Such costs include, but are
not limited to, processing and accounting charges and late charges which may be
imposed on Landlord by the terms of any mortgage or trust deed encumbering the
Project. Accordingly, if any installment of Base Rent, Tenant's Share of
Operating Expense increases, parking charges, after hours HVAC charges or any
other sum due from Tenant shall not be received by Landlord within five days of
the date that such amount shall be due, then, without any requirement for notice
or demand to Tenant, Tenant shall immediately pay to Landlord a late charge
equal to six percent (6%) of such overdue amount. The parties hereby agree that
such late charge represents a fair and reasonable estimate of the costs Landlord
will incur by reason of late payment by Tenant. Acceptance of such late charge
by Landlord shall in no event constitute a waiver of Tenant's default with
respect to such overdue amount, nor prevent Landlord from exercising any of the
other rights and remedies granted hereunder including the assessment of interest
under section 13.5.
13.5 Interest on Past-due Obligations. Except as expressly herein
provided, any amount due to Landlord that is not paid when due shall bear
interest at the lesser of ten percent (10%) per annum or the maximum rate
permitted by applicable law. Payment of such interest shall not excuse or cure
any default by Tenant under this Lease; provided, however, that interest shall
not be payable on late charges incurred by Tenant nor on any amounts upon which
late charges are paid by Tenant.
13.6 Payment of Rent after Default. If Tenant fails to pay Base Rent,
Tenant's Share of Operating Expense increases, parking charges or any other
monetary obligation due hereunder on the date it is due, after Tenant's third
failure to pay any monetary obligation on the date it is due, at Landlord's
option, all monetary obligations of Tenant hereunder shall thereafter be paid by
cashiers check. If Landlord has required Tenant to make said payments by
cashiers check, Tenant's failure to make a payment by cashiers check shall be a
material default hereunder.
14. Landlord's Right to Cure Default; Payments by Tenant. All covenants and
agreements to be kept or performed by Tenant under this Lease shall be performed
by Tenant at Tenant's sole cost and expense and without any reduction of rent.
If Tenant shall fail to perform any of its obligations under this Lease, within
a reasonable time after such performance is required by the terms of this Lease,
Landlord may, but shall not be obligated to, after three (3) days prior written
notice to Tenant, make any such payment or perform any such act on Tenant's
behalf without waiving its rights based upon any default of Tenant and without
releasing Tenant from any obligations hereunder. Tenant shall pay to Landlord,
within ten (10) days after delivery by Landlord to Tenant of statements
therefore, an amount equal to the expenditures reasonably made by Landlord in
connection with the remedying by Landlord of Tenant's defaults pursuant to the
provisions of this section 14.
15. Condemnation. If any portion of the Premises or the Project are taken under
the power of eminent domain, or sold under the threat of the exercise of said
power (all of which are herein called "condemnation"), this Lease shall
terminate as to the part so taken as of the date the condemning authority takes
title or possession, whichever first occurs; provided that if so much of the
Premises or Project are taken by such condemnation as would substantially and
adversely affect the operation and profitability of Tenant's business conducted
from the Premises, and said taking lasts for ninety (90) days or more, Tenant
shall have the option, to be exercised only in writing within thirty (30) days
after Landlord shall have given Tenant written notice of such taking (or in the
absence of such notice, within
12
<PAGE>
thirty (30) days after the condemning authority shall have taken possession), to
terminate this Lease as of the date the condemning authority takes such
possession. If a taking lasts for less than ninety (90) days, Tenant's rent
shall be abated during said period but Tenant shall not have the right to
terminate this Lease. If Tenant does not terminate this Lease in accordance with
the foregoing, this Lease shall remain in full force and effect as to the
portion of the Premises remaining, except that the rent and Tenant's Share of
Operating Expenses shall be reduced in the proportion that the usable floor area
of the Premises taken bears to the total usable floor area of the Premises.
Common Areas taken shall be excluded from the Common Areas usable by Tenant and
no reduction of rent shall occur with respect thereto or by reason thereof.
Landlord shall have the option in its sole discretion to terminate this Lease as
of the taking of possession by the condemning authority, by giving written
notice to Tenant of such election within thirty (30) days after receipt of
notice of a taking by condemnation of any part of the Premises or the Project.
Any award for the taking of all or any part of the Premises or the Project under
the power of eminent domain or any payment made under threat of the exercise of
such power shall be the property of Landlord, whether such award shall be made
as compensation for diminution in value of the leasehold, for good will, for the
taking of the fee, as severance damages, or as damages for tenant improvements;
provided, however, that Tenant shall be entitled to any separate award for loss
of or damage to Tenant's removable personal property. In the event that this
Lease is not terminated by reason of such condemnation, and subject to the
requirements of any lender that has made a loan to Landlord encumbering the
Project, Landlord shall to the extent of severance damages received by Landlord
in connection with such condemnation, repair any damage to the Project caused by
such condemnation except to the extent that Tenant has been reimbursed therefor
by the condemning authority. Tenant shall pay any amount in excess of such
severance damages required to complete such repair. This section, not general
principles of law or California Code of Civil Procedure sections 1230.010
et seq., shall govern the rights and obligations of Landlord and Tenant with
respect to the condemnation of all or any portion of the Project.
16. Vehicle Parking.
16.1 Use of Parking Facilities. During the term and subject to the
rules and regulations attached hereto as Exhibit "C," as modified by Landlord
from time to time (the "Rules"), Tenant shall be entitled to use the number of
parking spaces set forth in section 1.13 in the parking facility of the Project
at the monthly rate applicable from time to time for monthly parking as set by
Landlord and/or its licensee. Landlord may, in its sole discretion, assign
tandem parking spaces to Tenant and designate the location of any reserved
parking spaces. For purposes of this Lease, a "parking space" refers to the
space in which one (1) motor vehicle is intended to park (e.g., a tandem parking
stall includes two tandem parking spaces). Landlord reserves the right at any
time to relocate Tenant's reserved and unreserved parking spaces. If Tenant
commits or allows in the parking facility any of the activities prohibited by
the Lease or the Rules, then Landlord shall have the right, without notice, in
addition to such other rights and remedies that it may have, to remove or tow
away the vehicle involved and charge the cost to Tenant, which cost shall be
immediately payable by Tenant upon demand by Landlord. Tenant's parking rights
are the personal rights of Tenant and Tenant shall not transfer, assign, or
otherwise convey its parking rights separate and apart from this Lease.
16.2 Parking Charges. The initial monthly parking rate per parking
space is set forth in section 1.14 and is subject to change by Landlord, in
Landlord's sole discretion, upon five (5) days prior written notice to Tenant.
Monthly parking fees shall be payable in advance prior to the first day of each
calendar month. Visitor parking rates shall be determined by Landlord from time
to time in Landlord's sole discretion. The parking rates charged to Tenant or
Tenant's visitors may not be the lowest parking rates charged by Landlord for
the use of the parking facility. Notwithstanding anything to the contrary
contained herein, any tax imposed on the privilege of occupying space in the
parking facility, upon the revenues received by Landlord from the parking
facility or upon the charges paid for the privilege of using the parking
facility by any governmental or quasi-governmental entity may be added by
Landlord to the monthly parking charges paid by Tenant at any time, or Landlord
may require Tenant and other persons using the parking facility to pay said
amounts directly to the taxing authority.
17. Broker's Fee. Tenant and Landlord each represent and warrant to the other
that neither has had any dealings or entered into any agreements with any
person, entity, broker or finder other than the persons, if any, listed in
section 1.15, in connection with the negotiation of this Lease, and no other
broker, person, or entity is entitled to any commission or finder's fee in
connection with the negotiation of this Lease, and Tenant and Landlord each
agree to indemnify, defend and hold the other harmless from and against any
claims, damages, costs, expenses, attorneys' fees or liability for compensation
or charges which may be claimed by any such unnamed broker. finder or other
similar party by reason of any dealings. actions or agreements of the
indemnifying party.
18. Estoppel Certificate.
18.1 Delivery of Certificate. Tenant shall from time to time upon not
less than ten (10) days' prior written notice from Landlord execute, acknowledge
and deliver to Landlord a statement in writing certifying such information as
Landlord may reasonably request including, but not limited to, the following:
(a) that this Lease is unmodified and in full force and effect (or, if modified,
stating the nature of such modification and certifying that this Lease, as so
modified, is in full force and effect) (b) the date to which the Base Rent and
other charges are paid in advance and the amounts so payable, (c) that there are
not, to Tenant's knowledge, any uncured defaults or unfulfilled obligations on
the part of Landlord, or specifying such defaults or unfulfilled obligations, if
any are claimed, (d) that all tenant improvements to be constructed by
Landlord, if any, have been completed in accordance with Landlord's obligations
and (e) that Tenant has taken possession of the Premises. Any such statement may
be conclusively relied upon by any prospective purchaser or encumbrancer of the
Project.
18.2 Failure to Deliver Certificate. At Landlord's option, the failure
of Tenant to deliver such statement within such time shall constitute a material
default of Tenant hereunder, or it shall be conclusive upon Tenant that (a) this
Lease is in full force and effect, without modification except as may be
represented by Landlord, (b) there are no uncured defaults in Landlord's
performance, (c) not more than one month's Base Rent has been paid in advance,
(d) all tenant improvements to be constructed by Landlord, if any, have been
completed in accordance with Landlord's obligations and (e) Tenant has taken
possession of the Premises.
19. Financial Information. From time to time, at Landlord's request, Tenant
shall cause the following financial information to be delivered to Landlord, at
Tenant's sole cost and expense, upon not less than twenty (20) days advance
written notice from Landlord: (a) a current financial statement for Tenant and
Tenant's financial statements for the previous two accounting years, (b) a
current financial statement for any guarantor'(s) of this Lease and the
guarantor'(s) financial statements for the previous two accounting years and (c)
such other financial information pertaining to Tenant or any guarantor as
Landlord or any lender or purchaser of Landlord may reasonably request. All
financial statements shall be prepared in accordance with generally accepted
accounting principals consistently applied and, if such is the normal practice
of Tenant, shall be audited by an independent certified public accountant.
13
<PAGE>
20. Landlord's Liability. Tenant acknowledges that Landlord shall have the right
to transfer all or any portion of its interest in the Project and to assign this
Lease to the transferee. Tenant agrees that in the event of such a transfer
Landlord shall automatically be released from all liability under this Lease
provided that the transferee assumes Landlord's obligations under the lease; and
Tenant hereby agrees to look solely to Landlord's transferee for the performance
of Landlord's obligations hereunder after the date of the transfer. Upon such a
transfer, Landlord shall, at its option, return Tenant's security deposit to
Tenant or transfer Tenant's security deposit to Landlord's transferee and, in
either event, Landlord shall have no further liability to Tenant for the return
of its security deposit. Subject to the rights of any lender holding a mortgage
or deed of trust encumbering all or part of the Project, Tenant agrees to look
solely to Landlord's equity interest in the Project for the collection of any
judgment requiring the payment of money by Landlord arising out of (a)
Landlord's failure to perform its obligations under this Lease or (b) the
negligence or willful misconduct of Landlord, its partners, employees and
agents. No other property or assets of Landlord shall be subject to levy,
execution or other enforcement procedure for the satisfaction of any judgment or
writ obtained by Tenant against Landlord. No partner, employee or agent of
Landlord shall be personally liable for the performance of Landlord's
obligations hereunder or be named as a party in any lawsuit arising out of or
related to, directly or indirectly, this Lease and the obligations of Landlord
hereunder. The obligations under this Lease do not constitute personal
obligations of the individual partners of Landlord, if any, and Tenant shall not
seek recourse against the individual partners of Landlord or their assets.
22. Exemption of Landlord from Liability. Tenant hereby agrees that Landlord
shall not be liable for injury to Tenant's business or any loss of income
therefrom or for loss of or damage to the merchandise, tenant improvements,
fixtures, furniture, equipment, computers, files, automobiles, or other property
of Tenant, Tenant's employees, agents, contractors or invitees, or any other
person in or about the Project, nor shall Landlord be liable for injury to the
person of Tenant, Tenant's employees, agents, contractors or invitees, whether
such damage or injury is caused by or results from any cause whatsoever
including, but not limited to, theta, criminal activity at the Project,
negligent security measures, bombings or bomb scares, Hazardous Substances or
Medical Waste (as defined below), fire, steam, electricity, gas, water or rain,
flooding, breakage of pipes, sprinklers, plumbing, air conditioning or lighting
fixtures, or from any other cause, whether said damage or injury results from
conditions arising upon the Premises or upon other portions of the Project, or
from other sources or places, or from new construction or the repair, alteration
or improvement of any part of the Project. Landlord shall not be liable for any
damages arising from any act or neglect of any employees, agents, contractors or
invitees of any other tenant, occupant or user of the Project, nor from the
failure of Landlord to enforce the provisions of the lease of any other tenant
of the Project. Tenant, as a material part of the consideration to Landlord
hereunder, hereby assumes all risk of damage to Tenant's property or business or
injury to persons, in, upon or about the Project arising from any cause.
23. Hazardous Substances.
23.1 Definition and Consent. The term "Hazardous Substance" as used in
this Lease shall mean any product, substance, chemical, material or waste whose
presence, nature, quantity and/or intensity of existence, use, manufacture,
disposal, transportation, spill, release or affect, either by itself or in
combination with other materials expected to be on the Premises, is either: (a)
potentially injurious to the public health, safety or welfare, the environment
or the Premises, (b) regulated or monitored by any governmental entity, (c) a
basis for liability of Landlord to any governmental entity or third party under
any federal, state or local statute or common law theory or (d) defined as a
hazardous material or substance by any federal, state or local law or
regulation. Except for small quantities or ordinary office supplies such as
copier toner, liquid paper, glue, ink and common household cleaning materials,
Tenant shall not cause or permit any Hazardous Substance to be brought, kept, or
used in or about the Premises or the Project by Tenant, its agents, employees,
contractors or invitees.
23.2 Duty to Inform Landlord. If Tenant knows, or has reasonable cause
to believe, that a Hazardous Substance, or a condition involving or resulting
from same, has come to be located in, on or under or about the Premises or the
Project, Tenant shall immediately give written notice of such fact to Landlord.
Tenant shall also immediately give Landlord (without demand by Landlord) a copy
of any statement, report, notice, registration, application, permit, license,
given to or received from, any governmental authority or
14
<PAGE>
private party, or persons entering or occupying the Premises, concerning the
presence, spill, release, discharge of or exposure to, any Hazardous Substance
or contamination in, on or about the Premises or the Project.
23.3 Inspection; Compliance. Landlord and Landlord's employees, agent,
contractors and lenders shall have the right to enter the Premises at any time
in the case of an emergency, and otherwise at reasonable times, for the purpose
of inspecting the condition of the Premises and for verifying compliance by
Tenant with this section 23. Landlord shall have the right to employ experts
and/or consultants in connection with its examination of the Premises and with
respect to the installation, operation, use, monitoring, maintenance, or removal
of any Hazardous Substance on or from the Premises. The costs and expenses of
any such inspections shall be paid by the party requesting same, unless a
contamination, caused or materially contributed to by Tenant, is found to exist
or be imminent, or unless the inspection is requested or ordered by governmental
authority as the result of any such existing or imminent violation or
contamination. In any such case, Tenant shall upon request reimburse Landlord
for the cost and expenses of such inspection.
24. Medical Waste.
24.1 Definition. The term "Medical Waste" shall mean the types of
waste described in section 25023.2 of California's Health and Safety Code and
any similar type of waste. Unless specifically permitted by section 6 of this
Lease to use the Premises for medical office uses, Tenant shall not cause or
permit any Medical Waste to be brought, kept or used in or about the Premises or
the Project by Tenant, its employees, agents. contractors or invitees.
24.2 Disposal of Medical Waste. Tenant hereby agrees, at Tenant's sole
expense, to dispose of its Medical Waste in compliance with all federal, state
and local laws, rules and regulations relating to the disposal of Medical Waste
and to dispose of the Medical Waste in a prudent and reasonable manner. Tenant
shall not place any Medical Waste in refuse containers emptied by Landlord's
janitorial staff or in the Project's refuse containers. At Landlord's option, in
Landlord's sole discretion, Landlord shall have the right, upon sixty (60) days'
advance written notice to Tenant, at any time and from time to time, to elect to
provide Medical Waste disposal services to Tenant. If Landlord elects to provide
Medical Waste disposal services to Tenant, all costs incurred by Landlord in
providing such services shall be paid by Tenant to Landlord as additional rent.
Landlord may bill Tenant for said costs based upon the actual cost of providing
said services to Tenant, as determined by Landlord, in Landlord's sole
discretion, or Landlord may bill said expenses based upon Tenant's Share of the
total cost of providing said services.
24.3 Duty to Inform Landlord. Within ten (10) days following
Landlord's written request, Tenant shall provide Landlord with any information
requested by Landlord concerning the existence, generation or disposal of
Medical Waste at the Premises, including, but not limited to, the following
information: (a) the name, address and telephone number of the person or entity
employed by Tenant to dispose of its Medical Waste, including a copy of any
contract with said person or entity, (b) a list of each type of Medical Waste
generated by Tenant at the Premises and a description of how Tenant disposes of
said Medical Waste, (c) a copy of any laws, rules or regulations in Tenant's
possession relating to the disposal of the Medical Waste generated by Tenant,
and (d) copies of any licenses or permits obtained by Tenant in order to
generate or dispose of said Medical Waste. Tenant shall also immediately provide
to Landlord (without demand by Landlord) a copy of any notice, registration,
application, permit, or license given to or received from any governmental
authority or private party, or persons entering or occupying the Premises,
concerning the presence, release, exposure or disposal of any Medical Waste in
or about the Premises or the Project.
24.4 Inspection; Compliance. Landlord and Landlord's employees,
agents, contractors and lenders shall have the right to enter the Premises at
any time in the case of an emergency, and otherwise at reasonable times, for the
purpose of verifying compliance by Tenant with this section 24. Landlord shall
have the right to employ experts and/or consultants in connection with its
examination of the Premises and with respect to the generation and disposal of
Medical Waste on or from the Premises. The cost and expenses of any such
inspection shall be paid by Landlord, unless it is determined that Tenant is not
disposing of its Medical Waste in a manner permitted by applicable law, in which
case Tenant shall immediately reimburse Landlord for the cost of such
inspection.
25. Tenant Improvements. Tenant acknowledges and agrees that Landlord shall not
be obligated to construct any tenant improvements on behalf of Tenant unless a
work letter agreement (the "Work Letter") is attached to this Lease as an
exhibit and the Work Letter is fully completed and executed by Landlord. If a
space plan is attached to the Work Letter, the space plan shall not be binding
on Landlord unless separately initialed by Landlord. Except as set forth in a
Work Letter, it is specifically understood and agreed that Landlord has no
obligation and has made no promises to alter, remodel, improve, renovate, repair
or decorate the Premises, the Project, or any part thereof, or to provide any
allowance for such purposes, and that no representations respecting the
condition of the Premises or the Project have been made by Landlord to Tenant.
26. Subordination.
26.1 Effect of Subordination. This Lease, and any Option (as defined
in section 27 below) granted hereby, upon Landlord's written election, shall be
subject and subordinate to any ground lease, mortgage, deed of trust, or any
other hypothecation or security now or hereafter placed upon the Project and to
any and all advances made on the security thereof and to all renewals,
modifications, consolidations, replacements and extensions thereof.
Notwithstanding such subordination, Tenant's right to quiet possession of the
Premises shall not be disturbed if Tenant is not in default and so long as
Tenant shall pay the rent and observe and perform all of the provisions of this
Lease, unless this Lease is otherwise terminated pursuant to its terms. At the
request of any mortgagee, trustee or ground lessor, Tenant shall attorn to such
person or entity. If any mortgagee, trustee or ground lessor shall elect to have
this Lease and any Options granted hereby prior to the lien of its mortgage,
deed of trust or ground lease, and shall give written notice thereof to Tenant,
this Lease and such Options shall be deemed prior to such mortgage, deed of
trust or ground lease, whether this Lease or such Options are dated prior or
subsequent to the date of said mortgage, deed of trust or ground lease or the
date of recording thereof. In the event of the foreclosure of a security device,
the new owner shall not (a) be liable for any act or omission of any prior
landlord or with respect to events occurring prior to its acquisition of title,
(b) be liable for the breach of this Lease by any prior landlord, (c) be subject
to any offsets or defenses which Tenant may have against the prior landlord or
(d) be liable to Tenant for the return of its security deposit.
26.2 Execution of Documents. Tenant agrees to execute and acknowledge
any documents Landlord reasonably requests that Tenant execute to effectuate an
attornment, a subordination, or to make this Lease or any Option granted herein
prior to the lien of any mortgage, deed of trust or ground lease, as the case
may be. Tenant acknowledges that the subordination agreement may give the lender
the right, in the lender's sole discretion, to continue this Lease in effect or
to terminate this Lease in the event of a foreclosure sale. Tenant's failure to
execute such documents within ten (10) days after written demand shall
constitute a material default
15
<PAGE>
by Tenant hereunder or, at Landlord's option, Landlord shall have the right to
execute such documents on behalf of Tenant as Tenant's attorney-in-fact. Tenant
does hereby make, constitute and irrevocably appoint Landlord as Tenant's
attorney-in-fact and in Tenant's name, place and stead, to execute such
documents in accordance with this section 26.2.
27. Options.
27.1 Definition. As used in this Lease, the word "Option" has the
following meaning: (1) the right or option to extend the term of this Lease or
to renew this Lease, and (2) the option or right of first refusal to lease the
Premises or the right of first offer to lease the Premises or the right of first
refusal to lease other space within the Project or the right of first offer to
lease other space within the Project. Any Option granted to Tenant by Landlord
must be evidenced by a written option agreement attached to this Lease as a
rider or addendum or said option shall be of no force or effect.
27.2 Options Personal. Each Option granted to Tenant in this Lease, if
any, is personal to the original Tenant and may be exercised only by the
original Tenant while occupying the entire Premises and may not be exercised or
be assigned, voluntarily or involuntarily, by or to any person or entity other
than Tenant, including, without limitation, any permitted transferee as defined
in section 12. The Options, if any, herein granted to Tenant are not assignable
separate and apart from this Lease, nor may any Option be separated from this
Lease in any manner, either by reservation or otherwise. If at any time an
Option is exercisable by Tenant, the Lease has been assigned, or a sublease
exists as to any portion of the Premises, the Option shall be deemed null and
void and neither Tenant nor any assignee or subtenant shall have the right to
exercise the Option.
27.3 Multiple Options. In the event that Tenant has multiple Options
to extend or renew this Lease a later Option cannot be exercised unless the
prior Option to extend or renew this Lease has been so exercised.
27.4 Effect of Default on Options. Tenant shall have no right to
exercise an Option (i) during the time commencing from the date Landlord gives
to Tenant a notice of default pursuant to section 13.1 and continuing until the
noncompliance alleged in said notice of default is cured, or (ii) if Tenant is
in default of any of the terms, covenants or conditions of this Lease. The
period of time within which an Option may be exercised shall not be extended or
enlarged by reason of Tenant's inability to exercise an Option because of the
provisions of this section 27.4.
27.5 Limitations on Options. Notwithstanding anything to the contrary
contained in any rider or addendum to this Lease, any options, rights of first
refusal or rights of first offer granted hereunder shall be subject and
secondary to Landlord's right to first offer and lease any such space to any
tenant who is then occupying or leasing such space at the time the space becomes
available for leasing and shall be subject and subordinated to any other
options, rights of first refusal or rights of first offer previously given to
any other person or entity.
27.6 Notice of Exercise of Option. Notwithstanding anything to the
contrary contained in section 41, Tenant may only exercise an Option by
delivering its written notice of exercise to Landlord by certified mail, return
receipt and date of delivery requested. It shall be Tenant's obligation to prove
that such notice was so sent in a timely manner and was delivered to Landlord by
the U.S. Postal Service.
28. Landlord Reservations. Landlord shall have the right: (a) to change the name
and address of the Project or Building upon not less than ninety (90) days prior
written notice; (b) to, at Tenant's expense, provide and install Building
standard graphics on or near the door of the Premises and such portions of the
Common Areas as Landlord shall determine, in Landlord's sole discretion; (c) to
permit any tenant the exclusive right to conduct any business as long as such
exclusive right does not conflict with any rights expressly given herein; and
(d) to place signs, notices or displays upon the roof, interior, exterior or
Common Areas of the Project. Tenant shall not use a representation (photographic
or otherwise) of the Building or the Project or their name(s) in connection with
Tenant's business or suffer or permit anyone, except in an emergency, to go upon
the roof of the Building. Landlord reserves the right to use the exterior walls
of the Premises, and the area beneath, adjacent to and above the Premises
together with the right to install, use, maintain and replace equipment,
machinery, pipes, conduits and wiring through the Premises, which serve other
parts of the Project provided that Landlord's use does not unreasonably
interfere with Tenant's use of the Premises.
29. Changes to Project. Landlord shall have the right, in Landlord's sole
discretion, from time to time, to make changes to the size, shape, location,
number and extent of the improvements comprising the Project (hereinafter
referred to as "Changes") including, but not limited to, the Project interior
and exterior, the Common Areas, elevators, escalators, restrooms, HVAC,
electrical systems, communication systems, fire protection and detection
systems, plumbing systems, security systems, parking control systems, driveways,
entrances, parking spaces, parking areas and landscaped areas. In connection
with the Changes, Landlord may, among other things, erect scaffolding or other
necessary structures at the Project, limit or eliminate access to portions of
the Project, including portions of the Common Areas, or perform work in the
Building, which work may create noise, dust or leave debris in the Building.
Tenant hereby agrees that such Changes and Landlord's actions in connection with
such Changes shall in no way constitute a constructive eviction of Tenant or
entitle Tenant to any abatement of rent. Landlord shall have no responsibility
or for any reason be liable to Tenant for any direct or indirect injury to or
interference with Tenant's business arising from the Changes, nor shall Tenant
be entitled to any compensation or damages from Landlord for any inconvenience
or annoyance occasioned by such Changes or Landlord's actions in connection with
such Changes.
16
<PAGE>
31. Holding Over. If Tenant remains in possession of the Premises or any part
thereof after the expiration or earlier termination of the term hereof with
Landlord's consent, such occupancy shall be a tenancy from month to month upon
all the terms and conditions of this Lease pertaining to the obligations of
Tenant, except that the Base Rent payable shall be the greater of (a) one
hundred fifty percent (150%) of the Base Rent payable immediately preceding the
termination date of this Lease or (b) one hundred twenty-five percent (125%) of
the fair market Base Rent for the Premises as of the date Tenant holds over, and
all Options, if any, shall be deemed terminated and be of no further effect. If
Tenant remains in possession of the Premises or any part thereof after the
expiration of the term hereof without Landlord's consent, Tenant may, at
Landlord's option, be treated as a tenant at sufferance or a trespasser. Nothing
contained herein shall be construed to constitute Landlord's consent to Tenant
holding over at the expiration or earlier termination of the Lease term or to
give Tenant the right to hold over after the expiration or earlier termination
of the Lease term.
32. Landlord's Access.
32.1 Access. Landlord and Landlord's agents, contractors and employees
shall have the right to enter the Premises at reasonable times for the purpose
of inspecting the Premises, performing any services required of Landlord,
showing the Premises to prospective purchasers, lenders, or tenants, undertaking
safety measures and making alterations, repairs, improvements or additions to
the Premises or to the Project. In the event of an emergency, Landlord may gain
access to the Premises by any reasonable means, and Landlord shall not be liable
to Tenant for damage to the Premises or to Tenant's property resulting from such
access. Landlord may at any time place on or about the Building for sale or for
lease signs and Landlord may at any time during the last one hundred twenty
(120) days of the term hereof place on or about the Premises for lease signs.
32.2 Keys. Landlord shall have the right to retain keys to the locks
on the entry doors to the Premises and all interior doors at the Premises. At
Landlord's option, Landlord may require Tenant to obtain all keys to door locks
at the Premises from Landlord's engineering staff or Landlord's locksmith and to
only use Landlord's engineering staff or Landlord's locksmith to change locks at
the Premises. Tenant shall pay Landlord's or its locksmith's standard charge for
all keys and other services obtained from Landlord's engineering staff or
locksmith.
33. Security Measures. Tenant hereby acknowledges that Landlord shall have no
obligation whatsoever to provide guard service or other security measures for
the benefit of the Premises or the Project, and Landlord shall have no liability
to Tenant due to its failure to provide such services. Tenant assumes all
responsibility for the protection of Tenant, its agents, employees, contractors
and invitees and the property of Tenant and of Tenant's agents, employees,
contractors and invitees from acts of third parties. Nothing herein contained
shall prevent Landlord, at Landlord's sole option, from implementing security
measures for the Project or any part thereof, in which event Tenant shall
participate in such security measures and the cost thereof shall be included
within the definition of Operating Expenses, and Landlord shall have no
liability to Tenant and its agents, employees, contractors and invitees arising
out of Landlord's negligent provision of security measures. Landlord shall have
the right, but not the obligation, to require all persons entering or leaving
the Project to identify themselves to a security guard and to reasonably
establish that such person should be permitted access to the Project.
34. Easements. Landlord reserves to itself the right, from time to time, to
grant such easements, rights and dedications that Landlord deems necessary or
desirable, and to cause the recordation of parcel maps and restrictions, so long
as such easements, rights, dedications, maps and restrictions do not
unreasonably interfere with the use of the Premises by Tenant. Tenant shall sign
any of the aforementioned documents within ten (10) days after Landlord's
request and Tenant's failure to do so shall constitute a material default by
Tenant. The obstruction of Tenant's view, air, or light by any structure erected
in the vicinity of the Project, whether by Landlord or third parties, shall in
no way affect this Lease or impose any liability upon Landlord.
35. Transportation Management. Tenant shall fully comply at its sole expense
with all present or future programs implemented or required by any governmental
or quasi-governmental entity or Landlord to manage parking, transportation, air
pollution, or traffic in and around the Project or the metropolitan area in
which the Project is located.
36. Severability. The invalidity of any provision of this Lease as determined by
a court of competent jurisdiction shall in no way affect the validity of any
other provision hereof.
37. Time of Essence. Time is of the essence with respect to each of the
obligations to be performed by Tenant under this Lease.
38. Definition of Additional Rent. All monetary obligations of Tenant to
Landlord under the terms of this Lease, including, but not limited to, Base
Rent, Tenant's Share of Operating Expenses, parking charges and charges for
after hours HVAC shall be deemed to be rent.
39. Incorporation of Prior Agreements. This Lease and the attachments listed in
section 1.16 contain all agreements of the parties with respect to the lease of
the Premises and any other matter mentioned herein. No prior or contemporaneous
agreement or understanding pertaining to any such matter shall be effective.
Except as otherwise stated in this Lease, Tenant hereby acknowledges that no
real estate broker nor Landlord or any employee or agents of any of said persons
has made any oral or written warranties or representations to Tenant concerning
the condition or use by Tenant of the Premises or the Project or concerning any
other matter addressed by this Lease.
40. Amendments. This Lease may be modified in writing only, signed by the
parties in interest at the time of the modification.
41. Notices. All notices required or permitted by this Lease shall be in writing
and may be delivered (a) in person (by hand, by messenger or by courier
service), (b) by U.S. Postal Service regular mail, (c) by U.S. Postal Service
certified mail, return receipt requested, (d) by U.S. Postal Service Express
Mail, Federal Express or other overnight courier, or (e) by facsimile
transmission, and shall be deemed sufficiently given if served in a manner
specified in this section 41. Any notice permitted or required hereunder, and
17
<PAGE>
any notice to pay rent or quit or similar notice, shall be deemed personally
delivered to Tenant on the date the notice is personally delivered to any
employee of Tenant at the Premises. The addresses set forth in section 1.17 of
this Lease shall be the address of each party of notice purposes. Landlord or
Tenant may by written notice to the other specify a different address for
notices purposes, except that upon Tenant's taking possession of the Premises,
the Premises shall constitute Tenant's address for the purpose of mailing or
delivering notices to Tenant. A copy of all notices required or permitted to be
given to Landlord hereunder shall be concurrently transmitted to such party or
parties at such addresses as Landlord may from time to time hereinafter
designate by written notice to Tenant. Any notice sent by regular mail or by
certified mail, return receipt requested, shall be deemed given three (3) days
after deposited with the U.S. Postal Service. Notices delivered by U.S. Express
Mail, Federal Express or other courier shall be deemed given on the date
delivered by the carrier to the appropriate party's address for notice purposes.
If any notice is transmitted by facsimile transmission, the notice shall be
deemed delivered upon telephone confirmation of receipt of the transmission
thereof at the appropriate party's address for notice purposes. If notice is
received in Saturday, Sunday or a legal holiday, it shall be deemed received on
the next business day. Nothing contained herein shall be construed to limit
Landlord's right to serve any notice to pay rent or quit or similar notice by
any method permitted by applicable law, and any such notice shall be effective
if served in accordance with any method permitted by applicable law whether or
not the requirements of this section have been met.
42. Waivers. No waiver by Landlord of any provision hereof shall be deemed a
waiver of any other provision hereof or of any subsequent breach by Tenant of
the same or any other provision. Landlord's consent to, or approval of, any act
shall not be deemed to render unnecessary the obtaining of Landlord's consent to
or approval of any subsequent act by Tenant. The acceptance of rent hereunder by
Landlord shall not be a waiver of any preceding breach by Tenant of any
provision hereof, other than the failure of Tenant to pay the particular rent so
accepted, regardless of Landlord's knowledge of such preceding breach at the
time of acceptance of such rent. No acceptance by Landlord of partial payment of
any sum due from Tenant shall be deemed a waiver by Landlord of its right to
receive the full amount due, nor shall any endorsement or statement on any check
or accompanying letter from Tenant be deemed an accord and satisfaction. Tenant
hereby waives for Tenant and all those claiming under Tenant all rights now or
hereafter existing to redeem by order or judgment of any court or by legal
process or writ, Tenant's right of occupancy of the Premises after any
termination of this Lease.
43. Covenants. This Lease shall be construed as though Landlord's covenants
contained herein are independent and not dependent and Tenant hereby waives the
benefit of any statute to the contrary. All provisions of this Lease to be
observed or performed by Tenant are both covenants and conditions.
44. Binding Effect; Choice of Law. Subject to any provision hereof restricting
assignment or subletting by Tenant, this Lease shall bind the parties, their
heirs, personal representatives, successors and assigns. This Lease shall be
governed by the laws of the state in which the Project is located and any
litigation concerning this Lease between the parties hereto shall be initiated
in the county in which the Project is located.
45. Attorneys' Fees. If Landlord or Tenant brings an action to enforce the terms
hereof or declare rights hereunder, the prevailing party in any such action, or
appeal thereon, shall be entitled to its reasonable attorneys' fees and court
costs to be paid by the losing party as fixed by the court in the same or
separate suit, and whether or not such action is pursued to decision or
judgment. The attorneys' fee award shall not be computed in accordance with any
court fee schedule, but shall be such as to fully reimburse all attorneys' fees
and court costs reasonably incurred in good faith.
46. Auctions. Tenant shall not conduct, nor permit to be conducted, either
voluntarily or involuntarily, any auction upon the Premises or the Common Areas.
The holding of any auction on the Premises or Common Areas in violation of this
section 46 shall constitute a material default hereunder.
47. Signs. Tenant shall not place any sign upon the Premises (including on the
inside or the outside of the doors or windows of the Premises) or the Project
without Landlord's prior written consent, which may be given or withheld in
Landlord's sole discretion. Landlord shall have the right to place any sign it
deems appropriate on any portion of the Project except the interior of the
Premises. Any sign Landlord permits Tenant to place upon the Premises shall be
maintained by Tenant, at Tenant's sole expense. If Landlord permits Tenant to
include its name in the Building's directory, the cost of placing Tenant's name
in the directory and the cost of any subsequent modifications thereto shall be
paid by Tenant, at Tenant's sole expense.
48. Merger. The voluntary or other surrender of this Lease by Tenant, or a
mutual cancellation thereof, or a termination by Landlord, shall not result in
the merger of Landlord's and Tenant's estates, and shall, at the option of
Landlord, terminate all or any existing subtenancies or may, at the option of
Landlord, operate as an assignment to Landlord of any or all of such
subtenancies.
49. Quiet Possession. Provided Tenant is not in default hereunder, Tenant shall
have quiet possession of the Premises for the entire term hereof subject to all
of the provisions of this Lease.
50. Authority. If Tenant is a corporation, trust, or general or limited
partnership, Tenant, and each individual executing this Lease on behalf of such
entity, represents and warrants that such individual is duly authorized to
execute and deliver this Lease on behalf of said entity, that said entity is
duly authorized to enter into this Lease, and that this Lease is enforceable
against said entity in accordance with its terms. If Tenant is a corporation,
trust or partnership, Tenant shall deliver to Landlord upon demand evidence of
such authority satisfactory to Landlord.
51. Conflict. Except as otherwise provided herein to the contrary, any conflict
between the printed provisions, exhibits, addenda or riders of this Lease and
the typewritten or handwritten provisions, if any, shall be controlled by the
typewritten or handwritten provisions.
52. Multiple Parties. If more than one person or entity is named as Tenant
herein, the obligations of Tenant shall be the joint and several responsibility
of all persons or entities named herein as Tenant. Service of a notice in
accordance with section 41 on one Tenant shall be deemed service of notice on
all Tenants.
53. Interpretation. This Lease shall be interpreted as if it was prepared by
both parties and ambiguities shall not be resolved in favor of Tenant because
all or a portion of this Lease was prepared by Landlord. The captions contained
in this Lease are for convenience only and shall not be deemed to limit or alter
the meaning of this Lease. As used in this Lease the words tenant and landlord
include the plural as well as the singular. Words used in the neuter gender
include the masculine and feminine gender.
18
<PAGE>
54. Prohibition Against Recording. Neither this Lease, nor any memorandum,
affidavit or other writing with respect thereto shall be recorded by Tenant or
by anyone acting through, under or on behalf of Tenant. Landlord shall have the
right to record a memorandum of this Lease, and Tenant shall execute,
acknowledge and deliver to Landlord for recording any memorandum prepared by
Landlord.
55. Relationship of Parties. Nothing contained in this Lease shall be deemed or
construed by the parties hereto or by any third party to create the relationship
of principal and agent, partnership, joint venturer or any association between
Landlord and Tenant.
56. Rules and Regulations. Tenant agrees to abide by and conform to the Rules
and to cause its employees, suppliers, customers and invitees to so abide and
conform. Landlord shall have the right, from time to time, to modify, amend and
enforce the Rules in a non-discriminatory manner. Landlord shall not be
responsible to Tenant for the failure of other persons including, but not
limited to, other tenants, their agents, employees and invitees to comply with
the Rules.
57. Right to Lease. Landlord reserves the absolute right to effect such other
tenancies in the Project as Landlord in its sole discretion shall determine, and
Tenant is not relying on any representation that any specific tenant or number
of tenants will occupy the Project.
60. Attachments. The items listed in section 1.16 are a part of this Lease and
are incorporated herein by this reference.
61. Confidentiality. Tenant acknowledges and agrees that the terms of this Lease
are confidential and constitute propriety information of Landlord. Disclosure of
the terms hereof could adversely affect the ability of Landlord to negotiate
other leases with respect to the Project and may impair Landlord's relationship
with other tenants of the Project. Tenant agrees that it and its partners,
officers, directors, employees, brokers, and attorneys, if any, shall not
disclose the terms and conditions of this Lease to any other person or entity
without the prior written consent of Landlord which may be given or withheld by
Landlord, in Landlord's sole discretion. It is understood and agreed that
damages alone would be an inadequate remedy for the breach of this provision by
Tenant, and Landlord shall also have the right to seek specific performance of
this provision and to seek injunctive relief to prevent its breach or continued
breach.
62. WAIVER OF JURY TRIAL. LANDLORD AND TENANT HEREBY WAIVE THEIR RESPECTIVE
RIGHT TO TRIAL BY JURY OF ANY CAUSE OF ACTION, CLAIM, COUNTERCLAIM OR
CROSS-COMPLAINT IN ANY ACTION, PROCEEDING AND/OR HEARING BROUGHT BY EITHER
LANDLORD AGAINST TENANT OR TENANT AGAINST LANDLORD ON ANY MATTER WHATSOEVER
ARISING OUT OF, OR IN ANY WAY CONNECTED WITH, THIS LEASE, THE RELATIONSHIP OF
LANDLORD AND TENANT, TENANT'S USE OR OCCUPANCY OF THE PREMISES, OR ANY CLAIM OF
INJURY OR DAMAGE, OR THE ENFORCEMENT OF ANY REMEDY UNDER ANY LAW, STATUTE, OR
REGULATION, EMERGENCY OR OTHERWISE, NOW OR HEREAFTER IN EFFECT.
LANDLORD AND TENANT ACKNOWLEDGE THAT THEY HAVE CAREFULLY READ AND REVIEWED THIS
LEASE AND EACH TERM AND PROVISION CONTAINED HEREIN AND, BY EXECUTION OF THIS
LEASE, SHOW THEIR INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY
AGREE THAT, AT THE TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE
COMMERCIALLY REASONABLE AND EFFECTUATE THE INTENT AND PURPOSE OF LANDLORD AND
TENANT WITH RESPECT TO THE PREMISES. TENANT ACKNOWLEDGES THAT IT HAS BEEN GIVEN
THE OPPORTUNITY TO HAVE THIS LEASE REVIEWED BY ITS LEGAL COUNSEL PRIOR TO ITS
EXECUTION. PREPARATION OF THIS LEASE BY LANDLORD OR LANDLORD'S AGENT AND
SUBMISSION OF SAME TO TENANT SHALL NOT BE DEEMED AN OFFER BY LANDLORD TO LEASE
THE PREMISES TO TENANT OR THE GRANT OF AN OPTION TO TENANT TO LEASE THE
PREMISES. THIS LEASE SHALL BECOME BINDING UPON LANDLORD ONLY WHEN FULLY EXECUTED
BY BOTH PARTIES AND WHEN LANDLORD HAS DELIVERED A FULLY EXECUTED ORIGINAL OF
THIS LEASE TO TENANT.
19
<PAGE>
LANDLORD: MICHELSON COMPANY LIMITED PARTNERSHIP, a
Californla limited partnership
By: DW MICHELSON ASSOCIATES,
a California general partnership,
Its General Partner
By: DEAN WITTER REALTY YIELD PLUS, L.P.,
a Delaware limited partnership,
A General Partner
By: DEAN WITTER REALTY YIELD PLUS, INC,
a Delaware corporation,
A General Partner
By: /s/ E Davisson Hardman, Jr.
----------------------------
E. Davisson Hardman, Jr.
President
By: DEAN WITTER REALTY YIELD PLUS, II L.P.,
a Delaware llmlted partnership,
A General Partner
By: DEAN WITTER REALTY YIELD PLUS II INC,
a Delaware corporation,
A General Partner
By: /s/ E Davisson Hardman, Jr.
----------------------------
E. Davisson Hardman, Jr.
President
TENANT: Access Television Network
a Delaware corporation
By: /s/ William R. Cullen
-------------------------
William R. Cullen
-------------------------
(print name)
Its: Chairman & CEO
-------------------------
(print title)
20
<PAGE>
DRAFT
EXHIBIT A
FLOOR PLAN
[ILLUSTRATION OF FLOOR PLAN]
A-1
<PAGE>
EXHIBIT B
VERIFICATION LETTER
("Tenant")
- --------------------------------------------------------------------------------
hereby certifies that it has entered into a lease with
- --------------------------------------------------------------------------------
("Landlord") and verifies the following information:
- ---------------------------
Address of building:
------------------------------------
Number of Rentable Square Feet in Premises:
------------------------------------
Commencement Date:
------------------------------------
Lease Termination Date:
------------------------------------
Tenant's Share: %
------------------------------------
Initial Base Rent:
------------------------------------
Billing Address for Tenant:
------------------------------------
------------------------------------
------------------------------------
Attention:
------------------------------------
Telephone Number: ( )
------------------------------------
Federal Tax l.D. No.:
------------------------------------
Tenant acknowledges and agrees that all tenant improvements Landlord
is obligated to make to the Premises, if any, have been completed to Tenant's
satisfaction and that Tenant has accepted possession of the Premises.
TENANT
ACCESS TELEVISION NETWORK
a Delaware corporation
By:
------------------------------------
------------------------------------
(print name)
Its:
------------------------------------
(print title)
B-1
<PAGE>
EXHIBlT C
RULES AND REGULATIONS
GENERAL RULES
Tenant shall faithfully observe and comply with the following Rules
and Regulations.
1. Tenant shall not alter any locks or install any new or additional locks or
bolts on any doors or windows of the Premises without obtaining Landlord's prior
written consent. Tenant shall bear the cost of any lock changes or repairs
required by Tenant. Keys required by Tenant must be obtained from Landlord at a
reasonable cost to be established by Landlord.
2. All doors opening to public corridors shall be kept closed at all times
except for normal ingress and egress to the Premises. Tenant shall assume any
and all responsibility for protecting the Premises from theft, robbery and
pilferage, which includes keeping doors locked and other means of entry to the
Premises closed.
3. Landlord reserves the right to close and keep locked all entrance and exit
doors of the Project except during the Project's normal hours of business as
defined in section 11.3 of the Lease. Tenant, its employees and agents must be
sure that the doors to the Project are securely closed and locked when leaving
the Premises if it is after the normal hours of business of the Project. Tenant,
its employees, agents or any other persons entering or leaving the Project at
any time when it is so locked, or any time when it is considered to be after
normal business hours for the Project, may be required to sign the Project
register. Access to the Project may be refused unless the person seeking access
has proper identification or has a previously received authorization for access
to the Project. Landlord and its agents shall in no case be liable for damages
for any error with regard to the admission to or exclusion from the Project of
any person. In case of invasion, mob, riot, public excitement, or other
commotion, Landlord reserves the right to prevent access to the Project during
the continuance thereof by any means it deems appropriate for the safety and
protection of life and property.
4. No furniture, freight or equipment of any kind shall be brought into the
Project without Landlord's prior authorization. All moving activity into or out
of the Project shall be scheduled with Landlord and done only at such time and
in such manner as Landlord designates. Tenant must relocate, remove or move
heavy objects into or in the building, which cannot be hand carried, after
normal business hours or on weekends and in a manner that does not unreasonably
interfere with the operations of other tenants or the management of the
building. During such moves, Tenant must adequately lay protective covering over
the common area floors. Landlord shall have the right to prescribe the weight,
size and position of all safes and other heavy property brought into the Project
and also the times and manner of moving the same in and out of the Project.
Safes and other heavy objects shall, if considered necessary by Landlord, stand
on supports of such thickness as is necessary to properly distribute the weight,
and Tenant shall be solely responsible for the cost of installing all supports.
Landlord will not be responsible for loss of or damage to any such safe or
property in any case. Any damage to any part of the Project, its contents,
occupants or visitors by moving or maintaining any such safe or other property
shall be the sole responsibility and expense of Tenant.
5. The requirements of Tenant will be attended to only upon application at the
management office for the Project or at such office location designated by
Landlord. Tenant shall not ask employees of Landlord to do anything outside
their regular duties without special authorization from Landlord.
6. Tenant shall not disturb, solicit, or canvass any occupant of the Project and
shall cooperate with Landlord and its agents to prevent the same. Tenant, its
employees and agents shall not loiter in or on the entrances, corridors,
sidewalks, lobbies, halls, stairways, elevators, or any Common Areas for the
purpose of smoking tobacco products or for any other purpose, nor in any way
obstruct such areas, and shall use them only as a means of ingress and egress
for the Premises. Smoking shall not be permitted in the Common Areas.
7. The toilet rooms, urinals and wash bowls shall not be used for any purpose
other than that for which they were constructed, and no foreign substance of any
kind whatsoever shall be thrown therein. The expense of any breakage, stoppage
or damage resulting from the violation of this rule shall be borne by the tenant
who, or whose employees or agents, shall have caused it.
8. Except for vending machines intended for the sole use of Tenant's employees
and invitees, no vending machine or machines other than fractional horsepower
office machines shall be installed, maintained or operated upon the Premises
without the written consent of Landlord. All vendors or other persons visiting
the Premises shall be subject to the reasonable control of Landlord. Tenant
shall not permit its vendors or other persons visiting the Premises to solicit
other tenants of the Project.
9. Tenant shall not use or keep in or on the Premises or the Project any
kerosene, gasoline or other inflammable or combustible fluid or material. Tenant
shall not bring into or keep within the Premises or the Project any animals,
birds, bicycles or other vehicles.
10. Tenant shall not use, keep or permit to be used or kept, any foul or noxious
gas or substance in or on the Premises, or permit or allow the Premises to be
occupied or used in a manner offensive or objectionable to Landlord or other
occupants of the Project by reason of noise, odors, or vibrations, or to
otherwise interfere in any way with the use of the Project by other tenants.
11. No cooking shall be done or permitted on the Premises, nor shall the
Premises be used for the storage of merchandise, for loading or for any
improper, objectionable or immoral purposes. Notwithstanding the foregoing,
Underwriters' Laboratory approved equipment and microwave ovens may be used in
the Premises for heating food and brewing coffee, tea, hot chocolate and similar
beverages for employees and visitors of Tenant, provided that such use is in
accordance with all applicable federal, state and city laws, codes, ordinances,
rules and regulations; and provided further that such cooking does not result in
odors escaping from the Premises.
12. Landlord shall have the right to approve where and how telephone wires are
to be introduced to the Premises. No boring or cutting for wires shall be
allowed without the consent of Landlord. The location of telephone call boxes
and other office equipment affixed to the Premises shall be subject to the
approval of Landlord. Tenant shall not mark, drive nails or screws, or drill
into the partitions, woodwork or plaster contained in the Premises or in any way
deface the Premises or any part thereof without Landlord's prior written
consent. Tenant shall not install any radio or television antenna, satellite
dish, loudspeaker or other device on the roof or exterior walls of the Project.
Tenant shall not interfere with broadcasting or reception from or in the Project
or elsewhere.
C-1
<PAGE>
13. Landlord reserves the right to exclude or expel from the Project any person
who, in the judgment of Landlord, is intoxicated or under the influence of
liquor or drugs, or who shall in any manner do any act in violation of any of
these Rules and Regulations.
14. Tenant shall not waste electricity, water or air conditioning and agrees to
cooperate fully with Landlord to ensure the most effective operation of the
Project's heating and air conditioning system, and shall refrain from attempting
to adjust any controls. Tenant shall not without the prior written consent of
Landlord use any method of heating or air conditioning other than that supplied
by Landlord. Tenant shall not use electric fans or space heaters in the
Premises.
15. Tenant shall store all its trash and garbage within the interior of the
Premises. No material shall be placed in the trash boxes or receptacles if such
material is of such nature that it may not be disposed of in the ordinary and
customary manner of removing and disposing of trash in the vicinity of the
Project without violation of any law or ordinance governing such disposal. All
trash, garbage and refuse disposal shall be made only through entry-ways and
elevators provided for such purposes at such times as Landlord shall designate.
16. Tenant shall comply with all safety, fire protection and evacuation
procedures and regulations established by Landlord or any governmental agency.
17. No awnings or other projection shall be attached to the outside walls or
windows of the Project by Tenant. No curtains, blinds, shades or screens shall
be attached to or hung in any window or door of the Premises without the prior
written consent of Landlord. Landlord shall have the right to require Tenant to
use Landlord's standard curtains or window coverings. Tenant shall not place any
signs in the windows of the Premises or the Project. All electrical ceiling
fixtures hung in the Premises must be fluorescent and/or of a quality, type,
design and bulb color approved by Landlord. Tenant shall abide by Landlord's
regulations concerning the opening and closing of window coverings which are
attached to the windows in the Premises. The skylights, windows, and doors that
reflect or admit light and air into the halls, passageways or other public
places in the Project shall not be covered or obstructed by Tenant, nor shall
any bottles, parcels or other articles be placed on the windowsills.
18. Tenant shall not employ any person or persons other than the janitor of
Landlord for the purpose of cleaning the Premises unless otherwise agreed to in
writing by Landlord. Except with the prior written consent of Landlord, no
person or persons other than those approved by Landlord shall be permitted to
enter the Project for the purpose of cleaning same. Landlord shall in no way be
responsible to Tenant for any loss of property on the Premises, however
occurring, or for any damage done to the effects of Tenant or any of its
employees or other persons by the janitor of Landlord. Landlord shall not be
obligated to notify Tenant of the times at which the janitorial staff will enter
the Premises, and Tenant hereby authorizes the janitorial staff to enter the
Premises at any time, without notice. Janitor service shall include ordinary
dusting and cleaning by the janitor assigned to such work and shall not include
cleaning of carpets or rugs, except normal vacuuming, or moving of furniture and
other special services. Window cleaning shall be done only by Landlord at
reasonable intervals and as Landlord deems necessary.
PARKING RULES
1. Parking areas shall be used only for parking by vehicles no longer than full
size, passenger automobiles. Tenant and its employees shall park automobiles
within the lines of the parking spaces.
2. Tenant shall not permit or allow any vehicles that belong to or are
controlled by Tenant or Tenant's employees, suppliers, shippers, customers, or
invitees to be loaded, unloaded, or parked in areas other than those designated
by Landlord for such activities. Users of the parking area will obey all posted
signs and park only in the areas designated for vehicle parking.
3. Parking stickers, parking cards and other identification devices shall be the
property of Landlord and shall be returned to Landlord by the holder thereof
upon termination of the holder's parking privileges. Landlord may require Tenant
and each of its employees to give Landlord a deposit when a parking card or
other parking device is issued. Landlord shall not be obligated to return the
deposit unless and until the parking card or other device is returned to
Landlord. Tenant will pay such replacement charges as is reasonably established
by Landlord for the loss of such devices. Loss or theft of parking
identification stickers or devices from automobiles must be reported to the
parking operator immediately. Any parking identification stickers or devices
reported lost or stolen found on any unauthorized car will be confiscated and
the illegal holder will be subject to prosecution.
4. Landlord reserves the right to relocate all or a part of parking spaces
within the parking area and/or to reasonably adjacent off site locations(s), and
to allocate them between compact and standard size and tandem spaces, as long as
the same complies with applicable laws, ordinances and regulations.
5. Unless otherwise instructed, every person using the parking area is required
to park and lock his own vehicle. Landlord will not be responsible for any
damage to vehicles, injury to persons or loss of property, all of which risks
are assumed by the party using the parking area.
6. Validation of visitor parking, if established, will be permissible only by
such method or methods as Landlord may establish at rates determined by
Landlord, in Landlord's sole discretion. Only persons visiting Tenant at the
Premises shall be permitted by Tenant to use the Project's visitor parking
facilities.
7. The maintenance, washing, waxing or cleaning of vehicles in the parking
structure or Common Areas is prohibited.
8. Tenant shall be responsible for seeing that all of its employees, agents and
invitees comply with the applicable parking rules, regulations, laws and
agreements. Parking area managers or attendants, if any, are not authorized to
make or allow any exceptions to these Parking Rules and Regulations. Landlord
reserves the right to terminate parking rights for any person or entity that
willfully refuses to comply with these rules and regulations.
9. Every driver is required to park his own car. Where there are tandem spaces,
the first car shall pull all the way to the front of the space leaving room for
a second car to park behind the first car. The driver parking behind the first
car must leave his key with the parking attendant. Failure to do so shall
subject the driver of the second car to a Fifty Dollar ($50.00) fine. Refusal of
the driver to leave his key when parking in a tandem space shall be cause for
termination of the right to park in the parking facilities. The parking
operator, or his employees or agents, shall be authorized to move cars that are
parked in tandem should it be necessary for the operation
C-2
<PAGE>
of the garage. Tenant agrees that all responsibility for damage to cars or the
theft of or from cars is assumed by the driver, and further agrees that Tenant
will hold Landlord harmless for any such damages or theft.
10. No vehicles shall be parked in the parking garage overnight. The parking
garage shall only be used for daily parking and no vehicle or other property
shall be stored in a parking space.
11. Any vehicle parked by Tenant, its employees, contractors or visitors in a
reserved parking space or in any area of the parking area that is not designated
for the parking of such a vehicle may, at Landlord's option, and without notice
or demand, be towed away by any towing company selected by Landlord, and the
cost of such towing shall be paid for by Tenant and/or the driver of said
vehicle.
12. At Landlord's request, Tenant shall provide Landlord with a list which
includes the name of each person using the parking facilities based on Tenant's
parking rights under this Lease and the license plate number of the vehicle
being used by that person. Tenant shall provide Landlord with an updated list
within five (5) days after any part of the list becomes inaccurate.
Landlord reserves the right at any time to change or rescind any one or
more of these Rules and Regulations, or to make such other and further
reasonable Rules and Regulations as in Landlord's judgment may from time to time
be necessary for the management, safety, care and cleanliness of the Project,
and for the preservation of good order therein, as well as for the convenience
of other occupants and tenants therein. Landlord may waive any one or more of
these Rules and Regulations for the benefit of any particular tenant, but no
such waiver by Landlord shall be construed as a waiver of such Rules and
Regulations in favor of any other tenant, nor prevent Landlord from thereafter
enforcing any such Rules or Regulations against any or all tenants of the
Project. Tenant shall be deemed to have read these Rules and Regulations and to
have agreed to abide by them as a condition of its occupancy of the Premises.
C-3
<PAGE>
EXHIBIT D
Addendum to Lease
by and between
Michelson Company Limited Partnership ("Landlord")
and
Access Television Network, Inc. ("Tenant")
It is hereby agreed by Landlord and Tenant that the provisions of this
Addendum are a part of the Lease. If there is a conflict between the terms and
conditions of this Addendum and the terms and conditions of the Lease, the terms
and conditions of this Addendum shall control. Capitalized terms in this
Addendum shall have the same meaning as capitalized terms in the Lease, and, if
a Work Letter Agreement is attached to this Lease, as those terms have been
defined in the Work Letter Agreement.
1. CHARTER MEDlCAL'S VACATING OF PREMISES. With regard to Section 1.7 of the
Lease, the "Commencement Date" of the Lease and Tenant's occupancy of the
Premises shall be subject to the Landlord's possession of the Premises. If for
any reason Charter Medical Corporation, the current Tenant in the Premises,
exercises the Holdover provision (Section 31) and does not vacate the Premises
at the expiration of its Lease and tender possession to Landlord, Landlord shall
not be considered in breach of its Lease contract with Tenant and the
commencement and expiration dates of this Lease shall be adjusted, keeping the
Term length the same, to reflect the date that Charter Medical Corporation
tenders possession of the Premises to Landlord. Similarly, Tenant shall remain
obligated to perform its obligations under this lease according to such adjusted
commencement and expiration dates.
2. OPTION TO EXTEND. Landlord hereby grants to Tenant the option to extend the
term of the Lease for one (1) three (3)- year period (the "Extension Option")
commencing when the initial lease term expires upon each and all of the
following terms and conditions:
(a) Tenant shall give to Landlord on a date which is prior to the date
that the option period would commence (if exercised) by at least one
hundred eighty (180) days and not more than three hundred sixty (360) days,
a written notice of the exercise of the option to extend the Lease for said
additional term, time being of the essence. Such notice shall be given in
accordance with the provisions of section 41 of the Lease. If said
notification of the exercise of said option is not so given and received,
this option shall automatically expire.
(b) At the time of giving such written notice to Landlord of Tenant's
exercise of the option to extend the term of this Lease through the date of
commencement of the option period:
(i) This Lease is in full force and effect;
(ii) Tenant is in possession of the entire Premises; and
(iii) Tenant is not in default of any of the terms, conditions,
covenants and provisions of this Lease (whether contained herein or
imposed by statute or common law): and
(c) Tenant did not permit any default to remain unremedied during the
initial term or initial option period(s) of this Lease for a period longer
than thirty (30) days after receipt of written notice from Tenant of such
default.
(d) The provisions of section 27 of the Lease apply to this option.
(e) All of the terms and conditions of the Lease except where
specifically modified by this section shall apply.
(f) The Base Rent payable during the option term shall be the Market
Rate on the date the option term commences. However, the Base Rent shall
not be less than the Base Rent for the month immediately preceding any of
the option periods.
(g) The term "Market Rate" shall mean the annual amount per rentable
square foot that a willing, comparable renewal tenant would pay and a
willing, comparable landlord of a similar office building would accept at
arm's length for similar space, giving appropriate consideration to the
following matters: (i) annual rental rates per rentable square foot; (ii)
the type of escalation clauses (including, but without limitation,
operating expense, real estate taxes, and CPI) and the extent of liability
under the escalation clauses (i.e., whether determined on a "net lease"
basis or by increases over a particular base year or base dollar amount);
(iii) rent abatement provisions reflecting free rent and/or no rent during
the lease term; (iv) length of lease term; (v) size and location of
premises being leased; and (vi) other generally applicable terms and
conditions of tenancy for similar space; provided, however, Tenant shall
not be entitled to any tenant improvement or refurbishment allowance. The
Market Rate may also designate periodic rental increases, a new Base Year
and similar economic adjustments. The Market Rate shall be the Market Rate
in effect as of the beginning of the option period, even though the
determination may be made in advance of that date, and the parties may use
recent trends in rental rates in determining the proper Market Rate as of
the beginning of the option period.
(h) If Tenant exercises the Extension Option, Landlord shall determine
the Market Rate by using its good faith judgment. Landlord shall provide
Tenant with written notice of such amount within fifteen (15) days after
Tenant exercises its Extension Option. Tenant shall have fifteen (15) days
("Tenant's Review Period") after receipt of Landlord's notice of the new
rental within which to accept such rental. In the event Tenant fails to
accept in writing such rental proposal by Landlord, then such proposal
shall be deemed rejected, and Landlord and Tenant shall attempt to agree
upon such Market
D-1
<PAGE>
Rate, using their best good faith efforts. If Landlord and Tenant fail to
reach agreement within fifteen (15) days following Tenant's Review Period
("Outside Agreement Date"), then each party shall place in a separate
sealed envelope their final proposal as to the Market Rate, and such
determination shall be submitted to arbitration in accordance with
subsections (i) through (v) below. In the event that Landlord fails to
timely generate the initial notice of Landlord's opinion of the Market
Rate, then Tenant may commence such negotiations by providing the initial
notice, in which event Landlord shall have fifteen (15) days ("Landlord's
Review Period") after receipt of Tenant's notice of the new rental within
which to accept such rental. In the event Landlord fails to accept in
writing such rental proposed by Tenant, then such proposal shall be deemed
rejected, and Landlord and Tenant shall attempt in good faith to agree upon
such Market Rate, using their best good faith efforts. If Landlord and
Tenant fail to reach agreement within fifteen (15) days following
Landlord's Review Period (which shall be, in such event, the "Outside
Agreement Date" in lieu of the above definition of such date), then each
party shall place in a separate sealed envelope their final proposal as to
Market Rate, and such determination shall be submitted to arbitration in
accordance with subsections (i) through (v) below.
ARBITRATION OF DISPUTES
(i) LANDLORD AND TENANT SHALL MEET WITH EACH OTHER WITHIN FIVE (5)
BUSINESS DAYS AFTER THE OUTSIDE AGREEMENT DATE AND EXCHANGE THEIR SEALED
ENVELOPES AND THEN OPEN SUCH ENVELOPES IN EACH OTHER'S PRESENCE. IF LANDLORD AND
TENANT DO NOT MUTUALLY AGREE UPON THE MARKET RATE WITHIN ONE (1) BUSINESS DAY OF
THE EXCHANGE AND OPENING OF ENVELOPES, THEN, WITHIN TEN (10) BUSINESS DAYS OF
THE EXCHANGE AND OPENING OF ENVELOPES, LANDLORD AND TENANT SHALL AGREE UPON AND
JOINTLY APPOINT A SINGLE ARBITRATOR WHO SHALL BY PROFESSION BE A REAL ESTATE
BROKER OR AGENT WHO SHALL HAVE BEEN ACTIVE OVER THE FIVE (5) YEAR PERIOD ENDING
ON THE DATE OF SUCH APPOINTMENT IN THE LEASING OF COMMERCIAL OFFICE BUILDINGS
SIMILAR TO THE PREMISES IN THE GEOGRAPHICAL AREA OF THE PREMISES. NEITHER
LANDLORD NOR TENANT SHALL CONSULT WITH SUCH BROKER OR AGENT AS TO HIS OR HER
OPINION AS TO THE MARKET RATE PRIOR TO THE APPOINTMENT. THE DETERMINATION OF THE
ARBITRATOR SHALL BE LIMITED SOLELY TO THE ISSUE OF WHETHER LANDLORD'S OR
TENANT'S SUBMITTED MARKET RATE FOR THE PREMISES IS THE CLOSEST TO THE ACTUAL
MARKET RATE FOR THE PREMISES AS DETERMINED BY THE ARBITRATOR, TAKING INTO
ACCOUNT THE REQUIREMENTS FOR DETERMINING MARKET RATE SET FORTH HEREIN. SUCH
ARBITRATOR MAY HOLD SUCH HEARINGS AND REQUIRE SUCH BRIEFS AS THE ARBITRATOR, IN
HIS OR HER SOLE DISCRETION, DETERMINES IS NECESSARY. IN ADDITION, LANDLORD OR
TENANT MAY SUBMIT TO THE ARBITRATOR WITH A COPY TO THE OTHER PARTY WITHIN FIVE
(5) BUSINESS DAYS AFTER THE APPOINTMENT OF THE ARBITRATOR ANY MARKET DATA AND
ADDITIONAL INFORMATION SUCH PARTY DEEMS RELEVANT TO THE DETERMINATION OF THE
MARK RATE ("RR DATA"), AND THE OTHER PARTY MAY SUBMIT A REPLY IN WRITING WITHIN
FIVE (51 BUSINESS DAYS AFTER RECEIPT OF SUCH RR DATA.
(ii) THE ARBITRATOR SHALL, WITHIN THIRTY (30) DAYS OF HIS OR HER
APPOINTMENT, REACH A DECISION AS TO WHETHER THE PARTIES SHALL USE LANDLORD'S OR
TENANT'S SUBMITTED MARKET RATE AND SHALL NOTIFY LANDLORD AND TENANT OF SUCH
DETERMINATION.
(iii) THE DECISION OF THE ARBITRATOR SHALL BE FINAL AND BINDING UPON
LANDLORD AND TENANT.
(iv) IF LANDLORD AND TENANT FAIL TO AGREE UPON AND APPOINT AN
ARBITRATOR, THEN THE APPOINTMENT OF THE ARBITRATOR SHALL BE MADE BY THE
PRESIDING JUDGE OF THE ORANGE COUNTY SUPERIOR COURT, OR, IF HE OR SHE REFUSES TO
ACT, BY ANY JUDGE HAVING JURISDICTION OVER THE PARTIES.
(v) THE COST OF THE ARBITRATION SHALL BE PAID BY LANDLORD AND TENANT
EQUALLY.
NOTICE: BY INITIALING IN THE SPACE BELOW YOU ARE AGREEING TO HAVE ANY
DISPUTE ARISING OUT OF THE MATTERS INCLUDED IN THE "ARBITRATION OF DISPUTES"
PROVISION DECIDED BY NEUTRAL ARBITRATION AS PROVIDED BY CALIFORNIA LAW AND YOU
ARE GIVING UP ANY RIGHTS YOU MIGHT POSSESS TO HAVE THE DISPUTE LITIGATED IN A
COURT OR JURY TRIAL. BY INITIALING IN THE SPACE BELOW YOU ARE GIVING UP YOUR
JUDICIAL RIGHTS TO DISCOVERY AND APPEAL, UNLESS THOSE RIGHTS ARE SPECIFICALLY
INCLUDED IN THE "ARBITRATION OF DISPUTES" PROVISION. IF YOU REFUSE TO SUBMIT TO
ARBITRATION AFTER AGREEING TO THIS PROVISION, YOU MAY BE COMPELLED TO ARBITRATE
UNDER THE AUTHORITY OF THE CALIFORNIA CODE OF CIVIL PROCEDURE. YOUR AGREEMENT TO
THIS ARBITRATION PROVISION IS VOLUNTARY
WE HAVE READ AND UNDERSTAND THE FOREGOING AND AGREE TO SUBMIT DISPUTES
ARISING OUT OF THE MATTERS INCLUDED IN THE "ARBITRATION OF DISPUTES" PROVISION
TO NEUTRAL ARBITRATION.
----------------------- -----------------------
(Landlord initials) (Tenant initials)
3. COMMUNICATIONS EQUIPMENT. Tenant shall have the right to operate one (1)
seven (7) foot, C-Band, mesh-material satellite dish, one (1) thirty-six (36)
inch, KU-Band satellite dish and one (1) broadcast/off-air antenna on the roof
of the building located at 2600 Michelson Drive. In consideration for Landlord
allowing Tenant to operate such communications equipment on the roof of the
Building, Tenant agrees to obtain and pay for any and all required federal, FAA,
state, and/or local governmental or other relevant agency permits,
authorizations, and/or licenses to install and operate the communications and
satellite equipment on such roof. Landlord makes no representation that or
warranty to Tenant that Tenant will be able to obtain the necessary permits
and/or licenses to install and operate the communications equipment, and
Tenant's obligations under the
D-2
<PAGE>
Lease are not contingent upon such permits and/or licenses. If applicable
permits and/or licenses cannot be obtained, then Landlord's consent to operate
such equipment shall be considered of no further force and effect. Tenant agrees
to provide Landlord with copies of all applicable permits and/or authorizations.
Landlord shall have the right to review and approve, which such approval shall
not be unreasonably withheld, all such engineering reports, plans, and
specifications related to Tenant's communications equipment. Furthermore, Tenant
hereby agrees and understands that the operation of such communications
equipment shall be considered a "Use" of Premises, as defined in section 6 and
shall be considered an "Indemnified Matter," as defined in this Addendum to
Lease (Exhibit D), Section 8.
i) Regarding the operation of the communications and/or satellite
equipment and all requisite cabling and peripheral items, Tenant shall, at
Tenant's sole cost and expense, be responsible for operating such items in such
a manner that does not disturb the normal operations of the building, the
building's other tenants and invitees, and the building's operating systems.
Conduit related to the communications equipment may not pass through or be
placed on another tenant's premises or disrupt another tenant's electric, HVAC
systems, or other operating systems. Furthermore, Tenant shall be responsible,
at Tenant's sole cost and expense, for the continuing maintenance and repair of
all communications and/or satellite equipment in such a manner that conforms to
manufacturers suggestions and requirements and that does not disturb the normal
operations of the building and the building's tenants. Tenant affirms that
Landlord accepts no responsibility for installing, operating, maintaining, or
repairing the communications equipment and other related items.
ii) Tenant acknowledges that Landlord is not granting Tenant the
exclusive use of the roof to the exclusion of other users or tenants. In
addition, Tenant hereby guarantees that the aforementioned communications and
satellite equipment (1) shall not interfere with the operations of the Toyota
Motor Credit Corporation's satellite system which currently exists on the
building's roof and (2) shall not be visible to anyone observing the roof while
standing on the building's surrounding streets. If scenario (1) or (2) occurs
and is not remedied within twenty-four (24) hours of Landlord's notice, Tenant
shall be considered in Default of the Lease, as defined in Section 13 of the
Lease, and Landlord shall have the unconditional right to remove the satellite
systems at Tenant's sole cost and expense. Furthermore, Tenant shall be
responsible for coordinating and completing such removal in a safe and
structurally sound manner which does not disturb the normal operations of the
building or its tenants and for repairing any damage that such removal may cause
to the roof.
iii) Tenant shall not have discretionary access to the roof. Access to
the roof shall be granted solely at the discretion of the building's Property
Management upon Tenant's request.
iv) If any act of Default, as defined in Section 13 of the Lease, by
Tenant occurs during the remainder of the Lease Term, Landlord shall have the
immediate and unconditional right to remove, at Tenant's sole cost and expense,
the satellite and communications equipment and peripheral items. Furthermore,
Tenant shall be responsible for coordinating and completing such removal in a
safe and structurally sound manner which does not disturb the normal operations
of the building or its tenants and for repairing any damage that such removal
may cause to the roof.
v) At the conclusion of the Lease Term or any applicable Extension
Term, Tenant shall coordinate and complete the removal of its satellite dish and
peripheral items in a safe and structurally sound manner which does not disturb
the normal operations of the building or its tenants and shall repair any damage
that such removal may cause to the roof.
4. COMPLIANCE WITH LAWS. Notwithstanding anything to the contrary contained in
section 6 of the Lease, if, on the date this Lease is entered into, Landlord is
in violation of any existing law or regulation relating to the project, Landlord
shall be obligated to bear the cost of complying with said law or regulation,
whether now existing or enacted in the future, but Landlord is not presently in
violation of the law or regulation, the cost incurred by Landlord in complying
with the law or regulation shall be an Operating Expense.
5. AMERICANS WITH DISABILITIES ACT. To the extent that the Common Areas of the
Project do not now comply with the existing requirements of the Americans With
Disabilities Act, Landlord shall pay for the cost of such compliance, and said
cost shall not be included in the Operating Expenses. Tenant shall be solely
responsible, at Tenant's sole cost and expense, for complying with all
requirements of the Americans With disabilities Act which relate to the interior
of the Premises. If, as a result of any alteration made by Tenant, modifications
must be made to the Premises in order for the Premises to comply with the
Americans With Disabilities Act or any other law or regulation, Tenant shall be
obligated to pay the cost of such compliance, at Tenant's sole expense.
6. ABATEMENT OF RENT DUE TO LOSS OF USE OF PREMISES. In the event that Tenant is
prevented from using, and does not use, the Premises or any portion thereof, for
ten (10) consecutive business days or twenty (20) days in any twelve (12) month
period (the Eligibility Period) as a result of any damage or destruction to the
Premises or any repair, maintenance or alteration performed by Landlord to the
Premises after the Commencement Date and required by the Lease, which
substantially interferes with Tenant's use of the Premises, or any failure to
provide services or access to the Premises due to Landlord's negligence or
default, then Tenant's rent shall be abated or reduced, as the case may be,
after expiration of the Eligibility Period for such time that Tenant continues
to be so prevented from using, and does not use, the Premises or a portion
thereof, in the proportion that the rentable area or the portion of the Premises
that Tenant is prevented from using, and does not use, bears to the total
rentable area of the Premises. If Tenant is prevented from using, and does not
use, the Premises for one hundred eighty (180) consecutive days, Tenant may
elect to terminate this Lease upon ten (10) days' advance written notice to
Landlord. However, in the event that Tenant is prevented from conducting, and
does not conduct, its business in any portion or the Premises for a period of
time in excess of the Eligibility Period, and the remaining portion of the
Premises is not sufficient to allow Tenant to effectively conduct its business
from such remaining portion, then for such time after expiration of the
Eligibility Period during which Tenant is so prevented from effectively
conducting its business therein, the rent for the entire Premises shall be
abated; provided, however, if Tenant reoccupies and conducts its business from
any
D-3
<PAGE>
portion of the Premises during such period, the rent allocable to such
reoccupied portion of the Premises bears to the total rentable area of the
Premises, shall be payable by Tenant from the date such business operations
commence.
7. WAIVER OF SUBROGATION. Landlord and Tenant hereby release each other from any
claims and demands of whatever nature for damage, loss or injury to the Premises
and/or the Project, of to the other's property in, on or about the Premises and
the Project, that are caused by or result from risks or perils insured against
under any property insurance policies required by this Lease to be carried by
Landlord and/or Tenant whether or not in force at the time of any such damage,
loss or injury. Landlord and Tenant shall cause each insurance policy obtained
by them to provide that the insurance company waives all right of recovery by
way of subrogation against either Landlord or Tenant in connection with any
damage covered by any such policy or policies. Neither Landlord not Tenant shall
be liable to the other for any damage caused by fire or any of the risks insured
against under any insurance policy required by this Lease.
8. INDEMNITY. Tenant hereby agrees to indemnify, defend and hold harmless
Landlord and its employees, partners, agents, contractors, lenders and ground
lessors (said persons and entities are hereinafter collectively referred to as
the "Landlord Indemnified Parties") from and against any and all liability,
loss, cost, damage, claims, loss of rents, liens, judgments, penalties, fines,
settlement costs, investigation costs, the cost of legal expenses, the effect of
environmental contamination, the removal remediation and/or abatement of
Hazardous Substances (as said term is defined in section 23 of the Lease),
insurance policy deductibles and other expenses (hereinafter collectively
referred to as "Damages") arising out of or related to a "Landlord Indemnified
Matter" as defined below. For purposes of the Addendum section. A "Landlord
Indemnified Matter" shall mean any matter for which one or more of the Landlord
Indemnified Parties incurs liability or Damages if the Liability or Damages
arise out of or involve, directly or indirectly, (a) Tenant or its employees or
agents (all of said persons or entities are hereinafter collectively referred to
as "Tenant parties"), use or occupancy of the Premises or the Project; (b) any
negligent act or omission of obligations under the Lease; (c) Tenant's failure
to perform any of its obligations under the Lease; (d) the existence, use or
disposal of any Hazardous Substance brought on to the Project by a Tenant Party;
or (e) any other matter for which Tenant has agreed to indemnify Landlord
pursuant to any other provision of this Lease. Landlord hereby agrees to
indemnify, defend and hold harmless Tenant and its employees, partners, agents,
contractors and lenders (said persons and entities are hereinafter collectively
referred to as the "Tenant indemnified Parties") from and against any and all
Damages arising out of or related to "Tenant Indemnified Matters," as defined
below. For purposes of this Addendum section, a "Tenant Indemnified Matter"
shall mean any matter for which one or more of the Tenant Indemnified Parties
incurs liability or Damages if the liability or Damages arise out of or involve,
directly or indirectly, (f) Landlord or its employees or agents (said persons
are hereinafter collectively referred to as "Landlord Parties") use, occupancy
of operation of the Project; (g) any failure to perform any of its obligations
under the Lease; (h) Landlord's failure to perform any of its obligations under
the Lease; (i) the existence, use or disposal of any Hazardous Substances
brought on to the Project by a Landlord Party; or (j) any other matters for
which Landlord has agreed to indemnify Tenant pursuant to the other provisions
of this Lease. Landlord's and Tenant's obligations hereunder shall include, but
shall not be limited to (k) compensating the Landlord Indemnified Parties or the
Tenant Indemnified Parties, as the case may be, for damages arising out of
Landlord Indemnified Matters or Tenant Indemnified Matters and (1) providing
defense, with counsel reasonably satisfactory to the indemnified party, at the
other party's sole expense, of any claims actions, or proceedings arising out of
or relating to a Landlord Indemnified Matter or a Tenant Indemnified Matter, as
the case may be, whether or not litigated or reduced to judgment and whether or
not well founded. The indemnified parties need not first pay any damages to be
indemnified hereunder. This indemnity is intended to apply to the fullest extent
permitted by applicable law. The parties' obligations under this Addendum
section shall survive the expiration or termination of the Lease.
D-4
<PAGE>
EXHIBIT 10.9
TRANSPONDER LEASE AGREEMENT
BETWEEN
TRIUMPH COMMUNICATIONS, INC.
AND
ACCESS-TV
FOR
HUGHES COMMUNICATIONS'
GALAXY VII
<PAGE>
TRANSPONDER LEASE AGREEMENT
---------------------------
Transponder Lease Agreement ("Agreement") made as of July 17, 1994, by and
between TRIUMPH COMMUNICATIONS, INC. ("Triumph"), with offices located at 230
Park Avenue, Suite 1000, New York, New York, 10169, and ACCESS-TV, with offices
located at 2062 Business Center Drive, Suite 230, Irvine, CA 92715 ("Lessee").
In consideration of the mutual covenants herein contained, the parties
hereto have agreed and do agree as follows:
1. The term of this lease will be 11 years. Access-TV will lease from
Triumph one C-band transponder (the "Transponder") from 12:01 a.m. Eastern Time
commencing on January 1, 1995 through 11:59 p.m. Eastern Time on December 31,
2006.
2. Access-TV will lease from Triumph a transponder on the Hughes
Communications Galaxy VII satellite, which Triumph has leased from Hughes
Communications Galaxy, Inc. ("HCG"), expected to be Transponder 16. The lease
rate for this transponder shall be US$145,000.00 per month until December 31,
1998, when the rate will increase to US$155,000.00 per month until the end of
the contract.
3. The Lease Rate and lease terms for Lessee's Transponder shall be as
follows:
a. The Base Lease Rate for Lessee's Transponder shall be $145,000.00
per month from Transponder Delivery through December 31, 1998, and
$155,000.00 per month from January 1, 1999 through the Lease Termination
Date, payable in advance beginning on Transponder Delivery and continuing
on the first day of each month thereafter. As of the Execution Date, Lessee
shall pay to Triumph a deposit in the amount of $290,000.00. Triumph shall
apply the deposit toward the total Lease Rate due for the first month and
the last month immediately preceding the Lease Termination Date.
4. Access-TV shall be responsible for any sales, use or other similar
taxes, if any, levied by any governmental authority on the lease payments to
Triumph. Access-TV shall be responsible for its cost of operations, including
charges or penalties, if any, imposed by the satellite operator with respect to
performance of its uplink and/or transmission services used to transmit
programming to the leased transponder.
<PAGE>
5. Triumph represents and warrants that it currently has all rights
necessary to enter into and perform this agreement. Triumph makes no
representations or warranties of any sort with respect to the satellite time
described herein, and makes no guarantee of satellite or transponder
performance, other than as specified in the Hughes Communications Exhibit B,
C-Band Transponder Performance Specifications, attached hereto.
6. Access-TV and/or its uplink to the described transponder shall conform
to all operational procedures of HCG. Access-TV or its designate shall be
responsible for acquiring and maintaining all necessary licenses and clearances
required to transmit to said transponder and for payments of transmit services.
Triumph will assist Access-TV in its acquisition of satellite time for the
purpose of test transmissions, if necessary. Access-TV has the right to utilize
digital compression provided it conforms to all operational parameters of the
satellite. Access-TV has the right to sub-lease the transponder or digital
channels subject to approval by Hughes Communications.
7. Access-TV agrees to make payment at such time and for the period of term
as described in Section 1 above without off-set or withholding of payment for
any reason, whether or not the purchased time, in fact, is used by Access-TV or
its designate. Interest at the rate of 5% per month will be due on any lease
payments thirty (30) days or more in arrears. Triumph will notify Access-TV if
payment is 5 days past due giving Access-TV 5 days to correct the problem. If
Access-TV does not correct the problem Triumph may terminate the lease. If
Triumph defaults on payment to Hughes, although Access-TV has paid Triumph,
Triumph will directly assign its contract with Hughes, for transponder 16, to
Access-TV
8. All notices and remittances which either party may be required or desire
to give to the other party under this Agreement shall be given by personal
service or by registered or certified mail, return receipt requested, addressed
to
If to Triumph: Triumph Communications, Inc
230 Park Avenue
Suite 1000
New York, New York 10169
Attn: Virginia Marquart
Vice President, Business Affairs
If to Access TV: Access-TV
2062 Business Center Drive
Suite 230
Irvine, CA 92715
Attn: Mark Russo
Vice President Engineering
3
<PAGE>
9. In the event of failure of Galaxy VII during the term of this lease,
Hughes Communications Galaxy, Inc. ("HCG") will provide a back-up satellite,
onto which, in inverse order of signing of transponder lease, Lessee's
programming will be moved within a reasonable period of time, not to exceed
seven (7) days.
10. According to the HCG Special Termination Right, notwithstanding
anything to the contrary stated elsewhere in this Agreement, Lessee and HCG,
through Triumph, acknowledge and agree that HCG may preempt Lessee's use of
Lessee's Transponder in order to satisfy HCG's obligations to provide Lessee's
Transponder to Fox Basic Cable, Inc. ("Fox"), in the event any of the C-Band
Transponders Fox is leasing suffers a confirmed failure, and neither C-Band
Transponder Spare nor C-Band Reserve Transponder is available or the use of such
C-Band Transponder Spare or such C-Band Reserve Transponder would not restore
service to Fox under the terms of HCG's contract for Galaxy VII with Fox. In the
event of such a preemption, HCG and Triumph shall be entitled to terminate this
Agreement, and upon such termination, neither HCG nor Triumph shall have further
or other obligations to lease to Lessee Lessee's Transponder or Galaxy Back-up
Transponders. In the event HCG decides to preempt Lessee's use of Lessee's
Transponder, then HCG will give Lessee all advance notice as is practicable
under the circumstances. Lessee acknowledges that such notice may be limited to
telephone contact with subsequent written confirmation of the preemption.
Triumph shall provide twenty-four (24) hours notice prior to preempting Lessee's
use of Lessee's Transponder to the extent possible. In the event of such
preemption by HCG, Triumph will immediately make every reasonable effort to
place Access-TV on a comparable replacement satellite. Triumph cannot guarantee
the availability of a replacement transponder or pricing at this time for any
such replacement, in which case Triumph will have the right to immediately
terminate this Agreement
11. Triumph's contracts with HCG are hereby incorporated in the Agreement.
Access-TV will be responsible for conditions set forth in these contracts.
Triumph will be held harmless for all HCG related problems. Access-TV shall have
no greater rights or remedies against or with respect to Triumph hereunder than
Triumph has against HCG under HCG's Transponder Lease Agreement and Standard
Terms and Conditions of Service. In the event of conflict or difference between
the terms of Triumph's Standard Terms and Conditions, and/or the terms of the
HCG's Contracts, the provision that is most favorable to Triumph shall prevail.
12. Access-TV may sublease its transponder, subject to approval of Hughes
Communications, Inc. whose approval will not be unreasonably withheld provided
the user agrees to comply with all regulatory and operating procedures.
13. Access-TV may compress its transponder at no additional charge provided
the compression technology complies with all regulatory and operating
specifications and procedures of HCG.
4
<PAGE>
14. This Agreement (including the documents incorporated herein by
reference) constitutes the entire agreement between the parties with respect to
the subject matter hereof and supersedes all prior oral and written agreements
or understandings. This Agreement may not be amended or modified except in
writing, signed by both parties hereto
AGREED:
TRIUMPH COMMUNICATIONS, INC.
By: /s/ Paul Dujardin
------------------------------------
Paul Dujardin
President
Date: 8/1/94
------------------------------------
ACCESS-TV
By: /s/ W.R. Cullen
------------------------------------
Name: W.R. Cullen
Title: Chairman/CEO
Date: July 19, 1994
------------------------------------
5
<PAGE>
TRIUMPH
COMMUNICATIONS
July 18, 1994
Mr. Mark Russo
Vice President, Engineering
Access-TV
2062 Business Center Drive
Suite 230
Irvine, CA 92715
Re: Contract for Galaxy VII
Dear Mr. Russo:
This letter will serve as an addendum to the Triumph Transponder lease
agreement with Access-TV, dated 7/17/94.
Paragraph 6 and 12 are hereby superseded to read as follows:
6. Access-TV and/or its uplink to the described transponder shall conform
to all operational procedures of the Carrier. Access-TV or its designate shall
be responsible for acquiring and maintaining all necessary licenses and
clearances required to transmit to said transponder and for payments of transmit
services. Triumph will assist Access-TV in its acquisition of satellite time for
the purpose of test transmissions, if necessary. Access-TV has the right to
utilize digital compression provided it conforms to all operational parameters
of the satellite. Access-TV has the right to sublease the transponder and/or one
or more digital channels subject to approval by Hughes Communications.
12. Access-TV may sublease or assign its transponder, subject to approval
of Hughes Communications, Inc. whose approval will not be unreasonably withheld
provided the user agrees to comply with all regulatory and operating procedures
or as outlined in HCG's letter dated July 18, 1994.
Best regards.
Sincerely,
/s/ Paul Dujardin
Paul Dujardin
President
230 Park Avenue . Suite 1000 . The Helmsley Building . New York, NY 10169
. (212) 808-3074 . Fax: (212) 808-3020
<PAGE>
TRIUMPH
COMMUNICATIONS
July 19, 1994
Mr. Mark Russo
Vice President, Engineering
Access-TV
2062 Business Center Drive
Suite 230
Irvine, CA 92715
Re: Contract for Galaxy VII
Dear Mr. Russo:
This letter will serve as an addendum to the Triumph Transponder lease
agreement with Access-TV, dated 7/17/94.
In the event, Hughes Communications does not grant approval for Access-TV to
Sublease a transponder on Galaxy VII from Triumph Communications, the attached
contract will be canceled and all advanced payments will be refunded.
Best regards.
Sincerely,
/s/ Paul Dujardin
Paul Dujardin
President
230 Park Avenue . Suite 1000 . The Helmsley Building . New York, NY 10169
. (212)808-3074 . Fax: (212) 808-3020
<PAGE>
EX-10.10
AGREEMENT dated as of January 16, 1995, by and between Chelsea Television
Studios, Inc., a New York corporation ("CTS"), with an address at 221 West 26th
Street, New York, New York 10001, and Access Television Network, Inc., a
Delaware corporation ("Customer"), with an address at 2062 Business Center
Drive, Suite 230, Irvine, California 92715.
W I T N E S S E T H :
WHEREAS, CTS is in the business of providing playback services and other
services as described in Paragraph 1 to its customers upon such terms and
conditions as hereinafter set forth; and
WHEREAS, Customer wishes to obtain the Services of CTS (as hereinafter
defined), in connection with Customer's business of providing public access
television.
Now, Therefore, in consideration of the mutual covenants and promises
herein contained, it is agreed as follows:
1. Services
A). CTS will provide Customer with playback services (the "Services") as
described below:
CTS will provide the Services to Customer during the time and dates listed on
Schedule 1 annexed hereto. The playback facility will be staffed by CTS during
all hours of operation. Dedicated telephone access and technical contact is
provided twenty-four (24) hours a day.
B). Playback will be provided from three (3) dedicated Betacam SP VCR's. CTS
will use its best efforts to ensure that continuity blocks will be seamlessly
integrated in accordance with an Access TV provided program log. The playback
center will be staffed during all hours of operation.
Additional facilities that will be included as part of the package include:
1 DTMF tone generator/insertor
Test and processing equipment
1 Spare Beta SP playback VTR
1 Dedicated troubleshooting phone line
1 Dedicated fax line
C). All program master tapes (the "Material") received from Customer will be bar
coded, labeled and entered into CTS's computerized library system. CTS will
store all active program master tapes and perform necessary traffickinq.
<PAGE>
D). All transportation and insurance costs relating to the shipping of the
Material to and from the Customer will be the responsibility of Customer. CTS
will have no responsibility to Customer for the acts of any shippers in the
transportation of the Material.
E). The playback and transmissions service will be in compliance with SMPTE
standards.
2.1 Pricing
A). In consideration of the Services to be rendered to Customer pursuant to this
Agreement, Customer shall pay to CTS the sum of $41,500.00 per month (the
"Monthly Fee"), during the Term of this Agreement (as hereinafter defined) and
as further set forth in subparagraph (C) below. Included in the Monthly Fee is
the sum of $1,500, which CTS has agreed to pay towards the cost of the fiber
circuit to HBO/Hauppaugue (the "Circuit Fee"). Any increases in the Circuit Fee
or any other hook-up fees shall be borne solely by Customer.
B). The Monthly Fee is computed by CTS exclusive of any federal, state, or local
sales, use, excise, gross receipts, or privilege taxes, duties, fees, or similar
liabilities (other than the general income or property taxes of CTS) whether
charged against or to CTS or to its Customer. Such taxes, fees, etc., shall be
paid by the Customer in addition to the Monthly Fee and other expenses allocable
to the Customer hereunder.
C). Upon execution of this Agreement, Customer shall pay to CTS an agreed amount
equal to $20,750 for the Services for the month of January 1995. On February 1,
1995, Customer shall pay a discounted fee of $20,750 for Services to be rendered
during the month of February, 1995. Commencing March 1, 1995 and for all months
thereafter during the Term of this Agreement, Customer shall pay the Monthly Fee
of $41,500.
D). The Monthly Fee shall be due and payable in advance, without setoff or
deduction, on the first day of the month preceding the date that Services are to
be rendered by CTS.
E). At Customer's written request, CTS may, but shall not be obligated to, sell
all or a portion of any unused time and Services available to Customer to a
third party, upon such terms and conditions as CTS, in its sole discretion deems
fair and reasonable. CTS will give Customer credit against the Monthly Fee if
CTS is able to sell such unused time in such amount as CTS deems commercially
reasonable based upon the rates being charged to Customer. In no event shall
Customer unilaterally reduce the Monthly Fee without CTS's express prior written
consent, which may be withheld at CTS's sole and absolute discretion. This
2
<PAGE>
subparagraph (E) shall not be applicable nor reduce CTS's rights in the event of
a Default by Customer (as set forth in Paragraphs 2.4 and 2.5).
2.3 Term
----
Services shall begin on or about January 18, 1995, at a mutually agreed
upon time, and shall terminate on January 15, 1998, unless sooner terminated
pursuant to Paragraph 2.4 hereunder (the "Term").
2.4 Termination.
-----------
CTS may terminate this Agreement upon the occurrence of any of the events
of default set forth in subparagraphs A and B below ("Default") and subject
further to the provisions of Paragraph 2.5 below:
A). Upon nonpayment of any sum owing to the CTS, or upon a violation by
Customer of any of the provisions governing the furnishing of Services under
this Agreement, CTS may, upon written notification to Customer, without
incurring any liability, immediately discontinue the furnishing of Services.
Customer shall be deemed to have cancelled Services as of the date of such
discontinuance and shall be liable for any cancellation charges as set forth in
Paragraphs 2.1 and 2.5 hereof.
B). i. If Customer refuses to furnish information to CTS regarding the
Customer's credit-worthiness, its past or current use of common carrier services
or its planned use of Services;
ii. If Customer provides false information to CTS regarding the
Customer's identity or the identity of the Customer's or user's, address,
credit-worthiness, past or current use of Services, or its planned use of
Services;
iii. If Customer gives CTS reasonable cause to believe that Customer
shall not comply with a request of CTS for reasonable security for the payment
of Services;
iv. If Customer has been given notice by CTS of any past due amount
(which remains unpaid in whole or in part) for any of the Services to which the
Customer ordered or is liable for pursuant to this Agreement;
v. If Customer fails to pay CTS any sum due to CTS within five (5) days
of its due date;
vi. If Customer fails to comply with a request by CTS for reasonable
security for the payment of Services;
3
<PAGE>
vii. If following seven (7) days after sending Customer written notice of
any noncompliance by Customer with any nonpayment terms (other than an unlawful
use of the Services or the programs to be transmitted) and if such noncompliance
with the terms and conditions of this Agreement is not fully corrected within
the seven (7) day period;
viii. If such actions are reasonably appropriate to avoid violation of
applicable law; or
ix. If there is reasonable risk that criminal, civil or administrative
proceedings or investigations based upon the transmission contents shall be
instituted against CTS or its affiliates.
Upon the occurrence of any of the circumstances constituting a Default under
this subparagraph B, CTS without incurring any liability, may discontinue the
furnishing of Services to Customer immediately and without notice if CTS deems
that such action is necessary to prevent or to protect CTS against fraud or to
otherwise protect its personnel, agents, facilities, or the Services.
2.5 Remedies.
In the event of a Default by Customer, all sums due and owing to CTS by
Customer, as well as the balance due under this Agreement for the remainder of
the Term (constituting agreed liquidated damages to CTS) shall be paid to CTS.
In addition, all amounts due to CTS after Default, shall accrue interest at the
rate of twelve percent (12%), plus CTS shall be entitled to receive its costs,
court costs, costs of investigation, and reasonable attorneys fees and expenses,
in collecting or attempting to collect any Monthly Fees or other charges owed by
the Customer.
3. Representations, Warranties and Agreements of CTS To Customer.
CTS hereby represents and warrants to the Customer as follows:
3.1 Organization, Qualification and Good Standing. CTS is a corporation
validly existing under the laws of the State of New York.
3.2 Authorization; Binding Effect. CTS has the power and authority,
corporate and otherwise, to execute and deliver this Agreement, to consummate
the transactions contemplated hereby and to perform its obligations hereunder.
The execution and delivery of this Agreement by CTS and the consummation and
performance by CTS of the transactions contemplated hereby, have been duly and
validly authorized by all necessary corporate proceedings, and this
4
<PAGE>
Agreement constitutes the legal, valid and binding obligation of CTS,
enforceable against it in accordance with its terms, except as may be limited by
bankruptcy, insolvency or other similar laws affecting the enforcement of
creditors' rights in general.
3.3 Compliance with Other Instruments. The execution, delivery and
performance of this Agreement by CTS and the consummation of the transactions
contemplated by this Agreement will not (i) conflict with or result in the
breach or violation of any term or provision of the Articles of Incorporation or
By-laws of CTS, or (ii) result in the material breach or violation of any term
or provision of, or constitute a material default under, any agreement or
instrument or any law or other order of any court or other agency of government
to which CTS is a party or by which it or its properties or assets is bound.
4. Representations, Warranties and Agreements of Customer to CTS.
Customer hereby represents and warrants to CTS as follows:
4.1 Organization, Qualification and Good Standing. The Customer is a
corporation duly incorporated, validly existing and subsisting under the laws of
the State of Delaware and is duly qualified to do business in all jurisdictions
where the nature and conduct of its business requires Customer to be qualified
under any such state. Customer does business under the name Access TV, and has
the legal right and authority to use such name and to conduct its business under
such name.
4.2 Authorization; Binding Effect. The Customer has full power and
authority, corporate and otherwise, to execute and deliver this Agreement, to
consummate the transactions contemplated hereby and to perform its obligations
hereunder. The execution and delivery of this Agreement by the Customer and the
consummation and performance by it of the transactions contemplated hereby, have
been duly and validly authorized by all necessary corporate proceedings, and
this Agreement constitutes the legal, valid and binding obligation of the
Customer enforceable against it in accordance with its terms
4.3 Compliance With Other Instruments. The execution, delivery and
performance of this Agreement and consummation of the transactions contemplated
hereby by the Customer will not (i) conflict with or result in the breach or
violation of any term or provision of the Articles of Incorporation or By-laws
of the Customer, or (ii) result in the material breach or violation of any term
or provision of, or constitute a material default under, any license, agreement
or instrument or any law or other order of any court or other agency of
government which the Customer is a party
5
<PAGE>
or by which it or any of its properties or assets are bound.
4.4 Legal Proceedings. There is no action, suit, proceeding at law or in
equity, arbitration or administrative or other proceeding by or before any
governmental or other instrumentality or agency, pending, or to the best of
Customer's knowledge threatened, which has or may give rise to any claim against
or in respect of any of the Customer's Material or to which CTS will provide its
Services.
4.5 Compliance With Law. Customer is and will be during the Term of this
Agreement, in compliance with all government laws, rules, regulations
and administrative requirements.
4.6 Content of Customer's Materials. The Material to be transmitted or
serviced by CTS shall not infringe upon the rights of any third party. Customer
has and during the Term hereof, will have, all necessary consents, approvals,
licenses and other rights from all necessary parties (including government
agencies) required for the reproduction, copying, distribution, sale,
transmission and reception of such Material.
5. Rules and Regulations.
5.1 Service Marks. Customer shall not use the service marks, trademarks,
or tradenames of CTS or refer to CTS in connection with the Material or
Customer's promotion or publication, services, products or equipment, without
prior written approval of CTS.
5.2 Connections and Hook-Ups. The Customer is responsible for taking all
necessary legal steps for the interconnection of the Customer's transmissions
with third party carriers. The Customer is responsible for securing all
licenses, permits, right of ways and other arrangements necessary for such
interconnection and transmission and receipt of Customer's Material.
5.3 Delivery of Material. The Customer shall be responsible for
transporting the Material to and from CTS, at Customer's sole cost and expense.
All insurance with respect to the transportation of the Material shall be the
sole responsibility of Customer. Risk of loss of the Material to and from CTS
shall be borne by the Customer.
6. Indemnification.
6.1 Indemnification By CTS. After the date hereof, CTS shall indemnify
Customer against, and hold Customer harmless from, any
6
<PAGE>
and all demands, claims, actions or causes of action, assessments, losses,
damages, liabilities, costs, expenses (including interest, penalties and
reasonable attorneys' fees, disbursements and court costs), settlements or money
judgments asserted against, resulting to, or imposed upon Customer, directly or
indirectly, by reason of, or resulting from the breach by CTS of any
representation, warranty, covenant, or agreement of CTS contained in or made
pursuant to this Agreement or any other document or instrument delivered in
connection with this Agreement.
6.2 Indemnification by Customer. After the date hereof, Customer shall
defend, indemnify and hold CTS, its officers, directors, employees, agents,
shareholders and affiliates, harmless from and against any and all demands,
claims, actions or causes of action, assessments, losses, damages, liabilities,
costs, expenses (including reasonable attorneys' fees, interest, penalties and
disbursements and court costs), settlements or money judgments asserted against,
resulting to, or imposed upon CTS, directly or indirectly, by reason of, or
resulting from the breach by Customer of any representation, warranty, covenant,
agreement or other obligation of Customer contained in or made pursuant to this
Agreement or any other document or instrument delivered in connection with this
Agreement, or any claims arising in connection with or relating to the business
of Customer or the presence, removal, condition, location or use of the Services
or of or relating to the Material or any transmission, or interconnection of
such Material with third party providers or carriers or the use or misuse of the
subject matter being transmitted or any other claim made against CTS relating to
Customer's programming or transmissions
6.3 Except as herein expressly provided, the remedies provided herein
shall be cumulative and shall not preclude assertion by any party hereto of any
other rights or the seeking of any other remedies against any other party
hereto.
7. Limitation of Liability
7.1 If CTS fails to fulfill its obligations under this Agreement in any
material respect, Customer's sole and exclusive remedy shall be the right to
terminate this Agreement and receive a pro-rata refund of the fee paid for the
then current term for any unexpired portion thereof. In no event shall CTS be
liable for any special, indirect or consequential damages or any damages
whatsoever resulting from the loss of use, data, or profits, whether in an
action based on contract, negligence, or other tortious action, arising out of
or in connection with the Services to be rendered by CTS herein.
7
<PAGE>
7.2 CTS is not liable for any act or omission of any other company
(including CTS affiliates) , individual, sub-contractor or agent, furnishing a
portion of the Services or facilities, equipment, or services associated with
such Services.
7.3 CTS makes no warranties hereunder or with respect to the Services,
either express or implied.
7.4 CTS shall not be liable to Customer for failure to perform any of its
obligations hereunder due to conditions beyond its reasonable control, such as
by way of example and not limitation, strikes, labor disputes, natural disaster,
war, failure of transportation or telecommunications, power outages, equipment
failure, disturbances, cable cut, law, order, regulation, direction, action or
request of the United States government or of any other government or of any
civil or military authority, supplier failures, breaches or delays, or
preemption of existing Services or other applicable laws, regulations or orders
and the like (the foregoing being collectively referred to as a "force majeure
event"). In the event of the occurrence of a force majeure event, the Term of
this Agreement shall be suspended during the period in which CTS is unable to
perform its obligations hereunder.
8. Notices.
All notices, demands, claims or other communications under this Agreement
shall be in writing and shall be sent by certified mail, return receipt
requested, postage prepaid, or sent by facsimile or prepaid overnight courier to
the parties at the addresses set forth below or such other addresses as shall be
specified by the parties by like notice:
If to CTS:
Chelsea Television Studios, Inc.
221 West 26th Street
New York, New York 10001
Attn: Eric Duke, President
Fax: (212) 255-6644
With a copy to:
Rosen & Tetelman
13 East 37th Street, Ste. 602
New York, New York 10016
Attn: Ted D. Rosen, Esq.
Fax: (212) 679-4363
If to Customer:
8
<PAGE>
Access Television Network, Inc.
2062 Business Center Drive, Ste. 230
Irvine, California 92715
Attn: Mark Russo, VP-Engineering
Fax: (714) 757-1526
with a copy to:
9. Miscellaneous.
9.1 Entire Agreement/Waiver. This Agreement, including the Exhibits and
Schedules hereto, sets forth the entire agreement and understanding between the
parties as to the subject matter hereof and merges and supersedes all prior
discussions, agreements and understandings of every kind and nature between
them. This Agreement shall not be changed, modified, or amended except by a
writing signed by the party to be charged and this Agreement may not be
discharged except by performance in accordance with its terms or by a writing
signed by the party to be charged. No forbearance by either party to enforce any
provisions or to give notice of the breach of any provisions of this Agreement
shall constitute a waiver of provision of right or to be deemed to effect an
amendment or modification of this Agreement.
9.2 Governing Law. This Agreement and its validity, construction and
performance shall be governed in all respects by the laws of the State of New
York without giving effect to principals of conflict of laws.
9.3 Severability. If any provision of this Agreement is held to be
invalid or unenforceable by a court of competent jurisdiction, such invalidity
or unenforceability shall not affect the validity and enforceability of the
other provisions of this Agreement and the provision held to be invalid or
unenforceable shall be enforced as nearly as possible according to its original
terms and intent to eliminate such invalidity or unenforceability.
9.4 Benefit of Parties, Assignment. This Agreement shall be binding upon
and inure to the benefit of the parties hereto and their respective successors
and assigns. This Agreement may not be assigned by any party hereto except with
the prior written consent of the other party hereto, which consent shall not
unreasonably be denied and further subject to CTS's right to assign this
Agreement to any of its affiliates without the necessity of obtaining the
consent of the Customer.
9.5 Jurisdiction. The parties hereby consent to the exclusive
jurisdiction of the Supreme Court of the State of New
9
<PAGE>
York and the United States District Court for the Southern District of New York
with respect to the subject matter of this Agreement, and venue for any action
arising hereunder shall lie in New York County. The parties hereby waive any and
all right to commence any action or proceeding before any other court or
judicial body or in anY other venue with respect to the subject matter.
9.6 Confidentiality. The rates, terms and conditions of this Agreement
are confidential, including their respective affiliates, attorneys, and agents,
except as required to be disclosed by law, court order or government rule or
regulation. The rates, terms and conditions of this Agreement may be voluntarily
disclosed by either party, with the prior written consent of the non-disclosing
party, which consent may be withheld in the sole discretion of the
non-disclosing party. Either party may however, disclose the existence of this
Agreement.
9.7 Counterparts. This Agreement may be executed in several counterparts
each of which shall be deemed to be an original, but all of which together
shall constitute one and the same instrument.
9.8 Further Assurances. Upon the reasonable request of any party hereto
made of any other party hereto at any time at or subsequent to the date hereof,
such other party shall take such further action, and execute and deliver such
further instruments, documents, agreements and certificates as shall reasonably
be considered necessary by the party making the request to effectuate,
consummate, record, register or perfect the transactions contemplated by this
Agreement.
9.9 Not a Joint Venture or Partnership. This Agreement shall not be
construed as creating a joint venture, co-venture or a copartnership between the
parties nor result in a joint service offering to their respective customers.
Neither party shall have any authority to bind the other or the other's
representatives in any way.
[THE BALANCE OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
10
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date
set forth above.
Chelsea Television Studios, Inc.
/s/ Eric Duke
- --------------------------------
By: Eric Duke
Title: President
Access Television Network, Inc.
/s/ W.R. Cullen
- --------------------------------
By: W.R. Cullen
Title: Chairman
11
<PAGE>
EX-10.11
UPLINKING
SERVICE AGREEMENT
between
Home Box Office
and
Access TV
Effective as of January 18, 1995
<PAGE>
CUSTOMER UPLINKING SERVICE AGREEMENT
THIS UPLINKING SERVICE AGREEMENT ("Agreement"), dated as of January 18,
1995 and between Home Box Office, a division of Time Warner Entertainment
Company, L.P. with principal offices located at 1100 Avenue of the Americas, New
York, N.Y. 10036, ("HBO"), and Access TV, a Delaware corporation, with principal
offices located at 2062 Business Center Drive, Suite 230, Irvine, California
92715 ("Customer").
W I T N E S S E T H:
WHEREAS, HBO has the technical facilities to Uplink Digital Transmissions
to Customer's satellite transponder;
WHEREAS, Customer has leased Transponder No. 16 on the Galaxy VII
satellite;
WHEREAS, Customer desires HBO to supply to Customer certain Uplink
transmission services with respect to the distribution of its infomercial
channel programming ("Access TV"), and HBO desires to provide such Uplink
transmission services to CUSTOMER; and
WHEREAS, Customer desires to transmit the Access TV programming as a
digital signal and to compress its signal with other signals, and HBO desires to
provide service hereunder for such Digital Transmission:
1
<PAGE>
NOW, THEREFORE, the parties, for good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, hereby agree as
follows:
ARTICLE 1 DEFINITIONS
1.1 "Access TV" means the video program service so designated.
1.2 "Alternative Satellite or Transponder Notice" shall have the meaning
set forth in Section 7.1 hereof.
1.3 "Center" means the HBO facility located at 300 New Highway, Hauppauge,
New York 11788.
1.4 "Customer" shall have the meaning set forth in the preamble hereof.
1.5 "DCI Compression Equipment" means hardware and software associated with
DigiCipher I Redundant Compression System and used to digitize, compress,
encrypt and transmit signals.
1.6 "DCII Compression Equipment" means hardware and software equipment
associated with DigiCipher II Redundant Compression System and used to digitize,
compress, encrypt and transmit signals.
1.7 "Digital Compression Equipment" means the DCI Compression Equipment or
the DCII Compression Equipment, as applicable.
1.8 "Digital Transmission" means transmission of a signal which has been
digitized.
1.9 "Feed" means the transmission of programming from the
2
<PAGE>
Center to a satellite transponder.
1.10 "HBO" shall have the meaning set forth in the preamble hereof.
1.11 "HBO Primary Service" means all Feeds of HBO, Cinemax, and Comedy
Central that are uplinked by HBO at the Center.
1.12 "Installation Charge" means the fee assessed by HBO for installation
of DCII Compression Equipment and/or monitoring equipment.
1.13 "IRD" means integrated receiver/decoder.
1.14 "Normal Business Hours" shall have the meaning set forth in Section
4.1 hereof.
1.15 "Studio" means the origination of the Access TV Feed presently located
at Chelsea TV Studios, 221 W. 26th Street, N.Y., N.Y., or such other site(s)
where programming Feeds to be Uplinked hereunder originate.
1.16 "Term" shall have the meaning set forth in Section 2.1 hereof.
1.17 "Transition Date" shall mean the date when HBO begins to transmit
Customer's Feed(s) using the DCII Compression Equipment and ceases to transmit
Customer's Feed(s) using the DCI Compression Equipment, which is anticipated to
be not later then December 31, 1996.
1.18 "Uplink Services" shall have the meaning set forth in Section 3.1
hereof.
1.19 "Uplinkinq" or "Uplinked" means a microwave
3
<PAGE>
transmission of a video and audio signal from a facility on Earth to a
transponder on an orbitinq satellite
ARTICLE 2 TERM
2.1 Term. This Agreement shall commence on January 18, 1995 and continue
for five years until January 31, 2000 (the "Term").
ARTICLE 3 SERVICES PROVIDED BY HBO
During the Term of this Agreement, HBO shall provide the following services
and equipment to Customer:
3.1 Uplink Services.
3.1.1 Digital Transmission. Uplinking of one (1) compressed digital signal
of the Access TV programming to Customer's Transponder No. 16 on the Galaxy VII
Satellite, configured to provide a 4:1 video compression ratio, on a twenty-four
(24) hours, per day, seven (7) days per week basis. Prior to the Transition
Date, the service shall include compression of the Customer's Feed(s) using the
DCI Compression Equipment. After the Transition Date, the service shall include
compression of the Customer's Feed(s) using the DCII Compression Equipment,
which service shall include housing of Customer's DCII Compression Equipment at
the Center.
3.1.2 Additional Channels. HBO will initially transmit one (1) channel of
the Access TV programming. Customer
4
<PAGE>
may add channels for programming services to share the Digital Compression
Equipment so that up to four (4) programming services are Uplinked to Customer's
Transponder No. 16 on the Galaxy VII Satellite by providing HBO written notice
at least sixty (60) business days in advance of the addition;
3.2 Monitoring. HBO shall provide monitoring of the Uplink Services Feeds
twenty-four (24) hours per day, seven (7) days per week;
3.3 Equipment
3.3.1 Digital Equipment Rental. HBO shall provide to Customer the use of
the DCI Compression Equipment for the period of January 18, 1995 to the
Transition Date.
3.3.2 Digital Equipment Upgrade. Customer shall arrange for the acquisition
and shipment to the Center of the DCII Compression Equipment and allow at least
one month to install the DCII Compression System so that the equipment can be
operational by no later than December 31, 1995. Customer shall be responsible
for installation and testing of the DCII Compression System.
3.3.3 Monitoring Equipment. HBO shall select and purchase, on behalf of
Customer, all reception equipment (as set forth on Exhibit A). Customer shall
supply decompression and descrambling equipment necessary to enable HBO to
monitor the programming Feeds pursuant to Section 3.2 hereof (and to provide the
return network feeds pursuant to Section 4.2 hereof, if
5
<PAGE>
requested) including one IRD capable of receiving the transmission for each Feed
to be monitored, plus "one for N" redundancy;
3.4 Location. All services described shall be provided to Customer at the
Center.
ARTICLE 4 CUSTOMER'S OBLIGATIONS
Customer shall make all necessary arrangements for, and shall be solely
responsible for all costs and expenses of, the procurement, installation,
maintenance and usage of:
4.1 Program Origination to Center. At least one (1) but no more than two
(2) dedicated fiber optic transmission lines for the purpose of transmitting one
(1) video and two (2) audio channels of each Feed to be uplinked hereunder from
the Studio to the Center. Each signal delivered to the Center shall be a
composite video signal conforming to RS170A standards, plus two (2) channels of
audio at 0 dbm. Customer shall have the sole responsibility for reporting
service problems to the appropriate carrier with respect to such line(s).
Installation of the fiber optic lines at the Center shall be during Normal
Business Hours (Monday -Friday, nine a.m. to five p.m.) (hereinafter, "Normal
Business Hours") and pursuant to HBO's standard access procedures. Customer
shall give HBO at least two (2) weeks prior notice of such installation;
4.2 Return Channels and Telephone Lines. Customer may dedicate one (1)
fiber optic transmission line for the purpose of
6
<PAGE>
transmitting a return feed of one (1) video and two (2) audio channels of the
Access TV Feed only from the Center to the Studio. Once installed, such return
feed shall not require any switching or other operational support from HBO.
Customer shall have the sole responsibility of reporting problems to the
appropriate carrier with respect to such fiber optic transmission line. Customer
shall arrange for Installation of telephone lines and modems in order to access
the Digital Compression Equipment. Installation of the fiber optic line and
telephone lines at the Center shall be during Normal Business Hours and pursuant
to HBO's standard access procedures. Customer shall give HBO at least two weeks
prior notice of such installation
4.3 Digital Compression Equipment and Uprade. The DCII Compression
Equipment.
ARTICLE 5 TRANSITION FROM DCI to DCII COMPRESSION SYSTEMS
5.1 Customer Obligation. Customer will provide and deliver to the Center,
during Normal Business Hours, the DCII Compression Equipment. Unless otherwise
agreed by HBO and Customer, the Transition Date for commencement of the use of
the DCII Compression System shall be January 1, 1996. Customer shall be
responsible for all maintenance, including board replacements), for the DCII
Compression Equipment. Such maintenance shall be covered by an on-site
maintenance contract with General Instrument or another authorized or qualified
service provider for so long as this Agreement is in effect. Customer shall
7
<PAGE>
arrange for commercial and consumer decoder authorizations. Customer may have
access to the Center during Normal Business Hours for routine maintenance of the
Digital Compression Equipment upon notice at least five (5) business days in
advance. Customer may have immediate access for emergency repairs which are
necessary to maintain service and which cannot be postponed until Normal
Business Hours upon telephone authorization from HBO's authorized designee to
the Center.
ARTICLE 6 PAYMENTS AND CHARGES
6.1 Uplink and Monitoring Services.
6.1.1 Access TV Feed. For the Uplink of the Feed(s) and monitoring of the
Access TV Feed only, Customer shall pay to HBO, in advance, on or before the
first day of each calendar month, Twenty Thousand ($20,000) Dollars per month.
Such charge shall be increased to Twenty One Thousand Five Hundred ($21,500)
Dollars per month for each month of the year February 1, 1998 to January 31,
1999 and shall be increased to Twenty Three Thousand ($23,000) Dollars per month
of each month of the year February 1, 1999 to January 31, 2000.
6.1.2 Additional Feeds. If Customer desires to add additional channels
pursuant to Section 3.1.2, Customer shall pay an additional charge of Three
Thousand ($3,000.00) Dollars per month for monitoring services for each channel
added during the the term. Such charge shall be increased to Thirty Five Hundred
($3,500) Dollars per month for each month of the year February 1,
8
<PAGE>
1998 to January 31, 1999 and shall be increased to Four Thousand ($4,000)
Dollars per month of each month of the year February 1, 1999 to January 31,
2000.
6.2 Equipment Rental Charge. Customer shall pay a rental charge of Four
Thousand ($4,000) Dollars per month for the rental of the DCI Compression
Equipment from HBO.
6.3 Electricity Charges. For each month after the Transition Date, Customer
shall pay a monthly fee for electricity used by the DCII Compression Equipment.
During the first year after the Transition Date, such charge shall be Eight
Hundred Thirty Three and 33/100 ($833.33) Dollars per month. After the end of
the first year following the Transition Date, this charge shall increase at a
rate of 6% per year.
6.4 Installation Charges. Customer shall pay an installation design and
equipment Installation Charge of Twenty Five Thousand Dollars ($25,000) after
DCII Compression System is installed and operational. If Customer desires to add
additional channels pursuant to Section 3.1.2, Customer shall pay an additional
Installation Charge of Two Thousand ($2,000.00) Dollars for each channel added.
Such charge shall be payable at the time Customer gives notice to HBO of its
desire to add such additional channels.
6.5 Monitoring Equipment. Customer shall reimburse HBO for the cost of all
monitoring equipment purchased by HBO pursuant to Section 3.3.3 hereof. Such
charges shall be payable
9
<PAGE>
30 days after HBO's invoice therefor.
6.6 Maintenance. HBO shall charge $75 per man hour plus actual cost of
parts and supplies for maintenance and repair of the monitoring equipment used
for the Feed(s) or for maintenance of any other Customer owned equipment. Such
charges shall be payable 30 days after HBO's invoice therefor.
6.7 Payment Terms. For all monthly charges hereunder, Customer shall pay
such charges to HBO, in advance, on or before the first day of each calendar
month. In the event that any services under this Agreement should begin or end
on days other than the first or last day of a calendar month or if any rates
shall increase on days other than the first or the last day of a calendar month,
such monthly payments or increases shall be prorated for the month in question.
6.8 Overdue Payment Terms. Any payments made more than five (5) days after
the dates due hereunder shall each bear interest at the rate of one and one-half
percent (1-1/2%) per month
ARTICLE 7 SATELLITE CHANGES
7.1 Required Changes. In the event that the Galaxy VII satellite, or
Transponder No. 16 thereon, no longer functions, or fails to initially function,
in a manner reasonably required by Customer for its business, or in the event
Customer is ordered by a governmental entity to cease utilization of any such
satellite to which the Access TV Feed is being Uplinked under this Agreement or
a transponder thereon utilized for such Feed(s),
10
<PAGE>
Customer shall notify HBO promptly if it desires to receive Uplink Services on
an alternative satellite or transponder and shall identify the alternative
satellite or transponder or both to which it desires Uplink Services (the
"Alternative Satellite or Transponder Notice"). Upon receipt of such notice, HBO
shall, as promptly as possible, provide Uplink Services for Customer on the
alternative satellite or transponder or both, provided that the alternative
transponder is (a) on the same satellite as the transponder being replaced or
(b) on any other satellite to which HBO is then Uplinking any HBO Primary
Service or other program services from the Center, and provided further that HBO
shall only be obligated to provide Uplink Services to Customer under the
foregoing clause (b) up to the number of and during the same hours HBO is
Uplinking such other program services to such satellite. If the alternative
transponder is not on the same satellite or if HBO is not then Uplinking any HBO
Primary Service to such alternative satellite from the Center, or such other
program services as indicated above, HBO shall, as promptly as possible, advise
Customer whether it is willing to provide Uplink Services to such alternative
transponder or satellite and the additional Fees which HBO estimates it would
charge in connection therewith. If HBO indicates it is so willing, Customer
shall, within ten (10) days after receipt of such notice from HBO, advise HBO
whether it desires HBO to provide such Uplink Services on such terms, and, if
Customer does so desire, HBO shall, as
11
<PAGE>
promptly as possible, provide such Uplink Services. If HBO is not willing to
provide Uplink Services to such alternative transponder or satellite, then HBO
shall so notify Customer within ten (10) days of HBO's receipt of the
Alternative Satellite or Transponder Notice that it is unwilling to provide such
Uplink Services, and neither party shall have any further obligation under this
Agreement. If HBO is willing to provide such Uplink Services, but Customer is
not willing to accept HBO's terms for provision of such service, then Customer
shall so notify HBO, and neither party shall have any further obligation under
this Agreement.
7.2 Liability. In no event shall HBO be liable for any interruption in the
Access TV Feed or any other Feed Uplinked hereunder caused as a result of a
change in transponder or other cessation of Uplinking, except as provided in
Section 8.2.
ARTICLE 8 LIMITATION OF LIABILITY
8.1 EXCLUSIONS. EXCEPT AS PROVIDED IN SECTION 8.2, HBO SHALL NOT BE LIABLE
TO CUSTOMER FOR ANY COSTS, EXPENSES, LIABILITIES, CLAIMS OR DAMAGES ARISING OUT
OF, OR IN CONNECTION WITH, THE PROVISION OF SERVICE TO CUSTOMER HEREUNDER,
INCLUDING, BUT NOT LIMITED TO, DAMAGES RESULTING FROM LOSS OF AIR TIME OR LOSS
OF ACTUAL OR ANTICIPATED REVENUE OR PROFITS, OR FOR INCIDENTAL, INDIRECT,
CONSEQUENTIAL OR SPECIAL DAMAGES, WHETHER IN CONTRACT OR TORT.
8.2 Payment Reductions.
12
<PAGE>
8.2.1 In the event no picture or audio or both is available to recipients
of the Feeds that are Uplinked hereunder, for at least fifteen (15) consecutive
minutes, as a result of the failure of HBO owned equipment to Uplink Customer's
Feed, the amount payable by Customer to HBO pursuant to Section 6.1 above, shall
be reduced as set forth in Section 8.3 below.
8.2.2 There shall be no reduction in payment by Customer to HBO hereunder
for the Uplink Services in the event no picture or audio is available to
recipients of the Feeds that are Uplinked hereunder as a result of, or
attributable primarily to: (a) Customer's negligence or willful acts, or the
negligence or willful acts of its officers, directors, agents, employees,
subsidiaries, parents, affiliates, customers and viewing subscribers, or any of
them; (b) the failure of any compression system, transmission facilities or
other equipment other than that owned and provided by HBO; (c) the failure or
nonperformance of any transponder or any receive earth station provided by
Customer or its customers; (d) sun outages; (e) any event pursuant to Article 7;
(f) the failure of backhaul transmissions; or (g) the failure of any incoming
lines supplied by Customer.
8.3 Calculation of Reductions. Any reduction in payment pursuant to Section
8.2.1 above, shall be calculated as follows: the amount payable to HBO for any
month during which such a reduction is calculated shall be reduced by an amount
equal to the amount payable for such month multiplied by a fraction, the
13
<PAGE>
numerator of which is the number of hours where no picture or audio, or both, is
transmitted by HBO and the denominator of which is the number of hours in such
month
ARTICLE 9 FORCE MAJEURE
Neither party shall be liable to the other, excluding the payments to
be made pursuant to Article 4 above, for any failure of performance hereunder
due to acts of God or other catastrophes, natural or otherwise, (including
catastrophic failure of any transponders or satellites utilized by Customer or
other transponders or satellites utilized pursuant to this Agreement); any law,
order, regulation, direction, action or request of the United States government,
or of any other government, including state and local governments having
jurisdiction over the parties, or of any department, agency, commission, bureau,
corporation or other instrumentality of any one or more said governments, or of
any civil or military authority; national emergencies; insurrections; riots;
wars; or strikes, lockouts, work stoppages, other labor difficulties, delays in
transportation, energy shortages, or material shortages beyond the parties'
reasonable control
ARTICLE 10 TERMINATION
10.1 Cessation of Customer's Operations. In the event that Customer, by law
or otherwise, discontinues operation for any reason whatsoever, and does not
resume operation within sixty
14
<PAGE>
(60) days, HBO may terminate this Agreement as of a date not less than three (3)
months after written notice of such termination to Customer; Provided, however,
that such termination shall not relieve Customer of its obligation to pay to HBO
all amounts payable through the date of such termination.
10.2 Default. In the event that either HBO or Customer, at any time, fails
in any material respect to comply with any provisions of this Agreement,
(including, but not limited to, the failure by Customer to pay any amounts due
hereunder on the date specified) and continues to do so for thirty (30) days
after receipt of written notice of such failure from the other party hereto, HBO
or Customer, as the case may be, may terminate this Agreement; provided,
however, that such termination by HBO shall not relieve Customer of the
obligation to pay to HBO all amounts payable through the end of the Term of this
Agreement.
10.3 End of Term. At the close of the Term of this Agreement, or at such
other time of termination, the DCII Compression Equipment and the Monitoring
Equipment located at the Center and owned by Customer shall be removed and fiber
optic transmission lines and the telephone lines installed by the Customer and
connected to the Center shall be disconnected at Customer's expense; all
shipping and labor charges (including labor provided by HBO personnel, which
shall be assessed at a rate of Seventy Five Dollars ($75.00) per man hour),
shall be borne by Customer.
15
<PAGE>
ARTICLE 11 INDEMNIFICATION
11.1 By Customer. Customer shall assume liability for, and hereby agrees to
indemnify, defend, protect, save and hold HBO, its affiliated companies and
their respective officers, directors, employees and agents, harmless against any
and all liabilities, claims, actions, suits, costs, losses, penalties, expenses
or damages (including, without limitation, reasonable legal fees and expenses
imposed on, incurred by or asserted against HBO) collectively, "damages", to the
extent arising out of or in connection with:
11.1.1 Any act or omission by Customer;
11.1.2 Any claim with respect to matters relating to the services to be
provided by HBO hereunder, occurring before the date of this Agreement;
11.1.3 Any claim with respect to material or programming transmitted by or
on behalf of Customer or included in any Feed;
11.1.4 Any claim with respect to the content of programming or advertising
transmitted by or on behalf of Customer or included in any Feed;
11.1.5 Any claim with respect to any agreement between Customer and a cable
company or any other entity relating to the reception or transmission of any
Feed or any programming on any Feed or any other agreement between Customer and
a third party; and
11.1.6 Any patent or any other intellectual property
16
<PAGE>
claims arising out of the manufacture, sale or use of any equipment supplied by
Customer, including the satellite transponder and the DCII Compression
Equipment.
11.2 BY HBO. HBO shall assume liability for, and hereby agrees to
indemnify, defend, protect, save and hold Customer its affiliated companies and
their respective officers directors, employees and agents harmless against any
and all damages resulting from personal injury or death caused by the negligence
of HBO or its employees arising out of, or in connection with, the provision of
service to Customer hereunder.
11.3 Procedures. In order to seek or receive indemnification hereunder:
11.3.1 The party seeking indemnification must have promptly notified the
other of any claim or litigation to which the indemnification relates; and
11.3.2 The party seeking indemnification must have afforded the other the
opportunity to participate in any compromise, settlement, litigation or other
resolution or disposition of such claim or litigation.
ARTICLE 12 REPRESENTATIONS, WARRANTIES AND COVENANTS
12.1 HBO and Customer Representations. HBO and Customer hereby represent,
warrant and covenant, each to the other, that:
12.1.1 Standing and Authority. They are entities duly formed, validly
existing and in good standing under the laws of
17
<PAGE>
the respective states in which they exist or are incorporated, and that they
have the power and authority to enter into this Agreement and to fully perform
their respective obligations hereunder; and
12.1.2 Valid and Binding Agreement. All necessary corporate or company
action to duly approve the execution, delivery and performance of this Agreement
has been taken by HBO and Customer, and this Agreement constitutes a valid and
binding Agreement of HBO and Customer enforceable in accordance with its terms.
12.2 Customer Representatives. Customer represents, warrants and covenants
to HBO that:
12.2.1 Program Content. The programming provided by Customer and users of
Customer's channel capacity to be Uplinked hereunder shall comply, in all
material respects, with all laws applicable to programming, including without
limitation, laws regarding illegal or obscene programming material or the
transmission thereof.
12.2.2 Usage Agreements. Any agreement with any third party regarding
transmission using any of Customer's channel capacity under this Agreement shall
contain a waiver of all claims by such entity against HBO arising out of HBO's
performance or non-performance under this Agreement.
ARTICLE 13 RELATIONSHIP OF THE PARTIES
13.1 Private Nature. The parties hereto acknowledge that
18
<PAGE>
the services offered hereunder have been privately offered and will be privately
furnished on a non-common carrier basis. Neither HBO nor Customer regards any
representations, offers or undertakings made by the other in connection with
this Agreement as being in the nature of offers of common carriage. Neither HBO
nor Customer will attempt, now or in the future, to assert, through legal
process, directly or indirectly, any questions of common carriage regarding the
relationship between the parties.
13.2 Independent Contractors. Nothing contained in this Agreement shall be
deemed or construed by the parties hereto or by any third party to create any
rights, obligations or interests in third parties or to create the relationship
of principal and agent or of partnership or joint venture or of any other
fiduciary relationship or association between the parties hereto.
13.3 Applicability of Other Regulations and Tariffs. This Agreement is
subject to the provisions of any agreement disclosed to HBO, which contains
regulations applicable to the utilization of the transponder on the Galaxy VII
satellite, and to the Galaxy VII Satellite Uplink Access Requirements, as may be
changed by the Satellite Transponder lessor from time to time. HBO and Customer
represent that they shall comply with all the provisions of any agreement
disclosed to HBO, and with the Galaxy VII Satellite Uplink Access Requirements.
If services are provided under this Agreement utilizing other transponders as
19
<PAGE>
provided herein which are regulated by tariff or affected by other agreements,
this Agreement shall be subject to those applicable tariffs or agreements. The
parties represent that they shall similarly comply at all times with the
regulations of those tariffs and agreements.
ARTICLE 14 ASSIGNMENT
This Agreement including both its obligations and benefits shall be binding
on the respective transferees and successors of the parties; provided, however,
that neither this Agreement nor any of the rights or obligations hereunder shall
be assigned or transferred by either party without the prior written consent of
the other party, except that this Agreement may be assigned by HBO to a wholly
owned subsidiary or parent of HBO or to an entity that is otherwise controlling,
controlled by or under common control with HBO or Time Warner Inc., all without
the prior consent of the non-assigning party. Any assignment of this Agreement
by HBO shall relieve HBO of its obligations hereunder.
ARTICLE 15 NOTICE
All notices, demands, requests or other communications given under this
Agreement shall be in writing, unless otherwise specified herein, and be given
by personal delivery, mail, telegram, facsimile or private wire. Notice given by
mail shall be considered to have been given three (3) days after the date of
mailing, postage prepaid, certified or registered mail, addressed
20
<PAGE>
as follows:
a) If to be given to HBO:
Home Box Office
1100 Avenue of the Americas
New York, New York 10036
Attn: Senior Vice President
Technology Operations
Fax No.: (212) 512-5598
with a separately delivered copy to:
Home Box Office
1110 Avenue of the Americas
New York, New York 100 36
Attn: Executive Vice President &
General Counsel
Fax. No.: (212) 512-5572
b) If to be given to Customer:
Access TV
2062 Business Center Drive
Suite 230
Irvine, California 92715
Attn: Mark Russo,
V.P. Engineering
Fax No: 714-757-1526
ARTICLE 16 WAIVER
No failure on the part of either party to notify any other party of any
noncompliance hereunder and no failure on the part of either party to exercise
its rights of termination because of any such noncompliance shall prejudice any
remedy for any subsequent noncompliance; and any waiver by either party of any
breach or noncompliance with any term or condition of this Agreement shall be
limited to the particular instance and shall
21
<PAGE>
not operate or be deemed to waive any future breaches or noncompliance with any
term or condition
ARTICLE 17 SEVERABILITY
If any provision of this Agreement or the application of such provision to
any person or circumstances is held invalid by the FCC or a court of competent
jurisdiction, the remainder of this Agreement and the application of such
provision to persons or circumstances other than those as to which it is held
invalid shall not be affected thereby.
ARTICLE 18 HEADINGS
The headings of the paragraphs of this Agreement are inserted as a matter
of convenience and for reference purposes only, are of no binding effect and in
no respect define, limit or describe the scope of this Agreement or the intent
of any paragraph hereof.
ARTICLE 19 COUNTERPARTS
This Agreement may be signed upon any number of counterparts with the same
effect as if the signatures to each were upon the same Agreement.
ARTICLE 20 CONFIDENTIALITY
HBO and Customer shall not disclose to any third party (other than their
employees, or agents in their capacity as such)
22
<PAGE>
any information with respect to any of the terms and provisions of this
Agreement, except that:
20.1 Legal Requirements. HBO and Customer may release such relevant portion
of information to a court or other governmental body as required by law;
provided, however, that the party subject to such order shall have immediately
notified the other party in writing of, and supplied such other party with, a
copy of such order, and shall take all reasonable steps to protect confidential
treatment of such information; and
20.2 Internal Reportinq. As part of its normal reporting overview procedure
to its parent company, its auditors and its attorneys, provided, however, that
such parent company, auditors and attorneys agree to be bound by the provisions
of this Article 20 or in order to enforce is rights pursuant to this Agreement.
ARTICLE 21 APPLICABLE LAWS
21.1 State Law. This Agreement shall be governed by and construed and
interpreted in accordance with the laws of the State of New York applicable to
contracts made and performed therein, without regard to New York's laws with
respect to conflicts of law.
21.2 Federal Law and Treaties. This Agreement is subject to all applicable
treaties, laws, regulations and orders of any Federal or state governmental
authority having jurisdiction thereover, including, but not limited to, any
agreements
23
<PAGE>
governing the use of Galaxy VII, the Galaxy VII Uplink Access Requirements, as
may be changed by the satellite operator from time to time, the Communications
Act of 1934, as amended, and the rules and regulations and orders of the FCC
adopted thereunder. The performance of this Agreement by the parties hereto is
subject to the appropriate obtaining and continuance of such approvals,
consents, authorizations, licenses and permits from the FCC or any other Federal
or state governmental authority as may be required or deemed necessary for the
purposes hereof, and such terms and conditions as may be imposed therein. The
parties will use their best efforts to obtain, in a timely manner, for purposes
of this Agreement and have continued in effect such approvals, consents,
authorizations, licenses and permits.
ARTICLE 22 ENTIRE AGREEMENT
This Agreement and its Schedules represent the entire understanding between
the parties hereto with respect to the subject matter hereof, supersede all
prior negotiations and agreements between such parties, and can be amended,
supplemented or changed only by an agreement in writing which makes specific
reference to this Agreement and which is signed by both parties.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized officers as of the day and year first above
written.
24
<PAGE>
Home Box Office, a Division of
Time Warner Entertainment
Company, L.P.
By: /s/ Dominic Serio
------------------------------
Name: Dominic Serio
------------------------------
Title: Sr. Vice President
-----------------------------
Access TV
By: /s/ William Bernard
------------------------------
Name: William Bernard
------------------------------
Title: President
-----------------------------
25
<PAGE>
Amendment No. 1 to the
Customer Uplinking Service Agreement
between
Home Box Office and Access TV
This Amendment is made as of this _ day of February, 1996 between Home Box
Office, A Division of Time Warner Entertainment Company, L.P. with principal
offices located at 1100 Avenue of the Americas, New York, N.Y. 10036 ("HBO") and
Access TV, a Delaware corporation with principal offices located at 2062
Business Center Drive, Suite 230, Irvine, California 92715 ("Customer").
WHEREAS, HBO and Customer entered into an Uplinking Service Agreement dated
as of January 18, 1995 (the "Agreement").
WHEREAS, the parties herein desire to amend the Agreement in accordance
with the terms and conditions set out herein;
NOW THEREFORE, in consideration of the mutual covenants contained herein
the parties hereto agree to amend the Agreement as follows:
Capitalized terms used herein but not otherwise defined herein shall have
the meaning ascribed to them in the Agreement.
ARTICLE 1. DEFINITIONS
Article One is hereby amended to add the following definitions:
1.20 "Access II" means that Access TV programming service that contains home
shopping & infomercial programs.
1.21 "Air Date" means the date on which the programming contained in the log
will air.
1.22 "Cart Machine" is the Beta SP Robotic video tape playback system or
compatible replacement system.
1.23 "Origination" means the process of playing videotapes with program material
provided by the Customer through the appropriate equipment.
1.24 "Program Tape" means all program and commercial materials supplied by
Customer on Beta SP Videotape.
1.25 "Que Tones" mean the data used to activate local advertising insertion
equipment at the cable head end.
1
<PAGE>
ARTICLE 3. SERVICES PROVIDED BY HBO
Article Three is hereby amended to add the following provisions:
3.1.3. Origination and Uplinking Services
In addition to the services provided in the existing Agreement, HBO will
provide the following additional services to the Customer as provided herein:
(a) With respect to Access II, HBO shall provide Origination from 00:00 -
12:00 with a firm out, seven (7) days per week, commencing July 13, 1995, and
continuing for five (5) years until January 31, 2000;
(b) HBO shall provide one month storage of Access II Program Tapes within
the tape library at the Center. Once a month HBO shall ship to Access the Access
II Program Tapes which are no longer scheduled to be Uplinked. Such shipping
shall either be made by shipping arrangements prepaid by Access or shall be
charged to Access. HBO shall only be liable for physical replacement costs of
the Program Tapes, due to damage or other destruction of Customer's tape stock
stored at the tape library. In no event shall HBO be liable for the value as
replacement of any programming material or other information contained on any
Program Tape stored by HBO which may be lost, stolen, damaged or otherwise
destroyed while at the Center. Neither shall HBO be liable for any transfer or
re-editing costs resulting from tapes which may be lost, stolen, damaged or
otherwise destroyed.
(c) HBO will use the same Que Tone information supplied to the Center on
audio channel 2 of the Access I feed which originates from the Access Studio.
The Que Tone information will be fed directly into Access II channel 2 of the
compression system.
ARTICLE 4. CUSTOMER'S OBLIGATIONS
Article Four is hereby amended to add the following provisions:
4.4 Program Tape Delivery. Customer will be responsible for delivering the
Program and commercial Tapes to HBO for Origination at the Center forty-eight
hours before the Air Date.
4.5 Program Log Delivery. Customer will be responsible for providing program
logs, produced in the Beta SP format acceptable to the Cart Machine, to the
Center seventy-two hours before the Air Date.
4.6 Que Tone Information Delivery. Customer will be responsible for delivering
Que Tone information for local avail switching to the Center via Access I
channel 2 audio line.
4.7 Maintenance Services. If HBO performs maintenance services on Customer's
equipment, in order to avoid a disruption in service, the cost of such services
shall be $75.00 per
2
<PAGE>
hour for each technician plus the cost of any replacement parts or equipment
used in such maintenance.
4.8 Emergency Program Tape Delivery. Customer shall provide HBO with an
emergency Program Tape or advise HBO of alternative Program Tapes to play in the
event the Program Tape scheduled to be Uplinked on the Air Date does not arrive
or if such Program Tape fails to function.
4.9 Access II Program Tape Delivery. Customer shall arrange and be responsible
for the delivery to the Center of one master copy of each Program Tape of Access
II programming at least forty-eight hours prior to the Air Date for such
program. Each such tape shall be marked to indicate the title of the program,
the exact length of the show, its I.D. number and the start of program (in drop
frame time code) on which such Program Tape shall be transmitted.
ARTICLE 6. PAYMENTS AND CHARGES
Article Six is hereby amended to add the following provisions:
6.1.3 Access II Origination Charges
For the Origination of Access II, Customer shall pay to HBO, in advance, on
or before the first day of each calendar month, Twelve Thousand Five Hundred
($12,500.00) Dollars per month of each month of the year, commencing July 13,
1995, until January 31, 1998. Such charge shall be increased to Thirteen
Thousand Four Hundred and Thirty Seven Dollars and Fifty Cents ($13,437.50) per
month for each month of the year commencing February 1, 1998 until January 31,
1999 and shall be increased to Fourteen Thousand Three Hundred Seventy Five
Dollars ($ 14,375.00) for each month of the year commencing February 1, 1999 to
January 31, 2000.
6.1.4 Monitoring Services For Access II
Pursuant to Section 6.1.2. of the Agreement, Customer shall pay to HBO, in
advance, on or before the first day of each calendar month, Three Thousand
($3,000.00) Dollars per month for uplink and monitoring services for Access II.
Such charge shall be increased to Thirty Five Hundred ($3,500.00) Dollars per
month for each month of the year February I, 1998 to January 31, 1999, and shall
be increased to Four Thousand ($4,000.00) Dollars per month of each month of the
year February 1, 1999, to January 31, 2000.
6.9 Installation Charges
Pursuant to Section 6.4 of the Agreement, Customer shall pay to HBO an
additional Installation Charge of Two Thousand ($2,000.00) Dollars for Access
II's installation.
3
<PAGE>
6.10 Monitoring Equipment
HBO has purchased monitoring equipment for Access I and Access II. In lieu
of payment for the cost of such monitoring equipment pursuant to Section 3.3,
HBO will charge Customer for such equipment at the rate of $525.25 per month for
forty-eight (48) months, commencing February 1, 1996. Such charge shall be paid
pursuant to Section 6.7 of the Agreement.
6.11 Post Productions Charges
HBO will charge Customer the same rates it charges HBO for any editing,
duplication, screening or any other service needed, to correct or enhance their
program.
6.12 Log Revisions
HBO will use reasonable efforts to make log revisions requested by
Customer. For revisions to any daily program log, there will be a $25.00 charge
for each concurrently made set of revisions to such daily program log.
Except as modified herein, all other terms and conditions of the Agreement
shall remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their duly authorized officers as of the day and year first above
written.
HOME BOX OFFICE, A DIVISION ACCESS TV
OF TIME WARNER ENTERTAINMENT
COMPANY, L.P.
By: /s/ Dominic Serio By: /s/ William Bernard
------------------------------ ------------------------------
Name: Dominic Serio Name: William Bernard
------------------------------ ------------------------------
Title: Sr. V. P. Studio & Broadcast OPS. Title: President
----------------------------- -----------------------------
4
<PAGE>
EX-10.12
[LOGO]
ACCESS
TELEVISION NETWORK
----------------
William R. Cullen
Chairman and Chief Executive Officer
March 15, 1996
Donald Masters
333 Adams Street
Denver, CO 80206
Dear Donald:
Thank you for your letter of March 13 covering the issue of your continued role
in the Company's financing project.
First of all, I appreciate your bringing this matter forward for consideration.
The timing is excellent now that we have decided to proceed with the IPO option
on an accelerated schedule. To that end, I believe that you can continue to make
a significant contribution to our success although, because of our staffing
additions, at an increasingly lesser commitment level than has been required
over the nest year.
Accordingly, if the Board concurs, I am interested in having you follow-up on
those areas identified in your letter (except item 3 which is expected of you as
a Director). Regardless of the number of days involved, I will recommend that
the company pay you a consulting fee in April of $5,000 and reduce it to $3,000
per month for May through July, with the arrangement concluding at that point.
My expectation is that this arrangement will pay for itself tangibly by
minimizing the potential fees to be incurred with Holme Roberts and Owen in
meeting the legal due diligence imposed by the IPO coupled with the intangible
benefit to management of your involvement lessening other administrative
burdens. In particular, it is vitally important that Bill Bernard and Jeri be as
free as possible to pursue MSO affiliations and advertising sales.
----------
2062 Business Center Drive Suite 230 o Irvine, CA 92715
(714) 442-6170 o Fax: (714) 757-1526
<PAGE>
Donald Masters
March 15, 1996
Page Two
As in the past, all income taxes are your responsibility although business
travel expenses will be reimbursed in full provided such expenses have my prior
approval. I am grateful for your past contributions to the Company and look
forward to continuing to work with you during the demanding time ahead. Please
signify our agreement to this consulting arrangement by signing below and
returning a copy for my file.
Sincerely,
/s/ William R. Cullen
William R. Cullen
Chairman and CEO
WRC:sb
Attachment
Agreed and Accepted as of April 1, 1996
/s/ Donald J. Masters
- ----------------------------------------
Donald J. Masters
<PAGE>
Donald Masters
333 Adams Street
Denver, Colorado 80206
(303) 320-1213
Fax. (303) 320-4534
March 13, 1996
Mr. William P. Cullen
Chairman and Chief Executive Officer
Access Television Network, Inc.
2062 Business Center Drive Suite 230
Irvine, CA 92715
Dear Bill:
Some thoughts regarding the forthcoming IPO, a possible transition
regarding my engagement with the company, and some needs that I might reasonably
be able to fill that should provide value to you.
At the outset let me reiterate that it is a professional and personal
pleasure to work with you. I appreciate the loyalty you have shown to me. I
realize that you see a need to change or terminate my business relationship to
the company as Roger Monaco assumes full time responsibility as Vice President
Finance. You have my support and cooperation to make whatever changes you
believe are appropriate.
With that in mind, I believe that I could provide some value to you and the
Company in the following areas:
1. Transition with Roger generally regarding the MSO Transaction,
background, etc.;
2. Explanation of the valuation model;
3. Performance of the functions of Secretary in connection with the normal
business of the company, including liason with HRO;
4. Assistance with the IPO. (As you know, I have a fair amount of
experience in this area both as Secretary to United Cable and as a lawyer. While
I do not practice law, I have not surrendered my experience.)
a) In general, I believe that I can assist you or others simply in
handling the intensity of the work load, document and drafting review, etc.
My principal need here is to coordinate my schedule with what is becoming
an increasing involvement in Recovery Network.
<PAGE>
b) Document organization and review. As you know, at the closing of
the IPO we will be required to deliver a certificate regarding the accuracy
and completeness of the disclosure and of the listing of material
agreements. Because of our and the board's exposure on this issue it is a
good idea to be thorough. I should spend some time therefore and with the
due diligence lawyers, organizing this information and reviewing it for
completeness.
c) Assistance with the MSO transaction, if appropriate.
d) Other Yeoman service.
I hope this is of some help. I look forward to your call.
Best Regards,
/s/ Donald Masters
<PAGE>
EXHIBIT 10.13
ACCESS TELEVISION NETWORK, INC. AFFILIATION AGREEMENT
This Agreement made this day of ________________, 199_, by and between
_________________ ____________________________________, a
______________________________, with its principal place of business at
____________________________ (hereinafter referred to as "Affiliate") and
Access Television Network, Inc., a Delaware corporation, with its principal
place of business at 2062 Business Center Drive Irvine, CA 92715 (hereinafter
referred to as "Access").
In consideration of the mutual and several covenants set forth in this
Agreement, the parties hereby agree to the following:
ARTICLE 1 DEFINITIONS
As used herein, the following terms shall have the respective meanings stated
below.
1.01 Program Exhibition Inventory. Specifically identifiable times made
available on the Cable System for the local insertion and distribution of Paid
Programming.
1.02 Affiliate. The entity that directly or indirectly owns or controls
Cable System(s) that utilize Access as its national advertising sales
representative for Program Exhibition Inventory.
1.03 Affiliate Cable Svstem(s). Those Cable Systems listed on Exhibit "A"
or hereafter designated by Affiliate to receive the services of Access pursuant
to the terms and conditions of this Affiliate Agreement.
1.04 Affiliate Distributions. Payments made to Affiliate Cable System(s)
based on a percentage of Net Advertising Revenues generated by Access on behalf
of Affiliate.
1.05 Cable System. An entity carrying Programming Services for which
Program Exhibition Inventory has been made available for sale; a Cable System
may consist of more than one franchise and more than one headend, and is usually
characterized as a business which serves a geographical area under common
management and which sets its own rates for services.
1.06 Paid Programming. Paid commercial messages of more than two minutes in
length, of revenue or non-revenue generating nature.
1.07 Net Advertising Revenues. Monies collected and/or received by Access
either from sponsor's advertising agency of record or directly from the
advertiser.
1.08 Programming Service. Video programming carried by the Cable System
under a common network theme, identity, or channel number which includes time
periods designated for sales as Paid Programming.
1.09 Subscriber/Subscribership. For the purposes of this definition, the
number of subscribers at any time shall equal the number of active separate
billing addresses (excluding commercial accounts) shown at the close of business
on such day in the billing records for the tiers of service on the Cable System
that include the channel on which the Paid Programming is carried.
1
<PAGE>
ARTICLE 2 NATURE OF AFFILIATION
2.01 Purpose. The purpose of this Affiliation is to authorize Access to act
as an exclusive national Program Exhibition Inventory sales representative for
Affiliate Cable System, to aggregate Program Exhibition Inventory on a number of
Cable Systems for simultaneous sale to national advertisers, and to deliver
national Paid Programming to the Affiliate Cable Systems in a timely and
professional manner.
2.02 Term of the Affiliation. This Affiliation Agreement shall begin as of
the date first written above, and shall continue for five (5) years unless
otherwise terminated as provided herein.
ARTICLE 3 AFFILIATE RESPONSIBILITIES
3.01 Assignment of Program Exhibition Inventory.
(a) Affiliate hereby assigns to Access the Program Exhibition
Inventory as designated by Affiliate and Access from time to time,
throughout all dayparts for those Programming Services now or hereafter
carried during the term of this Agreement on the Affiliate Cable System(s).
(b) Affiliate maintains the right to accept or reject any orders for
Program Exhibition Time on the basis of availability of time, rates or
content of the Paid Programming to be provided by Access. Affiliate shall
cause the Affiliate Cable Systems to run such Paid Programming as Affiliate
agrees.
(c) Nothing in this Agreement shall preclude Affiliate from entering
into an agreement with Access for the purpose of selling additional Program
Exhibition Inventory.
3.02 Equipment Requirements. Within sixty (60) days of executing this
Affiliation Agreement, each Cable System shall provide such assistance as it
deems reasonably necessary and appropriate for the installation of the Access
equipment in the Cable System's headend(s) which equipment is listed in Exhibit
"B" (the "Equipment") of this Affiliation Agreement, and shall be responsible
for transporting the signal or video tape delivered by Access to the Equipment,
or shall provide for the proper carriage of Paid Programming provided by Access
according to the agreed days, times, and schedules set by Affiliate.
3.03 Installation. Access will be responsible installation of the Equipment
which shall be completed by ____________, 19_. Affiliate will fully cooperate
with Access in completing such installation. Prior to installation, Access will
provide Affiliate with schematic designs and such other assistance as is
appropriate for Affiliate to prepare the Cable System for installation of the
Equipment.
3.04 Ownership of Equipment. The Equipment will remain in all respects the
property of Access.
3.05 Technical or Other Difficulties. If, at any time during the term of
this Agreement, the signal transmitted by the Equipment is of significantly
lower quality than that transmitted on other channels of the Cable System, or if
the Equipment causes any technical difficulty in the transmission of programming
over such other channels or otherwise interferes with the normal operation of
the Cable System, the Affiliate will immediately notify Access and may
disconnect the Equipment. Upon such notification, Access shall take reasonable
steps to correct the problem and continue. If the equipment appears in any other
way not to function as designed, the Affiliate shall promptly notify Access.
2
<PAGE>
3.06 Access to Equipment. Throughout the term of this Agreement, Access
will have access to the Equipment at reasonable times and on reasonable notice
to Affiliate for such maintenance and inspection of the Equipment as Affiliate
deems necessary. Affiliate agrees to provide such reasonable assistance as
necessary to insure that the Equipment utilized for the playback of Paid
Programming is operating so that a quality audio and video signal is maintained
similar to the quality of the audio and video signal of the Programming Service.
3.07 Confidentiality
(a) Affiliate agrees not to use such technology or know-how except as
required under this Agreement and not to duplicate or disclose to others
any such technology or know-how (including all schematic diagrams and other
information).
(b) Access agrees that it shall not disclose or use any information
regarding Affiliate's business or operations including, without limitation,
engineering, marketing, construction, subscriber and operational
information and business plans.
(c) Nothing in this section shall prevent disclosure by Access or
Affiliate of information that (i) at the time of such disclosure was
generally available to others in the trade, (ii) was in its possession in
written or other tangible form before being disclosed to it by the other
party or (iii) becomes available to it on a nonconfidential basis from a
third party that is not breaching any obligation of confidentiality to the
other party. Each party will cause its direct or indirect parents,
subsidiaries, affiliates, employees agents and assigns to comply with this
Section 3.07.
3.08 Affiliate Representations and Warranties. Affiliate represents and
warrants that it is authorized to conduct business in the locations where its
Affiliate Cable Systems are providing cable television services. It has in good
standing, all necessary authorizations, franchises, permits and licenses of
Federal, State and local authorities to conduct their businesses and has taken
all necessary corporate or other action to authorize the execution and delivery
of the Programming Services subject to this Agreement. Affiliate is duly
authorized to bind Affiliate hereto, the Agreement is a valid and binding
obligation of Affiliate, enforceable in accordance with its terms, and Affiliate
has sufficient legal and practical control over the Affiliate Cable Systems to
cause them to provide Program Exhibition Inventory for sale by Access as
contemplated by the Agreement.
ARTICLE 4 ACCESS RESPONSIBILITIES
4.01 Sale of Program Exhibition Inventory. Access shall use its best
efforts to sell the Program Exhibition Inventory made available by the Affiliate
Cable System(s) pursuant to this Agreement, but its failure to sell any such
Program Exhibition Inventory shall not be a breach of this agreement.
4.02 Delivery of Paid Programming. Access shall transmit or provide to
Affiliate Cable System(s) Paid Programming in a professional and timely manner.
4.03 Billing and Collection. Access shall assume all responsibilities for
billing and shall make commercially reasonable efforts to collect for Paid
Programming sold by Access.
4.04 Monthly Revenue Statements. Access shall prepare for and deliver to
Affiliate a monthly revenue statement setting forth the amount of Program
Exhibition Inventory billed during the previous month. Such statement shall be
mailed to Affiliate within fifteen (15) days of the end of the broadcast month.
3
<PAGE>
4.05 Access Representations and Warranties.
(a) Access represents and warrants that the Paid Programming provided by it
to the Affiliate Cable System will not contain any material which is obscene,
indecent, defamatory or which violates or infringes any property right, any
copyright, right of privacy or publicity or literary or dramatic right of any
person, provided, however, that such representations and warranties by Access or
only as broad as and are only coextensive with those provided to Access by
Access's advertising clients.
(b) Access represents and warrants that it is duly organized and authorized
to conduct its business as described in this Agreement. It has, in good
standing, all necessary authorizations, permits and licenses of Federal, State
and local authorities to conduct its business and has taken all necessary
corporate or other action to authorize the execution and delivery of this
Agreement. This Agreement is a valid and binding obligation of Access,
enforceable against Access in accordance with its terms.
4.06 Advertising Standards.
(a) Access shall establish standards for Paid Programming cable cast
by affiliate Cable System(s) as a result of this Affiliation Agreement,
including standards for prior screening and product verification; Access
may refuse carriage of any advertisement which, in the sole opinion of
Access, is knowingly deceptive or features products which are offensive,
obscene or of questionable taste, although Access shall not be responsible
for eliminating any such advertisement.
(b) Access shall not bind or obligate Affiliate with respect to the
terms and conditions of any sale of Paid Programming to which the Affiliate
shall have given Access prior written notice of its objection. In addition,
Affiliate retains the right to object and refuse to cable cast a Paid
Program if in Affiliate's opinion, the Paid Programming would not conform
to Affiliate's programming standards and policies in connection with
Program Exhibition Inventory or the technical quality of a particular Paid
Program.
4.07 Establishment of Rates. Access, through its General Manager, shall
establish rates for the aggregated Program Exhibition Inventory sold to national
advertisers pursuant to this Agreement at rates competitive to other advertising
media in the same geographical markets. Nothing herein is intended to address or
affect the sale of or rates for Program Exhibition Inventory for local insertion
on Affiliate Cable System(s) sold by Affiliate outside the scope of this
Agreement.
4.08 Sales Agreements. All Agreements of arrangements made by Access for
the sale of Program Exhibition Inventory to clients (the "Sales Agreements")
shall be in writing and shall contain provisions stating the following:
(a) Client shall represent to Access and to Affiliate as a third party
beneficiary, that all required consents of third parties have been obtained
with respect to any Paid Programming covered by the Sales Agreements and
that cable casting of the Paid Programming will not infringe any common law
or statutory copyright, right of privacy, trade name, dramatic right,
motion picture right, literary right, music performance right, music
synchronization right or any other right of any person or entity, and that
the Paid Programming will not contain any libelous, slanderous, defamatory
or otherwise objectionable material including without limitation, any
material that would constitute illegal competition or violation of a trade
practice.
(b) Client shall indemnify and hold harmless Access and Affiliate, its
agents employees and affiliates, as third party beneficiaries, from and
against any and all damages, claims, costs and expenses (including
reasonable attorneys' fees) that may occur by reason of Client's breach of
the Sales Agreement or the violation of the protected rights of any third
party, or in any other way arising out of the cable casting of the Paid
Programming (including the violation of any law, rule or regulation). The
Sales Agreement shall provide that this provision shall survive the
termination of the Sales Agreement.
4
<PAGE>
(c) Affiliate shall not be liable to Client for any failure to cable
cast any Paid Programming, whether because of the breakdown of the System
or for any other reason. The Sales Agreement shall provide that Client's
only remedy upon any failure of Affiliate to cable cast a Paid Program
shall be (i) the broadcast of the Paid Programming at another time or (ii)
a credit in the amount of the original purchase price of the Program
Exhibition Inventory. While Affiliate shall use reasonable care, it shall
assume no risk and makes no guarantee, express or implied, regarding the
safety of tapes or other materials in Affiliate's possession. In the event
of loss or damage of such tapes or materials, Affiliate's liability shall
be limited to the replacement cost of unrecorded tape or unexposed film
stock.
(d) Affiliate shall have the right to review all Paid Programming and
may refuse to cable cast any Paid Programming for any reason in its sole
discretion.
ARTICLE 5 FINANCIAL
5.01 Affiliate Distributions. (a) For each month in which Paid Programs run
on an Affiliate Cable System, Access shall pay to Affiliate an amount equal to
the following percentages of the Net Advertising Revenue attributable to the
Affiliate Cable System for such month. Such payments shall be made within 15
days of the end of the month in which the Paid Programming was run on Affiliate
Cable System, based on the following schedule. The guarantee amount will be
determined by multiplying the amounts in this schedule by the number of
Subscribers to the Affiliate Cable System for each month in which Paid Programs
are run on Affiliate Cable System.
Annual
Guarantee
Daypart Contribution Commissions
------- ------------ -----------
12a - 3a $0.1472 55%
3a - 6a $0.0404 40%
6a - 9a $0.1299 50%
9a - 12p $0.2021 60%
12p - 3p $0.2309 65%
3p - 6p $0.2497 65%
6p - 9p $0.2309 65%
9p - 12a $0.2021 60%
(b) At the end of each year, Access Shall pay Affiliate an amount, if any,
equal to (i) 100% of the annual guarantee amount computed pursuant to Section
5.01 (a) for each of the preceding twelve months in which Paid Programs ran,
less (ii) the sum of all payments made pursuant to Section 5.01 (a) with respect
to such preceding twelve months. Such payments shall be made no later than
January 15 or each year for the preceding twelve month period ending December
31.
(c) Affiliation Agreements between all Affiliates and Access shall be
substantially identical with respect to all material terms and conditions. If
Access enters into any Affiliation Agreement with any cable operation which has
fewer Subscribers than Affiliate, under which such other cable operation
receives material terms and conditions which are more favorable than those
specified in this Agreement, Access shall promptly notify Affiliate of such
other Affiliation Agreement and Affiliate shall be entitled to such terms and
conditions for so long as such terms and conditions are given to other such
cable operator or until the end of the term, whichever is earlier, provided that
Affiliate agrees to be bound by all the terms of the other Affiliate Agreement
throughout the term.
5
<PAGE>
5.02 Commissions on Outbound Sales. Access shall pay to Affiliate an amount
equal to 20% of the net advertising revenue collected by Access with respect to
Paid Programs run on Affiliate Cable Systems of Access for which the Affiliate's
local sales staff generated the sale. Payments pursuant to this Section 5.02
shall be made no later than the 15th day of the month following the receipt of
the revenue for such Paid Programs.
5.03 Local Programming Insertion. Access shall provide to the Affiliate no
less than 15% of the program hours allocated by the Affiliate to Access for the
insertion of local paid programming into Access' local feed. Affiliate shall be
entitled to collect and retain all of the advertising revenues generated by such
inserted local programming and release Access from any and all liability with
respect to any such local programs run by Affiliate.
5.04 Limitations of Financial Liabilities. Access shall not be liable for,
and Affiliate shall pay and forever hold Access harmless from any and all sales,
use, excise, income, franchise, corporate or similar tax (including without
limitation, any fees payable to local or state franchising authorities) and any
other charges which are or may be imposed or assessed against the Affiliate
Cable System(s) or which are based upon or measured by Affiliate pursuant to
this agreement (including, without limitation, any fees payable to local or
state franchising authorities).
ARTICLE 6 MISCELLANEOUS
6.01 Notices. All notices provided for in the agreement shall be in
writing, sent by registered or certified mail, by overnight express, or personal
delivery, postage prepaid, to Access and Affiliate at the addresses set forth at
the beginning of this Agreement, unless otherwise notified in writing.
6.02 Right to Amend Agreement. This Agreement may be amended or added to at
any time only with the written consent of both parties.
6.03 Governing Law. This Agreement shall be governed by and interpreted in
accordance with the laws of the State of California.
6.04 Agreement Binding on Successors. This Agreement shall be binding on
and inure to the benefit of the respective successors and assigns of the
parties, except to the extent of any contrary provision in this Agreement.
6.05 Indemnification.
(a) Each party hereto shall indemnify and forever hold harmless the
other, its successors and assigns, for, from and against any claim, loss or
damage, cost or expense (including without limitation, reasonable
attorney's fees), resulting from any misrepresentation made by each or any
breach or alleged breach by it of any representation or warranty or any
other provision of this Agreement.
(b) In any case in which indemnification is being sought hereunder,
the Party seeking indemnification shall afford the Indemnifying Party the
opportunity of controlling the litigation, settlement or other disposition
of such claim. The Indemnified Party shall fully cooperate with the
Indemnifying Party in connection with such litigation, settlement or other
disposition.
6
<PAGE>
6.06 Attomey's Fees. Should any litigation or arbitration be commenced
between or among the parties hereto or their representatives concerning any
provision of this Agreement or the rights and duties of any person or entity in
relation thereto, the party or parties prevailing in such litigation or
arbitration shall be entitled, in addition to such other relief as may be
granted, to such reasonable sums as have actually been paid as and for their or
its attorney's fees, costs of suit, witness fees and other costs, disbursements
and expenses reasonably incurred in preparation of litigation or arbitration
which shall be determined by the court in such litigation or arbitration in such
arbitration or in a separate action brought for that purpose.
6.07 Force Majeure. No party to this Agreement shall have any claims
against the other for failure to provide or exhibit any Paid Program provided
such failure is a result of Acts of God or such other unforeseeable
occurrence(s) and/or outside the control of Access or the Affiliate and provided
further that if such an event should occur, the party experiencing the failure
shall immediately notify the other party and shall take corrective action at the
first opportunity.
6.08 Relationship Between Parties. This is an Agreement for exclusive
representation for the sale of Program Exhibition Inventory. No provision or
provisions of the Agreement expressed or implied shall be construed to create a
legal partnership, joint venture, or other business entity among the parties
hereto. For the purposes herein, Access shall be treated as a corporation,
Affiliate agrees that it shall have its sole recourse against Access as an
entity, and not against Access's individual partners or their respective assets
either jointly or severally.
6.09 Termination.
(a) If either party hereto should file a petition for bankruptcy, or
shall become insolvent, reorganized, or make any assignment for the benefit
of creditors, or make any arrangement to be subject to any other proceeding
under the bankruptcy laws of the United States, or the bankruptcy or
insolvency laws of any state, then the other party shall, at its option,
have the right to terminate this Agreement upon thirty (30) days' written
notice and the other party's obligation hereunder shall cease thirty (30)
days from the date of such notice. In the event of a material breach of
this Agreement, by either party, the other party shall have the right upon
ten (10) days' written notice, to terminate this Agreement and all
obligations hereunder shall cease ten (10) days after the date of such
notice, other than Access's obligation to pay and provide access to books
and records. If at any time the revenues from this Agreement are not up to
Affiliate's reasonable expectations, Affiliate can terminate this Agreement
upon ninety (90) days' written notice and the other parties' obligations
hereunder shall cease other than the obligation to pay and provide access
to books and records
(b) Either party shall be entitled to terminate this Agreement with or
without cause upon 30 days written notice to the other at the address(s)
contained herein.
6.10 Most Favored Nation. Affiliation Agreements between all Affiliates and
Access shall be substantially identical with respect to all material terms and
conditions. If Access enters into any Affiliation Agreement with any cable
operator which has fewer Subscribers than Affiliate, under which such other
cable operator receives material terms and conditions which are more favorable
than those specified in this Agreement, Access shall promptly notify Affiliate
of such other Affiliation Agreement and Affiliate shall be entitled to such
terms and conditions for so long as such terms and conditions are given to other
such cable operator or until the end of the terms, whichever is earlier,
provided that Affiliate agrees to be bound by all the terms of the other
Affiliate Agreement throughout the term.
6.11 Entire Agreement. This instrument contains the entire agreement of the
parties relating to the rights granted and obligations assumed in this
instrument, and supersedes any and all prior Affiliation or other Agreements
between the parties on the subject matter. Any oral representations or
modifications concerning this instrument shall be of no force or effect unless
contained in a subsequent written modification signed by the parties hereto.
7
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Amendment to the Affiliation
Agreement on the date first stated above.
ACCESS TELEVISION NETWORK, INC.
By:
----------------------------------
William H. Bernard, President
AFFILIATE
--------------------------------------
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
8
<PAGE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
report (and to all references to our Firm) included in or made a part of this
registration statement.
ARTHUR ANDERSEN LLP
Orange Country, California
September 19, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> MAR-31-1996 MAR-31-1995
<PERIOD-END> MAR-31-1996 MAR-31-1995
<CASH> 1,462,479 1,964,316
<SECURITIES> 0 0
<RECEIVABLES> 31,799 88,031
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 1,510,290 2,115,270
<PP&E> 13,006,046 12,483,233
<DEPRECIATION> 2,131,380 1,092,577
<TOTAL-ASSETS> 12,880,540 13,650,926
<CURRENT-LIABILITIES> 2,312,876 1,972,408
<BONDS> 9,784,881<F3> 10,203,020
0 0
10 10
<COMMON> 26,171 23,210
<OTHER-SE> (9,325,177) (6,176,463)
<TOTAL-LIABILITY-AND-EQUITY> 12,880,540 13,650,926
<SALES> 0 0
<TOTAL-REVENUES> 7,594,636<F1> 3,238,262
<CGS> 0 0
<TOTAL-COSTS> 9,539,095 8,445,677
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 1,198,182<F2> 283,832
<INCOME-PRETAX> (3,142,641) (5,491,247)
<INCOME-TAX> 800 800
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (3,143,441) (5,492,047)
<EPS-PRIMARY> (1.21) (2.91)
<EPS-DILUTED> (1.21) (2.91)
<FN>
<F1>NET REVENUES
<F2>INTEREST EXPENSE, NET
<F3>CAPITAL LEASE OBLIGATION, NET OF CURRENT PORTION.
</FN>
</TABLE>
