EXHIBIT 10.9
TVN ENTERTAINMENT CORPORATION
EMPLOYMENT AGREEMENT
This Agreement is made by and between TVN Entertainment Corporation (the
"Company"), and Xxx Xxxx ("Executive").
1. Duties and Scope of Employment.
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(a) Position; Employment Commencement Date. The Company shall employ
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Executive as the Chief Operating Officer ("COO") and President of the Company
reporting to the Chief Executive Officer of the Company ("CEO"); provided,
however, that the Board of Directors of the Company (the "Board") shall have the
right to revise employee's duties, consistent with such positions, from time to
time as the Board may deem necessary or appropriate; provided further, however,
that in no event shall Executive report to anyone other than the CEO of the
Company. Executive's employment by the Company pursuant to this Agreement shall
commence on September 15, 1997. Executive will be elected as a member of the
Board of Directors at its first meeting after such commencement date.
(b) Obligations. In his capacity as COO, Executive's duties shall
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consist of those usually attendant to that office, including oversight, planning
and management of day-to-day operations of the Company, all under the direction
and control of the CEO and the Board. Executive shall devote his full business
efforts and time to the Company's business during the term of employment
described in Section 3 below. Executive agrees not to actively engage in any
other employment, occupation or consulting activity for any direct or indirect
remuneration, without the prior approval of the CEO and the Board; provided,
however, that Executive may serve any civic, educational or charitable
organization without the approval of the Board, so long as such activities do
not interfere with the full-time performance of his duties and obligations under
this Agreement.
2. Employee Benefits. During his employment hereunder, Executive shall
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be eligible to participate in the employee benefit plans maintained by the
Company to the full extent provided for under those plans for employees of
similar status except as otherwise specifically provided for herein.
3. Term of Employment. Executive's term of employment hereunder shall be
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for the period commencing on September 15, 1997 and, subject to the terms
hereof, terminating on the third anniversary of such date (the "Initial Term"),
and the Company shall have the option (but not the obligation) to renew and
extend Executive's term of employment under this Agreement for one (1) two-year
period on the terms and subject to the conditions hereof (the "Option Period"),
such Option Period to be exercised by the Company upon written notice to
Executive no later than 90 days prior to the expiration of the Initial Term.
Notwithstanding the foregoing, however, the Company may not exercise the Option
Period unless Princes Gate Investors II, L.P. exercises its option to increase
its aggregate investment to at least $30 million, and the Company completes its
initial public offering of Common Stock prior to the expiration of the Initial
Term.
4. Compensation, Fringe Benefits and Stock Options.
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(a) Base Salary. While employed by the Company pursuant to this
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Agreement, the Company shall pay the Executive as compensation for his services
a base salary ("Base Salary") at the annualized rate of $450,000 for the period
September 15, 1997 through September 14, 1998, $475,000 for the period September
15, 1998 through September 14, 1999, $500,000 for the period September 15, 1999
through September 14, 2000, and such amount as the CEO shall recommend and the
Board shall approve for the Option Period (if the option shall be exercised by
the Company); provided, however, that Executive's Base Salary for each year
during the Option Period shall be not less than 110% of Executive's Base Salary
for the immediately preceding year of his employment. Such salary shall be
paid periodically in accordance with normal Company payroll practices and
subject to the usual, required withholding. Executive's salary shall be reviewed
yearly for possible raises and/or bonuses in light of Executive's performance of
his duties, as recommended by the CEO and determined by the Board. Executive
understands and agrees that neither his job performance nor promotions,
commendations, bonuses or the like from the Company shall give rise to or in any
way serve as the basis for modification, amendment, or extension, by implication
or otherwise, of this Agreement.
(b) Stock Options.
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(i) Initial Grant. Executive shall be granted a stock
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option, which shall be, to the extent possible under the $100,000 rule of
Section 422(d) of the Internal Revenue Code of 1986, as amended (the "Code"), an
"incentive stock option" (as defined in Section 422 of the Code) to purchase a
total of 263,316 shares of Company Common Stock with a per share exercise price
equal to 100% of the fair market value of such stock on the date of grant ($0.75
per share). This option shall be for a term of ten (10) years (or shorter upon
termination of employment with the Company) and shall vest at the rate of 20% of
the shares originally subject to the option one year from the date of employment
and one-sixtieth (1/60th) of the shares originally subject to the option each
month thereafter, conditioned upon Executive's continued employment with the
Company as of each vesting date. This option grant is in all respects subject to
the terms, definitions and provisions of the Company's Stock Option Plan (the
"Option Plan") and the stock option agreement by and between Executive and the
Company (the "Option Agreement"), both of which documents are incorporated
herein by reference.
(ii) Award Grant. Executive shall also be granted a second
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stock option, which shall be, to the extent possible under the $100,000 rule of
Section 422(d) of the Code and after taking into account the Option Agreement in
Section 4(b)(i) above, an "incentive stock option" (as defined in Section 422 of
the Code) to purchase a total of 336,459 shares of Company Common Stock with a
per share exercise price equal to 100% of the fair market value of such stock on
the date of grant ($0.75 per share). This option shall be for a term of ten (10)
years (or shorter upon termination of employment with the Company) and shall
vest in full on the expiration of the Initial Term, conditional upon the
Executive's continued employment with the Company as of such vesting date. This
option grant is in
all respects subject to the terms, definitions and provisions of the Company's
Option Plan and the stock option agreement by and between Executive and the
Company (the "Award Agreement"), both of which documents are incorporated herein
by reference.
(c) Incentive Bonus. Executive shall be eligible, with respect to the
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1998-2000 fiscal years of the Company, for an annual incentive bonus of
$250,000. This bonus will be payable if revenue received from the Company's
Digital Cable Television business meets the plan approved by the Board of
Directors for DCTV revenues for that fiscal year. If such revenue does not meet
plan, Executive shall instead receive a minimum annual bonus of $125,000. If
such revenue exceeds the plan for the fiscal year, the bonus may be increased
above $250,000 as is determined by the Board of Directors. Notwithstanding the
foregoing, however, the bonus amount will be $250,000 for the fiscal year ending
March 31, 1998, regardless of whether revenue meets the plan and despite the
fact that Executive was not employed by the Company for the full fiscal year.
To be eligible to receive the bonus, Executive must be employed by the Company
through the last day of each such fiscal year. This bonus, to the extent
payable, shall be paid to Executive within ninety days of the end of each such
fiscal year. With respect to the bonus for fiscal year 1998, such payment shall
be made by June 29, 1998. The bonus and the related performance criteria for
each year of the Option Period will be mutually determined by the Company and
Executive but in no event shall the minimum annual bonus be less than $250,000.
Subsequent bonus milestones for Executive shall be established by the Board
following good faith consultation with the Executive.
(d) Signing Bonus. Upon commencement of Executive's employment with
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the Company he shall receive a one-time bonus payment of $500,000.
(e) Life Insurance. In addition to being covered under the Company's
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group health and dental plans, the Company will obtain and pay premiums for,
during the term of Executive's employment hereunder, term life insurance for
Executive in the amount of $3,000,000 payable to the beneficiary designated by
Executive. Executive shall be fully "grossed-up"by the Company for this benefit
so that the economic effect to Executive is the same as if this benefit was
provided to Executive on a non-taxable basis. Executive also understands and
agrees that the Company may obtain additional term life insurance on Executive
payable to the Company and agrees to cooperate with the Company with respect to
the medical examinations required to obtain such policies.
(f) Vacation and Auto Allowance. Executive shall be entitled to paid
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vacation of four weeks per year in accordance with the Company's vacation
policy, and to an automobile allowance of $1,000 per month, provided that the
cost of maintaining and insuring such auto and all other costs relating thereto
shall be borne by Executive.
(g) Fringe Benefits. Executive shall be entitled to such employee
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perquisites and other fringe benefits as are typically made available to senior
management employees of enterprises in the entertainment business, including but
not limited to first class travel on Company business.
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5. Severance Benefits. If the Company terminates Executive's employment
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involuntarily without "Cause" (as defined herein), then (i) Executive shall be
entitled to receive continuing payments of severance pay (less applicable
withholding taxes) at a rate equal to his base salary rate, as then in effect
(but not less than $450,000 per year) for the remainder of the Initial Term, but
in no event to exceed a maximum of two years from the date of such termination,
(ii) Executive shall receive the minimum annual bonus of $125,000 for the fiscal
year in which such termination occurs notwithstanding the fact that Executive
was not employed through the last day of such year, and (iii) Executive's Award
Agreement set forth in Section 4(b)(ii) hereof shall become 100% vested. For
this purpose, "Cause" is defined as (i) an act of dishonesty made by Executive
in connection with Executive's responsibilities as an employee and intended to
result in Executive's substantial personal enrichment, (ii) Executive's
conviction of a felony, (iii) a willful act by Executive which constitutes gross
misconduct and which results in material injury to the Company, or (iv)
Executive's continued substantial violations of his employment duties which are
demonstrably willful and deliberate on Executive's part after Executive has
received one or more written demands for performance from the Company which
specifically sets forth the factual basis for the Company's claim that Executive
has not substantially performed his duties, and Executive has had a reasonable
time period in which to cure such defaults to the reasonable satisfaction of the
Board of Directors. Termination of Executive for Cause under this Section shall
be effective only upon delivery to Executive of a copy of a resolution duly
adopted by the Board at a Board meeting duly called and held finding that
Executive was guilty of the conduct set forth in any of clauses (i) through(iv)
above and specifying the particulars thereof, and that in the case of (iv) above
Executive has not timely cured such defaults.
6. Total Disability of Executive. Upon Executive's becoming totally
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disabled during the term of this Agreement, employment hereunder shall
automatically terminate and Executive shall receive post-termination disability
payments equal to six (6) months of continuation of Base Salary, and Executive's
Award Agreement set forth in Section 4(b)(ii) hereof shall become 100% vested.
Executive shall be deemed to have suffered a "Total Disability" ninety (90) days
following written notice by the Company to Executive of a determination by an
independent physician acceptable to the Board and Executive (which acceptance
will not be unreasonably withheld) that Executive's disability is such that he
cannot render services as provided for hereunder; provided, however, that if
Executive resumes work on a regular basis prior to the end of such 90 day
period, Executive shall not be deemed to have suffered a "Total Disability."
7. Partial Disability of Executive. If, during the term of this
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Agreement, Executive becomes disabled by reason of illness or other incapacity
extending for a period of more than three (3) consecutive months during which
Executive is unable to perform his duties hereunder on a full-time basis (as
determined by an independent physician acceptable to both Executive and the
Board), but is able to perform his duties hereunder on a part-time basis
("Partial Disability"), all salary amounts otherwise payable and option shares
otherwise vesting to Executive hereunder shall be proportionately reduced with
respect to amounts paid or shares vested subsequent to the end of said three (3)
month period in relation to Executive's reduced level of performance.
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8. Death of Executive. If Executive dies during the term of this
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Agreement, this Agreement shall terminate immediately; provided, however, that
in such event, Executive's Award Agreement set forth in Section 4(b)(ii) hereof
shall become 100% vested; and provided further, that in such event, Executive's
spouse, if living, shall receive six (6) months of continued Base Salary
payments hereunder.
9. Change of Control. In the event of a change of control of the
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Company, followed within twelve (12) months thereafter by the involuntary
termination of Executive's employment with the Company or its successor entity
without Cause, Executive's Award Agreement set forth in Section 4(b)(ii) hereof
shall become 100% vested. For this purpose, "change of control of the Company"
is defined as:
(a) A person other than the current CEO becomes or is appointed
as the Chief Executive Officer of the Company, or any "person" (as such term is
used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as
amended) is or becomes the "beneficial owner" (as defined in Rule 13d-3 under
said Act), directly or indirectly, of securities of the Company representing 40%
or more of the total voting power represented by the Company's then outstanding
voting securities; or
(b) A change in the composition of the Board of Directors of the
Company occurring within a two-year period, as a result of which fewer than a
majority of the directors are Incumbent Directors. "Incumbent Directors" shall
mean directors who either (A) are directors of the Company as of the date
hereof, or (B) are elected, or nominated for election, to the Board of Directors
of the Company with the affirmative votes of at least a majority of the
Incumbent Directors at the time of such election or nomination (but shall not
include an individual whose election or nomination is in connection with an
actual or threatened proxy contest relating to the election of directors to the
Company); or
(c) The date of the consummation of a merger or consolidation of
the Company with any other corporation that has been approved by the
stockholders of the Company, other than a merger or consolidation which would
result in the voting securities of the Company outstanding immediately prior
thereto continuing to represent (either by remaining outstanding or by being
converted into voting securities of the surviving entity) at least fifty percent
(50%) of the total voting power represented by the voting securities of the
Company or such surviving entity outstanding immediately after such merger or
consolidation, or the stockholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or disposition by the
Company of all or substantially all the Company's assets.
10. Put Right.
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(a) It is the intention of the Company and Executive that
Executive realize at least $2,300,000 in gain from the Award Agreement by the
expiration of the Initial Term under this
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Agreement. To that end, under the conditions set forth below, the Company grants
the Executive the right upon the expiration of the Initial Term to put the Award
Agreement back to the Company for cancellation the right to purchase up to all
of the 336,459 shares of the Company's Common Stock thereunder (the "Put
Right"), in return for the cash payment by the Company to the Executive of up to
$2,300,000.
(b) This Put Right may only be exercised by Executive if by the
last day of the Initial Term he has not voluntarily terminated his employment
with the Company or been terminated involuntarily by the Company for Cause. The
Put Right may be exercised by Executive even though he is no longer employed
full time by the Company on the last day of the Initial Term, termination of his
employment was due to death or Total Disability, where the level of his
performance has been reduced due to Partial Disability or where his employment
was involuntarily terminated by the Company without Cause.
(c) The Put Right must be exercised by Executive within thirty
(30) days following the end of the Initial Term upon written notice to the
Company, and may be exercised in whole or in part. Notwithstanding the
foregoing, however, if the Company exercises the Option Period, the Put Right
must be exercised within thirty (30) days following the end of the Option
Period. In the event of a partial exercise for less than the full $2,300,000,
the right to purchase a proportionate number of shares under the Award Agreement
shall be canceled, taking first for such purpose all vested shares before
canceling the right with respect to any unvested shares.
(d) Notwithstanding the foregoing, the Put Right may not be
exercised by Executive if by the last day of the Initial Term one of the
following events has occurred (a "Liquidity Event"):
(i) an acquisition of all of the outstanding shares of the
Company at a per share valuation of at least $7.59, payable in cash or
marketable securities;
(ii) an initial public offering by the Company with an
initial public offering price of at least $7.59 per share, or
(iii) a private resale transaction arranged by the Company,
in which the Executive is offered the opportunity to sell at least 336,459
shares of Common Stock of the Company for at least $7.59 per share in cash,
whether or not Executive elects to participate in such transaction.
(e) As security for the Company's obligations under this Section
10, the Company will place the amount of $1,800,000 in an interest bearing
escrow account with Xxxxx Fargo Bank. The parties' joint escrow instructions
will provide that such funds together with all interest accrued thereon may only
be released to Executive upon an exercise of the Put Right, or released to the
Company upon the voluntary termination of employment by Executive, involuntary
termination
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of Executive's employment for Cause, a Liquidity Event or expiration of the Put
Right without exercise by Executive. Notwithstanding the foregoing, however, in
the event Executive is exposed to an other than de minimis amount of alternative
minimum tax during the escrow period due to the exercise of either the Initial
Grant or the Award Grant, Executive and the Company will mutually agree on the
terms of a loan to Executive out of the escrowed funds to offset the cash flow
impact to Executive of the alternative minimum tax.
11. Registration Rights. If at any time prior to the expiration of the
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Initial Term, (i) the Company effects an initial public offering of shares of
its Common Stock pursuant to a registration statement declared effective with
the Securities and Exchange Commission, and Xxxxxx X. Xxxxx is permitted to
include shares of Common Stock of the Company that he owns in such offering for
sale to the public, or (ii) Xxxxxx X. Xxxxx is afforded the opportunity to sell
shares of Common Stock of the Company in a private resale transaction, Executive
shall be permitted to include a proportional number of his vested shares for
sale therein, pro rata based on the aggregate number of shares either owned or
subject to option by each individual whether or not vested.
12. Enforcement. Any disputes between the parties under this Agreement
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shall be resolved by binding arbitration under the rules of commercial
arbitration of the American Arbitration Association in Los Angeles, California.
In the event of any arbitration to enforce the terms of this Agreement, the
prevailing party in such arbitration shall be entitled to such party's
reasonable costs and expenses of enforcement including, without limitation,
reasonable attorneys' fees. Payments for Total Disability or upon Death shall
be in addition to any unpaid Base Salary, Incentive or Bonus Compensation which
is unpaid or has been earned at the time of such event.
13. Assignment. This Agreement shall be binding upon and inure to the
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benefit of (a) the heirs, executors and legal representatives of Executive upon
Executive's death and (b) any successor of the Company. Any such successor of
the Company shall be deemed substituted for the Company under the terms of this
Agreement for all purposes. As used herein, "successor" shall include any
person, firm, corporation or other business entity which at any time, whether by
purchase, merger or otherwise, directly or indirectly acquires all or
substantially all of the assets or business of the Company. Executive shall
personally perform and may not delegate to third parties his duties hereunder,
except as approved in writing by the CEO.
14. Notices. All notices, requests, demands and other communications
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called for hereunder shall be in writing and shall be deemed given if delivered
personally or three (3) days after being mailed by registered or certified mail,
return receipt requested, prepaid and addressed to the parties or their
successors in interest at the following addresses, or at such other addresses as
the parties may designate by written notice in the manner aforesaid:
If to the Company: TVN Entertainment Corporation
0000 X. Xxxxxxx Xxxxxx, 0xx Xxxxx
Xxxxxxx, XX 00000
Attention: Xxxxxx X. Xxxxx
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with copies to: Xxxxxx Xxxxxx
TVN Entertainment Corporation
0000 X. Xxxxxxx Xxxxxx, 0xx Xxxxx
Xxxxxxx, XX 00000
If to Executive: Xxx Xxxx
at his last residential address given by him to
the Company.
with copies to: Xxxxx Xxxxxxxx
Hansen, Jacobson, Tiller & Hoberman
000 X. Xxxxxxx Xxxxx, 0xx Xxxxx
Xxxxxxx Xxxxx, XX 00000-0000
Xxxxxx Xxxxxxxxx
Xxxxx & Xxxxx
1999 Avenue of the Stars
Xxxxx 0000
Xxx Xxxxxxx, XX 00000
15. Severability. In the event that any provision hereof becomes or is
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declared by a court of competent jurisdiction to be illegal, unenforceable or
void, this Agreement shall continue in full force and effect without said
provision.
16. Entire Agreement. This Agreement, the Stock Option Plan, the Option
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Agreement, the Award Agreement and the Non-Disclosure Agreement of even date
herewith represent the entire agreement and understanding between the Company
and Executive concerning Executive's employment relationship with the Company,
and they supersede and replace any and all prior negotiations, or agreements and
understandings oral or written concerning Executive's employment relationship
with the Company.
17. No Oral Modification, Cancellation or Discharge. This Agreement may
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be amended, canceled or discharged only in writing signed by Executive and the
Company.
18. Governing Law. This Agreement shall be governed by and construed
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under the laws of the State of California applicable to contracts which are to
be wholly performed in such State.
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19. Effective Date. This Agreement is effective immediately after it has
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been signed, although the term of Employment and Executive's services and
Company's compensation obligations hereunder shall commence as of the date shown
above in Section 3 hereof.
20. Acknowledgment. Executive acknowledges that he has had the
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opportunity to discuss this matter with and obtain advice from his private
attorney, has had sufficient time to, and has carefully read and fully
understands all the provisions of this Agreement, and is knowingly and
voluntarily entering into this Agreement.
21. Nondisclosure of Confidential Information; Non-Competition.
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(a) Executive acknowledges that, as a consequence of his
employment and position with the Company, he will have access to and become
acquainted with confidential information of the Company, its affiliates,
vendors, bankers and customers. During the term of this Agreement and at all
times thereafter, and in addition to his obligations pursuant to the
Confidentiality and Non-Disclosure Agreement entered into by Executive
concurrent herewith, Executive shall not, without the prior written consent of
the Company, use, divulge, disclose or make accessible to any other person,
firm, partnership, corporation or other entity any of such Confidential
Information (as hereinafter defined) pertaining to the business of the Company
or any of its affiliates, except (i) while employed by the Company, in the
business of and solely for the benefit of the Company, or (ii) when required to
do so by a court of competent jurisdiction, by any governmental agency having
supervisory authority over the business of the Company or by any administrative
body or legislative body (including a committee thereof) with jurisdiction to
order Executive to divulge, disclose or make accessible such information. For
purposes of this Section 21(a), "Confidential Information" shall mean nonpublic
information concerning the Company's financial data, designs, strategic business
plans, product development (or other propriety product data), customer lists,
information relating to suppliers and methods of production, business know-how,
sales and marketing information and plans, and other nonpublic, proprietary and
confidential information of the Company, its affiliates, vendors, bankers or its
customers.
(b) During the Initial Term and the Option Period, if
applicable, Executive agrees that, without the prior written consent of the
Company: (i) he shall not, directly or indirectly, either as principal, manager,
agent, consultant, officers, stockholder, partner, investor, lender or employee
or in any other capacity, carry on, be engaged in or have any financial interest
in, any entity which is now or at the time in competition with the Business
Activities (as defined below) of the Company and/or its affiliates (a "Competing
Entity"); and (ii) he shall not, on his own behalf or on behalf of any person,
firm or company, directly or indirectly, (A) interfere with any contractual
relationship between any vendors or suppliers of the Company and the Company or
its affiliates which could reasonably be expected to have an adverse effect on
the Company or its affiliates, or (B) solicit or offer employment to any person
who has been employed by the Company at any time during the six (6) months
immediately preceding such solicitation. The term "Business Activities" in
clause (i)
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of the preceding sentence shall mean the business of the Company as such
business exists on the date hereof or at any time during Executive's employment.
Notwithstanding the foregoing, Executive may own, directly
or indirectly, less than five percent (5%) in the aggregate of the outstanding
voting stock of a corporation coming within the restrictions of the previous
paragraph, the securities of which are listed on a U.S. or foreign national
securities exchange or are traded on NASDAQ, if Executive does not participate
in the management of, perform services for or have any other beneficial interest
in such corporation.
(c) Executive and the Company agree that this covenant not to
compete is a reasonable covenant under the circumstances, and further agree that
if in the opinion of any court of competent jurisdiction such restraint is not
reasonable in any respect, such court shall have the right, power and authorize
to excise or modify such provision or provisions of this covenant which as to
the court shall appear not reasonable and to enforce the remainder of the
covenant as so amended. Executive agrees that any breach of the covenants
contained in this Section 21 would irreparably injure the Company. Accordingly,
Executive agrees that the Company may, in addition to pursuing any other
remedies it may have in law or in equity, obtain an injunction against Executive
from any court having jurisdiction over the matter, restraining any further
violation of this Agreement by Executive.
22. Principal Office. Without Executive's consent, the Company shall
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not require Executive to maintain his principal office or to conduct his
principal business activities hereunder for the Company in any location other
than the greater metropolitan area of Los Angeles or Burbank/Glendale,
California.
23. Beneficiaries; References. Executive shall be entitled to select
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(and change, to the extent permitted under any applicable law) a beneficiary or
beneficiaries to receive compensation or benefits payable hereunder, if any,
following his death or total disability, and may change such election, in either
case by giving the Company written notice thereof. In the event of Executive's
death or a judicial determination of his incompetence, reference in this
Agreement to Executive shall be deemed, where appropriate, to refer to his
beneficiary, estate or other legal representative, for purposes of receipt of
benefits to which Executive is entitled hereunder.
24. Survivorship. The respective rights and obligations of the parties
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hereunder shall survive any termination of this Agreement to the extent
necessary to preserve the parties' intentions with respect to such rights and
obligations. The provisions of this Section 24 are in addition to the
survivorship provisions of any other section of this Agreement.
25. Withholding. The Company shall be entitled to withhold from
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payment to Executive any amount of withholding or other deduction required to be
withheld and/or deducted by applicable law.
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26. Counterparts. This Agreement may be executed in multiple
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counterparts, each of which shall be deemed an original, and all of which taken
together shall constitute one Agreement. Mutually executed facsimile copies may
be used for purposes as originals.
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IN WITNESS WHEREOF, the undersigned have executed this Agreement on the
respective dates set forth below
TVN ENTERTAINMENT CORPORATION
/s/ Xxxxxx X. Xxxxx
By: Xxxxxx X. Xxxxx -----------------------------
Signature
Title: President and CEO
Date: 8/28/97
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/s/ Xxx Xxxx
Print Name: Xxx Xxxx -----------------------------
Signature
Date: 8/28/97
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