THE TUBE MEDIA CORP. Ft. Lauderdale, Florida 33309
Exhibit
10.2
THE
TUBE MEDIA CORP.
0000
Xxxx
Xxxxxxx Xxxxx Xxxx, Xxxxx 000
Xx.
Xxxxxxxxxx, Xxxxxxx 00000
March
22,
2006
Xxxxxxxx
Broadcast Group, Inc.
00000
Xxxxxx Xxx Xxxx
Xxxx
Xxxxxx, Xxxxxxxx 00000
Attn:
Xxxxx X. Xxxxx, President and CEO
Re:
Charter Affiliate Affiliation Agreement dated as of March 22, 2006 by and
between The Tube Music Network, Inc., and Xxxxxxxx Broadcast Group, Inc. (the
“Agreement”)
Dear
Xx.
Xxxxx:
As
an
inducement to Affiliate to enter into the Agreement, and in consideration of
Affiliate’s obligations in the Agreement, including but not limited to, the
obligation to transmit the Service on broadcast television stations described
in
the Agreement, this letter shall confirm our agreement respecting additional
consideration to be provided by Network to Affiliate. All capitalized terms
used
and not otherwise defined herein shall have the meanings as set forth in the
Agreement. This letter shall terminate upon the termination of the
Agreement.
Network
hereby agrees to provide Affiliate with the consideration set forth below,
all
such consideration to be in addition to that consideration set forth in the
Agreement, including but not limited to as specified in Exhibit
D
thereof.
1. The
Tube
Media Corp., (“TTMC”),
the
parent company of Network, shall provide Affiliate with grants of common stock
of TTMC on
the
terms and conditions as expressly set forth in the Securities Purchase Agreement
(the form of which is attached hereto as Exhibit
1)
and
warrants to purchase shares of common stock of TTMC on
the
terms and conditions as expressly set forth in a Common Stock Purchase Warrant
(the form of which is attached hereto as Exhibit
2)
in the
following amounts and upon the following occurrences, provided the Agreement
remains in full force and effect as of the date of the applicable
grant.
(a) TTMC
shall provide Affiliate with grants of common stock as follows:
(i) Within
twenty (20) days after the execution of the Agreement, TTMC shall issue to
Affiliate [XXXXX]*
shares
of common stock of TTMC;
(ii) Upon
Affiliate’s transmission of the Service on Stations representing at least fifty
percent (50%) of DMAs where Affiliate owns and/or operates Broadcast Television
stations (“Affiliate
DMAs”),
TTMC
shall issue to Affiliate an additional [XXXXX]* shares of common stock of TTMC;
and
*
Filed
under an application for confidential treatment.
March
22,
2006
Xxxxxxxx
Broadcast Group, Inc
(iii) On
or
after April 1, 2007 and
upon
Affiliate’s transmission of the Service on Stations representing at least
seventy-five percent (75%) of Affiliate DMAs, TTMC shall issue to Affiliate
an
additional [XXXXX]* shares of common stock of TTMC.
Each
share of TTMC common stock issued pursuant to this paragraph 1(a) or pursuant
to
the exercise of the warrants issued pursuant to paragraph 1(b) shall be
restricted, fully paid and non-assessable (upon payment by Affiliate of the
applicable purchase price in the case of common stock issued pursuant to the
warrants).
(b) TTMC
shall provide Affiliate with warrants, in the form attached as Exhibit 2
hereto,
to purchase shares of common stock as follows:
(i) Within
twenty (20) days after the execution of the Agreement, TTMC shall issue to
Affiliate a common stock purchase warrant to acquire [XXXXX]*
shares
of TTMC’s common stock at a purchase price of two dollars and twenty-five cents
($2.25) per share; and
(ii) On
or
after April 1, 2007 and upon Affiliate’s transmission of the Service on Stations
representing seventy-five percent (75%) of Affiliate DMAs, Affiliate shall
receive a common stock purchase warrant to acquire [XXXXX]* shares of TTMC’s
common stock, at a purchase price of two dollars and fifty cents ($2.50) per
share.
(c) TTMC
represents that, as of the date of this letter, one hundred million
(100,000,000) shares of TTMC common stock have been authorized and approximately
twenty-six million (26,000,000) shares of TTMC common stock have been issued.
Affiliate acknowledges and agrees that TTMC
may
issue of shares of common stock; (i) as payment for services so long as the
aggregate amount of all such issuances does not exceed ten percent (10%) of
the
total number of shares of common stock outstanding as of the date of issuance
and the stock issued is at fair market value, (ii) to other distributors of
the
Service so long as the aggregate amount of all such issuances does not exceed
[XXXXX]* shares, (iii) to satisfy existing obligations of TTMC to issue equity,
including issuances of equity securities convertible into or exchangeable for
shares of TTMC common stock, as described on Exhibit
3
hereto,
(iv) pursuant to TTMC’s 2004 Stock Option and Stock Incentive Plan (2,000,000
shares) or any other equity incentive plan approved by TTMC’s shareholders;
provided, that the maximum number of shares of TTMC common stock issuable under
any such plan shall not exceed ten percent (10%) of the outstanding shares
of
TTMC as of the date approved by the Shareholders, (v) in connection with a
purchase, merger or consolidation where TTMC is the surviving corporation or
an
acquisition of the assets of a third party by TTMC.
(d) With
respect to the issuance of any securities hereunder, Affiliate represents and
warrants that it is an accredited investor, as such term is defined in
Regulation D of the Securities and Exchange Act, and that Affiliate has such
knowledge and experience in financial, investment and business matters so as
to
be capable of evaluating the merits and risks of the proposed investment.
Affiliate hereby agrees to execute such documents as may be reasonably
necessary and appropriate to ensure compliance with state and federal securities
laws.
*
Filed
under an application for confidential treatment.
-
2 -
March
22,
2006
Xxxxxxxx
Broadcast Group, Inc
2. TTMC
will
maintain Network as a wholly-owned subsidiary, and maintain its separate
existence during the Term of the Agreement. The Service shall be owned by
Network during the Term of the Agreement, unless the Agreement is assigned
to
another entity pursuant to Section 13(a) of the Agreement.
3. During
the Term of the Agreement, TTMC will provide Affiliate with a seat on the Board
of Directors of Network, which shall be composed of no less than three (3)
and
no more than ten (10) members.
4. For
so
long as Affiliate is an equity holder in TTMC, TTMC shall provide to Affiliate
(i) a quarterly balance sheet and an income statement of TTMC and Network,
and
(ii) an annual audited income statement and balance sheet of TTMC and Network,
in each case prepared in accordance with generally accepted accounting
principles.
5. In
consideration of, and subject to, Affiliate’s distribution of the Service on
each of the Stations covered by the Agreement, and Affiliate’s continued
transmission of the Service throughout the Term in accordance with the terms
of
the Agreement, Network shall pay Affiliate a [XXXXX]* during the Initial Term
only (the “[XXXXX]* ”),
if
applicable, based on the number of Digital Cable Subscriber Households in the
DMA of the Station(s) receiving the Service pursuant to the Agreement. The
[XXXXX]*, if any, shall be payable at the end of each calendar quarter for
the
three months contained in such calendar quarter as set forth below in this
paragraph 5, provided, however that if the Agreement commences and/or the
requirement to pay the [XXXXX]* terminates on a date other than the first or
last day of a calendar quarter, respectively, than the [XXXXX]* for such
calendar quarter shall be prorated based on the number of days in such calendar
quarter that the Agreement is in effect and an MVPD is distributing the Service
in the DMA of a Station transmitting the Service. The [XXXXX]* for each month
in
the Initial Term shall be determined by [XXXXX]* by the number of [XXXXX]*
Subscribers. The number of “[XXXXX]*
Subscribers”
shall
be equal to the average of the number of Digital Cable Subscriber Households
(determined in accordance with subparagraph 5(a) below) as of the last day
of the month preceding the month at issue (or, if not available, as of the
date
within or prior to the month preceding the month at issue closest to the last
day of such month) and the number of Digital Cable Subscriber Households as
of
the last day of the month at issue (or, if not available, as of the date within
the month at issue closest to the last day of such month). In the event that
the
number of Digital Cable Subscriber Households for the month at issue is not
available, then the number of [XXXXX]* Subscribers for such month shall equal
the most current number of Digital Cable Subscriber Household
numbers.
*
Filed
under an application for confidential treatment.
-
3 -
March
22,
2006
Xxxxxxxx
Broadcast Group, Inc
(a) For
purposes of calculating the [XXXXX]*, the number of Digital Cable Subscriber
Households in the DMA of each Station transmitting the Service shall be as
set
forth in the certified report supplied by each MVPD distributing the Service
(as
described in Section 7(b) of the Agreement) in the DMA of a Station transmitting
the Service. In the event that such report is not available for any given MVPD
distributing the Service, then, for purposes of this paragraph 5, the
number of Digital Cable Subscriber Households for such non-reporting MVPD shall
be equal to the number of digital cable subscribers served by such MVPD in
the
applicable Station’s DMA as determined by a report issued by Xxxxxxx Media
Research, Inc., if any, and, if such Xxxxxxx Media Research, Inc. report is
not
available, the number of Digital Cable Subscriber Households shall be equal
to
the number of digital cable subscribers served by such MVPD in the applicable
Station’s DMA as published in the most recent Television
& Cable Factbook
(Xxxxxx
Publishing, Inc.) (the “Factbook”).
In
the event that neither of the calculation methods described in the previous
two
sentences is available for any given MVPD distributing the Service in the DMA
of
a Station transmitting the Service, then, for purposes of this paragraph 5,
the
number of Digital Cable Subscriber Households for such MVPD shall be equal
to
the number of cable television households served by such MVPD in the applicable
Station’s DMA as published in the most recent Factbook multiplied by the most
recently reported cable digital penetration rate for such MVPD, if available
(and, if the cable digital penetration rate is not available for such MVPD,
then
the national cable digital penetration rate), as reported by the Cable and
Telecommunications Association for Marketing in its annual tracking study.
In
the event that an independent publicly available source for determining the
number of television households that receive the Service through a subscription
cable service is or hereafter becomes available, the parties agree to use such
source in lieu of the foregoing.
(b) During
the Initial Term, a running balance sheet of the [XXXXX]*
will be
maintained and reconciled on a quarterly basis as follows:
(i) If,
at
the end of any calendar quarter during the Initial Term, the sum of the
aggregate Affiliate Advertising Share and aggregate Affiliate Transactional
Share (“Total
Revenue”)
for
such calendar quarter
equals or exceeds the [XXXXX]* due and payable for such calendar quarter, then
Network shall pay the Total Revenue in accordance with the provisions of
Exhibit D
to the
Agreement and shall not pay Affiliate any additional amounts during such
calendar quarter (i.e.,
no
portion of the [XXXXX]* shall be due or payable for such quarter), provided
that
Network may carry forward to subsequent calendar quarters during such calendar
year the amount by which Total Revenue exceeds the portion of the [XXXXX]*
that
would otherwise have been payable for that or any subsequent calendar
quarter(s). The following table provides an illustration of the carry-forward
concept and assumes the [XXXXX]* for
the
calendar year is $[XXXXX]* (payable in four equal $[XXXXX]* installments over
such calendar year), and Total Revenue of $[XXXXX]* for the first quarter,
$[XXXXX]* for the second quarter, $[XXXXX]* for the third quarter, and $[XXXXX]*
for the fourth quarter.
*
Filed
under an application for confidential treatment.
-
4 -
March
22,
2006
Xxxxxxxx
Broadcast Group, Inc
|
Quarter:
|
[XXXXX]*:
|
Total
Revenue:
|
Amount
Paid:
|
Carry
Forward:
|
|
1
|
$[XXXXX]*
|
$[XXXXX]*
|
$[XXXXX]*
|
$[XXXXX]*
|
|
2
|
$[XXXXX]*
|
$[XXXXX]*
|
$[XXXXX]*
|
$[XXXXX]*
|
|
3
|
$[XXXXX]*
|
$[XXXXX]*
|
$[XXXXX]*
|
$[XXXXX]*
|
|
4
|
$[XXXXX]*
|
$[XXXXX]*
|
$[XXXXX]*
|
$[XXXXX]*
|
*Not
to
be carried forward to the following calendar year
(ii) If,
at
the end of any calendar quarter during the Initial Term, the Total Revenue
for
such calendar quarter is less than the [XXXXX]*, then Network shall, in lieu
of
the Total Revenue payment, pay the portion of the [XXXXX]* due for such quarter,
provided that Network may recoup the [XXXXX]* paid in such quarter against
subsequent calendar quarters during such calendar year if the Total Revenue
in
future quarter(s) exceeds the [XXXXX]* payable for such quarter(s). The [XXXXX]*
for a quarter, if paid in lieu of the Total Revenue Payment, shall be due and
payable no later than forty-five (45) days following the end of such quarter.
The following table provides an illustration of the recoupment concept and
assumes the [XXXXX]* for the calendar year is $[XXXXX]* (payable in four equal
$[XXXXX]* installments over such calendar year), and Total Revenue of $[XXXXX]*
for the first quarter, $[XXXXX]* for the second quarter, $[XXXXX]* for the
third
quarter, and $[XXXXX]* for
the
fourth quarter.
|
Quarter:
|
[XXXXX]*:
|
Total
Revenue:
|
Amount
Paid:
|
Recoupment:
|
|
1
|
$[XXXXX]*
|
$[XXXXX]*
|
$[XXXXX]*
|
$[XXXXX]*
|
|
2
|
$[XXXXX]*
|
$[XXXXX]*
|
$[XXXXX]*
|
$[XXXXX]*
|
|
3
|
$[XXXXX]*
|
$[XXXXX]*
|
$[XXXXX]*
|
$[XXXXX]*
|
|
4
|
$[XXXXX]*
|
$[XXXXX]*
|
$[XXXXX]*
|
$[XXXXX]*
|
*
Not to
be carried forward to the following calendar year
(iii) The
following table provides an illustration of the recoupment concept discussed
in
(ii) above and assumes the [XXXXX]* for the calendar year is $[XXXXX]* (payable
in four equal $[XXXXX]* installments over such calendar year), and Total Revenue
of $[XXXXX]* for the first quarter, $[XXXXX]* for the second quarter, $[XXXXX]*
for the third quarter and $[XXXXX]* for the fourth quarter.
|
Quarter:
|
[XXXXX]*:
|
Total
Revenue:
|
Amount
Paid:
|
Recoupment:
|
|
1
|
$[XXXXX]*
|
$[XXXXX]*
|
$[XXXXX]*
|
$[XXXXX]*
|
|
2
|
$[XXXXX]*
|
$[XXXXX]*
|
$[XXXXX]*
|
$[XXXXX]*
|
|
3
|
$[XXXXX]*
|
$[XXXXX]*
|
$[XXXXX]*
|
$[XXXXX]*
|
|
4
|
$[XXXXX]*
|
$[XXXXX]*
|
$[XXXXX]*
|
$[XXXXX]*
|
*
Not to
be carried forward to the following calendar year
*
Filed
under an application for confidential treatment.
-
5 -
March
22,
2006
Xxxxxxxx
Broadcast Group, Inc
(c) Notwithstanding
anything in the Agreement or this letter to the contrary, if, at least sixty
(60) days prior to the end of the fourth (4th)
year of
the Initial Term, Network provides notice to Affiliate that it does not intend
to pay the [XXXXX]*
for the
remaining Initial Term in accordance with the terms of this letter, then, as
its
sole and exclusive remedy for Network’s refusal to pay the applicable [XXXXX]*,
Affiliate shall have the right to terminate the Agreement upon at least
forty-five (45) days’ prior written notice to Network; provided that, in order
for such termination to be valid, Network must receive such termination notice
prior to the end of the fourth (4th)
year of
the Initial Term. If Affiliate elects to terminate the Agreement pursuant to
this paragraph 5(c), then Affiliate’s exclusivity with regard to the
distribution of the Service shall terminate on the effective date of the
termination and Affiliate shall return to Network all Receiving Equipment paid
for by Network pursuant to Section 5(b) of the Agreement within thirty (30)
days
following the effective date of the termination.
6. Neither
Affiliate nor Network shall disclose (whether orally or in writing, or by press
release or otherwise) to any third party (other than their respective officers,
directors and employees, in their capacity as such, and their respective
auditors, consultants, financial advisors, lenders, potential investors and
attorneys; provided, however, that the disclosing party agrees to be responsible
for any breach of the provisions of this paragraph 6 by any of such parties)
any
information with respect to the terms and provisions of this letter (other
than
the fact that Affiliate has received an equity position in Network) except:
(a) to the Auditor as provided in Section 7(d) of the Agreement;
(b) as required by applicable law; (c) in accordance with the
regulations of any securities exchange; (d) in order to enforce its rights
pursuant to this Agreement; or (e) if mutually agreed by Affiliate and
Network, in advance of such disclosure, in writing. This paragraph 6 shall
survive the termination of this letter.
7. Counterparts.
This
letter may be executed in counterparts, each of which will have the full force
and effect of a fully-executed original. This letter may be executed by each
party by delivering signed signature pages thereof to the other parties by
facsimile. Any party delivering an executed counterpart of this letter by
facsimile shall also deliver to the other parties an original executed
counterpart of this letter, but the failure to do so does not affect the
validity, enforceability or binding effect of this letter.
[Remainder
of page intentionally left blank.]
*
Filed
under an application for confidential treatment.
-
6 -
March
22,
2006
inclair
Broadcast Group, Inc
Please
acknowledge your acceptance of the above terms, by signing where indicated
below.
Very
truly yours,
| The Tube Media Corp. | The TUBE Music Network, Inc. | ||
| By: /s/ Xxxx X. Xxxxxx | By: /s/ Xxx Xxxxxxx | ||
| Xxxx
X.
Xxxxxx Executive Vice President & CFO |
Xxx
Xxxxxxx President and CEO |
ACKNOWLEDGED
AND ACCEPTED BY:
Xxxxxxxx
Television Group, Inc.
| By: /s/ Xxxxx X. Xxx | |||
| Name:
Xxxxx
X.
Xxx Title: Chief Financial Officer |
[Signature
page: Letter agreement by and between The Tube Media Corp.,
The
TUBE Music Network, Inc. and Xxxxxxxx Television Group, Inc.]
-
7 -
EXHIBIT 1
To
Letter
Agreement By and Between
Xxxxxxxx
Television Group, Inc.,
The
Tube
Media Corp. and The TUBE Music Network, Inc.
Dated
as
of March 22, 2006
FORM
OF SECURITIES PURCHASE AGREEMENT
EXHIBIT 2
To
Letter
Agreement By and Between
Xxxxxxxx
Television Group, Inc.,
The
Tube
Media Corp. and The TUBE Music Network, Inc.
Dated
as
of March 22, 2006
FORM
OF COMMON STOCK PURCHASE WARRANT
EXHIBIT 3
To
Letter
Agreement By and Between
Xxxxxxxx
Television Group, Inc.,
The
Tube
Media Corp. and The TUBE Music Network, Inc.
Dated
as
of March 22, 2006
CAPITALIZATION
OF THE TUBE MEDIA CORP.
