EXHIBIT 5.1
LIBERTY DIGITAL, INC.
00000 Xxxx Xxxxxxx Xxxxxxxxx
Xxx Xxxxxxx, XX 00000
August 18, 2000
Sony Pictures Entertainment Inc.
00000 Xxxx Xxxxxxxxxx Xxxxxxxxx
Xxxxxx Xxxx, Xxxxxxxxxx 00000-0000
Attn: Xxxx Xxxx
Dear Sir:
Reference is made to the Memorandum of Terms (the "Term Sheet")
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attached hereto regarding the proposed purchase by Liberty Digital, Inc.
("Liberty Digital") from Sony Pictures Entertainment Inc. ("SPE") of a 50%
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interest in the Game Show Network, LLC ("GSN") (such purchase and the other
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transactions described in the Term Sheet are hereinafter referred to
collectively as the "Transactions").
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The Term Sheet contemplates that the matters referred to therein will
be the subject of definitive agreements and instruments which will contain
provisions incorporating and expanding upon the matters set forth therein,
together with other provisions customary in the case of transactions of this
type, and such other provisions as are reasonable and appropriate in the context
of the transactions contemplated thereby.
The parties acknowledge that, except as provided below, this letter
and the attached Term Sheet are only intended to summarize the proposed
Transactions and are not intended to establish a binding obligation on the part
of SPE, Liberty Digital or their respective affiliates. Rather, this letter and
the Term Sheet are intended only to outline certain basic points of business
agreements around which further negotiations and discussions would proceed and
definitive agreements would be drafted. Accordingly, and without limiting the
generality of the foregoing, neither this letter nor the Term Sheet will
constitute an agreement to agree, and no obligation or commitment on the part of
either party will arise until definitive and mutually acceptable legal
documentation is negotiated and executed. Notwithstanding the foregoing, the
parties acknowledge and agree that the provisions set forth opposite the caption
"Confidentiality" and "Indemnification" in the Term Sheet will constitute a
binding agreement of the parties as to their respective obligations referred to
therein and such obligations will be binding upon, and enforceable against, each
of SPE and Liberty Digital, and in addition, SPE and Liberty Digital mutually
agree to cooperate together, negotiate in good faith and use their respective
commercially reasonable efforts in order to create definitive agreements in
respect of the Transactions.
Sincerely,
LIBERTY DIGITAL, INC.
By: /s/ Xxx Xxxxxxx
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Name: Xxx Xxxxxxx
Title: Chief Executive Officer and
President
ACCEPTED:
SONY PICTURES ENTERTAINMENT INC.
By: /s/ Xxxx Xxxx
-------------------------
Name: Xxxx Xxxx
Title: Executive Vice President
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MEMORANDUM OF TERMS FOR
PURCHASE OF
MEMBERSHIP INTERESTS IN GAME SHOW
NETWORK, LLC
August 18, 2000
This memorandum summarizes the principal terms for an investment (the
"Investment") by Liberty Digital, Inc. ("Liberty Digital") or a wholly-owned
subsidiary thereof in Game Show Network, LLC, a Delaware limited liability
company ("GSN") (which will be treated as a partnership for federal income tax
purposes following Liberty Digital's investment therein). Liberty Digital
acknowledges that it has done a substantial diligence review with respect to
GSN, but has not completed such diligence review, and the parties agree to
cooperate in good faith and use their respective reasonable best efforts to
cause such diligence review to be completed as soon as practicable but in no
event later than such date as the Membership Purchase Agreement is executed by
the parties.
A. Restructuring of Game Show Network
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Recapitalization: Immediately prior to the closing of the Investment
(the "Closing"), Sony Pictures Entertainment Inc.
("SPE") will complete a reorganization of The Game
Show Network, L.P. ("LP") pursuant to which LP will
be converted into a limited liability company in the
manner discussed between the parties. SPE agrees to
use its reasonable efforts to structure such
conversion in a manner which is the most tax
efficient for SPE, GSN and Liberty Digital. As a
result of this conversion, GSN will succeed to all of
the rights, benefits, obligations and liabilities of
LP existing immediately prior to the conversion. In
connection with the conversion of LP into GSN, all
intercompany advances and other debt obligations
between SPE and its Affiliates (other than GSN and
its Affiliates), on the one hand, and GSN and its
Affiliates (other than SPE and its Affiliates), on
the other hand, will be converted into Membership
Interests in GSN. Following the conversion and prior
to the Closing, SPE or one of its wholly owned
subsidiaries will own 100% of the initial membership
interests ("Membership Interests") in GSN. References
to the term "GSN" with respect to periods prior to
the conversion shall be deemed to be references to
LP.
The term "Affiliate", when used in this memorandum
with respect to a specified person, means any other
person that, directly or indirectly through one or
more intermediaries Controls (as defined
below), is Controlled by or is under
common Control with such first person. The term
"Control", as to any person, means the possession,
direct or indirect, of the affirmative power to
direct or cause the direction of the management and
policies of such Person (whether through ownership of
securities, partnership interests or other ownership
interests, by contract, by membership or involvement
in the board of directors, management committee or
other management structure of such Person, or
otherwise). The term "Controlled Affiliate" means,
when used with respect to a specified person, any
Affiliate of such person which it Controls.
Agreements with SPE The parties desire to continue the operations of GSN
and Affiliates: consistent with past practice and that GSN continue
to receive the rights and benefits currently provided
to LP by SPE. Prior to the Closing, SPE and Liberty
Digital will review (i) all existing agreements and
arrangements with SPE and its Affiliates relating to
video programming for GSN (the "Program Agreements")
and (ii) all other existing agreements and
arrangements between SPE and its Affiliates and GSN
(the "Other Agreements"), and the parties will
negotiate in good faith to amend such existing
agreements and/or formalize such existing
arrangements to provide that GSN continues to receive
such programming, services, rights and benefits from
SPE and its Affiliates following the Closing. The
parties intend that such amended agreements or
formalized arrangements will be on arm's length terms
and conditions and at market rates of compensation
for the programming, services, rights and benefits to
be provided and which are otherwise reasonably
acceptable to the parties. To the extent the parties
are unable to reasonably agree upon such terms and
rates, then (x) in the event the parties are unable
to agree upon such matters regarding the Program
Agreements, the parties will submit such matter to an
arbitration procedure in which SPE shall select a
qualified arbitrator, Liberty Digital shall select a
qualified arbitrator, and the arbitrators selected by
SPE and Liberty Digital shall jointly select an
independent qualified arbitrator (such arbitrator to
be reasonably acceptable to the arbitrators selected
by each of SPE and Liberty Digital) to determine such
matter, and (y) in the event the parties are unable
to agree upon such matters regarding the Other
Agreements, the parties will submit such matter to an
independent arbitrator who is reasonably acceptable
to the parties to determine such matter; provided,
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that with respect to matters to be arbitrated
pursuant to clause (y), the determination of such
arbitrator shall, at the request of
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SPE or Liberty Digital, cover a transitional period
of up to 18 months following the Closing (except in
the case of real property leases for which the
transitional period shall be up to 24 months
following the Closing), after which GSN may outsource
such services from third parties. With respect to
services and support functions to be provided by SPE
pursuant to the Other Agreements, the parties
acknowledge that such agreements will include
appropriate limits on the volume of services to be
provided and that, to the extent the services
rendered reach such limits, the parties will consider
having GSN provide such services for itself or
outsource such services. Notwithstanding the
foregoing, if SPE and its Affiliates do not agree to
provide any services, rights and benefits to GSN
after the Closing that they currently provide to GSN
(other than the Program Agreements), such services,
rights and benefits shall be provided for a
transitional period of up to 18 months from the
Closing (except for real property leases for which
the transition period shall be up to 24 months from
the Closing) on rates and terms as determined by an
independent arbitrator reasonably acceptable to the
parties.
In addition, in connection with the growth and
expansion of GSN's business and the inclusion of
interactive functionality in GSN programming, the
parties agree to discuss in good faith prior to the
Closing, the terms and conditions upon which GSN
would obtain rights from SPE and its Affiliates
relating to the addition of interactive functionality
to video programming; provided, that the foregoing
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shall not require SPE to enter into such an agreement
with GSN.
Affiliate Agreements: The parties acknowledge that from time to time in the
future, a party may acquire an interest in a
programmer or other service provider whose services
may be useful in the operation of GSN. To the extent
reasonably practicable, such party will use its
reasonable efforts to cause such provider to offer
its services to GSN on arm's length terms and at
market rates.
B. Equity Purchase
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Issuer: GSN
Selling Securityholder: SPE
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Investor: Liberty Digital
Outstanding Capital Membership Interests representing 100% of the
(prior to the Investment): fully diluted equity interests in GSN, all of
which will be owned by SPE (directly or
indirectly).
Securities to be Purchased Liberty Digital will purchase from SPE Membership
by Liberty Digital: Interests representing an aggregate of 50% of the
fully diluted equity interests in GSN (the
"Liberty Digital GSN Interest").
Aggregate Purchase Price $275 million (the "Aggregate Purchase Price"),
for the Liberty Digital which will be payable $225 million in cash and
GSN Interest: $50 million through the delivery to SPE of
1,491,598 shares of Series A Common Stock (the
"LDIG Shares") of Liberty Digital (with each LDIG
Share valued at $33.5211); provided, however, that
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in the event Liberty Digital consummates a public
offering of its equity or equity-like securities
(for example, convertible preferred stock or
convertible debt securities) after the date hereof
and prior to the Closing, in which the gross
proceeds raised in such financing equals or exceeds
$100 million, then the number of LDIG Shares
deliverable shall be re-calculated based instead
upon the price per common equivalent share (prior
to any underwriting discounts or underwriting fees)
at which such equity securities are sold to the
public. The Aggregate Purchase Price shall be
subject to adjustments after the Closing.
SPE and Liberty Digital acknowledge that due to the
payment of the Aggregate Purchase Price by Liberty
Digital, GSN shall be entitled to certain
deductions with respect to income tax. The parties
agree to elect a method of allocation under Section
704(c) of the Internal Revenue Code and Treasury
Regulation 1.704-3 which will give Liberty Digital
the full amount of any book depreciation,
amortization or loss to the extent permitted by
these regulations as a deduction for tax purposes.
In connection with the delivery of the LDIG Shares
to SPE, Liberty Digital and SPE will enter into a
registration rights agreement having customary
terms and conditions pursuant to which SPE will be
entitled to two demand registration rights at the
expense of Liberty Digital. Such demand rights will
not be exercisable prior to the first anniversary
of the Closing. In addition, SPE will agree not to
sell, transfer, assign, pledge, or otherwise
dispose of the LDIG Shares (other than to
Affiliates of
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SPE which agree to be bound by such restrictions)
or enter into any swap, derivative or other
transaction seeking to transfer the economic
benefits relating to the LDIG Shares to any person
(other than to Affiliates of SPE) prior to the
first anniversary of the Closing.
Percentage Ownership: On the Closing date, the Liberty Digital GSN
Interest will constitute 50% of the fully diluted
equity interests in GSN.
Interim Equity Issuance: Except in connection with any conversion of LP into
GSN, prior to the Closing none of SPE, GSN or LP
will sell, transfer or issue, or take any action in
respect of any sale, transfer or issuance of, any
Membership Interests, partnership interests or
other equity interests in GSN or LP or rights to
acquire Membership Interests, partnership interests
or other equity interests, or any of the economic
benefits related thereto in GSN or LP.
Anticipated Closing Date: As promptly as practicable following the
satisfaction of the conditions to Closing to be set
forth in the definitive Membership Purchase
Agreement.
Membership Purchase The investment by Liberty Digital will be made
Agreement: pursuant to a definitive Membership Purchase
Agreement among SPE, GSN, LP and Liberty Digital
which the parties will negotiate in good faith and
use their respective reasonable efforts to execute
on or prior to October 31, 2000. SPE and Liberty
Digital will enter into such definitive agreement
only following approval of, in the case of SPE, the
Board of Directors of Sony Corporation, and in the
case of Liberty Digital, the Board of Directors of
Liberty Digital. Such definitive Membership
Purchase Agreement will contain, among other
things, representations, warranties, covenants and
indemnities of SPE and Liberty Digital which are
customary for transactions of this type and
consistent with the other provisions of this
Memorandum of Terms, together with additional
provisions reflecting the matters set forth in this
Memorandum of Terms, and appropriate conditions to
Closing including expiration or early termination
of the waiting period under the Xxxx-Xxxxx-Xxxxxx
Antitrust Improvements Act of 1976, if applicable.
Additional Conditions to Liberty Digital's obligation to close the
Liberty Digital Obligation: transactions contemplated by the definitive
Membership Purchase Agreement shall be subject to
the receipt by Liberty Digital in one or more
Qualifying Financing Transactions (as defined
below)
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consummated after the date hereof of Net Cash
Proceeds (as defined below) of not less than $275
million (the "Financing Condition"). Liberty
Digital shall agree to use its good faith and
reasonable commercial efforts (which may include
drawing upon any then existing lines of credit
having available borrowing capacity) to satisfy the
Financing Condition, and SPE shall agree to use its
commercially reasonable efforts to cooperate in
such financing efforts. In the event that the
Financing Condition is not satisfied by January 31,
2001 (the "Final Financing Date"), the obligations
of the parties under the definitive Membership
Purchase Agreement will terminate without any
further obligation of any party. However, if the
Membership Purchase Agreement is terminated for any
reason other than solely as a result of the failure
to satisfy the Financing Condition, then the
remedies of the parties shall be those set forth in
the Membership Purchase Agreement. The term
"Qualifying Financing Transaction" shall mean
(without duplication) any of the following: (i) any
public or private debt or equity financing
transaction entered into with any person (including
Affiliates of Liberty Digital) providing cash
proceeds to Liberty Digital; (ii) any bank,
institutional or other debt financing (including
use of available capacity under existing lines of
credit); or (iii) sales of assets (other than
capital stock of Liberty Digital which is subject
to clause (i) above) for cash (other than sales of
assets of DMX in the ordinary course of business)
or monetization transactions relating to such
assets, including the issuance of derivative and
similar securities. The term "Net Cash Proceeds"
shall mean the net cash proceeds to Liberty Digital
obtained from all Qualifying Financing Transactions
consummated subsequent to the date hereof;
provided, however, that (x) the first $100 million
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of net proceeds from Qualifying Financing
Transactions referred to in clause (iii) of the
definition thereof and (y) the proceeds of any
Qualifying Financing Transactions which are used to
repay or refinance, in whole or in part, existing
indebtedness, shall be excluded from the
determination of Net Cash Proceeds.
Additional Capital At the Closing, SPE and Liberty Digital will each
Obligations: commit to provide up to $37.5 million in cash to
GSN as additional capital contributions. Such
amount will constitute a mandatory capital
contribution by each of SPE and Liberty Digital,
and shall be provided at such times and in such
amounts as will be reflected in an annual budget
and business plan for GSN to be agreed to by SPE
and Liberty Digital prior to the Closing. Of the
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aggregate $75 million in additional capital
contributions committed to by SPE and Liberty
Digital, SPE shall be obligated to provide the
first $25 million; the next $25 million will be
provided in equal proportions (and at the same
times) by SPE and Liberty Digital; and the
remaining $25 million will be provided by Liberty
Digital. The $25 million to be provided initially
by SPE shall be deemed to constitute subordinated
debt of GSN and the principal amount thereof shall
be converted into capital contributions on a dollar
for dollar basis as and when Liberty Digital
provides the remaining $25 million of its capital
contribution obligation. The terms of such
subordinated debt will be as mutually agreed by SPE
and Liberty Digital.
The payment of such amounts by each of SPE and
Liberty Digital will not effect any change in any
party's Membership Interests.
Participation Agreement: Each of SPE and Liberty Digital will agree that,
during the period ending on the first to occur of
(x) such party's failure to own at least 33% of the
outstanding equity interests of GSN or (y) the
fourth anniversary of the Closing (the "Restricted
Period"), neither SPE nor Liberty Digital will,
directly or through their respective Controlled
Affiliates, create, establish, or engage in or
invest in or acquire an equity interest in any
person whose principal business (where "principal
business" means in excess of 25% of either (1) the
annual revenues of such person or (2) the fair
value of such person's business or assets) is or is
proposed to be, the distribution through cable or
satellite television services or high speed data
networks ("Subject Distribution System") of
interactive or non-interactive linear video
television game show programming to viewers located
outside of the U.S. and Canada (a "Restricted
International Business"), unless such party (the
"offering party") shall first have offered to such
other party (the "receiving party") the opportunity
to participate in such Restricted International
Business (the "Participation Right"). The parties
acknowledge that it is their intention that such
opportunities first be offered to and pursued
through GSN to the extent acceptable to the
parties, and if not acceptable, then by the parties
individually as provided herein. The offering party
shall be required to offer the receiving party the
opportunity to participate on a pro rata, pari
passu basis with the offering party. The receiving
party shall be entitled to accept such offer or, if
reasonably acceptable to the offering party, elect
to participate at a level of ownership which is
less
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than its pro rata basis. In the event the receiving
party declines to participate, the offering party
shall be free to engage in such Restricted
International Business; provided, that, (i) the
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extent to which the offering party shall be
entitled to invest in or engage in such Restricted
International Business shall be based upon the
scope and terms of the opportunity offered to the
receiving party, (ii) the terms upon which such
offering party will be entitled to invest in or
engage in the Restricted International Business
shall be limited to the terms originally offered by
it to the receiving party and (iii) if the offering
party does not invest in or engage in such
Restricted International Business within 12 months
of the date of the rejection of such initial offer
by the receiving party, such offering party shall
be required to comply again with the foregoing
provisions.
In the event that one or both of the parties elect
to engage in such Restricted International
Business, the Electing Party (as defined below)
shall be entitled to require GSN to license, on a
non-exclusive basis, relevant portions of its game
show programming library, and related interactive
technology and intellectual property rights (other
than the GSN name, logo and affiliated marks) to
the person involved in such Restricted
International Business. The term "Electing Party"
shall mean (i) any party that beneficially owns not
less than 33% of such Restricted International
Business or (ii) both parties if such parties
beneficially own in the aggregate not less than 33%
of such Restricted International Business and
mutually agree to such licensing. The terms and
conditions of such license shall be at market rates
and otherwise no more favorable to the person
engaged in such Restricted International Business
than the terms provided by GSN to an unaffiliated
third party.
International Distribution: In the event that GSN determines to expand the
distribution (through any Subject Distribution
System) of its television game show programming to
areas located outside of the U.S. and Canada, or
either SPE or Liberty Digital enters into a
transaction relating to a Restricted International
Business following its compliance with the
Participation Right in favor of the other party and
such other party's determination not to
participate, then provided that such party
participating in such Restricted International
Business (the "Participating Party") beneficially
owns not less than 33% of such Restricted
International Business, (x) Liberty Digital will,
and will use its reasonable best efforts to cause
LMC to, and (y) SPE will, and will use its
reasonable best
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efforts to cause Sony Corporation to, make
reasonable efforts to negotiate with GSN or the
Participating Party, as applicable, to establish
mutually acceptable agreements on market terms
and conditions, pursuant to which it would
provide to such Restricted International
Business such support, distribution, services or
other benefits, as may be mutually agreed.
C. GSN Operating Agreement
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At the Closing, SPE, GSN and Liberty Digital will enter into an LLC Operating
Agreement having terms and conditions which are customary under the
circumstances and consistent with the terms set forth herein, including without
limitation the following terms and conditions.
Purpose: The purpose of GSN will be to (i) continue to
operate The Game Show Network in its current form,
(ii) create, establish, produce and acquire
interactive services, functions and additional
programming to be integrated with, or which is to
be complementary to, GSN programming so as to
enable interactively enabled forms of GSN
programming to be distributed through all available
distribution channels and (iii) opportunistically
expand the business in the US, Canada and
internationally.
Governance:
Management Committee: Prior to the Closing, SPE and Liberty Digital will
jointly agree on a CEO, a director of programming
and a director of distribution for GSN. Subject to
the approved budgets and business plans (as
described below), management of GSN shall be
responsible for the day-to-day operation of GSN,
subject to oversight by a Management Committee (the
"Committee") consisting of 6 members (each, a
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"Representative"). Each Representative of SPE and
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Liberty Digital shall be an executive and/or
director of SPE, Liberty Digital or their
respective Affiliates, as applicable. The purpose
of the Committee will be to manage the affairs of
GSN in a manner which seeks to maximize the value
of GSN to its Members. SPE and Liberty Digital will
each be entitled to elect 3 Representatives to the
Committee. Each Representative will have one vote
on all matters brought to the Committee.
Committee Decisions: So long as SPE and Liberty Digital each own at
least 35% of the number of Membership Interests
outstanding, all Committee actions shall require
the unanimous consent or approval of the
Representatives of SPE and Liberty Digital.
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Business decisions which involve matters outside
the ordinary course of business of GSN, are outside
the parameters contained in the GSN Operating
Agreement, exceed budgetary limits by specified
amounts, or otherwise have a fundamental impact on
GSN, would require the approval of the Committee.
The Committee would also have the right, in its
discretion, to exercise its supervisory authority
over any other matter involving the business
affairs of GSN.
In particular, the following matters shall be
presented to the Committee for its approval prior
to the taking of any action in respect thereof:
(i) Affiliate transactions (subject to certain
baskets and exceptions and excluding
services and programming agreements entered
into in connection with the Closing of this
transaction);
(ii) Change in the scope or nature of the
business or operations;
(iii) Merger or consolidation of GSN, sale of all
or substantially all of GSN's assets, or
liquidation or dissolution of GSN;
(iv) Amendments to the GSN Operating Agreement
and other agreements entered into at the
Closing;
(v) Issuance of additional Membership Interests;
(vi) Termination and hiring of senior management
members;
(vii) Approval of annual budgets and business
plans;
(viii) Amendments to previously-approved budgets
and business plans which (x) would result in
any Member being required to make additional
contributions (in excess of the Member's
mandatory additional capital contributions)
or (y) exceed, as to any budget line item,
the greater of $1,000,000 or 10% of the
previously approved amount;
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(ix) Entering into, amending, modifying, renewing
or terminating any agreement for or relating
to distribution through cable or satellite
television systems or other distribution
systems whether or not for a fee or other
consideration, including, without limitation,
agreements under which the parties to any
such agreement operate after it has expired
(each such agreement an "Affiliation
Agreement"); and
(x) Such other matters as the parties shall
agree.
In the event that SPE or Liberty Digital ceases to
own 35% of the number of Membership Interests
outstanding, the aggregate number of
Representatives on the Committee will be reduced to
five (5), such Member which has ceased to own the
required amount of Membership Interests will
thereafter be entitled to designate two (2)
Representatives to the Committee, the other Member
will continue to be entitled to designate three (3)
Representatives, and thereafter actions by the
Committee shall require the approval of a majority
of the Representatives; provided, that so long as
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each of Liberty Digital and SPE own at least 25% of
the outstanding Membership Interests, the taking of
action in respect of any of the following matters
will require the unanimous consent or approval of
the Representatives of SPE and Liberty Digital:
(i) Affiliate transactions (subject to certain
baskets and exceptions and excluding services
and programming agreements entered into in
connection with the Closing of this
transaction);
(ii) Merger or consolidation of GSN, sale of all
or substantially all of GSN's assets, or
liquidation or dissolution of GSN;
(iii) Amendments to the GSN Operating Agreement and
other agreements entered into at the Closing;
(iv) Entering into, amending, modifying, renewing
or terminating any Affiliation Agreement; and
(v) Such other matters as the parties agree.
At such time as Liberty Digital or SPE owns less
than 25% of the outstanding Membership Interests,
the requirement that the taking of any action
specified in clause (ii) above be consented to or
approved unanimously by the Representatives will
terminate, and all such unanimous approval or
consent requirements will terminate
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in the event either SPE or Liberty Digital ceases
to own 10% of the outstanding Membership Interests.
Additional Programming: In the event that SPE, Liberty Digital or their
respective Controlled Affiliates acquires actual
control over additional linear video television
game show category programming or license rights in
respect thereof for distribution through a Subject
Distribution System to viewers located in the U.S.
and Canada, it will be required to offer such
programming to GSN on arm's-length terms, but with
MFN protection; provided, that such obligation to
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offer shall be subject to the expiration or
termination of any agreements relating to the
distribution of such programming which were in
effect prior to such party obtaining actual control
over the disposition of such programming. In
connection with any such acquisition of control
over such programming rights, the acquiring party
will use its commercially reasonable efforts to
acquire (and offer to license to GSN together with
such programming) such rights as are reasonably
necessary to provide interactive functions for such
programming.
Business Plan: Prior to the Closing, SPE and Liberty Digital shall
agree on an initial budget covering the period from
formation to the end of GSN's second fiscal year
and an initial business plan covering the period
from the formation of GSN through the end of the
third full fiscal year thereafter. The initial
business plan will reflect, among other things,
agreed schedules for capital expenditures and
proposed budgets covering the annual periods from
the end of the period covered by the initial annual
budgets to the end of the period covered by the
initial business plan. The GSN Operating Agreement
would also include procedures for the adoption
prior to the start of each subsequent fiscal year
of an annual budget for the forthcoming fiscal year
and a revised business plan for such fiscal year
and the succeeding three fiscal years.
Default Budget: If no proposed budget obtains the requisite
approval, such budget shall be the prior year's
budget, adjusted by increasing all budgeted items,
excluding extraordinary items and capital
expenditures, by 5%, together with such additional
adjustments as are reasonably required to reflect
capital expenditures, escalation and de-escalation
provisions in approved contracts and other matters
which had previously been approved by the
Committee.
Future Funding: If future funding of GSN in excess of the parties'
mandatory capital contribution amounts is required,
SPE and Liberty Digital will agree on capital-
raising strategies which may include subordinated
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Member loans, bank borrowings, voluntary capital
calls and/or accessing public capital markets.
Transfer Restrictions: No party will be permitted to sell, transfer,
assign, pledge or otherwise dispose of (directly or
indirectly) its Membership Interests for a period
of three years following the Closing; provided that
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(x) SPE or a SCA Affiliate (as defined below) may
transfer all or part of its Membership Interests,
directly or indirectly, to a SCA Affiliate and
Liberty Digital or a LMC Affiliate (as defined
below) may transfer all or part of its Membership
Interests, directly or indirectly, to a LMC
Affiliate, (y) a party may pledge its interest in a
bona fide financing transaction so long as the
pledgee agrees to be bound by the terms of the LLC
Operating Agreement and (z) a party may create
derivative securities which relate to such interest
in connection with bona fide financing
transactions. Notwithstanding anything herein to
the contrary, any transfer by SPE pursuant to
clause (x) above may be made only if the entities
holding the rights to the game show programming and
licenses currently held by SPE or thereafter
acquired by any Affiliate of SCA are held at the
time of such transfer by a SCA Affiliate. Following
such third anniversary, sales of any Membership
Interests will be subject to a right of first offer
in favor of the other party; provided such right of
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first offer shall not apply to a transfer pursuant
to clause (x) above by SPE, a SCA Affiliate,
Liberty Digital or a LMC Affiliate. Any such third
party transferee shall become a party to and bound
by the provisions of the LLC Operating Agreement to
the same extent as the transferor upon the transfer
of Membership Interests to it. Each party agrees to
structure any such purchase and sale in the most
tax efficient manner possible.
The term "SCA Affiliate" shall mean any person that
is Controlled, directly or indirectly, by SPE or
Sony Corporation of America ("SCA"). The term "LMC
Affiliate" shall mean any person that is
Controlled, directly or indirectly, by Liberty
Digital or LMC.
For the purposes of this "Transfer Restrictions"
section only, "Control" means the possession,
directly or indirectly, of at least 50% of the
economic interest of the Controlled entity and the
possession, directly or indirectly, of the power to
actually direct or cause the direction of the
management or policies of the Controlled entity,
whether through the ownership of voting securities,
by contract or otherwise.
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Deadlock: In the event that the parties fail to agree on two
consecutive budgets, either party will be entitled
to trigger a buy/sell procedure. The party
triggering the buy/sell would specify the price at
which it is willing to buy the other party's
Membership Interests. The other party will have the
option to sell to the triggering party at such
price or purchase the triggering party's interest
at such specified price.
The parties agree that they will negotiate in good
faith and use reasonable efforts to provide for
alternative deadlock resolution procedures in the
definitive agreements relating to the transactions
contemplated hereby. The parties intend that, other
than with respect to budget deadlocks as provided
above, such deadlock resolution will be effected
through management negotiation rather than buy/sell
procedures. Notwithstanding the foregoing, any
failure of the parties to agree with respect to GSN
entering into, amending, modifying, renewing or
terminating any Affiliation Agreement shall be
resolved by arbitration. The arbitrator(s) involved
in any such arbitration shall base their decision
on the best interests of GSN.
Pre-emptive Rights: So long as it owns at least 10% of the outstanding
Membership Interests, SPE and Liberty Digital will
each be entitled to customary pre-emptive rights
with respect to new issuances of Membership
Interests.
Confidentiality: The parties will announce the execution of this
Memorandum of Terms in a joint press release which
has been approved by each of the parties. The
parties will cooperate in good faith in connection
with the preparation of such press release. To the
extent any additional press releases may be issued
in connection with the transaction, they will also
be jointly prepared and approved by each of the
parties. SPE acknowledges that Liberty Digital will
be required to file a copy of this Memorandum of
Terms with the Securities and Exchange Commission
and a description of the terms of the transactions
contemplated hereby will be included in certain of
Liberty Digital's public filings, including, but
not limited to, its public filings relating to any
proposed public offerings seeking funds sufficient
to satisfy, in whole or in part, Liberty Digital's
financing condition contained herein. In addition,
SPE acknowledges that the business of GSN and the
transactions contemplated hereby may be reviewed
with analysts, during "road show" presentations and
in private meetings with investors. Prior to any
such filing or initial use of any written materials
including such information, Liberty Digital will
provide to a person designated by SPE copies of
such written materials (including
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proposed answers to potential questions from
analysts and investors), and consult with SPE with
respect to such written materials; provided, the
--------
content of such written materials shall be in the
absolute discretion of Liberty Digital. If
requested by SPE, Liberty Digital agrees to request
that the Securities and Exchange Commission provide
confidential treatment of such portions of the
exhibits to such public filings as SPE may
reasonably specify; provided, that Liberty Digital
shall only be required to request confidential
treatment of those portions of such exhibits which
it determines is appropriate under federal
securities laws.
The parties acknowledge that disclosures made by
Liberty Digital in accordance with the foregoing
will be deemed disclosures consented to by SPE for
purposes of the existing Non-Disclosure Agreement
(the "NDA") between SPE and Liberty Digital, dated
March 15, 2000. The parties agree that the status
of any negotiations between the parties with
respect to the transactions contemplated by this
Memorandum of Terms and the terms and provisions of
any documents or other agreements relating hereto
shall be deemed to be "Information" subject to the
terms of the NDA.
Indemnification: The parties recognize that in connection with any
offering by Liberty Digital in which it seeks to
raise proceeds to meet the Financing Condition (a
"Qualifying Offering"), disclosure will be made of
certain aspects of the transactions contemplated by
this memorandum and of the business of GSN, after
discussions among Liberty Digital, its
underwriters, SPE, GSN and their respective
counsel. Liberty Digital shall indemnify and hold
harmless Sony Corporation, SCA, SPE, GSN and their
respective directors, officers and employees
against any and all losses, claims, damages or
liabilities, joint or several, to which they or any
of them may become subject insofar as such losses,
claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon an
action or proceeding by a purchaser of securities
in a Qualifying Offering wherein it is claimed or
alleged that such purchaser suffered damages due,
in whole or in part, to (i) any untrue statement or
alleged untrue statement of a material fact made
with respect to SPE, GSN or the transactions
contemplated by this memorandum contained in any
preliminary or final prospectus or other offering
document (each, a "Prospectus") used for the sale
of such securities in a Qualifying Offering, (ii)
any omission of or alleged omission to state in
such Prospectus a material fact with respect to
SPE, GSN or the transactions contemplated by this
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memorandum, or (iii) any failure by the parties to
close the transactions contemplated by this
memorandum, or to close such transactions on the
terms contemplated by this memorandum. Liberty
Digital shall reimburse each such indemnified party
for any legal or other expenses reasonably incurred
by them, as incurred, in connection with
investigating or defending any such loss, claim,
damage, liability or action; provided, however,
--------
that Liberty Digital will not be liable in any such
case to the extent that any such loss, claim,
damage or liability arises out of or is based upon
any untrue statement or alleged untrue statement or
omission or alleged omission made in connection
with the sale of securities by Liberty Digital in a
Qualifying Offering in reliance upon and in
conformity with written information furnished to
Liberty Digital specifically for inclusion in a
Prospectus by or on behalf of SPE or GSN.
SPE agrees to indemnify and hold harmless Liberty
Digital, LMC and their directors, officers and
employees to the same extent as the foregoing
indemnity to SPE, GSN and their respective
directors, officers, and employees but only with
reference to written information relating to GSN
furnished to Liberty Digital by or on behalf of SPE
or GSN specifically for inclusion in a Prospectus.
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