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EXHIBIT 10.5
TERM SHEET
FOR SERVICES AGREEMENT
BETWEEN
TCI MUSIC, INC.
AND
THE BOX WORLDWIDE, INC.
PURPOSES AND PARTIES: Pursuant to a services agreement (the "Agreement"),
The Box Worldwide, Inc. ("BOX") will provide to TCI
Music, Inc. ("TCI Music"), at the discretion of and
subject to approval by TCI Music, certain services
necessary to develop, market and manage a
multiple-channel music video service, which may
include interactive and scheduled programming (the
"Music Multiplex").
TERM AND TERMINATION: INITIAL PERIOD: The effective date of the Agreement
will be July 28, 1997. The Agreement will remain in
effect for an initial period of one year (the
"Initial Period"). At the end of the Initial Period,
the Agreement will be renewed automatically for
successive six-month periods if, at the end of the
then-current period, the Merger Agreement (as defined
below) is still in effect and the closing thereof is
pending. However, (i) BOX may terminate the
Agreement at the end of any additional six-month term
if it gives written notice of such intention to TCI
Music at least 60 days before the end of such
six-month term and (ii) TCI Music may, upon not less
than 60 days' prior notice to BOX, terminate the
Agreement at any time.
PROPOSAL TERMINATION AND SHAREHOLDER TERMINATION: If
the Agreement has not been previously terminated and
either:
(a) the Agreement and a Plan of Merger,
dated as of the date hereof, among TCI Music,
BOX and TCI Acquisition Sub (including one or
more amendments, if any, the "Merger
Agreement") is terminated pursuant to Section
9.1(d) of the Merger Agreement (a "Proposal
Termination"); or
(b) the Merger Agreement is terminated
pursuant to Section 9.1(b) or 9.1(e) of the
Merger Agreement (a "Shareholder
Termination"),
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then TCI Music may either: (i) terminate the
Agreement; or (ii) extend the term of the
Agreement for a period of three years from
the date of the Proposal Termination or the
Shareholder Termination, as the case may be.
If TCI Music chooses to extend the Agreement
for the three-year period, TCI Music may
renew the Agreement for a further two-year
period at the end of the initial three-year
period after the Proposal Termination or the
Shareholder Termination. During any renewal
period following a Proposal Termination or
Shareholder Termination, BOX will have no
right to terminate the Agreement; however,
TCI Music may, upon not less than 60 days'
prior notice to BOX, terminate the Agreement
at any time during any such renewal period.
COMPLETION OF MERGER: If the Merger contemplated by
the Merger Agreement is completed, this Agreement
shall terminate at the Effective Time (as such term
is defined in the Merger Agreement).
SERVICES TO BE PROVIDED: BOX will provide to TCI Music the services described
in Exhibit A (the "Services").
COMPENSATION: GENERAL: In exchange for the Services and except as
set forth below in Proposal Termination and
Shareholder Termination, TCI Music will pay BOX the
compensation detailed on Exhibit A. Attached hereto
as Exhibit B is an estimate of the allocation of
domestic departmental costs associated with the
operation of the Music Multiplex for music formats
that are not substantially similar to music formats
currently aired by BOX. Such schedule is merely an
estimate and is non-binding. BOX will maintain
detailed records of Services performed and
documentation of all expenses to be reimbursed as
described below in "REIMBURSEMENT OF EXPENSES."
PROPOSAL TERMINATION: During any two-year renewal
after the initial three-year period following a
Proposal Termination, the compensation for all of the
Services shall be the cost of such Services plus 20%
of such cost.
SHAREHOLDER TERMINATION: During the term of the
Agreement after any Shareholder Termination, the
compensation for all of the Services shall be the
cost of such Services plus 20% of such cost.
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AUDIT RIGHTS: TCI Music will be entitled, during
normal business hours and upon reasonable notice to
BOX, to examine the books and records of BOX for the
purpose of determining compliance with the provisions
of the Agreement, including the calculation of costs
under the Agreement.
MAXIMUM HOURS: For each type of Services to be compensated at an
hourly rate, Exhibit A indicates the maximum number
of hours the parties anticipate will be required to
complete the objective of such type of Service. Any
hours to be charged by BOX in excess of such maximum
number of hours of a particular type of service must
be approved in advance by TCI Music.
REIMBURSEMENT
OF EXPENSES: All expenses incurred in connection with performing
Services will be reimbursed by TCI Music, without
markup. However, BOX will not incur any charge with
an outside vendor in excess of $10,000, without the
prior approval of TCI Music. In particular, TCI
Music shall reimburse BOX for any royalties or
similar fees required to be paid to any third party
(including, but not limited to, BMI and ASCAP), as
well as any administrative costs associated
therewith, and incurred as a result of the exhibition
or performance of music or music videos over the
Music Multiplex. Except as otherwise indicated
herein or on Exhibit A, TCI Music will not reimburse
any other expenses incurred by BOX in performing
Services pursuant to the Agreement. All expenses
which are reimbursable hereunder shall be paid by TCI
Music within 60 days after TCI Music's receipt of
BOX's invoice for such expenses, which invoice sets
forth in reasonable detail the calculation of the
expenses for which reimbursement is sought.
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RIGHTS TO INTELLECTUAL
PROPERTY: BOX will retain ownership of the brand "THE BOX" and
all BOX images and, in consideration of the other
payments under the Agreement, will license (and until
the Agreement is signed, BOX hereby licenses) to TCI
the right to use such brand and images during the
term of the Agreement. All design elements or Music
Multiplex-specific branding, logos, IDs, images, or
other elements created by outside vendors pursuant to
the Agreement (including graphics, voice-overs,
backplates and similar elements created by outside
vendors), and which are not derived from the brand
"THE BOX" or any BOX images will be the exclusive
property of TCI Music. If the Agreement is
terminated or expires, TCI Music's license of the
right to use the brand "THE BOX," any logo derived
from the brand "THE BOX" and used in connection with
the Music Multiplex, and all BOX images (including
graphics, voice-overs, backplates and similar
elements created or owned by BOX prior to the
Agreement and supplied to TCI Music in BOX's
performance of the Agreement) will also terminate and
TCI Music will have no right thereafter to use such
brand or images in any way. Furthermore, if the
Agreement is continued after a Proposal Termination
or Shareholder Termination, TCI Music may only use
the brand "THE BOX," any logo derived from the brand
"THE BOX" and used in connection with the Music
Multiplex, and all BOX images (including graphics,
voice-overs, backplates and similar elements created
or owned by BOX prior to the Agreement and supplied
to TCI Music in BOX's performance of the Agreement),
for a period of one year after such Proposal
Termination or Shareholder Termination, and solely in
connection with TCI Music's operation of the Music
Multiplex distributed through the Headend in the Sky.
TCI Music shall not alter the brand "THE BOX" or any
of the BOX images, without the prior written approval
of BOX.
PROCEDURE UPON
TERMINATION OR
EXPIRATION: Upon the termination or expiration of the Agreement,
BOX will promptly invoice TCI Music for any
previously unbilled bills and expenses. TCI Music
will pay such invoice within 60 days of receipt. ▇▇▇
will refund to TCI Music the net depreciated amount
(as depreciated over a 60-month life) of the
original material cost (but excluding any travel and
shipping expenses) charged to TCI Music in connection
with installation of the digital boxes at the NDTC
facility in Denver, CO, and TCI Music will return the
digital boxes to BOX at TCI Music's sole expense.
Viewer call revenue earned during the term of the
Agreement, after reduction for voice, DAK, transport,
music costs and satellite costs attributable to such
revenue, will be shared equally by TCI Music and BOX.
BOX will supply detailed records of such income and
attributable expenses and will remit to TCI Music its
share of the net revenue within 60 days of the
termination or expiration of the Agreement.
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INTERIM ARRANGEMENT: TCI Music and BOX agree to negotiate in good faith to
arrive at a definitive agreement dealing with the
matters addressed herein. Until such agreement is
executed, (i) the provisions of the Term Sheet will
be legally binding upon the parties and their
successors, (ii) all references herein to the
Agreement will be deemed to be references to this
Term Sheet, and (iii) the provisions of Article X of
the Merger Agreement (except Sections 10.1 and 10.5)
are incorporated herein and deemed to be a part
hereof.
APPROVED AS OF AUGUST 12, 1997:
TCI MUSIC, INC. THE BOX WORLDWIDE, INC.
By: /s/ ▇▇▇▇▇ ▇▇▇▇ By: /s/ ▇▇▇▇ ▇▇▇▇▇▇▇
--------------------------------- --------------------------------
Name: ▇▇▇▇▇ ▇. ▇▇▇▇ Name: ▇▇▇▇ ▇▇▇▇▇▇▇
------------------------------- ------------------------------
Title: President Title: President and CEO
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EXHIBIT A
Type of Hourly Rate/ Maximum Description and Objectives
Service Compensation Hours
Pre-Launch
Consulting
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-Programming $150 60 Assist in determining proper demographic targets,
musical genres, network positioning and branding for
each of the digital networks in the Music Multiplex.
-Marketing $150 60 Strategize multiplex launch to the cable industry,
the ad sales community, and the record labels,
including consulting with ad sales, affiliate sales,
programming and marketing teams.
-Sales/Industry $200 60 Assist with preparation of sales materials for, and
Relations communicate with cable affiliates, the ad sales
community and record labels. Materials may be
created using outside vendors.
-Engineering $150 40 Assess the technical needs for delivery of music
videos via VSAT or terrestrial link to NDTC facility
in Denver, CO and for management of four Digital
Boxes at NDTC facility.
-Production $200 40 Initial production of network specific ID's,
interstitial and programming elements.
Equipment
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-Digital Boxes Reimbursement of N/A Installation of Digital Boxes at the NDTC facility in
actual cost of Denver, CO
materials and
installation
(estimated to be
$40,000 per Box)
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Type of Hourly Rate/ Maximum Description and Objectives
Service Compensation Hours
Post Launch Reimbursement of N/A Operational support for the Music Multiplex
Execution allocable portion including:
----------- of domestic
departmental costs and
external costs a. Maintenance, upgrade and repair of
the Digital Boxes
b. A software license which provides
for maintenance and upgrade of
software required to operate Digital
Boxes
c. Access to a music video library that
is updated with titles necessary to
program each format in the Music
Multiplex with the provision that
the music formats remain substantially
the same
d. Update of databases
e. Digital encoding of video elements
f. Trafficking of program segments and
commercials
g. Transport of video elements
h. Request processing
i. Technical monitoring
j. Customer service
k. Music scheduling for pre-programmed
services or segments
l. Preparation of marketing materials
for cable operators, advertising and
record labels
m. Production of network specific ID's,
interstitial and programming elements
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PROMISSORY NOTE
$252,400
October 3, 1997
Miami Beach, Florida
FOR VALUE RECEIVED, The Box Worldwide, Inc., a Florida
corporation ("Maker"), promises to pay to the order of TCI Music, Inc., a
Delaware corporation ("Holder"), at ▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
or at such other place as from time to time may be designated by Holder to
Maker in writing, the principal sum of $252,400 plus interest at the rate of
10% per annum, compounded annually. Interest shall be computed and paid based
on the actual number of days lapsed in a year consisting of 365 (or 366, if
applicable) days.
The principal of and accrued interest on this Note shall be
due and payable in lawful money of the United States of America on January 31,
1998.
Maker shall have the right to make prepayments, in whole or in
part at any time and from time to time, of the unpaid balance and accrued
interest hereof, free of premium or penalty. All prepayments shall be applied
by Holder first to any costs or expenses, including, without limitation,
reasonable attorneys' fees and costs incurred by Holder in enforcing Holder's
rights under this Note, then to interest accrued hereon and then to the
remaining outstanding principal balance hereof.
The unpaid principal and acquired interest on this note shall
be offset in full by Maker's invoice number 9809001 dated September 18, 1997 in
the amount of $252,400 for goods and services provided to holder pursuant to
the Services Agreement dated as of August 12, 1997 between Maker and Holder.
Time is of the essence hereof. Maker shall be in default
under this Note if it fails to pay any amount due hereunder as and when due.
Upon any such default, all unpaid principal of and accrued interest on this
Note shall become at once due and payable automatically and without notice and
the unpaid balance of this Note shall from that date forward bear interest at
15% per annum, compounded annually, until fully paid.
Maker agrees to pay all costs of collection of this Note,
including reasonable attorney's fees, whether suit is brought or not, including
fees associated with bankruptcy and appellate proceedings.
Maker, for itself and its successors and assigns, expressly
waives presentment, demand, protest, notice of dishonor, notice of nonpayment,
notice of maturity, notice of protest, presentment, presentment for the
purposes of accelerating maturity, diligence in collection, and the benefit of
any exemption under any exemption or insolvency laws. Holder, without notice,
may release or surrender, exchange or substitute, any property now held or
which may hereafter be held as security for the payment of this Note, may
extend the time for payment or otherwise modify the terms of payment of any
part or the whole of the debt evidenced hereby, and may renew this Note.
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The exercise or non-exercise by Holder of any rights or
remedies hereunder shall not preclude ▇▇▇▇▇▇'s exercise of any other rights or
remedies provided herein, at law or in equity. The failure of Holder at any
time to exercise any rights or remedies hereunder shall not constitute a waiver
of the right to exercise the same or other remedies at any other time.
This Note may not be changed, altered, modified or terminated
orally, but only by agreement or discharge in writing signed by Maker and the
holder of this Note at the time of any such change, alteration, modification or
discharge.
In no event shall the amount paid or agreed to be paid to
▇▇▇▇▇▇ as interest hereunder exceed the highest lawful rate permissible under
applicable law. If, due to any circumstance, the interest payable hereunder is
deemed to exceed the highest rate of interest permitted by applicable law, then
the interest payable hereunder shall be reduced to the maximum rate so
permitted. If Holder shall ever receive interest on this Note which would
exceed the highest lawful rate, the interest which would be excessive shall be
applied to the reduction of the principal balance remaining unpaid and not to
the payment of interest. This provision shall supersede all contrary
agreements between Maker and Holder with respect to the calculation and payment
of interest on this Note.
Any references in this Note to "Holder" will be deemed to
include any successor or assign of Holder.
If the last day for the making of any payment or the taking of
any other action is not a day on which banks in Denver, Colorado are open for
business, the time for making such payment or taking such action will be
extended to the next business day.
The provisions of this Note shall be construed and interpreted
and all rights and obligations of the parties hereunder determined in
accordance with the laws of the State of Colorado without regard to any choice
of law principles. At the option of Holder, an action may be brought to
enforce this Note in any court located in the State of Colorado, or in any
other court in which venue and jurisdiction are proper. Maker irrevocably
consents to venue and jurisdiction in the state and federal courts located in
the State of Colorado and to service of process by mail in any such action.
Maker further consents to the bringing of an action to recognize and enforce
any judgment rendered by the above courts in any jurisdiction in which Maker
has assets or may be found, and irrevocably waives, to the full extent
permitted by law, any defense based on lack of jurisdiction or inconvenience of
forum.
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IN WITNESS WHEREOF, Maker has signed and delivered this Note
the day and year first above written.
THE BOX WORLDWIDE, INC.
By: /s/ ▇▇▇▇ ▇▇▇▇▇▇▇
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Name: ▇▇▇▇ ▇▇▇▇▇▇▇
Title: President
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