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EXHIBIT 10.1
FORM OF CONTRIBUTION AGREEMENT
This Contribution Agreement (this "Agreement") is made on the
____ day of __________________, 1997, by and between Tele-Communications, Inc.,
a Delaware corporation ("TCI"), and TCI Music, Inc., a Delaware corporation
(the "Company").
RECITALS
TCI desires to cause various of its indirect subsidiaries to
contribute to the Company the right to receive a substantial portion of the
revenues attributable to the distribution and sale by those subsidiaries of
digital music services of DMX Inc., a Delaware corporation ("DMX"), to
residential and commercial subscribers of such subsidiaries. In consideration
of such contribution and of the agreement of TCI to grant to stockholders of
DMX the right to require TCI to purchase shares of the Company issued to them
pursuant to the Agreement and Plan of Merger dated as of February 6, 1997, as
amended by Amendment One dated ___________, 1997, to which TCI, the Company and
DMX are parties, the Company desires to deliver to TCI shares of the Company's
Series B Common Stock and a promissory note in the amount of $40,000,000.
In consideration of the mutual covenants set forth in this
Agreement and other good and valuable consideration, the receipt and
sufficiency of which are acknowledged, the parties agree as follows:
I. DEFINITIONS
As used in this Agreement, terms with initial capital letters
will have the meanings ascribed to them below, unless the context clearly
requires otherwise:
Affiliate means, with respect to any Person, any other Person
Controlling, Controlled by, or under common Control with, such Person.
Business Day means any day other than a Saturday or Sunday or
a day on which banks in New York, New York or Denver, Colorado are authorized
to be closed.
Closing has the meaning set forth in Section 2.1.
Company has the meaning set forth in the preamble to this
Agreement.
Company Note means a promissory note in the principal amount
of $40,000,000 payable to the order of TCI, (i) principal payable in full 180
days after the Closing, (ii) if principal is not paid in full 180 days after
the Closing, bearing interest at 10% per annum accruing on unpaid principal
from the date first above written through and including the date of payment in
full of unpaid principal; (iii) providing for the prepayment of principal
without penalty by the Company at any time after the Closing; and (iv)
including such other terms and conditions as TCI and the Company may agree.
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interest not earlier than 180 days after the Closing and (iii) will include
such other terms and conditions as TCI and the Company may agree.
Contributed Tuners means all of the commercial tuners
indirectly owned and held in inventory by TCI at the Closing.
Control means, with respect to any Person, the possession,
directly or indirectly, of the power to direct or cause the direction of the
management and policies of the Controlled Person, whether by the ownership of
voting securities, by contract or otherwise.
DMX has the meaning set forth in the Recitals to this
Agreement.
DMX Affiliation Agreement means an affiliation agreement
between DMX and Satellite Services, Inc., an Owned Subsidiary of TCI (including
its successors and assigns, "SSI"), pursuant to which TCI System Owners are
granted rights to distribute and sell DMX Services, as such agreement may from
time to time be in effect.
DMX Revenues means all revenues of a TCI System Owner, as
determined in accordance with GAAP, that are attributable to the distribution
and sale of DMX Services, including charges for DMX Services and equipment
rental, installation and other charges payable by subscribers to DMX Services.
In calculating DMX Revenues, revenues attributable to the distribution and sale
of DMX Services on a tier or as part of a package that includes other audio or
video programming services and as to which there is no separate charge for DMX
Services will be deemed to be equal to the license fees payable to DMX on
account of such sales, as prescribed by the DMX Affiliation Agreement.
DMX Services means the digital music services offered for sale
to the public by DMX.
Fiscal Year means a year beginning January 1 and ending
December 31.
GAAP means generally accepted accounting principles as in
effect from time to time in the United States, applied on a basis consistent
with that applied by TCI in the preparation of its financial statements.
Merger means the merger of TCI Music Merger Sub, Inc. with and
into DMX pursuant to the Merger Agreement.
Merger Agreement means the Agreement and Plan of Merger, dated
as of February 6, 1997, among DMX, the Company, TCI and TCI Music Merger Sub,
Inc.
Music Business means the business of acquiring, producing,
packaging or compiling audio or video programming the content of which is
primarily music or music-related, and the marketing and sale of such
programming by any method of distribution.
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Net DMX Revenues means, for any period of determination, all
DMX Revenues of a TCI System Owner for such period, minus (i) the Retained
Percentage for such period and (ii) license fees for such period that are
payable to DMX pursuant to the DMX Affiliation Agreement.
Owned Subsidiary means, with respect to any Person, any other
Person that such Person Controls and in which all the outstanding common stock,
in the case of a corporation, or, in the case of a Person that is not a
corporation, all ownership interests, are owned, directly or indirectly, by
such Person, including with respect to such Person any other Person that
pursuant to the preceding clause would be an Owned Subsidiary of any other
Owned Subsidiary.
Person means a human being or a corporation, general or
limited partnership, limited or unlimited liability company, trust,
association, unincorporated organization, governmental authority or other
entity.
Residential DMX Revenues means, for any period of
determination, that portion of DMX Revenues of a TCI System Owner for such
period that is attributable to the distribution and sale of DMX Services to
residential subscribers.
Retained Percentage means, for any period of determination, an
amount equal to 10% of Residential DMX Revenues of a TCI System Owner for such
period, subject to adjustment as provided in Section 8.2.
Shares means 62,500,000 shares of Series B Common Stock, par
value $.01 per share, of the Company.
TCI System Owner means each Owned Subsidiary of TCI that
offers DMX Services to its subscribers.
Termination Date has the meaning set forth in Section 2.3.
TCI has the meaning set forth in the preamble to this
Agreement.
II. CONTRIBUTION OF NET DMX REVENUES AND
CONTRIBUTED TUNERS; ISSUANCE OF SHARES
2.1 Rights Agreement; Assignment of Net DMX Revenues to
the Company. At the closing of the transactions contemplated by this Agreement
(the "Closing"):
(a) TCI will execute and deliver a Rights
Agreement, in the form prescribed by the Merger Agreement, granting to
stockholders of DMX who are entitled to receive shares of stock of the Company
pursuant to the Merger Agreement the right to require TCI to purchase such
shares, subject to the terms and conditions of such Rights Agreement.
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(b) TCI will cause each Person that is a TCI
System Owner as of the date of this Agreement to assign and contribute to the
Company, effective as of the Closing, the right to receive Net DMX Revenues of
such TCI System Owner for a period beginning on the effective date of such
assignment and ending on the Termination Date. Payments of Net DMX Revenues
will be remitted to the Company as provided in Section 8.3.
(c) TCI will cause the Contributed Tuners to be
assigned and contributed to the Company, effective as of the Closing.
(d) The Company will deliver to TCI, as the
designee of the TCI System Owners, (i) the Shares and (ii) the Company Note.
2.2 New TCI System Owners. Promptly after any Person
becomes a TCI System Owner, TCI will cause such TCI System Owner to assign to
the Company the right to receive such TCI System Owner's Net DMX Revenues.
2.3 Effective Term of Assignment. Anything in this
Agreement to the contrary notwithstanding, the Company's right to receive Net
DMX Revenues of any TCI System Owner pursuant to this Agreement will continue
in effect until the first to occur of the following dates (the "Termination
Date"): (i) the date such TCI System Owner ceases to be a TCI System Owner and
(ii) December 31, 2006.
III. REPRESENTATIONS AND WARRANTIES OF TCI
TCI represents and warrants to the Company that:
3.1 Organization, Good Standing and Authority. Each of
TCI and the TCI System Owners is a corporation duly organized, validly existing
and in good standing under the laws of the jurisdiction of its incorporation
and has all requisite corporate power and authority to enter into and to
perform its obligations under this Agreement and the other agreements to be
executed and delivered by it pursuant to this Agreement.
3.2 Authorization and Validity; Consents; No Conflicts.
The execution and delivery by each of TCI and the TCI System Owners of, and the
performance by each of them of its obligations under, this Agreement and the
other agreements to be executed and delivered by it pursuant to this Agreement
have been duly authorized by all requisite corporate action of TCI or such TCI
System Owner. This Agreement constitutes, and when executed and delivered by
it pursuant to this Agreement, the other agreements to be executed and
delivered by it pursuant to this Agreement will constitute, the legal, valid
and binding obligations of each of TCI and the TCI System Owners, enforceable
in accordance with their terms, except as such enforceability may be affected
by applicable bankruptcy, reorganization, insolvency, moratorium or similar
laws affecting creditors' rights generally or by general equitable principles.
No consent or approval of, notice to, or filing with, any other Person is
required in connection with the execution, delivery and performance by TCI
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or any of the TCI System Owners of this Agreement or any other agreement to be
executed and delivered by it pursuant to this Agreement, or the consummation by
it of the transactions contemplated hereby or thereby, the failure of which to
be obtained, given or made would have a material adverse effect on TCI and the
TCI System Owners, taken as a whole, or on their ability to perform their
obligations under this Agreement. The execution and delivery by TCI or any of
the TCI System Owners of, and the performance by each of them of its
obligations under, this Agreement and any other agreement to be executed and
delivered by it pursuant to this Agreement will not violate its certificate or
articles of incorporation or bylaws or any material agreement to which it is a
party or by which it is bound or affected.
3.3 Investment Intent. TCI is acquiring the Shares for
investment only and acknowledges that they may not be sold without registration
under the Securities Act of 1933, as amended, and applicable state securities
laws, or unless an exemption therefrom is available, and agrees that a legend
to the foregoing effect may be placed on the certificate representing the
Shares.
IV. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
4.1 Organization, Good Standing and Authority. The
Company is a corporation duly organized, validly existing and in good standing
under the laws of the jurisdiction of its incorporation and has all requisite
corporate power and authority to enter into and to perform its obligations
under this Agreement and the other agreements to be executed and delivered by
it pursuant to this Agreement.
4.2 Authorization and Validity; Consents; No Conflicts.
The execution and delivery by the Company of, and the performance by it of its
obligations under, this Agreement and the other agreements to be executed and
delivered by it pursuant to this Agreement have been duly authorized by all
requisite corporate action of the Company. This Agreement constitutes, and
when executed and delivered by the Company pursuant to this Agreement, the
other agreements to be executed and delivered by it pursuant to this Agreement
will constitute, its legal, valid and binding obligations, enforceable in
accordance with their terms, except as such enforceability may be affected by
applicable bankruptcy, reorganization, insolvency, moratorium or similar laws
affecting creditors' rights generally or by general equitable principles. No
consent or approval of, notice to, or filing with, any other Person is required
in connection with the execution, delivery and performance by the Company of
this Agreement or any other agreement to be executed and delivered by the
Company pursuant to this Agreement, or the consummation by it of the
transactions contemplated hereby or thereby, the failure of which to be
obtained, given or made would have a material adverse effect on the Company or
on its ability to perform its obligations under this Agreement. The execution
and delivery by the Company of, and the performance by it of its obligations
under, this Agreement and any other agreement to be executed and delivered by
it pursuant to this Agreement will not violate its certificate of incorporation
or bylaws or any material agreement to which it is a party or by which it is
bound or affected.
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4.3 No Lien on Shares. When issued and delivered by it
at the Closing, the Shares to be issued by the Company hereunder will be
validly issued, fully paid and nonassessable and will be owned by TCI (or, if
applicable, TCI 's designee) free and clear of any lien, charge, encumbrance,
security interest or any other similar right of any third party.
V. CONDITIONS TO OBLIGATIONS OF THE COMPANY
The obligations of the Company to consummate the transactions
contemplated by this Agreement to take place at the Closing are subject to
satisfaction or the waiver by it, at or prior to the Closing, of each of the
following conditions:
5.1 Truth of Representations and Warranties. All
representations and warranties of TCI set forth in this Agreement, if qualified
by a reference to materiality, are true and, if not so qualified, are true in
all material respects, in each case at the time of the Closing with the same
effect as if made at that time, except for changes permitted or contemplated by
this Agreement.
5.2 Performance of Agreements. All agreements of TCI set
forth in this Agreement that are required to be performed by it at or before
the Closing have been performed in all material respects.
5.3 Merger Completed. The Merger is completed
contemporaneously with the Closing.
VI. CONDITIONS TO OBLIGATIONS OF TCI
The obligations of TCI to consummate the transactions
contemplated by this Agreement to take place at the Closing are subject to
satisfaction or the waiver by it, at or prior to the Closing, of each of the
following conditions:
6.1 Truth of Representations and Warranties. All
representations and warranties of the Company set forth in this Agreement, if
qualified by a reference to materiality, are true and, if not so qualified, are
true in all material respects, in each case at the time of the Closing with the
same effect as if made at that time, except for changes permitted or
contemplated by this Agreement.
6.2 Performance of Agreements. All agreements of the
Company set forth in this Agreement that are required to be performed by it at
or before the Closing have been performed in all material respects.
6.3 Merger Completed. The Merger is completed
contemporaneously with the Closing.
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VII. CLOSING
7.1 Closing. The Closing will take place on the date of
this Agreement, contemporaneously with the Merger.
7.2 Items Delivered by TCI System Owners. At the
Closing, TCI will cause each TCI System Owner to deliver to the Company (i) an
assignment transferring the rights of such TCI System Owner in and to its Net
DMX Revenues and (ii) such other assignments, bills of sale or other
instruments as are sufficient to transfer to the Company all the legal and
beneficial interests in such rights.
7.3 Items Delivered by the Company. At the Closing:
(a) The Company will deliver to the TCI System
Owners (or their designee) immediately available funds in the amount prescribed
by Section 2.1(c) of this Agreement or, if so elected by TCI, the Company Note.
(b) The Company will deliver to TCI one or more
duly executed certificates representing the Shares.
VIII. COVENANTS
8.1 Right to Compete.
(a) TCI and any Affiliate of TCI may engage in or
possess interests in one or more other businesses or ventures of any nature or
description, without regard to whether any of such businesses or ventures are
or may be deemed to be competitive in any way with any business of the Company
or any person in which the Company has an interest. Without limiting the
generality of the foregoing, none of TCI or any of its Affiliates or any
director, officer or employee of TCI or any of its Affiliates (including any
such director, officer or employee who serves as a director, officer or
employee of the Company) will be obligated to present to the Company any
particular investment or business opportunity, regardless of whether such
opportunity is of a character that the Company could pursue it if it were
presented to the Company, but instead, TCI and its Affiliates will have the
right to take such opportunity for their own account or for the account of any
other Person without any obligation whatsoever to the Company.
(b) Although the Company and TCI agree to be
bound by the provisions of subsection (a) of this Section for purposes of
defining their respective legal rights and obligations, TCI acknowledges that,
subject to such provisions, TCI intends to use commercially reasonable efforts
to expand the involvement of the Company in the Music Business and to cause the
Company to pursue future business activities in the Music Business.
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8.2 Adjustment of Retained Percentage. Beginning at
least 60 days before the third anniversary of the Merger, and every third
anniversary thereafter, TCI, acting on behalf of the TCI System Owners, and the
Company will engage in good faith negotiations concerning the adjustment of the
Retained Percentage, taking into account, among other things, total sales of
DMX Services by TCI System Owners and the need to provide appropriate
incentives to the TCI System Owners and their personnel to maximize sales of
DMX Services. Notwithstanding the foregoing, the Retained Percentage
prescribed by this Agreement or as most recently adjusted by agreement of the
parties will continue to be applicable until a new agreement adjusting the
Retained Percentage has been reached.
8.3 Payment of Net DMX Revenues.
(a) Net DMX Revenues will be remitted to the
Company monthly in arrears for each calendar month. Each monthly payment will
be made by the end of the calendar month immediately following the calendar
month for which Net DMX Revenues are being remitted. At the time of each
payment, the Company will be given a statement setting forth in reasonable
detail TCI's calculation of Net DMX Revenues for the month in question.
(b) TCI will keep and maintain (or will cause to
be kept and maintained) books and records (the "System Books and Records") with
respect to revenues from the sale of DMX Services by TCI System Owners, which
books and records will be accurate and complete in all material respects. Upon
at least 15 Business Days' prior notice and during TCI's normal business hours,
the Company (or its authorized employees, agents, accountants and
representatives) will have the right, at the expense of the Company, to examine
and audit the System Books and Records and such other evidence of the DMX
Revenues of the TCI System Owners as the Company may reasonably request to the
extent reasonably necessary to verify the accuracy of TCI's calculation of Net
DMX Revenues. The rights granted to the Company in this Section 8.3(b) may be
exercised not more frequently than once a year and the period as to which such
right is exercised will be limited to a period beginning not more than two
years before the date such notice is given and ending as of the end of the most
recent calendar month for which information regarding DMX Revenues is
available.
(c) After receipt of a statement setting forth
the calculation of the Net DMX Proceeds in accordance with Section 8.3(b), the
Company will have two years within which to notify TCI of any disagreement with
respect to TCI's calculation of the Net DMX Revenues set forth in that
statement, which notice will specify in reasonable detail the basis for such
disagreement.
(d) If the Company notifies TCI that it agrees
with TCI's calculation of Net DMX Revenues for any period, that calculation
will be final and conclusive as of the date of delivery of such notification.
If the Company fails to provide notice of disagreement with any calculation by
TCI of Net DMX Revenues within the two-year period prescribed by Section
8.3(c), TCI's calculation will be final and conclusive as of the end of such
period.
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(e) If within such two-year period the Company
provides notice of disagreement with TCI's calculation of Net DMX Revenues for
any month, the Company and TCI will negotiate in good faith to resolve any such
dispute for a period of 30 days following receipt of such notice of
disagreement. If the dispute is not resolved within such period, the dispute
will be referred to KPMG Peat Marwick (or, if such accounting firm is for any
reason unwilling or unable to act in such capacity, such other nationally
recognized accounting firm as may be designated by KPMG Peat Marwick), which
accounting firm will render its decision (together with a reasonably detailed
explanation therefor) as soon as possible following submission of the dispute
to it, which decision will be final and conclusive. The fees and expenses of
the accounting firm relating to services rendered pursuant to this Section
8.3(e) will be paid by the Company and TCI in equal shares.
IX. MISCELLANEOUS
9.1 Notices. All notices, requests, demands and other
communications called for or contemplated hereunder will be in writing and will
be deemed to have been duly given if delivered in person or by United States
certified or registered mail, prepaid, addressed to the parties, their
permitted successors in interest or assignees, or sent by courier or
telecopier:
To TCI at:
Tele-Communications, Inc.
0000 XXX Xxxxxxx
Xxxxxxxxx, Xxxxxxxx 00000
Attention: Xxxxxxx Xxxxxxxx
Telecopy: (000) 000-0000
with a copy similarly addressed, Attention: Legal
Department
and another copy to:
Xxxxxxx & Xxxxxx L.L.C.
0000 Xxxxx Xxxxxxxxxx Xxxxx Xxxxx
000 Xxxxxxxxxxx Xxxxxx
Xxxxxx, Xxxxxxxx 00000
Attention: Xxxxxxx X. Xxxxxx, Esq.
Telecopy: (000) 000-0000
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To the Company at:
TCI Music, Inc.
c/o Tele-Communications, Inc.
0000 XXX Xxxxxxx
Xxxxxxxxx, Xxxxxxxx 00000
Attention: President
Telecopy: (000) 000-0000
Any party may change the address to which notices are required to be sent by
giving notice of such change in the manner provided in this Section. All
notices will be deemed to have been received on the date of delivery or on the
third Business Day after the mailing thereof, except that any notice of a
change of address will be effective only upon actual receipt.
9.2 Expenses. Whether or not the transactions
contemplated hereby are consummated, each of the parties will bear the fees and
expenses relating to its compliance with the various provisions of this
Agreement, and each of the parties will pay all of its own expenses (including
all attorneys' fees and expenses) incurred in connection with this Agreement,
the transactions contemplated hereby, the negotiations leading to the same and
the preparation made for carrying the same into effect.
9.3 Modification; Waiver. This Agreement may be
modified or terminated by mutual agreement only by a writing signed by each of
the parties, and no provision or condition herein may be waived other than by a
writing signed by the party waiving such provision or condition.
9.4 Headings. Article and Section headings in this
Agreement are for the sole purpose of convenient reference and in no way
define, limit or prescribe the scope or intent of this Agreement or any part
hereof, and such headings will not be considered in interpreting or construing
this Agreement.
9.5 Assignment. Neither party may assign any of its
rights under this Agreement or delegate its duties hereunder unless it obtains
the prior written consent of the other party, which consent may be withheld at
such party's absolute discretion. Notwithstanding the preceding sentence, any
party may assign its rights under this Agreement to any Affiliate of such party
without the consent of any other party.
9.6 Counterparts. This Agreement may be executed in any
number of counterparts, each of which may be deemed to be an original, and all
of which taken together will constitute one instrument.
9.7 Additional Documents. At the Closing and from time
to time after Closing, at either party's request and without further
consideration, the other party will execute and deliver (or cause to be
executed and delivered) such other instruments of conveyance and transfer and
will
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take such other actions as may reasonably be required effectively to carry out
the transactions contemplated by this Agreement.
9.8 Other. This Agreement constitutes the entire
agreement of the parties regarding the subject matter hereof, and all prior or
contemporaneous agreements, understandings, representations and statements,
oral or written, are merged into this Agreement. This Agreement will be
binding upon and inure to the benefit of the parties and, subject to the
limitations set forth in Section 9.5, their respective successors and assigns.
The provisions of this Agreement are for the exclusive benefit of the parties
and their permitted successors and assigns, and no other Person is intended to
be a third-party beneficiary or to have any rights by virtue of this Agreement.
9.9 Governing Law. This Agreement will be governed by
the laws of the State of Colorado, without regard to the conflicts of laws
rules thereof.
9.10 Interpretation. Terms used with initial capital
letters will have the meanings specified, applicable to both singular and
plural forms, for all purposes of this Agreement. All pronouns (and any
variation) will be deemed to refer to the masculine, feminine or neuter, as the
identity of the Person may require. The singular or plural includes the other,
as the context requires or permits. The word "include" (and any variation) is
used in an illustrative sense rather than a limiting sense. The word "day"
means a calendar day, and if the last day for the giving of any notice or the
taking of any other action is a day that is not a Business Day, the time for
giving such notice or taking such action will be deemed extended to the next
Business Day.
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first above written.
TELE-COMMUNICATIONS, INC.
By:
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Name:
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Title:
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TCI MUSIC, INC.
By:
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Name:
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Title:
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