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 wholly
owned 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, 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
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Person Controlling, Controlled by, or under common Control with,
such Person.
Business Day means any day other than a Saturday or
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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.
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Company has the meaning set forth in the preamble to
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this Agreement.
Company Note means a promissory note in the principal
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amount of $40,000,000 payable to the order of TCI , which
promissory note (i) will bear interest at 10% per annum, payable
(and, to the extent not paid, compounded) semiannually, (ii) will
provide for the payment of unpaid principal and accrued 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.
Control means, with respect to any Person, the
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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
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Agreement.
DMX Affiliation Agreement means an affiliation
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agreement between DMX and Satellite Services, Inc., a Wholly
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,
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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
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for sale to the public by DMX.
Fiscal Year means a year beginning January 1 and ending
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December 31.
GAAP means generally accepted accounting principles as
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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.
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with and into DMX pursuant to the Merger Agreement.
Merger Agreement means the Agreement and Plan of
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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,
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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.
Net DMX Revenues means, for any period of
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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.
Person means a human being or a corporation, general or
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limited partnership, limited or unlimited liability company,
trust, association, unincorporated organization, governmental
authority or other entity.
Residential DMX Revenues means, for any period of
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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
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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 125,000,000 shares of Series B Common
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Stock, par value $.01 per share, of the Company.
TCI System Owner means each Wholly Owned Subsidiary of
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TCI that offers DMX Services to its subscribers.
Termination Date has the meaning set forth in Section
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2.3.
Wholly Owned Subsidiary means, with respect to any
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Person, any other Person in which all the outstanding stock or
other 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 a Wholly
Owned Subsidiary of any other Wholly Owned Subsidiary.
TCI has the meaning set forth in the preamble to this
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Agreement.
II. CONTRIBUTION OF NET DMX REVENUES; ISSUANCE OF SHARES
2.1 Rights Agreement; Assignment of Net DMX Revenues
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to the Company. At the closing of the transactions contemplated
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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.
(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) 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
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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
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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
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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.
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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 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
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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
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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.
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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.
4.3 No Lien on Shares. When issued and delivered by
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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
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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
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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
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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
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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
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contemporaneously with the Closing.
VII. CLOSING
7.1 Closing. The Closing will take place on the date
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of this Agreement, contemporaneously with the Merger.
7.2 Items Delivered by TCI System Owners. At the
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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:
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(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.
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(a) TCI and any Affiliate of TCI may engage in or
possess interests in one or more other businesses or ventures of
any nature of 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.
8.2 Adjustment of Retained Percentage. Beginning at
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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.
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(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.
(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
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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
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
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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
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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
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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
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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
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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
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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 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
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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
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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:
Name:
Title:
TCI MUSIC, INC.
By:
Name:
Title:
