EXHIBIT 10.7.1
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STOCK PURCHASE AGREEMENT
BETWEEN
CROWN MEDIA HOLDINGS, INC.
AND
DIRECTV ENTERPRISES, INC.
DATED AS OF AUGUST 20, 2001
[*] Portion omitted and filed separately with the Securities and Exchange
Commission pursuant to a request for confidential treatment.
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STOCK PURCHASE AGREEMENT
This STOCK PURCHASE AGREEMENT (this "Agreement") is dated as of August
20, 2001, by and between Crown Media Holdings, Inc., a Delaware corporation (the
"Company"), and DIRECTV Enterprises, Inc., a Delaware corporation ("DIRECTV").
RECITALS
WHEREAS, the Board of the Company has determined that it is in the best
interest of the Company to issue 5,360,202 shares of its Class A Common Stock to
DIRECTV for consideration equal to the par value thereof, in order to induce
DIRECTV to cause its wholly-owned subsidiary, DIRECTV, Inc., a California
corporation, to enter into the Affiliation Agreement (as defined below) and in
anticipation of an alignment of the Company's and DIRECTV's interests that will
provide DIRECTV, Inc. with an incentive to pursue the cooperative ventures set
forth in the Side Letter (as defined below);
WHEREAS, concurrent with the execution of this Agreement, DIRECTV shall
cause DIRECTV, Inc. and the Company shall cause Crown Media United States, LLC
("Crown Media U.S.") (a Delaware limited liability company of which the Company
is the sole voting and managing member) to execute the Affiliation Agreement
providing for DIRECTV's carriage of the service known as the "Hallmark Channel;"
WHEREAS, concurrent with the delivery of the DIRECTV Shares and the
consideration therefor, DIRECTV, Inc. and Crown Media U.S. shall enter into the
Side Letter;
WHEREAS, DIRECTV acknowledges that the Company would not enter into
this Agreement without the Affiliation Agreement and the Side Letter.
NOW, THEREFORE, in consideration of the representations, warranties,
covenants and agreements set forth herein, and for other good and valuable
consideration the receipt and sufficiency of which are hereby acknowledged, the
Company and DIRECTV hereby agree as follows:
1. DEFINITIONS
The following terms used herein shall have the following meanings:
"ACT" means the United States Securities Act of 1933, as amended.
"AFFILIATE" has the meaning set forth in Rule 12b-2 of the regulations
promulgated under the Exchange Act.
"AFFILIATION AGREEMENT" means that certain Affiliation Agreement
between DIRECTV, Inc. and Crown Media U.S. dated as of the date hereof.
"AGREEMENT" has the meaning set forth in the Preamble.
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"AMENDED STOCKHOLDERS AGREEMENT" shall mean the Stockholders Agreement
as amended in accordance with Section 5.3.
"CLOSING" has the meaning set forth in Section 2.2.
"COMPANY" has the meaning set forth in the Preamble.
"COMPANY BOARD" has the meaning set forth in Section 5.3.
"COMPANY DEFAULT" has the meaning set forth in Section 13.
"COMPANY SEC REPORTS" means all reports, schedules, forms, statements
and other documents required to be filed by the Company with the SEC since the
date of its initial public offering, including all exhibits thereto.
"CROWN MEDIA U.S." has the meaning set forth in the Recitals.
"DIRECTV" has the meaning set forth in the Preamble.
"DIRECTV DEFAULT" has the meaning set forth in Section 13.
"DIRECTV, INC." has the meaning set forth in the Recitals.
"DIRECTV OBSERVER" has the meaning set forth in Section 5.3(a).
"DIRECTV PROPORTION" has the meaning set forth in Section 12(a).
"DIRECTV SHARES" has the meaning set forth in Section 2.1.
"EQUITY" has the meaning set forth in Section 12(a).
"EXCHANGE ACT" means the United States Securities Exchange Act of 1934,
as amended.
"FILMS TRANSACTION" means the transaction, as set forth in the Purchase
and Sale Agreement, dated April 10, 2001, between the Company and Hallmark
Distribution, LLC, pursuant to which the Company anticipates issuing up to
35,294,118 shares of its Class A Common Stock to Hallmark Entertainment
Distribution, LLC, in connection with the proposed purchase by the Company of
certain films and related rights and properties of Hallmark Distribution, LLC.
"FORM 10-Q" has the meaning set forth in Section 3.4.
"FULLY DILUTED BASIS" means taking into account (i) all outstanding
shares of capital stock of the Company, including shares of common stock and
preferred stock of the Company; (ii) any outstanding or authorized options,
warrants and purchase rights (including subscription, conversion, exercise or
preemptive rights and rights of first refusal), and (iii) any other contracts or
commitments for the purchase or acquisition from the Company of any of its
securities or that could require the Company to issue, sell or otherwise cause
to become outstanding any of its
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securities, excluding (x) commitments pursuant to the Films Transaction; and (y)
obligations pursuant to any "most favored nations" clause contained in any
distribution agreement of Crown Media U.S.
"GOVERNMENTAL ENTITY" means any foreign, national, state, municipal or
local government, any instrumentality, subdivision, court, administrative agency
or commission or other authority thereof, or any quasi-governmental or private
body exercising any regulatory, taxing, or other governmental or
quasi-governmental authority.
"INTELLECTUAL PROPERTY" has the meaning set forth in Section 3.1.
"LAWS" means all applicable laws, regulations, rules, judgments, orders
and decrees of Governmental Entities.
"LIABILITIES" means, absolute or contingent (individually or in the
aggregate), any and all claims, actions, suits, demands, assessments, judgments,
losses, liabilities, damages, costs, royalties, payments, license fees and
expenses (including interest, penalties, attorneys' fees, accounting fees and
investigation costs).
"LIBERTY" has the meaning set forth in Section 5.3(c).
"LIEN" means any mortgage, lien, pledge, charge, security interest,
restriction on voting or transfer, or other encumbrance.
"ORGANIZATIONAL DOCUMENTS" means the certificate of incorporation,
bylaws or other governing documents of the Company as of the date hereof.
"OTHER DISTRIBUTOR PROPORTION" has the meaning set forth in Section
12(a).
"PAR CONSIDERATION" has the meaning set forth in Section 2.1.
"PERSON" means an individual, corporation, partnership, limited
liability company, association, trust or other entity or organization, including
without limitation, a Governmental Entity.
"SEC" means the Securities and Exchange Commission.
"SHARE DELIVERY DATE" has the meaning set forth in Section 2.2.
"SIDE LETTER" means that letter agreement entered into between DIRECTV,
Inc. and the Company on the Share Delivery Date, the form and substance of which
is set forth in Schedule 1 attached hereto.
"STOCKHOLDERS AGREEMENT" has the meaning set forth in Section 4.4(b).
2. ISSUANCE OF THE DIRECTV SHARES
2.1 Issuance of the DIRECTV Shares. Subject to the provisions of this
Agreement, the Company shall issue and deliver to DIRECTV, and DIRECTV shall
accept from the
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Company, 5,360,202 shares of Class A Common Stock of the Company, par value
$0.01 per share (the "DIRECTV Shares"), representing, as of August 17, 2001, a
seven percent (7%) equity interest in the Company on a Fully Diluted Basis for
consideration in the amount of $53,602.02, which amount represents the par value
thereof (the "Par Consideration").
2.2 Closing. Unless this Agreement has been terminated and the
transactions contemplated under this Agreement have been abandoned pursuant to
Section 7 and subject to the fulfillment or, if permitted, waiver of the
conditions set forth in Section 6, the delivery and closing of the issuance of
the DIRECTV Shares (the "Closing") will take place at the Los Angeles offices of
the Company on a date that is mutually agreed by the parties, but in no event
later than September 7, 2001 (the "Share Delivery Date").
2.3 Deliveries at the Closing. At the Closing, (i) the Company shall
deliver or cause to be delivered to DIRECTV those certificates, instruments and
documents set forth in Section 6.2 below, and (ii) DIRECTV shall deliver or
cause to be delivered to the Company those certificates, instruments and
documents set forth in Section 6.1 below.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to DIRECTV that the
statements contained in this Section 3 are true and complete as of the date of
this Agreement and will be true and complete as of the Share Delivery Date (as
though made then and as though the Share Delivery Date were substituted for the
date of this Agreement) as follows:
3.1 Corporate Organization and Qualification. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and has the requisite corporate power and authority to
own, lease and operate its business and assets and to carry on its business as
presently conducted. The Company has obtained all licenses, permits,
qualifications, franchises and other governmental authorizations material or
necessary to the operation of its business ("Licenses") and is in compliance
with all such Licenses, except for such failure to obtain such Licenses or
violations thereof which could not reasonably be expected to have a material
adverse effect on the business, financial condition or prospects of the Company.
The Company owns, or has the right to use, all trademarks, tradenames, service
marks, domain names, trade dress, patents, copyrights, technology, know-how,
trade secrets and processes material to the conduct by the Company of its
business in the ordinary course (collectively, "Intellectual Property"). No
claim has been asserted and is pending by any Person challenging or questioning
the use of any such intellectual property or the validity or effectiveness of
any such intellectual property, and to the Company's knowledge, the use of such
Intellectual Property does not infringe on the rights of any Person.
3.2 Crown Media U.S. The Company is the sole voting and managing member
of Crown Media U.S. and has the requisite power and authority to make the
representations and warranties and covenants set forth herein with respect to
Crown Media U.S. and to cause Crown Media U.S. to fulfill its obligations
contained in this Agreement.
3.3 Corporate Authority. The Company and Crown Media U.S., as
appropriate, each have the requisite corporate power and authority to execute
and deliver this Agreement, the
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Amended Stockholders Agreement, the Affiliation Agreement and the Side Letter,
and to perform their respective obligations thereunder. The execution and
delivery of this Agreement, the Amended Stockholders Agreement, the Affiliation
Agreement and the Side Letter by the Company and Crown Media U.S., as
appropriate, and the performance of their respective obligations thereunder have
been duly authorized by all necessary corporate actions of the Company and Crown
Media U.S. No consent, approval, order or authorization of, or registration,
declaration or filing is required by or with respect to the Company in
connection with the execution and delivery of this Agreement and the Amended
Stockholders Agreement by the Company. or the performance of its obligations
thereunder, by (i) any Governmental Entity, including the SEC and any state
securities agency, except for the filing with the SEC of a Current Report on
Form 8-K and a Form D with respect to the issuance of the DIRECTV Shares and a
filing to be made pursuant to Section 25102.1(d) of the California Corporate
Securities Law to be filed with the California Department of Corporations, (ii)
the Nasdaq National Market or any other exchange on which any securities of the
Company are trading, quoted or listed, except for the filing of a Notification
Form: Change in the Number of Shares Outstanding to be filed with the Nasdaq
Stock Market; or (iii) any holder of equity or debt securities of the Company,
except for the Stockholders party to the Amended Stockholders Agreement. This
Agreement and the Affiliation Agreement are, and the Amended Stockholders
Agreement and the Side Letter upon their due and valid execution and delivery by
the parties thereto will be, legal, valid and binding obligations of the Company
and Crown Media U.S., as appropriate, enforceable against each in accordance
with their terms except as such enforceability may be limited by bankruptcy,
insolvency, reorganization or other similar laws affecting the enforcement of
creditors' rights generally. Neither the execution and delivery of this
Agreement, the Affiliation Agreement, the Side Letter and the Amended
Stockholders Agreement by the Company and Crown Media, U.S., as appropriate, nor
the performance of their respective obligations thereunder will (i) violate any
provision of their respective Organizational Documents; (ii) contravene any Laws
that affect the Company and Crown Media U.S.; or (iii) contravene, conflict
with, or result in a breach or default (or give rise to a right of termination)
of any provision of any license, agreement or instrument to which the Company or
an Affiliate is a party which would have a material adverse effect on the
business, financial condition or prospects of the Company.
3.4 Capital Stock of the Company.
(a) As of August 17, 2001 the authorized capital stock of the
Company consists of (i) 200,000,000 shares of Class A Common Stock, $0.01 par
value per share, of which 34,799,370 shares are issued and outstanding,
10,000,000 have been reserved for issuance upon the conversion of options under
the Amended and Restated Crown Media Holdings, Inc. 2000 Long Term Incentive
Plan and 30,670,422 have been reserved for issuance upon conversion of Class B
Common Stock; (ii) 120,000,000 shares of Class B Common Stock, $0.01 par value
per share, of which 30,670,422 are issued and outstanding; and (iii) 10,000,000
shares of Preferred Stock, $0.01 par value per share, none of which are issued
and outstanding. All issued and outstanding shares Class A Common Stock and
Class B Common Stock of the Company are duly authorized, validly issued, fully
paid and non-assessable, and no class of the capital stock of the Company is
entitled to preemptive rights.
(b) Upon issuance in accordance with the terms of this
Agreement and against full delivery of the consideration therefor, the DIRECTV
Shares will have been duly authorized
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and validly issued, will be fully paid and non-assessable, and will not have
been issued in violation of any preemptive rights. Other than as set forth in
Section 3.3(a) hereof and in Section 3.6 of the Stockholders Agreement, there
are no authorized, issued or outstanding (i) securities of the Company
convertible into or exchangeable for equity securities of the Company, (ii)
agreements, commitments, arrangements, warrants, options or other rights to
acquire from the Company, or other obligations or undertakings of any kind of
the Company, to issue any capital stock or securities convertible into or
exchangeable for equity securities of the Company or to issue, grant, extend or
enter into any such agreement, commitment or arrangement, warrant, option, or
other rights or undertaking, or (iii) bonds, debentures, notes or other
obligations or securities of the Company, the holders of which have the right to
vote with the stockholders of the Company, on any matter submitted for the vote
of the Company stockholders. There are no outstanding obligations of the Company
to repurchase, redeem or otherwise acquire any shares of capital stock of the
Company. Other than the Stockholders Agreement, there is no voting trust or
other agreement or understanding to which the Company is a party or is bound
with respect to the voting of the capital stock or other voting securities of
the Company.
(c) Based upon the representations and warranties of DIRECTV
set forth in this Agreement, the DIRECTV Shares will be issued in compliance
with all applicable U.S. federal and state securities laws.
(d) The DIRECTV Shares represent, as of August 17, 2001, on a
Fully Diluted Basis, a seven-percent (7%), equity interest in the Company.
(e) The issuance of the shares of the Company's Class A Common
Stock pursuant to the Films Transaction shall dilute the 7% equity interest
referred to in Section 3.3(d) above by not more than 2.33% such that immediately
following the Films Transaction DIRECTV's equity interest in the Company shall
be not less than 4.67%.
3.5 Liabilities. Except as set forth on Schedule 3.4, the Company has no
Liabilities except (i) the Liabilities set forth in the financial statements or
the notes thereto, contained in its Quarterly Report on Form 10-Q for the
quarter ended June 30, 2001 ("Form 10-Q"), as filed with the SEC, and (ii)
Liabilities which have been incurred subsequent to the filing of the Form ▇▇-▇,
▇▇▇▇ of which are material to the Company, individually or in the aggregate, and
all of which are in the ordinary course of business.
3.6 SEC Filings. The Company has filed all required Company SEC Reports.
None of the Company SEC Reports, as of their respective dates (and, if amended
or superseded by a filing prior to the date of this Agreement, then on the date
of such filing), contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading. Each of the financial statements (including the related notes)
included in the Company SEC Reports presents fairly, in all material respects,
the consolidated financial position and consolidated results of operations and
cash flows of the Company as of the respective dates or for the respective
periods set forth therein, all in conformity with U.S. generally accepted
accounting principles consistently applied during the periods involved except as
otherwise noted therein, and subject, in the case of the unaudited interim
financial statements, to normal and recurring year-end adjustments that have not
been and are not expected to be
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material in amount. Since the initial public offering of the Company there has
been no material change in the Company's accounting methods or principles except
as described in the notes to the consolidated financial statements of the
Company contained in the Company SEC Reports. All of such Company SEC Reports,
as of their respective dates (and as of the date of any amendment to the
respective Company SEC Report), complied as to form in all material respects
with the applicable requirements of the Act and the Exchange Act and the rules
and regulations promulgated thereunder.
3.7 Brokers or Finders. Neither the Company nor any of its directors,
officers or employees has employed any broker or finder or incurred any
liability for any brokerage fees, commissions or finders fees in connection with
the issuance of the DIRECTV Shares.
3.8 Films Transaction. The Films Transaction shall be based on a
valuation of approximately $820 million as set forth in the Purchase and Sale
Agreement between the Company and Hallmark Entertainment Distribution, LLC,
dated April 10, 2001. Pursuant to the Films Transaction, the Company shall
assume $220 million in debt and payables and issue up to 35,294,118 shares of
the Company's Class A Common Stock to Hallmark Entertainment Distribution, LLC,
depending upon the average closing price of the Company's Class A Common Stock
from November 6, 2000 though the closing of that transaction, as consideration
for the purchase of the film assets.
3.9 MFN Exclusion. The Company does not make any representations or
warranties as to, and none of the foregoing representations and warranties
extend to, any obligations or liabilities it may have pursuant to any "most
favored nations" clauses contained in any distribution agreements to which any
of its subsidiaries may be a party (subject to Section 12(a) of this Agreement).
3.10 Material Contracts. The agreements set forth on Schedule 3.9
hereto represent all of the material agreements, licenses or instruments
relating to the securities and financing arrangements of the Company and any
entity it controls.
4. REPRESENTATIONS AND WARRANTIES OF DIRECTV
DIRECTV hereby represents and warrants to the Company that the
statements contained in this Section 4 are true and complete as of the date of
this Agreement and will be true and complete as of the Share Delivery Date (as
though made then and as though the Share Delivery Date were substituted for the
date of this Agreement) as follows:
4.1 Corporate Organization and Qualification. DIRECTV is a corporation
validly existing and in good standing under the laws of the State of Delaware.
4.2 DIRECTV, Inc. DIRECTV, Inc. is the wholly owned subsidiary of
DIRECTV. DIRECTV has the requisite power and authority to make the
representations and warranties and covenants set forth herein with respect to
DIRECTV, Inc. and to cause DIRECTV, Inc. to fulfill its obligations contained in
this Agreement.
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4.3 Corporate Authority. DIRECTV and DIRECTV, Inc., as appropriate,
each have the requisite corporate power and authority to execute and deliver
this Agreement, the Affiliation Agreement and the Side Letter and to perform
their respective obligations thereunder. The execution and delivery of this
Agreement, the Affiliation Agreement and the Side Letter by DIRECTV and DIRECTV,
Inc., as appropriate, and the performance of their respective obligations
thereunder have been duly authorized by all necessary corporate actions. Such
agreements and undertakings are the legal, valid and binding obligations of
DIRECTV and DIRECTV, Inc., as appropriate, enforceable against each in
accordance with their terms except as such enforceability may be limited by
bankruptcy, insolvency, reorganization or other similar laws affecting the
enforcement of creditors' rights generally.
4.3 Reliance on Own Advisors; Disclosure of Information. DIRECTV has
relied completely on the advice of DIRECTV's own tax, investment, financial,
legal or other advisors and has not relied on the Company or any of the
Company's affiliates, officers, directors, attorneys, accountants, or any
affiliates thereof for any tax or legal advice. DIRECTV has had an opportunity
to ask questions of and receive answers from the Company, and its
representatives regarding the Company, and its businesses, assets, results of
operations, and financial condition and the terms and conditions of the issuance
of the DIRECTV Shares. DIRECTV acknowledges that the Company has made no
representation or warranty as to the DIRECTV Shares, the businesses, assets,
results of operations or financial condition, except for the warranties
expressly set forth in this Agreement.
4.4 Investment Representations.
(a) DIRECTV acknowledges that (i) its acquisition of the DIRECTV Shares
involves a high degree of risk, (ii) it is familiar with the type of investment
that the DIRECTV Shares constitute, and (iii) it can bear the economic risks of
an investment in the DIRECTV Shares for an indefinite period and, consequently,
without limiting the generality of the foregoing, can sustain a loss of its
entire investment in the DIRECTV Shares in the event that such a loss should
occur. DIRECTV acknowledges that no guarantees have been made or can be made
with respect to the future value, if any, of the DIRECTV Shares, or the
profitability or success of the Company.
(b) DIRECTV represents that the DIRECTV Shares are being acquired for
its own account solely for the purpose of investment and not with a view to, or
for sale or other disposition in connection with, any distribution or public
offering thereof within the meaning of the Act or any state's securities laws.
DIRECTV acknowledges that the DIRECTV Shares have not been registered under the
Act or any state's securities laws, and that the DIRECTV Shares may not be
transferred, pledged or sold except pursuant to the registration provision of
the Act and such state securities laws or pursuant to applicable exemptions
therefrom. DIRECTV understands that the certificates representing the DIRECTV
Shares, in addition to any other legend that may be required to be placed on the
certificates, will be printed with a legend substantially similar to the
following:
THE STOCK REPRESENTED BY THIS CERTIFICATE HAS NOT BEEN REGISTERED
PURSUANT TO THE FEDERAL SECURITIES ACT OF 1933, AS AMENDED, OR ANY
FEDERAL OR STATE SECURITIES LAW. NEITHER THIS
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SECURITY NOR ANY PORTION HEREOF OR INTEREST HEREIN MAY BE SOLD,
ASSIGNED, TRANSFERRED, PLEDGED (EXCEPT TO THE ISSUER HEREOF) OR
OTHERWISE DISPOSED OF UNLESS THE SAME IS REGISTERED UNDER SAID ACT AND
ANY APPLICABLE FEDERAL OR STATE SECURITIES LAW, OR UNLESS AN EXEMPTION
FROM SUCH REGISTRATION IS AVAILABLE. THE SECURITIES ARE ALSO SUBJECT TO
PROVISIONS OF THE AMENDED AND RESTATED STOCKHOLDERS AGREEMENT DATED
MARCH 14, 2001, AS IT MAY BE AMENDED FROM TIME TO TIME IN ACCORDANCE
WITH THE PROVISIONS THEREOF (THE "STOCKHOLDERS AGREEMENT"), WHICH
CONTAINS RESTRICTIONS ON TRANSFER. COPIES OF THE STOCKHOLDERS AGREEMENT
MAY BE OBTAINED FROM THE SECRETARY OF THE COMPANY.
DIRECTV further understands that the reliance of the Company and others
upon the exemption from registration is predicated in part upon the
representations and warranties made in this Section 4.4 by DIRECTV.
(c) DIRECTV represents that it is an "Accredited Investor" as defined
in Rule 501(a) of Regulation D promulgated under the Act.
(d) Neither DIRECTV nor any of its directors, officers or employees has
employed any broker or finder or incurred any liability for any brokerage fees,
commissions or finders fees in connection with the issuance of the DIRECTV
Shares.
4.5 Stock Ownership. Prior to the issuance of the DIRECTV Shares,
DIRECTV does not have direct or indirect beneficial ownership (as such term is
defined in Rule 13d-3 promulgated under the Exchange Act) of any shares of the
Company's outstanding capital stock.
5. CERTAIN COVENANTS OF THE COMPANY AND DIRECTV
5.1 Satisfaction of Conditions. Each party to this Agreement shall use
reasonable efforts to satisfy promptly all conditions precedent to the
obligations of the other party to consummate the transactions contemplated by
this Agreement.
5.2 Negative Covenants of the Company. The Company shall not during the
period from the date of this Agreement and continuing until the Share Delivery
Date:
(a) Dividends; Changes in Share Capital. The Company shall not and
shall not propose to, (i) declare or pay any dividends on or make other
distributions in respect of any of its capital stock, except dividends by the
Company in the ordinary course, (ii) split, combine or reclassify any of its
capital stock or issue or authorize or propose the issuance of any other
securities in respect of, in lieu of or in substitution for, shares of its
capital stock, or (iii) repurchase, redeem or otherwise acquire any shares of
its capital stock or any securities convertible into or exercisable for any
shares of its capital stock.
(b) Issuance of Securities. The Company shall not issue, deliver or
sell, or authorize the issuance, delivery or sale of, any shares of its capital
stock of any class, any securities
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convertible into or exercisable for, or any rights, warrants or options to
acquire, any shares or voting debt securities, or enter into any agreement with
respect to any of the foregoing, other than (i) the possible issuance of shares
of the Company's Class A Common Stock pursuant to the Films Transaction and (ii)
upon the exercise of stock options issued in the ordinary course prior to the
date hereof in accordance with the terms of the stock option plans of the
Company as in effect on the date of this Agreement.
(c) Organizational Documents. Except to the extent required to comply
with its obligations hereunder, by law or by the rules and regulations of the
Nasdaq National Market, the Company shall not amend or propose to amend its
Organizational Documents.
5.3 Affirmative Covenants of the Company. During the period from the
date of this Agreement and on or prior to the Share Delivery Date, the Company
shall execute and deliver and shall use its best efforts to cause the other
parties thereto to execute and deliver the Amended Stockholders Agreement.
Capitalized terms used in this Section 5.3 and not otherwise defined shall the
meanings ascribed to them in the Stockholders Agreement. The Amended
Stockholders Agreement shall include DIRECTV as a party thereto with the same
rights and obligations of a Minority Stockholder as currently set forth therein,
including the Tag Along Rights described in Section 3.5 thereof, the Demand
Registration Rights set forth in Section 4 thereof and the Piggy Back Rights set
forth in Section 4.2 thereof. DIRECTV shall not be entitled to nominate any
members to the Company's Board of Directors (the "Company Board"). The Amended
Stockholders Agreement shall include all conforming amendments necessary to
effectuate the rights granted to DIRECTV hereunder. The following specific
provisions shall be included in the Amended Stockholders Agreement:
(a) Board Observer. For as long as DIRECTV beneficially owns at least
75% of the total shares of Class A Common Stock to be issued on the Share
Delivery Date (appropriately adjusted for stock splits or stock dividends or in
connection with a combination of shares, recapitalization, merger, consolidation
or other reorganization), DIRECTV shall have the right to designate a non-voting
observer to the Company Board ("DIRECTV Observer"), who is reasonably acceptable
to the Company Board, who shall have the right to notice of and attend all
Company Board meetings. The DIRECTV Observer shall be entitled to receive and
have full access to all information and materials provided to any of the members
of the Company Board (except where materials are provided only to a committee
that was appointed by the Company Board) at the same time as the Company Board
member(s) receive such materials subject to the following limitation: In the
event that the matter being considered by the Company Board directly concerns a
transaction with a domestic distributor of the Hallmark Channel, with a
distributor outside of the United States where DIRECTV, Inc. or an Affiliate has
operations or with an entity affiliated with DIRECTV, the Company Board may
exclude the DIRECTV Observer from such portion of the Company Board meeting and
redact such information and materials. However, if the Company issues any Equity
to any distributor of the Hallmark Channel, the Company shall give DIRECTV
written notice of such issuance not less than ten (10) business days prior to
such issuance and include therein the amount of Equity to be issued, the
obligations assumed by such distributor in exchange for the Equity, including,
without limitation, any obligations that are similar to those set forth on
Schedule 10.11 hereof, the obligations of the Company and its Affiliates in
connection with such Equity issuance, and the
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Other Distributor Proportion. DIRECTV shall be and shall cause the DIRECTV
Observer to be obligated to hold in confidence any and all information received
in any Company Board meeting or otherwise in the DIRECTV Observer's capacity as
such, except to the extent such information is publicly disclosed by the
Company, provided that the DIRECTV Observer shall be entitled to report any and
all information to DIRECTV. DIRECTV shall not and DIRECTV shall ensure that the
DIRECTV Observer shall not use such information for any purpose other than for
DIRECTV's analysis of the Company's financial condition and operations and shall
comply with all limitations of the law, including securities laws, regarding the
use of such information.
(b) Affiliate Transactions. The following agreements shall be
specifically excluded from the definition of Affiliate Transactions: (i) the
affiliation agreement between DIRECTV, Inc. and Crown Media U.S. dated as of
March 6, 2000 for the "Odyssey" Service; (ii) the Affiliation Agreement; (iii)
this Agreement and (iv) the undertakings set forth in the Side Letter, and, in
each case, any amendments and modifications thereto.
(c) Equity Purchase Rights. If the Company grants any Person those
rights provided to Liberty Media Corporation, together with any successors of
Liberty Media Corporation or assignees of Liberty Media Corporation's rights
(collectively "Liberty"), pursuant to Section 3.6 of the Stockholders Agreement,
which rights permit Liberty to maintain a minimum equity interest in the Company
in the event the Company sells common stock for cash, then the Company shall
grant DIRECTV the same rights.
5.4 Affirmative Covenants of DIRECTV. DIRECTV agrees to cause DIRECTV,
Inc. to execute and perform pursuant to the Affiliation Agreement and the Side
Letter.
5.5 Material Obligations. The parties acknowledge that performance of
the covenants hereunder is a material obligation of this Agreement.
5.6 Further Assurances. From and after the Closing, the Company shall
execute and deliver, or cause Crown Media U.S. to execute and deliver, and
DIRECTV shall execute and deliver, or cause DIRECTV, Inc. to execute and
deliver, any assignments or assurances and to take and do, in the name and on
behalf of such parties, as appropriate, any other actions and things reasonably
necessary to carry out the intention of this Agreement.
6. CONDITIONS TO THE ISSUANCE
6.1 Conditions to the Obligations of the Company. The obligation of the
Company to consummate the transactions to be performed by it in connection with
the Closing is subject to the satisfaction of the conditions that:
(a) DIRECTV shall have delivered to the Company the Par Consideration
by wire transfer or check at or prior to the Closing;
(b) this Agreement and the Amended Stockholders Agreement shall have
been executed by DIRECTV and delivered at or prior to the Closing;
11
(c) the Affiliation Agreement and the Side Letter shall have been
executed by DIRECTV, Inc. and delivered at or prior to the Closing;
(d) the representations and warranties of DIRECTV as set forth in
Section 4 hereof shall be true and complete as of the Share Delivery Date;
(e) DIRECTV shall have performed and complied in all material respects
with all obligations and covenants required to be performed or complied with by
it under this Agreement at or prior to the Share Delivery Date;
(f) there shall be no litigation pending or threatened that, if
resolved in favor of the complainant, would prevent consummation of the
transaction or rescission of the consummation;
(g) DIRECTV shall have provided to the Company an officer's
certificate, dated as of the Share Delivery Date, in form and substance as set
forth in Exhibit "D" attached hereto certifying that each of the foregoing is
true and complete as of the Share Delivery Date.
The Company may waive in writing any condition specified in this
Section 6.1 if it executes a statement so stating at or prior to the Closing.
6.2 Conditions to the Obligations of DIRECTV. The obligation of DIRECTV
to consummate the transactions to be performed by it in connection with the
Closing is subject to the satisfaction of the conditions that:
(a) the Company shall have delivered the resolutions of the Company
Board authorizing execution of this Agreement (including the issuance of the
DIRECTV Shares), the Amended Stockholders Agreement, the Side Letter and the
Affiliation Agreement and the performance of the Company's obligations under
this Agreement, the Amended Stockholders Agreement and the Side Letter;
(b) this Agreement, the Side Letter and the Amended Stockholders
Agreement shall have been executed by the Company and delivered at or prior to
the Closing;
(c) the Affiliation Agreement shall have been executed by Crown Media
U.S. and delivered at or prior to the Closing;
(d) the Amended Stockholders Agreement shall have been executed by all
other parties to the Stockholders Agreement and delivered at or prior to the
Closing;
(e) the Company shall have delivered to DIRECTV the stock certificates
representing all of the DIRECTV Shares, free and clear of all Liens, at or prior
to the Closing;
(f) the representations and warranties of the Company as set forth in
Section 3 hereof, shall be true and complete as of the Share Delivery Date;
(g) there shall be no litigation pending or threatened that, if
resolved in favor of the complainant, would prevent consummation of the
transaction or rescission of the consummation;
12
(h) the Company shall have given any notices to third parties,
including any Governmental Entity, the NASDAQ National Market or any other
exchange, and shall have obtained any third party consents necessary to
consummation of the transactions hereby;
(i) the Company shall have performed and complied in all material
respects with all obligations and covenants required to be performed or complied
with by it under this Agreement at or prior to the Share Delivery Date;
(j) the Company shall have provided to DIRECTV an officers'
certificate, dated as of the Share Delivery Date, in form and substance as set
forth in Exhibit "C" attached hereto, certifying that each of the foregoing is
true and complete as of the Share Delivery Date;
(k) DIRECTV shall have received from Holland & ▇▇▇▇ LLP, outside
counsel to the Company, an opinion in form and substance as set forth in Exhibit
"A-1" attached hereto, addressed to DIRECTV, and dated as of the Share Delivery
Date;
(l) DIRECTV shall have received from Morris, Nichols, Arsht & ▇▇▇▇▇▇▇,
outside counsel to the Company, an opinion in form and substance as set forth in
Exhibit "A-2" attached hereto, addressed to DIRECTV, and dated as of the Share
Delivery Date; and
(m) DIRECTV shall have received from the General Counsel to the
Company, ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Esq., an opinion in form and substance as set
forth in Exhibit "B" attached hereto, addressed to DIRECTV, and dated as of the
Share Delivery Date.
DIRECTV may waive in writing any condition specified in this Section
6.2 if it executes a statement so stating at or prior to the Closing.
7. TERMINATION
7.1 Termination. This Agreement may be terminated and the transactions
contemplated hereby may be abandoned at any time prior to the Closing by mutual
written consent of the Company and DIRECTV. In the event of the termination of
this Agreement pursuant to this Section 7.1, all provisions of this Agreement,
other than Sections 10.11, 10.12 and 11, shall forthwith become null and void
and have no effect, without any liability on the part of any party hereto or its
respective directors or officers.
7.2 Termination by DIRECTV. DIRECTV may terminate this Agreement in the
event the conditions set forth in 6.2 are not satisfied by the Share Delivery
Date unless such failure to satisfy a condition is a direct result of a breach
by DIRECTV, or otherwise waived by DIRECTV. If this Agreement is terminated
pursuant to this Section 7.2 as a result of the Company's failure to deliver the
DIRECTV Shares, then Sections 9, 10.11, 10.12 and 11 of this Agreement shall
remain in effect.
7.3 Termination by the Company. The Company may terminate this
Agreement in the event the conditions set forth in Section 6.1 are not satisfied
on or prior to the Share Delivery Date unless such failure is a direct result of
a breach by the Company or otherwise waived by the Company. If this Agreement is
terminated pursuant to this Section 7.3, then Sections 9, 10.11, 10.12 and 11 of
this Agreement shall remain in effect. Notwithstanding anything herein to the
13
contrary, upon DIRECTV's launch of the service known as "The Hallmark Channel"
pursuant to the Affiliation Agreement, neither the Company nor Crown Media U.S.
shall have the rights pursuant to this Section 7.3 to terminate this Agreement
unless and until DIRECTV fails to comply with the conditions set forth in
Section 6.1 as of the Share Delivery Date and such failure to satisfy a
condition is not a direct result of an action by the Company.
7.4 Survival. Nothing in this Section 7 shall, however, relieve any
party to this Agreement of liability for breach of this Agreement occurring
prior to such termination, or for breach of any provision of this Agreement
which specifically survives termination hereunder.
8. TRANSFER TAXES
DIRECTV shall be responsible for the payment of all national, state,
local, municipal and other transfer, stamp, sales, use or other similar taxes
(and all recording or filing fees) resulting from the issuance of the DIRECTV
Shares pursuant to this Agreement.
9. INDEMNIFICATION
9.1 Indemnification by DIRECTV. DIRECTV recognizes that the issuance of
the DIRECTV Shares is based upon representations, warranties and covenants
contained herein and DIRECTV agrees to indemnify the Company and its officers
and directors and to hold them harmless against any liability, costs or expenses
(including, without limitation, reasonable attorneys' fees) arising by reason of
or in connection with any misrepresentation or any breach of the
representations, warranties and covenants by, or of, DIRECTV herein.
9.2 Indemnification by the Company. The Company recognizes that the
acceptance by DIRECTV of the DIRECTV Shares is based upon representations,
warranties and covenants contained herein and the Company agrees to indemnify
DIRECTV and its officers and directors and to hold them harmless against any
liability, costs or expenses (including, without limitation, reasonable
attorneys' fees) arising by reason of or in connection with any
misrepresentation or any breach of the representations, warranties and covenants
by, or of, the Company herein.
9.3 Procedures for Indemnification; Third Party Claim.
(a) If any third party shall notify any party to this Agreement (the
"Indemnified Party") with respect to any matter (a "Third Party Claim") which
may give rise to a claim for indemnification against any other party to this
Agreement (the "Indemnifying Party") under this section 9, then the Indemnified
Party shall promptly give written notice ("Written Notice") to the Indemnifying
Party thereof in writing; provided, however, that no delay on the part of the
Indemnified Party in notifying the Indemnifying Party shall relieve the
Indemnifying Party from any obligation hereunder unless (and then solely to the
extent) the Indemnifying Party thereby is prejudiced.
(b) The Indemnifying Party shall have the right to defend, or upon the
written request from the Indemnified Party, the Indemnifying Party shall be
required to defend at the cost of the Indemnifying Party and through counsel of
its own choosing (reasonably acceptable to the Indemnified Party), any Third
Party Claim set forth in a Written Notice giving rise to such Third
14
Party Claim for indemnification. In the event the Indemnifying Party undertakes
to defend any such Third Party Claim, it shall promptly (and in any event, no
later than fifteen (15) days after receipt of the Written Notice) notify the
Indemnified Party in writing of its intention to do so. If the Indemnifying
Party fails to notify the Indemnified Party of its intent to, or refuses after
receipt of the written request from the Indemnified Party to, undertake the
defense of such Third Party Claim, then the Indemnified Party may do so at the
expense of the Indemnifying Party, provided that such attorney's fees and costs
are reasonable. The parties shall fully cooperate in the defense of any Third
Party Claim. After the assumption of the defense by the Indemnifying Party, the
Indemnifying Party shall not be liable for any legal or other expenses
subsequently incurred by the Indemnified Party, in connection with such defense,
but the Indemnified Party may participate in such defense at its own expense. No
settlement of a Third Party Claim defended by the Indemnifying Party shall be
made without the prior written consent of the Indemnified Party, such consent
not to be unreasonably withheld. The Indemnifying Party shall not, except with
prior written consent of the Indemnified Party, consent to the entry of a
judgment or settlement which does not include as an unconditional term thereof,
the giving by the claimant or plaintiff to the Indemnified Party of an
unconditional release from all liability in respect of such Third Party Claim.
(c) In the event any of the conditions in clause (b) above is or
becomes unsatisfied however, (i) the Indemnified Party may defend against, and
consent to the entry of any judgment or enter into any settlement with respect
to, the Third Party Claim in any manner it reasonably may deem appropriate (and
the Indemnified Party need not consult with, or obtain any consent from, any
Indemnifying Party in connection therewith), (ii) subject to Section 9.3(b)
above, the Indemnifying Party will reimburse the Indemnified Party promptly and
periodically for the costs of defending against the Third Party Claim (including
reasonable attorney's fees and expenses), and (iii) subject to Section 9.3(b)
above, the Indemnifying Party will remain responsible for any liabilities, costs
and expenses the Indemnified Party may suffer resulting from, arising out of,
relating to, in the nature of, or caused by the Third Party Claim, which gives
rise to a right to indemnification pursuant to Section 9.1 or 9.2, as the case
may be, to the fullest extent provided in this Section 9.
9.4 Limitations on Indemnity. The representations and warranties made
herein by the parties hereto shall survive the Closing for a period of 24 months
from the date hereof, and no party shall bring a claim or action with respect to
such representation or warranty at any time thereafter. This Section 9.4 shall
not limit any covenant or agreement of the parties hereto, which by its terms
contemplates performance after the Closing of this Agreement.
9.5 Survival. Termination of this Agreement shall not affect the
continuing obligations of the Company and DIRECTV as indemnitors hereunder.
9.6 NOTWITHSTANDING ANYTHING TO THE CONTRARY IN THIS AGREEMENT, IN NO
EVENT SHALL ANY PARTY BE LIABLE FOR ANY INCIDENTAL OR CONSEQUENTIAL DAMAGES,
WHETHER FORESEEABLE OR NOT, OCCASIONED BY ANY FAILURE TO PERFORM OR THE BREACH
OF ANY OBLIGATION UNDER THIS AGREEMENT FOR ANY CAUSE WHATSOEVER, WHETHER BASED
ON NEGLIGENCE OR OTHERWISE.
15
10. MISCELLANEOUS
10.1 Entire Agreement. This Agreement, together with the Side Letter,
the Affiliation Agreement and the Amended Stockholders Agreement, constitute the
entire agreement of the parties hereto with respect to the subject matter hereof
and thereof and supersede all prior agreements and undertakings, both written
and oral, with respect to the subject matter hereof and thereof. It is agreed
that neither party has entered into this Agreement in reliance upon any
representation, warranty or undertaking of the other party which is not
expressly set forth in this Agreement, the Side Letter, the Affiliation
Agreement, or the Amended Stockholders Agreement.
10.2 Notices. All notices, requests and other communications to any
party hereunder shall be in writing (including facsimile) and signed by or on
behalf of the party giving it and shall be given by personal delivery,
first-class certified or registered mail, confirmed facsimile or nationally
recognized overnight express courier
if to the Company, to: Crown Media Holdings, Inc.
▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, General Counsel
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
if to DIRECTV, to: DIRECTV Enterprises, Inc.
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇
▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: Senior Vice President
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
cc: General Counsel
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
or such other address or facsimile number as such party may hereafter specify
for the purpose by notice to the other parties hereto. Each such notice, request
or other communication shall be effective (i) if given by facsimile
transmission, three hours after the time of dispatch to the facsimile number
specified in this Section 10.2 provided the appropriate confirmation is
received, or (ii) one business day after deposit with such overnight courier
service or three days after deposit of such registered or certified mail with
the U.S. Postal Service, in each case when sent to the address specified in this
Section 10.2.
16
10.3 Amendments; No Waivers.
(a) Any provision of this Agreement may be amended or waived
prior to the Share Delivery Date if, and only if, such amendment or waiver is in
writing and signed, in the case of an amendment, by the Company and DIRECTV or
in the case of a waiver, by the party against whom the waiver is to be
effective.
(b) No failure or delay by any party in exercising any right,
power or privilege hereunder shall operate as a waiver thereof nor shall any
single or partial exercise thereof preclude any other or further exercise
thereof or the exercise of any right, power or privilege.
10.4 Expenses. Except as otherwise provided herein, all costs and
expenses incurred in connection with this Agreement shall be paid by the party
incurring such cost or expense.
10.5 Successors and Assigns. The provisions of this Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and assigns, provided that, no party may assign, delegate or
otherwise transfer any of its rights or obligations under this Agreement without
the prior written consent of the other party hereto; provided, however, that the
parties may assign their rights and obligations under this Agreement, excluding
the Company's rights under the Side Letter, in whole or in part, (i) to an
Affiliated company or to a successor entity whether by sale of assets, merger or
otherwise; (ii) to a third party as part of preparing to go or going public or
as part of a merger, consolidation or sale of all substantially all of the
assets of the applicable party hereto or (iii) to a third party, provided the
applicable party hereto remains primarily liable for the performance of such
third party's obligations hereunder. Notwithstanding anything contained in this
Agreement to the contrary, nothing in this Agreement, expressed or implied, is
intended to confer on any person, other than the parties hereto or their
respective successors and permitted assigns, any rights, remedies obligations or
liabilities under or by reason of this Agreement.
10.6 Certain Interpretive Matters. Titles and headings to Sections
herein are inserted for convenience of reference only, and are not intended to
be a part of or to affect the meaning or interpretation of this Agreement.
10.7 Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of Delaware, without giving effect to
any provisions relating to the conflict of laws.
10.8 Counterparts; Effectiveness. This Agreement may be signed in any
number of counterparts, each of which shall be deemed an original, and all such
counterparts together shall constitute but one and the same instrument. This
Agreement shall be binding upon the faxing by each party of a signed signature
page thereof to the other parties. If such a faxing occurs, each party shall
also immediately post, by Federal Express or other nationally recognized
overnight express courier, a fully executed original counterpart of the
Agreement to the other parties.
10.9 Severability. If any term, provision, covenant or restriction of
this Agreement is determined to be invalid, void or unenforceable, the remainder
of the terms, provisions,
17
covenants and restrictions of this Agreement will remain in full force and
effect and will in no way be affected, impaired or invalidated.
10.10 Survival. Subject to Section 9.4 hereof, all representations,
warranties, indemnities, covenants (other than those set forth in Section 5.2
hereof) and agreements contained in or made pursuant to this Agreement or
contained in any certificate or other document delivered pursuant to this
Agreement, shall remain operative and in full force and effect, regardless of
any investigation made by or on behalf of any party hereto, and shall survive
the issuance of the DIRECTV Shares and the consummation of the transactions
contemplated by this Agreement and the Amended Stockholders Agreement.
10.11 Confidentiality. Each of the Company and DIRECTV shall treat as
confidential the terms of this Agreement and the related agreements, and all
confidential information provided by the other party which does not otherwise
become available to the other (other than pursuant to a breach of this Section
10.11), unless counsel for the Company or DIRECTV (as the case may be)
reasonably believes that disclosure thereof is required (i) by law (in which
event the disclosing party shall so notify the other party as promptly as
practicable (and, if possible, prior to making any disclosure) and shall seek
confidential treatment of such information), (ii) to comply with the most
favored nations' provisions contained in its contracts; provided that, any
disclosure of the terms of this Agreement, the Affiliation Agreement or the Side
Letter shall be limited to the terms set forth on Schedule 10.11 to this
Agreement and only to the extent necessary to comply with such most favored
nations provisions and without identifying DIRECTV or DIRECTV, Inc. as a party
thereto, (iii) as part of its normal reporting or review procedure to its
financial institutions, its parent company, its auditors and its attorneys, or
(iv) to the National Rural Telecommunications Cooperative (the "NRTC"),
potential investors, insurers and financing entities; provided that any third
party to which such information is disclosed shall agree to be bound by the
provisions of this Section 10.11, and, except with respect to the NRTC, each
party shall give the other party prior written notice of such disclosure.
10.12 Public Announcements. Neither the Company nor DIRECTV shall make,
nor permit any entity which the Company or DIRECTV controls to make, any public
announcements in respect of this Agreement or the transactions contemplated
hereby or otherwise communicate with any news media, other than to provide the
announcement attached as Schedule 10.12 hereto. Notwithstanding the foregoing,
the parties shall be permitted to make such public and other statements as are
necessary for it to comply with applicable federal and state securities laws or
rules of any exchange to which the Company or DIRECTV or any Affiliated company
may be subject, provided that the other parties shall be advised and consulted
in advance of any such public disclosure or announcement addressing the
substance of this Agreement.
11. DISPUTE RESOLUTION AND ARBITRATION.
(a) Initial Dispute Resolution Procedures. Any dispute or disagreement
between the parties arising out of this Agreement shall be resolved according to
the following dispute resolution procedure: First, such dispute shall be
addressed to each party's project manager (or equivalent level manager) for
discussion and attempted resolution. If any such dispute cannot be resolved by
such project managers within five (5) business days from the date that either
party gives notice that such dispute or disagreement exists, then such dispute
shall be immediately
18
referred to the appropriate, respective vice presidents (or equivalent level
person) for discussion and attempted resolution.
(b) Arbitration Procedures. If a dispute cannot be resolved to the
mutual satisfaction of the parties within five (5) business days (or such longer
period as may be mutually agreed upon) after the second-tier referral described
in Section 11(a), such dispute shall be referred to arbitration in Los Angeles,
California, before three arbitrators in accordance with the Commercial
Arbitration Rules (the "Arbitration Rules") of the American Arbitration
Association, in effect on the date that notice of such dispute was originally
given. The three arbitrators shall be appointed as follows: Each party may
select one independent arbitrator and, thereafter these two shall select the
third and final independent arbitrator. If the two selected arbitrators cannot
agree upon the third arbitrator within five (5) days of their selection, then
the third and final arbitrator shall be selected by and according to the
Arbitration Rules. Once appointed, the arbitrators shall appoint a time and
place for a pre-hearing status conference not more than fourteen (14) days from
the date of their appointment, and shall appoint a time and place for a final
hearing not more than forty-five (45) days from the date of the status
conference. The final hearing shall conclude no later than thirty (30) days
after its commencement. The party that demands arbitration of the unresolved
dispute or disagreement shall specify in writing the matter to be submitted to
arbitration. The arbitrators shall render a single written decision setting
forth an award and provide a reasoned opinion in accordance with applicable law,
supporting their award, including detailed findings of fact and conclusions of
law. Any cash component of the award shall be payable in United States dollars
through a bank in the United States. Each party shall bear its own costs of
preparing for and presenting its case; and the cost of arbitration, including
the fees, and expenses of the arbitrators will be shared equally by the parties.
(c) Enforcement. The arbitration award shall be final and binding upon
the parties and may be confirmed by the judgment of any court having appropriate
jurisdiction including, without limitation, California. In any such proceeding,
the court shall take into consideration any error of law on the part of the
arbitrators, in addition to all grounds provided by statute.
12. Post-Closing Covenants.
(a) [*]
(b) Side Letter. Upon the consummation of the transactions
contemplated herein on or prior to the Share Delivery Date, DIRECTV, Inc. and
Crown Media U.S. shall, on such Share Delivery Date, enter into and commence
performance of their respective obligations under the Side Letter.
13. Cross-Defaults. Notwithstanding anything to the contrary herein, in
the event there is a material breach of the Affiliation Agreement (subject to
the cure period and procedure set forth in Section 6(b)(i) of the Affiliation
Agreement) by DIRECTV, Inc. (the "DIRECTV Default"), then such DIRECTV Default
shall constitute a material breach by DIRECTV under Section 5.4 of this
Agreement. In such event, the determination of damages, if any, arising from the
DIRECTV Default may be based, among other things, upon the value of the DIRECTV
Shares provided by the Company and the value of the consideration provided by
Crown Media
19
U.S. in connection with the Affiliation Agreement, provided that other relevant
factors shall also be considered such as the nature and materiality of the
DIRECTV Default, the relative significance of the DIRECTV Default to the entire
Affiliation Agreement and provided that the amount of such damages is
commensurate with such factors. Notwithstanding anything to the contrary herein,
in no event shall the Company or its Affiliates have a direct claim or remedy
against the DIRECTV Shares or any of DIRECTV's rights under this Agreement or
the Amended Stockholders Agreement or hinder, impair or adversely affect such
rights to any extent whatsoever. In the event there is a material breach of this
Agreement by the Company (a "Company Default"), then such Company Default shall
constitute a material breach by Crown Media U.S. under the Affiliation
Agreement.
[SIGNATURE PAGE FOLLOWS]
20
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the day and year
first above written.
CROWN MEDIA HOLDINGS, INC.
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
------------------------------------
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
----------------------------------
Title: Executive Vice President
---------------------------------
DIRECTV ENTERPRISES, INC.
By: /s/ ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
------------------------------------
▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Executive Vice President
21
EXHIBIT "A-1"
FORM OF OPINION OF HOLLAND & ▇▇▇▇ LLP,
OUTSIDE COUNSEL TO THE COMPANY
Ladies and Gentlemen:
We have acted as one of the counsel for Crown Media Holdings, Inc., a
Delaware corporation (the "Company"), in connection with the issuance and sale
of 5,360,202 shares of the Company's Class A Common Stock, par value $0.01 per
share (the "DIRECTV Shares"), pursuant to the Stock Purchase Agreement (the
"Agreement"), dated as of August ___, 2001 between the Company and DIRECTV
Enterprises, Inc., a Delaware corporation (the "Purchaser"). We are rendering
this opinion at the request of the Company and pursuant to Section [6.2(k)] of
the Agreement. Capitalized terms used but not defined herein have the respective
meanings given to them in the Agreement.
In connection with rendering the opinions set forth herein, we have
examined originals or copies of the following:
a. The Agreement;
b. The Amended Stockholders Agreement;
c. The Company's Certificate of Incorporation and its bylaws, each as
amended to date;
d. The "Material Agreements" identified on Schedule 1 hereto;
e. A Certificate of Good Standing issued by the Secretary of State of
the State of Delaware, as of August __, 2001; and
f. The proceedings of the Board of Directors and officers of the
Company taken in connection with the transactions contemplated by the Agreement.
In addition, we have examined and relied upon the representations and
warranties as to factual matters contained in and made pursuant to the Agreement
by the various parties and originals or copies of such records, documents,
certificates, opinions, memoranda and other instruments as in our judgment are
necessary or appropriate to enable us to render the opinion expressed below.
As to certain factual matters, we have relied upon a certificate
executed by an officer of the Company (the "Officer's Certificate"), a copy of
which is attached hereto as Exhibit A, and have not sought independently to
verify such matters.
A-1
In rendering this opinion, we have assumed: the genuineness and
authenticity of all signatures on original documents; the authenticity of all
documents submitted to us as originals; the conformity to originals of all
documents submitted to us as copies; the accuracy, completeness and authenticity
of certificates of public officials; and the due authorization, execution and
delivery of all documents (except the due authorization, execution and delivery
by the Company of the Agreement and the Amended Stockholders Agreement), where
authorization, execution and delivery are prerequisites to the effectiveness of
such documents. We have also assumed (i) that all individuals executing and
delivering documents on behalf of the Purchaser had the legal capacity to so
execute and deliver; (ii) that Purchaser has received all documents Purchaser
was to receive under the Agreement and the Amended Stockholders Agreement; and
(iii) that each of the Agreement and the Amended Stockholders Agreement is an
obligation binding upon Purchaser. In rendering this opinion we have also
assumed that there are no extrinsic agreements or understandings among the
parties to the Agreement that would modify or interpret the terms of the
Agreement, the Amended Stockholders Agreement or the respective rights or
obligations of the parties thereunder.
With regard to our opinion expressed in paragraph 4 below, we have
expressly relied in part upon Purchaser's representations and warranties in
Section 4.4 of the Agreement and have further relied solely upon the Officer's
Certificate with respect to the fact that neither the Company, nor any party
acting or working on its behalf, conducted or will conduct any general
solicitation or general advertising in connection with the offer, sale, or
issuance of the DIRECTV Shares.
With respect to our opinion expressed in paragraph 7 below relating to
the absence of any pre-emptive rights, we have relied solely upon the Officer's
Certificate. We express no opinion, directly or indirectly, that the
consideration paid for the DIRECTV Shares is proper under the General
Corporation Law of the State of Delaware. We have assumed that such
consideration is proper under the General Corporation Law of the State of
Delaware. Accordingly, we have assumed that upon issuance, the DIRECTV Shares
shall be fully paid and non-assessable and we express no opinion thereon.
Our opinion is expressed only with respect to the federal laws of the
United States of America (the "Federal Laws"), the laws of the State of Colorado
and the General Corporation Law of the State of Delaware. We express no opinion
as to whether the laws of any particular jurisdiction apply, and no opinion to
the extent that the laws of any jurisdiction other than those identified above
are applicable to the subject matter hereof. We are not rendering any opinion as
to compliance with any antifraud law, rule or regulation relating to securities,
or to the sale or issuance thereof.
On the basis of the foregoing, in reliance thereon and with the
foregoing qualifications, we are of the opinion that:
1. The Company has been duly incorporated and is validly existing in
good standing under the laws of the State of Delaware. The Company has the
requisite corporate power and corporate authority to own or lease and operate
its business and assets and to carry on its business as presently conducted.
A-2
2. The Company has the requisite corporate power and authority to
execute on behalf of the Company and deliver the Agreement and the Amended
Stockholders Agreement and to perform its obligations contemplated thereby.
3. The execution on behalf of the Company and delivery of each of the
Agreement and the Amended Stockholders Agreement by the Company and the
performance of its obligations thereunder have been duly authorized by all
necessary corporate actions of the Company.
4. Assuming the accuracy of the representations and warranties of
Purchaser in the Agreement, except as set forth in Section 3.2 of the Agreement,
no consent, approval, order or authorization of, or registration, declaration or
filing is required by or with respect to the Company in connection with the
execution and delivery of each of the Agreement and the Amended Stockholders
Agreement by the Company or the performance of its obligations thereunder, by
(i) any Governmental entity, including the SEC and any state securities agency,
(ii) the Nasdaq National Market or any other exchange on which any securities of
the Company are trading, quoted or listed or (iii) any holder of equity or debt
securities of the Company.
5. Each of the Agreement and the Amended Stockholders Agreement has
been duly and validly executed and delivered by the Company.
6. Neither the execution and delivery of each of the Agreement and the
Amended Stockholders Agreement by the Company, nor the performance of its
obligations thereunder will (i) violate any provision of the Company's
Organizational Documents; (ii) contravene the General Corporation Law of the
State of Delaware or any Federal Laws that affect the Company; or (iii)
contravene, conflict with, or result in a breach or default (or give rise to a
right of termination) of any provision of any "Material Agreement" set forth on
Schedule 1 attached hereto.
7. When issued in accordance with the Agreement, the DIRECTV Shares
will not be issued in violation of any preemptive rights.
The opinions expressed herein are given as of the date hereof; we
expressly disavow any obligation to advise you with respect to future changes in
law or in our knowledge or in any event or change of condition occurring
subsequent to the date of this opinion.
The opinions expressed herein are strictly limited to the matters
stated herein, and no other opinions may be implied. This opinion is provided as
a legal opinion only, effective as of the date hereof, and not as a guaranty or
warranty of the matters discussed herein.
This opinion is intended solely for Purchaser's benefit and is not to
be made available to or be relied upon by any other person, firm, or entity
without our prior written consent.
Very truly yours,
A-3
EXHIBIT "A-2"
FORM OF OPINION OF MORRIS, NICHOLS, ARSHT & TUNNEL,
OUTSIDE COUNSEL TO THE COMPANY
Ladies and Gentlemen:
You have requested our opinion as to certain matters of
Delaware law in connection with the proposed issuance by Crown Media Holdings,
Inc., a Delaware corporation (the "Company"), of 5,360,202 shares (the "Shares")
of its Class A Common Stock, par value $.01 per share (the "Class A Stock"), to
DIRECTV Enterprises, Inc., a Delaware corporation ("DIRECTV"), pursuant to a
Stock Purchase Agreement (the "Stock Purchase Agreement"). In connection with
your request, the Company has provided to us and we have reviewed: (i) the Stock
Purchase Agreement, excluding the schedules or exhibits thereto except Schedule
1 ("Schedule 1"); (ii) the Affiliation Agreement between Crown Media United
States LLC, a Delaware limited liability company of which the Company is the
sole voting and managing member ("Crown LLC") and DIRECTV, Inc. ("Sub"), a
Delaware corporation and wholly-owned subsidiary of DIRECTV, dated as of
________; (iii) the Second Amended and Restated Stockholders Agreement by and
among Hallmark Entertainment, Inc., Liberty Media Corporation, Liberty Crown,
Inc., VISN Management Corporation, ▇▇ ▇▇▇▇▇▇ Partners (BHCA), L.P., DIRECTV and
the Company, dated as of August __, 2001 (the "Stockholders Agreement" and,
together with the Stock Purchase Agreement, the "Agreements"); (iv) resolutions
adopted by the board of directors of the Company (the "Board") in connection
with the Stock Purchase Agreement (the "Resolutions") and (v) the certificate of
incorporation and bylaws of the Company, each as amended to date. We have not
reviewed any other documents in connection with your request and have assumed
that there are no such documents that are contrary to or inconsistent with the
opinions set forth herein.
DIRECTV will purchase the Shares for $53,602.02 in cash (the
"Consideration") pursuant to the Stock Purchase Agreement and, in addition, Sub
and Crown LLC will execute the Affiliation Agreement and Sub will make the
undertakings set forth in Schedule 1. In authorizing the sale of the Shares, the
Stock Purchase Agreement and the Affiliation Agreement, the Board stated in the
Resolutions that, to induce DIRECTV to cause Sub to enter into the Affiliation
Agreement and Schedule 1, it was in the best interests of the Company to sell
the Shares to DIRECTV for a purchase price equal to their aggregate par value,
recognizing the additional benefit to the Company as a result of the Affiliation
Agreement.
For purposes of this opinion, we have assumed that each of the
Company and DIRECTV is duly organized, validly existing and in good standing
under the laws of Delaware; that the issuance of the Shares has been duly
authorized by all necessary corporate action; that the Company will have a
sufficient number of shares of Class A Stock authorized by its certificate of
incorporation that have not been issued, subscribed for, or otherwise committed
to be issued, in order to permit the Company to issue the Shares pursuant to the
terms of the Stock Purchase Agreement; that each party to the Agreements has the
corporate power to execute,
A-4
deliver and perform its obligations under the Agreements; that the Agreements
have been duly authorized, executed and delivered by each party thereto; that
each of the Agreements constitutes the legal, valid and binding obligation of
each of the parties thereto (other than the Company) enforceable against each
such party (other than the Company) in accordance with its terms; that the
restrictions on transfer of the shares of Class A Stock and Class B Common
Stock, par value $.01 per share, of the Company (the "Class B Stock") set forth
in the Stockholders Agreement are reasonable in relation to a valid corporate
purpose of the Company; and that the restrictions on the transfer of the shares
of Class A Stock and Class B Stock set forth in the Stockholders Agreement will
be noted conspicuously on the certificates representing such shares. We express
no opinion with respect to the Delaware Securities Act, 6 Delaware Code Section
7301 et seq., or any rules or regulations promulgated thereunder, or to any
agreements, exhibits, schedules or other documents referred to or incorporated
by reference in the Agreements other than the Agreements.
Based upon and subject to the foregoing and to the
qualifications set forth below, and limited in all respects to matters of
Delaware law, it is our opinion that:
1. Assuming that the Shares are otherwise validly issued, the
Consideration is valid consideration under Section 152 of the Delaware General
Corporation Law and Article IX, Section 3 of the Constitution of the State of
Delaware, and, upon receipt of the Consideration by the Company, the Shares
shall be deemed fully paid and nonassessable stock.
2. Each of the Agreements constitutes the legal, valid and
binding obligation of the Company, enforceable against it in accordance with its
terms, except as such enforceability may be limited by: (i) bankruptcy,
insolvency, moratorium, fraudulent conveyance, receivership and other laws
affecting the rights and remedies of creditors generally; (ii) the application
of equitable principles (whether in a proceeding at law, in equity or
otherwise); and (iii) standards of good faith, fair dealing, course of dealing,
materiality and reasonableness that may be applied by a court to the exercise of
rights and remedies generally.
Our opinion in paragraph 2 above is subject to the following
qualifications:
a. We express no opinion as to the Company's obligations with
respect to indemnification and contribution, except to the extent permitted by
applicable law, or with respect to the enforceability of any purported waiver or
consent granted by the Company pursuant to the Agreements except to the extent
the Company may so waive or consent and has effectively so waived or consented
in accordance with applicable law.
b. We express no opinion with respect to the last sentence of
Section 11(c) of the Stock Purchase Agreement.
c. We express no opinion with respect to the last sentence of
Section 2.1, Section 2.4 or the second sentence of Section 6.9 of the
Stockholders Agreement.
d. We express no opinion with respect to any provision of the
Agreements that purports to provide that the law of a particular state will
govern such document insofar as the
A-5
application of such law would be contrary to a fundamental policy of a
jurisdiction with a materially greater interest than the chosen jurisdiction in
the determination of a particular issue, the law of which jurisdiction would be
the applicable law in the absence of an effective choice of law.
e. We express no opinion as to the enforceability of those
provisions of the Stockholders Agreement that designate a particular forum for
any action or proceeding arising out of the Stockholders Agreement to the extent
that such provisions are unreasonable at the time of litigation.
This opinion speaks only as of the date hereof and is based on
our understandings and assumptions as to present facts, and on the application
of Delaware law on the date hereof, and we undertake no obligation to update or
supplement this opinion after the date hereof for the benefit of any person or
entity with respect to any facts or circumstances that may hereafter come to our
attention or any changes in facts or law that may hereafter occur or take
effect. This opinion is intended solely for your benefit in connection with the
transactions referenced herein and may not be relied upon by any other person or
entity, or by you for any other purpose, without our prior written consent.
Very truly yours,
A-6
EXHIBIT "B"
FORM OF OPINION OF ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, ESQ.,
GENERAL COUNSEL OF THE COMPANY
Ladies and Gentlemen:
As General Counsel for Crown Media Holdings, Inc., a Delaware
corporation (the "Company"), I am rendering this opinion in connection with the
issuance and sale of 5,360,202 shares of the Company's Class A Common Stock, par
value $0.01 per share (the "DIRECTV Shares"), pursuant to the Stock Purchase
Agreement (the "Agreement"), dated as of August ___, 2001 between the Company
and DIRECTV Enterprises, Inc., a Delaware corporation (the "Purchaser").
Capitalized terms used but not defined herein have the respective meanings given
to them in the Agreement.
My opinion is expressed only with respect to the federal laws of the
United States of America and the General Corporation Law of the State of
Delaware.
On the basis of the foregoing qualifications, I am of the opinion that:
1. As at the date hereof, the authorized capital stock of the Company
consists of (i) 200,000,000 shares of Class A Common Stock, $0.01 par value per
share, of which, as at August 17, 2001, 34,799,370 shares are issued and
outstanding, 10,000,000 have been reserved for issuance upon the conversion of
options under the Amended and Restated Crown Media Holdings, Inc. 2000 Long Term
Incentive Plan and 30,670,422 have been reserved for issuance upon conversion of
Class B Common Stock; (ii) 120,000,000 shares of Class B Common Stock, $0.01 par
value per share, of which 30,670,422 are issued and outstanding; and (iii)
10,000,000 shares of Preferred Stock, $0.01 par value per share, none of which
are issued and outstanding.
2. All issued and outstanding shares of Class A Common Stock and Class
B Common Stock of the Company are duly authorized, validly issued, fully paid
and non-assessable, and, to my knowledge, no class of the capital stock of the
Company is entitled to preemptive rights.
3. Neither the execution and delivery of the Agreement and the Amended
Stockholders Agreement by the Company, nor performance of its obligations
thereunder will contravene, conflict with, or result in a breach or default (or
give rise to a right of termination) of any provision of any license, agreement
or instrument to which the Company or an Affiliate is a party which would have a
material adverse effect on the business, financial condition or prospects of the
Company.
4. Other than as set forth in Section 3.3(a) of the Agreement and
Section 3.6 of the Stockholders Agreement, there are no authorized, issued or
outstanding (i) securities of the Company convertible into or exchangeable for
equity securities of the Company, (ii) agreements, commitments, arrangements,
warrants, options or other rights to acquire from the Company, or other
obligations or undertakings of any kind of the Company, to issue any capital
stock or securities convertible into or exchangeable for equity securities of
the Company or to issue,
B-1
grant, extend or enter into any such agreement, commitment or arrangement,
warrant, option, or other rights or undertaking (other than commitments pursuant
to the Films Transaction and obligations pursuant to any "most favored nations"
clause contained in any distribution agreement of Crown Media U.S.), or (iii)
bonds, debentures, notes or other obligations or securities of the Company, the
holders of which have the right to vote with the stockholders of the Company, on
any matter submitted for the vote of the Company stockholders.
5. There are no outstanding obligations of the Company to repurchase,
redeem or otherwise acquire any shares of capital stock of the Company.
6. Other than the Stockholders Agreement, there is no voting trust or
other agreement or understanding to which the Company is a party or is bound
with respect to the voting of the capital stock or other voting securities of
the Company.
7. There is no litigation pending or, to the best of my knowledge,
threatened that, if resolved in favor of the complainant, would prevent
consummation of the transactions contemplated in the Agreement or rescission of
the consummation.
B-2
EXHIBIT "C"
FORM OF OFFICERS' CERTIFICATE
We, ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Esq. and ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, the duly elected,
qualified and acting Executive Vice President and General Counsel and Chief
Financial Officer, respectively, of Crown Media Holdings, Inc. (the "Company"),
pursuant to Section 6.2 of that certain Stock Purchase Agreement, by and between
the Company and DIRECTV Enterprises, Inc., do hereby certify on behalf of the
Company that:
1. the representations and warranties of the Company as set forth in
Section 3 of the Stock Purchase Agreement are true and complete at and as of the
date hereof; and
2. the Company has performed and complied with in all material respects
all obligations and covenants required to be performed or complied with by it
under the Stock Purchase Agreement on or prior to the date hereof.
IN WITNESS WHEREOF, we have executed this Officers' Certificate as of
___________________, 2001.
CROWN MEDIA HOLDINGS, INC.
By:
------------------------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Executive President and General Counsel
By:
------------------------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Chief Financial Officer
C-1
EXHIBIT "D"
FORM OF OFFICER'S CERTIFICATE
I, ▇▇▇▇▇▇ ▇. ▇▇▇▇ and ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, the duly elected, qualified and
acting Senior Vice President and General Counsel and Executive Vice President
and Chief Financial Officer, respectively, of DIRECTV Enterprises, Inc.
("DIRECTV"), pursuant to Section 6.1 of that certain Stock Purchase Agreement,
by and between DIRECTV and Crown Media Holdings, Inc., do hereby certify on
behalf of DIRECTV that:
1. the representations and warranties of DIRECTV as set forth in
Section 4 of the Stock Purchase Agreement are true and complete at and as of the
date hereof; and
2. DIRECTV has performed and complied with in all material respects all
obligations and covenants required to be performed or complied with by it under
the Stock Purchase Agreement on or prior to the date hereof.
IN WITNESS WHEREOF, I have executed this Officer's Certificate as of
___________________, 2001.
DIRECTV ENTERPRISES, INC.
By:
----------------------------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇
Senior Vice President and General Counsel
By:
----------------------------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Executive Vice President and Chief Financial Officer
D-1
SCHEDULE 1
August _, 2001
Crown Media Holdings, Inc.
▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, General Counsel
Re: Side Letter to Stock Purchase Agreement
Dear Gentlemen:
Crown Media Holdings, Inc. (the "Company") and DIRECTV, Inc.
("DIRECTV") hereby agree to the following:
1. DIRECTV and the Company shall negotiate in good faith an agreement
for the pay-per-view distribution of up to ten (10) motion pictures or
mini-series per year ("Crown Pictures").
2. When required by law or regulation to add a Public Interest
Obligation ("PIO") service, consistent with the applicable regulations of the
Federal Communications Commission ("FCC"), DIRECTV shall, given the Company's
commitments to the National Interfaith Coalition ("NIC"), consider in good faith
the distribution of NIC's PIO service tentatively called "The Faith and Values
Network" on substantially similar terms pursuant to which DIRECTV distributes
other similar PIO services, provided that: (x) DIRECTV shall use reasonable
efforts to [*]; (y) DIRECTV shall have no obligation whatsoever under this
Section 2 if any action contemplated under said Section conflicts with any
applicable law, including, without limitation, any rules or regulations of the
FCC; and (z) NIC's proposed PIO service and the programming contained therein
qualify under FCC's PIO rules and regulations for PIO carriage by DIRECTV.
DIRECTV anticipates that it will add additional PIO service(s) in December 2002.
For purposes of this provision, "reasonable" shall include [*].
3. If the Hallmark Channel contains and maintains over 85% Spanish
secondary audio for program (as opposed to promotional and advertising) content,
DIRECTV. shall carry the Hallmark Channel on DIRECTV's "PARA TODOS" platform in
the "Option Especial"
package (or successor package) for license fees (per PARA TODOS subscriber) that
equal the amount of the License Fees payable under Section 2(b) of the
Affiliation Agreement for DBS Satellite Exhibition of Cable Network Programming
dated as of March 6, 2000 between DIRECTV and the Company for the carriage of
the Odyssey Channel (the "Odyssey Affiliation Agreement') (i.e. the rates for
the first, second, third, etc. year (if applicable) of carriage of the Hallmark
Channel on the PARA TODOS platform shall be the same as the first, second,
third, etc. year rates under the Odyssey Affiliation Agreement). All other terms
shall be substantially similar to the terms set forth in the Odyssey Affiliation
Agreement, provided that the parties shall mutually agree on the term of said
agreement.
4. The parties shall negotiate in good faith an agreement regarding
DIRECTV's carriage of the Company's interactive application known as "V-Cards",
subject to the technical feasibility of the interactive application and the
parties' negotiation of acceptable business terms reflecting an agreed business
model and prevailing market conditions. As part of such discussion, the parties
shall assign appropriate personnel to determine the technical feasibility and
requirements associated with deploying the V-Card service using DIRECTV's
advanced settop receivers. It is anticipated that the initial version of the
V-Card service shall utilize Company-supplied and produced video objects and
template messages. Subsequent versions will offer users, to the extent
technically feasible and commercially practical, an increased ability to
customize and personalize their V-Cards. As part of their service relationship,
the parties agree to discuss processes that will allow DIRECTV customers to send
V-Cards to other V-Card enabled DIRECTV subscribers as well as V-Card users
outside the DIRECTV system. The parties also agree to discuss the deployment of
other Company interactive applications over the DIRECTV system such as "Crayola
Kids" and the Company's Video-on-Demand service.
5. Consistent with and limited by its fiduciary responsibilities to the
shareholders of XM Satellite Radio, Inc. ("XM Radio"), and recognizing that
DIRECTV does not control XM Radio, DIRECTV shall undertake in good faith to
induce XM Radio to negotiate with Company for the distribution of an audio
service owned by the Company or a subsidiary.
6. The parties' good faith obligations to negotiate an agreement as set
forth in items 1 and 4 above shall expire on December 31, 2002. The parties'
good faith obligations as set forth in item 2 and the parties' good faith
obligations as set forth in item 5 above shall expire on December 31, 2003, and
the parties' obligations set forth in item 3 above shall expire on December 31,
2003, provided that, as to items 2 and 4, DIRECTV and NIC have not reached an
agreement as to item 2 and/or the Company and DIRECTV have not reached an
agreement as to item 4.
7. This Side Letter shall be governed by and construed in accordance
with the laws of the State of California, without giving effect to any
provisions relating to conflict of laws.
2
8. Provided that the parties have acted in good faith, the failure by
the parties to reach an agreement in connection with items 1, 2, 4 and 5 above
or to reach an agreement as to the term of the agreement referenced in item 3
above shall not constitute a breach hereunder or under the Stock Purchase
Agreement.
Sincerely,
DIRECTV, Inc.
By:
------------------------------------
Name:
------------------------------
Title:
-----------------------------
AGREED TO AND ACCEPTED BY:
CROWN MEDIA HOLDINGS, INC.
By:
---------------------------
Name:
---------------------
Title:
--------------------
3
Schedule 3.4
Material Liabilities
During the month of July 2001, Crown Media Holdings, Inc. borrowed an additional
$31.0 million from HC Crown Corporation, pursuant to its $150 million Promissory
Note.
4
Schedule 3.9
Material Agreements, Licenses and Instruments*
1. Contribution Agreement, dated as of January 27, 2000, by and among
Hallmark Entertainment, Inc., Crown Media, Inc. (now known as Crown
Media International, Inc.), Liberty Media Corporation, Vision Group
Incorporated, VISN Management Corp., National Interfaith Cable
Coalition, Inc., Chase Equity Associates, LP (now known as ▇.▇. ▇▇▇▇▇▇
Partners (BHCA), L.P.) and Crown Media Holdings, Inc.
2. Stockholders Agreement dated as of March 14, 2001.
3. Amended and Restated Crown Media Holdings, Inc. 2000 Long Term
Incentive Plan.
4. $20,000,000 Promissory note, dated as of November 19, 1999, of Crown
Media, Inc. (now known as Crown Media International, Inc.) to HC Crown
Corporation.
5. $10,000,000 Promissory Note, dated February 23, 2000, of Crown Media,
Inc. (now known as Crown Media International, Inc.) to HC Crown
Corporation.
6. Amendment to $10,000,000 Promissory Note, dated April 14, 2000, between
Crown Media, Inc. (now known as Crown Media International, Inc.) and HC
Crown Corporation.
7. $150,000,000 Promissory Note, dated February 12, 2001, of Crown Media
Holdings to HC Crown Corporation.
8. $150,000,000 Irrevocable Standby Letter of Credit, dated February 12,
2001, of Crown Media Holdings to Bank of America, N.A.
9. $50,000,000 Promissory Note, dated July 10, 2001, of Crown Media
Holdings to HC Crown Corporation.
10. Amendment No. 1, effective as of June 30, 2001, to the Promissory Note,
dated February 12, 2001, made by Crown Media Holdings, Inc. in favor of
HC Crown Corporation.
11. Purchase and Sale Agreement, dated as of April 10, 2001, by and between
Crown Media Holdings, Inc. and Hallmark Entertainment Distribution,
LLC.
12. Letter Agreement between Chase Manhattan Bank and Hallmark India
Private Limited dated as of August 23, 1999.
13. Contract for a Combined Uplink and Space Segment Service dated as of
December 17, 1999 by and between British Telecommunications PLC and
Hallmark Entertainment Networks (now known as Crown Media
International, Inc.).
* Does not include corporate organizational documents of Crown Media
Holdings, Inc. or any of its subsidiaries.
5
Schedule 10.11
[*]
6
Schedule 10.12
Press Release
CROWN MEDIA SIGNS NEW AGREEMENT WITH DIRECTV,
INC. INCREASING HALLMARK CHANNEL U.S. DISTRIBUTION
TO 40 MILLION SUBSCRIBERS
▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇. ▇▇▇ ▇▇ ▇▇▇▇▇▇▇, ▇▇ - AUGUST ___, 2001 - Crown Media
Holdings, Inc. (Nasdaq: CRWN) ("Crown Media" or the "Company") and DIRECTV, Inc.
today announced that they have entered into a strategic relationship under which
the Hallmark Channel U.S. will be repositioned to DIRECTV's TOTAL CHOICE(R)
Package. With this repositioning, the total distribution of the Hallmark Channel
in the United States will be expanded to approximately 40 million subscribers by
the end of September, 2001. In addition to this agreement for expanded
distribution, the two companies will explore the distribution of additional
programming services, new interactive broadband applications and pay-per-view
distribution of programs from the film library to be acquired by Crown Media and
additional programs of Hallmark Entertainment. As part of this relationship,
DIRECTV will receive approximately 5.4 million shares of Crown Media Class A
Common Stock, representing 4.7% of the fully diluted equity of Crown Media after
closing of the pending films transaction with Hallmark Entertainment
Distribution.
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, President and CEO of Crown Media United States, LLC, commented,
"This agreement provides the Hallmark Channel U.S. with an increased level of
coverage across the country, expanding our distribution to approximately 40
million subscribers by the end of September, 2001. With the additional exposure
to viewers, we hope to further increase the ratings for our valued programming.
And the combination of increased distribution and increased ratings should help
us attract an even greater number of the leading advertisers to the channel."
As part of the collaboration between DIRECTV and Crown Media, DIRECTV will work
with Crown Media and Hallmark Entertainment, Inc., to explore the feasibility of
the pay-per-view distribution of longform titles, as well as the development of
new interactive applications, including an application known as "V Greetings."
Discussions will also be held with Binney & ▇▇▇▇▇ to explore possible
opportunities involving the Crayola brand. Binney & ▇▇▇▇▇ is owned by Hallmark
Cards, Inc.
"We have stated on numerous occasions that the success of our business is
dependent on our efforts in three strategic areas - brand, content and
distribution," stated ▇▇▇▇▇ ▇▇▇▇▇, President and CEO of Crown Media Holdings.
"On the brand and content front, we've successfully completed the global
rebranding of the Hallmark Channel and are in the process of finalizing the
acquisition of over 700 titles from the award-winning Hallmark Entertainment
library. Now with this agreement, we are able to advance our goals on the
distribution front, putting the Hallmark Channel U.S. on par with some of the
most recognized networks on television today. With a recognized brand name,
high-quality programming and a growing audience, we are poised to
7
become a leader in the television programming industry and are pleased to add
DIRECTV to the impressive list of strategic partners with whom Crown Media is
fortunate to be allied."
"DIRECTV customers will benefit from the added value and enhancements that the
Hallmark Channel brings to its network," said ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, President and
Chief Operating Officer, DIRECTV, Inc. "Our customers have come to expect
compelling programming that enhances their viewing experience. We look forward
to expanding our relationship with a respected leader in the programming
community that provides innovative, quality entertainment to our customers."
Crown Media has filed a Current Report on Form 8-K with the SEC containing
additional information regarding this transaction.
ABOUT DIRECTV INC.
DIRECTV is the nation's leading digital satellite television service provider
with more than 10 million customers. DIRECTV and the Cyclone Design logo are
registered trademarks of DIRECTV, Inc., a unit of ▇▇▇▇▇▇ Electronics
Corporation. ▇▇▇▇▇▇ is the world's leading provider of digital television
entertainment, and satellite and wireless systems and services. The earnings of
▇▇▇▇▇▇, a unit of General Motors Corporation, are used to calculate the earnings
per share attributable to the General Motors Class H common stock (NYSE: GMH).
Visit DIRECTV on the World Wide Web at ▇▇▇▇▇▇▇.▇▇▇.
ABOUT CROWN MEDIA HOLDINGS, INC.
Crown Media Holdings, Inc. owns and operates pay television channels dedicated
to high quality, broad appeal, entertainment programming. The company currently
operates and distributes the Hallmark Channel in the U.S. and the Hallmark
Channel in more than 100 international markets. The combined channels have more
than 73 million subscribers worldwide. Significant investors in Crown Media
Holdings include Hallmark Entertainment, Inc., a subsidiary of Hallmark Cards,
Inc., Liberty Media Corp., DIRECTV, Inc., VISN Management Corp., a for-profit
subsidiary of the National Interfaith Cable Coalition, and ▇. ▇. ▇▇▇▇▇▇ Partners
(BHCA), L. P.
FORWARD-LOOKING STATEMENTS
Statements contained in this press release may contain forward-looking
statements as contemplated by the 1995 Private Securities Litigation Reform Act
that are based on management's current expectations, estimates and projections.
Words such as "expects," "anticipates," "intends," "plans," "believes,"
"estimates," variations of such words and similar expressions are intended to
identify such forward-looking statements. Forward-looking statements are subject
to risks and uncertainties, which could cause actual results to differ
materially from those projected or implied in the forward-looking statements.
Such risks and uncertainties include: competition for distribution of channels,
viewers, advertisers, and the acquisition of programming; fluctuations in the
availability of programming; fluctuations in demand for the programming Crown
Media airs on its channels; and other risks detailed in the
8
Company's filings with the Securities and Exchange Commission, including the
Risk Factors stated in the Company's 10-K Report for the year ended December 31,
2000 and 10-Q Report for the quarter ended June 30, 2001. Crown Media Holdings
is not undertaking any obligation to release publicly any updates to any forward
looking statements to reflect events or circumstances after the date of this
release or to reflect the occurrence of unanticipated events.
FOR ADDITIONAL INFORMATION AT CROWN MEDIA, PLEASE CONTACT:
INVESTOR RELATIONS: MEDIA:
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The Hallmark Channel
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