<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 30, 1996
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
___________________________
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
___________________________
JONES EDUCATION NETWORKS, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
COLORADO 8299 84-1150623
<S> <C> <C>
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
9697 EAST MINERAL AVENUE
ENGLEWOOD, COLORADO 80112
(303) 792-3111
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive office)
ELIZABETH M. STEELE, VICE PRESIDENT AND SECRETARY
9697 EAST MINERAL AVENUE
ENGLEWOOD, COLORADO 80112
(303) 792-3111
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
___________________________
Copies to:
PAUL HILTON, ESQ. DAN BUSBEE, ESQ.
J. JUSTYN SIRKIN, ESQ. HENRY EXALL IV, ESQ.
N. ANTHONY JEFFRIES, ESQ. LOCKE PURNELL RAIN HARRELL
DAVIS, GRAHAM & STUBBS LLP (A PROFESSIONAL CORPORATION)
370 SEVENTEENTH STREET, SUITE 4700 2200 ROSS AVENUE, SUITE 2200
DENVER, COLORADO 80202 DALLAS, TEXAS 75201-6776
(303) 892-9400 (214) 740-8000
___________________________
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
___________________________
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [_]
___________________________
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
================================================================================================================================
PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED/(1)/ PER SHARE/(2)/ OFFERING PRICE/(2)/ FEE
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A Common Stock, par value $.01 7,935,000 shares $16.00 $126,960,000 $43,780
per share...........................
================================================================================================================================
</TABLE>
(1) Includes 1,035,000 shares that the Underwriters have the option to purchase
from the Company and certain Selling Shareholders to cover over-allotments,
if any.
(2) Estimated solely for the purpose of calculating the registration fee.
___________________________
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any State.
SUBJECT TO COMPLETION, DATED AUGUST 30, 1996
6,900,000 SHARES
JONES EDUCATION NETWORKS, INC.
CLASS A COMMON STOCK
Of the 6,900,000 shares of Class A Common Stock offered hereby (the
"Offering"), 5,800,000 shares are being sold by Jones Education Networks, Inc.
(the "Company"), and 1,100,000 shares are being sold by certain shareholders of
the Company (the "Selling Shareholders"). See "Principal and Selling
Shareholders." The Company will not receive any of the proceeds from the sale
of shares by the Selling Shareholders.
Holders of Class A Common Stock are entitled to 1/10th of a vote per share
and holders of Class B Common Stock are entitled to one vote per share on all
matters submitted to a vote of shareholders. Both classes vote together as a
single class on all matters except (i) the holders of Class A Common Stock,
voting separately as a class, are entitled to elect approximately 25% of the
Company's directors, with the remainder of the directors being elected by the
holders of Class B Common Stock, voting separately as a class, and (ii) the
approval of two-thirds of each class, voting separately, is required for certain
extraordinary corporate actions. See "Description of Capital Stock."
Immediately following the Offering and on a fully-diluted basis (assuming no
exercise of the Underwriters' over-allotment option), the holders of Class B
Common Stock will have approximately 69% of the combined voting power of the
Company's outstanding Common Stock. See "Principal and Selling Shareholders"
and "Risk Factors -- Voting Rights; Control by Principal Shareholders; Anti-
Takeover Effects."
Prior to this Offering, there has been no public market for the Class A
Common Stock of the Company. It is anticipated that the initial public offering
price of the Class A Common Stock will be between $ and $ per
share. See "Underwriting" for a discussion of the factors considered in
determining the initial public offering price. The Class A Common Stock has
been approved for quotation on the Nasdaq National Market under the symbol
"JENI."
SEE "RISK FACTORS" COMMENCING ON PAGE 8 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE CLASS A COMMON STOCK
OFFERED HEREBY.
___________________________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
================================================================================================================================
Proceeds
Price to Underwriting Proceeds to to Selling
Public Discount (1) Company (2) Shareholders
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share ................. $ $ $ $
Total (3).................. $ $ $ $
================================================================================================================================
</TABLE>
(1) See "Underwriting" for information concerning indemnification of the
Underwriters and other matters, including the Company's agreement to grant a
warrant to purchase shares of the Class A Common Stock to M. Kane & Company,
Inc. in consideration of certain financial advisory services provided to the
Company.
(2) Before deducting expenses payable by the Company estimated at $550,000 and
approximately $2.0 million payable to M. Kane & Company, Inc. in
consideration of certain financial advisory services provided to the
Company. See "Underwriting."
(3) The Company and the Selling Shareholders have granted to the Underwriters a
30-day option to purchase up to 1,035,000 additional shares of Class A
Common Stock solely to cover over-allotments, if any. If the Underwriters
exercise this option in full, the Price to Public will total $ ,
the Underwriting Discount will total $ , the Proceeds to Company
will total $ and the Proceeds to Selling Shareholders will total $
. See "Principal and Selling Shareholders" and "Underwriting."
The shares of Class A Common Stock are offered by the several Underwriters
named herein, subject to receipt and acceptance by them and subject to their
right to reject any order in whole or in part. It is expected that delivery
of the certificates representing such shares will be made against payment
therefor at the office of Montgomery Securities on or about ,
1996.
___________________________
MONTGOMERY SECURITIES
PIPER JAFFRAY INC.
M. KANE & COMPANY, INC.
, 1996
<PAGE>
[ART WORK TO COME]
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE CLASS A COMMON
STOCK OF THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE
OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by and should be read in
conjunction with the more detailed information and Consolidated Financial
Statements and Notes thereto appearing elsewhere in this Prospectus. Unless the
context requires otherwise, references to the Company herein include Jones
Education Networks, Inc. and its subsidiaries and references to Common Stock
herein refer collectively to the Class A Common Stock and Class B Common Stock.
Unless otherwise indicated, all information in this Prospectus assumes that the
Underwriters' overallotment option has not been exercised and reflects a 285-
for-one stock split of the Class A Common Stock and Class B Common Stock to be
effected immediately prior to the consummation of the Offering. Investors
should consider carefully the information set forth under the heading "Risk
Factors."
THE COMPANY
The Company offers a variety of integrated educational programming,
products and services through multiple distribution channels designed to serve
the learning needs of adults. Targeting adults who seek information that is of
practical use in their day-to-day lives, the Company licenses, develops and
produces knowledge-enhancing programs and distributes these programs primarily
on its two television networks, ME/U Knowledge TV and Jones Computer Network.
For adults who desire more in-depth information or post-secondary degrees or
certificates, the Company works in conjunction with select universities and
colleges to offer degree and certificate courses through multiple forms of
media, including videotapes, television, print materials, the Internet and other
interactive multimedia. The Company also offers a broad selection of
educational video and software products that complement its programming and
course offerings. The Company's programming, products and services concentrate
primarily on four high-demand subject areas: (i) computers and technology, (ii)
business, careers and finance, (iii) health and wellness and (iv) global culture
and languages.
By integrating and cross-promoting its networks, degree and certificate
programs and other learning products, the Company encourages its viewers,
students and other customers to utilize these products and services. The
Company's networks generate revenue through license fees paid by program
distributors and through the sale of advertising time. The networks'
programming is intended to reach an audience that has demographics attractive to
advertisers and that is receptive to the Company's education products and
services. The Company also generates revenue from tuition fees, student fees
and the sale of education-oriented products, particularly training videos and
programs. The Company believes that its distance education business is
differentiated from others because it is highly integrated and it derives
revenue from multiple sources.
The Company's network programs are designed to provide adults with
practical information that can be applied immediately in their personal and
professional lives and are distributed on the Company's two 24-hours a day,
satellite-delivered networks, ME/U Knowledge TV and Jones Computer Network.
ME/U Knowledge TV, launched in 1987, features programs in each of the Company's
four high-demand subject areas and is currently available to approximately 24.5
million households in the United States. Jones Computer Network, launched in
1994, offers programming focused primarily on computers and technology and is
currently available to approximately 1.2 million households in the United
States.
The Company's degree and certificate courses target adults who desire in-
depth, post-secondary education, but who are constrained by the time and
location inconveniences associated with enrollment in programs using the
traditional educational model. Working in conjunction with
3
<PAGE>
universities and colleges, the Company offers distance education degree and
certificate courses that are delivered directly to adults through multiple forms
of media, including videotape, television, print materials, the Internet and
other interactive multimedia. The Company currently offers 170 course selections
and 17 degree and certificate programs through 11 accredited universities and
colleges, including The George Washington University, Regis University,
California State University at Dominguez Hills and the University of Colorado-
Colorado Springs, as well as through International University College, an
affiliate of the Company currently seeking accreditation. The Company seeks to
distinguish its distance education programs from those of others by offering
students (i) a variety of accredited universities and colleges from which they
can choose to earn a degree or certificate, (ii) a greater selection of degree
and certificate programs, (iii) greater flexibility in the scheduling and
delivery methods for its courses and (iv) increased frequency in the delivery of
its courses. The Company also provides a range of support services for its
distance education degree and certificate courses through its Education Services
Center and offers a broad selection of educational videotapes, audiotapes,
books, compact disks and other learning tools through its ME/U Knowledge Store.
The Company believes that rapidly evolving changes in society, the
workplace and technology are leading adults increasingly to seek new educational
opportunities offered in a more convenient fashion than traditional site-based
education programs. The Company believes that many adults seek practical
education through television programming that contains substantial knowledge and
training content. The Company further believes that advertisers and programming
distributors have responded positively to the popularity of such programming.
Based on recent industry data, the Company believes that advertisers spent
approximately $780 million, net of agency commissions, in 1995 on 10 networks
airing information-based programming, representing an increase of approximately
144% from such advertising expenditures in 1990. In addition, the Company
estimates that license fees paid by cable operators to these networks were
approximately $600 million in 1995. The Company believes that its programming
is education-oriented and therefore appeals to a smaller audience than these
information-based networks. There can be no assurance that the Company's
advertising or license fee revenue will grow in the future. See "Business --
The Market for Adult Education Programming and Credit Courses." In addition, the
Company believes a substantial number of adults are seeking more in-depth
education through formal credit and degree courses. In 1993, the most recent
year for which information is available, the U.S Department of Education
estimated that adults over 24 years of age comprised approximately 6.3 million,
or 44%, of the 14.3 million students enrolled in higher education programs. The
Company believes that it is positioned to compete effectively in these markets
due to its unique combination of experience, resources, depth of course
offerings, breadth of delivery modes and integrated sales and marketing
capabilities.
The Company seeks to strengthen and expand its position as a provider of
knowledge-enhancing programming and distance education products and services to
adults. The Company's strategy is (i) to expand the distribution of its
networks, (ii) to license, develop and produce high quality programming for both
its networks and degree and certificate courses, (iii) to increase its marketing
and promotion activities, (iv) to increase its student enrollments, (v) to
develop corporate relationships (vi) to expand further into international
markets and (vii) to pursue strategic acquisitions. By pursuing these
strategies, the Company hopes to expand its subscriber base, make its networks
more attractive to both viewers and advertisers, increase the brand awareness
and usage of both its networks and its distance education programs and expand
further into international markets.
The Company was incorporated in 1990 in Colorado. The Company's corporate
offices are located at 9697 East Mineral Avenue, Englewood, Colorado 80112, and
its telephone number is (303) 792-3111.
4
<PAGE>
THE OFFERING
Class A Common Stock offered by:
The Company................... 5,800,000 shares
The Selling Shareholders...... 1,100,000 shares
---------
Total....................... 6,900,000 shares
=========
Common Stock to be outstanding
after the Offering:
Class A Common Stock.......... 9,492,175 shares
Class B Common Stock.......... 2,089,620 shares
---------
Total 11,581,795 shares(1)
==========
Use of proceeds................ The Company intends to use the net proceeds
from the Offering as follows: (i)
approximately $23.0 million to increase
marketing activities relating to the Company's
networks and its education products and
services through 1997; (ii) approximately
$21.0 million to license, develop and produce
additional programming for its networks and
its degree and certificate course offerings
through 1997; and (iii) approximately $1.4
million to repay a long-term advance from
Jones International, Ltd. ("Jones
International"). The Company intends to use
the remaining $33.0 million to fund future
operating losses, for marketing and
programming expenses after 1997, and for
general corporate purposes, including
potential strategic investments or
acquisitions. The Company will not receive
any of the proceeds from the sale of shares by
the Selling Shareholders. See "Use of
Proceeds."
Voting rights.................. Holders of Class A Common Stock are entitled
to 1/10th of a vote per share and holders of
Class B Common Stock are entitled to one vote
per share on all matters submitted to a vote
of shareholders. Both classes vote together
as a single class on all matters not requiring
a class vote. The holders of Class A Common
Stock, voting separately as a class, are
entitled to elect approximately 25% of the
Company's directors, with the remainder of the
directors being elected by the holders of
Class B Common Stock, voting separately as a
class. The approval of two-thirds of each
class of Common Stock, voting separately, is
required for certain extraordinary corporate
actions. See "Description of Capital Stock."
Immediately following the Offering and on a
fully-diluted
5
<PAGE>
basis, the holders of the Class B Common Stock
(Glenn R. Jones and Jones International) will
have approximately 69% of the combined voting
power of the Company's outstanding Common
Stock. See "Principal and Selling
Shareholders" and "Risk Factors -- Voting
Rights; Control by Principal Shareholders;
Anti-Takeover Effects."
Nasdaq National Market symbol.. JENI
__________________________
(1) Excludes (i) 1,100,000 shares of Class A Common Stock reserved for issuance
pursuant to the Company's Stock Option Plan, none of which were subject to
outstanding options as of August 30, 1996, and (ii) 28,750 shares (33,063
shares if the Underwriters' over-allotment option is exercised in full) of
Class A Common Stock issuable under a warrant the Company has agreed to
grant to M. Kane & Company, Inc. with an exercise price equal to $18.00 per
share (assuming an offering price of $15.00 per share). The Company
anticipates granting stock options to certain of its officers and employees
prior to the completion of this Offering. See "Management -- Stock Option
Plan" and "Underwriting."
6
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AND STUDENT AND ENROLLMENT DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
----------------------------------- --------------------
1993 1994 1995 1995 1996
------- -------- ------- --------- -------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues..................................... $ 6,073 $ 9,973 $ 15,911 $ 7,717 $ 10,528
Operating loss............................... (9,985) (10,157) (12,233) (7,685) (2,170)
Loss before income tax benefit and minority
interests................................. (10,061) (12,755) (13,290) (8,459) (2,287)
Net loss..................................... (9,653) (10,954) (13,290) (8,459) (2,105)
Net loss per common share.................... (2.31) (2.61) (2.40) (1.60) (0.36)
Weighted average number of common shares
outstanding............................... 4,179 4,198 5,527 5,273 5,782
OTHER DATA:
Number of network households................. 25,552 25,558 25,720 27,240 25,676
Number of paying network households.......... 6,800 8,200 11,500 10,900 11,600
Number of enrollments........................ 1,974 2,544 4,674 2,155 2,586
Number of students........................... 1,141 1,185 1,801 1,717 1,970
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1996
-------------------------------------
ACTUAL AS ADJUSTED(1)
---------------- ------------------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital......................................................... $ 5,938 $82,957
Total assets............................................................ 11,088 88,107
Long term debt.......................................................... 1,400 --
Total shareholders' equity.............................................. 6,150 84,569
</TABLE>
- -----------------------
(1) Adjusted to give effect to the sale of 5,800,000 shares of Class A Common
Stock offered by the Company hereby, at an assumed offering price of $15.00
per share and after deducting underwriting discounts and commissions and
estimated offering expenses payable by the Company, and the application of
the net proceeds therefrom. See "Use of Proceeds."
7
<PAGE>
RISK FACTORS
An investment in the shares of Class A Common Stock offered hereby involves
a high degree of risk. Prospective purchasers of the Class A Common Stock
should consider carefully the information set forth below, as well as the other
information in this Prospectus, in determining whether to purchase shares of the
Class A Common Stock offered hereby. In addition, certain information included
in this Prospectus is forward-looking. Such forward-looking information
involves significant risks and uncertainties that could cause actual future
results to differ significantly from those expressed in any forward-looking
statements made by, or on behalf of, the Company. These risks and uncertainties
include but are not limited to those discussed below.
HISTORY OF OPERATING AND NET LOSSES; EXPECTED FUTURE LOSSES
The Company has sustained operating and net losses throughout its history,
including operating losses of $10.0 million, $10.2 million, $12.2 million and
$2.2 million and net losses of $9.7 million, $11.0 million, $13.3 million and
$2.1 million for the years ended December 31, 1993, 1994 and 1995, and for the
six months ended June 30, 1996, respectively. The Company also anticipates
incurring increased costs and substantially higher operating losses and net
losses through at least 1998. The Company expects to continue to recognize
substantial operating and net losses for the foreseeable future and there can be
no assurance that the Company will ever generate operating or net income. In
addition, the Company has not generated sufficient cash from operations and has
relied on advances and investments from current shareholders to fund its
operations. These shareholders are under no obligation to provide, nor does the
Company expect such shareholders to provide, additional advances to or make
future investments in the Company. Although the Company believes that the
proceeds of this Offering will be sufficient to satisfy the Company's working
capital and cash flow needs through 1997, there can be no assurance that the
Company will be able to meet its longer term capital requirements. See "--
Capital Requirements," "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources."
INABILITY TO SUSTAIN OR MANAGE GROWTH
The Company's revenue has grown substantially in recent years primarily as
a result of increased advertising and licensing revenue generated by its two
networks, ME/U Knowledge TV and Jones Computer Network. The Company intends to
pursue an aggressive expansion strategy for the foreseeable future, but there
can be no assurance that the Company will successfully achieve its growth
objectives. The Company's ability to maintain its growth will depend on a
number of factors, many of which are beyond the Company's control, including
maintaining and expanding distribution of ME/U Knowledge TV and Jones Computer
Network, both through multiple system operators of cable television systems
("MSOs"), as well as through alternative distribution systems such as direct
broadcast satellite services ("DBS"), wireless video services ("MMDS") and video
distribution systems being established by various telecommunications companies;
developing and acquiring additional programming for the Company's networks that
is consistent with viewer preferences; attracting additional advertisers that
are willing to pay competitive rates; developing additional course offerings
for, and increasing student enrollment in, its degree and certificate programs;
and penetrating and developing existing and new markets for its television
programming and degree and certificate courses. In addition, the Company is
subject to a variety of business risks generally associated with growing
companies. Future growth and expansion could place significant strain on the
Company's management personnel, some of whom also serve as officers of
affiliates of the Company, and likely will require the Company to recruit
additional management personnel. There
8
<PAGE>
can be no assurance that the Company will be able to manage its expanding
operations effectively, that it will be able to maintain or accelerate its
growth or that such growth, if achieved, will result in profitable operations or
that it will be able to attract and retain sufficient management personnel
necessary for continued growth. The failure to manage such expansion effectively
could have a material adverse effect on the Company's business, financial
condition or results of operations. See "Business -- Growth Strategy" and "--
Dependence upon Key Personnel."
RISKS ASSOCIATED WITH DISTRIBUTION OF PROGRAMMING
The Company's business is dependent upon the distribution of its
programming through MSOs, other video programmers and other media distributors.
In terms of cable distribution, the Company's programming competes for a limited
number of available cable channels with a large number of well-established
programmers supplying a variety of alternative programming, including education,
news, public affairs, entertainment and sports programming. In addition,
channel space is controlled by MSOs, some of which are affiliated with competing
program providers. See "-- Competition." While the Company has entered into
affiliation agreements with five of the ten largest MSOs in the United States,
as well as a number of smaller MSOs, these agreements generally do not guarantee
the distribution of the Company's networks if local cable operators are unable
or unwilling to carry the Company's programming. In addition, affiliation
agreements accounting for approximately 35% of the Company's licensing revenue
for 1995 are terminable upon 30 days notice and affiliation agreements
accounting for approximately 2% and 19% of the Company's licensing revenue for
1995 are scheduled to expire in fiscal 1997 and 1998, respectively. The
termination or non-renewal of certain of the Company's affiliation agreements or
the termination of carriage of the Company's networks by a significant number of
cable systems would have a material adverse effect on the Company's results of
operations. In addition, the Company's expansion plans are dependent, in part,
on the ability of the Company to enter into affiliation agreements with
additional MSOs and other video programming distributors, to renew existing
affiliation agreements with current MSOs when such agreements expire and to
persuade additional local cable operators to carry the Company's programming.
There can be no assurance that the Company will be able to successfully
negotiate affiliation agreements with any current or new MSO or other video
programming distributor or secure additional distribution from or maintain
current distribution with local cable operators. See "-- Competition" and
"Business -- Growth Strategy," and -- Distribution."
DEPENDENCE ON ADVERTISING REVENUE
The Company historically has derived substantial revenue from the sale
of airtime on its networks for long-form advertisements (infomercials) and, to a
lesser extent, short-form advertisements (spot ads). The Company's ability to
increase its advertising revenue is dependent, in part, on its ability to
attract additional advertisers that are willing to pay competitive rates for
airtime. The Company's ability to attract such additional advertisers is
dependent upon its ability to demonstrate that its networks are able to deliver
the type and quantity of television viewers that such advertisers seek which in
turn is dependent upon a number of factors, including, among others, the
Company's ability (i) to expand the distribution of its networks, (ii) to
maintain or increase the number of hours of network programming on the cable
systems on which the Company's networks are carried only part-time, (iii) to
license, develop and produce additional high quality, distinctive programming
that will attract additional viewers and (iv) to increase awareness of its
networks and measure the type and quantity of television viewers tuned to its
networks. The sale of additional advertising on the Company's networks is also
dependent on certain factors that are beyond the Company's control, including,
among others, the amount of funds that advertisers dedicate to
9
<PAGE>
television advertising and, in particular, to networks such as ME/U Knowledge TV
and Jones Computer Network, the number of advertisers who seek audiences within
the demographic group to which the Company's networks deliver programming and
fluctuations affecting the advertising industry resulting from general economic
trends. There can be no assurance that the Company will be able to maintain its
existing advertisers or attract additional advertisers in the future. See
"Business - Advertising."
COMPETITION FOR VIEWERS AND STUDENTS; MARKET ACCEPTANCE
The Company's networks compete for viewers with various cable and broadcast
television programmers supplying a variety of enrichment programming, including,
among others, the Discovery Channel, Arts & Entertainment, the History Channel,
The Learning Channel, CNBC, CNN, MSNBC, Fox News Channel, Home and Garden TV and
the Public Broadcasting Service. Many of these programmers have substantially
greater financial and other resources than the Company. Moreover, the Company
expects to encounter additional competition for viewers as technological
advances, such as the deployment of digital compression technology, the
deployment of fiber optic cable and the "multiplexing" of cable services, allow
cable systems to greatly expand their channel capacity and, as a result, their
ability to add new networks. Historically, demand for educational programming
has not had wide appeal with television audiences and high quality programming
with a substantial educational content has not been widely available. The
Company's ability to compete effectively for viewers is dependent upon, among
other factors, its ability to assess consumer preferences and to develop and
acquire programming that is consistent with these preferences.
With respect to distance education, the Company competes with universities
and colleges, including those that deliver education and training products to
distant locations, and independent education and training companies that package
and distribute programs through various media, including, among others, the
University of Phoenix and Westcott Communications, Inc. While the Company
believes that its integrated approach of offering a variety of products and
services through a combination of technologies is distinctive and that the
convenience of home and desktop delivery will be preferred, there can be no
assurance that adults will find the Company's approach preferable to the
approach of its competitors or that the Company will be able to compete
successfully in the future.
In addition, the Company's success in developing additional quality
educational programming and expanding its audience will depend on its ability to
provide programming that anticipates and responds to the needs and preferences
of adults. There can be no assurance that the Company will be able to license
or develop additional educational programming that will be accepted by its
targeted markets. See "Business -- Competition."
RISKS ASSOCIATED WITH THE DISTANCE EDUCATION MARKET
The market for adult education traditionally has been served through site-
based, live instruction. Although distance education programs have been
available for many years, such programs have low awareness among consumers and
currently account for only a small portion of the overall adult education
market. The Company derived approximately 23% of its revenues in 1995 from the
sale of education products and services. However, there can be no assurance
that the demand for adult distance education will continue at its current level
or increase or that the Company will be able to maintain or increase its current
market share.
10
<PAGE>
VOTING RIGHTS; CONTROL BY PRINCIPAL SHAREHOLDERS; ANTI-TAKEOVER EFFECTS
Holders of Class A Common Stock have limited voting rights. Holders of
Class A Common Stock are entitled to 1/10th of a vote per share, and holders of
Class B Common Stock are entitled to one vote per share, on all matters
submitted to a vote of shareholders. Both classes vote together as a single
class on all matters not requiring a class vote. As long as the Class A Common
Stock constitutes more than 10% of the issued and outstanding shares of Common
Stock, the holders of Class A Common Stock, voting separately as a class, are
entitled to elect approximately 25% of the Company's directors, with the
remainder of the directors being elected by the holders of Class B Common Stock,
voting separately as a class. In addition, the approval of two-thirds of each
class of Common Stock is required for certain extraordinary corporate actions.
See "Description of Capital Stock." Immediately following the Offering and on a
fully-diluted basis (assuming no exercise of the Underwriters' over-allotment
option), (i) the holders of the Class B Common Stock will have approximately 69%
of the combined voting power of the Company's outstanding Common Stock and (ii)
all of the current shareholders of the Company will have approximately 27% of
the voting power of the Class A Common Stock and approximately 77% of the
combined voting power of the Company's outstanding Common Stock. Thus, the
holders of the Class B Common Stock will have the power to control all matters
requiring shareholder approval not involving a class vote and the current
shareholders of the Company will have the power to substantially influence all
matters involving a class vote. In addition, following the completion of this
Offering, Glenn R. Jones will directly and indirectly possess 75.5% of the total
voting power of the Company's outstanding Common Stock. This voting control may
have the effect of delaying, deferring or preventing a change of control of the
Company, including any business combination with an unaffiliated party, impeding
the ability of the shareholders to replace management even if factors warrant
such a change, and affecting the price that investors might be willing to pay in
the future for shares of the Company's Class A Common Stock. See "Certain
Relationships and Related Transactions," "Principal and Selling Shareholders"
and "Description of Capital Stock."
CONFLICTS OF INTEREST; TRANSACTIONS WITH AFFILIATES
The Company has engaged in and expects to continue to engage in numerous
transactions with affiliates. Because certain officers and directors of the
Company are also officers and directors of such affiliates, the terms of any
distribution, programming, production, lease or other agreement between the
Company and such affiliates will not be the result of arm's-length negotiations.
The Board of Directors has not established any policies regarding related
transactions or potential conflicts of interest that may arise in the future
between the Company and its affiliates, and there can be no assurance that the
terms of any such transactions will be as favorable as the Company could obtain
from unaffiliated parties. See "-- Dependence upon Key Personnel" and "Certain
Relationships and Related Transactions."
FLUCTUATIONS IN OPERATING RESULTS; SEASONALITY
The Company has experienced fluctuations in its quarterly operating
results, and it expects such fluctuations to continue in the future. Certain of
the Company's operating expenses, including expenses for (i) program licensing,
development and production, (ii) program distribution and delivery and (iii)
education products and services, are incurred based on the Company's
expectations regarding future demand and market conditions. There can be no
assurance that future expenditures will generate advertising, licensing or
education products and services revenue. The Company may also be unable to
adjust its expenditures in a timely manner to compensate for any unexpected
revenue
11
<PAGE>
shortfall. In addition, a significant change in the level of distribution of the
Company's programming or changes in license fees or advertising revenue may also
affect the Company's earnings comparisons. Any significant revenue shortfall
would have a material adverse effect on the Company's results of operations. In
addition, the Company's operating results may fluctuate based on other factors,
including, among other factors, competitive forces within the current and
anticipated future markets served by the Company and general economic
conditions. The Company's revenue has also varied significantly from quarter to
quarter due to seasonal factors. The Company generally has greater advertising
and student enrollment revenue in the first and fourth quarters. Fluctuations in
operating results could result in volatility in the price of the Class A Common
Stock. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Seasonality and Quarterly Fluctuations."
CAPITAL REQUIREMENTS
Expansion of the Company's business through the licensing, development,
production, marketing and distribution of its programming and education products
and services, as well as through increasing brand recognition of the Company's
networks, will require significant expenditures. The Company expects that the
net proceeds from this Offering will be adequate to meet the Company's
requirements for working capital through 1997. Thereafter, the Company may be
required to seek additional equity or debt financing to pursue future growth
opportunities or to address other needs. There can be no assurance that any
additional financing will be available to the Company on acceptable terms, if at
all. If the Company is unable to obtain additional financing on acceptable
terms in the future, its operations and financial condition would be adversely
affected. Although most of the Company's historical capital needs have been met
by advances from and investments made by current shareholders, such shareholders
are under no obligation to provide, nor does the Company expect such
shareholders to provide, future advances or make future investments in the
Company. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources" and "Certain
Relationships and Related Transactions."
RISKS ASSOCIATED WITH INTERNATIONAL EXPANSION
The Company is seeking to develop international operations through various
arrangements with international cable, broadcast and other media distributors.
The purpose of this expansion effort is to increase revenue from the licensing
of programming to the international syndication market and from student
enrollments outside the United States. The Company's international operations
are subject to certain inherent risks, including varying political and economic
conditions, currency fluctuations, regulation and uncertainties in such
regulation, trade barriers, staffing problems and adverse tax consequences.
Additionally, foreign regulatory requirements may prevent or limit the Company's
ability to distribute programming in certain international markets. There can
be no assurance that such factors will not have a material adverse effect on the
Company's plans for international expansion or growth in the future or that the
Company will be successful in expanding its international operations. See
"Business -- Growth Strategy."
DEPENDENCE UPON KEY PERSONNEL
The Company's success is dependent upon the efforts of its key personnel,
particularly the Company's Chairman of the Board and Chief Executive Officer,
Glenn R. Jones, and its President, Wallace W. Griffin. Mr. Jones is also an
executive officer of affiliates of the Company and will
12
<PAGE>
continue to be engaged in the business activities of such affiliates. Loss of
the services of one or more of the Company's key personnel may adversely affect
its business. The Company does not have employment agreements with, and does not
carry key man life insurance on, any of its employees. See "Management."
LITIGATION
On June 4, 1996, an action entitled Space Vision, Inc., Meridian Gate
Holdings, Ltd. and Higher Education Group, Inc. v. Jones International, Ltd.,
Jones Education Networks, Inc. and Mind Extension University, Inc., Civil Action
No. 96-CV-2644, was filed against the Company in the District Court for the City
and County of Denver, Colorado. The plaintiffs allege that the defendants
failed to perform their obligations under an agreement to provide a certain
number of hours of ME/U Knowledge TV programming for distribution in Taiwan, and
to comply with other provisions of the agreements relating to content of
programming supplied and subtitling of programming. The plaintiffs have alleged
misrepresentation and concealment, breach of contract and bad faith by all
defendants. No dollar amount of damages has been alleged, but plaintiffs seek
to recover both compensatory and punitive damages, including lost profits. The
Company has motions pending to dismiss the fraud and bad-faith claims. The
Company believes that it has not breached the agreements and that it has
meritorious defenses to the allegations. The Company intends to defend this
action vigorously. Because the litigation was only recently filed and no
discovery has occurred, the Company has not yet made an assessment as to any
potential impact that an adverse ruling in this case may have on the Company.
See "Business -- Litigation."
INTELLECTUAL PROPERTY
The Company regards its original network programming as proprietary and
relies primarily on a combination of statutory and common law copyright,
trademark and trade secret laws, customer licensing agreements, employee and
third-party nondisclosure agreements and other methods to protect its
proprietary rights. If substantial unauthorized use of the Company's products
were to occur, the Company's business and results of operations could be
negatively affected. There can be no assurance that the Company's means of
protecting its proprietary rights will be adequate or that the Company's
competitors will not independently develop similar courses, program content and
distribution methods. Additionally, there can be no assurance that third
parties will not claim that the Company's current or future programming or
courseware infringes on the proprietary rights of others. A rights infringement
determination adverse to the Company could have a material adverse effect on the
Company's business. See "Business -- Intellectual Property."
GOVERNMENT REGULATION
Certain states assert authority to regulate non-degree granting education
providers if such provider's educational programs are available to such state's
residents. The Company believes that it is exempt from such regulation because
the Company's courses are offered through independent universities and colleges
that pay the Company a fee for its services and therefore the Company does not
participate in any federal or state student aid or loan programs. However, in
the future, state laws and regulations could limit the ability of the Company to
distribute educational services in certain states. See "Business -- Regulation."
13
<PAGE>
TRANSPONDER ARRANGEMENTS
There are a limited number of domestic communications satellites available
for the transmission of cable television programming to cable system operators.
If satellite transmission were interrupted or terminated due to the failure or
unavailability of a transponder, such interruption or termination could have a
material adverse effect on the Company. The availability of transponders in the
future is dependent on a number of factors over which the Company has no
control.
ABSENCE OF PRIOR PUBLIC MARKET; DETERMINATION OF OFFERING PRICE; POSSIBLE
VOLATILITY OF STOCK PRICE
Prior to the Offering, there has been no public market for the Class A
Common Stock and there can be no assurance that an active public market will
develop or continue after the Offering. The initial public offering price of
the Class A Common Stock was determined through negotiations between the Company
and representatives of the Underwriters and there can be no assurance that the
Class A Common Stock will not trade at a price less than the offering price.
See "Underwriting." The market price of the Class A Common Stock could be
subject to significant fluctuations in response to variations in quarterly
operating results and other factors. See "-- Fluctuations in Operating Results;
Seasonality" and "-- Shares Eligible for Future Sale." In addition, the
securities markets have experienced significant price and volume fluctuations
from time to time in recent years that have often been unrelated or
disproportionate to the operating performance of particular companies. These
broad fluctuations may adversely affect the market price of the Class A Common
Stock.
SHARES ELIGIBLE FOR FUTURE SALE
The market price for the Class A Common Stock could be adversely affected
by the availability of shares of Class A Common Stock for sale or actual sales
of substantial amounts of Class A Common Stock by existing or future
shareholders. Upon completion of the Offering, the 6,900,000 shares of Class A
Common Stock sold in the Offering will be freely tradeable without restriction
or further registration under the Securities Act of 1933, as amended (the
"Securities Act"), by persons other than "affiliates" of the Company. The
remaining 2,592,175 shares of Class A Common Stock will be "restricted
securities" within the meaning of Rule 144 under the Securities Act ("Rule 144")
and may not be sold in the absence of registration under the Securities Act
unless an exemption from registration is available, including the exemption
contained in Rule 144. The holders of 1,676,470 shares of Class A Common Stock
possess registration rights with respect to such shares. The Company and its
current shareholders, directors and executive officers have agreed that for a
period of 180 days from the date of this prospectus, that they will not publicly
offer, sell, contract to sell or otherwise publicly dispose of any shares of
Class A Common Stock without the prior written consent of Montgomery Securities.
Following the expiration of such lock-up agreements, 2,592,175 shares of Class A
Common Stock will become available for resale in the public market, subject to
the volume limitations, holding period and other restrictions of Rule 144.
Additionally, as of August 30, 1996, 1,100,000 shares of Class A Common Stock
have been reserved for issuance under the Company's Stock Option Plan, none of
which were subject to outstanding options as of that date. The Company
anticipates granting stock options to certain of its officers and employees
prior to the completion of this Offering. See "Management." The Company has
also, in connection with this Offering, agreed to grant a warrant to M. Kane &
Company, Inc. to purchase 28,750 shares (33,063 shares if the Underwriters'
overallotment option is exercised in full) of the Class A Common Stock at an
exercise price equal to $18.00 per share (assuming an initial public offering
price of $15.00 per
14
<PAGE>
share), together with certain registration rights relating to such shares.
Future sales of shares of Class A Common Stock, or the perception that such
sales could occur, could have an adverse effect on the market price of the
Company's Class A Common Stock. See "-- Absence of Prior Public Market;
Determination of Offering Price; Possible Volatility of Stock Price," "Shares
Eligible for Future Sale," "Underwriting" and "Description of Capital Stock."
IMMEDIATE AND SUBSTANTIAL DILUTION; ABSENCE OF PAYMENTS OF CASH DIVIDENDS
Purchasers of the Class A Common Stock will experience immediate and
substantial dilution of $7.63 (at an assumed offering price of $15.00 per share)
in net tangible book value per share. Additionally, the Company has not paid
any cash dividends since its inception and does not anticipate paying cash
dividends in the future. See "Dilution" and "Dividend Policy."
15
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 5,800,000 shares of
Class A Common Stock being offered by the Company, assuming an initial offering
price of $15.00 per share, are estimated to be approximately $78.4 million
($90.3 million if the Underwriters' overallotment option is exercised in full)
after deducting underwriting discounts and commissions and estimated offering
expenses payable by the Company.
The Company intends to use the net proceeds from the Offering as follows:
(i) approximately $23.0 million to increase marketing activities relating to the
Company's networks and its education products and services through 1997; (ii)
approximately $21.0 million to license, develop and produce additional
programming for its networks and its degree and certificate course offerings
through 1997; and (iii) approximately $1.4 million to repay a long-term advance
from Jones International, which has no maturity date and bears interest at the
published prime rate plus 2%. See Note 4 of Notes to the Consolidated Financial
Statements. The Company intends to use the remaining $33.0 million to fund
future operating losses, for marketing and programming expenses after 1997, and
for general corporate purposes, including potential strategic investments in or
acquisitions of businesses complementary to the Company's education products and
services. The Company is not currently engaged in any negotiations concerning
such investments or acquisitions. Pending such uses, the Company intends to
invest the net proceeds from the Offering in investment-grade, short-term,
interest-bearing securities. The Company will not receive any proceeds from the
sale of the 1,100,000 shares of Class A Common Stock to be offered by the
Selling Shareholders. See "Principal and Selling Shareholders."
DIVIDEND POLICY
The Company has never declared or paid a cash dividend on its Common Stock.
The Company intends to retain any earnings for use in the operation and
expansion of its business and therefore does not anticipate paying any cash
dividends in the foreseeable future. The declaration and payment of dividends
in the future will be at the discretion of the Board of Directors and will be
dependent upon the Company's financial condition, results of operations and
capital requirements, terms of future credit or other agreements and such other
factors as the Board of Directors deems relevant. Holders of Class A Common
Stock and Class B Common Stock are entitled to share ratably in dividends
(whether paid in cash, property or shares of the Company), if declared by the
Board of Directors.
16
<PAGE>
CAPITALIZATION
The following table sets forth the actual capitalization of the Company at
June 30, 1996 and as adjusted to reflect the sale of 5,800,000 shares of Class A
Common Stock offered by the Company at the assumed initial offering price of
$15.00 per share and the application of the net proceeds therefrom. See "Use of
Proceeds." This table should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Consolidated Financial Statements and Notes thereto included elsewhere in
this Prospectus.
<TABLE>
<CAPTION> JUNE 30, 1996
-------------------------------------
Actual As Adjusted
---------------- ------------------
(In thousands)
<S> <C> <C>
Long-term debt........................................ $ 1,400(1) $ --
Shareholders' Equity:
Class A Common Stock, $.01 par value; 100,000,000 37 95
shares authorized; 3,692,175 shares issued and
outstanding actual; 9,492,175 shares issued and
outstanding as adjusted(2) ........................
Class B Common Stock, $.01 par value; 2,089,620 shares 21 21
authorized; 2,089,620 shares issued and outstanding
actual and as adjusted ............................
Additional paid-in capital ........................... 40,680 119,041
Accumulated deficit ................................. (34,588) (34,588)
------- --------
Total shareholders' equity .......................... 6,150 84,569
------- --------
Total capitalization .............................. $ 7,550 $ 84,569
======= ========
</TABLE>
_______________________
(1) Long-term debt consists of advances from Jones International, which have no
maturity date and bear interest at the published prime rate plus 2%. See
Note 4 of Notes to the Consolidated Financial Statements and "Use of
Proceeds."
(2) Excludes (i) 1,100,000 shares of Class A Common Stock reserved for issuance
under the Company's Stock Option Plan, none of which were subject to
outstanding options as of August 30, 1996 and (ii) 28,750 shares (33,063
shares if the Underwriters' over-allotment option is exercised) of Class A
Common Stock issuable under a warrant the Company has agreed to grant to M.
Kane & Company, Inc. with an exercise price equal to $18.00 per share
(assuming an initial public offering price of $15.00 per share). The
Company anticipates granting stock options to certain of its officers and
employees prior to the completion of this Offering. See "Management - Stock
Option Plan" and "Underwriting."
17
<PAGE>
DILUTION
The net tangible book value of the Company as of June 30, 1996 was
approximately $6.9 million, or $1.19 per share of Common Stock. Net tangible
book value per share represents the amount of tangible assets of the Company,
less total liabilities, divided by the number of shares of Common Stock
outstanding. Without taking into account any other changes in net tangible book
value after June 30, 1996, other than the sale by the Company of the 5,800,000
shares of Class A Common Stock offered hereby (at an assumed initial offering
price of $15.00 per share and after deduction of underwriting discounts and
commissions and estimated Offering expenses), the net tangible book value of the
Company at June 30, 1996 would have been $85.3 million, or $7.37 per share of
Common Stock. This represents an immediate increase in net tangible book value
of $6.18 per share of Common Stock to existing shareholders and an immediate
dilution of $7.63 per share to purchasers of Class A Common Stock. The following
table illustrates the per share dilution to new investors.
<TABLE>
<S> <C> <C>
Assumed initial public offering price.................................. $15.00
Net tangible book value as of June 30, 1996....................... $ 1.19
Increase in net tangible book value attributable to the Offering.. 6.18
------
Net tangible book value after the Offering............................. 7.37
----
Dilution to purchasers of Class A Common Stock......................... $ 7.63
======
</TABLE>
The following table summarizes, on a pro forma basis as of June 30, 1996
(assuming the sale of 5,800,000 shares of Class A Common Stock by the Company at
$15.00 per share), the number of shares of Common Stock purchased from the
Company, the total consideration paid to the Company and the average price per
share paid by the existing shareholders and by the new investors purchasing
shares of Class A Common Stock from the Company in this Offering (before
deducting underwriting discounts and commissions and estimated Offering
expenses):
<TABLE>
<CAPTION>
Shares Purchasesed(1) Total Consideration Average
--------------------------- ------------------------------ Price
Number Percent Amount Percent Per Share
---------- ------------- -------------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Existing shareholder....... 5,781,795 49.9% $ 44,301,000 33.7% $7.66
New investors ............. 5,800,000 50.1% 87,000,000 66.3% $15.00
--------- ----- ---------- -----
Total ................ 11,581,795 100.0% $131,301,000 100.0%
========== ====== ============ ======
______________________
</TABLE>
(1) Assuming the sale by the Selling Shareholders of 1,100,000 shares of Class
A Common Stock in this Offering, the number of shares of Common Stock held
by the existing shareholders will be reduced to 4,681,795 shares, or 40.4%
of the total number of shares of Common Stock outstanding after this
Offering and new investors will hold 59.6% of the total number of shares of
Common Stock outstanding after the Offering. See "Principal and Selling
Shareholders."
(2) Excludes (i) 1,100,000 shares of Class A Common Stock reserved for issuance
under the Company's Stock Option Plan, none of which were subject to
outstanding options as of August 30, 1996 and (ii) 28,750 shares (33,063
shares if the Underwriters' over-allotment option is exercised) of Class A
Common Stock issuable under a warrant the Company has agreed to grant to M.
Kane & Company, Inc. with an exercise price equal to $18.00 per share
(assuming an initial public offering price of $15.00 per share). The
Company anticipates granting stock options to certain of its officers and
employees prior to the completion of this Offering. See "Management--Stock
Option Plan" and "Underwriting."
18
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data of the Company are
qualified by reference to and should be read in conjunction with the
Consolidated Financial Statements and Notes thereto and other financial data
included elsewhere in this Prospectus. The statement of operations data set
forth below for each of the three years in the period ended December 31, 1995
and the balance sheet data at December 31, 1994 and 1995, are derived from the
Company's consolidated financial statements for those years which have been
audited by Arthur Andersen LLP, independent accountants, whose report thereon is
included elsewhere in this Prospectus. The statement of operations data for
each of the two years in the period ended December 31, 1992 and the balance
sheet data at December 31, 1991, 1992 and 1993 are derived from unaudited
financial statements of the Company not included in this Prospectus. The
statement of operations data for the six months ended June 30, 1995 and 1996 and
the balance sheet data at June 30, 1996 are derived from unaudited financial
statements which, in the opinion of management, have been prepared on the same
basis as the audited financial statements and contain all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of the financial condition and results of operations for such
periods. These historical results are not necessarily indicative of the results
to be expected in the future. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
Six Months
Ended
Year Ended December 31, June 30,
-------------------------------------------------------- -----------------
1991 1992 1993 1994 1995 1995 1996
------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
(In thousands,except per share and student and enrollment data)
Statement of Operations Data:
Revenues:
Advertising revenue .................. $ - $ 24 $ 543 $ 3,423 $ 5,397 $ 2,336 $ 4,529
Licensing prouducts .................. 1,926 2,362 3,051 3,948 6,790 3,397 3,609
Education products and services ...... 2,366 1,624 2,479 2,602 3,724 1,984 2,390
----- ----- ----- ----- ----- ----- ------
Total revenues ...................... 4,292 4,010 6,073 9,973 15,911 7,717 10,528
Operating expenses:
Network expenses .................... 2,088 3,429 4,888 6,537 11,043 5,853 6,372
Education product and services
expenses............................. 1,639 1,515 1,860 2,299 5,231 3,114 2,572
Selling and marketing expenses........ 2,047 2,790 4,379 5,322 5,618 3,171 1,556
General and administrative expenses... 2,304 3,402 4,931 5,972 6,252 3,264 2,198
----- ----- ----- ----- ----- ----- -----
Total operation expenses............. 8,078 11,136 16,058 20,130 28,144 15,402 12,698
----- ------ ------ ------ ------ ------ ------
Operating loss......................... (3,786) (7,126) (9,985) (10,157) (12,233) (7,685) (2,170)
Other income (expenses), net........... 3,060 (788) (76) (2,598) (1,057) (774) (117)
----- ------ ----- ------ ------ ----- -----
Loss before income tax benefit and
minority interest.................... (726) (7,914) (10,061) (12,755) (13,290) (8,459) (2,287)
Income tax benefit..................... 76 1,330 408 1,801 -- -- --
Minority interests..................... -- -- -- -- -- -- 182
----- ----- ------ ------ ------ ----- -----
Net loss............................... $ (649) $ (6,584) $ (9,653) $ (10,954) $ (13,290) $ (8,459) $ (2,105)
===== ======= ======= ======== ======== ======= =======
Net loss per common share.............. $ (0.16) $ (1.58) $ (2.31) $ (2.61) $ (2.40) $ (1.60) $ (0.36)
Weighted average number of common
shares outstanding................... 4,179 4,179 4,179 4,198 5,527 5,273 5,782
OTHER DATA:
Number of network households........... 22,015 22,015 25,552 25,558 25,720 27,240 25,676
Number of paying network households.... N/A 3,802 6,800 8,200 11,500 10,900 11,600
Number of enrollments.................. 588 1,362 1,974 2,544 4,674 2,155 2,586
Number of students..................... 378 1,483 1,141 1,185 1,801 1,717 1,970
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------- JUNE 30,
1991 1992 1993 1994 1995 1996
-------- -------- -------- -------- -------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital.......................................... $ 682 $ 3,338 $ 1,270 $21,164 $ 7,788 $ 5,938
Total assets............................................. 1,482 4,351 2,886 24,766 12,065 11,088
Long-term debt........................................... 5,843 5,140 13,063 26,693 6,769 1,400
Total shareholders' equity (deficit)..................... (4,640) (1,224) (10,877) (3,831) 2,879 6,150
</TABLE>
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion of the results of operations and financial
condition should be read in conjunction with the Company's Consolidated
Financial Statements and Notes thereto appearing elsewhere in this Prospectus.
This Prospectus contains forward-looking statements. These forward-looking
statements involve risks and uncertainties. The Company's actual results may
differ materially from the results discussed in the forward-looking statements.
Factors that might cause such a difference include, but are not limited to,
those discussed in "Risk Factors."
OVERVIEW
The Company offers a variety of integrated educational programming,
products and services through multiple distribution channels designed to serve
the learning needs of adults. Targeting adults who seek information that is of
practical use in their day-to-day lives, the Company licenses, develops and
produces knowledge-enhancing programs and distributes these programs primarily
on its two television networks, ME/U Knowledge TV and Jones Computer Network.
For adults who desire more in-depth information or post-secondary degrees or
certificates, the Company works in conjunction with select universities and
colleges to offer degree and certificate courses through multiple forms of
media, including videotapes, television, print materials, the Internet and other
interactive multimedia. The Company also offers a broad selection of
educational video and software products that complement its programming and
course offerings. The Company's programming, products and services concentrate
primarily on four high-demand subject areas: (i) computers and technology, (ii)
business, careers and finance, (iii) health and wellness and (iv) global culture
and languages.
The Company's current shareholders are Glenn R. Jones, Jones International,
Jones Intercable, Inc. ("Jones Intercable") and Bell Canada International BVI
III Limited, a wholly-owned subsidiary of Bell Canada International Inc.
("BCI"). Following the completion of this Offering, Glenn R. Jones, Jones
International, Jones Intercable and BCI will own approximately 3%, 25%, 8% and
5%, respectively, or 41% in the aggregate, of the total shares of outstanding
Common Stock. Following the completion of the Offering, Mr. Jones will directly,
and indirectly through Jones International and Jones Intercable, possess 75.5%
of the total voting power of the Company's outstanding Common Stock. See "Risk
Factors Voting Rights; Control by Principal Shareholders; Anti-Takeover
Effects" and "Principal and Selling Shareholders." The Company's principal
subsidiaries include Mind Extension University, Inc. ("ME/U"), approximately 66%
of which is owned by the Company, approximately 26% of which is owned by Jones
Intercable and approximately 8% of which is owned by Mr. Jones directly. The
Company owns 81% of its other subsidiaries including, among others, Jones
Computer Network, with Mr. Jones owning the remaining 19% of such subsidiaries
directly. The Company allocates income or loss to the minority shareholders in
relation to their ownership interests in the subsidiaries. Any minority share of
loss in excess of the minority interest in those subsidiaries is charged to the
Company which occurs primarily when the capital contributions by the minority
shareholders prove insufficient to fund operations and the Company is required
to advance amounts to the subsidiaries. The Company, to the extent available,
will recover these excess losses against any future income and/or equity
contributions.
The Company's revenue is derived primarily from (i) its television
networks, ME/U Knowledge TV and Jones Computer Network, and (ii) its education
products and services. The Company's television networks generate revenue (i)
from the sale of advertising time on its networks, including both long-form
advertising (infomercials) and short-form spot advertising and (ii) through
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licensing fees, which include subscriber and syndication fees, paid by cable
operators and other programming distributors, respectively. Historically, long-
form advertisements have accounted for the majority of the Company's advertising
revenue. In both 1995 and for the six months ended June 30, 1996, network
revenue accounted for approximately 77% of total revenue. The Company's
education products and services revenue is comprised of (i) gross tuition fees,
(ii) student servicing fees and (iii) the sale of education-oriented products,
primarily computer training videos and cable television training programs. The
Company recognizes as revenue 100% of the gross tuition fees paid by students to
the Company for the degree and certificate courses it provides and expenses that
portion of the tuition that is remitted to the applicable university or college,
which is typically 65% of tuition. Upon enrollment, the Company records an
accounts receivable from the student and deferred revenue is recognized
beginning with the start of the term, pro rata over the length of the term. The
length of the term is typically three months. If a student withdraws, tuition
paid related to the unearned portion of the course is refunded in accordance
with the applicable refund policy and accounts receivable and deferred revenue
are adjusted accordingly. The Company rebates the appropriate portion of
tuition to the applicable university or college at the end of the course term.
In both 1995 and for the six months ended June 30, 1996, the Company's education
products and services revenue accounted for approximately 23% of total revenue.
Operating expenses consist of (i) network expenses, (ii) education
products and services expenses, (iii) selling and marketing expenses and (iv)
general and administrative expenses. Network expenses consist of program
licensing, development and production costs, as well as distribution and
delivery costs. Program licensing, development and production costs include the
costs of licensing, researching, designing and producing programs for the
Company's networks, and other associated operating costs. The majority of the
Company's program licensing, development and production costs are expensed as
they are incurred. Program distribution and delivery costs include transponder
leasing fees, uplinking charges and other associated operating costs. The costs
associated with program distribution and delivery are relatively fixed with
respect to each of the Company's two networks. Education products and services
expenses include tuition rebates to universities and colleges that offer the
degree and certificate courses delivered by the Company, production, development
and licensing costs related to products and services offered, and other
associated operating expenses. Selling and marketing expenses include salaries,
travel and other associated operating expenses related to the Company's
marketing activities, as well as the costs of designing, producing and
distributing marketing, advertising and promotional materials. General and
administrative expenses include personnel and associated operating costs for the
Company's executive and management staff and operational support.
Under the terms of an affiliation agreement with a certain MSO, the
Company pays a rebate to the MSO equal to such MSO's pro rata share (based on
the number of subscribers in its cable systems receiving ME/U Knowledge TV as a
percentage of the total number of subscribers receiving such network) of 20% of
net advertising revenue (defined as gross advertising revenue less outside
agency commissions) generated by ME/U Knowledge TV. In addition, the Company
pays such MSO a rebate equal to 5% of net sales receipts from sales of
merchandise made to customers in zip codes served by MSO's systems carrying ME/U
Knowledge TV as a consequence of direct on-air marketing and sales of products
on ME/U Knowledge TV. For 1994 and 1995, these rebates amounted to
approximately $35,000 and $61,000, respectively, and are expected to be
approximately $100,000 in 1996.
The Company expects certain costs to increase and, as a result, to
incur substantially higher operating losses and net losses through at least
1998. These operating losses and net losses are
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primarily the result of increased expenditures for program licensing,
development and production, and expanded sales and marketing expenses to
increase distribution, brand awareness and student enrollments, as well as
advertising and program licensing agreements. The Company expects to fund these
expenditures and operating losses with a portion of the proceeds of this
Offering.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain
data from the Company's consolidated statements of operations as a percentage of
total revenue:
<TABLE>
<CAPTION>
Years Ended December 31, Six Months Ended June 30,
---------------------------- -------------------------
1993 1994 1995 1995 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
TOTAL REVENUES:
Advertising revenue................................ 9% 34% 34% 30% 43%
Licensing revenue.................................. 50 40 43 44 34
--- --- --- --- ---
Network revenue.................................. 59 74 77 74 77
Education products and services revenue............ 41 26 23 26 23
--- --- --- --- ---
Total revenue.................................... 100 100 100 100 100
=== === === === ===
OPERATING EXPENSES:
Network expenses................................... 80 66 69 76 61
Education products and service expenses............ 31 23 33 40 24
Selling and marketing expenses..................... 72 53 35 41 15
General and administrative expenses................ 81 60 39 42 21
--- ---- --- --- ---
Total operating expenses......................... 264 202 176 199 121
=== ==== === === ===
Operating loss..................................... (164) (102) (76) (99) (21)
Net loss.......................................... (159)% (110)% (84)% (110)% (20)%
====== ====== ===== ====== =====
</TABLE>
SIX MONTHS ENDED JUNE 30, 1996 COMPARED TO SIX MONTHS ENDED JUNE 30, 1995
Total Revenue. Total revenue increased $2.8 million, or 36%, from $7.7
million for the six months ended June 30, 1995 to $10.5 million for the six
months ended June 30, 1996. This increase was due primarily to an increase in
network revenue and secondarily to an increase in sales of education products
and services.
Network Revenue. Network revenue increased $2.4 million, or 42%, from $5.7
million for the six months ended June 30, 1995 to $8.1 million for the six
months ended June 30, 1996. Advertising revenue increased $2.2 million, or 96%,
from $2.3 million for the six months ended June 30, 1995 to $4.5 million for the
six months ended June 30, 1996, primarily as a result of increased rates charged
for long-form advertising. Licensing revenue increased $0.2 million, or 6%,
from $3.4 million for the six months ended June 30, 1995 to $3.6 million for the
six months ended June 30, 1996, due primarily to an increase in the number of
paying subscribers receiving ME/U Knowledge TV and Jones Computer Network.
Education Products and Services Revenue. Education products and services
revenue increased $0.4 million, or 20%, from $2.0 million for the six months
ended June 30, 1995 to $2.4 million for the six months ended June 30, 1996.
This increase was due primarily to an approximately 81%
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increase in unit sales of ME/U Knowledge Store products and an approximately 20%
increase in student enrollments in degree and certificate courses.
Network Expenses. Network expenses increased $0.5 million, or 8%, from
$5.9 million for the six months ended June 30, 1995 to $6.4 million for the six
months ended June 30, 1996. This increase was due primarily to an increase in
program distribution and delivery costs and was partially offset by a decrease
in program licensing, development and production costs. Program licensing,
development and production costs decreased $0.3 million, or 11%, from $2.7
million for the six months ended June 30, 1995 to $2.4 million for the six
months ended June 30, 1996. This decrease was due primarily to reductions in
international distribution costs and viewer research activities, which offset
increased operating costs. Program distribution and delivery costs increased
$0.8 million, or 25%, from $3.2 million for the six months ended June 30, 1995
to $4.0 million for the six months ended June 30, 1996. This increase was due
primarily to an increase in personnel and associated operating costs due to an
increase in the size of the affiliate sales staff and a $0.3 million write-off
of an account receivable. As a percentage of network revenue, network expenses
decreased from 104% for the six months ended June 30, 1995 to 79% for the six
months ended June 30, 1996.
Education Products and Services Expenses. Education products and services
expenses decreased $0.5 million, or 16%, from $3.1 million for the six months
ended June 30, 1995 to $2.6 million for the six months ended June 30, 1996.
This decrease was due primarily to a reduction in expenditures for original and
licensed products and a reduction in personnel and contract service costs and
was partially offset by an increase in tuition rebates. As a percentage of
education products and services revenue, education and product service expenses
decreased from 155% for the six months ended June 30, 1995 to 108% for the six
months ended June 30, 1996.
Selling and Marketing Expenses. Selling and marketing expenses decreased
$1.6 million, or 50%, from $3.2 million for the six months ended June 30, 1995
to $1.6 million for the six months ended June 30, 1996. This decrease was due
primarily to decreases in advertising, promotion and public relations expenses
as a result of the redevelopment of the Company's marketing strategy during the
first half of 1996. Significantly greater marketing expenditures primarily
related to the development of new marketing initiatives in the second half of
1996 and secondarily related to staff increases should result in year-end
expenses approximating those of 1995. As a percentage of total revenue, selling
and marketing expenses decreased from 41% for the six months ended June 30, 1995
to 15% for the six months ended June 30, 1996.
General and Administrative Expenses. General and administrative expenses
decreased $1.1 million, or 33%, from $3.3 million for the six months ended June
30, 1995 to $2.2 million for the six months ended June 30, 1996. This decrease
was due primarily to the reduction of certain executive and management staff and
support personnel and was partially offset by an increase in salary allocations
to the Company by its affiliates. As a percentage of total revenue, general and
administrative expenses decreased from 42% for the six months ended June 30,
1995 to 21% of total revenue for the six months ended June 30, 1996.
Other Expense (Income). Other expense (income) includes primarily interest
income and interest expense. Other expense (income) decreased $0.7 million, or
88%, from $0.8 million for the six months ended June 30, 1995 to $0.1 million
for the six months ended June 30, 1996. This decrease was primarily the result
of a decrease in interest expense resulting from the conversion in April 1995
of a $20 million note payable to Jones Intercable into shares of the Company's
Class A Common Stock.
24
<PAGE>
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
Total Revenue. Total revenue increased $5.9 million, or 59%, from $10.0
million for the year ended December 31, 1994 to $15.9 million for the year ended
December 31, 1995. This increase was due primarily to an increase in network
revenue and secondarily to an increase in the sale of education products and
services.
Network Revenue. Network revenue increased $4.8 million, or 65%, from $7.4
million for the year ended December 31, 1994 to $12.2 million for the year ended
December 31, 1995. Advertising revenue increased $2.0 million, or 59%, from $3.4
million for the year ended December 31, 1994 to $5.4 million for the year ended
December 31, 1995. Revenue from the sale of airtime for long-form advertising
accounted for $1.7 million of the increase in advertising revenue. This
increase was due primarily to a 154% increase in available airtime for long-form
advertising on ME/U Knowledge TV and a 300% increase in available airtime on
Jones Computer Network. Licensing revenue increased $2.8 million, or 70%, from
$4.0 million for the year ended December 31, 1994 to $6.8 million for the year
ended December 31, 1995. This increase was due primarily to an increase in the
number of paying subscribers receiving ME/U Knowledge TV for which cable
operators are required to pay a per subscriber license fee, and the fact that
the Company received 12 months of Jones Computer Network licensing revenue in
1995 as compared to 4 months of such licensing revenue in 1994.
Education Products and Services Revenue. Education products and services
revenue increased $1.1 million, or 42%, from $2.6 million for the year ended
December 31, 1994 to $3.7 million for the year ended December 31, 1995. This
increase was primarily due to an approximately 83% increase in student
enrollments in degree and certificate courses offered by the Company and an
approximately 73% increase in product sales through the ME/U Knowledge Store.
Network Expenses. Network expenses increased $4.5 million, or 69%, from
$6.5 million for the year ended December 31, 1994 to $11.0 million for the year
ended December 31, 1995. This increase was due primarily to a significant
increase in program distribution and delivery costs, and a smaller increase in
program licensing, development and production costs. Program licensing,
development and production costs increased $1.4 million, or 44%, from $3.2
million for the year ended December 31, 1994 to $4.6 million for the year ended
December 31, 1995. This increase was due primarily to increased expenditures for
the development and production of enhanced programming for Jones Computer
Network, which was launched in September 1994, and ME/U Knowledge TV. Program
distribution and delivery costs increased $3.1 million, or 94%, from $3.3
million for the year ended December 31, 1994 to $6.4 million for the year ended
December 31, 1995. This increase was due primarily to increased transponder
fees, uplink charges and other associated operating costs for Jones Computer
Network, which operated for 12 months in 1995 as compared to four months in
1994. In 1995, the Company also incurred initial program distribution and
delivery costs associated with licensing programming internationally. As a
percentage of network revenue, network expenses increased from 88% to 90% for
the periods ended December 31, 1994 and 1995, respectively.
Education Products and Services Expenses. Education products and services
expenses increased $2.9 million, or 126%, from $2.3 million for the year ended
December 31, 1994 to $5.2 million for the year ended December 31, 1995. This
increase was due primarily to significant costs associated with the development
and production of ME/U Knowledge Store products in 1995 as compared to 1994 and,
to a lesser extent, increased tuition rebates and other costs related to the
approximately 83% increase in student enrollments and an approximately 73%
increase in unit sales
25
<PAGE>
through the ME/U Knowledge Store. As a percentage of education products and
services revenue, education products and services expenses increased from 88%
for the year ended December 31, 1994 to 140% for the year ended December 31,
1995.
Selling and Marketing Expenses. Selling and marketing expenses increased
$0.3 million, or 6%, from $5.3 million for the year ended December 31, 1994 to
$5.6 million for the year ended December 31, 1995. This increase was primarily
due to continued promotional efforts directed toward cable operators to
facilitate the launch of the Jones Computer Network in September 1994. As a
percentage of total revenue, selling and marketing expenses decreased from 53%
for the year ended December 31, 1994 to 35% for the year ended December 31,
1995.
General and Administrative Expenses. General and administrative expenses
increased $0.3 million, or 5%, from $6.0 million for the year ended December 31,
1994 to $6.3 million for the year ended December 31, 1995. This increase was
due primarily to the implementation of a computerized traffic and billing system
to support advertising sales. As a percentage of total revenue, general and
administrative expenses decreased from 60% for the year ended December 31, 1994
to 39% for the year ended December 31, 1995.
Other Expense (Income). Other expense (income) decreased $1.5 million, or
58%, from $2.6 million for the year ended December 31, 1994 to $1.1 million for
the year ended December 31, 1995. This decrease was primarily a result of a
decrease in interest expense resulting from the conversion in April 1995 of a
$20 million note payable to Jones Intercable into shares of the Company's Class
A Common Stock.
YEAR ENDED DECEMBER 31, 1994 COMPARED TO YEAR ENDED DECEMBER 31, 1993
Total Revenue. Total revenue increased $3.9 million, or 64%, from $6.1
million for the year ended December 31, 1993 to $10.0 million for the year ended
December 31, 1994. This increase was due primarily to an increase in network
revenue.
Network Revenue. Network revenue increased $3.8 million, or 106%, from
$3.6 million for the year ended December 31, 1993 to $7.4 million for the year
ended December 31, 1994. Advertising revenue increased $2.9 million to $3.4
million for the year ended December 31, 1994. Revenue from the sale of airtime
for long-form advertising accounted for substantially all of the increase in
advertising revenue. This increase was due primarily to the increased airtime
available for long-form advertising. Licensing revenue increased $0.9 million,
or 29%, from $3.1 million for the year ended December 31, 1993 to $4.0 million
for the year ended December 31, 1994. This increase was due to an increase in
the number of subscribers receiving ME/U Knowledge TV and Jones Computer Network
for which the cable operators were required to pay a per subscriber license fee.
Education Products and Services Revenue. Education products and services
revenue increased $0.1 million, or 4%, from $2.5 million for the year ended
December 31, 1993 to $2.6 million for the year ended December 31, 1994. This
increase was due to an approximately 29% increase in student enrollments in
degree and certificate courses offered by the Company and was partially offset
by a decline in product sales.
Network Expenses. Network expenses increased $1.6 million, or 33%, from
$4.9 million for the year ended December 31, 1993 to $6.5 million for the year
ended December 31, 1994. This increase was due primarily to an increase in
program licensing, development and production costs.
26
<PAGE>
Program licensing, development and production costs increased $1.3 million, or
68%, from $1.9 million for the year ended December 31, 1993 to $3.2 million for
the year ended December 31, 1994. This increase was due primarily to increased
program expenditures relating to the launch of Jones Computer Network and
secondarily to increased program expenditures for ME/U Knowledge TV. Program
distribution and delivery costs increased $0.3 million, or 10%, from $3.0
million, for the year ended December 31, 1993 to $3.3 million for the year ended
December 31, 1994. This increase was due primarily to an increase in transponder
fees and uplinking charges as a result of the launch of Jones Computer Network.
As a percentage of network revenue, network expenses decreased from 136% for the
year ended December 31, 1993 to 88% for the year ended December 31, 1994.
Education Products and Services Expenses. Education products and services
expenses increased $0.4 million, or 21%, from $1.9 million for the year ended
December 31, 1993 to $2.3 million for the year ended December 31, 1994. This
increase was due primarily to the tuition rebates as a result of the 29%
increase in student enrollments in degree and certificate courses offered by the
Company, partially offset by a decline in product sales. As a percentage of
education products and services revenue, education products and services
expenses increased from 76% for the year ended December 31, 1993 to 88% for the
year ended December 31, 1994.
Selling and Marketing Expenses. Selling and marketing expenses increased
$0.9 million, or 20%, from $4.4 million for the year ended December 31, 1993 to
$5.3 million for the year ended December 31, 1994. This increase was primarily
due to increased promotional activity related to the launch of Jones Computer
Network. As a percentage of total revenue, selling and marketing expenses
decreased from 72% for the year ended December 31, 1993 to 53% for the year
ended December 31, 1994.
General and Administrative Expenses. General and administrative expenses
increased $1.1 million, or 22%, from $4.9 million for the year ended December
31, 1993 to $6.0 million for the year ended December 31, 1994. This increase
was primarily due to the increase in the executive staff and associated general
administrative expenses related to the anticipated growth of the Company. As a
percentage of total revenue, general and administrative expenses decreased from
81% for the year ended December 31, 1993 to 60% for the year ended December 31,
1994.
Other Expense (Income). Other expense (income) increased $2.5 million to
$2.6 million for the year ended December 31, 1994. This increase was due
primarily to an increase in interest expense resulting from increased levels of
borrowings from affiliates.
NEW ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-lived
Assets and for Long-lived Assets to be Disposed Of" ("SFAS 121"), which
establishes accounting standards for the impairment of long-lived assets,
certain identifiable intangibles and goodwill. The Company adopted SFAS 121
effective January 1, 1996. Implementation of SFAS 121 had no material effect on
the Company's financial position or results of operations.
The Company adopted Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("SFAS 123") effective January 1,
1996. SFAS 123 recommends a fair value based method of accounting for employee
stock compensation, including stock options.
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However, companies may choose to account for stock compensation using the
intrinsic value based method as prescribed by Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" and provide pro forma
disclosures of net income and earnings per share as if the fair value based
method had been applied. The Company elected to account for stock compensation
using the intrinsic value based method, and thus SFAS 123 will not have any
impact on reported operating results.
SEASONALITY AND QUARTERLY FLUCTUATIONS
The Company experiences seasonality in its results of operations from
quarter to quarter, primarily as a result of changes in the level of advertising
on its networks and on the level of student enrollments. The Company has
generally higher advertising revenue in the first and fourth quarters due to
viewership and corresponding rates received for advertising during these
quarters. While the Company enrolls students throughout the year, educational
products and services revenue is the greatest during the Company's fourth and
first quarters which correspond to the Fall and Spring academic enrollment
periods. The Company's results of operations from quarter to quarter may be
adversely impacted in the future as the Company increases its program licensing,
development and production expenses and selling and marketing expenses. See
"Risk Factors -- Fluctuations in Operating Results; Seasonality."
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company has financed its operations from a combination
of advances to and investments in the Company made by current shareholders.
These shareholders are under no obligation to provide, nor does the Company
expect them to provide, future advances or make future investments in the
Company. The Company currently has no external credit facilities.
Historically, the Company has been able to maintain positive working capital as
a result of the advances and investments from shareholders. In December 1994,
the Company received $18.0 million from BCI in exchange for a then 15% interest
in the Company. In April 1995, Jones Intercable converted $20.0 million of
advances made to ME/U into a then 17% interest in the Company. Also, in March
1996, Jones International invested $6.3 million in the Company in exchange for
shares of Class A Common Stock and Class B Common Stock. The Company's working
capital was $7.8 million and $5.9 million at December 31, 1995 and June 30,
1996, respectively. In addition, Jones International has historically funded
the Company's ordinary course working capital needs. The Company has repaid
these amounts on a monthly basis as revenues were received or from other cash
resources. Following the consummation of this Offering, any advances from Jones
International to fund the Company's operating activities, which advances are not
expected to be material, will bear interest at or below market rates. Jones
International has no obligation to continue such funding. See "Certain
Relationships and Related Transactions."
Since its inception, the Company has incurred net losses as a result of
expenses associated with developing and launching its networks and developing
its distance education degree and certificate courses. Net cash used in
operating activities for the years ended December 31, 1993, 1994 and 1995, and
the six months ended June 30, 1996 was $9.4 million, $13.1 million, $11.1
million and $1.6 million, respectively.
The Company's investing activities have consisted primarily of licensing of
programming content in support of expanded television programming and, to a
lesser extent, capital expenditures, except for a purchase of marketable debt
securities in 1994 and their corresponding sale in 1995. For
28
<PAGE>
the years ended December 31, 1993, 1994 and 1995, and the six months ended
June 30, 1996, net cash provided by (used in) investing activity was $(0.4)
million, $(10.8) million, $9.2 million and $(1.4) million, respectively. Net
cash provided by financing activities in 1993, 1994, 1995 and the six months
ended June 30, 1996 were $7.5 million, $32.1 million, $0.0 million and $0.8
million. See "Certain Relationships and Related Transactions."
The Company presently has no material commitments for future capital
expenditures.
The Company believes that the net proceeds from this Offering will provide
sufficient cash to fund its liquidity requirements through 1997. Should the
Company require additional capital in the future, the Company will be required
to seek external financing sources. Such external sources of funding may not be
available on terms and conditions acceptable to the Company, if at all. See
"Risk Factors -- Capital Requirements."
EFFECT OF INFLATION
The Company does not believe its operations have been materially affected
by inflation.
29
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BUSINESS
OVERVIEW
The Company offers a variety of integrated educational programming,
products and services through multiple distribution channels designed to serve
the learning needs of adults. Targeting adults who seek information that is of
practical use in their day-to-day lives, the Company licenses, develops and
produces knowledge-enhancing programs and distributes these programs primarily
on its two television networks, ME/U Knowledge TV and Jones Computer Network.
For adults who desire more in-depth information or post-secondary degrees or
certificates, the Company works in conjunction with select universities and
colleges to offer degree and certificate courses through multiple forms of
media, including videotapes, television, print materials, the Internet and other
interactive multimedia. The Company also offers a broad selection of
educational video and software products that complement its programming and
course offerings. The Company's programming, products and services concentrate
primarily on four high-demand subject areas: (i) computers and technology, (ii)
business, careers and finance, (iii) health and wellness and (iv) global culture
and languages.
By integrating and cross-promoting its networks, degree and certificate
programs and other learning products, the Company encourages its viewers,
students and other customers to utilize these products and services. The
Company's networks generate revenue through license fees paid by program
distributors and through the sale of advertising time. The networks'
programming is intended to reach an audience that has demographics attractive to
advertisers and that is receptive to the Company's education products and
services. The Company also generates revenue from tuition fees, student fees
and the sale of education-oriented products, particularly training videos and
programs. The Company believes that its distance education business is
differentiated from others because it is highly integrated and derives revenue
from multiple sources.
THE MARKET FOR ADULT EDUCATION PROGRAMMING AND CREDIT COURSES
The Company believes that rapidly evolving changes in society, the
workplace and technology are leading adults increasingly to seek new educational
opportunities offered in a more convenient fashion than traditional site-based
education programs. The Company believes that many adults seek practical
education through television programming with substantial knowledge and training
content and that an increasing number of adults are seeking more in-depth
education through formal credit and degree courses. According to a study
commissioned by the Company in 1994, approximately 85% of adult cable viewers
desire television programming that provides helpful information and
opportunities for self-improvement, particularly on topics with a high degree of
applicability to their daily lives. The study also indicated that approximately
72% of such adults desire more educational or training courses to be made
available via television, satellite or video and that approximately 30% of such
adults planning to take a course would prefer that such course be delivered via
television or video.
Television networks that focus on delivery of both information and
entertainment programming, including CNN and Headline News, the Discovery
Channel, The Learning Channel, Arts & Entertainment and CNBC, have become
popular in recent years and advertisers have responded positively to the success
of programs aired on these networks and the viewers they attract. Based on
recent industry data, the Company believes that advertisers spent over $3.1
billion, net of agency commissions, on the 27 largest advertising-supported
cable networks in 1995, representing an increase of approximately 112% from the
approximately $1.5 billion spent in 1990. Of these
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expenditures, the Company estimates that advertisers spent approximately $780
million, net of agency commissions, in 1995 on 10 networks airing information-
based programming, representing an increase of approximately 144% from such
advertising expenditures on these networks in 1990. In addition, license fees
paid by cable operators to the 27 largest advertising-supported cable networks
increased approximately 110% to approximately $2.4 billion in 1995 from
approximately $1.2 billion in 1990. Of these expenditures, the Company estimates
that license fees paid by cable operators to networks airing information-based
programming were approximately $600 million in 1995. The Company believes that
its programming is more education-related and less oriented toward a general
television audience than the programming on the information-based networks
referred to above. The Company therefore anticipates that it may not be as
attractive to advertisers or MSOs. The Company currently has limited
distribution by cable operators and a very small portion of this advertising
market and there can be no assurance that the Company's share of this
advertising market or license fees can be increased.
The Company, working in conjunction with select universities and colleges,
offers distance education degree and certificate courses for adults. In 1993,
the most recent year for which information is available, the U.S. Department of
Education estimated that adults over 24 years of age comprised approximately 6.3
million, or 44%, of the 14.3 million students enrolled in higher education
programs. The Company believes that traditional educational institutions, which
typically are designed to serve the needs of the 18 to 24 year-old student, have
significant inherent shortcomings in meeting the needs of older students. Most
universities and colleges provide the bulk of their educational programming
based on a traditional academic calendar with courses starting and finishing on
a semester schedule and with extensive breaks between semesters. In addition,
most universities and colleges offer programs that are site-based, requiring
students to attend classes on a regular basis at a specific time and location.
This structure limits the educational opportunities of adults who, due to
personal and career responsibilities, desire courses that are more flexibly
provided and scheduled. The Company believes its distance education programs
increase the accessibility of educational opportunities desired by many adults.
THE JONES EDUCATION NETWORKS APPROACH
The Company utilizes multiple forms of communications technologies and
media to market and deliver knowledge-enhancing television programming, degree
and certificate courses and other knowledge-based products, such as educational
videos and software. The Company's programming, products and services are
designed to be integrated and are intended to encourage viewers of the Company's
networks to enroll in its degree and certificate courses and to purchase its
other education products and services. Key elements of the Company's approach
include:
Programming. The Company licenses, develops and produces knowledge-
enhancing programs focusing primarily on its four high-demand subject areas.
The Company's network programs are designed to provide adults with practical
information that can be applied immediately in their personal and professional
lives in a cost-effective and convenient manner. These programs are distributed
on the Company's two 24-hours a day, satellite-delivered networks, ME/U
Knowledge TV and Jones Computer Network, and to a lesser extent through
syndication on other networks. ME/U Knowledge TV, launched in 1987, offers a
variety of programming relating to each of the Company's four high-demand
subject areas and Jones Computer Network, launched in 1994, offers programming
focused on computers and technology. The Company also uses its networks as a
platform to market its distance education degree and certificate courses and
other education products and services.
31
<PAGE>
Distance Education Degree and Certificate Courses. Working in conjunction
with select universities and colleges, the Company offers distance education
degree and certificate courses that are delivered directly to adults through
multiple forms of media, including videotapes, television, print materials, the
Internet and other interactive multimedia. The Company's distance education
degree and certificate courses target adults who desire in-depth, post-secondary
education but are limited by location and time constraints. The Company seeks
affiliations with universities and colleges that have strong reputations,
expertise in the subject matter in which the degree or certificate is offered,
and the willingness and ability to design courses that enable affordable and
effective education to occur beyond the confines of the classroom. The Company
seeks to distinguish its distance education programs by offering students (i) a
variety of accredited universities and colleges from which they can choose to
earn a degree or certificate, (ii) a greater selection of degree and certificate
programs, (iii) greater flexibility in the scheduling and delivery methods for
its courses and (iv) increased frequency in the delivery of its courses.
Education Services Center. The Company's Education Services Center
provides a range of support services for the Company's distance education degree
and certificate course programs, including facilitating telephone and Internet
communications among students and faculty members in order to provide an
interactive component that is essential to the Company's distance education
model. In addition, the Education Services Center performs student recruitment
functions and provides enrollment processing and academic advising services to
students. The Education Services Center also provides administrative support
services, such as tuition billing and collection, to participating universities
and colleges. The Education Services Center also handles inquiries concerning
the Company's education products and services that are promoted on its networks.
The Company believes its Education Services Center is unique in its practice of
providing complete services and support to distance education students
throughout their learning experience.
ME/U Knowledge Store. The Company's ME/U Knowledge Store offers a broad
selection of educational videotapes, CDs and other learning tools. The ME/U
Knowledge Store products are designed to present information that may be
immediately employed by adults in their personal and professional lives and that
may be viewed at a time and place of their choosing. The products are marketed
through promotion on the Company's networks and through a catalog published and
distributed by the Company.
GROWTH STRATEGY
The Company's strategy is to strengthen and expand its position as one of
the leading providers of knowledge-enhancing programming and distance education
products and services to adults. Key elements of this strategy include:
Expand Distribution of Its Networks. The Company's networks, ME/U
Knowledge TV and Jones Computer Network, are currently available to
approximately 24% and 1%, respectively, of households with televisions in the
United States. The Company seeks to expand the distribution of its networks to
a larger percentage of the estimated 97 million U.S. households with televisions
by (i) increasing distribution with cable operators currently carrying one or
both of its networks, (ii) establishing distribution of its networks with cable
operators that currently do not carry its networks and (iii) establishing
distribution of its networks with providers of direct broadcast satellite and
wireless video services. As the Company expands the distribution of its
networks, it anticipates generating increased advertising revenue, increased
licensing revenue from cable operators and other programming distributors and
increased revenue from the sale of education products and services.
32
<PAGE>
License, Develop and Produce High Quality Programming. The Company intends
to continue to improve the quality and quantity of its network programming,
including programming related to degree and certificate courses in each of its
four high-demand subject areas. The Company intends to license, develop and
produce high-quality programs to increase the appeal of its networks to cable
operators and other distributors, viewers and advertisers and to meet the
knowledge needs of adults.
Increase Marketing and Promotion. The Company anticipates increasing its
marketing and promotion expenses from approximately $5.0 million in 1996 to
approximately $20.0 million in 1997 in support of the Company's efforts to
expand distribution of its networks, increase the number of advertisers and
advertisements, increase viewership, increase student enrollments and increase
sales of education products. The Company's efforts will be focused on (i)
promoting the benefits of ME/U Knowledge TV and Jones Computer Network to cable
operators and other media distributors and their viewers and users, (ii)
promoting its distance education degree and certificate courses and education-
oriented products to adults and (iii) building brand recognition of its networks
and education products and services.
Increase Student Enrollments. The Company intends to increase student
enrollments by aggressively marketing its distance education degree and
certificate courses on its networks as well as on other networks, expanding the
number of universities and colleges that offer courses through the Company,
introducing new degree and certificate courses that respond to the changing
educational needs of adults, offering distance education programs and services
through new and more convenient media and providing a more flexible enrollment
schedule to better accommodate the needs of adults. The Company intends to
enhance the delivery of its network programming and distance education degree
and certificate courses as new communications technologies are developed and
become cost effective. In 1995, the Company began offering courses using the
Internet, thereby making certain of the Company's degree and certificate
programs more readily available and easily accessible worldwide.
Develop Corporate Relationships. The Company plans to continue to
establish educational relationships with major corporations, governmental
agencies and the military in order to provide degree and certificate courses and
other training programs to their employees. The Company believes that the
establishment of such corporate relationships provides an effective means of
marketing its education products and services to adults who are likely to
receive tuition assistance or reimbursement.
Expand in International Markets. The Company believes that there are
significant opportunities to deliver its programming, products and services
internationally, especially in the fields of computers and technology and
business. The Company recently entered into licensing agreements providing for
distribution of the Company's programming in a number of foreign countries,
including China and Thailand, and continues to assess opportunities for further
international expansion.
Pursue Strategic Acquisitions. The Company intends to pursue strategic
investments or acquisitions that are complementary to its education products and
services. Although the Company currently has no agreement or understanding with
respect to any such strategic investment or acquisition, the Company plans to
evaluate opportunities to expand its business through strategic investments or
acquisitions.
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<PAGE>
PROGRAMMING
The Company licenses, develops and produces educational programming
designed to meet the personal and professional enrichment needs of adults. The
Company's programming content currently consists of both programming licensed
from third parties and programming developed and produced by the Company. The
Company currently dedicates approximately 30% of its combined daily programming
schedules to knowledge-enhancing general programming, approximately 30% to its
degree and certification courses and the balance to advertising and promotions.
The Company's programming is typically shown in half hour and hour segments and
is focused on four high-demand subject areas that the Company's proprietary
research indicates are of high educational interest, including: (i) computers
and technology, (ii) business, careers and finance, (iii) health and wellness,
and (iv) global culture and languages.
Licensed Programming. The majority of the Company's network programming is
licensed from various sources, including program syndicators and the
universities and colleges whose courses are offered through the Company. The
Company has chosen to license most of its programming because it is less capital
intensive than development and production and increases the networks'
programming flexibility. As a result, the Company expects to continue to
license the majority of its programming in the future. The Company exhibits the
licensed programming pursuant to agreements with suppliers and generally pays a
negotiated annual fixed fee under these licenses. In general, licenses extend
for one year and entitle the Company to show each program an unlimited number of
times on its networks.
Original Programming. To complement licensed programming, the Company also
develops and produces original programming. The Company has historically
developed and produced programming within the four high-demand subject areas in
which there is a lack of relevant high quality programming available for
licensing. The majority of the programming produced by the Company has
consisted of computers and technology programming aired on both of its networks.
The Company plans to increase its production of original programming in the
future as it believes the development and production of original programming
creates distinctive "brand-name" shows that are expressly identified with its
networks. The Company believes that additional value can also be realized
through licensing its original programming domestically and internationally.
The Company's development activities include surveying adults to determine what
types of programming they would be interested in viewing, conducting marketing
studies, convening focus groups, hiring consultants to assist in the development
of program content and producing pilot episodes to further test viewer interest.
Most of the Company's original programming has been and is anticipated to be
produced by production companies under the supervision of the Company.
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The following table provides selected examples of programs that have been
recently licensed or developed and produced by the Company within its four high-
demand subject areas:
<TABLE>
<CAPTION>
NUMBER
PROGRAMS OF EPISODES DESCRIPTION
- -------- ----------- -----------
<S> <C> <C>
COMPUTERS AND TECHNOLOGY
Home Computing/(1)(2)/ 13 A program employing a light-
hearted approach to explaining the
basics of using computer hardware
and software.
New Media News/(1)(2)/ 117 A news format program, co-produced
with KRON-TV of San Francisco,
reporting on current developments
in computers and technology.
Using the Internet in 6 A program offered by International
Business/(1)(2)(3)/ University College that examines
issues related to doing business
on the Internet.
BUSINESS, CAREERS AND
FINANCE
AARP Works/(1)/ 16 A program designed to provide
information on effective job
searching techniques for mature
job seekers.
Leading and Managing the 10 A program offered by University
Organization of the of Colorado--Colorado Springs
Future/(1)(3)/ that explores leadership and
management skills important to
success in business
organizations.
International 20 A program offered by Regis
Management/(1)(3)/ University that focuses on
strategies and structures of
international business, including
discussion of the future role of
small and mid-sized firms in these
markets.
HEALTH AND WELLNESS
Professional Issues in 24 A program offered by California
Nursing/(1)(3)/ State University at Dominguez
Hills that examines the diverse
roles and settings for nursing
practice in the health care
delivery system.
The Cutting Edge Medical 26 A magazine format program
Report/(1)/ focusing on breakthrough
developments in technology which
enables people to live longer,
healthier lives.
Psychological Foundations of 26 A program offered by Oklahoma
Childhood/(1)(3)/ State University that focuses on
children's development of
cognitive, affective and
psychomotor skills.
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
NUMBER
PROGRAMS OF EPISODES DESCRIPTION
- -------- ----------- -----------
<S> <C> <C>
GLOBAL CULTURE AND
LANGUAGES
French Deux News/(1)/ 260 A daily local news program from
France designed to provide an
international news update from a
French perspective.
More Simply Spanish/(1)(3)/ 20 A Spanish course that uses a
conversational approach to
illustrate how to communicate
about travel, shopping, eating and
other activities in Spanish.
Europa Seminal/(1)/ 26 A weekly Spanish language news
format program providing a wide
ranging international news report.
</TABLE>
____________________
(1) Shown on ME/U Knowledge TV.
(2) Shown on Jones Computer Network.
(3) Also included as part of a credit bearing course.
DISTRIBUTION
The Company's programming is distributed on its networks, ME/U Knowledge TV
and Jones Computer Network and, to a lesser extent, through syndication to third
parties for distribution domestically and internationally.
ME/U Knowledge TV. Launched in 1987, ME/U Knowledge TV is a 24-hour a day,
satellite-delivered programming network that features programs in each of the
Company's four high-demand subject areas. A portion of the programming on ME/U
Knowledge TV is also carried on Jones Computer Network. ME/U Knowledge TV is
currently available to approximately 24.5 million households in the United
States, approximately 19.4 million of which are in cable television systems that
distribute the network on a full or part time basis, and the remainder of which
receive the network through C-Band satellite dishes or untraceable cable
connections. ME/U Knowledge TV is currently distributed in systems owned by
each of the ten largest MSOs in the United States and the Company has
affiliation agreements with five of such MSOs, including Tele-Communications,
Inc., Time Warner, Marcus Cable Partners, Cox Cable and Jones Intercable. In
addition, the Company also has affiliation agreements providing for the
distribution of ME/U Knowledge TV with approximately 25 smaller MSOs, including
two cable cooperatives, Telesynergy and the National Cable Television
Cooperative, which together represent MSOs that own cable television systems
that reach over 9 million cable subscribers. The Company's affiliation
agreements generally provide that the MSO may distribute the network in as many
or as few of its cable television systems as it desires. Once the Company has
reached an agreement with an MSO, the Company works with local cable operators
within the MSO system to secure distribution of ME/U Knowledge TV on their
systems. In order to secure such distribution, the Company often provides
launch incentives to the operators, such as providing periods of free
programming and/or paying a marketing subsidy to the cable operator. The fees
payable by MSOs with respect to distribution vary depending upon the level of
distribution of the networks in the particular MSO's system and the size of the
MSO. The terms of affiliation
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agreements with larger MSOs generally provide that the MSO can add or delete the
Company's programming in its discretion. The terms of the affiliation
agreements with smaller MSOs generally provide for distribution for a period of
three to five years and, in most cases, do not allow for the discretionary
deletion of the network once it is launched. In June 1995, the Company entered
into an affiliation agreement with Corporate Media Partners, d/b/a Americast, a
general partnership consisting of Ameritech New Media, Inc., Bell South Media
Ventures, Inc., GTE Media Ventures, Incorporated and SBC Interactive, Inc., that
provides for the distribution of ME/U Knowledge TV on video distribution
networks being established by these telecommunication companies. This
affiliation agreement contains terms similar to those of the affiliation
agreements with the larger MSOs.
Jones Computer Network. Launched in 1994, Jones Computer Network is a 24-
hour a day, satellite-delivered network that delivers programming focusing on
computers, communications, multimedia, software and related technologies. The
programming includes news programs and reports on the latest in computers and
technology, "how-to" shows offering information and instruction on operating
software programs, interviews with leaders in technological innovation, and
general interest shows relating to the current and future impact of computers
and other emerging technologies. The Jones Computer Network programming is also
distributed on ME/U Knowledge TV as part of its prime time programming block.
Jones Computer Network is currently available to approximately 1.2 million
households in the United States, approximately 85% of which households are in
cable television systems operated by Jones Intercable. The only cable systems
that are currently paying fees to the Company for distribution rights of Jones
Computer Network programming are those systems owned by Jones Intercable. The
remainder of these systems do not currently pay fees due to launch incentives
granted by the Company. The operators of these systems are scheduled to begin
paying fees at various dates commencing in 1997.
Program Syndication. The Company distributes educational programming
developed and produced by the Company or for which it has secured distribution
rights through domestic and international syndication agreements with satellite
and broadcast distribution systems. The licensing agreements generally provide
either for distribution of a specific program series or distribution of a block
of programming and may be either exclusive or non-exclusive. The Company
currently has licensing agreements relating to distribution of specific programs
in Canada, Brazil, Korea, Israel and Hong Kong. In addition, the Company has
agreements allowing it to provide programming blocks on distribution systems in
Thailand and China. Currently, approximately 20% and 50% of the programming
aired on ME/U Knowledge TV and Jones Computer Network, respectively, is
available for licensing by the Company. The Company views its licensing
arrangements as a means of increasing awareness of its education programming and
products and services and promoting its distance education degree and
certificate programs.
ADVERTISING
The Company has sold advertising on ME/U Knowledge TV since 1993 and on
Jones Computer Network since its launch in September 1994. The Company's
advertising revenues have been derived primarily from sales of long-form
advertising (infomercials) and, to a lesser extent, from sales of spot
advertising. Major advertisers on the Company's networks are generally
nationally known companies whose products are complementary to the content on
the Company's networks. The Company believes that the focused nature of its
programming enables a potential advertiser to effectively target a specific
demographic segment of viewers. In keeping with its role as a provider of
quality knowledge and academic programming, the Company does not carry
advertisements that it believes are inconsistent with the networks' programming
strategy.
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<PAGE>
Long-form advertising generally is 30 minutes in length. This form of
advertising is generally aired in the overnight hours. During 1995,
approximately 22% of ME/U Knowledge TV's average weekly programming was devoted
to long-form advertising and approximately 25% of Jones Computer Network's
average weekly programming was devoted to long-form advertising. An affiliate
of the Company earns a three percent commission on the sale of airtime for
infomercials on the Company's networks. See "Certain Relationships and Related
Transactions -- Sales Commissions."
Spot advertising consists primarily of 30-second commercials for products
and services. The Company sells spot advertising time to advertising agencies
representing national advertisers or directly to the advertisers themselves. In
1995, spot advertising accounted for 16% of total advertising revenues, with the
balance being comprised of long-form advertising.
EDUCATION PRODUCTS AND SERVICES
The Company's education products and services consist of distance education
degree and certificate courses, the services of its Education Services Center
and educational video and software products.
Distance Education Degree and Certificate Courses. In conjunction with
select universities and colleges, the Company produces and markets distance
education degree and certificate courses to adults. The Company currently
offers 17 degree and certificate programs, including four graduate degree
programs, six bachelor's degree completion programs, two associate of arts
programs and five certificate programs. The Company currently offers
approximately 170 courses through 11 accredited universities and colleges and
through the International University College, an affiliate of the Company
currently seeking accreditation. The following table summarizes the Company's
current distance education degree and certificate programs:
<TABLE>
<CAPTION>
ENROLLMENTS PRICE PER
JANUARY 1- CREDIT HOURS CREDIT
PROGRAM INSTITUTION JUNE 30, 1996 REQUIRED HOUR/(1)/
- ------- ----------- ------------- -------- ---------
<S> <C> <C> <C> <C>
GRADUATE DEGREE PROGRAMS
Master's Degree in
Educational Technology The George Washington
Leadership University 505 36 $238
Master of Arts in International University
Business Communication College 114 35 $163
Master of Business University of Colorado -
Administration Colorado Springs __/(2)/ 36 $235
Master of Public University of Colorado -
Administration Colorado Springs __/(2)/ 36 $235
-----
Total Graduate Degree Program Enrollment 619
=====
BACHELOR'S DEGREE COMPLETION PROGRAMS
Bachelor of Science in
Business Administration Regis University 799 128/(3)/ $185/(4)/
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
ENROLLMENTS PRICE PER
JANUARY 1- CREDIT HOURS CREDIT
PROGRAM INSTITUTION JUNE 30, 1996 REQUIRED HOUR/(1)/
- ------- ----------- ------------- -------- ---------
<S> <C> <C> <C> <C>
Bachelor of Science in California State
Nursing University at
Dominguez Hills 719 126/(3)/ $210
Bachelor of Arts in Washington State
Social Sciences University 269 120/(3)/ $182
Bachelor of Science in
Animal Sciences and
Industry Kansas State University 41 127/(3)/ $180
Bachelor of Science in
Human Resources with a
Major in Hotel,
Restaurant and
Institutional Management University of Delaware 16 120/(3)/ $195
Bachelor of Arts in International University
Business Communication College 12 120/(3)/ $163
-------
Total Bachelor's Degree Completion Program
Enrollment 1,856
=======
ASSOCIATE OF ARTS DEGREE PROGRAMS
Associate of Arts
Colorado Electronic
Community College/
Arapahoe Community
College 186 60 $147
Associate of Arts Seattle Central
Community College 152 90 $ 94
------
Total Associate of Arts Degree Program
Enrollment 338
======
CERTIFICATE PROGRAMS
Early Reading University of Colorado -
Instruction Colorado Springs 41 8 $125
Advanced Oral
and Written International University
Communication Skills College 1 6 $163
Business Technologies International University
College __/(5)/ 6 $163
Oral and Written International University
Communication Skills College 4 6 $163
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
ENROLLMENTS CREDIT PRICE PER
JANUARY 1- HOURS CREDIT
PROGRAM INSTITUTION JUNE 30, 1996 REQUIRED HOUR (1)
- ------- ----------- ------------- -------- ---------
<S> <C> <C> <C> <C>
Organizational International University
Communication College -- /(5)/ 6 $163
------
Total Certificate Program Enrollment 46
======
</TABLE>
_______________________
(1) Includes tuition registration fees.
(2) These programs are first being offered in September 1996.
(3) The total number of required credit hours listed for bachelor degree
completion programs includes credit hours earned by the student prior to
enrollment in the program. The prior credit hours required before
enrollment in these programs range from 27 to 60.
(4) Colorado residents pay $197 per credit hour.
(5) International University College has not yet marketed this certificate
program.
The Company attempts to identify and offer distance education degree and
certificate courses that will attract students and address their educational
needs. The Company conducts surveys among adults to attempt to identify which
courses or programs are of interest to them. The Company then attempts to
identify and establish relationships with educational institutions that offer
degree or certificate programs in the area of interest.
The Company seeks affiliations with accredited universities and colleges
that have strong reputations, expertise in the subject matter in which the
degree or certificate is offered, and the willingness and ability to design
courses that enable effective education to occur beyond the confines of the
classroom. The courses and degree programs offered through the Company are
designed and taught by the faculty of the university or college offering the
course and are produced with assistance from the Company in a manner designed to
be appealing and engaging. Individuals who successfully complete any course
taken for credit or any degree program receive credit from the participating
university or college.
The courses and the degree and certificate programs offered by the Company
are specifically designed for the distance education market and are accessible
through videotapes, television, print material, the Internet and other
interactive multimedia methods. Currently, a typical course package includes
videotapes, print materials (study guides, textbooks and reference materials),
and telecommunication connections such as voice-mail and the Internet. Students
interact with course instructors and/or other class members on a regular basis
through the telephone and the Internet. All course assignments are submitted to
the institution by the students either through the mail or electronically, and
grades and comments on such assignments are similarly returned by the faculty to
the students. Proctored testing occurs at locations arranged by the university
or college that are convenient to the student's location, such as a local
college. Testing also occurs through "take home" exams that are submitted in
the same manner as class assignments.
The Company first enrolled students in its courses in January 1988 and
since that time, approximately 6,400 students have completed approximately
15,000 courses. Approximately 135 students have graduated from degree programs,
including approximately 95 who have received masters degrees and approximately
40 who have received bachelors degrees. As of June 30, 1996, approximately 90%
of students enrolled in a course offered through the Company are pursuing one of
the 12 available degree programs. During 1996, approximately 74% of the
students who have
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<PAGE>
enrolled in a course or degree program through the Company have been between the
ages of 26 and 45, and approximately 65% of these students were women. The
largest concentration of the Company's students has come from the states of
Colorado and California, although the Company has had students from each of the
50 states and from 16 foreign countries.
Education Services Center. The Company's Education Services Center
recruits, enrolls, and provides course and other materials and customer service
to the Company's students. Service representatives at the Education Services
Center respond to inquiries and distribute enrollment forms. Once a student is
accepted into a course or degree program, the Educational Services Center
supplies the student with appropriate course materials and establishes any
Internet or other electronic connection required for participation in such
course. Each student is billed according to the products and services ordered.
The Education Services Center performs collections and remittance functions on
behalf of the applicable program or service provider. In addition, customers
are subsequently contacted in an effort to determine satisfaction with the
products and services offered. During 1995, the Company's Education Services
Center processed approximately 4,600 course enrollments and sold approximately
33,000 educational products.
Educational Video and Software Products. The Company, through the ME/U
Knowledge Store, offers a wide variety of software and other learning tools.
The Company currently offers approximately 250 products with the majority of the
products sold ranging in price between $50 and $75. Each product is designed to
educate the consumer in a specific topic or skill within the applicable subject
matter area. Examples of such education products include Video Software School,
a videotape series designed to improve computing skills and to serve as a
reference source for computer users; More Simply Spanish, a videotape series
designed to teach Spanish in a conversational setting through vocabulary and
activities; and Adults in Transition, a series for adults who want to
investigate new career opportunities. These products are marketed principally
through ME/U Knowledge TV and a catalog published and distributed by the
Company.
SALES AND MARKETING
The Company markets its combination of programming, products and services
as an integrated package designed to provide a broad selection of high-quality
education and training tools. The Company's sales and marketing efforts
endeavor to take advantage of cross-promotional opportunities made available by
the Company's multiple and complementary distribution channels. In addition to
the sales associates disclosed below, the Company has 11 general marketing
associates who support network distribution, advertising sales and the marketing
of education products and services.
The Company employs a 21 person sales force that targets cable television
operators and other video program distributors in order to increase distribution
of ME/U Knowledge TV and Jones Computer Network. The Company's marketing
activities with respect to programming distribution typically consist of making
presentations, placing print ads in trade publications and undertaking
promotional activities at trade shows. Additionally, the Company promotes its
networks to cable operators through launch incentives, including payments to
cable operators for direct mailings, advertising and community-oriented events.
The Company also employs a three person sales force that targets advertisers
whose products are complementary to the knowledge-enhancing content of the
programming on its networks.
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<PAGE>
In order to attract students, the Company uses its networks to coordinate
sales and marketing campaigns designed to encourage viewers to enroll in the
Company's distance education degree and certificate courses. The Company's
research indicates that approximately 70% of the students who have enrolled in
courses offered through the Company first became aware of the course offerings
through viewing ME/U Knowledge TV and approximately 20% of such students first
became aware of the Company's course offerings through referrals. The Company
currently dedicates approximately 20% of its total spot advertising time to the
promotion and advertising of its distance education courses. In addition, the
Company promotes its education products and services through its half-hour
program, ME/U User Guide, which airs daily Monday through Saturday. Although
the Company has previously advertised its distance education programs
exclusively on its networks, it plans to advertise its distance education degree
and certificate courses on other networks in the future. In addition to network
advertising, the Company uses catalogs and direct mail targeted to specific
groups such as associations, educators, professionals and human resource
executives, as well as print advertisements and telemarketing campaigns, to
promote the Company's education products and services.
The Company has developed a Web site, ME/U Knowledge Online,
http://www.meu.edu, on the Internet that allows electronic access to information
concerning the Company and its products. The web site also provides avenues for
users to explore education opportunities, enroll in courses, review ME/U
Knowledge TV and Jones Computer Network programming schedules and purchase
education products.
COMPETITION
The Company faces competition from a variety of sources, including cable
and broadcast television programmers, universities and colleges that deliver
education and training to distant locations and independent education and
training companies that package and distribute programs through various media.
Many of the Company's competitors have greater financial and other resources
than the Company. While the Company believes that its approach of offering a
variety of products and services through an integrated combination of
technologies, combined with its ability to use its networks to encourage adults
to pursue further education through the Company, is distinctive, there can be no
assurance that the Company will be able to compete effectively in the future.
Cable and Broadcast Television Programmers. The Company faces intense
competition from other networks for channel space on cable television
distribution systems and other broadcast and satellite distribution networks.
The Company also competes with these networks for both viewers and advertisers.
The Company believes that there are currently over 100 programming services
competing for limited space on the existing distribution systems, as well as for
viewers and advertising dollars. Several of these programmers target an
audience similar to that targeted by the Company, including The Discovery
Channel, Arts & Entertainment, The History Channel, The Learning Channel, CNBC,
CNN, MSNBC, Fox News Channel, Home and Garden TV and the Public Broadcasting
System, among others.
Universities and Colleges. Various institutions offer education and
training, both on-site and at a distance, including the University of Phoenix
and many other universities and colleges. These institutions typically offer
courses or programs either at satellite campuses or at distant locations to
which students must travel. In addition, these institutions typically offer
only their own courses rather than courses from multiple institutions. The
Company believes, however, that there are low barriers to entry in the distance
education market for most universities and colleges. As a result, the Company
may face increased competition in this market in the future.
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<PAGE>
Independent Education and Training Companies. There are a large number of
independent education and training companies. Similar to universities and
colleges, these companies generally provide programs in a site-based manner.
However, there can be no assurance that these companies will not develop
capabilities similar to the Company's in the future or that the Company's
products and course offerings will be preferred by consumers.
INTELLECTUAL PROPERTY
The Company owns all rights to the original programming that it develops
and produces and it generally owns distribution rights in most domestic and
international markets to the educational programming and products developed in
conjunction with participating universities and colleges. With respect to
programming licensed by the Company for distribution on its networks, the
Company generally acquires the right to air such programming on its networks
multiple times during a specified license period.
The Company has also developed proprietary information systems to support
the operation of its business. It relies primarily on a combination of
statutory and common law copyright, trademark and trade secret laws and other
methods to protect these proprietary rights. The Company uses a variety of
federal and state registered trademarks and trade names in its business.
Certain of these trademarks and trade names are owned by Jones International,
the majority shareholder of the Company, and are licensed to the Company at no
charge for use by the Company in connection with its business. The Company
believes that the trademarks and trade names that it currently uses are not
material to its business. See "Risk Factors --- Intellectual Property."
ASSOCIATES
The Company refers to its employees as associates. As of June 30, 1996,
the Company had 74 full-time associates. Of these associates, 29 work in
network sales and programming, 21 in the Education Services Center, 11 in
marketing and 13 in operations, executive and administrative positions with the
Company. None of the Company's associates are covered by a collective
bargaining agreement, and the Company believes its employee relations to be
good. See "Risk Factors --- Dependence upon Key Personnel."
FACILITIES AND LEASES
The Company's offices and its Education Services Center are located in
Englewood, Colorado in facilities leased by the Company from certain of its
affiliates. The Company believes that its offices and Education Services Center
facilities are adequate to meet its current needs. The Company also leases
transponder space on the domestic communications satellites on which ME/U
Knowledge TV and Jones Computer Network are distributed from an affiliate. See
"Certain Relationships and Related Transactions --- Office Lease and ---
Transponder Agreements."
REGULATION
To date, the Company has not been subject to any material regulation
regarding its programming or its method of operations. Certain states assert
authority to regulate non-degree granting education providers if their
educational programs are available to that state's residents. Generally, the
Company is exempt from such regulation because the Company contracts with the
universities and colleges offering the courses and does not participate in any
federal or state student
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aid/loan programs. However, in the future, state laws and regulations could
affect the Company's operations and might limit the ability of the Company to
distribute educational services in certain states. Additionally, there may be
foreign regulatory requirements which must be met in order to provide
programming in the international markets and there can be no assurance that such
requirements can be met. See "Risk Factors --- Government Regulation."
LITIGATION
On June 4, 1996, an action entitled Space Vision, Inc., Meridian Gate
Holdings, Ltd. and Higher Education Group, Inc. v. Jones International, Ltd.,
Jones Education Networks, Inc. and Mind Extension University, Inc., Civil Action
No. 96-CV-2644, was filed against the Company in the District Court for the City
and County of Denver, Colorado. The plaintiffs allege that the defendants
failed to perform their obligations under an agreement to provide a certain
number of hours of ME/U Knowledge TV programming for distribution in Taiwan, and
to comply with other provisions of the agreements relating to content of
programming supplied and subtitling of programming. The plaintiffs have alleged
misrepresentation and concealment, breach of contract and bad faith by all
defendants. No dollar amount of damages has been alleged, but plaintiffs seek
to recover both compensatory and punitive damages, including lost profits. The
Company has motions pending to dismiss the fraud and bad-faith claims. The
Company believes that it has not breached the agreements and that it has
meritorious defenses to the allegations. The Company intends to defend this
action vigorously. Because the litigation was only recently filed and no
discovery has occurred, the Company has not yet made an assessment as to any
potential impact that an adverse ruling in this case may have on the Company.
The Company is involved in routine legal proceedings incident to the
ordinary course of its business. The Company believes that the outcome of all
such routine legal proceedings in the aggregate will not have a material adverse
effect on the Company.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The Company's directors and executive officers are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Glenn R. Jones 66 Chairman of the Board and Chief Executive Officer
Wallace W. Griffin 57 President and Director
Scott A. Wheeler 37 Group Vice President/Operations and Director
Paul R. Amos 43 Vice President/International Business Development
Ilene B. Block 44 Group Vice President/Marketing
Stephanie L. Garcia 34 Vice President/Chief Financial Officer
James P. Honiotes 38 Vice President/Distribution
Elizabeth M. Steele 44 Vice President and Secretary
Keith D. Thompson 29 Chief Accounting Officer
Barbara B. Lawton 41 Director
Siim A. Vanaselja 40 Director
Robert J. Malone 52 Director
</TABLE>
Glenn R. Jones has served as Chairman of the Board of Directors and Chief
Executive Officer of the Company since it was founded in 1990. Mr. Jones has
been involved in the cable television business in various capacities since 1961
and currently serves as a director and/or executive officer of many of the
Company's affiliates, including as Chief Executive Officer and a director of
Jones Intercable, one of the ten largest MSOs in the United States, and as a
director and vice chairman of BCI and a director of Bell Cablemedia plc, an
affiliate of BCI. Mr. Jones will continue to devote a substantial amount of his
time to the Company's affiliates. Mr. Jones serves on the Board of Directors
and the Executive Committee of the National Cable Television Association, the
Board of Governors for the American Society for Training and Development, the
Board of Education Council of the National Alliance of Business and on the James
Madison Council of the Library of Congress, and has served on the Executive
Committee of Cable in the Classroom, an organization dedicated to education via
cable television. Mr. Jones has been the recipient of numerous awards during
his career, including the 1993 Most Outstanding Corporate Individual Achievement
award from the International Distance Learning Conference and the 1994 Golden
Plate Award for his advances in distance education from the American Academy of
Achievement. In 1994, Mr. Jones was inducted into Broadcasting and Cable's Hall
of Fame. Mr. Jones received a B.S. in Economics from Allegheny College and a
J.D. from the University of Colorado School of Law.
Wallace W. Griffin has served as President and as a director of the Company
since April 1995. From April 1995 to August 1996, Mr. Griffin also served as an
executive officer of Jones Digital Century, Inc., an electronic publishing
company, Jones Interactive, Inc., a computer support services company, Jones
Lightwave, Ltd., an alternate access provider, and Jones Digital Empire, Inc.,
an Internet distribution and content provider, each of which is an affiliate of
the Company. From July 1994 to April 1995, Mr. Griffin served as President of
Jones Futurex, Inc., an affiliate of the Company engaged in contract
manufacturing. From April 1992 to the present, he has served as a director of
Ddx, Inc., a Colorado-based company that conducts various food diagnostic tests.
From
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June 1992 to June 1994, he served as Chief Operating Officer of that company.
Mr. Griffin was employed for thirty years in various management positions at US
West, Inc., including serving as President and Chief Executive Officer of its
Marketing Resources Group from 1987 to June 1992. Mr. Griffin holds a B.S.
Degree in Electrical Engineering from The University of North Dakota and has
participated in executive management training programs at Harvard University,
The Brookings Institute and The Menninger Foundation.
Scott A. Wheeler has served as Group Vice President/Operations of the
Company since April 1995 and as a director of the Company since August 1996.
Mr. Wheeler has been associated with the Jones International group of companies
since 1984, including serving as the Company's Vice President/Business Services
from March 1994 to March 1995 and as the Assistant to the President of Jones
Intercable from March 1990 to February 1994. Mr. Wheeler received a B.S. in
Accounting from the University of Wyoming and a Masters in Telecommunications
from the University of Denver and is a Certified Public Accountant in the State
of Colorado.
Paul R. Amos has served as a Vice President of the Company since February
1996 and as Vice President/International Business Development and as a director
of the Company since August 1996. From September 1995 to February 1996, Mr.
Amos served as Vice President, Studio Operations, of King World Productions and
from April 1995 to September 1995, as an independent media and technology
consultant. Mr. Amos founded HCTV, Inc. (d/b/a The Health Channel) in March
1993 and served as its President from March 1993 to April 1995. From March 1980
to May 1991, Mr. Amos was employed in various capacities by CNN, including as an
Executive Vice President from 1988 to May 1991. Mr. Amos received his B.A. in
Mass Communications from Loyola University, New Orleans.
Ilene B. Block has served as Group Vice President/Marketing of the Company
since January 1996. From October 1993 to March 1995, Ms. Block served as Senior
Vice President Marketing, Executive Committee, with VICORP Restaurants, Inc., a
restaurant holding company based in Denver, Colorado. From August 1992 to
September 1993, Ms. Block was Vice President, Director of Client Services of
Henry Gill Silverman, a Denver, Colorado based advertising agency. From 1982
until joining Henry Gill Silverman, Ms. Block was a Senior Partner, Executive
Management Committee, with the advertising agency of Tatham Euro RSCG in
Chicago, Illinois. Ms. Block received an MBA from the University of Chicago and
an MFA and BFA from the California Institute of the Arts. In 1973, Ms. Block
received a Fulbright Scholarship to study as a master's apprentice in a glass
factory in Riihimaki, Finland.
Stephanie L. Garcia has served as Vice President/Chief Financial Officer of
the Company since July 1996. Ms. Garcia has been associated with the Jones
International group of companies since September 1992, serving as Group Vice
President, Finance and Operations for Jones Digital Century, Inc. from March
1995 to July 1996, Vice President of Financial Analysis and Business Development
for the Company from April 1994 to February 1995, Director of Operations for the
Product Information Network from October 1993 to March 1994 and as an Operations
Manager for Jones Intercable from September 1992 to September 1993. From June
1992 to August 1992, Ms. Garcia was an Operations Manager at US West, Inc.
specializing in international cable property investments and management. Ms.
Garcia received an MBA from the Amos Tuck Business School at Dartmouth College
and a B.S. in Business Administration from the University of Colorado.
James P. Honiotes has served as Vice President/Domestic Distribution of the
Company since April 1995. From 1981 to April 1995, Mr. Honiotes served in a
variety of management, marketing
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and sales positions for Jones Intercable, including as general manager of its
Colorado operations from 1990 to April 1995. Mr. Honiotes is a past President of
the Colorado Cable Television Association. Mr. Honiotes received a B.S. in
Business Administration from Regis University.
Elizabeth M. Steele has served as Vice President and Secretary of the
Company since it was founded in July 1990. Ms. Steele has also served as Vice
President/General Counsel and Secretary of Jones Intercable, as well as general
counsel to certain of Jones Intercable's and the Company's affiliates since
1987. Ms. Steele will continue to devote a significant amount of her time to
these affiliates. From 1980 through 1987, Ms. Steele practiced law with the
Denver law firm of Davis, Graham & Stubbs LLP, where she was elected a partner
in 1985. Ms. Steele received a B.A. in History from Hamilton College and J.D.
from the University of New Mexico.
Keith D. Thompson has served as Chief Accounting Officer of the Company
since August 1996. Mr. Thompson has also been associated with Jones
International since October 1994, serving as a Senior Accountant from October
1994 to April 1995, as an Accounting Manager from April 1995 to January 1996 and
as Director of Accounting from January 1996 to the present. Mr. Thompson will
continue to devote a substantial amount of his time to Jones International.
From July 1989 to October 1994, Mr. Thompson was an auditor for Deloitte &
Touche LLP. Mr. Thompson received a B.S. in Accounting from Oral Roberts
University and is a Certified Public Accountant in the State of Colorado.
Barbara B. Lawton has served as a director of the Company since August
1996. Since 1993 she has been a W. Edward Deming Professor of Management at the
University of Colorado. From 1992 to 1993, Dr. Lawton was president of The
Deming Foundation, a non-profit educational institution. From 1989 to 1992, Dr.
Lawton served as Corporate Director of Total Quality of Albany International
Corporation, a manufacturing company, and from 1985 to 1989 was a senior
statistician for Rockwell International. Dr. Lawton received a Ph.D. in
Statistics from the University of Wyoming, an M.A. in Statistics from The
Pennsylvania State University and a B.S. in Biology from The American
University. Dr. Lawton has also completed the Executive Program in Business
Administration at Columbia University.
Siim A. Vanaselja has served as a director of the Company since August
1996. Since August 1996, Mr. Vanaselja has served as Chief Financial Officer of
BCI. From February 1994 to August 1996, Mr. Vanaselja served as an officer of
BCE, Inc., Canada's largest telecommunications company and the corporate parent
of BCI, including as Vice-President, Taxation from February 1995 to August 1996,
as Assistant Vice-President and Director of Taxation from June 1994 to February
1995, and as Assistant Vice-President of International Taxation from February
1994 to June 1994. From August 1989 to February 1994, Mr. Vanaselja was a
partner in the Toronto office of KPMG Peat Marwick Thorne.
Robert J. Malone has served as a director of the Company since August 1996.
Since December 1992, he has served as Chairman of the Board of Colorado National
Bank, Denver and Chairman of the Board and Chief Executive Officer of Colorado
National Bankshares, Inc., a national bank holding company. From March 1990 to
December 1992, Mr. Malone was Chairman of the Board, President and Chief
Executive Officer of Western Capital Investment Corporation and its principal
subsidiary, Bank Western. From 1984 to 1990, he was President and Chief
Executive Officer of First Interstate Bank of Denver. Mr. Malone received an
M.B.A. from the University of Southern California and an A.B. from Loyola
University, Los Angeles.
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All directors serve for a term of one year and until their successors are
duly elected. Executive officers of the Company serve at the discretion of the
Board of Directors.
COMMITTEES
The Board of Directors established an Executive Committee, a Compensation
Committee, an Executive Officer Stock Option Committee and an Audit Committee in
August 1996. The Executive Committee consists of Messrs. Jones, Griffin and
Vanaselja and is responsible for acting in the Board's stead, except where
action by the full Board of Directors is required by law or the Company's
articles of incorporation or bylaws. The Compensation Committee consists of
Messrs. Jones, Malone and Vanaselja and is responsible for recommending which
employees (other than the executive officers) will receive awards under the
Stock Option Plan and the salaries for senior management to the Company's Board
of Directors. The Executive Officer Stock Option Committee consists of Messrs.
Malone and Vanaselja and Ms. Lawton and selects which executive officers will
receive awards under the Stock Option Plan. The Audit Committee consists of
Messrs. Malone, Wheeler and Vanaselja and is responsible for meeting
periodically with representatives of the Company's independent auditors to
review the general scope of audit coverage, including consideration of the
Company's accounting practices and procedures and system of internal accounting
controls, and to report to the Board with respect thereto. The Audit Committee
also recommends to the Board of Directors the appointment of the Company's
independent auditors.
DIRECTORS' COMPENSATION
Directors who are not officers of the Company will receive $2,500 per
quarter for services rendered as a director and $500 for attending each meeting
of the Board of Directors or one of its Committees. Directors who are also
officers of the Company will not be paid any director fees. All directors are
reimbursed for their expenses in attending Board and Committee meetings.
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<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth certain information regarding the
compensation for services in all capacities to the Company for the year ended
December 31, 1995 for the Chief Executive Officer of the Company and the one
other executive officer of the Company whose annual salary and bonus exceeded
$100,000 during such period (collectively, the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation All Other
------------------------
Name and Principal Position Salary ($) Bonus ($) Compensation ($)
- --------------------------- ---------- ----------- ----------------
<S> <C> <C> <C>
Glenn R. Jones/(1)/.......... 0 0 0
Chairman of the Board and
Chief Executive Officer
Wallace W. Griffin/(2)/...... $93,925 $60,000 $14,125/(3)/
President and Director
</TABLE>
____________________
(1) Mr. Jones has not received any compensation for services rendered to the
Company in the past. Mr. Jones served as an executive officer of certain of
the Company's affiliates during 1995 and has served and will continue to
serve these affiliates in 1996. The Company expects that it will pay Mr.
Jones an annual salary of $75,000 in 1996.
(2) Mr. Griffin's total compensation for services rendered to the Company during
the year ended December 31, 1995 represents an allocation of the total
compensation paid to Mr. Griffin by Jones International for this period
based upon the time he dedicated to the Company's business. Mr. Griffin
served as an executive officer of certain of the Company's affiliates during
1995 and has served these affiliates in 1996. Subsequent to the close of
this Offering, Mr. Griffin will devote substantially all of his time to the
business of the Company. The Company expects that it will pay Mr. Griffin
an annual salary of $250,000 in 1996.
(3) Represents an allocation of amounts paid to Mr. Griffin under the Jones
Intercable Deferred Compensation Plan.
The Company expects that it will pay each of Messrs. Griffin, Wheeler, Amos
and Honiotes and Msses. Block and Garcia an annual salary and bonus in excess of
$100,000 for services rendered to the Company in 1996 (pro-rated for their
respective time of service with the Company in 1996).
STOCK OPTION PLAN
The Company has adopted an employee stock option plan (the "Plan") that
provides for the grant of stock options and stock appreciation rights ("SARs")
to employees or individuals providing services to the Company. The Plan is
construed, interpreted and administered by the Compensation Committee (the
"Committee") of the Board of Directors. The Committee (or the Executive Stock
Option Committee, in the case of grants of stock options or SARs to executive
officers) determines the individuals to whom options are granted, the number of
shares subject to the options, the exercise price of the options (which may be
below fair market value of the stock on the date of grant), the period over
which the options become exercisable and the term of the options. The Committee
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and/or Executive Stock Option Committee has the discretion to set other terms
and provisions of stock options as it may determine from time to time, subject
only to the provisions of the Plan.
Under the Plan, the Committee and/or Executive Stock Option Committee may
grant options to purchase an aggregate of up to 1,100,000 shares of the
Company's Class A Common Stock. The number of shares available for grant of
options under the Plan and the number of shares included in each outstanding
option are subject to adjustment upon recapitalizations, stock splits or other
similar events that cause changes in the Company's Class A Common Stock. Shares
of Class A Common Stock underlying options that expire unexercised are available
for future option grants under the Plan.
The Plan provides for the grant of incentive stock options ("Incentive
Options") within the meaning of Section 422 of the Internal Revenue Code of
1986, as amended (the "Code"), and non-statutory stock options that do not
qualify as incentive stock options under Section 422 of the Code ("Non-Qualified
Options"). Options granted may be either Incentive Options or Non-Qualified
Options or a combination of the two. The exercise price of each Incentive
Option granted must be at least equal to the fair market value of the Class A
Common Stock on the date the Incentive Option is granted. The exercise price of
Non-Qualified Options may be less than the fair market value of the Class A
Common Stock on the date the Non-Qualified Option is granted. If an Incentive
Option is granted to an employee who then owns stock possessing 10% of the total
combined voting power of all classes of stock of the Company, the exercise price
of the Incentive Option must be at least equal to 110% of the fair market value
of the Class A Common Stock on the date the Incentive Option is granted.
The maximum term of options granted under the Plan is generally ten years,
but with respect to an Incentive Option granted to an employee who then owns
stock possessing 10% of the total combined voting power of all classes of stock
of the Company, the maximum term of the option is five years. Subject to the
foregoing limitation, the Committee determines the term of the options and the
period over which they vest and become exercisable.
The Committee and/or Executive Stock Option Committee may also grant SARs
in tandem with options granted under the Plan. Each SAR entitles the
participant, upon the exercise of the SAR, to receive the excess of the fair
market value of a share of Class A Common Stock on the exercise date over the
fair market value of the share on the date the SAR was granted. An SAR is
exercisable only to the extent the associated stock option is exercisable. To
the extent the option is exercised, the accompanying SAR will cease to be
exercisable, and vice versa. An SAR may be exercised only when the market price
of Class A Common Stock subject to the option exceeds the exercise price of such
option.
Options and associated SARs are not transferable, except by will or
pursuant to the laws of descent and distribution, and are exercisable only by
the option holder during his lifetime or, in the event of disability or
incapacity, by the option holder's guardian or legal representative.
The vesting of options and associated SARs is accelerated upon a "Change in
Control" of the Company. A Change in Control is deemed to have occurred if (a)
a person (as such term is used in Section 13(d) of the Exchange Act) becomes the
beneficial owner (as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, in one or more transactions, of shares of Class A Common Stock
and/or Class B Common Stock of the Company representing 35% or more of the total
number of votes that may be cast by all shareholders of the Company voting as a
single class, without the approval or consent of the Company's Board of
Directors, or (b) there is a consolidation or merger of
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the Company in which the Company is not the surviving corporation or (c) a plan
or proposal for the liquidation or dissolution of the Company is adopted.
The Board may amend the Plan at any time or may terminate it without the
approval of the shareholders; provided, however, that shareholder approval is
required for any amendment to the Plan that increases the number of shares for
which options may be granted, materially increases the benefits accruing to
participants in the plan or materially modifies the eligibility requirements for
participation in the Plan. However, no action by the Board or shareholders may
alter or impair any option previously granted without the consent of the
optionee.
As of August 30, 1996, the Company had not granted any SARs or options to
purchase shares of its Class A Common Stock under the Plan. The Company
anticipates granting stock options to certain of its officers and employees
prior to the completion of this Offering.
Certain Federal Income Tax Consequences. The following discussion, which
is based on the law as in effect on June 30, 1996, summarizes certain federal
income tax consequences of participation in the Plan. The summary does not
purport to cover federal employment tax or other federal tax consequences that
may be associated with the Plan, nor does it cover state, local or non-U.S.
taxes.
In general, an optionee realizes no taxable income upon the grant or
exercise of an Incentive Option. However, the exercise of an Incentive Option
may result in an alternative minimum tax liability to the optionee. With
certain exceptions, a disposition of shares purchased under an Incentive Option
within two years from the date of grant or within one year after exercise
produces ordinary income to the optionee (and a corresponding deduction is
available to the Company) equal to the value of the shares at the time of
exercise less the exercise price. Any additional gain recognized in the
disposition is treated as a capital gain for which the Company is not entitled
to a deduction. If the optionee does not dispose of the shares until after the
expiration of these one- and two-year holding periods, any gain or loss
recognized upon a subsequent sale is treated as a long-term capital gain or loss
for which the Company is not entitled to a deduction.
In general, in the case of a Non-Qualified Option, the optionee has no
taxable income at the time of grant if the option price is equal to the fair
market value of the Shares at date of grant, but realizes ordinary income in
connection with exercise of the option in an amount equal to the excess (at the
time of exercise) of the fair market value of the shares acquired upon exercise
over the option price, a corresponding deduction is available to the Company,
and upon a subsequent sale or exchange of the shares, appreciation or
depreciation after the date of exercise is treated as capital gain or loss for
which the Company is not entitled to a deduction. In general, an Incentive
Option that is exercised more than three months after termination of employment
(other than termination by reason of death) is treated as a Non-Qualified
Option. Incentive Options are also treated as Non-Qualified Options to the
extent they first become exercisable by an individual in any calendar year for
shares having a fair market value (determined as of the date of grant) in excess
of $100,000.
The grant of SARs has no federal income tax consequences at the time of
grant. Upon the exercise of SARs, the amount received is generally taxable as
ordinary income, and the Company is entitled to a corresponding deduction.
Under the so-called "golden parachute" provisions of the Code, the vesting
or accelerated exercisability of awards in connection with a Change in Control
of the Company may be required to
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be valued and taken into account in determining whether participants have
received compensatory payments, contingent on the Change in Control, in excess
of certain limits. If these limits are exceeded, a substantial portion of
amounts payable to the participant, including income recognized by reason of the
grant, vesting or exercise of awards under the Plan, may be subject to an
additional 20% federal tax and may be nondeductible to the Company.
The foregoing constitutes a brief summary of the principal federal income
tax consequences related to the grant and exercise of stock options and SARs
based on current federal income tax laws. This summary is not intended to be
exhaustive and does not describe state, local or foreign tax consequences.
Recipients of stock options or SARs under the Plan are urged to consult their
own tax advisors with respect to the consequences of their participation in the
Plan.
EMPLOYEE INVESTMENT 401(K) PLAN
In 1990, the Company's employees became eligible to participate in an
Employee Profit Sharing/Retirement Savings Plan (the "401(k) Plan"). Under the
401(k) Plan, eligible employees are permitted to defer receipt of up to 20% of
their monthly compensation, subject to a limit prescribed by statute. The
Company currently matches 50% of the employees' deferrals up to a maximum of 6%
of their monthly base pay. The Company's contribution vests immediately.
Subject to certain restrictions, contributions to the 401(k) Plan are invested
by the trustees of the 401(k) Plan in accordance with the directions of each
participant. All employees of the Company who earn 1,000 hours of credited
service over one year are eligible to participate in the 401(k) Plan on the
first day of the January or July next following the date that the eligibility
requirement has been met.
Participants or their beneficiaries are entitled to payment of benefits (i)
upon retirement either at or after age 65, (ii) upon death or disability or
(iii) upon termination of employment, if the participant elects to receive a
distribution of his account balance. In addition, hardship distributions and
loans to participants from the 401(k) Plan are available under certain
circumstances. The amount of benefits ultimately payable to a participant under
the 401(k) Plan will depend on the performance of the investments to which
contributions are made on the participant's behalf. During 1995, the Company
contributed approximately $55,000 to the 401(k) Plan on behalf of its employees.
DEFERRED COMPENSATION PLAN
In 1995, certain of the Company's key employees became eligible to
participate in a Deferred Compensation Plan (the "Deferred Compensation Plan").
Key employees eligible to participate in the Deferred Compensation Plan
constitute a select group of highly compensated or management personnel and are
selected by the Compensation Committee of the Company. Under the Deferred
Compensation Plan, key employees are permitted to defer receipt of 100% of their
annual compensation. The Company currently matches the key employees' deferrals
up to a maximum of 6% of their contributions. The funds are deposited with
Norwest Bank Colorado, NA, as Trustee of the Deferred Compensation Plan's Public
Trust, and they are invested in a number of pre-selected investment funds. Both
the key employees' contributions and the Company's contributions are at all
times subject to the claims of the Company's general creditors.
Key employees who participate in the Deferred Compensation Plan receive a
distribution of their contributions, the Company's contributions, and earnings
attributable to those contributions on their separation from employment with the
Company or their death. The Deferred Compensation Plan also permits hardship
distributions in certain circumstances. The amount of benefits ultimately
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payable to a key employee participant depends upon the performance of the
investment funds held by the trust. During 1995, the Company contributed
approximately $30,000 to the Deferred Compensation Plan on behalf of its key
employees.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company established a Compensation Committee and an Executive Stock
Option Plan Committee in August 1996. The Compensation Committee consists of
Messrs. Jones, Malone and Vanaselja. The Executive Stock Option Committee
consists of Messrs. Malone and Vanaselja and Ms. Lawton. During 1995, the
Company's Board of Directors set the compensation of the Company's executive
officers and was comprised of, at various times, Mr. Jones, Mr. Griffin, Gregory
Liptak, Bernard J. Luskin, Reynie U. Ortiz, Donald A. Sutton and Daniel E.
Somers.
Messrs. Jones, Griffin, Liptak, Luskin, Ortiz and Sutton served as
executive officers of the Company and certain of its subsidiaries, and also
served as directors and officers of a number of the Company's affiliates during
1995. As individuals, the Company's executive officers and directors had no
reportable transactions with the Company. See "Certain Relationships and
Related Transactions" for a discussion of certain transactions between the
Company and its affiliates.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
INVESTMENTS AND ADVANCES BY AFFILIATES
From the Company's inception, it has relied primarily on advances from
Jones International and Jones Intercable to fund the Company's operating and
investment activities. These advances accrue interest at the published prime
rate plus 2% (approximately 11% in 1995). The Company paid interest of
approximately $695,000, $541,000 and $1.1 million to Jones International in
1993, 1994 and 1995, respectively, in connection with these advances. The
largest total amount of outstanding advances from Jones International in 1995
was approximately $11.6 million in April 1995. At August 15, 1996, advances
from Jones International totaled approximately $3.8 million. The Company
intends to repay the $1.4 million long-term portion of these advances upon the
closing of this Offering. See "Use of Proceeds." Following the completion of
this Offering, any advances from Jones International to fund the Company's
operating activities, which advances are not expected to be material, will bear
interest at or below market rates.
In March 1996, the Company issued 144,210 shares of Class A Common Stock
and 144,210 shares of Class B Common Stock to Jones International to repay $6.3
million owed to Jones International.
Prior to 1995, Jones Intercable advanced $20 million to the Company's
subsidiary, Mind Extension University. Prior to the conversion of the advance
into Class A Common Stock (as described below), the advance accrued interest at
Jones Intercable's weighted average cost of borrowing plus 2% (approximately 11%
in 1995). The total interest paid by the Company to Jones Intercable on this
advance totalled approximately $300,000, $2,094,000 and $704,000 for 1993, 1994
and 1995, respectively. The largest total amount of outstanding advances from
Jones Intercable in 1995 was $20 million in April 1995. On April 10, 1995, the
Company issued shares of Class A Common Stock to Jones Intercable representing a
then 16.7% interest in the Company to repay the entire $20 million advance.
On December 20, 1994, BCI purchased an approximately 30% economic interest
in Jones Intercable. In connection with this investment, BCI also purchased an
approximately 15% economic interest in the Company for $18 million. At that
time, BCI entered into a shareholders agreement with the Company, Jones
International and Glenn R. Jones that, among other things, grants to BCI and its
affiliates certain registration rights with respect to the Company's capital
stock. See "Shares Eligible for Future Sale."
LOANS TO AFFILIATES
In April 1996, the Company and Mind Extension University each agreed to
loan $166,667 (for a total of $333,334) to The International Community College
("ICC"), a non-profit entity of which the Company and Mind Extension University
are members. Interest accrues on these loans at the rate of 10% per annum. The
loans provide that ICC will make quarterly principal and interest payments of
$41,667 to each of the Company and Mind Extension University beginning on July
1, 2000 and ending on April 1, 2002. In July 1995, the Company advanced $50,000
of the $166,667. In December 1995, Mind Extension University advanced $50,000
of the $166,667. In February 1996, the Company and Mind Extension University
each funded ICC with an additional $75,000 on the same terms and conditions as
described above. At August 15, 1996, a total of $250,000 was outstanding under
these loans.
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<PAGE>
SALES COMMISSIONS
Jones International Networks, Ltd. ("JIN"), a subsidiary of Jones
International, earns a three percent commission on the sale of airtime for
informational programming to third parties. Mind Extension University and Jones
Computer Network paid commissions to JIN of approximately $50,000 and $118,000,
respectively, in 1995.
AFFILIATE FEES
The Company sells its programming to certain cable television systems owned
and managed by Jones Intercable. In 1993, 1994 and 1995, these systems paid
total subscriber license fees to Mind Extension University of approximately
$417,000, $640,000, $861,000, respectively. In 1994 and 1995, these systems
paid total subscriber license fees to Jones Computer Network of approximately
$237,000 and $1.1 million, respectively.
TRANSPONDER AGREEMENTS
Jones Satellite Holdings, Inc. ("Satellite Holdings"), a wholly-owned
subsidiary of Mind Extension University, leases a non-preemptible transponder on
a domestic communication satellite from a third party. The lease terminates in
2004. In January 1995, Satellite Holdings entered into a license agreement with
Jones Galactic Radio, Inc. ("JGR"), an affiliate of the Company, to sublease the
sub-carrier space on the transponder to JGR for approximately $58,000 per month.
Satellite Holdings has the right to terminate the license agreement at any time
upon 30 days written notice to JGR. Satellite Holdings received approximately
$696,000 in lease payments from JGR in 1995.
In fiscal 1994, Jones Computer Network entered into a license agreement
with Jones Space Segment, Inc. ("Space Segment"), a subsidiary of Jones
International, to sublease a non-preemptible transponder on a domestic
communications satellite that is currently leased by Space Segment from a third
party. Under the terms of the agreement, Space Segment has the right to
terminate the license at any time upon 30 days written notice to Jones Computer
Network. Such monthly lease payments may be adjusted periodically through the
December 2004 agreement expiration date based on the number of customers using
the transponder. Jones Computer Network made lease payments to Space Segment of
approximately $267,000, and $1.2 million in 1994 and 1995, respectively.
UPLINKING AND OTHER SERVICES
Jones Earth Segment, Inc. ("Earth Segment"), a subsidiary of Jones
International, provides playback, editing, duplicating and uplinking services to
the Company. The Company paid Earth Segment approximately $1.0 million, $1.7
million and $1.9 million for these services in 1993, 1994 and 1995,
respectively.
PROGRAMMING
Jones Digital Century, Inc. ("JDC"), a subsidiary of Jones Interactive,
Inc., provides program production services to the Company. The Company paid
approximately $1.1 million to JDC for programming in 1995.
The Mind Extension Institute, Inc. ("MEI"), a subsidiary of the Company,
provides cable-related instructional videos and other training materials to
MSOs, including Jones Intercable and its
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affiliates. In 1993, 1994 and 1995, MEI charged Jones Intercable and its
affiliates approximately $13,000, $252,000 and $39,000, respectively, for these
materials.
COMPUTER SERVICES
Jones Interactive, Inc. ("JII"), a wholly-owned subsidiary of Jones
International, provides computer hardware and software services and
miscellaneous related support services to the Company. The Company paid JII
approximately $236,000, $449,000 and $895,000 for these services in 1993, 1994
and 1995, respectively.
OFFICE LEASE
The Company subleases office space in Englewood, Colorado from affiliates
of Jones International. This sublease, as amended, has a 15-year term,
expiring July 2000, with three five-year renewal options. The Company paid rent
and associated expenses of approximately $211,000, $196,000 and $373,000 to
these affiliates in 1993, 1994 and 1995, respectively.
ADMINISTRATIVE SERVICES
The Company also reimburses Jones International and Jones Intercable for
certain administrative services provided by these companies, such as legal,
accounting, purchasing and human resources services. Jones International and
Jones Intercable charge the Company for these services based upon an allocation
of its personnel expenses associated with providing these services. These
allocated expenses totaled approximately $70,000, $359,000 and $60,000 in 1993,
1994 and 1995, respectively.
In most of the foregoing transactions no third party bids or appraisals
were obtained. In addition, certain of these transactions are by their nature
unique to the companies involved. Accordingly, no assurance can be given that
these transactions were generally as favorable to the Company as could have been
obtained from unaffiliated third parties. All of the transactions described
above, other than the advances from Jones Intercable and from Jones
International and the investment by BCI, are expected to continue during the
current fiscal year and additional agreements and transactions with affiliated
parties may be arranged in the future.
In addition, Messrs. Jones and Griffin and Msses. Steele and Garcia,
officers and/or directors of the Company, are also officers or directors of
these affiliated entities and, from time to time, the Company may enter into
transactions with these entities. Consequently, such officers and directors may
have conflicts of interest with respect to matters potentially or actually
involving or affecting the Company and such affiliates. In addition, such
directors and/or officers may have such conflicts of interest with respect to
corporate opportunities suitable for both the Company and such affiliates.
Neither the Company nor its Board of Directors has established any corporate
policy to resolve such potential conflicts of interest between the Company and
its affiliates.
However, under the Colorado Business Corporation Act, as amended (the
"Colorado Act"), no conflicting interests transaction shall be void or voidable
or give rise to an award of damages in a proceeding by a shareholder or by or in
the right of the corporation, solely because the conflicting interest
transaction involves a director of the corporation or an entity in which a
director of a corporation is a director or officer or has a financial interest
or solely because the director is present at or participates in the meeting of
the corporation's Board of Directors or of a committee of the
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<PAGE>
Board of Directors which authorizes, approves, or ratifies the conflicting
interest transaction or solely because the directors' vote is counted for such
purpose if the material facts as to the directors relationship or interest and
as to the conflicting interest transaction are disclosed or known to the Board
of Directors or the committee and said Board of Directors or committee
authorizes, approves, or ratifies in good faith the conflicting interest
transaction, the material facts as to the director's relationship or interest
and as to the conflicting interest transaction are disclosed or known to the
shareholder entitled to vote thereon and said shareholders specifically
authorize, approve, or ratify in good faith the conflicting interest
transaction, or the conflicting interest transaction is fair as to the
corporation. In addition, the Board of Directors or a committee thereof may not
authorize a loan to, or issue a guaranty on behalf of, a director of the Company
or an entity in which a director of the Company is a director or officer or has
a financial interest, until at least ten days after written notice of the
proposed authorization of the loan or guaranty has been given to the
shareholders who would be entitled to vote thereon if the issue of the loan or
guaranty were submitted to a vote of the shareholders.
Conflicts of interest also may arise in managing the operations of more
than one entity with respect to allocating time, personnel and other resources
between entities. To the extent deemed appropriate by the Company, such
conflicts would be resolved by employing additional personnel as necessary. The
Company and its officers and directors will devote only such time to the Company
as they deem necessary and will be involved on a continuing basis with
activities on behalf of affiliates of the Company. See "Risk Factors --
Conflicts of Interest."
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<PAGE>
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of the Class A Common Stock and Class B Common Stock as of
August 30, 1996 and as adjusted to reflect the sale of shares offered hereby, by
(i) each Selling Shareholder, (ii) each person known by the Company to be the
beneficial owner of more than 5% of the Class A Common Stock or Class B Common
Stock, (iii) certain of the Company's directors, (iv) each of the Named
Executive Officers, and (v) all directors and executive officers of the Company
as a group. Ms. Lawton and Messrs. Malone and Vanaselja, directors of the
Company, do not beneficially own any shares of Class A Common Stock and Class B
Common Stock and have therefore been omitted from the following table. Except as
otherwise indicated, each person named in the table has informed the Company
that such person has sole voting and investment power with respect to all shares
beneficially owned by it, subject to community property laws where applicable.
<TABLE>
<CAPTION>
Class A Common Stock Class B Common Stock
------------------------------------------------------- --------------------
Owned Before and
Owned Before Offering Owned After Offering After Offering Percent of
--------------------- -------------------- -------------------- Vote of All Classes
Number Shares Sold Number Number of Common Stock
Beneficial Owner of Shares Percent In Offering of Shares Percent of Shares Percent After Offering
- ---------------- --------- ------- ----------- --------- ------- --------- ------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Glenn R. Jones
/(1)(2)/ 3,005,325 81.4% 944,735 2,060,590 21.7% 2,089,620 100.0% 75.5%
Jones International,
Ltd./(2)(3)/ 2,759,655 74.7 833,665 1,925,990 20.3 1,843,950 88.2 67.0%
Jones Intercable,
Inc./(2)/ 915,705 24.8 -- 915,705 9.6 -- -- 3.0%
Bell Canada International
BVI III Limited/(4)/ 686,850 18.6 155,265 531,585 5.6 -- -- 1.8%
Wallace W. Griffin -- -- -- -- -- -- -- --
Scott A. Wheeler -- -- -- -- -- -- -- --
Paul R. Amos -- -- -- -- -- -- -- --
All executive officers 3,005,325 81.4% 944,735 2,060,590 21.7% 2,089,620 100.0% 75.5%
and directors as a group
(12 person(s))(3)
</TABLE>
______________________
(1) Glenn R. Jones is the Chairman of the Board of Directors and Chief
Executive Officer of Jones International and owns all of the outstanding
shares of Jones International and is therefore deemed to be the beneficial
owner of all shares of the Company owned by Jones International. Mr. Jones
is also the Chairman of the Board of Directors and Chief Executive Officer
of Jones Intercable and beneficially owns shares of the common stock of
Jones Intercable entitling him to cast 41% of the votes to be cast on all
matters put to a vote of Jones Intercable's shareholders voting as a single
class. He therefore may be deemed to be the beneficial owner of all shares
of the Company held by Jones Intercable. Share amounts shown do not include
shares beneficially owned by BCI, of which Mr. Jones is a director. Mr.
Jones disclaims beneficial ownership of such shares.
(2) Glenn R. Jones', Jones International's and Jones Intercable's address is
9697 East Mineral Avenue, Englewood, Colorado 80112.
(3) Jones International beneficially owns shares of common stock of Jones
Intercable entitling it to cast 35% of the votes to be cast on all matters
put to a vote of Jones Intercable's shareholders voting as a single class.
Jones International may be deemed to be the beneficial owner of all of the
shares of the Company held by Jones Intercable.
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(4) Bell Canada International BVI III Limited ("Limited") is a wholly-owned
subsidiary of BCI. As a result, BCI may be deemed to beneficially own all
686,850 shares of Class A Common Stock owned by Limited. Mr. Vanaselja, a
director of the Company and an executive officer of BCI, disclaims
beneficial ownership of such shares. BCI's address is 1000 rue de La
Gauchetiere Ouest, Bureau 1100, Montreal, Quebec, Canada H3B 4Y8.
(5) Consists solely of shares beneficially owned by Glenn R. Jones.
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DESCRIPTION OF CAPITAL STOCK
The Company's authorized capital stock consists of 100,000,000 shares of
Class A Common Stock, $.01 par value per share, of which 3,692,175 shares were
outstanding on June 30, 1996, and 2,089,620 shares of Class B Common Stock, $.01
par value per share, of which 2,089,620 shares were outstanding on such date.
COMMON STOCK
Under the Colorado Business Corporation Act, as amended (the "Colorado
Act"), the holders of the Class A Common Stock and Class B Common Stock are
entitled to vote as separate classes with respect to certain amendments to the
Company's articles of incorporation, certain mergers or share exchanges, a sale
or other disposition of all or substantially all of the Company's assets not in
the ordinary course of business, and the dissolution of the Company. On all
matters requiring a class vote under the Colorado Act, passage will require the
affirmative vote of the holders of two-thirds of the shares of each class,
voting separately, and of the total shares entitled to vote thereon.
Holders of Class A Common Stock and Class B Common Stock are entitled to
share ratably in all dividends (whether paid in cash, property or shares of the
Company), if declared by the Company's Board of Directors out of any funds
legally available therefor and in assets available for distribution upon any
liquidation of the Company, subject to the prior rights of creditors. The
Company does not currently anticipate paying any dividends. See "Dividend
Policy."
The outstanding shares of Common Stock are not subject to redemption or to
any liability for further calls or assessments, and the holders of such shares
do not have preemptive or other rights to subscribe for additional shares of the
Company or any rights to convert such shares into any other securities of the
Company.
CLASS A COMMON STOCK
Each share of Class A Common Stock casts one-tenth of a vote on all matters
put to a vote of the shareholders. On all matters except for the election of
directors or as otherwise required by law, the holders of Class A Common Stock
and Class B Common Stock vote together as a single class. As long as the Class
A Common Stock constitutes more than 10% of the issued and outstanding shares of
Common Stock, the holders of Class A Common Stock, voting as a separate class,
are entitled to elect that number of directors that constitute 25% percent of
the total membership of the Board of Directors (if such number of directors is
not a whole number, the holders of the Class A Common Stock are entitled to
elect the nearest higher whole number of directors that constitute at least 25%
of the Board of Directors). Holders of the Class A Common Stock are not
entitled to cumulate their votes in the election of directors. Directors
elected by the Class A Common Stock may be removed from office, with or without
cause, only by the holders of the Class A Common Stock. Any vacancies on the
Board of Directors may be filled by the remaining directors, regardless of which
class of Common Stock elected the director whose directorship has been vacated.
Upon the completion of this Offering, the outstanding shares of Class A
Common Stock will constitute approximately 82% of the total outstanding shares
of capital stock of the Company and will be entitled to cast approximately 31%
of the votes to be cast in matters to be acted upon by shareholders of the
Company not requiring a class vote.
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CLASS B COMMON STOCK
Each share of Class B Common Stock casts one vote on all matters put to a
vote of the shareholders. On all matters except for the election of directors
or as otherwise required by law, the holders of Class A Common Stock and Class B
Common Stock vote together as a single class. In the election of directors, the
holders of Class B Common Stock, voting as a separate class, are entitled to
elect all of the directors not specially entitled to be elected by the holders
of the Class A Common Stock. Holders of the Class B Common Stock are not
entitled to cumulate their votes in the election of directors. Directors
elected by the Class B Common Stock may be removed from office, with or without
cause, only by the holders of the Class B Common Stock. Any vacancies on the
Board of Directors may be filled by the remaining directors, regardless of which
class of Common Stock elected the director whose directorship has been vacated.
Upon the completion of this Offering, the outstanding shares of Class B
Common Stock will constitute approximately 18% of the total outstanding shares
of capital stock of the Company and will be entitled to cast approximately 69%
of the votes to be cast in matters to be acted upon by shareholders of the
Company not requiring a class vote.
CERTAIN PROVISIONS OF THE ARTICLES OF INCORPORATION
In accordance with the Colorado Act, the Company's articles of
incorporation eliminate in certain circumstances the liability of directors of
the Company for monetary damages for breach of their fiduciary duty as
directors. This provision does not eliminate the liability of a director (i)
for a breach of the director's duty of loyalty to the Company or its
shareholders, (ii) for acts or omissions by the director not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) for a
willful or negligent declaration of an unlawful distribution or (iv) for
transactions from which the director derived an improper personal benefit.
The Company's articles of incorporation also provide that the Company shall
indemnify any person and his or her estate and personal representatives against
all liability and expense incurred by reason of the person being or having been
a director or officer of the Company or, while serving as a director or officer
of the Company, is or was serving at the request of the Company or any of its
subsidiaries as a director, an officer, an agent, an associate, an employee, a
fiduciary, a manager, a member, a partner, a promoter, or a trustee of, or to
hold any similar position with, another domestic or foreign corporation or other
individual or entity or of an employee benefit plan, to the full extent
permitted under the Colorado Act. The Colorado Act requires a corporation to
indemnify its officers and directors against reasonable expenses incurred in any
proceeding to which the officer or director is a party and was wholly
successful, on the merits or otherwise, in defense of the proceeding. In
addition to this mandatory indemnification, the Colorado Act provides that a
corporation may indemnify its officers and directors against liability and
reasonable expenses if the officer or director acted in good faith and in a
manner reasonably relieved to be in the best interests of the corporation in the
case of conduct in an official capacity, in a manner he or she reasonably
believed was at least not opposed to the corporation's best interests in all
other cases, or in a manner he or she had no reasonable cause to believe was
unlawful in the case of criminal proceedings. In actions by or in the name of
the corporation, the Colorado Act provides the same standard but limits
indemnification to reasonable expenses incurred by the director and prohibits
any indemnification if the director was adjudged liable to the corporation. The
Colorado Act also prohibits indemnification of a director in connection with
actions charging improper personal benefit to the director if the director is
adjudged liable on that basis.
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<PAGE>
Certain provisions of the Company's articles of incorporation and bylaws
may have the effect of preventing, discouraging or delaying any change in the
control of the Company and may maintain the incumbency of the Board of Directors
and management. Under the Company's articles of incorporation, a majority of
the directors then in office, though less than a quorum, or the sole remaining
director, will be empowered to fill any vacancy on the Board of Directors. A
two-thirds vote of the Common Stock, will be required to alter, amend or repeal
the foregoing provisions. This provision for filling vacancies on the Board of
Directors may discourage a third party from attempting to gain control of the
Company and may maintain the incumbency of the Board of Directors. The Company
is not aware of any plans by a third party to seek control of the Company. See
"Risk Factors" Voting Rights; Control by Principal Shareholders; Anti-Takeover
Effects."
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Class A Common Stock will be
American Securities Transfer & Trust, Incorporated, Denver, Colorado.
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SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have outstanding
9,492,175 shares (10,527,175 shares if the Underwriters' over-allotment option
is exercised in full) of Class A Common Stock. Of these shares, all 6,900,000
shares (7,935,000 shares if the Underwriters' over-allotment option is exercised
in full) sold by the Company and the Selling Shareholders in this Offering will
be freely transferable by persons other than "affiliates" of the Company without
restriction under the Securities Act.
The remaining 2,592,175 shares of Class A Common Stock are held by
affiliates of the Company and are "restricted securities" within the meaning of
Rule 144 under the Securities Act and may not be sold in the absence of
registration under the Securities Act unless an exemption from registration is
available, including the exemption contained in Rule 144. The Company and its
shareholders, officers and directors have agreed not to publicly offer to sell,
sell, contract to sell or otherwise publicly dispose of such shares for at least
180 days after the date of this Prospectus without the prior written consent of
Montgomery Securities. The Company understands that Montgomery Securities may,
in its discretion, waive these agreements at any time. Following the expiration
of such lock-up agreements, 2,592,175 shares will become available for resale in
the public market, all of which are subject to the volume limitations, holding
period and other restrictions of Rule 144.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned his or her shares of
Class A Common Stock for at least two years, including an "affiliate" of the
Company (as that term is defined under the Securities Act), is entitled to sell,
within any three-month period, a number of shares that does not exceed the
greater of (i) 1% of the then outstanding shares of Class A Common Stock of the
Company or (ii) the average weekly trading volume of the then outstanding shares
of Class A Common Stock during the four calendar weeks preceding each such sale.
A person (or persons whose shares are aggregated) who is not deemed an
"affiliate" of the Company and who has beneficially owned shares for at least
three years is entitled to sell such shares under Rule 144 without regard to the
volume limitations described above. Affiliates, including members of the
Company's Board of Directors and executive officers, continue to be subject to
such limitations.
In connection with BCI's acquisition of a then 15% equity interest in the
Company in December 1994, BCI entered into a Shareholders Agreement, dated as of
December 20, 1994, with Glenn R. Jones, Jones International and the Company (the
"Shareholders Agreement") that, among other things, grants to BCI and certain of
its affiliates (the "BCI Holders") certain registration rights with respect to
the Company's capital stock. On August 7, 1996, Mr. Jones and Jones
International (collectively, the "Jones Holders") and the Company entered into a
Registration Rights Agreement on substantially the same terms and conditions as
the registration rights granted to the BCI Holders under the Shareholders
Agreement. Pursuant to such registration rights, each of the BCI Holders and
the Jones Holders have the right to demand, up to three times, that the Company
file a registration statement with the Commission to register the sale of their
shares of the Company's capital stock and to piggy-back, an unlimited number of
times, on certain other registration statements filed by the Company. The Jones
Holders and the BCI Holders may demand that the Company register shares of its
capital stock owned by them no more than once every nine months. The Jones
Holders' and BCI Holders' registration rights terminate five years after the
effective date of the registration statement for this Offering. The Jones
Holders and the BCI Holders have exercised their piggyback registration rights
in connection with this Offering.
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As compensation for services rendered in connection with this Offering, the
Company has agreed to grant a warrant to M. Kane & Company, Inc. ("MKC") to
purchase 28,750 shares (33,063 shares if the Underwriters' over-allotment option
is exercised in full) of the Class A Common Stock at an exercise price equal to
$18.00 (assuming an initial offering price of $15.00 per share). In connection
with the warrant, MKC also received certain registration rights that provide,
among other things, that MKC will have one demand registration right and an
unlimited number of piggy-back registration rights during the five-year period
after the closing of this Offering. MKC has agreed not to publicly offer to
sell, sell, contract to sell or otherwise publicly dispose of the shares of
Class A Common Stock underlying the warrant for at least 180 days after the date
of this Prospectus. See "Underwriting."
Additionally, as of August 30, 1996, 1,100,000 shares of Class A Common
Stock were reserved for issuance under the Company's Stock Option Plan. As of
that date, the Company had not granted any options to purchase shares of its
Class A Common Stock under the Stock Option Plan. The Company anticipates
granting stock options to certain of its officers and employees prior to the
completion of this Offering.
Prior to this Offering, there has been no market for the Class A Common
Stock of the Company, and the amount, timing and nature of any future sale of
Class A Common Stock will depend upon market conditions, the personal
circumstances of the sellers and other factors. No predictions can be made as
to the effect, if any, that public sales of shares or the availability of shares
for sale will have on the market price prevailing from time to time.
Nevertheless, sales of substantial amounts of the Class A Common Stock in the
public market, pursuant to Rule 144 or otherwise, or the perception that such
sales could occur, could have an adverse impact on the market price of the Class
A Common Stock.
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<PAGE>
UNDERWRITING
The underwriters named below (the "Underwriters"), represented by
Montgomery Securities, Piper Jaffray Inc. and MKC (the "Representatives"), have
severally agreed, subject to the terms and conditions set forth in the
Underwriting Agreement, to purchase from the Company and the Selling
Shareholders the number of shares of Class A Common Stock indicated below
opposite their respective names at the initial public offering price less the
underwriting discount set forth on the cover page of this Prospectus. The
Underwriting Agreement provides that the obligations of the Underwriters are
subject to certain conditions precedent and that the Underwriters are committed
to purchase all of such shares if they purchase any.
<TABLE>
<CAPTION>
Underwriters Number of Shares
------------ ----------------
<S> <C>
Montgomery Securities.....................
Piper Jaffray Inc.........................
M. Kane & Company, Inc.................... ---------
Total............................... 6,900,000
=========
</TABLE>
The Representatives have advised the Company and the Selling Shareholders
that the Underwriters initially propose to offer Class A Common Stock to the
public on the terms set forth on the cover page of this Prospectus. The
Underwriters may allow to selected dealers a concession of not more than $
per share; and the Underwriters may allow, and such dealers may reallow, a
concession of not more than $ per share to certain other dealers. After
the initial public offering, the offering price and other selling terms may be
changed by the Representatives. The Class A Common Stock is offered subject to
receipt and acceptance by the Underwriters, and to certain other conditions,
including the right to reject orders in whole or in part. Montgomery Securities
and Piper Jaffray Inc. have advised the Company that they intend to make a
market in the Class A Common Stock after the consummation of this Offering.
The Company and the Selling Shareholders have granted an option to the
Underwriters, exercisable during the 30-day period after the date of this
Prospectus, to purchase up to a maximum of 870,000 and 165,000 additional shares
of Class A Common Stock, respectively, to cover over-allotments, if any, at the
same price per share as the initial 6,900,000 shares to be purchased by the
Underwriters. To the extent that the Underwriters exercise this option, each of
the Underwriters will be committed, subject to certain conditions, to purchase
such additional shares in approximately the same proportion as set forth in the
above table. The Underwriters may purchase such shares only to cover over-
allotments made in connection with this Offering.
Each director and executive officer of the Company, the Selling
Shareholders and certain other holders of Class A Common Stock have agreed,
subject to certain limited exceptions, not to publicly sell or offer to sell or
otherwise publicly dispose of any shares of Class A Common Stock currently held
by them, any right to acquire any shares of Class A Common Stock or any
securities exercisable for or convertible into any shares of Class A Common
Stock for a period of 180 days after the date of this Prospectus without the
prior written consent of Montgomery Securities. Montgomery Securities may, in
its sole discretion and at any time without notice, release all or any portion
of the securities subject to these lock-up agreements.
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The Underwriting Agreement provides that the Company and the Selling
Shareholders will severally indemnify the Underwriters and their controlling
persons against certain liabilities, including civil liabilities under the
Securities Act, or will contribute to payments the Underwriters may be required
to make in respect thereof.
The Representatives have advised the Company that the Underwriters do not
intend to confirm sales to any accounts over which they exercise discretionary
authority in excess of 5% of the number of shares of Class A Common Stock
offered hereby.
On May 29, 1996, the Company and MKC entered into an agreement pursuant to
which MKC agreed to provide financial advice and assistance, including
valuation-related analyses of the Company, to the Company about strategic
financial alternatives and to assist the Company in structuring and conducting
this Offering. In consideration for such services, MKC is entitled to advisory
fees equal to 1.875% of the gross proceeds of this Offering, which fees are
estimated to be $2 million, as well as a warrant (the "MKC Warrant") to purchase
shares of Class A Common Stock (described below). In addition, the Company is
required to reimburse MKC for its reasonable out-of-pocket fees and expenses.
This agreement will terminate on the closing date of this Offering.
Under the MKC Warrant, MKC will have the right to purchase shares of the
Class A Common Stock at a per share exercise price equal to 120% of the initial
offering price of the Class A Common Stock, in an aggregate amount equal to 0.5%
of the gross proceeds of this Offering. Assuming an offering price of $15 per
share, MKC will have the right to purchase 28,750 shares (33,063 shares if the
Underwriters' over-allotment option is exercised) of the Class A Common Stock at
an exercise price equal to $18.00 per share. The MKC Warrant is immediately
exercisable and expires five years from the closing of the Offering. In
connection with the MKC Warrant, MKC will also receive certain registration
rights. These registration rights provide that MKC will have the right, during
the five year period commencing on the date of the closing of the Offering, on
one occasion to require the Company to register the Class A Common Stock
underlying the MKC Warrant (the "Registrable Securities") by means of a
registration statement pursuant to the Securities Act, or post-effective
amendment thereto, as appropriate, so as to enable MKC to publicly offer the
Registrable Securities. Moreover, if during the five year period commencing the
date of the closing of the Offering the Company registers any of its Class A
Common Stock for sale pursuant to a post-effective amendment or new registration
statement (with the exception of Form S-8, Form S-4 or any other inappropriate
form), upon request by MKC, the Company shall be required to include the
Registrable Securities as part of the registration statement. MKC will have no
voting, dividend or other rights as stockholders of the Company unless and until
the exercise of the MKC Warrant. The number of shares of Class A Common Stock
deliverable upon any exercise of the MKC Warrant and the exercise price of the
MKC Warrant are protected by customary anti-dilution provisions. MKC has agreed
not to publicly offer to sell, sell, contract to sell or otherwise publicly
dispose of the shares of Class A Common Stock underlying the warrant for at
least 180 days after the date of this Prospectus.
Prior to this offering, there has been no public market for the Class A
Common Stock. Consequently, the initial public offering price will be
determined through negotiations among the Company, the Selling Shareholders and
the Representatives. Among the factors considered in such negotiations will be
the history of, and prospects for, the Company and the industry in which it
competes, an assessment of the Company's management, the Company's past and
present operations and financial performance, its past and present earnings and
the trend of such earnings, the prospects for future earnings of the Company,
the present state of the Company's development, the general
-66-
<PAGE>
condition of the securities markets at the time of this Offering and the market
prices of publicly traded common stocks of comparable companies in recent
periods.
-67-
<PAGE>
LEGAL MATTERS
The validity of the Common Stock being offered hereby will be passed upon
for the Company by Davis, Graham & Stubbs LLP, Denver, Colorado. Certain legal
matters will be passed upon for the Underwriters by Locke Purnell Rain Harrell
(A Professional Corporation), Dallas, Texas.
EXPERTS
The Financial Statements of the Company at December 31, 1995 and 1994, and
for each of the three years in the period ended December 31, 1995, appearing in
this Prospectus and the Registration Statement to the extent and for the periods
indicated in their report have been audited by Arthur Andersen LLP, independent
public accountants, as set forth in their report thereon appearing elsewhere
herein and in the Registration Statement, and is included herein in reliance
upon the authority of said firm as experts in accounting and auditing in giving
said report.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 (including all amendments
thereto, the "Registration Statement") under the Securities Act with respect to
the Common Stock offered hereby. As permitted by the rules and regulations of
the Commission, this Prospectus, which constitutes a part of the Registration
Statement, does not contain all of the information set forth in the Registration
Statement and the exhibits and schedules thereto. Statements contained in this
Prospectus as to the contents of any agreement or other document referred to are
not necessarily complete. With respect to each such agreement or other document
filed as an exhibit to the Registration Statement, reference is made to the
exhibit for a more complete description of the matter involved, and each such
statement shall be deemed qualified in all respects by such reference.
The Registration Statement, including the exhibits and schedules thereto,
may be inspected at the public reference facilities maintained by the Commission
at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549
and at the following regional offices of the Commission: Seven World Trade
Center, New York, New York 10048, and 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. Copies of such materials may be obtained from the
public reference section of the Commission at its Washington, D.C. address upon
payment of the prescribed fees. The Commission also maintains a World Wide Web
site that contains reports, proxy statements and information statements of
registrants (including the Company) that file electronically with the Commission
at http://www.sec.gov.
Upon completion of this Offering, the Company will be subject to the
informational reporting requirements of the Securities Exchange Act of 1934, as
amended, and, in accordance therewith, will file reports, proxy statements and
other information with the Commission.
-68-
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
Jones Education Networks, Inc. and Subsidiaries Consolidated Financial
- ----------------------------------------------------------------------
Statements
- ----------
<S> <C>
Report of Independent Public Accountants......................................... F-2
Consolidated Balance Sheets as of December 31, 1994 and 1995 and June 30, 1996... F-3
Consolidated Statements of Operations for the Three Years Ended December 31,
1995, and the Six Month Periods Ended June 30, 1995 and 1996................... F-5
Consolidated Statements of Shareholders' Investment for the Three Years Ended
December 31, 1995, and the Six Month Period Ended June 30, 1996................ F-6
Consolidated Statements of Cash Flows for the Three Years Ended December 31,
1995, and the Six Month Periods Ended June 30, 1995 and 1996................... F-7
Notes to Consolidated Financial Statements....................................... F-8
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Jones Education Networks, Inc.:
We have audited the accompanying consolidated balance sheets of Jones
Education Networks, Inc. (a Colorado corporation) and subsidiaries
(collectively, "the Company") as of December 31, 1994 and 1995, and the related
consolidated statements of operations, shareholders' investment and cash flows
for each of the three years in the period ended December 31, 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of the Company as of
December 31, 1994 and 1995, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1995 in conformity
with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Denver, Colorado
August 21, 1996
F-2
<PAGE>
JONES EDUCATION NETWORKS, INC. AND SUBSIDIARIES
-----------------------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
ASSETS
------
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, JUNE 30,
1994 1995 1996
------------- ------------- -------------
(unaudited)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 8,258,040 $ 6,362,420 $ 4,197,154
Short term investments 10,000,000 - 1,032,188
Accounts receivable, net of allowance
for doubtful accounts of $397,685,
$199,160, and $133,977, respectively 3,749,917 2,957,619 2,805,420
Inventory 442,676 585,985 646,822
Other current assets 617,516 298,954 52,526
---------- ---------- ----------
Total Current Assets 23,068,149 10,204,978 8,734,110
---------- ---------- ----------
PROPERTY AND EQUIPMENT:
Furniture, fixtures and equipment 1,368,812 1,821,453 1,922,664
Leasehold improvements 65,432 122,921 303,073
---------- ---------- ----------
1,434,244 1,944,374 2,225,737
Less - accumulated depreciation
and amortization (543,227) (751,840) (925,739)
---------- ---------- ----------
Net Property and Equipment 891,017 1,192,534 1,299,998
---------- ---------- ----------
INVESTMENT IN PRODUCTIONS (Note 2):
Investment in productions 1,004,763 1,254,635 1,305,575
Less - accumulated amortization (385,971) (757,434) (891,456)
---------- ---------- ----------
Net Investment in Productions 618,792 497,201 414,119
---------- ---------- ----------
OTHER ASSETS:
Notes receivable from affiliate (Note 6) - 100,000 250,000
Other 188,408 70,192 389,909
---------- ---------- ----------
Total Other Assets 188,408 170,192 639,909
---------- ---------- ----------
Total Assets $24,766,366 $12,064,905 $11,088,136
========== ========== ==========
</TABLE>
The accompanying notes to financial statements are
an integral part of these consolidated balance sheets.
F-3
<PAGE>
JONES EDUCATION NETWORKS, INC. AND SUBSIDIARIES
-----------------------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
LIABILITIES AND SHAREHOLDERS' INVESTMENT
----------------------------------------
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, JUNE 30,
1994 1995 1996
------------- ------------- -------------
(unaudited)
<S> <C> <C> <C>
CURRENT LIABILITIES:
Accounts payable and accrued liabilities $ 340,934 $ 1,461,774 $ 921,711
Accounts payable--Jones International,
Ltd. (Note 4) - - 896,081
Accrued tuition (Note 2) 410,152 383,179 586,585
Deferred revenue (Note 2) 1,153,230 457,551 259,320
Other - 114,227 132,322
------------ ------------ ------------
Total Current Liabilities 1,904,316 2,416,731 2,796,019
------------ ------------ ------------
ADVANCES FROM JONES
INTERNATIONAL, LTD. (Note 4) 6,680,032 6,768,894 1,400,000
------------ ------------ ------------
LONG-TERM DEBT AND
CAPITAL LEASES (Note 1) 20,012,621 - -
------------ ------------ ------------
MINORITY INTERESTS - - 742,494
------------ ------------ ------------
COMMITMENTS AND CONTINGENCIES (Note 8)
SHAREHOLDERS' INVESTMENT (Note 5):
Class A Common Stock; $.01 par value;
100,000,000 shares authorized; 2,632,260, 3,547,965
and 3,692,175 shares issued and outstanding,
respectively 26,323 35,480 36,922
Class B Common Stock; $.01 par value;
2,089,620 shares authorized; 1,945,410, 1,945,410
and 2,089,620 shares issued and outstanding,
respectively 19,454 19,454 20,896
Additional paid-in capital 26,928,480 46,919,323 40,679,532
Accumulated deficit (Note 2) (30,804,860) (44,094,977) (34,587,727)
------------ ------------ ------------
Total Shareholders' Investment (3,830,603) 2,879,280 6,149,623
------------ ------------ ------------
Total Liabilities and
Shareholders' Investment $ 24,766,366 $ 12,064,905 $ 11,088,136
============ ============ ============
</TABLE>
The accompanying notes to financial statements are an
integral part of these consolidated balance sheets.
F-4
<PAGE>
JONES EDUCATION NETWORKS, INC. AND SUBSIDIARIES
-----------------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
<TABLE>
<CAPTION>
For the Years Ended For the Six Months
December 31, Ended June 30,
---------------------------------------------------------- --------------------------
1993 1994 1995 1995 1996
---- ---- ---- ---- ----
(unaudited)
<S> <C> <C> <C> <C> <C>
REVENUES:
Network revenue--
Advertising revenue $ 542,716 $ 3,423,587 $ 5,397,013 $ 2,336,019 $ 4,528,832
------------ ------------ ------------ ----------- -----------
Licensing revenue--
Non-affiliated entities 2,635,004 3,070,734 4,103,593 2,105,187 2,177,269
Affiliated entities 416,740 877,271 2,686,090 1,291,758 1,431,748
------------ ------------ ------------ ----------- -----------
Total licensing revenue 3,051,744 3,948,005 6,789,683 3,396,945 3,609,017
------------ ------------ ------------ ----------- -----------
Total network revenue 3,594,460 7,371,592 12,186,696 5,732,964 8,137,849
Education products and services revenue 2,478,879 2,601,785 3,724,757 1,984,576 2,390,113
------------ ------------ ------------ ----------- -----------
Total revenues 6,073,339 9,973,377 15,911,453 7,717,540 10,527,962
------------ ------------ ------------ ----------- -----------
OPERATING EXPENSES:
Network expense--
Non-affiliated entities 3,846,471 4,574,520 6,868,786 4,050,439 4,059,210
Affiliated entities 1,041,436 1,962,096 4,174,761 1,802,831 2,312,934
------------ ------------ ------------ ----------- -----------
Total network expense 4,887,907 6,536,616 11,043,547 5,853,270 6,372,144
Education products and services expense 1,860,216 2,299,461 5,231,220 3,113,670 2,572,116
Selling and marketing expense 4,379,072 5,321,710 5,617,969 3,171,333 1,555,658
General and administrative expense 4,930,943 5,972,707 6,251,717 3,264,019 2,197,547
------------ ------------ ------------ ----------- -----------
Total operating expenses 16,058,138 20,130,494 28,144,453 15,402,292 12,697,465
------------ ------------ ------------ ----------- -----------
OPERATING LOSS (9,984,799) (10,157,117) (12,233,000) (7,684,752) (2,169,503)
------------ ------------ ------------ ----------- -----------
OTHER INCOME (EXPENSE):
Interest income 26,852 130,486 869,512 607,341 195,001
Interest expense - affiliated entities (994,507) (2,634,670) (1,851,541) (1,379,816) (260,196)
Equity in loss of affiliated entity - - (72,845) - (48,075)
Other, net 891,956 (93,925) (2,243) (1,754) (4,390)
------------ ------------ ------------ ----------- -----------
Total other expense, net (75,699) (2,598,109) (1,057,117) (774,229) (117,660)
------------ ------------ ------------ ----------- -----------
Loss before income tax benefit and
minority interests (10,060,498) (12,755,226) (13,290,117) (8,458,981) (2,287,163)
Income tax benefit (Note 7) 407,868 1,801,448 - - -
------------ ------------ ------------ ----------- -----------
Minority interests in net loss
of consolidated subsidiaries - - - - 182,293
------------ ------------ ------------ ----------- -----------
NET LOSS $ (9,652,630) $(10,953,778) $(13,290,117) $(8,458,981) $(2,104,870)
============ ============ ============ =========== ===========
NET LOSS PER COMMON SHARE (Note 2) $(2.31) $(2.61) $(2.40) $(1.60) $(.36)
============ ============ ============ =========== ===========
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING (Note 5) 4,179,240 4,197,704 5,527,433 5,273,070 5,781,795
============ ============ ============ =========== ===========
</TABLE>
The accompanying notes to financial statements are
an integral part of these financial statements.
F-5
<PAGE>
JONES EDUCATION NETWORKS, INC. AND SUBSIDIARIES
-----------------------------------------------
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' INVESTMENT
--------------------------------------------------
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
------------
CLASS A CLASS B PAID-IN ACCUMULATED SHAREHOLDERS'
------- -------
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT INVESTMENT
------ ------ ------ ------ ------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, January 1, 1993 1,945,410 $19,454 1,945,410 $19,454 $ 8,935,671 $(10,198,452) $ (1,223,873)
Net Loss - - - - - (9,652,630) (9,652,630)
--------- ------- --------- ------- ------------ ------------ ------------
BALANCE, December 31, 1993 1,945,410 19,454 1,945,410 19,454 8,935,671 (19,851,082) (10,876,503)
Issuance of Common Stock 686,850 6,869 - - 17,992,809 - 17,999,678
Net Loss - - - - - (10,953,778) (10,953,778)
--------- ------- --------- ------- ------------ ------------ ------------
BALANCE, December 31, 1994 2,632,260 26,323 1,945,410 19,454 26,928,480 (30,804,860) (3,830,603)
Issuance of Common Stock 915,705 9,157 - - 19,990,843 - 20,000,000
Net Loss - - - - - (13,290,117) (13,290,117)
--------- ------- --------- ------- ------------ ------------ ------------
BALANCE, December 31, 1995 3,547,965 35,480 1,945,410 19,454 46,919,323 (44,094,977) 2,879,280
Issuance of Common Stock 144,210 1,442 144,210 1,442 6,297,116 - 6,300,000
Minority Interest - - - - (12,536,907) 11,612,120 (924,787)
Net Loss - - - - - (2,104,870) (2,104,870)
--------- ------- --------- ------- ------------ ------------ ------------
BALANCE, June 30, 1996 (unaudited) 3,692,175 $36,922 2,089,620 $20,896 $ 40,679,532 $(34,587,727) $ 6,149,623
========= ======= ========= ======= ============ ============ ============
</TABLE>
The accompanying notes to financial statements are
an integral part of this financial statement.
F-6
<PAGE>
JONES EDUCATION NETWORKS, INC. AND SUBSIDIARIES
-----------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
<TABLE>
<CAPTION>
For the Years Ended For the Six Months
December 31, Ended June 30,
------------------------------------------- --------------------------
1993 1994 1995 1995 1996
---- ---- ---- ---- ----
(unaudited)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(9,652,630) $(10,953,778) $(13,290,117) $(8,458,981) $(2,104,870)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 169,144 72,685 627,580 282,847 307,921
Equity in loss of subsidiary - - 72,845 - 48,075
Minority interest in net loss - - - - (182,293)
Net change in assets and liabilities:
Decrease (increase) in receivables,
inventory, prepaid assets and other
assets (640,038) (2,967,161) 1,085,767 2,710,861 18,073
Increase in accounts payable to Jones
International, Ltd. - - - - 896,081
Increase (decrease) in accounts payable,
accrued liabilities and accrued tuition 724,210 746,140 439,570 (388,244) (564,868)
----------- ------------ ------------ ----------- -----------
Net cash used in operating activities (9,399,314) (13,102,114) (11,064,355) (5,853,517) (1,581,881)
----------- ------------ ------------ ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (218,046) (374,083) (510,130) (100,353) (281,363)
Purchases of investments - (10,000,000) - - (1,032,188)
Proceeds from sale or maturity of investments - - 10,000,000 1,163,768 -
Investment in productions (214,700) (383,309) (297,376) (147,875) (50,940)
----------- ------------ ------------ ----------- -----------
Net cash provided by (used in) investing
activities (432,746) (10,757,392) 9,192,494 915,540 (1,364,491)
----------- ------------ ------------ ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in advances from
Jones International, Ltd. (1,678,620) 3,356,853 88,862 1,249,671 (5,368,894)
Proceeds from sale of common stock of
Jones Education Networks, Inc. - 17,999,678 - - 6,300,000
Proceeds from borrowings 9,201,000 10,799,000 - - -
Repayment of borrowings (58,025) (67,940) - - -
Increase in advances to International Community
College - - (100,000) - (150,000)
Repayment of capital leases - - (12,621) (12,621) -
----------- ------------ ------------ ----------- -----------
Net cash provided by (used in) financing
activities 7,464,355 32,087,591 (23,759) 1,237,050 781,106
----------- ------------ ------------ ----------- -----------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (2,367,705) 8,228,085 (1,895,620) (3,700,927) (2,165,266)
----------- ------------ ------------ ----------- -----------
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 2,397,660 29,955 8,258,040 8,258,040 6,362,420
----------- ------------ ------------ ----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 29,955 $ 8,258,040 $ 6,362,420 $ 4,557,113 $ 4,197,154
========== =========== =========== ========== ==========
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Issuance of common stock in repayment of
debt (Note 1) $ - $ - $ 20,000,000 $20,000,000 $ -
========== =========== =========== ========== ==========
Interest paid $ 994,507 $ 2,634,670 $ 1,851,541 $ 1,379,816 $ 260,196
========== =========== =========== ========== ==========
Allocated income tax benefits $ 407,868 $ 1,801,448 $ - $ - $ -
========== =========== =========== ========= ==========
</TABLE>
The accompanying notes to financial statements are
an integral part of these financial statements.
F-7
<PAGE>
JONES EDUCATION NETWORKS, INC.
------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
----------------------------------------------------
AND FOR THE SIX MONTHS ENDED JUNE 30, 1995 AND 1996 (unaudited)
---------------------------------------------------------------
(1) ORGANIZATION AND BUSINESS
-------------------------
Jones Education Networks, Inc. (the "Company"), was incorporated on June
18, 1990. The Company develops, acquires, markets and distributes
knowledge-based television programs, distance education credit courses
and other educational products and services that target the adult learning
market. Through its television networks, ME/U Knowledge TV ("ME/U") and
Jones Computer Network ("JCN"), the Company distributes knowledge-enhancing
programs via multiple distribution channels. ME/U is a 66-percent-owned
subsidiary of the Company and JCN is an 81-percent-owned subsidiary of the
Company. To date, the Company has invested heavily in building its cable
distribution base and in developing its programming networks. Also, the
Company has expanded into the international marketplace, through
distribution of educational programming in the Asian and Latin American
markets. To date, these international operations have not had a significant
impact on the Company's results of operations.
The funding of the Company's development has come primarily from equity
funding and advances from its primary shareholders. The Company was formed
by Jones International, Ltd. ("International"), a holding company with
ownership interests in several companies involved in various aspects of the
telecommunications industry, and Glenn R. Jones. International is wholly
owned by Glenn R. Jones, Chairman and Chief Executive Officer of
International. International also owns a controlling interest in Jones
Intercable, Inc. ("Intercable"), a company which owns, operates and manages
cable television systems serving approximately 1.4 million subscribers in
the United States. In 1993, 1994 and 1995, Intercable advanced a total of
$20 million to ME/U. In June 1995, Intercable converted these advances to
ME/U into shares of Class A Common Stock of the Company for a then 17%
equity interest in the Company. In December 1994, Bell Canada International
Inc. ("BCI") purchased a then 15% equity position in the Company for $18
million (See Note 3 for additional information regarding BCI's investment).
Further, in March 1996, the Company sold 144,210 shares of both its Class A
and Class B Common Stock to International for $6.3 million, resulting in
the following ownership of the Company as of June 30, 1996 (excluding the
pro forma effect of the proposed offering described below):
Glenn R. Jones 8%
International 64%
Intercable 16%
BCI 12%
-----
100%
=====
Expansion of the Company's business through the development, production,
acquisition, marketing and distribution of its programming, as well as
through increasing brand recognition of the Company's networks, will
require significant expenditures. If the Company is unable to obtain
additional financing on acceptable terms in the future, its operations and
financial condition could be adversely affected. Although most of the
Company's historical capital needs have been met by advances from and
investments made by current shareholders, such entities are under no
obligation to provide future advances to the Company.
The Company is planning to register and sell additional shares of its Class
A Common Stock to the public. The Company believes its growing revenue
streams and available cash balances will allow it to meet its obligations
through December 31, 1996.
F-8
<PAGE>
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
Principles of Consolidation
---------------------------
The consolidated financial statements include the accounts of all majority-
owned or controlled subsidiaries. Investments in entities which are not
controlled by the Company are accounted for under the equity method. All
significant intercompany balances and transactions have been eliminated in
consolidation.
Minority Interest
-----------------
The minority interest in the net losses of the Company's consolidated
subsidiaries in excess of the minority interest in the shareholders'
investment of those subsidiaries are charged to the Company. These excess
losses are recovered against any future earnings or equity contributions by
existing or new shareholders. Accordingly, the Company recorded losses of
approximately $4,700,000, $4,400,000, and $4,600,000 in excess of the
Company's ownership interest in its consolidated subsidiaries, excluding
recovery of any excess losses, during the years ended December 31, 1993,
1994 and 1995, respectively, and losses of approximately $2,800,000 and
$900,000 during the six months ended June 30, 1995 and 1996, respectively.
In March 1996, the Company exchanged $26 million of advances made to ME/U
for additional ME/U stock issued. The resulting net change from this equity
contribution in the Company's proportionate share of ME/U's equity,
including recovery of previously recognized excess losses, has been
reflected in the accompanying statement of shareholders' investment in the
amount of approximately $925,000. As of December 31, 1994 and 1995, and
June 30, 1996, the Company had accumulated losses in excess of the
Company's ownership interest in its consolidated subsidiaries totaling
approximately $9,400,000, $14,000,000 and $3,000,000, respectively.
Cash and Cash Equivalents
-------------------------
The Company considers all highly-liquid investments with a maturity when
purchased of three months or less to be cash equivalents.
Short-term investments
----------------------
Short-term investments mature within one year and are comprised of
investments in debt securities. Due to the short-term nature of these
securities, the estimated fair market value approximates cost. Therefore,
no unrealized holding gains or losses are reflected in the accompanying
financial statements.
Inventories
-----------
Inventories consist of course and training materials and are valued on a
first-in, first-out basis at the lower of cost or market value.
Investment in Productions
-------------------------
As of December 31, 1994 and 1995, and June 30, 1996, the Company had a
gross investment of $1,004,763, $1,254,635 and $1,305,575, respectively, in
the production of telecourses and cable-related instructional videos. The
investment includes costs incurred in connection with the acquisition of
programming for, and original productions of, credit and non-credit
telecourses and instructional videos. These production costs are amortized
based upon the estimated life of each telecourse, which is typically two
years. The Company also evaluates production costs periodically and charges
them to expense when the telecourses are no longer distributed.
Property and Equipment
----------------------
Property and equipment is depreciated using the straight-line method over
the estimated useful lives of five years. Leasehold improvements are
depreciated over the lesser of five years or the term of the lease.
Income Taxes
------------
The Company accounts for deferred tax liabilities or assets based on the
temporary differences between the financial reporting and tax bases of
assets and liabilities as measured by the enacted tax rates which are
expected to be in effect when these differences reverse. Deferred tax
assets are reduced, if deemed necessary, by a valuation allowance for the
amount of any tax benefits which, more likely than not based upon current
circumstances, are not expected to be realized.
The Company's ownership of ME/U is below the 80 percent ownership
requirement for inclusion in the Company's consolidated income tax return
and, therefore, ME/U files separate federal and state income tax returns.
As a result, ME/U's tax net operating loss carryforwards are not available
to the Company.
Revenue Recognition
-------------------
The Company generates revenue primarily through advertisements, cable
operator and syndication licensing fees and education products and
services. The Company generates advertising revenue by selling airtime to
advertising agencies and other organizations who advertise their products
or services on the networks. The Company
F-9
<PAGE>
recognizes revenue upon airing of the advertisements. Any amount paid by a
customer for an advertisement that has not aired during the period is
recorded as deferred revenue until such time as the advertisement is aired.
The Company delivers its programming to affiliated and unaffiliated cable
television systems for distribution to their viewers. Cable operator
licensing fees are earned based on contractual agreements covering
subscriber carriage. Cable operator licensing fees are usually paid within
90 days.
The Company, through its subsidiary ME/U, offers a number of degree
programs and other for-credit courses from a number of accredited colleges
and universities. The Company negotiates agreements with these universities
for the sharing of gross tuition fees and other student services. All
student registration, tuition payment collection and related support
functions are coordinated by the Company. The Company accrues the
universities' share of gross tuition fees when students are registered.
Tuition fees are generally payable to these universities at the end of the
course term. Tuition fee income is recognized by the Company over the
related instruction period, which is generally 3 months.
The Company also sells course support materials to students and video
learning tools to consumers. Revenue is recognized from the sale of these
and other student-related merchandise when the goods are shipped.
Net Loss per Share
------------------
Net loss per share of Class A and Class B Common Stock is based on the
weighted average number of shares outstanding during the respective
periods. In accordance with generally accepted accounting principles, all
shares issued within one year of the Company's proposed public equity
offering have also been reflected as outstanding for all periods presented.
Unaudited June 30 Results
-------------------------
The accompanying June 30, 1996 and 1995 unaudited financial information
reflects all necessary adjustments which are, in the opinion of management,
necessary for a fair statement of the results for the interim periods
presented. All such adjustments were of a normal recurring nature.
Use of Estimates
----------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
New Accounting Pronouncements
-----------------------------
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-lived
Assets and for Long-lived Assets to be Disposed Of" (SFAS 121), which
establishes accounting standards for the impairment of long-lived assets,
certain identifiable intangibles and goodwill. The Company adopted SFAS 121
effective January 1, 1996. Implementation of SFAS 121 had no material
effect on the Company's financial position or results of operations.
The Company adopted Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" (SFAS 123) effective January 1,
1996. SFAS 123 recommends a fair value based method of accounting for
employee stock compensation, including stock options. However, companies
may choose to account for stock compensation using the intrinsic value
based method as prescribed by Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" and provide pro forma
disclosures of net income and earnings per share as if the fair value based
method had been applied. The Company elected to account for stock
compensation using the intrinsic value based method, and thus SFAS 123 will
not have any impact on reported operating results.
(3) INVESTMENT IN THE COMPANY BY BCI
--------------------------------
On December 20,1994, BCI invested $18,000,000 in the Company through the
acquisition of 686,850 shares of the Company's Class A Common Stock, which
represented a then 15% equity interest in the Company. Due to issuances of
additional shares of the Company's Class A Common Stock since that date,
BCI's equity interest in the Company as of June 30, 1996 had been reduced
to approximately 12%.
Pursuant to the terms of a Shareholders Agreement dated as of December 20,
1994 among the Company, Glenn R. Jones, International and BCI (the
"Shareholders Agreement"), BCI was granted certain rights including, among
others, the right to
F-10
<PAGE>
designate one member of the Board of Directors of the Company, the same
"shareholder rights" granted to any new unaffiliated shareholder that
purchases 15% or less of the Company's equity, and both demand and piggy-
back registration rights. The Shareholders Agreement also provides BCI with
certain preemptive rights with respect to future issuances of stock by the
Company and tag-along rights if International and Mr. Jones propose to sell
the controlling interest in the Company. BCI's preemptive rights and tag-
along rights will terminate at the time of the Company's initial public
offering. In addition, the Shareholders Agreement granted International
certain rights, including the right of first refusal should BCI desire to
sell any of its shares in the Company. International's right of first
refusal will terminate at the time of the Company's initial public
offering. All of the foregoing provisions of the Shareholders Agreement,
except for BCI's demand and piggy-back registration rights, automatically
will terminate at such time as BCI's equity ownership in the Company drops
below 10%.
(4) TRANSACTIONS WITH AFFILIATED ENTITIES
-------------------------------------
International owns a controlling interest in a number of subsidiaries,
including Intercable. As of June 30, 1996, Intercable owns 16 percent of
the Company and 26 percent of ME/U. Certain members of management of the
Company are also officers or directors of other affiliated entities and,
from time to time, the Company may have transactions with these entities.
Certain expenses are paid by affiliated entities on behalf of the Company
and are allocated at cost based on specific identification or other methods
which management believes are reasonable. Principal recurring transactions
are described in the following discussion:
Network Revenue
---------------
Jones International Networks, Inc. ("JIN"), a subsidiary of International,
earns a commission equal to 3 percent on the sale of airtime for
informational programming to third parties. Prior to July 1, 1995, the
Company did not have any commissions payable to JIN from this service. For
the year ended December 31, 1995 and the six month period ended June 30,
1996, JIN charged ME/U and JCN commissions totaling $49,917, and $118,220,
respectively.
The Company delivers its television programming to cable television
systems, including cable television systems owned and managed by
Intercable. Total cable operator license fees paid by Intercable to ME/U
were $416,740, $639,892, $861,488, $411,838 and $440,643, for the years
ended December 31, 1993, 1994 and 1995, and the six months ended June 30,
1995 and 1996, respectively. Total cable operator fees paid by Intercable
to JCN were $-0-, $237,379, $1,128,302, $531,770 and $642,955 for the years
ended December 31, 1993, 1994 and 1995, and the six months ended June 30,
1995 and 1996, respectively.
Jones Satellite Holdings ("Satellite Holdings"), a wholly-owned subsidiary
of ME/U, has entered into a transponder lease agreement with a third party.
This agreement entitles Satellite Holdings to use a transponder (the
"Transponder") on a domestic communications satellite on a full-time basis.
In 1995, Satellite Holdings entered into a license agreement with Jones
Galactic Radio ("JGR"), an affiliate of International. This agreement
allows JGR to use a portion of the Transponder to distribute its audio
programming. JGR agreed to pay Satellite Holdings $58,025 per month
beginning in January 1995. Satellite Holdings has the right to terminate
the license agreement at any time upon 30 days written notice to JGR. The
amounts paid by JGR to Satellite Holdings for this service were $-0-, $-0-,
$696,300, $348,150 and $348,150 for the years ended December 31, 1993, 1994
and 1995, and the six months ended June 30, 1995 and 1996, respectively.
Education Products and Services Revenue
---------------------------------------
Mind Extension Institute, Inc. ("MEI"), a subsidiary of the Company,
provides cable-related instructional videos and other training materials to
multi-system cable operators, including Intercable and its subsidiaries and
managed partnerships. For the years ended December 31, 1993, 1994 and 1995
and the six month periods ended June 30, 1995 and 1996, MEI charged
Intercable and its affiliates $12,956, $252,054, $38,610, $21,910 and
$52,582, respectively for these instructional materials.
Network Expense
---------------
Jones Digital Century ("JDC"), a wholly-owned subsidiary of Jones
Interactive, Inc. ("JII", a wholly-owned subsidiary of International),
provides linear video production services for the Company and its
subsidiaries. Production services charges of $-0-, $-0-, $1,077,605,
$296,820, and $1,116,596, were incurred by the Company for the years ended
December 31, 1993, 1994 and 1995 and the six month periods ended June 30,
1995 and 1996, respectively.
Jones Earth Segment, Inc. ("Earth Segment"), a subsidiary of International,
provides playback, editing, duplication and uplinking services primarily to
its cable programming network affiliates. Earth Segment charges affiliates
for its services
F-11
<PAGE>
using rates which are calculated to achieve a specified rate of return on
investment to Earth Segment. For the years ended December 31, 1993, 1994
and 1995, and the six month periods ended June 30, 1995 and 1996, Earth
Segment charged the Company and its subsidiaries $1,041,436, $1,695,428,
$1,884,481, $899,675, and $770,260, respectively for these services.
In 1994, JCN entered into a license agreement with Jones Space Segment,
Inc. ("Space Segment"), a subsidiary of International, to use a non-
preemptible transponder on a domestic communications satellite which Space
Segment currently leases. JCN agreed to pay Space Segment $66,667 per month
from September through December 1994 and $101,056 per month beginning
January 1995. Beginning in January 1996, the monthly transponder fee
charged to JCN decreased to $71,013 per month. Space Segment has the right
to terminate the license at any time upon 30 days written notice to JCN.
Monthly transponder expense may be adjusted periodically through the
December 2004 agreement expiration date, depending on the number of
networks being carried by the transponder. Transponder expenses of $0,
$266,668 and $1,212,675 were charged to JCN for the years ended December
31, 1993, 1994 and 1995, and $606,336 and $426,078 were charged to JCN for
the six-month periods ended June 30, 1995 and 1996, respectively.
General and Administrative Expense
----------------------------------
The Company leases office space in Englewood, Colorado from affiliates of
International. Rent and associated expenses are allocated to the Company
based on the amount of square footage it occupies. Office rent and
associated expenses of $211,020, $195,900, $373,333, $248,125, and
$156,008, were charged to the Company for the years ended December 31,
1993, 1994 and 1995, and the six months ended June 30, 1995 and 1996,
respectively.
JII provides computer hardware and software support services to the
Company. Computer expenses of $235,982, $449,273, $894,909, $458,692, and
$382,557, were charged to the Company for the years ended December 31,
1993, 1994 and 1995 and the six months ended June 30, 1995 and 1996,
respectively.
The Company and its consolidated subsidiaries reimburse International for
certain allocated administrative expenses. These expenses generally consist
of salaries and related benefits. Allocations of personnel costs are
generally based on actual time spent by affiliated associates with respect
to the Company. Such allocated expenses totaled $69,713, $359,207, $60,088,
$56,570, and $88,328, for the years ended December 31, 1993, 1994 and 1995
and the six months ended June 30, 1995 and 1996, respectively.
Interest Expense
----------------
To assist in funding its operating and investing activities, the Company
has borrowed funds from International and Intercable. International and
Intercable charged interest on their advances to the Company at rates of
approximately 8, 9, and 11 percent per annum in 1993, 1994 and 1995,
respectively, and approximately 11 percent per annum during the six months
ended June 30, 1995 and 1996. International's interest rate is calculated
using the published prime rate plus 2 percent. Intercable's interest rate
is calculated using Intercable's weighted average cost of borrowings plus 2
percent. Total interest charged by International for the years ended
December 31, 1993, 1994 and 1995 and the six month periods ended June 30,
1995 and 1996, was $694,757, $540,930, $1,147,667, $675,942 and $260,196,
respectively. Total interest charged by Intercable for the years ended
December 31, 1993, 1994 and 1995 and the six month periods ended June 30,
1995 and 1996 was $299,750, $2,093,740, $703,874, $703,874, and $-0-,
respectively.
While International has not established formal repayment terms and has
agreed not to demand repayment of these advances until at least July 1997,
the Company intends to repay the outstanding advances upon closing of the
offering. Because International has agreed not to demand repayment until at
least July 1997, the advances are considered long-term.
Periodically, International remits funds on behalf of the Company and its
subsidiaries to third parties and affiliates in payment of products and
services purchased by the Company and its subsidiaries in their normal
course of business. These amounts are then subsequently reimbursed to
International on a timely basis as revenue proceeds are received by the
Company. Due to their short-term nature, such amounts payable to
International are classified as a current liability in the accompanying
financial statements.
(5) COMMON STOCK
------------
Voting Rights
-------------
The Class A Common Stock has voting rights that are generally one-tenth of
those held by the Class B Common Stock. In the election of directors, the
holders of Class A Common Stock, voting as a separate class, are entitled
to
F-12
<PAGE>
elect that number of directors that constitute approximately 25 percent of
the total membership of the Board of Directors of the Company. Holders of
the Class B Common Stock, also voting as a separate class, are entitled to
elect the remaining directors. Glenn R. Jones directly or beneficially owns
all of the Class B Common Stock.
Stock Splits
------------
Assuming the proposed offering is successful, the Board of Directors will
approve a stock split whereby each share of the Company's Class A Common
Stock will be exchanged into 285 shares of Class A Common Stock and each
share of the Company's Class B Common Stock will be exchanged into 285
shares of Class B Common Stock. These stock splits have been reflected
retroactively in the accompanying financial statements.
Stock Option Plan
-----------------
An employee stock option plan has been adopted to provide for the granting
of either incentive options or non-qualified options or a combination of
the two. The Company has reserved 1,100,000 shares of Class A Common Stock
pursuant to this plan. Options to purchase shares of Class A Common Stock
at the initial public offering price are expected to be granted to
employees concurrent with the offering. No options currently have been
granted under this plan.
(6) NOTES RECEIVABLE
----------------
The Company and ME/U each agreed to loan The International Community
College (the "College"), a non-profit entity of which the Company and ME/U
are members, $166,667, for a total of $333,334. As of June 30, 1996, the
Company and ME/U had each loaned $125,000 to the College pursuant to this
agreement. This note will accrue interest at 10 percent per annum. The
College will make quarterly principal and interest payments of $41,667 to
be split equally between the Company and ME/U. The principal and interest
payments will commence on July 1, 2000 with final payment on April 1, 2002.
This note receivable is not publicly traded, but management believes the
note is reflected on the balance sheets at values approximating estimated
fair market value.
(7) INCOME TAXES
------------
Prior to December 20, 1994, the Company and certain of its subsidiaries
joined in filing a consolidated tax return as provided for under the terms
of a tax sharing agreement with International and International's other
subsidiaries. Pursuant to the terms of the agreement, tax (provisions)
benefits are allocated to members of the tax sharing group based on their
respective pro rata contribution of taxable (income) loss to
International's consolidated taxable (income) loss. Income tax benefits
recognized as a result of the tax sharing arrangement were $407,868 and
$1,801,448 for the years ended December 31, 1993 and 1994, respectively.
The difference between the statutory federal income tax rate and effective
rate is summarized as follows (in thousands):
<TABLE>
<CAPTION>
December 31, June 30,
1993 1994 1995 1995 1996
-------------------------- ---------------
(unaudited)
<S> <C> <C> <C> <C> <C>
Computed "expected tax benefit" $ 3,521 $ 4,464 $ 4,652 $ 2,961 $ 801
State taxes, net of federal benefit 327 415 432 275 74
Other 1 15 24 13 18
------- ------- ------- ------- -----
3,849 4,894 5,108 3,249 893
Valuation allowance (3,441) (3,093) (5,108) (3,249) (893)
-------- -------- -------- -------- ------
Total income tax benefit $ 408 $ 1,801 $ - $ - $ -
====== ====== ====== ======= =====
</TABLE>
F-13
<PAGE>
The tax effect of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities are as follows(in the
thousands):
<TABLE>
<CAPTION>
December 31, June 30,
1994 1995 1996
---------------- ---------
(unaudited)
<S> <C> <C> <C>
DEFERRED TAX ASSETS:
Net operating loss carryforwards $ 9,369 $ 14,366 $ 15,354
Future deductible amounts associated
with other assets and liabilities 374 304 442
------- -------- --------
9,743 14,670 15,796
DEFERRED TAX LIABILITIES:
Investments in productions, property
and equipment (94) (102) (109)
VALUATION ALLOWANCE (9,649) (14,568) (15,687)
-------- --------- ---------
Net deferred tax asset $ - $ - $ -
======= ======== ========
</TABLE>
At December 31, 1995, the Company had net tax operating loss carryforwards
of approximately $7,300,000, which expire in 2010. ME/U's net tax operating
loss carryforwards, which are not available to offset taxable income of the
Company, are approximately $30,300,000 at December 31, 1995. The
carryforwards expire between 2004 and 2010. Although management expects
future results of operations to improve, it emphasizes the Company's and
ME/U's past performance rather than growth projections when determining the
valuation allowance. Any subsequent adjustment to the valuation allowance,
if deemed appropriate due to changed circumstances, will be recognized as a
separate component of the provision for income taxes.
If the Company successfully completes its proposed offering of Class A
shares, an ownership change as defined under tax statutes may occur,
limiting the Company's yearly utilization of NOLs to offset future income.
Management believes that the application of the limitation will not likely
cause taxable income to occur in the near term due to unavailability of
limited NOLs.
(8) COMMITMENTS
-----------
Lease
-----
In June 1992, Satellite Holdings entered into a transponder lease agreement
with an unaffiliated third party. Under the terms of the lease agreement,
Satellite Holdings is required to pay $211,000 per month until 2004.
Other Commitments
-----------------
Under the terms of one of its affiliation agreements with a cable operator,
the Company pays a rebate to the cable operator equal to the operator's pro
rata share of 20% of net advertising revenue generated by ME/U Knowledge
TV. The operator's pro rata share is based on the number of subscribers in
its cable systems receiving ME/U as a percentage of the total number of
subscribers receiving the network. In addition, the Company pays the cable
operator a rebate equal to 5% of net sales receipts from sale of
merchandise made to customers in zip codes served by the cable operator's
systems carrying ME/U Knowledge TV. As of December 31,1995, these rebates
totaled approximately $35,000 and $61,000, respectively.
On May 29, 1996, the Company and M. Kane & Company, Inc. ("MKC") entered
into an agreement pursuant to which MKC agreed to provide financial advice
and assistance, including valuation-related analyses of the Company, advice
to the Company about strategic financial alternatives and assistance to the
Company in structuring and conducting an initial public offering. In
consideration for such services, MKC is being paid $20,000 per month from
June 1996 until the closing of the initial public offering. MKC is also
entitled to 1.875% of the gross proceeds of the initial public offering,
less the monthly retainer payments received by it, as well as reimbursement
for its reasonable out-of-pocket fees and expenses. This agreement will
terminate on the settlement date of the initial public offering.
F-14
<PAGE>
Litigation
----------
In June 1996, the Company, ME/U and International were named as defendants
in a lawsuit brought by three parties to an agreement entered into that
provided for the distribution of ME/U Knowledge TV programming in Taiwan.
The plaintiffs allege that the Company, ME/U and International failed to
perform their obligations under the agreement, including failing to provide
the agreed upon programming hours for distribution in Taiwan. In addition,
the plaintiffs have alleged fraud by misrepresentation and concealment,
breach of contract and bad faith.
The amount of damages being sought by the plaintiffs has not yet been
specified. However, the Company believes that it has not breached the
related agreements and further believes that its defenses are meritorious
and intends to vigorously defend the litigation.
In addition to the above matter, the Company is involved in certain other
litigation. Management believes that the ultimate resolution of all of
these matters will not have a material adverse effect on the Company's
financial position or results of operations.
(9) EMPLOYEE INVESTMENT AND DEFERRED COMPENSATION PLANS
In 1990, the Company's employees became eligible to participate in an
Employee Profit Sharing/Retirement Savings Plan (the "401(k) Plan"). Under
the 401(k) Plan, eligible employees are permitted to defer receipt of up to
20% of their monthly compensation. The Company currently matches 50% of the
employees' deferrals up to a maximum of 6% of their monthly base pay, with
the Company's contribution vesting immediately. Contributions to the 401(k)
Plan are invested by the trustees of the 401(k) Plan in accordance with the
directions of each participant. Participants or their beneficiaries are
entitled to payment of benefits (i) upon retirement either at or after age
65, (ii) upon death or disability or (iii) upon termination of employment,
if the participant elects to receive payment prior to one of the events
previously listed. For the years ended December 31, 1993, 1994 and 1995 and
for the six months ended June 30, 1995 and 1996, the Company contributed
approximately $21,000, $54,000, $55,000, $30,000 and $38,000, respectively,
to the 401(k) Plan on behalf of its employees.
In 1995, certain of the Company's key management personnel became eligible
to participate in a Deferred Compensation Plan (the "Deferred Compensation
Plan"). Under the Deferred Compensation Plan, key employees are permitted
to defer receipt of 100% of their annual compensation. The Company
currently matches the key employees' deferrals up to a maximum of 6% of
their contributions. The contributed funds are deposited with an
independent trustee and are invested in a number of pre-selected investment
funds. Both the key employees' and the Company's contributions are subject
to the claims of the Company's creditors. Participants in the Deferred
Compensation Plan receive a distribution of their contributions, the
Company's contributions, and earnings attributable to those contributions
on their separation from employment with the Company or their death.
Contributions made by the Company to the Deferred Compensation Plan on
behalf of key employees totaled approximately $10,000, $26,000, $30,000,
$12,000 and $17,000 for the years ended December 31, 1993, 1994, and 1995
and for the six month periods ended June 30, 1995 and 1996, respectively.
F-15
<PAGE>
================================================================================
No dealer, sales representative or any other person has been authorized to
give any information or to make any representations in connection with this
offering other than those contained in this Prospectus, and, if given or made,
such information or representations must not be relied upon as having been
authorized by the Company or any of the Underwriters. This Prospectus does not
constitute an offer to sell or a solicitation of an offer to buy any securities
other than the shares of Class A Common Stock to which it relates or an offer
to, or a solicitation of, any person in any jurisdiction where such an offer or
solicitation would be unlawful. Neither the delivery of this Prospectus nor any
sale made hereunder shall, under any circumstances, create any implication that
there has been no change in the affairs of the Company since the date hereof or
that the information contained herein is correct as of any time subsequent to
the date hereof.
______________________________
TABLE OF CONTENTS
______________________________
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary........................................................... 3
Risk Factors................................................................. 8
Use of Proceeds............................................................. 16
Dividend Policy............................................................. 16
Capitalization.............................................................. 17
Dilution.................................................................... 18
Selected Consolidated Financial Data........................................ 19
Management's Discussion and Analysis of
Financial Condition and Results of Operations.............................. 21
Business.................................................................... 30
Management.................................................................. 45
Certain Relationships and Related Transactions.............................. 54
Principal and Selling Shareholders ......................................... 58
Description of Capital Stock................................................ 60
Shares Eligible for Future Sale............................................. 63
Underwriting................................................................ 65
Legal Matters............................................................... 68
Experts..................................................................... 68
Additional Information...................................................... 68
Index to Consolidated Financial Statements................................. F-1
</TABLE>
Until , 1996 (25 days after the date of this
Prospectus) all dealers effecting transactions in the Class A Common Stock,
whether or not participating in this distribution, may be required to deliver a
Prospectus. This is in addition to the obligation of dealers to deliver a
Prospectus when acting as Underwriters and with respect to their unsold
allotments or subscriptions.
================================================================================
================================================================================
6,900,000 SHARES
[LOGO]
JONES EDUCATION NETWORKS, INC.
CLASS A COMMON STOCK
____________________
PROSPECTUS
____________________
Montgomery Securities
Piper Jaffray Inc.
M. Kane & Company, Inc.
, 1996
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions and the $2 million payable to M. Kane &
Company, Inc. for financial advisory services, payable by the Company in
connection with the sale of Class A Common Stock being registered (all amounts
are estimated except the SEC Registration Fee and the NASD Filing Fee).
<TABLE>
<S> <C>
SEC Registration Fee .............................................. $ 43,780
National Association of Securities Dealers, Inc. Filing Fee........ 13,200
Nasdaq Listing Application Fee..................................... 33,500
Blue Sky Qualification Fees and Expenses (including legal fees).... 25,000
Printing Expenses.................................................. 115,000
Legal Fees and Expenses............................................ 175,000
Accountants' Fees and Expenses..................................... 100,000
Transfer Agent and Registrar Fees.................................. 20,000
Miscellaneous Expenses............................................. 24,520
-------
Total..................................................... $550,000
=======
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
In accordance with the Colorado Act, the Company's articles of
incorporation eliminate in certain circumstances the liability of directors of
the Company for monetary damages for breach of their fiduciary duty as
directors. This provision does not eliminate the liability of a director (i)
for a breach of the director's duty of loyalty to the Company or its
shareholders, (ii) for acts or omissions by the director not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) for a
willful or negligent declaration of an unlawful distribution or (iv) for
transactions from which the director derived an improper personal benefit.
The Company's articles of incorporation also provide that the Company shall
indemnify any person and his or her estate and personal representatives against
all liability and expense incurred by reason of the person being or having been
a director or officer of the Company or, while serving as a director or officer
of the Company, is or was serving at the request of the Company or any of its
subsidiaries as a director, an officer, an agent, an associate, an employee, a
fiduciary, a manager, a member, a partner, a promoter, or a trustee of, or to
hold any similar position with, another domestic or foreign corporation or other
individual or entity or of an employee benefit plan, to the full extent
permitted under the Colorado Act. The Colorado Act requires a corporation to
indemnify its officers and directors against reasonable expenses incurred in any
proceeding to which the officer or director is a party and was wholly
successful, on the merits or otherwise, in defense of the proceeding. In
addition to this mandatory indemnification, the Colorado Act provides that a
corporation may indemnify its officers and directors against liability and
reasonable expenses if the officer or director acted in good faith and in a
manner reasonably relieved to be in the best interests of the corporation in the
case of conduct in an official capacity, in a manner he or she reasonably
believed was at least not opposed to the corporation's best interests in all
other cases, or in a manner he or she had no reasonable cause to believe was
unlawful in the case of criminal proceedings. In actions by or in the name of
the corporation, the Colorado Act provides the same standard but limits
indemnification to
II-1
<PAGE>
reasonable expenses incurred by the director and prohibits any indemnification
if the director was adjudged liable to the corporation. The Colorado Act also
prohibits indemnification of a director in connection with actions charging
improper personal benefit to the director if the director is adjudged liable on
that basis.
Section ____ of the Underwriting Agreement (to be filed as Exhibit 1.1
hereto) provides that the Underwriters will indemnify and hold harmless the
Company, and each of the Selling Shareholders and their respective directors,
officers and controlling persons from and against certain liabilities, including
any liability caused by any statement or omission in the Registration Statement
or Prospectus based on certain information furnished to the Company by the
Underwriters for use in the preparation thereof.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
In the three years preceding the filing of this registration statement, the
Company has issued the following securities that were not registered under the
Securities Act of 1933, as amended (the "Securities Act") (all share amounts
reflect the proposed 285-for-1 stock-split):
On March 18, 1996, the Company issued 144,210 shares of Class A Common
stock and 144,210 shares of Class B Common Stock to Jones International in
return for the cancellation of approximately $6.3 million of debt owed by the
Company to Jones International.
On April 10, 1995, the Company issued 915,705 shares of Class A Common
Stock to Jones Intercable in return for the cancellation of approximately $20
million of debt owed by one of the Company's subsidiaries to Intercable.
On December 20, 1994, BCI purchased 686,850 shares of Class A Common Stock
for $18 million.
The Company issued all of the foregoing shares of Class A Common Stock in
reliance on the exemption from registration provided by Section 4(2) of the
Securities Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
Exhibit
Number Description of Exhibit
------ ----------------------
1.1* Form of Underwriting Agreement
3.1 Articles of Incorporation of the Company
3.2 Bylaws of the Company
4.1* Form of Class A Common Stock Certificate
4.2 Shareholder Agreement dated as of December 20, 1994 among Glenn R.
Jones, Jones International, Ltd., Bell Canada International Inc.
and Jones Education Networks, Inc.
4.3 Registration Rights Agreement, dated August 7, 1996, among Jones
Education Networks, Inc., Glenn R. Jones and Jones International,
Ltd.
4.4* Warrant Purchase Agreement, dated _____________, 1996, between
Jones Education Networks, Inc. and M. Kane & Company, Inc.
II-2
<PAGE>
5.1* Form of Opinion of Davis, Graham & Stubbs LLP as to the legality
of issuance of the Company's Class A Common Stock
10.1* Agreement dated as of July 1, 1994 between Jones Education
Networks, Inc. and The Board of Trustees of the California State
University by and on behalf of California State University
Dominguez Hills
10.2* Agreement dated as of October 29, 1993 between Jones Education
Networks, Inc. and Regis University
10.3* Agreement dated November 14, 1995 between Jones Education
Networks, Inc. and the Regents of the University of Colorado, on
behalf of the University of Colorado at Colorado Springs
10.4* Agreement dated as of March 1, 1996 between Jones Education
Networks, Inc. and Seattle Central Community College
10.5* Agreement dated September 29, 1994 and Addendum dated May 3, 1996
between Jones Education Network, Inc. and the University of
Delaware
10.6 Production Agreement dated September 1, 1995 between Jones
Education Networks, Inc. and The Chronicle Publishing Company
10.7 Programming Distribution Agreement dated December 1, 1994 between
Jones Education Networks, Inc. and Telecom Holding Company
10.8 Program License Contract dated as of June 28, 1996 between Jones
Education Network/China, Inc. and China Education TV Productions
10.9* Affiliate Agreement dated as of January 10, 1994 between Mind
Extension University, Inc. and Cox Cable Communications
10.10* Affiliate Agreement dated as of April 6, 1994 between Mind
Extension University, Inc. and Marcus Cable Company, L.P.
10.11* Master Agreement dated December 12, 1995 between Mind Extension
University, Inc. and the National Cable Television Cooperative,
Inc.
10.12* Affiliation Agreement dated as of January 1, 1991 between Mind
Extension University, Inc. and Satellite Services, Inc.; letter
amendment dated January 1, 1991; and letter amendment dated April
27, 1995
10.13* Affiliate Agreement dated as of October 25, 1993 between Mind
Extension University, Inc. and Telesynergy, Inc.
10.14* Cable Affiliate Agreement dated as of August 1, 1994 between Mind
Extension University, Inc. and Time Warner Cable
10.15* Agreement dated as of October 1, 1991 between Mind Extension
University, Inc. and The George Washington University
10.16 Representation Agreement dated as of July 15, 1994 between
Higher Education Group, Inc. and Jones Education Networks, Inc.
10.17 Programming Distribution Agreement dated as of September 28,
1994 between Jones Education Networks, Inc. and Space Vision, Inc.
10.18 Amendment Agreement dated as of September 28, 1994 between Higher
Education Group, Inc. and Jones Education Networks, Inc.
10.19 Letter Agreement dated February 24, 1995 between Jones Education
Networks, Inc. and Higher Education Group, Inc.
10.20 Agreement dated as of November 18, 1994 between Jones Education
Networks, Inc. and Space Vision, Inc.
10.21 Services Agreement dated as of December 16, 1994 between Jones
Education Networks, Inc. and Jones Interactive, Inc.
II-3
<PAGE>
10.22 Transponder Licenses Agreement dated as of January 1, 1995 between
Jones Space Segment, Inc., Jones Infomercial Networks, Inc. and
Jones Computer Network, Ltd.
10.23* Affiliate Agreement dated as of December 28, 1993 between Mind
Extension University, Inc. and Jones Intercable, Inc.
10.24* Affiliate Agreement, dated as of June 27, 1996, between Mind
Extension University, Inc. and Corporate Media Partners.
10.25 Transponder Licenses Agreement, dated as of January 1, 1995, among
Jones Satellite Holdings, Inc., Jones Galactic Radio, Inc. and Mind
Extension University, Inc.
10.26 Letter Agreement, dated May 29, 1996, between Jones Education
Networks, Inc. and M. Kane & Company, Inc.
21 Subsidiaries
23.1 Consent of Arthur Andersen LLP
23.2* Consent of Davis, Graham & Stubbs LLP (See Exhibit 5.1)
24 Power of Attorney (included on Page II-6)
27 Financial Data Schedule
____________________
* To be filed by amendment.
Schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under the
related instructions, are inapplicable and therefore have been omitted or the
information required by the applicable schedule is included in the notes to the
financial statements.
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Purchase Agreement certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the Company's Bylaws, Certificate of Incorporation or the
Purchase Agreement, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of this
registration statement in reliance
II-4
<PAGE>
upon Rule 430A and contained in a form of prospectus filed by the registrant
pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be
deemed to be part of this registration statement as of the time it was declared
effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Englewood,
State of Colorado, on August 29, 1996.
JONES EDUCATION NETWORKS, INC.
By: /s/ Wallace W. Griffin
-------------------------------------------
Wallace W. Griffin
President
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
herein constitutes and appoints Glenn R. Jones, Wallace W. Griffin and Elizabeth
M. Steele, and each of them, as his or her true and lawful attorneys-in-fact and
agents, with full power of substitution and resubstitution, for him and in his
name, place and stead, in any and all capacities, to sign any and all amendments
to this Registration Statement (including post-effective amendments), including
a registration statement filed pursuant to Rule 462(b) under the Securities Act
of 1933, as amended, and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in connection therewith, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents, or any of them, or their or his
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
- ---------- ----- ----
<S> <C> <C>
/s/ Glenn R. Jones Chairman of the Board of Directors August 29, 1996
- -------------------------- and Chief Executive Officer
Glenn R. Jones Principal Executive Officer)
/s/ Wallace W. Griffin President and Director August 29, 1996
- --------------------------
Wallace W. Griffin
/s/ Scott A. Wheeler Group Vice President/Operations August 29, 1996
- -------------------------- and Director
Scott A. Wheeler
/s/ Paul R. Amos Vice President/International Business August 29, 1996
- -------------------------- Development and Director
Paul R. Amos
/s/ Stephanie L. Garcia Vice President/Chief Financial August 29, 1996
- -------------------------- Officer (Principal Financial Officer)
Stephanie L. Garcia
</TABLE>
II-6
<PAGE>
<TABLE>
<S> <C> <C>
/s/ Keith D. Thompson Chief Accounting Officer August 29, 1996
- -------------------------- (Principal Accounting Officer)
Keith D. Thompson
__________________________ Director
Barbara B. Lawton, Ph.D.
__________________________ Director
Robert J. Malone
/s/ Siim A. Vanaselja Director August 29, 1996
- ----------------------
Siim A. Vanaselja
</TABLE>
II-7
<PAGE>
EXHIBIT 3.1
[LOGO OF STATE OF COLORADO GOES HERE]
DEPARTMENT OF STATE
CERTIFICATE
I, NATALIE MEYER, Secretary of State of the State of Colorado
hereby certify that the prerequisites for the issuance of this
certificate have been fulfilled in compliance with law and are found
to conform to law.
Accordingly, the undersigned, by virtue of the authority vested
in me by law, hereby issues A CERTIFICATE OF AMENDMENT TO JONES
EDUCATION NETWORKS, INC.
DATED: MAY 18, 1994
/s/ NATALIE MEYER
----------------------------
SECRETARY OF STATE
<PAGE>
ARTICLES OF AMENDMENT
TO THE
ARTICLES OF INCORPORATION
Pursuant to the provisions of the Colorado Corporation Code, the
undersigned Corporation adopts the following Articles of Amendment to its
Articles of Incorporation:
FIRST: The name of the Corporation is JONES EDUCATION
NETWORKS, INC.
SECOND: The following amendment was adopted by the shareholders of
the Corporation on May 18, 1994, and the number of shares
voted in favor of the amendment was sufficient for approval:
Article V of the Articles of Incorporation of the Corporation be
amended by striking out and eliminating the first paragraph thereof in
its entirety and substituting the following in its place:
"ARTICLE V
---------
The total number of shares that the Corporation shall have
authority to issue shall be an aggregate of 20,010,000 shares, which
shall be divided into two classes: 20,000,000 shares of Class A Common
Stock, each share having a par value of $.01, and 10,000 shares of
Class B Common Stock, each share having a par value of $.01. The Class
A Common Stock and the Class B Common Stock shall have the following
relative rights, limitations and preferences, and except as
hereinafter stated, the Class A Common Stock and the Class B Common
Stock shall be identical in all respects:"
THIRD: The manner, if not set forth in such amendment, in which
any exchange, reclassification, or cancellation of issued
<PAGE>
shares provided for in the amendment shall be effected, is as
follows:
No change.
FOURTH: The manner in which such amendment effects a change in the
amount of stated capital, and the amount of stated capital as
changed by such amendment, are as follows:
No change.
JONES EDUCATION NETWORKS, INC.
By /S/ ELIZABETH M. STEELE
___________________________
ELIZABETH M. STEELE
Vice President
BY /S/ LORRI ELLIS
___________________________
LORRI ELLIS
Assistant Secretary
<PAGE>
STATE OF COLORADO )
) SS:
COUNTY OF ARAPAHOE )
Before me, Sara J. Lair, a Notary Public in and for the said County
and State, personally appeared Elizabeth M. Steele who acknowledged before me
that she is Vice President of Jones Education Networks, Inc., a Colorado
corporation, and that she signed the foregoing Articles of Amendment as her free
and voluntary act and deed for the uses and purposes therein set forth, and that
the facts contained therein are true.
In witness whereof, I have hereunto set my hand and seal tiffs 18th
day of May, 1994.
SARA J PUBLIC
-------------
NOTARY PUBLIC
[LOGO] 9697 E. Mineral Avenue
Englewood, CO 80112
My Commission Expires: 08/11/97
<PAGE>
[LOGO OF STATE OF COLORADO]
DEPARTMENT OF
STATE
CERTIFICATE
I, NATALIE MEYER, Secretary of State of the State of Colorado hereby
certify that the prerequisites for the issuance of this certificate have been
fulfilled in compliance with law and are found to conform to law.
Accordingly, the undersigned, by virtue of the authority vested in me by law,
hereby issues a CERTIFICATE OF AMENDMENT TO JONES EDUCATION NETWORKS, INC.,
FORMERLY KNOWN AS JONES EDUCATION NETWORK, INC.
Dated: AUGUST 11, 1992
/S/ NATALIE MEYER
____________________________
Secretary of state
<PAGE>
(2478/LE)
ARTICLES OF AMENDMENT
TO THE
ARTICLES OF INCORPORATION
Pursuant to the provisions of the Colorado Corporation Code, the
undersigned Corporation adopts the following Articles of Amendment to its
Articles of Incorporation:
FIRST: The name of the Corporation is
JONES EDUCATION NETWORK, INC.
SECOND: The following amendment was adopted by the shareholders of
the Corporation on August 10, 1992, in the manner prescribed
by the Colorado Corporation Act:
Article 1 of the Articles of Incorporation of the corporation be
amended by striking out and eliminating the text thereof in its entirety and
substituting the following in its place:
"The name of the corporation is Jones Education Networks, Inc."
THIRD: The number of shares of the Corporation outstanding at the
time of such adoption was 13,652; and the number of shares
entitled to vote thereon was 13,652.
FOURTH: The designation and number of outstanding shares of each
class entitled to vote thereon as a class were as follows:
<TABLE>
<CAPTION>
CLASS NUMBER OF SHARES
----- ----------------
<S> <C>
Class A Common Stock 6,826
Class B Common Stock 6,826
</TABLE>
FIFTH: The number of shares voted for such amendment was 13,652;
and the number of shares voted against such amendment was
none.
<PAGE>
SIXTH: The number of shares of each class entitled to vote thereon as
a class voted for and against such amendment, respectively,
was:
<TABLE>
<CAPTION>
NUMBER OF SHARES VOTED
----------------------
CLASS FOR AGAINST
----- --- -------
<S> <C> <C>
Class A Common Stock 6,826 0
Class B Common Stock 6,826 0
</TABLE>
SEVENTH: The manner, if not set forth in such amendment, in which any
exchange, reclassification, or cancellation of issued shares
provided for in the amendment shall be effected, is as
follows:
No change.
EIGHTH: The manner in which such amendment effects a change in the
amount of stated capital, and the amount of stated capital as
changed by such amendment, are as follows:
No change.
JONES EDUCATION NETWORK, INC.
By /S/ ELIZABETH M. STEELE
-------------------------
ELIZABETH M. STEELE
Vice President
By /S/ LORRI ELLIS
-------------------------
LORRI ELLIS
Assistant Secretary
-2-
<PAGE>
STATE OF COLORADO )
) ss:
COUNTY OF ARAPAHOE)
Before me, Betty J. Coleman, a Notary Public in and for the said
County and State, personally appeared Elizabeth M. Steele who acknowledged
before me that she is the Vice President of Jones Education Network, Inc., a
Colorado corporation, and that she signed the foregoing Articles of Amendment as
her free and voluntary act and deed for the uses and purposes therein set forth,
and that the facts contained therein are true.
In witness whereof I have hereunto set my hand and seal this 10th day
of August, 1992.
/S/ BETTY J. COLEMAN
___________________________
Notary Public
9697 E. Mineral Ave.
Englewood, CO 80112
My Commission Expires: July 27, 1996.
-3-
<PAGE>
DEPARTMENT OF
STATE
CERTIFICATE
I, NATALIE MEYER, Secretary of State of the State of Colorado
hereby, certify, that the prerequisites for the
issuance of this certificate have been fulfilled in compliance with
law and are found to conform to law.
Accordingly, the undersigned, by virtue of the authority vested in
me by law, hereby issues A CERTIFICATE OF AMMENDMENT TO JONES EDUCATION
NETWORK, INC., FORMERLY KNOWN AS JONES EDUCATION SYSTEMS, INC.
DATED: JULY 12, 1990
/S/ NATALIE MEYER
_____________________________
SECRETARY OF STATE
<PAGE>
ARTICLES OF AMENDMENT
TO THE
ARTICLES OF INCORPORATION
Pursuant to the provisions of the Colorado Corporation Code, the
undersigned Corporation adopts the following Articles of Amendment to its
Articles of Incorporation:
FIRST: The name of the Corporation is JONES EDUCATION SYSTEMS, INC.
SECOND: The following amendment was adopted by the shareholders of
the Corporation on June 10, 1990, in the manner prescribed by
the Colorado Corporation Act:
That the Articles of Incorporation of the Corporation be amended by
striking out and eliminating existing Article I in its entirety and substituting
the following in its place:
"The name of the Corporation is Jones Education Network, Inc."
THIRD: The number of shares of the Corporation outstanding at the
time of such adoption was 12,592; and the number of shares
entitled to vote thereon was 12,592.
FOURTH: The designation and number of outstanding shares of each
class entitled to vote thereon as a class were as follows:
<TABLE>
<CAPTION>
CLASS NUMBER OF SHARES
----- ----------------
<S> <C>
Class A 6,296
Common Stock
Class B 6,296
Common Stock
</TABLE>
FIFTH: The number of shares voted for such amendment was 12,592; and
the number of shares voted against such amendment was zero.
<PAGE>
SIXTH: The number of shares of each class entitled to vote thereon
as a class voted for and against such amendment,
respectively, was:
<TABLE>
<CAPTION>
NUMBER OF SHARES VOTED
----------------------
CLASS FOR AGAINST
----- --- -------
<S> <C> <C>
Class A 6,296 0
Common Stock
Class B 6,296 0
Common Stock
</TABLE>
SEVENTH: The manner, if not set forth in such amendment, in which any
exchange, reclassification, or cancellation of issued shares
provided for in the amendment shall be effected is as
follows:
No change.
EIGHTH: The manner in which such amendment effects a change in the
amount of stated capital, and the amount of stated capital as
changed by such amendment, are as follows:
No change.
JONES EDUCATION SYSTEMS, INC.
By /S/ ELIZABETH M. STEELE
--------------------------
Elizabeth M. Steele
Vice President
By /S/ LORRI ELLIS
----------------------------
Lorri Ellis
Assistant Secretary
-2-
<PAGE>
STATE OF COLORADO )
) SS:
COUNTY OF ARAPAHOE )
Before me, Betty J. Coleman, a Notary Public in and for the said
County and State, personally appeared Elizabeth M. Steele who acknowledged
before me that she is the Vice President of Jones Education Systems, Inc., a
Colorado corporation, and that she signed the foregoing Articles of Amendment as
her free and voluntary act and deed for the uses and purposes therein set forth,
and that the facts contained therein are true.
In witness whereof I have hereunto set my hand and seal this 12th day
of June, 1990.
/S/ BETTY J. COLEMAN
--------------------------
Notary Public
9697 E. Mineral Ave.
Englewood, CO 80112
My Commission Expires: July 27, 1993.
-3-
<PAGE>
[LOGO OF THE STATE OF COLORDO]
DEPARTMENT OF
STATE
CERTIFICATE
I, NATALIE MEYER, Secretary of State of the State of Colorado hereby
certify that the prerequisites for the issuance of this certificate have been
fulfilled in compliance with law and are found to conform to law.
Accordingly, the undersigned, by virtue of the authority vested in me by
law, hereby issues A CERTIFICATE OF INCORPORATION TO JONES EDUCATION SYSTEMS,
INC.
Dated: APRIL 16, 1990
/S/ NATALIE MEYER
________________________________
SECRETARY OF STATE
<PAGE>
ARTICLES OF INCORPORATION
OF
JONES EDUCATION SYSTEMS, INC.
ARTICLE I
---------
The name of the Corporation is Jones Education Systems, Inc.
ARTICLE II
----------
The Corporation is organized under the laws of the State of Colorado.
ARTICLE III
-----------
The period of duration of the Corporation shall be perpetual.
ARTICLE IV
----------
The nature of the business of the Corporation, the purposes for which
it is organized and its powers are as follows:
1. To engage in the transaction of all lawful business or pursue
any other lawful purpose or purposes for which a Corporation may be organized
under the laws of the State of Colorado.
2. To have, enjoy and exercise all of the rights, powers and
privileges conferred upon corporations organized under the laws of the State of
Colorado, whether now or hereafter in effect, and whether or not herein
specifically mentioned.
The foregoing enumeration of purposes and powers shall not limit or
restrict in any manner the exercise of other and further rights and powers that
may now or hereafter be allowed or permitted by law.
ARTICLE V
---------
1. The total number of shares that the Corporation shall have
authority to issue shall be an aggregate of 20,000
<PAGE>
shares, which shall be divided into two classes: 10,000 shares of Class A Common
Stock, each share having a par value of $.01, and 10,000 shares of Class B
Common Stock, each share having a par value of $.01. The Class A Common Stock
and the Class B Common Stock shall have the following relative rights,
limitations and preferences, and except as hereinafter stated, the Class A
Common Stock and the Class B Common Stock shall be identical in all respects:
1. Dividends. All shares of Class A Common Stock and all shares of
---------
Class B Common Stock shall have the same rights to dividends and distributions
of the Corporation, when and as declared by the board of directors, whether paid
in cash, property or stock. The board of directors may declare either (i) a
dividend payable solely in shares of Class A Common Stock to holders of both
Class A Common Stock and Class B Common Stock or (ii) a dividend payable solely
in Class B Common Stock to holders of both Class A Common Stock and Class B
Common Stock.
2. Voting Rights. The holders of Class A Common Stock and the
-------------
holders of Class B Common Stock shall have the following voting rights:
A. With respect to the election of directors, the holders of Class
A Common Stock voting as a separate class shall be entitled to elect that
number of directors which constitutes 25% of the total membership of the
board of directors; and if such 25% is not a whole number, then the holders
of the Class A Common Stock shall be entitled to elect the nearest higher
whole number of directors which constitutes 25% of such membership. Holders
of Class B Common Stock, voting as a separate class, shall be entitled to
elect the remaining directors.
B. With respect to the removal of directors, the holders of Class A
Common Stock voting as a separate class shall only be entitled to vote on
the removal, with or without cause, of any director elected by the holders
of Class A Common Stock; and the holders of Class B Common Stock shall only
be entitled to vote on the removal, with or without cause, of any director
elected by the holders of Class B Common Stock.
C. The holders of Class A Common Stock and the holders of Class B
Common Stock shall be entitled to vote as separate classes upon all matters
specified in the Colorado Corporation Code as requiring a separate class
vote. On all matters requiring such a class vote. the passage of any such
matter shall require the affirmative vote of the holders of two-thirds of
the shares of each class and of the total shares entitled to vote thereon.
-2-
<PAGE>
D. The holders of Class A Common Stock and the holders of Class B
Common Stock shall, in all other matters not referred to above, vote
together as a single class, provided that the holders of Class A Common
Stock shall have one-tenth of a vote for each share and the holders of
Class B Common Stock shall have one vote for each share.
E. Any vacancy occurring in the board of directors created by the
death, resignation or removal of any director, whether elected by the
holders of Class A Common Stock or Class B Common Stock, may be filled by
the affirmative vote of a majority of the remaining directors, though less
than a quorum of the board of directors, unless the remaining directors
elect to call a special meeting of the shareholders for the purpose of
filling such vacancy. If permitted by the bylaws of the Corporation, the
board of directors may increase the number of directors, and any vacancy so
created may be filled by the board of directors; provided that unless the
conditions set forth in F below exist in respect of the next previous
meeting of shareholders at which directors have been elected, the number of
directors may be so increased by the board of directors only to the extent
that 25% of the enlarged board shall consist of directors elected by the
holders of Class A Common Stock or by persons appointed to fill vacancies
created by the death, resignation or removal of persons elected by the
holders of Class A Common Stock. Any director elected by the board of
directors to fill a vacancy shall serve until the next annual meeting of
shareholders and until his successor is elected and has qualified.
F. The Class A Common Stock shall not have the rights to elect
directors set forth in A above if, on the record date for any meeting of
shareholders at which directors are to be elected, the number of issued and
outstanding shares of Class A Common Stock (exclusive of any such shares
held as treasury stock) is less than 10% of the aggregated number of issued
and outstanding shares of both Class A Common Stock and Class B Common
Stock (exclusive of any such shares held as treasury stock). In such event,
all directors to be elected at such meeting shall be elected by holders of
Class A Common Stock and Class B Common Stock voting together as a single
class, provided that with respect to said election the holders of Class A
Common Stock shall have one-tenth of a vote for each share and the holders
of Class B Common Stock shall have one vote for each share.
ARTICLE VI
----------
Shareholders shall have no preemptive rights to acquire additional or
treasury shares of the Corporation
-3-
<PAGE>
or securities convertible into shares or carrying stock purchase warrants or
privileges, or stock rights, or stock options.
ARTICLE VII
-----------
Any action proposed to be taken by the shareholders which, but for this
Article, will require the vote or concurrence of two-thirds of the outstanding
shares of the Corporation under the Colorado Corporation Code, as amended, may
be taken by a majority of the votes to which the then outstanding shares, or any
class or series thereof, are entitled.
ARTICLE VIII
------------
1. The business and affairs of the Corporation shall be managed by
a board of directors, the members of which shall be elected at the annual
meeting of the shareholders, or at a special meeting called for that purpose.
2. The initial board of directors shall consist of the following two
members, who shall serve until the first annual meeting of shareholders and
until their successors shall be elected and qualified.
<TABLE>
<CAPTION>
Director Address
-------- -------
<S> <C>
Glenn R. Jones 9697 East Mineral Avenue
Englewood, Colorado 80112
Carl E. Vogel 9697 East Mineral Avenue
Englewood, Colorado 80112
</TABLE>
3. The number of directors may be increased or decreased from time
to time in the manner provided in the bylaws of the Corporation, but no decrease
shall have the effect of shortening the term of any incumbent director.
ARTICLE IX
----------
Cumulative voting shall not be permitted in the election of directors.
-4-
<PAGE>
ARTICLE X
---------
The initial registered office of the Corporation shall be 9697 East
Mineral Avenue, Englewood, Colorado 80112, and the initial registered agent at
such registered office shall be Glenn R. Jones.
ARTICLE XI
----------
No contract or other transaction between the Corporation and one or
more of its directors or any other corporation, partnership, joint venture,
trust, association, other entity, or employee benefit plan in which one or more
of the Corporation's directors or officers are directors or officers or are in
any similar managerial or fiduciary position or are financially interested shall
be either void or voidable solely because of such relationship or interest or
solely because such directors or officers are present at the meeting of the
board of directors or a committee thereof which authorizes, approves or ratifies
such contract or transaction or solely because their votes are counted for such
purpose, so long as such contract or transaction satisfies the requirements
explicitly set forth in the Colorado Corporation Code for contracts between a
corporation and its directors.
ARTICLE XII
-----------
A director of the Corporation shall not be personally liable to the
Corporation or to its shareholders for monetary damages for breach of fiduciary
duty as a director; except that this provision shall not eliminate or limit the
liability of a director to the Corporation or to its shareholders for monetary
damages otherwise existing for: (i) any breach of the directors' duty of loyalty
to the Corporation or to its shareholders; (ii) acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law;
(iii) acts specified in Section 7-5-114 of the Colorado Corporation Code; or
(iv) any transaction from which the director derived any improper personal
benefit. If the Colorado Corporation Code hereafter is amended to eliminate or
limit further the liability of a director, then, in addition to the elimination
and limitation of liability provided by the preceding sentence, the liability of
each director shall be eliminated or limited to the fullest extent permitted by
the Colorado Corporation Code as so amended. Any repeal or modification of this
Article XII shall not adversely affect any right or protection of a director of
the Corporation under this Article XII, as in effect immediately prior to such
repeal or modification, with respect to any liability that would have accrued,
but for this Article XII, prior to such repeal or modification.
-5-
<PAGE>
ARTICLE XIII
------------
1. The Corporation shall indemnify any person and his estate and
personal representative against all liability and expense incurred by reason of
the person being or having been a director or officer of the Corporation to the
full extent and in any manner that directors may be indemnified under the
Colorado Corporation Code, as in effect at any time. The Corporation shall also
indemnify any person who is serving or has served the Corporation as director,
officer, employee, or agent, and that person's estate and personal
representative, to the extent and in the manner provided in any bylaw,
resolution of the shareholders or directors, contract, or otherwise, so long as
such provision is legally permissible.
2. The Corporation may purchase and maintain insurance on behalf of
any person who is or was a director, officer, employee or agent of the
Corporation or who is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against him
and incurred by him in any such capacity or arising out of his status as such,
whether or not the corporation would have the power to indemnify him against
such liability under the provisions of this Article XII.
ARTICLE XIV
-----------
The name and address of the incorporator are:
Elizabeth M. Steele 9697 East Mineral Avenue
Englewood, Colorado 80112
Executed this 16th day of April, 1990.
/S/ ELIZABETH M. STEELE
______________________________
ELIZABETH M. STEELE
-6-
<PAGE>
STATE OF COLORADO )
) ss.:
COUNTY OF ARAPAHOE)
I, Lorri Ellis, a notary public, hereby certify that on the 16th day
of April, 1990, personally appeared before me Elizabeth M. Steele, who being by
me first duly sworn, declared that she is the person who signed the foregoing
document as incorporator, and that the statements contained therein are true.
In witness whereof, I have hereunto set my hand and seal this 16th day
of April, 1990.
/S/ LORRI ELLIS
(SEAL) ______________________________
Notary Public
9697 E. Mineral Ave.
Englewood, Colorado 80112
My commission expires August 27, 1993.
-7-
<PAGE>
Exhibit 3.2
BYLAWS
OF
JONES EDUCATION SYSTEMS, INC.
ARTICLE I. - Offices
--------------------
1.1 Principal Office: The principal office of the corporation shall
----------------
be at 9697 E. Mineral Avenue, Englewood, Colorado 80112, but the board of
directors, in its discretion, may keep and maintain offices wherever the
busiress of the corporation may require.
1.2 Registered Office and Agent: The corporation shall have and
---------------------------
continuously maintain in the State of Colorado a registered office, which may be
the same as its principal office, and a registered agent whose business office
is identical with such registered office. The initial registered office and the
initial registered agent are specified in the articles of incorporation. The
corporation may change its registered office or change its registered agent, or
both, upon filing a statement as specified by law in the office of the Secretary
of State of the State of Colorado.
ARTICLE II. - Meetings of Shareholders
--------------------------------------
2.1 Time and Place: Any meeting of shareholders may be held at such
--------------
time and place, within or outside of the State of Colorado, as may be fixed by
the board of directors or shall be specified in the notice of the meeting or
waiver of notice of the meeting.
<PAGE>
2.2 Annual Meeting: The annual meeting of shareholders shall be
--------------
held at the principal office of the corporation on the second Friday in July of
each year, or at such other places or date as the board of directors may
determine.
2.3 Special Meetings: Special meetings of shareholders, for any
----------------
purpose or purposes, may be called by the board of directors, the chief
executive officer, the president, or the holders of not less than one tenth of
all of the shares entitled to vote at the meeting.
2.4 Record Date: For the purpose of determining shareholders
-----------
entitled to notice of or to vote at any meeting of shareholders or any
adjournment thereof, or entitled to receive payment of any dividend, or in order
to make a determination of shareholders for any other proper purpose, the board
of directors may fix in advance a date as the record date for any such
determination of shareholders. The record date may not be fixed more than fifty
and, in the case of a meeting of shareholders, not less than ten days before the
date of the proposed action, except when it is proposed that the authorized
shares be increased, in which case the record date shall be set not less than
thirty days before the date of such action.
2.5 Voting List: At least ten days before each meeting of
-----------
shareholders, the secretary of the corporation shall make a complete list of the
shareholders entitled to vote at such meeting or any adjournment of such
meeting, which list shall be arranged in alphabetical order and shall contain
the
-2-
<PAGE>
address of, and number of shares held by, each shareholder. This list shall be
kept on file at the principal office of the corporation for a period of ten days
prior to such meeting, shall be produced and kept open at the meeting, and
shall be subject to inspection by any shareholder for any purpose germane to the
meeting during usual business hours of the corporation and during the whole time
of the meeting.
2.6 Notices: Written notice stating the place, day and hour of the
-------
meeting and, in the case of a special meeting, the purpose or purposes for which
the meeting is called, shall be delivered not less than ten nor more than fifty
days before the date of the meeting, unless it is proposed that the authorized
shares be increased, in which case at least thirty days' notice shall be given.
Notice shall be given either personally or by mail, by or at the direction of
the chief executive officer, the president, the secretary, or the officer or
person calling the meeting, to each shareholder of record entitled to vote at
such meeting. If mailed, such notice shall be deemed to be delivered when
deposited in the United States mail, postage prepaid, addressed to the
shareholder at his address as it appears on the stock transfer books of the
corporation. If delivered personally, such notice shall be deemed to be
delivered when handed to the shareholder or deposited at his address as it
appears on the stock transfer books of the corporation.
2.7 Ouorum: A majority of the outstanding shares of the corporation
------
entitled to vote, represented in person or by
-3-
<PAGE>
proxy at any meeting of shareholders, shall constitute a quorum for the
transaction of any business at such meeting; provided, however, that when a
specified item of business is required to be voted on by a class or classes of
shareholders, a majority of the outstanding shares of each such class shall
constitute a quorum for the transaction of such specified item of business. If a
quorum shall not be present or represented, a majority in interest of the
shareholders present in person or by proxy may adjourn the meeting from time to
time, without notice other than announcement at the meeting, for a period not to
exceed sixty days at any one adjournment, until the number of shares required
for a quorum shall be present. At any such adjourned meeting at which a quorum
is represented, any business may be transacted which might have been transacted
at the meeting originally called. The shareholders present or represented at a
duly organized meeting may continue to transact business until adjournment,
notwithstanding the withdrawal of enough shareholders to leave less than a
quorum.
2.8 Voting: Except as otherwise required by law, the shareholders
------
shall be deemed to have adopted any resolution or taken any other action if the
matter is put to a vote at any annual or special meeting of shareholders at
which a quorum is or has been present, and the votes cast in favor of such
resolution or other action constitute a majority of the total number of votes
that may be cast by the shareholders who are entitled to vote thereon and who
are present at such meeting in person or by proxy at the time the vote is taken.
Each
-4-
<PAGE>
outstanding share of the corporation shall have such voting rights and such
number of votes as are set forth in the articles of incorporation of the
corporation. A shareholder may vote either in person or by proxy executed in
writing by such shareholder or by his duly authorized attorney-in-fact. Such
proxy shall be filed with the secretary of the corporation before or at the time
of the meeting. No proxy shall be valid after eleven months from the date of its
execution, unless otherwise provided in the proxy. Voting shall be oral, except
as otherwise provided by law, but shall be by written ballot if such written
vote is demanded by any shareholder present in person or by proxy and entitled
to vote.
2.9 Waiver: Whenever any provision of law or of these bylaws
------
requires that notice of a meeting be given, a written waiver of notice signed by
a shareholder entitled to notice, whether before, at, or after the time stated
in the notice, shall be equivalent to the giving of notice. Attendance of a
shareholder in person or by proxy at a meeting constitutes a waiver of notice of
a meeting, except where a shareholder attends a meeting for the express purpose
of objecting to the transaction of any business because the meeting is not
lawfully called or convened.
2.10 Action by Shareholders Without a Meeting: Any action required
----------------------------------------
to be taken or which may be taken at a meeting of shareholders may be taken
without a meeting if a consent in writing, setting forth the action so taken,
shall be signed by all of the shareholders entitled to vote with respect to such
-5-
<PAGE>
action. Such consent may be executed in counterparts and shall be effective as
of the date of the last signature thereon, unless otherwise stated in the terms
of such consent.
ARTICLE III. - Directors
------------------------
3.1 Authority of Board of Directors: The business and affairs of
-------------------------------
the corporation shall be managed by a board of directors, which shall exercise
all the powers of the corporation, except as otherwise provided by law or the
articles of incorporation of the corporation.
3.2 Number: The number of directors of this corporation shall be no
------
fewer than three; provided, however, that if all outstanding shares are held of
record by fewer than three shareholders, there need only be as many directors as
there are shareholders of record. Subject to such limitation, the number of
directors shall be fixed from time to time by resolution adopted by the majority
of the entire board of directors, and may be increased or decreased by
resolution adopted by the majority of the entire board of directors, but no
decrease shall have the effect of shortening the term of any incumbent director.
3.3 Qualifications: Directors shall be natural persons eighteen
--------------
years of age or older, but need not be residents of the State of Colorado or
shareholders of the corporation.
3.4 Election: The board of directors shall be
--------
-6-
<PAGE>
elected at the annual meeting of shareholders or at a special meeting called for
that purpose.
3.5 Term: Subject to the provisions of these bylaws regarding the
----
removal and resignation of directors, each director shall be elected to hold
office until the annual meeting of shareholders next succeeding his election and
until his successor shall be elected and qualified.
3.6 Removal and Resignation: Any director may be removed, with or
-----------------------
without cause, at a special meeting of shareholders expressly called for that
purpose, upon the votes of the holders of a majority of the shares that are of
the class of stock whose holders elected the director sought to be removed and
that would be entitled to vote at an election of directors. Any director may
resign at any time by giving written notice to the chief executive officer, the
president, or the secretary, and acceptance of such resignation shall not be
necessary to make it effective unless the notice so provides.
3.7 Vacancies: Subject to the provisions of the articles of
----------
incorporation regarding increasing the size of the board of directors, any
vacancy occurring in the board of directors and any directorship to be filled by
reason of an increase in the size of the board of directors may be filled by the
affirmative vote of a majority, though less than a quorum, of the remaining
directors or by an election at an annual meeting or at a special meeting of
shareholders called for that purpose. A director chosen to fill a position
resulting from an increase in the number of directors shall hold office until
-7-
<PAGE>
the next annual meeting of shareholders and until his successor shall be elected
and qualified, unless he earlier resigns or is removed from office.
3.8 Meetings and Voting: A regular meeting of the board of
-------------------
directors shall be held immediately after, and at the same place as, the annual
meeting of shareholders. No notice of this meeting of the board of directors
need be given. The board of directors, or any committee of the board of
directors, may, by resolution, establish a time and place for additional regular
meetings which may thereafter be held without further notice. Special meetings
of the board of directors, or of any committee designated by the board of
directors, may be called by the chief executive officer, the president or any
two members of the board of directors or of such committee. Except as otherwise
specifically provided by law, the articles of incorporation or these bylaws, the
act of a majority of the directors present at any meeting of the board of
directors, or any meeting of any committee designated by the board of directors
at which a quorum is present shall be the act of the board of directors or of
such committee, as applicable.
3.9 Notices: Notice of a special meeting stating the date, hour and
-------
place of such meeting shall be given to each member of the board of directors,
or committee of the board of directors, by the chief executive officer, the
president, the secretary or the members of the board or of such committee
calling the meeting. The notice may be deposited in the United States mail at
least seven days before the meeting addressed to
-8-
<PAGE>
the director at the last address he has furnished to the corporation for this
purpose, and any notice so mailed shall be sufficient and shall be deemed to
have been given at the time it was mailed. Notice may also be given at least two
days before the meeting in person, or by telephone, prepaid telegram, telex,
cablegram or radiogram, and such notice shall be sufficient and shall be deemed
to have been given at the time when the personal or telephone conversation
occurs, or when the telegram, telex, cablegram or radiogram is either personally
delivered to the director or delivered to the last address of the director
furnished to the corporation by him for this purpose.
3.10 Ouorum: A majority of the number of directors fixed in
------
accordance with these bylaws shall constitute a quorum for the transaction of
business at all meetings of the board of directors.
3.11 Waiver: A written waiver of notice signed by a director
------
entitled to notice, whether before, at, or after the time stated therein, shall
be equivalent to the giving of notice. Attendance of a director at a meeting
constitutes a waiver of notice of such meeting, except where a director attends
a meeting for the express purpose of objecting to the transaction of any
business because the meeting is not lawfully called or convened.
3.12 Attendance by Telephone: Members of the board of directors
-----------------------
or any committee of the board of directors may participate in a meeting of the
board of directors or committee
-9-
<PAGE>
by means of a conference telephone, a speakerphone or similar communications
equipment by which all persons participating in the meeting can hear each other
at the same time. Such participation shall constitute presence in person at the
meeting.
3.13 Action by Directors Without a Meeting: Any action required to
-------------------------------------
be taken or which may be taken at a meeting of the board of directors, executive
committee, or other committee of the board of directors may be taken without a
meeting if a consent in writing, setting forth the action so taken, shall be
signed by all of the directors or all of the executive or other committee
members entitled to vote with respect to the proposed action. Such consent may
be executed in counterparts and shall be effective as of the date of the last
signature thereon, unless otherwise stated in the terms of such consent.
ARTICLE IV. - Committees
------------------------
4.1 Executive and Other Committees Authorized: The board of
-----------------------------------------
directors, by resolution adopted by a majority of the entire board of directors,
may designate from among its members an executive committee and one or more
other committees, each of which, to the extent provided in the resolution, shall
have all of the authority of the board of directors. The board of directors may
provide by resolution such powers, limitations, and procedures for such
committees as the board deems
-10-
<PAGE>
advisable; but no such executive or other committee shall have the authority of
the board of directors in reference to amending the articles of incorporation,
adopting a plan of merger or consolidation, recommending to the shareholders the
sale, lease, exchange, or other disposition of all or substantially all of the
property and assets of the corporation otherwise than in the usual and regular
course of its business, recommending to the shareholders a voluntary dissolution
of the corporation or a revocation thereof, or amending these bylaws.
ARTICLE V. - Officers
---------------------
5.1 Number and Election: The officers of the corporation shall be a
-------------------
chief executive officer, a president, one or more vice presidents, a secretary
and a treasurer, each of whom shall be elected by the board of directors, to
serve at the pleasure of the board of directors until his successor shall be
elected and qualified, unless he shall earlier resign or be removed from office.
The board of directors, the chief executive officer or the president may appoint
one or more assistant secretaries or assistant treasurers and such other
subordinate officers as they or he shall deem necessary, which other subordinate
officers shall hold their offices for such terms and shall exercise such powers
and perform such duties as shall be determined from time to time by the chief
executive officer or by the president. Any two or more offices may be held by
the same person, except the offices of president and
-11-
<PAGE>
secretary. The officers of the corporation shall be natural persons of the age
of eighteen years or older.
5.2 Chief Executive Officer: The chief executive officer shall be,
-----------------------
by virtue of holding such office, the chairman of the board of directors and
shall preside at all meetings of shareholders and of the board of directors;
provided, however, that the chief executive officer may serve as the chairman of
the board of directors only for so long as he is a director. The chief executive
officer shall have overall supervisory authority over all other officers of the
corporation and over the affairs of the corporation and shall see that all
orders and resolutions of the board of directors are carried out. He may execute
contracts, deeds and other instruments on behalf of the corporation as is
necessary and appropriate.
5.3 President: Subject to the direction and control of the board of
---------
directors and the chief executive officer, the president shall have general and
active management of the regular business of the corporation and shall see that
all orders and resolutions of the board of directors are carried out. He may
execute contracts, deeds and other instruments on behalf of the corporation as
is necessary and appropriate. He shall perform such additional functions and
duties as are appropriate and customary for the office of president and as the
board of directors or the chief executive officer may prescribe from time to
time. In case of the death, disability, or absence of the chief executive
officer, the president shall
-12-
<PAGE>
perform the duties and exercise the powers of the chief executive officer.
5.4 Vice President: The vice president, or, if there shall be more
--------------
than one, the vice presidents in the order determined by the board of directors,
shall be the officer or officers next in seniority after the president. Each
vice president shall also perform such duties and exercise such powers as are
appropriate and as are prescribed by the board of directors, chief executive
officer, or president. In case of the death, disability, or absence of the
president, vice president or, if there shall be more than one, the vice
presidents in the order determined by the board of directors, shall perform the
duties and exercise the powers of the president.
5.5 Secretary: The secretary shall give, or cause to be given,
---------
notice of all meetings of shareholders and special meetings of the board of
directors, keep the minutes of such meetings, have charge of the corporate seal
and stock records, be responsible for the maintenance of all corporate records
and files and the preparation and filing of reports to governmental agencies
other than tax returns, have authority to affix the corporate seal to any
instrument requiring it (and, when so affixed, it may be attested by his
signature), and perform such other functions and duties as are appropriate and
customary for the office of secretary and as the board of directors, the chief
executive officer or the president may prescribe from time to time.
-13-
<PAGE>
5.6 Assistant Secretary: The assistant secretary, or, if there
-------------------
shall be more than one, the assistant secretaries in the order determined by the
board of directors, the chief executive officer or the president, shall, in case
of the death, disability, or absence of the secretary or in case such duties
are specifically delegated to him by the board of directors, chief executive
officer, president or secretary, perform the duties and exercise the powers of
the secretary and shall, under the supervision of the secretary, perform such
other duties and have such other powers as the board of directors, the chief
executive officer or the president may prescribe from time to time.
5.7 Treasurer: The treasurer shall have control of the funds and
---------
the care and custody of all stocks, bonds and other securities owned by the
corporation and shall be responsible for the preparation and filing of tax
returns. He shall receive all moneys paid to the corporation and shall have
authority to give receipts and vouchers, to sign and endorse checks and warrants
in its name and on it behalf, and give full discharge for the same. He shall
also have charge of disbursement of the funds of the corporation, shall keep
full and accurate records of the receipts and disbursements, and shall deposit
all moneys and other valuable effects in the name and to the credit of the
corporation in such depositories as shall be designated by the board of
directors. He shall perform such other duties and have such other powers as are
appropriate and customary for the office of treasurer and as
-14-
<PAGE>
the board of directors, chief executive officer, or the president may prescribe
from time to time.
5.8 Assistant Treasurer: The assistant treasurer, or, if there
-------------------
shall be more than one, the assistant treasurers in the order determined by the
board of directors, the chief executive officer or the president, shall, in
case of the death, disability, or absence of the treasurer or in case such
duties are specifically delegated to him by the board of directors, chief
executive officer, president or treasurer, perform the duties and exercise the
powers of the treasurer, and shall, under the supervision of the treasurer,
perform such other duties and have such other powers as the board of directors,
the chief executive officer, or the president may prescribe from time to time.
5.9 Removal and Resignation: Any officer elected or appointed by
-----------------------
the board of directors may be removed at any time by resolution of the board of
directors or of the shareholders. Any officer appointed by the chief executive
officer or the president may be removed at any time by the board of directors,
the chief executive officer or the president. Any officer may resign at any time
by giving written notice of his resignation to the chief executive officer, the
president, or the secretary, and acceptance of such resignation shall not be
necessary to make it effective, unless the notice so provides. Any vacancy
occurring in any office, the election or appointment to which is made by the
board of directors, shall be filled by resolution of the board
-15-
<PAGE>
of directors. Any vacancy occurring in any other office of the corporation may
be filled by a person appointed by the chief executive officer or the president
for the unexpired portion of the term.
5.10 Compensation: Officers shall receive such compensation for
their services as may be authorized or ratified by the board of directors.
Election or appointment of an officer shall not of itself create a contract
right to compensation for services performed as such officer.
ARTICLE VI. - Stock
-------------------
6.1 Certificates: Certificates representing shares of the capital
------------
stock of the corporation shall be in such form as may be approved by the board
of directors and shall be signed by the president or any vice president and by
the secretary or an assistant secretary. Certificates shall be consecutively
numbered, and for each certificate, the name of the owner of the shares
represented by such certificate, the number of shares represented by such
certificate, and the day of issue of such certificate shall be entered on the
books of the corporation. Each certificate representing shares shall state upon
its face: (a) that the corporation is organized under the laws of the State of
Colorado, (b) the name of the person to whom issued, (c) the number and class of
shares which the certificate represents, and (d) the par value, if any, of each
share represented by the certificate; and each such
-16-
<PAGE>
certificate shall indicate, upon its face or reverse, any restriction placed
upon the transfer of the shares represented by the certificate.
6.2 Facsimile Signatures: Where a certificate is signed either by a
--------------------
transfer agent other than the corporation or its employee or by a registrar
other than the corporation or its employee, any other signature on the
certificate may be a facsimile signature. In case any officer, transfer agent or
registrar who has signed, or whose facsimile signature or signatures have been
placed upon, any certificate shall cease to be such officer, transfer agent, or
registrar, whether because of death, resignation or otherwise, before the
certificate is issued by the corporation, it may nevertheless be issued by the
corporation with the same effect as if he were such officer, transfer agent or
registrar at the date of issue.
6.3 Transfers of Stock: Transfers of shares shall be made on the
------------------
books of the corporation only upon presentation of the certificate or
certificates representing such shares properly endorsed by the person or persons
appearing upon the face of such certificate to be the owner or owners, or
accompanied by a proper transfer or assignment separate from the certificate,
except as may be expressly provided otherwise by the statutes of the State of
Colorado or by order of a court of competent jurisdiction. The officers or
transfer agents of the corporation may, in their discretion, require a signature
guaranty before making any transfer. The corporation shall be entitled to treat
the person in whose name any shares of stock
-17-
<PAGE>
are registered on its books as the owner of those shares for all purposes, and
shall not be bound to recognize any equitable or other claim or interest in the
shares on the part of any other person, whether or not the corporation shall
have notice of such claim or interest.
ARTICLE VII. - Miscellaneous
----------------------------
7.1 Corporate Seal: The board of directors may adopt a seal which
--------------
shall be circular in form and shall bear the name of the corporation and the
words "SEAL" and "COLORADO", which, when adopted, shall constitute the corporate
seal of the corporation. The seal may be used by causing it or a facsimile
thereof to be impressed, affixed, rubber stamped with indelible ink, or manually
reproduced.
7.2 Fiscal Year: The board of directors may, by resolution, adopt a
-----------
fiscal year for the corporation.
7.3 Amendment of Bylaws: These bylaws may at any time and from
-------------------
time to time be amended, supplemented or repealed by resolution of the board of
directors or the shareholders.
-18-
<PAGE>
Exhibit 4.2
SHAREHOLDERS AGREEMENT
Dated as of December 20, 1994
Among
GLENN R. JONES,
JONES INTERNATIONAL, LTD.,
BELL CANADA INTERNATIONAL INC.
and
JONES EDUCATION NETWORKS, INC.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Paqe
----
<S> <C>
ARTICLE I
DEFINITIONS
SECTION 1.1 Definitions.............................................
ARTICLE II
GOVERNANCE OF THE COMPANY
SECTION 2.1 Board of Directors......................................
2.2 Additional Rights.......................................
ARTICLE III
COVENANTS
SECTION 3.1 Consultation on Business Strategies.....................
3.2 Transactions with Affiliates............................
3.3 Information.............................................
3.4 Preemptive Rights.......................................
3.5 Registration Rights.....................................
3.6 Confidentiality.........................................
ARTICLE IV
TRANSFER RESTRICTIONS
AND OFFER PROCEDURES
SECTION 4.1 Transfer Restrictions...................................
4.2 Legends.................................................
4.3 Right to Compel Sale....................................
4.4 Tag-Along Right.........................................
4.5 Right of First Offer on Sales of Capital Stock by
Bell International Shareholders.......................
4.6 Termination.............................................
ARTICLE V
REPRESENTATIONS AND WARRANTIES
SECTION 5.1 Representations and Warranties of Jones.................
</TABLE>
_____________________
*The Table of Contents is not a part of this Agreement.
i
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
5.2 Representations and Warranties of
International.........................................
5.3 Representations and Warranties of
Investor..............................................
5.4 Representations and Warranties of
the Company...........................................
ARTICLE VI
MISCELLANEOUS
SECTION 6.1 Termination.............................................
6.2 Successors and Assigns; Assignment......................
6.3 Specific Performance....................................
6.4 Notices.................................................
6.5 Expenses................................................
6.6 Amendments and Waivers..................................
6.7 Governing Law...........................................
6.8 Counterparts; Effectiveness.............................
6.9 Headings................................................
6.10 Entire Agreement........................................
6.11 Separability............................................
EXHIBITS
--------
EXHIBIT A Registration Rights
</TABLE>
ii
<PAGE>
AGREEMENT dated as of December 20, 1994 among Glenn R. Jones, a
resident of Colorado, Jones International, Ltd., a Colorado corporation
("International"), Bell Canada International Inc., a Canadian corporation
("Investor") and Jones Education Networks, Inc., a Colorado corporation (the
"Company").
W I T N E S E T H:
- - - - - - - - -
WHEREAS, concurrently with the execution of this Agreement, Investor
is purchasing from the Company 2,410 Class A Shares at a price of $18,000,000 in
the aggregate; and
WHEREAS, in connection with such transactions the parties hereto wish
to enter into certain arrangements concerning the operation and governance of
the Company and other related matters;
NOW THEREFORE, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
1.1. Definitions. (a) The following terms, as used herein, have the
-----------
following meanings:
"AFFILIATE" means, with respect to any Person, any other Person
directly or indirectly controlling, controlled by, or under common control with
such Person.
"BCE GROUP ENTITY" means, at any time, BCE Inc., Investor and (i) any
entity of which securities or other ownership interests having ordinary voting
power to elect a majority of the board of directors or other persons performing
similar functions are, directly or indirectly, owned or controlled by BCE Inc.
at such time and (ii) any other entity that is, directly or indirectly,
controlled by BCE Inc. at such time.
"BCB GROUP SHAREHOLDER" means, at any time, any BCE Group Entity that
owns shares of Capital Stock at such time.
<PAGE>
"BELL INTERNATIONAL GROUP ENTITY" means, at any time, Investor and (i)
any entity of which securities or other ownership interests having ordinary
voting power to elect a majority of the board of directors or other persons
performing similar functions are, directly or indirectly, owned or controlled by
Investor at such time and (ii) any other entity that is, directly or indirectly,
controlled by Investor at such time.
"BELL INTERNATIONAL SHAREHOLDER" means, at any time, any Bell
International Group Entity that owns shares of Capital Stock at such time.
"BOARD" means the board of directors of the Company.
"BUSINESS DAY" means any day except a Saturday, Sunday or other day on
which commercial banks are authorized to close in Montreal, Canada or Denver,
Colorado.
"CAPITAL STOCK" means, at any time, the Class A Shares, the Class B
Shares and any other shares of authorized capital stock of the Company.
"CLASS A SHARES" means the shares of Class A Common Stock, par value
$0.01 per share, of the Company.
"CLASS B SHARES" means the shares of Class B common Stock, par value
$0.01 per share, of the Company.
"CLOSING DATE" means the date of this Agreement.
"DOLLARS" or "$" means United States dollars.
"EDUCATION GROUP" means, at any time, the Company and each Person that
is a Subsidiary of the Company at such time.
"EDUCATION GROUP ENTITY" means, at any time, each Person included in
the Education Group at such time.
"EMPLOYEE OPTIONS" means options to purchase shares of Capital Stock
granted to employees, officers or directors of the Company or any of its
Subsidiaries pursuant to any employee benefit plan (including a stock option,
stock purchase or stock bonus plan) approved by the Board.
"GOVERNMENTAL AUTHORITY" means any local, county, state, commonwealth,
federal or foreign court, judicial, executive, or legislative instrumentality,
or any agency,
2
<PAGE>
authority, commission, board or official thereof, including, without limitation,
any franchising authority.
"INVESTOR'S OWNERSHIP PERCENTAGE" means, at any time, the Ownership
Percentage of the Bell International Group Entities at such time.
"JI GROUP" means, at any time, Jones, International and each other
Person that is a Subsidiary of Jones or International at such time, other than
any Person that is an Education Group Entity at such time.
"JI GROUP ENTITY" means, at any time, each Person included in the JI
Group at such time.
"JI SHAREHOLDER" means, at any time, any JI Group Entity that owns
shares of Capital Stock at such time.
"JONES" means Glenn R. Jones, a resident of Colorado, or in the event
he is not then alive or legally competent, his executor, the administrator of
his estate or his legal representative (including, without limitation, his
guardian, conservator or other similar fiduciary).
"LIEN" means, with respect to any property or asset, any mortgage,
lien, pledge, charge, security interest, encumbrance or other adverse claim of
any kind in respect of such property or asset.
"MATERIAL ADVERSE EFFECT" means, with respect to any Person, a
material adverse effect on the financial condition, business, assets or results
of operations of such Person and its Subsidiaries, taken as a whole.
"OWNERSHIP PERCENTAGE" means, with respect to any Person, the ratio of
(i) the aggregate number of shares owned by such Person to (ii) the sum of (x)
the aggregate number of shares of Capital Stock outstanding on the date hereof,
(y) the aggregate number of shares of Capital Stock issued after the date hereof
for cash and (z) the aggregate number of shares of Capital Stock that would be
issued if all New Securities (other than shares of Capital Stock) issued for
cash were converted or exchanged into shares of Capital Stock (subject to
adjustment as provided in Section 3.4(b)).
"PERSON" means an individual, corporation, partnership, association,
trust or other entity or organization, including a government or political
subdivision or an agency or instrumentality thereof.
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<PAGE>
"PUBLIC OFFERING" means an underwritten public offering of Capital
Stock pursuant to an effective registration statement under the Securities Act.
"SEC" means the Securities and Exchange Commission.
"SECURITIES ACT" means the Securities Act of 1933 as amended, and the
rules and regulations promulgated thereunder.
"SHAREHOLDER" means, at any time, any Bell International Shareholder
or JI Shareholder at such time.
"SUBSIDIARY" means, as to any Person, (i) any entity of which
securities or other ownership interests having ordinary voting power to elect a
majority of the board of directors or other persons performing similar functions
are, directly or indirectly, owned or controlled by such Person, (ii) any
partnership of which such Person is, directly or indirectly, a general or
managing partner and (iii) any other entity that is, directly or indirectly,
controlled by such Person. The parties hereto acknowledge that (i) Glenn R.
Jones, International and Investor are not Subsidiaries of any Education Group
Entity, (ii) Glenn R. Jones and International are not Subsidiaries of any
Intercable Group Entity and (iii) BCE Inc. is not a Subsidiary of Investor.
"THIRD PARTY PURCHASER" means any Person that is not a JI Group
Entity or a Bell International Group Entity that purchases or agrees to purchase
shares of Capital Stock in connection with a Compelled Sale or a Tag Along Sale.
"TRANSFER" means, with respect to any securities, any direct or
indirect sale, assignment, transfer, grant of a participation in, pledge, gift
or other disposition thereof, without regard to whether such disposition is for
consideration.
(b) Each of the following terms is defined in the Section set forth
opposite such term:
<TABLE>
<CAPTION>
Term Section
---- -------
<S> <C>
Closing Period 4.5
Compelled Sale 4.3
Compelled Sale Notice 4.3
Eligible Assignee 6.2
Intercable Group Entity 6.2
Investor Nominee 2.1
</TABLE>
4
<PAGE>
<TABLE>
<S> <C>
Grantee 3.4
Market Value 3.4
New Securities 3.4
Offer Notice 4.5
Offered Shares 4.5
Purchase Conditions 3.4
Rights Notice 3.4
Sale Notice 4.4
Same Consideration 4.3
Tag Along Sale 4.4
Trigger Date 3.4
</TABLE>
ARTICLE II
GOVERNANCE OF THE COMPANY
2.1. Board of Directors. The parties hereto agree that (i) Investor
------------------
will be entitled, but not required, to designate one member of the Board (an
"INVESTOR NOMINEE"), and (ii) except to the extent required by applicable law,
each committee of the Board shall at all times include an Investor Nominee. In
the event that any Investor Nominee vacates his seat on the Board, whether by
resignation, death, removal or otherwise, the parties hereto agree to fill any
such vacancy with a person designated by the Investor.
2.2. Additional Rights. Until the fifth anniversary of the Closing
-----------------
Date, the Company will grant to Investor any consent or other shareholder rights
granted by the Company to any unaffiliated Person that purchases shares of
Capital Stock and, immediately after such purchase, has an Ownership Percentage
of 15% or less. The parties hereto acknowledge that for purposes of this Section
2.2, "SHAREHOLDER RIGHTS" is intended to include the types of rights normally
found in shareholders agreements and does not include commercial rights granted
to strategic partners in connection with a purchase of Capital Stock (such as
the right to provide special services to the Company that reflect the
capabilities of a strategic partner).
ARTICLE III
COVENANTS
3.1. Consultation on Business Strategies. (a) The Company will
-----------------------------------
regularly advise and consult with Investor as to the business of the Company and
its
5
<PAGE>
Subsidiaries, which consultation will include the review of (i) strategic,
operating and financial plans, including plans for acquisitions and sales, (ii)
equity, debt, joint venture and other financing strategies, (iii) business plans
for operations, marketing and technology deployment and (iv) personnel,
compensation and related decisions.
(b) Each year, management of the Company will present to the Board
for approval a business plan that includes the elements described in paragraph
(a) of this Section 3.1.
3.2. Transactions with Affiliates. The Company agrees to notify
----------------------------
Investor promptly if the Company or any other Education Group Entity engages in
any material transaction, or enters into any material agreement, with any JI
Group Entity.
3.3. Information. (a) The Company will permit Investor (or a
-----------
representative of Investor) to visit and inspect any of the properties of any
Education Group Entity, including the books of account and other records of such
Education Group Entity (and make copies thereof and take extracts therefrom),
and to discuss its affairs, finances and accounts with the relevant officers
and, after notice to the Company, its independent public accountants and
counsel, all at such reasonable times and as often as Investor may reasonably
request.
(b) As soon as available and in any event within 60 days after the
close of each quarterly accounting period ending after the date hereof, the
Company will deliver to Investor the consolidated balance sheet of the Company
as of the end of such quarterly period, and the related consolidated statements
of income, shareholders' equity and cash flows for such quarterly period and for
the elapsed portion of the fiscal year ended with the last day of such quarterly
period, and in each case setting forth comparative figures for the related
periods in the prior fiscal year, all of which shall be certified by an
authorized officer of the Company to have been prepared in accordance with
generally accepted accounting principles (subject to normal year-end audit
adjustments in the case of statements for any quarterly accounting period).
(c) As soon as available and in any event within 120 days after the
close of each fiscal year of the Company, the Company will deliver to Investor
the consolidated balance sheet of the Company as of the end of such fiscal year
and the related consolidated statements of income, shareholders' equity and cash
flows for such fiscal year, in
6
<PAGE>
each case setting forth comparative figures for the preceding fiscal year, and
(i) for each fiscal year ending prior to May 31, 1994, certified by an
authorized officer of the Company to have been prepared in accordance with
generally accepted accounting principles and (ii) for each fiscal year ending on
or after May 31, 1994, certified by Arthur Andersen & Co., or other independent
certified public accountants of recognized national standing to have been
prepared in accordance with generally accepted accounting principles in the
United States.
(d) The Company will provide Investor with such assistance as
Investor reasonably requests from officers, employees and auditors of the
Company to enable Investor to account for its investment in the Company in its
financial statements, including assistance in the calculation and presentation
of any adjustments required to reflect generally accepted accounting principles
in Canada.
(e) The Company will furnish to Investor copies of all reports,
notices or other written communications (other than routine correspondence and
responses to routine inquiries) sent to holders of equity or debt securities of,
or lenders to any Education Group Entity, promptly after any such communications
are sent.
3.4. Preemptive Rights. (a) The Company hereby grants to Investor
-----------------
and International (each a "GRANTEE") the preemptive right to purchase its
respective Ownership Percentage of any shares of Capital Stock (and securities
of any type whatsoever that are, or may become, exercisable to purchase, or
convertible or exchangeable into, shares of Capital Stock) which the company may
propose to sell or otherwise issue from time to time for cash after the date
hereof, other than Employee Options or securities issued pursuant to Employee
Options ("NEW SECURITIES"). Such Ownership Percentage will be calculated
immediately preceding any such sale or issuance, and a Grantee may exercise its
preemptive right with respect to any or all of the New Securities offered to
such Grantee pursuant to this Section 3.4 .
(b) In the event the Company proposes to sell or otherwise issue any
New Securities, it shall give each Grantee not less than 30 days' prior written
notice (a "RIGHTS NOTICE") of its intention, describing the material terms of
the proposed sale, including the type of New Securities proposed to be issued,
the manner of sale and a range of proposed prices and number of shares
(including over-allotments) or other securities to be sold or issued (with the
high and low end of each range being no greater
7
<PAGE>
than 115% and no lower than 85% of the midpoint). Each Grantee shall have 20
days from the date of receipt of a Rights Notice to agree to purchase up to its
Ownership Percentage of such New Securities, by delivery of written notice to
the Company, provided that (i) if both Grantees elect to exercise their
--------
respective rights hereunder, the Company will determine how many New Securities
will be made available to the Grantees in the aggregate, and each Grantee will
have the right to purchase its pro rata portion of such aggregate amount and
(ii) in such event, for purposes of determining "INVESTOR'S OWNERSHIP
PERCENTAGE", the denominator will not include any New Securities in respect of
which Investor was not offered an opportunity to purchase its Ownership
Percentage pursuant to this Section 3.4. If the Company determines that the
price or number of New Securities to be sold or issued is not within the range
specified in the Rights Notice, or that there have been other material changes
to the transaction described in the Rights Notice, the Company will promptly
deliver an amended Rights Notice to each Grantee, setting forth the revised
ranges for the price and number of securities to be offered (with the high and
low end of each range being no greater than 115%, and not lower than 85%, of the
midpoint), or any other revised material terms. Each Grantee will have 10
Business Days after receipt of any such amended Rights Notice to agree to
purchase up to its Ownership Percentage of such New Securities, upon the revised
terms and conditions set forth in the amended Rights Notice, by delivery of a
written notice to the Company.
(c) The price for any New Securities purchased by a Grantee pursuant
to this Section 3.4 will be the proceeds received by the Company in connection
with such sale, net of selling commissions and underwriters discounts.
(d) Except as otherwise contemplated by this Agreement, any New
Securities purchased by a Grantee under this Section 3.4 will be purchased
pursuant to the same terms and conditions as such New Securities are issued to
third parties, provided that so long as a Grantee is using its reasonable
--------
efforts to consummate the closing promptly, such Grantee may postpone such
closing until such time as the Purchase Conditions have been satisfied or waived
by such Grantee, provided further that if such Purchase Conditions have not been
-------- -------
satisfied or waived within 90 days after the third party closing, such Grantee's
right to purchase such New Securities will terminate and the Company will be
free to sell such New Securities without regard to such Grantee's rights under
this Section 3.4.
8
<PAGE>
(e) In the event a Grantee fails to exercise its preemptive right in
accordance with the terms of this Section 3.4, the Company shall have 130 days
after delivery of a Rights Notice to sell, or enter into an agreement to sell
(containing customary conditions), the New Securities proposed to be sold in the
Rights Notice (or the amended Rights Notice), at a price and upon general terms
no more favorable to the purchasers thereof than specified in such notice. In
the event the Company has not sold, or entered into such an agreement to sell,
such New Securities prior to or within said 130-day period, the Company shall
not thereafter issue or sell any such New Securities without first offering such
securities to the Grantees in the manner provided above.
(f) All sales pursuant to this Section 3.4 shall be made pursuant to
arrangements reasonably determined by the Company in order to ensure compliance
with the Securities Act.
(g) For purposes of this Agreement, "PURCHASE CONDITIONS MEANS:
(i) The waiting period (including any extension thereof
resulting from additional inquiries, if any) under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended, applicable to the purchase
by the relevant Grantee of the subject securities shall have expired or
been earlier terminated.
(ii) All other actions by, in respect of or filings with any
Governmental Authority required to permit the consummation of the closing
shall have been taken or obtained, as the case may be, and shall be in full
force and effect.
(iii) There shall not then be in effect any applicable law, rule
or regulation or any judgment, injunction, order or decree, and there shall
not then be instituted or pending any action or proceeding before any
federal or state court or other Governmental Authority brought by a
Governmental Authority, that challenges the consummation of the closing or
seeks to require the relevant Grantee or its Affiliates to divest, or
otherwise limit such Person's ability to exercise full rights of ownership
over, the shares of Capital Stock owned by such Grantee and its Affiliates.
(iv) The Education Group Entities shall have received all
material third party consents, if any,
9
<PAGE>
required to be obtained in connection with the closing, in each case in
form and substance reasonably satisfactory to the relevant Grantee.
(h) The rights granted by this Section 3.4 will terminate at the time
of a Public Offering.
3.5. Registration Rights. The Company grants to Investor and each
-------------------
other BCE Group Entity that has agreed to be bound by the terms of this
Agreement the registration rights set forth in Exhibit A. In its discretion, the
Company may grant similar registration rights to International and Jones.
3.6. Confidentiality. Each party to this Agreement will hold in
---------------
confidence and not use, and will use its reasonable efforts to cause its
respective Affiliates, shareholders, officers, directors, employees,
accountants, counsel, consultants, advisors and agents to hold in confidence and
not use, unless compelled to disclose by judicial or administrative process or
by other requirements of law, all documents and information received from the
other parties to this Agreement (and Affiliates of such other parties) in
connection with any information exchange contemplated by this Agreement, except
to the extent that such information can be shown to have been (i) previously
known by such party on a nonconfidential basis, (ii) in the public domain
through no fault of such party or (iii) later lawfully acquired by such party on
a non-confidential basis from sources other than another party to this Agreement
(or an Affiliate of such other party). The obligation of each party to hold any
such information in confidence shall be satisfied if they exercise the same care
with respect to such information as they would take to preserve the
confidentiality of their own similar information.
ARTICLE IV
TRANSFER RESTRICTIONS AND OFFER PROCEDURES
4.1. Transfer Restrictions. (a) No Shareholder will Transfer any
---------------------
shares of Capital Stock to an Affiliate of such transferor unless such Affiliate
has agreed to be bound by the terms of this Agreement as a Shareholder and has
delivered an executed counterpart of this Agreement to the Company, Jones and
Investor.
(b) Notwithstanding the foregoing, each Shareholder will have the
right to Transfer any shares of Capital Stock pursuant to pledges to financial
institutions
10
<PAGE>
to secure bona fide borrowings, provided that any such transferee's interest in
--------
such shares of Capital Stock will be subject to the provisions of this
Agreement.
(c) Any attempt by a JI Group Entity or a Bell International Group
Entity to effect a Transfer of shares of Capital Stock not in compliance with
the terms of this Agreement shall be null and void and neither the Company nor
any transfer agent shall give any effect in the Company's stock records to such
attempted Transfer.
4.2 Legends. Each certificate evidencing outstanding shares of
-------
Capital Stock held by any Shareholder shall bear a legend in substantially the
following form:
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE SOLD
OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF A
REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO THE SECURITIES UNDER
SUCH ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT
SUCH REGISTRATION IS NOT REQUIRED.
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO RESTRICTIONS
ON TRANSFER AS SET FORTH IN THE SHAREHOLDERS AGREEMENT DATED AS OF
DECEMBER 20, 1994, COPIES OF WHICH WILL BE FURNISHED BY JONES
EDUCATION NETWORKS, INC. AND ANY SUCCESSOR THERETO UPON REQUEST AND
WITHOUT CHARGE.
4.3. Right to Compel Sale. (a) If at any time the JI Group proposes
--------------------
to sell all of its shares of Capital Stock to a Third Party Purchaser, the JI
Group shall have the right, exercisable as set forth below, to compel the BCE
Group Shareholders to sell to the Third Party Purchaser (a "COMPELLED SALE")
all, but not less than all, of the shares of Capital Stock, if any, then held by
the Bell International Shareholders. In connection with any compelled Sale, the
Bell International Shareholders will receive the Same Consideration, and be on
the same terms and conditions, as the JI Group, provided that a Bell
--------
International Shareholder shall not be required to sell any shares of Capital
Stock to any such Third Party Purchaser if such Compelled Sale is reasonably
likely to constitute a violation of applicable law or regulation.
(b) In the event the JI Group elects to exercise its right to cause a
Compelled Sale, it will deliver written notice (a "COMPELLED SALE NOTICE") to
each Bell International Shareholder and the Company, setting forth the
11
<PAGE>
consideration and describing the other material terms and conditions of the
Compelled Sale, including the proposed closing date, which shall be not less
than 15 Business Days from the date the Compelled Sale Notice is delivered. At
the closing for the Compelled Sale, against payment of the Same Consideration,
each Bell International Shareholder will deliver to the Third Party Purchaser
the certificate or certificates representing the number of shares of Capital
Stock held by each Bell International Shareholder, duly endorsed, together with
all other documents which are necessary in order to effect such Compelled Sale.
(c) There shall be no liability on the part of the JI Group to any
Bell International Shareholder if any proposed Compelled Sale is not consummated
for any reason.
(d) For purposes of this Agreement, "SAME CONSIDERATION" means the
average consideration per share received by the JI Group Entities for all shares
of Capital Stock (regardless of class) sold by the JI Group Entities in a
Compelled Sale or Tag Along Sale, as the case may be.
4.4. Tag Along Right. If the JI Group proposes to sell, in one
---------------
transaction or in a series of related transactions (a "TAG ALONG SALE") either
(i) more than 50% of its equity interest in the Company or (ii) control of the
Company, then the Bell International Shareholders shall have the right to
participate in such Tag Along Sale on the following terms:
(a) The JI Group shall give Investor not less than 20 Business Days'
written notice (a "SALE NOTICE") of its intention, describing the price offered,
all other material terms and conditions of the Tag Along Sale and, if the
consideration payable pursuant to the Tag Along Sale consists in whole or in
part of consideration other than cash, such information relating to such other
consideration as Investor may reasonably request.
(b) In connection with any Tag Along Sale, the Bell International
Shareholders shall have the right, in their sole discretion, to sell, for the
Same Consideration, and otherwise on the same terms and conditions, as the JI
Group, either (i) all of the shares of Capital Stock then held by it or (ii) a
portion of such shares of Capital Stock equal to a fraction, the numerator of
which is the total number of shares of Capital Stock to be purchased by the
Third Party Purchaser, and the denominator of which is the number of shares of
Capital Stock owned by Persons that are not BCE Group Entities. Any fractional
shares will be rounded to the nearest share.
12
<PAGE>
(c) The Bell International Shareholders must exercise their tag-along
right by giving written notice to the JI Group within 15 Business Days of the
delivery of a Sale Notice, specifying the number of shares of Capital Stock that
the Bell International Shareholders desire to include in the Tag Along Sale. At
the closing for the Tag Along Sale, against payment of the Same Consideration
the Bell International Shareholder will deliver to the Third Party Purchaser the
certificate or certificates representing such number of shares of Capital Stock,
duly endorsed, together with all other documents which are necessary in order to
effect such Tag Along Sale.
(d) There shall be no liability on the part of the JI Group to any
Bell International Shareholder if the proposed third party sale is not
consummated for any reason.
4.5. Right of First Offer on Sales of Capital Stock by Bell
------------------------------------------------------
International Shareholders. (a) If, at any time, any Bell International
- --------------------------
Shareholder wishes to sell any of its shares of Capital Stock, such sale shall
be made pursuant to the following procedures:
(i) The Bell International Shareholder shall deliver to International
a written notice of its intention (an "OFFER NOTICE"), describing the
material terms of the proposed sale, including the number of shares of
Capital Stock offered for sale (the "OFFERED SHARES") and the proposed
price. International shall have 90 calendar days from the date of receipt
of the Offer Notice to accept (by delivery of written notice to Investor),
reject or renegotiate the terms of the Offer Notice with the Bell
International Shareholder. If International accepts the terms of the Offer
Notice (as originally delivered or as renegotiated), the closing for the
purchase and sale of the Offered Shares to be purchased by International
must take place within 180 days from the date of such acceptance (the
"CLOSING PERIOD"). In the event International rejects the terms of the
Offer Notice, or fails to close the purchase and sale of the Offered Shares
prior to the expiration of the Closing Period, the Bell International
Shareholder will have the right, for a period of 270 calendar days after
the date of such rejection (or the expiration of the Closing Period) to
sell the Offered Shares to any third party, after reasonable consultation
with International, at a price per share not less than 95% of the price
proposed in the Offer Notice.
(ii) The purchase price for any shares of Capital Stock purchased
pursuant to this Section 4.5 will be
13
<PAGE>
paid in cash by wire transfer in immediately available funds to a bank
account designated by the Bell International Shareholder not less than
three Business Days prior to closing.
(b) At any closing under this Article IV, each Bell International
Shareholder will deliver to the relevant purchaser good and valid title to the
shares of Capital Stock being sold by such Bell International Shareholder, free
and clear of any Lien.
4.6. Termination. The provisions of Sections 4.3, 4.4 and 4.5 will
-----------
terminate at the time of a Public Offering.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
5.1. Representations and Warranties of Jones. Jones represents and
---------------------------------------
warrants to Investor and the Company that as of the date hereof:
(a) The execution, delivery and performance of this Agreement by
Jones is within his legal capacity. This Agreement constitutes a valid and
binding agreement of Jones.
(b) The execution, delivery and performance by Jones of this
Agreement requires no action of Jones by or in respect of, or filing by Jones
with, any Governmental Authority organized within the United States of America,
England or Spain other than any such action or filing as to which the failure to
make or obtain would not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect on Jones.
(c) The execution, delivery and performance by Jones of this
Agreement does not (i) violate any applicable law, rule, regulation, judgment,
injunction, order or decree binding on Jones or (ii) require any consent or
other action by any Person under, or constitute a default under, any agreement
or other instrument binding upon Jones or any license, permit or other similar
authorization held by Jones, except to the extent that any such violation,
failure to obtain any such consent or other action, or default, would not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect on Jones.
14
<PAGE>
5.2. Representations and Warranties of International. International
-----------------------------------------------
represents and warrants to Investor and the Company that as of the date hereof:
(a) The execution, delivery and performance of this Agreement by
International is within International's corporate power and has been duly
authorized by all necessary corporate action on the part of International. This
Agreement constitutes a valid and binding agreement of International.
(b) The execution, delivery and performance by International of this
Agreement requires no action of International by or in respect of, or filing by
International with, any Governmental Authority organized within the United
States of America, England or Spain other than any such action or filing as to
which the failure to make or obtain would not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect on International.
(c) The execution, delivery and performance by International of this
Agreement does not (i) violate the articles of incorporation or bylaws of
International, (ii) violate any applicable law, rule, regulation, judgment,
injunction, order or decree binding on International or (iii) require any
consent or other action by any Person under, or constitute a default under, any
agreement or other instrument binding upon International or any license, permit
or other similar authorization held by International, except in the case of
clauses (ii) and (iii) to the extent that any such violation, failure to obtain
any such consent or other action, or default, would not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect on
International.
5.3. Representations and Warranties of Investor. Investor represents
------------------------------------------
and warrants to each of Jones, International and the Company that as of the date
hereof:
(a) The execution, delivery and performance of this Agreement by
Investor is within Investor's corporate power and has been duly authorized by
all necessary corporate action on the part of Investor. This Agreement
constitutes a valid and binding agreement of Investor.
(b) The execution, delivery and performance by Investor of this
Agreement require no action by Investor or in respect of, or filing by Investor
with, any governmental body, agency or official other than any such action or
filing as to which the failure to make or obtain would not,
15
<PAGE>
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect on Investor.
(c) The execution, delivery and performance by Investor of this
Agreement do not (i) violate the articles of incorporation or bylaws of Investor
or (ii) violate any applicable law, rule, regulation, judgment, injunction,
order or decree binding on Investor or (iii) require any consent or other action
by any Person under, or constitute a default under, any agreement or instrument
binding upon Investor or any license, permit or other similar authorization held
by Investor except, in the case of clauses (ii) and (iii) to the extent that any
such violation, failure to obtain any such consent or take such other action, or
default, would not, individually or in the aggregate, reasonably be expected to
have a Material Adverse Effect on Investor.
5.4. Representations and Warranties of the Company. The Company
---------------------------------------------
represents and warrants to Investor, Jones and International that as of the date
hereof:
(a) The execution, delivery and performance of this Agreement by the
Company is within the Company's corporate power and has been duly authorized by
all necessary corporate action on the part of the Company. This Agreement
constitutes a valid and binding agreement of the Company.
(b) The execution, delivery and performance by the Company of this
Agreement requires no action of any Education Group Entity by or in respect of,
or filing by any Education Group Entity with, any Governmental Authority
organized within the United States of America, England or Spain other than any
such action or filing as to which the failure to make or obtain would not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect on the Intercable Group Entities.
(c) The execution, delivery and performance by the Company of this
Agreement do not (i) violate (x) the articles of incorporation or bylaws of the
Company or (y) the articles of incorporation, by-laws, partnership agreement or
other organizational document (as applicable) of any other Education Group
Entity, (ii) violate any applicable law, rule, regulation, judgment, injunction,
order or decree binding on the Company, (iii) require any consent or other
action by any Person under, constitute a default under, or give rise to any
right of termination, cancellation or acceleration of any right or obligation of
the Company or any other Education Group Entity or cause a
16
<PAGE>
loss of any benefit to which the Company or any other Education Group Entity is
entitled under any agreement or other instrument binding upon the Company or any
other Education Group Entity or any franchise agreement, license, permit or
other similar authorization held by the Company or any other Education Group
Entity or (iv) result in the creation of any Lien on any asset of the Company or
any Education Group Entity, except in the case of clauses (ii), (iii) and (iv),
to the extent that any such violation, failure to obtain any such consent or
other action, default, right, loss or Lien would not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect on the
Intercable Group Entities.
ARTICLE VI
MISCELLANEOUS
6.1. Termination. The provisions of this Agreement will terminate,
-----------
and be of no further force or effect, at such time as Investor's Ownership
Percentage is less than 10%, provided that the provisions of Sections 3.5, 3.6
--------
and 6.5 shall survive any such termination.
6.2. Successors and Assigns: Assignment. (a) The provisions of this
----------------------------------
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns, and to the extent applicable heirs,
executors, administrators and legal representatives.
(b) Except as otherwise provided herein, neither the Company nor any
Shareholder may assign, delegate or otherwise Transfer any of its rights or
obligations under this Agreement without the prior written consent of all of the
other parties hereto, provided that Investor and any other Bell International
--------
Shareholder may assign its rights, but not its obligations, to any Eligible
Assignee at any time after such purchaser has delivered to the Company, Jones
and International an executed counterpart of this Agreement and agreed to be
bound by the terms of this Agreement as if such Person was Investor.
(c) For purposes of this Agreement, "ELIGIBLE ASSIGNEE" means any
entity which at the time of such assignment is, and thereafter during the term
of this Agreement remains (i) controlled, directly or indirectly, by Investor
and (ii) not primarily engaged in, or a Subsidiary of Investor primarily engaged
in, the direct operation or management of (x) cable television systems located
in North
17
<PAGE>
America, (y) wireline local communications services located in the United States
of America or (z) educational programming services, other than Investor and any
Person that is an Intercable Group Entity or a JI Group Entity (each a
"RESTRICTED BUSINESS"). The parties hereto acknowledge that the foregoing
provisions are not intended to restrict Investor from assigning its rights
hereunder to a Subsidiary of Investor that is a holding company of an entity or
entities primarily engaged in a Restricted Business.
(d) For purposes of this Agreement, "INTERCABLE GROUP ENTITY" means,
at any time, Jones Intercable, Inc. and each Person that is a Subsidiary of it
at such time.
6.3. Specific Performance. Each party hereto agrees that a
--------------------
Shareholder could be irreparably damaged if any party failed to perform any
obligation under this Agreement, and that such Shareholder would not have an
adequate remedy at law for money damages in such event. Accordingly, each
Shareholder shall be entitled to specific performance and injunctive and other
equitable relief to enforce the performance of this Agreement. This provision is
without prejudice to any other rights that such Shareholder may have against any
party for any failure by such party to perform its obligations under this
Agreement.
6.4. Notices. All notices, requests, claims, demands and other
-------
communications hereunder shall be deemed to have been duly given when delivered
in person, by facsimile transmission, or by registered or certified mail
(postage prepaid, return receipt requested):
if to Jones:
Glenn R. Jones
9697 East Mineral Avenue
Englewood, Colorado 80155
Fax: (303) 784-8510
if to International:
Jones International, Ltd.
9697 East Mineral Avenue
Englewood, Colorado 80155
Fax: (303) 784-8510
Attention: Chief Executive Officer
18
<PAGE>
if to Investor:
Bell Canada International Inc.
1000, rue de la Gauchetiere West
Suite 1100
Montreal, Quebec
Canada H3B 4Y8
Fax: 514-392-2262
Attention: Chief Financial Officer
with a copy to:
Bell Canada International Inc.
1000, rue de la Gauchetiere West
Suite 1100
Montreal, Quebec
Canada H3B 4Y8
Fax: 514-392-2342
Attention: General Counsel
if to the Company to:
Jones Education Networks, Inc.
9697 East Mineral Avenue
Englewood, Colorado 80112
Attention: President
Fax: (303) 799-4675
with a copy to:
Jones Education Networks, Inc.
9697 East Mineral Avenue
Englewood, Colorado 80112
Attention: General Counsel
Fax: (303)
799-1644
All such notices, requests and other communications shall be deemed received on
the date of receipt by the recipient thereof if received prior to 5 p.m. in the
place of receipt and such day is a business day in the place of receipt.
Otherwise, any such notice, request or communication shall be deemed not to have
been received until the next succeeding business day in the place of receipt.
6.5. Expenses. All costs and expenses incurred in connection with
--------
this Agreement shall be paid by the party incurring such cost or expense.
6.6. Amendments and Waivers. (a) Any provision of this Agreement
----------------------
may be amended or waived if, but only if, such amendment or waiver is in writing
and is signed, in the
19
<PAGE>
case of an amendment, by each party to this Agreement, 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 other right, power or privilege. The rights and remedies herein
provided shall be cumulative and not exclusive of any rights or remedies
provided by law.
6.7. Governing Law. This Agreement shall be construed in accordance
-------------
with and governed by the law of the State of Colorado, without regard to the
conflicts of law rules of such state.
6.8. Counterparts: Effectiveness. This Agreement may be signed in
---------------------------
any number of counterparts, each of which shall be an original, with the same
effect as if the signatures thereto and hereto were upon the same instrument.
This Agreement shall become effective when each party hereto shall have received
counterparts hereof signed by all of the other parties hereto.
6.9. Headings. The headings contained in this Agreement are for
--------
reference purposes only and shall not in any way affect the meaning of
interpretation of this Agreement.
6.10. Entire Agreement. This Agreement constitutes the entire
----------------
agreement between the parties with respect to the subject matter of this
Agreement and supersedes all prior agreements and understandings, both oral and
written, between the parties with respect to the subject matter of this
Agreement.
6.11. Separability. In case any provision of this Agreement shall be
------------
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
2O
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date set forth above.
/s/ Glenn R. Jones
------------------------------------
GLENN R. JONES individually
JONES INTERNATIONAL LTD.
By /s/ Glenn R. Jones
----------------------------------
Name. Glenn R. Jones
Title: Chief Executive Officer
BELL CANADA INTERNATIONAL INC.
By /s/ D H Burney
----------------------------------
Name: Derek H. Burney
Title: Chairman & Co.
JONES EDUCATION NETWORKS, INC.
By /s/ Glenn R. Jones
----------------------------------
Name: Glenn R. Jones
Title: Chief Executive Officer
21
<PAGE>
EXHIBIT A
---------
REGISTRATION RIGHTS
ARTICLE I
DEFINITIONS
SECTION 1.1. Definitions. (a) Terms defined in the Shareholders
-----------
Agreement (the "Agreement"). dated as of December 20, 1994 among Glenn R. Jones,
Jones International, Ltd., Bell Canada International Inc. ("Investor") and Jones
Education Networks, Inc. (the "Company") are used herein as therein defined.
(b) For purposes of this Exhibit A, the following terms have the
following meanings:
"BCE Shareholder" means, at any time, any BCE Group Entity that owns
shares of Capital Stock at such time and has agreed to be bound by the terms of
the Agreement.
"Registrable Securities" means any shares of Capital Stock owned by
Investor and any other BCE Group Entity.
"Selling Shareholder" means Investor and any other BCE Shareholder
that elects to sell any Registrable Securities pursuant to a Demand Registration
or a Piggy-Back Registration.
"Underwriter" means a securities dealer who purchases any Registrable
Securities as principal and not as part of such dealer's market-making
activities.
(c) For purposes of this Exhibit A, each of the following terms is
defined in the Section set forth opposite such term:
<TABLE>
<CAPTION>
TERM Section
---- -------
<S> <C>
Demand Registration 2.1
Indemnified Party 4.3
Indemnifying Party 4.3
Inspectors 3.1(g)
Piggy-Back Registration 2.2
</TABLE>
<PAGE>
Records 3.1(g)
Rule 144 5.2
ARTICLE II
REGISTRATION RIGHTS
SECTION 2.1. Demand Registration. (a) At any time after a Public
-------------------
Offering, one or more Selling Shareholders may make a written request for
registration under the Securities Act of all or part of the Registrable
Securities owned by such Selling Shareholder (a "Demand Registration"), provided
--------
that the Company shall not be obligated to effect (i) any Demand Registration
covering shares representing less than 2% of the outstanding Capital Stock on
the date hereof, (ii) more than one Demand Registration pursuant to the
provisions of this Section 2.1 in any nine-month period and (iii} more than
three Demand Registrations during the term of this Exhibit A. Any request for a
Demand Registration will specify the aggregate number of shares of Registrable
Securities proposed to be sold by the Selling Shareholder and will also specify
the intended method of disposition thereof.
(b) A registration will not count as a Demand Registration until it
has become effective. In addition, if more than 50% of the aggregate number of
Registrable Securities requested to be registered pursuant to this Section 2.1
are excluded from the offering in accordance with Section 2.3, such offering
will not count as a Demand Registration.
(c) If the offering of such Registrable Securities pursuant to such
Demand Registration is an underwritten offering, the Selling Shareholder shall
select the book-running managing Underwriter and any additional investment
bankers and managing Underwriters to be used in connection with the offering,
provided that such Underwriters and investment bankers must be reasonably
- --------
satisfactory to the Company.
SECTION 2.2. Piggy-Back Registration. If during the term of this
-----------------------
Agreement, the Company proposes to file a registration statement under the
Securities Act with respect to an offering of any shares of Capital Stock (i)
for the company's own account (other than a registration statement on Form S-4
or S-8 (or any substitute form that may be adopted by the SEC)) or (ii) for the
account of any of its respective securityholders, then the Company shall give
2
<PAGE>
written notice of such proposed filing to each Selling Shareholder as soon as
practicable (but in no event less than 10 days before the anticipated filing
date), and such notice shall offer each Selling Shareholder the opportunity to
register such number of shares of Registrable Securities as each Selling
Shareholder may request on the same terms and conditions as the proposed
offering (a "Piggy-Back Registration"). A Selling Shareholder will have five
business days after receipt of any such notice to notify the Company as to
whether it wishes to participate in a PiggyBack Registration and, if so, the
number of Registerable Securities proposed to be included in such offering. The
Company shall use its best efforts to cause the managing Underwriters of a
proposed underwritten offering to permit the Registrable Securities to be
included in a Piggy-Back Registration to be included on the same terms and
conditions as any similar securities of the Company included therein.
SECTION 2.3. Reduction of Offering. Notwithstanding anything
---------------------
contained herein, if the book-running managing Underwriter of an offering
described in Section 2.1 or Section 2.2 states that, in its good faith judgment
(i) the size of the offering that the Selling Shareholder, the Company and any
other Persons intend to make or (ii) the combination of securities that the
Selling Shareholder, the Company and such other Persons intend to include in
such offering are such that the success of the offering is reasonably likely to
be materially and adversely affected by the inclusion of the Registrable
Securities, then:
(a) if the size of the offering is the basis of such Underwriter's
opinion, the aggregate amount of Registrable Securities to be offered for the
account of the Selling Shareholders shall be reduced to the extent necessary to
reduce the total amount of securities to be included in such offering to the
amount recommended by such Underwriter, provided that (x) in the case of a
--------
Demand Registration, the amount of Registrable Securities to be offered for the
account of the Selling Shareholders shall be reduced only after the amount of
securities to be offered for the account of the Company and any other Persons
that are not Selling Shareholders has been reduced to zero, and (y) in the case
of a Piggy-Back Registration, if securities are being offered for the account of
Persons other than the Company, then the proportion by which the aggregate
amount of such Registrable Securities intended to be offered for the account of
the Selling Shareholders is reduced shall not exceed the proportion by which the
amount of such securities
3
<PAGE>
intended to be offered for the account of such other Persons is reduced; and
(b) if the combination of securities to be offered is the basis of
such Underwriter's opinion, the Registrable Securities to be included in such
offering shall be reduced as described in clause (a) above, except that in the
case of a Piggy-Back Registration, if the actions described in sub-clause (y) of
the proviso in such clause (a) would, in the judgment of the managing
Underwriter, be insufficient to substantially eliminate the adverse effect that
inclusion of the Registrable Securities requested to be included would have on
such offering, such Registrable Securities will be excluded from such offering.
SECTION 2.4. Registration ExPenses. In connection with any Demand
---------------------
Registration or Piggy-Back Registration, the Company shall pay the following
expenses incurred in connection with such registration: (i) all SEC, stock
exchange and National Association of Securities Dealers, Inc. registration and
filing fees, (ii) fees and expenses of compliance with securities or blue sky
laws (including reasonable fees and disbursements of counsel in connection with
blue sky qualifications of the Registrable Securities), (iii) printing expenses,
(iv) fees and expenses incurred in connection with the listing of the
Registrable Securities on the NASDAQ National Market System (or, if no shares of
Capital Stock are listed for trading on such system, such other principal
exchange or market where shares of Capital Stock are listed or otherwise
admitted for trading), (v) fees and expenses of counsel and independent
certified public accountants for the Company (including fees and expenses
associated with the delivery of special audits or comfort letters), (vi) the
reasonable fees and expenses of any additional experts retained by the Company
in connection with such registration and (vii) internal expenses of the Company
(including salaries and expenses of officers and employees). The Selling
Shareholder shall pay any underwriting fees, discounts or commissions
attributable to the sale of Registrable Securities.
ARTICLE III
REGISTRATION PROCEDURES
SECTION 3.1. Filings: Information. Whenever the Selling Shareholder
--------------------
requests that any Registrable Securities be registered pursuant to Article II
hereof, the Company will use its reasonable efforts to effect the registration
4
<PAGE>
and sale of such Registrable Securities in accordance with the requested method
of disposition thereof as promptly as reasonably practicable, and in connection
with any such request:
(a) The Company will as expeditiously as possible prepare and file
with the SEC a registration statement on any form for which the Company
then qualifies and which counsel for the Company shall deem appropriate and
available for the sale of the Registrable Securities to be registered
thereunder in accordance with the intended method of distribution thereof,
and use its reasonable efforts to cause such filed registration statement
to become and remain effective for a period of not more than six months (or
such shorter period which will terminate when all Registrable Securities
covered by such registration statement have been sold (but not before the
expiration of the period referred to in Section 4(3) of the Securities Act
and Rule 174 thereunder, if applicable)) after the date of the original
filing or such other period as is necessary to comply with the provisions
of the Securities Act, provided that if the Company shall furnish to the
--------
Selling Shareholder a certificate signed by the Company's Chairman,
President or any vice-President stating that in his good faith judgment it
would be detrimental or otherwise disadvantageous to the Company or its
shareholders for such a registration statement to be filed as expeditiously
as possible, the Company shall have a period of not more than 180 days
within which to file such registration statement measured from the date of
the Company's receipt of the Selling Shareholder's request for registration
in accordance with Section 2.1.
(b) The Company will, if requested, prior to filing such registration
statement or any amendment or supplement thereto, furnish to the Selling
Shareholder and each applicable managing Underwriter, if any, copies
thereof, and thereafter furnish to the Selling Shareholder and each such
Underwriter, if any, such number of copies of such registration statement,
amendment and supplement thereto (in each case including all exhibits
thereto and documents incorporated by reference therein) and the prospectus
included in such registration statement (including each preliminary
prospectus) as the Selling Shareholder or each such Underwriter may
reasonably request in order to facilitate the sale of the Registrable
Securities.
5
<PAGE>
(c) After the filing of the registration statement, the Company will
promptly notify the Selling Shareholder of any stop order issued or, to the
Company's knowledge, threatened to be issued by the SEC and take all
reasonable actions required to prevent the entry of such stop order or to
remove it if entered.
(d) The Company will use reasonable efforts to register or otherwise
qualify the Registrable Securities for offer and sale under such other
securities or blue sky laws of such jurisdictions in the United States as
the Selling Shareholder reasonably requests, and to do any and all other
acts and things that may be necessary or advisable to consummate the
requested disposition of the Registrable Securities, provided that the
--------
Company will not be required to (i) qualify generally to do business in any
jurisdiction where it would not otherwise be required to qualify but for
this paragraph (d), (ii) subject itself to taxation in any such
jurisdiction or (iii) consent to general service of process in any such
jurisdiction.
(e) The Company will as promptly as practicable notify the Selling
Shareholder, at any time when a prospectus relating to the sale of the
Registrable Securities is required by law to be delivered in connection
with sales by an Underwriter or dealer, of the occurrence of any event
requiring the preparation of a supplement or amendment to such prospectus
so that, as thereafter delivered to the purchasers of such Registrable
Securities, such prospectus will not contain an untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading and promptly make
available to the Selling Shareholder and to the Underwriters any such
supplement or amendment. The Selling Shareholder agrees that, upon receipt
of any notice from the Company of the occurrence of any event of the kind
described in the preceding sentence, the Selling Shareholder will forthwith
discontinue the offer and sale of Registrable Securities pursuant to the
registration statement covering such Registrable Securities until receipt
by the Selling Shareholder and the Underwriters of the copies of such
supplemented or amended prospectus. In the event the Company shall give
such notice, the Company shall extend the period during which such
registration statement shall be
6
<PAGE>
maintained effective as provided in Section 3.1(a) hereof by the number of
days during the period from and including the date of the giving of such
notice to the date when the Company shall make available to the Selling
Shareholder such supplemented or amended prospectus.
(f) The Company will enter into customary agreements (including an
underwriting agreement having representations and closing documents
consistent with underwriting agreements heretofore entered into by the
Company) and take such other actions as are reasonably required in order to
expedite or facilitate the sale of such Registrable Securities.
(g) The Company will make available for inspection by the Selling
Shareholder, any Underwriter participating in any disposition pursuant to
such registration statement and any attorney, accountant or other
professional retained by the Selling Shareholder or Underwriter
(collectively, the "Inspectors"), all financial and other records,
pertinent corporate documents and properties of the Company (collectively,
the "Records") as shall be reasonably necessary to enable them to exercise
their due diligence responsibility, and cause the Company's officers,
directors and employees to supply all information reasonably requested by
any Inspectors in connection with such registration statement. Records
which the Company determines, in good faith, to be confidential and which
it notifies the Inspectors are confidential shall not be disclosed by the
Inspectors unless (i) the disclosure of such Records is necessary to avoid
or correct a misstatement or omission in such registration statement or
(ii) the release of such Records is ordered pursuant to a subpoena or other
order from a court of competent jurisdiction. The Selling Shareholder
agrees that it will, upon learning that disclosure of such Records is
sought in a court of competent jurisdiction, give notice to the Company and
allow the Company, at its expense, to undertake appropriate action to
prevent disclosure of the Records deemed confidential.
(h) The Company will furnish to the Selling Shareholder and each
Underwriter a signed counterpart, addressed to the Selling Shareholder or
such Underwriter, of (i) an opinion or opinions of counsel to the Company
and (ii) a comfort letter or comfort letters from the Company's independent
public
7
<PAGE>
accountants, each in customary form and covering such matters of the type
customarily covered by opinions or comfort letters, as the case may be, as
the Selling Shareholder or the managing Underwriter reasonably requests.
(i) The Company will otherwise use its reasonable efforts to comply
with all applicable rules and regulations of the SEC, and make available to
its security holders, as soon as reasonably practicable, an earnings
statement covering a period of 12 months, beginning within three months
after the effective date of the registration statement, which earnings
statement shall satisfy the provisions of Section 11(a) of the Securities
Act and the rules and regulations of the SEC thereunder.
(j) The Company will use its reasonable efforts to cause all such
Registrable Securities to be listed on each securities exchange or trading
system on which similar securities issued by the Company are then listed.
The Company may require the Selling Shareholder to furnish in writing
to the Company such information regarding the Selling Shareholder, the plan of
distribution of the Registrable Securities and other information as the Company
may from time to time reasonably request or as may be legally required in
connection with such registration.
ARTICLE IV
INDEMNIFICATION AND CONTRIBUTION
SECTION 4.1. Indemnification by the Company. The Company agrees to
------------------------------
indemnify and hold harmless, to the extent permitted by law, the Selling
Shareholder, its officers and directors, and each Person, if any, who controls
the Selling Shareholder within the meaning of either Section 15 of the
Securities Act or Section 20 of the Exchange Act from and against any and all
losses, claims, damages and liabilities caused by any untrue statement or
alleged untrue statement of a material fact contained in any registration
statement or prospectus relating to the Registrable Securities (as amended or
supplemented if the Company shall have furnished any amendments or supplements
thereto) or any preliminary prospectus, or caused by any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading,
8
<PAGE>
except insofar as such losses, claims, damages or liabilities are caused by (i)
any such untrue statement or omission or alleged untrue statement or omission
based upon information furnished in writing to the Company by or on behalf of
the Selling Shareholder expressly for use therein or (ii) the Selling
Shareholder's failure to comply with a prospectus delivery requirement imposed
on it under applicable law, if any, including any failure to deliver, after
delivery of a preliminary prospectus, a prospectus containing corrected,
modified or amended disclosure with respect to any material fact. The Company
also agrees to indemnify any Underwriters of the Registrable Securities, their
officers and directors and each person who controls such Underwriters on
substantially the same basis as that of the indemnification of the Selling
Shareholder provided in this Section 4.1.
SECTION 4.2. Indemnification by the Selling Shareholder. The Selling
------------------------------------------
Shareholder agrees to indemnify and hold harmless the Company, its officers and
directors, and each Person, if any, who controls the Company within the meaning
of either Section 15 of the Securities Act or Section 20 of the Exchange Act to
the same extent as the foregoing indemnity from the Company to the Selling
Shareholder, but only with reference to information relating to the Selling
Shareholder or the plan of distribution furnished in writing by or on behalf of
the Selling Shareholder expressly for use in any registration statement or
prospectus relating to the Registrable Securities, or any amendment or
supplement thereto, or any preliminary prospectus. The Selling Shareholder also
agrees to indemnify and hold harmless any Underwriters of the Registrable
Securities, their officers and directors and each Person who controls such
Underwriters on substantially the same basis as that of the indemnification of
the Company provided in this Section 4.2.
SECTION 4.3. Conduct of Indemnification Proceedings. In case any
--------------------------------------
proceeding (including any governmental investigation) shall be instituted
involving any Person in respect of which indemnity may be sought pursuant to
Section 4.1 or Section 4.2, such Person (the "Indemnified Party") shall promptly
notify the Person against whom such indemnity may be sought (the "Indemnifying
Party") in writing and the Indemnifying Party, upon the request of the
Indemnified Party, shall assume the defense of such proceeding and retain
counsel reasonably satisfactory to such Indemnified Party to represent such
Indemnified Party and any others the Indemnifying Party may designate in such
proceeding and shall pay the fees and
9
<PAGE>
disbursements of such counsel related to such proceeding. In any such
proceeding, any Indemnified Party shall have the right to retain its own
counsel, but the fees and expenses of such counsel shall be at the expense of
such Indemnified Party unless (i) the Indemnifying Party and the Indemnified
Party shall have mutually agreed to the retention of such counsel or (ii) the
named parties to any such proceeding (including any impleaded parties) include
both the Indemnified Party and the Indemnifying Party and representation of both
parties by the same counsel would be inappropriate due to actual or potential
differing interests between them. It is understood that the Indemnifying Party
shall not, in connection with any proceeding or related proceedings in the same
jurisdiction, be liable for the fees and expenses of more than one separate firm
of attorneys (in addition to any local counsel) at any time for all such
Indemnified Parties, and that all such reasonable fees and expenses shall be
reimbursed as they are incurred. In the case of any such separate firm for the
Indemnified Parties, such firm shall be designated in writing by the Indemnified
Parties and shall be reasonably satisfactory to the Indemnifying Party. The
Indemnifying Party shall not be liable for any settlement of any proceeding
effected without its prior written consent, but if settled with such consent, or
if there be a final judgment for the plaintiff, the Indemnifying Party shall
indemnify and hold harmless such Indemnified Parties from and against any loss
or liability (to the extent stated above) by reason of such settlement or
judgment. Notwithstanding the foregoing sentence, if at any time an Indemnified
Party shall have requested an Indemnifying Party to reimburse the Indemnified
Party for fees and expenses of counsel as contemplated by the third sentence of
this paragraph, the Indemnifying Party agrees that it shall be liable for any
settlement of any proceeding effected without its written consent if (i) such
settlement is entered into more than 30 business days after receipt by such
Indemnifying Party of the aforesaid request and (ii) such Indemnifying Party
shall not have reimbursed the Indemnified Party in accordance with such request
prior to the date of such settlement. No Indemnifying Party shall, without the
prior written consent of the Indemnified Party, effect any settlement of any
pending or threatened proceeding in respect of which any Indemnified Party is or
could have been a party and indemnity could have been sought hereunder by such
Indemnified Party, unless such settlement includes an unconditional release of
such Indemnified Party from all liability arising out of such proceeding.
SECTION 4.4. Contribution. (a) If the indemnification provided for
------------
in this Article IV is
10
<PAGE>
unavailable to the Indemnified Parties in respect of any losses, claims, damages
or liabilities referred to herein, then each such Indemnifying Party, in lieu of
indemnifying such Indemnified Party, shall contribute to the amount paid or
payable by such Indemnified Party as a result of such losses, claims, damages or
liabilities (i) as between the Company and the Selling Shareholder on the one
hand and the Underwriters on the other, in such proportion as is appropriate to
reflect the relative benefits received by the Company and the Selling
Shareholder on the one hand and the Underwriters on the other from the offering
of the Registrable Securities, or if such allocation is not permitted by
applicable law, in such proportion as is appropriate to reflect not only the
relative benefits but also the relative fault of the Company and the Selling
Shareholder on the one hand and of the Underwriters on the other in connection
with the statements or omissions which resulted in such losses, claims, damages
or liabilities, as well as any other relevant equitable considerations and (ii)
as between the Company on the one hand and the Selling Shareholder on the other,
in such proportion as is appropriate to reflect the relative fault of the
Company and of the Selling Shareholder in connection with such statements or
omissions, as well as any other relevant equitable considerations.
(b) The relative benefits received by the Company and the Selling
Shareholder on the one hand and the Underwriters on the other shall be deemed to
be in the same proportion as the total proceeds from the offering (net of
underwriting discounts and commissions but before deducting expenses) received
by the Company and the Selling Shareholder bear to the total underwriting
discounts and commissions received by the Underwriters, in each case as set
forth in the table on the cover page of the prospectus. The relative fault of
the Company and the Selling Shareholder on the one hand and of the Underwriters
on the other shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information supplied by the
Company and the Selling Shareholder or by the Underwriters. The relative fault
of the Company on the one hand and of the Selling Shareholder on the other shall
be determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by such party, and the parties'
relative intent, knowledge, access to information and
11
<PAGE>
opportunity to correct or prevent such statement or omission.
(c) The Company and the Selling Shareholder agree that it would not
be just and equitable if contribution pursuant to this Section 4.4 were
determined by pro rata allocation (even if the Underwriters were treated as one
entity for such purpose) or by any other method of allocation which does not
take account of the equitable considerations referred to in the immediately
preceding paragraph. The amount paid or payable by an Indemnified Party as a
result of the losses, claims, damages or liabilities referred to in the
immediately preceding paragraph shall be deemed to include, subject to the
limitations set forth above, any legal or other expenses reasonably incurred by
such Indemnified Party in connection with investigating or defending any such
action or claim. Notwithstanding the provisions of this Article IV, no
Underwriter shall be required to contribute any amount in excess of the amount
by which the total price at which the Registrable Securities underwritten by it
and distributed to the public were offered to the public exceeds the amount of
any damages which such Underwriter has otherwise been required to pay by reason
of such untrue or alleged untrue statement or omission or alleged omission, and
the Selling Shareholder shall not be required to contribute any amount in excess
of the amount by which the total price at which the Registrable Securities were
offered to the public exceeds the amount of any damages which the Selling
Shareholder has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation.
ARTICLE V
MISCELLANEOUS
5.1. Participation in Underwritten Reaistrations. No Selling
-------------------------------------------
Shareholder may participate in any underwritten registered offering pursuant to
a Piggy-Back Registration unless it (a) agrees to sell its securities on the
basis provided in any underwriting arrangements approved by the Person entitled
to approve such arrangements and (b) completes and executes all questionnaires,
powers of attorney, indemnities, underwriting agreements and other
12
<PAGE>
documents reasonably required under the terms of such underwriting arrangements
and this Exhibit A.
5.2. Rule 144. The Company covenants that it will file any reports
--------
required to be filed by it under the Securities Act and the Exchange Act and
that it will take such further action as the Selling Shareholder may reasonably
request to the extent required from time to time to enable it to sell
Registrable Securities without registration under the Securities Act within the
limitation of the exemptions provided by Rule 144 under the Securities Act, as
such Rule may be amended from time to time, or any similar rule or regulation
hereafter adopted by the SEC ("Rule 144"). Upon the request of the Selling
Shareholder, the Company will deliver to it a written statement as to whether it
has complied with such reporting requirements.
5.3. Restrictions on Public Sale by the Sellina Shareholder. To the
------------------------------------------------------
extent not inconsistent with applicable law, if any Registrable Securities are
included in a Demand Registration or a Piggy-Back Registration, the Selling
Shareholder will agree not to effect any public sale or distribution of the
issue being registered or a similar security of the Company, or any securities
convertible into or exchangeable or exercisable for such securities, including a
sale pursuant to Rule 144, during the 14 days prior to, and during the 90-day
period beginning on, the effective date of such registration statement (except
as part of such registration), if and to the extent requested by the managing
Underwriter or Underwriters in the case of an underwritten offering.
5.4. Restrictions on Public Sale by the Company. The Company agrees,
------------------------------------------
if and to the extent requested by the managing Underwriter or Underwriters in
the case of an underwritten offering, not to effect any public sale or
distribution of any securities similar to those being registered in accordance
with a Demand Registration or a Piggy-Back Registration, or any securities
convertible into or exchangeable or exercisable for such securities, during the
14 days prior to, and during the 90-day period beginning on, the effective date
of any registration statement (except as part of such registration as permitted
by Article II) or the commencement of a public distribution of Registrable
Securities.
5.5. Successors and Assigns. In addition to the assignment rights
----------------------
granted pursuant to Section 7.2, the Selling Shareholders may transfer the
rights and obligations under this Exhibit A to an unaffiliated third party that
has
13
<PAGE>
not issued debt or equity interests to, nor invested in or lent money to,
Persons primarily engaged in the cable television, telecommunications or
educational programming businesses other than the Company or any of its
Subsidiaries, in connection with a transfer to such third party of all shares of
Capital Stock owned by all BCE Shareholders.
5.6 Termination. The registration rights granted under this Exhibit
-----------
A will terminate on the fifth anniversary of the Public Offering.
14
<PAGE>
Exhibit 4.3
REGISTRATION RIGHTS AGREEMENT
AGREEMENT dated as of August 7, 1996 among Glenn R. Jones, a resident of
Colorado, Jones International, Ltd., a Colorado corporation ("International")
and Jones Education Networks, Inc., a Colorado corporation (the "Company").
ARTICLE I
DEFINITIONS
SECTION 1.1. Definitions. (a) The following terms, as used herein, have
-----------
the following meanings:
"Affiliate" means, with respect to any Person, any other Person directly or
indirectly controlling, controlled by, or under common control with such Person.
"Capital Stock" means, at any time, the Class A Shares, the Class B Shares
and any other shares of authorized capital stock of the Company.
"Class A Shares" means the shares of Class A Common Stock, par value $0.01
per share, of the Company.
"Class B Shares" means the shares of Class B Common Stock, par value $0.01
per share, of the Company.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations promulgated thereunder.
"Governmental Authority" means any local, county, state, commonwealth,
federal or foreign court, judicial, executive, or legislative instrumentality,
or any agency, authority, commission, board or official thereof, including,
without limitation, any franchising authority.
"Person" means an individual, corporation, partnership, association, trust
or other entity or organization, including a government or political subdivision
or an agency or instrumentality thereof.
"Public Offering" means an underwritten public offering of Capital Stock
pursuant to an effective registration statement under the Securities Act.
"Registrable Securities" means any shares of Capital Stock owned by Glenn
R. Jones and/or Jones International, Ltd.
<PAGE>
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
"Selling Shareholder" means Glenn R. Jones or Jones International, Ltd. or
both of them.
"Subsidiary" means, as to any Person, (i) any entity of which securities or
other ownership interests having ordinary voting power to elect a majority of
the board of directors or other persons performing similar functions are,
directly or indirectly, owned or controlled by such Person, (ii) any partnership
of which such Person is, directly or indirectly, a general or managing partner
and (iii) any other entity that is, directly or indirectly, controlled by such
Person.
"Transfer" means, with respect to any securities, any direct or indirect
sale, assignment, transfer, grant of a participation in, pledge, gift or other
disposition thereof, without regard to whether such disposition is for
consideration.
"Underwriter" means a securities dealer who purchases any Registrable
Securities as principal and not as part of such dealer's market-making
activities.
(b) Each of the following terms is defined in the Section set forth
opposite such term:
<TABLE>
<CAPTION>
Term Section
------- -------
<S> <C>
Demand Registration 2.1
Indemnified Party 4.3
Indemnifying Party 4.3
Inspectors 3.1(g)
Piggy-Back Registration 2.2
Records 3.1(g)
Rule 144 5.2
</TABLE>
ARTICLE II
REGISTRATION RIGHTS
SECTION 2.1. Demand Registration. (a) At any time after a Public
-------------------
Offering, a Selling Shareholder may make a written request for registration
under the Securities Act of all or part of the Registrable Securities owned by
such Selling Shareholder (a "Demand Registration"), provided that the Company
--------
shall not be obligated to effect (i) any Demand Registration covering shares
representing less than
-2-
<PAGE>
2% of the outstanding Capital Stock on the date hereof, (ii) more than one
Demand Registration pursuant to the provisions of this Section 2.1 in any nine-
month period and (iii) more than three Demand Registrations during the term of
this Agreement. Any request for a Demand Registration will specify the aggregate
number of shares of Registrable Securities proposed to be sold by the Selling
Shareholder and will also specify the intended method of disposition thereof.
(b) A registration will not count as a Demand Registration until it
has become effective. In addition, if more than 50% of the aggregate number of
Registrable Securities requested to be registered pursuant to this Section 2.1
are excluded from the offering in accordance with Section 2.3, such offering
will not count as a Demand Registration.
(c) If the offering of such Registrable Securities pursuant to such
Demand Registration is an underwritten offering, the Selling Shareholder shall
select the book-running managing Underwriter and any additional investment
bankers and managing Underwriters to be used in connection with the offering,
provided that such Underwriters and investment bankers must be reasonably
- --------
satisfactory to the Company.
SECTION 2.2. Piggy-Back Registration. If during the term of this
-----------------------
Agreement, the Company proposes to file a registration statement under the
Securities Act with respect to an offering of any shares of Capital Stock (i)
for the Company's own account (other than a registration statement on Form S-4
or S-8 (or any substitute form that may be adopted by the SEC) or (ii) for the
account of any of its respective security holders, then the Company shall give
written notice of such proposed filing to the Selling Shareholders as soon as
practicable (but in no event less than 10 days before the anticipated filing
date), and such notice shall offer each of them the opportunity to register such
number of shares of Registrable Securities as each of them may request on the
same terms and conditions as the proposed offering (a "Piggy-Back
Registration"). The Selling Shareholders will have five business days after
receipt of any such notice to notify the Company as to whether they wish to
participate in a Piggy-Back Registration and, if so, the number of Registerable
Securities proposed to be included in such offering. The Company shall use its
best efforts to cause the managing Underwriters of a proposed underwritten
offering to permit the Registrable Securities to be included in a Piggy-Back
Registration to be included on the same terms and conditions as any similar
securities of the Company included therein.
SECTION 2.3. Reduction of Offering. Notwithstanding anything
---------------------
contained herein, if the book-running managing Underwriter of an offering
described in Section 2.1 or Section 2.2 states that, in its good faith judgment
(i) the size of the offering that the Selling Shareholders, the Company and any
other Persons intend to make or (ii) the combination of securities that the
Selling Shareholders, the Company and such other Persons intend to include in
such offering are such that the success of the offering is reasonably likely to
be materially and adversely affected by the inclusion of the Registrable
Securities, then:
-3-
<PAGE>
(a) if the size of the offering is the basis of such Underwriter's
opinion, the aggregate amount of Registrable Securities to be offered for the
account of the Selling Shareholders shall be reduced to the extent necessary to
reduce the total amount of securities to be included in such offering to the
amount recommended by such Underwriter, provided that (x) in the case of a
--------
Demand Registration, the amount of Registrable Securities to be offered for the
account of the Selling Shareholders shall be reduced only after the amount of
securities to be offered for the account of the Company and any other Persons
that are not Selling Shareholders has been reduced to zero, and (y) in the case
of a Piggy-Back Registration, if securities are being offered for the account of
Persons other than the Company, then the proportion by which the aggregate
amount of such Registrable Securities intended to be offered for the account of
the Selling Shareholders is reduced shall not exceed the proportion by which the
amount of such securities intended to be offered for the account of such other
Persons is reduced; and
(b) if the combination of securities to be offered is the basis of
such Underwriter's opinion, the Registrable Securities to be included in such
offering shall be reduced as described in clause (a) above, except that in the
case of a Piggy-Back Registration, if the actions described in sub-clause (y) of
the proviso in such clause (a) would, in the judgment of the managing
Underwriter, be insufficient to substantially eliminate the adverse effect that
inclusion of the Registrable Securities requested to be included would have on
such offering, such Registrable Securities will be excluded from such offering.
SECTION 2.4. Registration Expenses. In connection with any Demand
---------------------
Registration or Piggy-Back Registration, the Company shall pay the following
expenses incurred in connection with such registration: (i) all SEC, stock
exchange and National Association of Securities Dealers, Inc. registration and
filing fees, (ii) fees and expenses of compliance with securities or blue sky
laws (including reasonable fees and disbursements of counsel in connection with
blue sky qualifications of the Registrable Securities), (iii) printing expenses,
(iv) fees and expenses incurred in connection with the listing of the
Registrable Securities on the NASDAQ National Market System (or, if no shares of
Capital Stock are listed for trading on such system, such other principal
exchange or market where shares of Capital Stock are listed or otherwise
admitted for trading), (v) fees and expenses of counsel and independent
certified public accountants for the Company (including fees and expenses
associated with the delivery of special audits or comfort letters), (vi) the
reasonable fees and expenses of any additional experts retained by the Company
in connection with such registration and (vii) internal expenses of the Company
(including salaries and expenses of officers and employees). The Selling
Shareholders shall pay any underwriting fees, discounts or commissions
attributable to the sale of Registrable Securities.
-4-
<PAGE>
ARTICLE III
REGISTRATION PROCEDURES
SECTION 3.1. Filings; Information. Whenever a Selling Shareholder
--------------------
requests that any Registrable Securities be registered pursuant to Article II
hereof, the Company will use its reasonable efforts to effect the registration
and sale of such Registrable Securities in accordance with the requested method
of disposition thereof as promptly as reasonably practicable, and in connection
with any such request:
(a) The Company will as expeditiously as possible prepare and file
with the SEC a registration statement on any form for which the Company
then qualifies and which counsel for the Company shall deem appropriate and
available for the sale of the Registrable Securities to be registered
thereunder in accordance with the intended method of distribution thereof,
and use its reasonable efforts to cause such filed registration statement
to become and remain effective for a period of not more than six months (or
such shorter period which will terminate when all Registrable Securities
covered by such registration statement have been sold (but not before the
expiration of the period referred to in Section 4(3) of the Securities Act
and Rule 174 thereunder, if applicable)) after the date of the original
filing or such other period as is necessary to comply with the provisions
of the Securities Act, provided that if the Company shall furnish to the
--------
Selling Shareholders a certificate signed by the Company's Chairman,
President or any Vice President stating that in his or her good faith
judgment it would be detrimental or otherwise disadvantageous to the
Company or its shareholders for such a registration statement to be filed
as expeditiously as possible, the Company shall have a period of not more
than 180 days within which to file such registration statement measured
from the date of the Company's receipt of the Selling Shareholder's request
for registration in accordance with Section 2.1.
(b) The Company will, if requested, prior to filing such registration
statement or any amendment or supplement thereto, furnish to the Selling
Shareholders and each applicable managing Underwriter, if any, copies
thereof, and thereafter furnish to the Selling Shareholders and each such
Underwriter, if any, such number of copies of such registration statement,
amendment and supplement thereto (in each case including all exhibits
thereto and documents incorporated by reference therein) and the prospectus
included in such registration statement (including each preliminary
prospectus) as the Selling Shareholder or each such Underwriter may
reasonably request in order to facilitate the sale of the Registrable
Securities.
(c) After the filing of the registration statement, the Company will
promptly notify the Selling Shareholders of any stop order issued or, to
the Company's knowledge, threatened to be issued by the SEC and take all
-5-
<PAGE>
reasonable actions required to prevent the entry of such stop order or to
remove it if entered.
(d) The Company will use reasonable efforts to register or otherwise
qualify the Registrable Securities for offer and sale under such other
securities or blue sky laws of such jurisdictions in the United States as
the Selling Shareholder reasonably requests, and to do any and all other
acts and things that may be necessary or advisable to consummate the
requested disposition of the Registrable Securities, provided that the
--------
Company will not be required to (i) qualify generally to do business in any
jurisdiction where it would not otherwise be required to qualify but for
this paragraph (d), (ii) subject itself to taxation in any such
jurisdiction or (iii) consent to general service of process in any such
jurisdiction.
(e) The Company will as promptly as practicable notify the Selling
Shareholders, at any time when a prospectus relating to the sale of the
Registrable Securities is required by law to be delivered in connection
with sales by an Underwriter or dealer, of the occurrence of any event
requiring the preparation of a supplement or amendment to such prospectus
so that, as thereafter delivered to the purchasers of such Registrable
Securities, such prospectus will not contain an untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading and promptly make
available to the Selling Shareholders and to the Underwriters any such
supplement or amendment. The Selling Shareholders agree that, upon receipt
of any notice from the Company of the occurrence of any event of the kind
described in the preceding sentence, the Selling Shareholders will
forthwith discontinue the offer and sale of Registrable Securities pursuant
to the registration statement covering such Registrable Securities until
receipt by the Selling Shareholders and the Underwriters of the copies of
such supplemented or amended prospectus. In the event the Company shall
give such notice, the Company shall extend the period during which such
registration statement shall be maintained effective as provided in Section
3.1(a) hereof by the number of days during the period from and including
the date of the giving of such notice to the date when the Company shall
make available to the Selling Shareholder such supplemented or amended
prospectus.
(f) The Company will enter into customary agreements (including an
underwriting agreement having representations and closing documents
consistent with underwriting agreements heretofore entered into by the
Company) and take such other actions as are reasonably required in order to
expedite or facilitate the sale of such Registrable Securities.
(g) The Company will make available for inspection by the Selling
Shareholders, any Underwriter participating in any disposition pursuant to
such
-6-
<PAGE>
registration statement and any attorney, accountant or other professional
retained by the Selling Shareholders or Underwriter (collectively, the
"Inspectors"), all financial and other records, pertinent corporate
documents and properties of the Company (collectively, the "Records") as
shall be reasonably necessary to enable them to exercise their due
diligence responsibility, and cause the Company's officers, directors and
employees to supply all information reasonably requested by any Inspectors
in connection with such registration statement. Records which the Company
determines, in good faith, to be confidential and which it notifies the
Inspectors are confidential shall not be disclosed by the Inspectors unless
(i) the disclosure of such Records is necessary to avoid or correct a
misstatement or omission in such registration statement or (ii) the release
of such Records is ordered pursuant to a subpoena or other order from a
court of competent jurisdiction. The Selling Shareholders agree that they
will, upon learning that disclosure of such Records is sought in a court of
competent jurisdiction, give notice to the Company and allow the Company,
at its expense, to undertake appropriate action to prevent disclosure of
the Records deemed confidential.
(h) The Company will furnish to the Selling Shareholders and each
Underwriter a signed counterpart, addressed to the Selling Shareholders or
such Underwriter, of (i) an opinion or opinions of counsel to the Company
and (ii) a comfort letter or comfort letters from the Company's
independent public accountants, each in customary form and covering such
matters of the type customarily covered by opinions or comfort letters, as
the case may be, as the Selling Shareholders or the managing Underwriter
reasonably requests.
(i) The Company will otherwise use its reasonable efforts to comply
with all applicable rules and regulations of the SEC, and make available
to its security holders, as soon as reasonably practicable, an earnings
statement covering a period of 12 months, beginning within three months
after the effective date of the registration statement, which earnings
statement shall satisfy the provisions of Section 11(a) of the Securities
Act and the rules and regulations of the SEC thereunder.
(j) The Company will use its reasonable efforts to cause all such
Registrable Securities to be listed on each securities exchange or trading
system on which similar securities issued by the Company are then listed.
The Company may require the Selling Shareholders to furnish in writing
to the Company such information regarding the Selling Shareholders, the plan of
distribution of the Registrable Securities and other information as the Company
may from time to time reasonably request or as may be legally required in
connection with such registration.
-7-
<PAGE>
ARTICLE IV
INDEMNIFICATION AND CONTRIBUTION
SECTION 4.1. Indemnification by the Company. The Company agrees to
------------------------------
indemnify and hold harmless, to the extent permitted by law, the Selling
Shareholders, their officers and directors, and each Person, if any, who
controls the Selling Shareholders within the meaning of either Section 15 of the
Securities Act or Section 20 of the Exchange Act from and against any and all
losses, claims, damages and liabilities caused by any untrue statement or
alleged untrue statement of a material fact contained in any registration
statement or prospectus relating to the Registrable Securities (as amended or
supplemented if the Company shall have furnished any amendments or supplements
thereto) or any preliminary prospectus, or caused by any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, except insofar as such
losses, claims, damages or liabilities are caused by (i) any such untrue
statement or omission or alleged untrue statement or omission based upon
information furnished in writing to the Company by or on behalf of the Selling
Shareholders expressly for use therein or (ii) the Selling Shareholders' failure
to comply with a prospectus delivery requirement imposed on them under
applicable law, if any, including any failure to deliver, after deliver of a
preliminary prospectus, a prospectus containing corrected, modified or amended
disclosure with respect to any material fact. The Company also agrees to
indemnify any Underwriters of the Registrable Securities, their officers and
directors and each person who controls such Underwriters on substantially the
same basis as that of the indemnification of the Selling Shareholders provided
in this Section 4.1.
SECTION 4.2. Indemnification by the Selling Shareholders. The
---------------------------------------------
Selling Shareholders agree to indemnify and hold harmless the Company, its
officers and directors, and each Person, if any, who controls the Company within
the meaning of either Section 15 of the Securities Act or Section 20 of the
Exchange Act to the extent as the foregoing indemnity from the Company to the
Selling Shareholders, but only with reference to information relating to the
Selling Shareholders or the plan of distribution furnished in writing by or on
behalf of the Selling Shareholders expressly for use in any registration
statement or prospectus relating to the Registrable Securities, or any amendment
or supplement thereto, or any preliminary prospectus. The Selling Shareholders
also agree to indemnify and hold harmless any Underwriters of the Registrable
Securities, their officers and directors and each Person who controls such
Underwriters on substantially the same basis as that of the indemnification of
the Company provided in this Section 4.2.
SECTION 4.3. Conduct of Indemnification Proceedings. In case any
--------------------------------------
proceeding (including any governmental investigation) shall be instituted
involving any Person in respect of which indemnity may be sought pursuant to
Section 4.1 or Section 4.2, such Person (the "Indemnified Party") shall promptly
notify the Person against
-8-
<PAGE>
whom such indemnity may be sought (the "Indemnifying Party") in writing and the
Indemnifying Party, upon the request of the Indemnified Party, shall assume the
defense of such proceeding and retain counsel reasonably satisfactory to such
Indemnified Party to represent such Indemnified Party and any others the
Indemnifying Party may designate in such proceeding and shall pay the fees and
disbursements of such counsel related to such proceeding. In any such
proceeding, any Indemnified Party shall have the right to retain its own
counsel, but the fees and expenses of such counsel shall be at the expense of
such Indemnified Party unless (i) the Indemnifying Party and the Indemnified
Party shall have mutually agreed to the retention of such counsel or (ii) the
named parties to any such proceeding (including any impleaded parties) include
both the Indemnified Party and the Indemnifying Party and representation of both
parties by the same counsel would be inappropriate due to actual or potential
differing interests between them. It is understood that the Indemnifying Party
shall not, in connection with any proceeding or related proceedings in the same
jurisdiction, be liable for the fees and expenses of more than one separate firm
of attorneys ( in addition to any local counsel) at any time for all such
Indemnified Parties, and that all such reasonable fees and expenses shall be
reimbursed as they are incurred. In the case of any such separate firm for the
Indemnified Parties, such firm shall be designated in writing by the Indemnified
Parties and shall be reasonably satisfactory to the Indemnifying Party. The
Indemnifying Party shall not be liable for any settlement of any proceeding
effected without its prior written consent, but if settled with such consent, or
if there be a final judgment for the plaintiff, the Indemnifying Party shall
indemnify and hold harmless such Indemnified Parties from and against any loss
or liability (to the extent stated above) by reason of such settlement or
judgment. Notwithstanding the foregoing sentence, if at any time an Indemnified
Party shall have requested an Indemnifying Party to reimburse the Indemnified
Party for fees and expenses of counsel as contemplated by the third sentence of
this paragraph, the Indemnifying Party agrees that it shall be liable for any
settlement of any proceeding effected without its written consent if (i) such
settlement is entered into more than 30 business days after receipt by such
Indemnifying Party of the aforesaid request and (ii) such Indemnifying Party
shall not have reimbursed the Indemnified Party in accordance with such request
prior to the date of such settlement. No Indemnifying Party shall without the
prior written consent of the Indemnified Party, effect any settlement of any
pending or threatened proceeding in respect of which any Indemnified Party is or
could have been a party and indemnity could have sought hereunder by such
Indemnified Party, unless such settlement includes an unconditional release of
such Indemnified Party from all liability arising out of such proceedings.
SECTION 4.4. Contribution. (a) If the indemnification provided for
------------
in this Article IV is unavailable to the Indemnified Parties in respect of any
losses, claims, damages or liabilities referred to herein, then each such
Indemnifying Party, in lieu of indemnifying such Indemnified Party, shall
contribute to the amount paid or payable by such Indemnified Party as a result
such losses, claims, damages or liabilities (i) as between the Company and the
Selling Shareholders on the one hand and the Underwriters on the other, in such
proportion as is appropriate to reflect the relative benefits received by the
Company and the Selling Shareholders on the one hand and the Underwriters on the
other from the offering of the Registrable Securities, or if such allocation is
not permitted by applicable law, in such proportion as is appropriate to reflect
not only the relative
-9-
<PAGE>
benefits but also the relative fault of the Company and
the Selling Shareholders on the one hand and of the Underwriters on the other in
connection with the statements or omissions which resulted in such losses,
claims, damages or liabilities, as well as any other relevant equitable
considerations and (ii) as between the Company on the one hand and the Selling
Shareholders on the other, in such proportion as is appropriate to reflect the
relative fault of the Company and of the Selling Shareholders in connection with
such statements or omissions, as well as any other relevant equitable
considerations.
(b) The relative benefits received by the Company and the Selling
Shareholders on the one hand and the Underwriters on the other shall be deemed
to be in the same proportion as the total proceeds from the offering (net of
Underwriting discounts and commissions but before deducting expenses) received
by the Company and the Selling Shareholder bear to the total underwriting
discounts and commissions received by the Underwriters, in each case as set
forth in the table on the cover page of the prospectus. The relative fault of
the Company and the Selling Shareholder on the one hand and of the Underwriters
on the other shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information supplied by the
Company and the Selling Shareholders or by the Underwriters. The relative fault
of the Company on the one hand and of the Selling Shareholders on the other
shall be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or omission or alleged omission to
state a material fact relates to information supplied by such party, and
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission.
(c) The Company and the Selling Shareholders agree that it would not
be just and equitable if contribution pursuant to this Section 4.4 were
determined by pro rata allocation (even if the Underwriters were treated as one
entity for such purpose) or by any other method of allocation which does not
take account of the equitable considerations referred to in the immediately
preceding paragraph. The amount paid or payable by an Indemnified Party as the
result of the losses, claims, damages or liabilities referred to in the
immediately preceding paragraph shall be deemed to include, subject to the
limitations set forth above, any legal or other expense reasonably incurred by
such Indemnified Party in connection with investigating or defending any such
action or claim. Notwithstanding the provisions of this Article IV, no
Underwriter shall be required to contribute any amount in excess of the amount
by which the total price at which the Registrable Securities underwritten by it
and distributed to the public were offered to the public exceeds the amount of
any damages which such Underwriter has otherwise been required to pay by reason
of such untrue or alleged untrue statement or omission or alleged omission, and
the Selling
-10-
<PAGE>
Shareholders shall not be required to contribute any amount in
excess of the amount by which the total price at which the Registrable
Securities were offered to the public exceeds the amount of any damages which
the Selling Shareholder has otherwise been required to pay by reason of such
untrue or alleged untrue statement or omission or alleged omission. No person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from any person who was
not guilty of such fraudulent misrepresentation.
ARTICLE V
MISCELLANEOUS
SECTION 5.1. Participation in Underwritten Registrations. No Selling
-------------------------------------------
Shareholder may participate in any underwritten registered offering pursuant to
a Piggy-Back Registration unless it (a) agrees to sell its securities on the
basis provided in any underwriting arrangements approved by the Person entitled
to approve such arrangements and (b) completes and executes all questionnaires,
powers of attorney, indemnities, underwriting agreements and other documents
reasonably required under the terms of such underwriting arrangements and this
Agreement.
5.2 Rule 144. The Company covenants that it will file any reports
--------
required to be filed by it under the Securities Act and the Exchange Act and
that it will take such further action as the Selling Shareholders may reasonably
request to the extent required from time to time to enable them to sell
Registrable Securities without registration under the Securities Act within the
limitation of the exemptions provided by Rule 144 under the Securities Act, as
such Rule may be amended from time to time, or any similar rule or regulation
hereafter adopted by the SEC ("Rule 144"). Upon the request of any Selling
Shareholder, the Company will deliver to it a written statement as to whether
the Company has complied with such reporting requirements.
5.3 Restrictions on Public Sale by the Selling Shareholders. To the
--------------------------------------------------------
extend not inconsistent with applicable law, if any Registrable Securities are
included in a Demand Registration or a Piggy-Back Registration, the Selling
Shareholder will agree not to effect any public sale or distribution of the
issue being registered or a similar security of the Company, or any securities
convertible into or exchangeable or exercisable for such securities, including a
sale pursuant to Rule 144, during the 14 days prior to, and during the 90-day
period beginning on, the effective date of such registration), if and to the
extent requested by the managing Underwriter or Underwriters in the case of an
underwritten offering.
5.4 Restrictions on Public Sale by the Company. The Company agrees,
------------------------------------------
if and to the extent requested by the managing Underwriter or Underwriters in
the case of an underwritten offering, not to effect any public sale or
distribution of any securities similar to those being registered in accordance
with a Demand Registration or a Piggy-Back Registration, or any securities
convertible into or exchangeable or
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<PAGE>
exercisable for such securities, during the 14 days prior to, and during the 90-
day period beginning on, the effective date of any registration statement
(except as part of such registration as permitted by Article II) or the
commencement of a public distribution of Registrable Securities.
5.5 Successors and Assigns. The Selling Shareholders may transfer
----------------------
the rights and obligations under this Agreement to any Affiliate or Subsidiary
of the Selling Shareholders.
5.6 Termination. The registration rights granted under this
-----------
Agreement will terminate on the fifth anniversary of the Public Offering.
IN WITNESS WHEREOF, the undersigned have executed this Agreement
as of the date set forth above.
/s/ Glenn R. Jones
-----------------------------------------------
Glenn R. Jones, Individually
JONES INTERNATIONAL, LTD.,
a Colorado corporation
By:/s/ Glenn R. Jones
--------------------------------------------
Glenn R. Jones, President
JONES EDUCATION NETWORKS, INC.,
a Colorado corporation
By:/s/ Wallace W. Griffin
--------------------------------------------
Wallace W. Griffin, President
(25102)
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<PAGE>
Exhibit 10.6
PRODUCTION AGREEMENT
--------------------
This Production Agreement ("Agreement") is made this 1st day of September,
1995, by and between Jones Education Networks, Inc., a Colorado corporation
("JEN"), and The Chronicle Publishing Company ("Producer").
RECITALS
--------
A. JEN, through its subsidiaries and affiliates, including Jones Computer
Network, Inc. ("JCN") and Mind Extension University, Inc. ("ME/U"), makes
available for distribution to cable television system operators and others
certain programming.
B. JEN desires to engage Producer to produce a television series entitled
New Media News (the "Series"), and Producer is willing to produce the Series for
JEN, all on the terms and conditions set forth in this Agreement.
AGREEMENTS
----------
NOW, THEREFORE, in consideration of the foregoing and the mutual agreements
and covenants contained herein, the parties hereby agree as follows:
1. Description of the Series. The Series shall have a focus and content
-------------------------
substantially as described on Exhibit A hereto. For purposes of this Agreement,
---------
a "season" of the Series shall consist of (i) 26 weeks of original episodes
(three episodes per week, 23 minutes of content per episode), and (iii) 13 weeks
of Repurposed Episodes (three episodes per week, 23 minutes of content per
episode). "Repurposed Episodes" means episodes consisting of remixed packages
from the current season's production, together with new wraps for the remixed
packages. A" package" means a complete news report of approximately one to four
minutes in length. Producer shall incorporate no fewer than eight new packages
consisting of original material into each season's Repurposed Episodes.
2. Producer's Services. Producer shall be solely responsible for the
-------------------
production and timely delivery of the Series, subject to the consulting and
approval rights of JEN as provided in this Agreement. In this regard,
Producer's services shall include the following:
(a) creating all scripts and programming content;
(b) employing and supervising the production staff, technical crew,
"on-air" talent and other personnel required for the production of the Series;
<PAGE>
(c) furnishing all studio facilities, technical equipment and personnel
necessary to produce a Series of a quality acceptable for a first-class U.S.
cable network;
(d) obtaining all necessary rights, clearances, releases and licenses
(including but not limited to those required from performers, musicians,
writers, directors, and other personnel, and copyright owners and other
suppliers of copyrighted elements), in accordance with applicable laws and
regulations, union or guild requirements and contractual requirements, to
exploit the Series in the United States in all traditional television formats
(including but not limited to free, pay, cable and subscription);
(e) using all reasonable efforts (i) to obtain all necessary rights,
clearances, releases, and licenses for distribution of the Series in
nontheatrical home video media and interactive multimedia formats, as well as
other media, throughout the world, provided that JEN agrees and acknowledges
that if Producer is unable to secure any such rights and clearances then JEN
shall have the obligation of securing such rights and clearances prior to any
distribution or exploitation, and (ii) in any event, to minimize JEN's financial
exposure with respect to obtaining such rights and clearances; and
(f) delivering the Series on a timely basis in accordance with the terms
and specifications set forth in this Agreement.
3. Production Responsibilities.
---------------------------
(a) JEN shall have the right of approval during all phases of the
production process for the Pilot. JEN acknowledges that as of the date of this
Agreement, the Pilot has been delivered and approved by JEN. JEN shall in
addition have the right of approval with respect to the graphics package
incorporated into the Series, major on-screen talent roles, and the general
concepts of the episode themes of the Series. The parties anticipate that
during the production of the Series episodes, JEN shall have comments and
suggestions for future episodes based on JEN's viewing of completed episodes.
JEN shall have the right to request changes or modificaitons to the Series
resulting from such viewings, which changes or modifications shall be subject to
subparagraph (c) below.
(b) JEN shall exercise its approval rights in a manner that is consistent
with the budget for the Series. The parties agree and acknowledge that the
Series shall be produced in accordance with the specification set out in
Exhibit A,
- ---------
-2-
<PAGE>
and generally up to the standard established in the Pilot. JEN shall not
unreasonably withhold or delay any approvals under this Agreement. Failure by
JEN to give either its approval or disapproval within five business days after
submission by Producer shall be deemed an approval of the submission. Once JEN
has rendered a specific approval (or once an approval has been deemed given),
the approval may not be withdrawn, except to the extent that Producer so agrees
in writing. Producer may condition its agreement on payment by JEN of all costs
and expenses resulting from the withdrawal of such approval. At JEN's option
and expense, JEN may have up to two representatives during production at
Producer's facilities, provided that any such representatives comply with
Producer's policies and rules with respect to safety, confidentiality and the
like.
(c) If JEN requests changes or modifications to the Series, Producer shall
be obligated to implement such changes or modifications only on a prospective
basis. If JEN requests that Producer (i) produce episodes that exceed the
number and type specified in Section 1 of this Agreement, (ii) use a second
anchor in the production of the Series, or (iii) make material changes with
respect to the styles, content, or format of the episodes that significantly
impact the specifications and budget for the Series, then Producer shall provide
JEN with a good faith estimate of the additional payments required with respect
to the implementation of the request. If JEN decides to proceed with
implementation of the request, JEN shall so notify Producer in writing.
Notwithstanding anything to the contrary in this Agreement, Producer
acknowledges and agrees that Producer shall be fully responsible for the
implementation of any changes required to correct mistakes or otherwise
materially deficient performance by Producer.
(c) All persons rendering services in the production of the Series shall be
employees of Producer (or independent contractors furnishing services or
products of others), and JEN shall have no responsibility or obligations as a
employer of such persons. All agreements pursuant to which Producer employs or
engages personnel or acquires product shall contain provisions assigning all
copyright interests to Producer. Producer shall obtain and keep in force
workmen's compensation, disability and errors and omissions blanket insurance
with rates, limits and deductibles standard in the U.S. television industry
covering such persons and shall be responsible for all withholding taxes, other
taxes, contributions to Social Security and any other deductions and
contributions that may be required by any applicable law or agreement. Producer
shall hold JEN harmless from and indemnify JEN against any claims made or
expenses incurred (including reasonable attorneys' fees and costs) in connection
with any such obligations, taxes, deductions or contributions.
-3-
<PAGE>
4. Delivery Materials. Delivery of the Pilot or an episode of the Series
------------------
shall consist of delivery to JEN, shipping and insurance charges prepaid, of
each of the following items:
(a) two Betacam SP masters with separate music and effects tracks;
(b) a copy of the most recent script available to Producer;
(c) a written certification signed by an authorized representative of
Producer that all clearances, releases and licenses necessary to produce and
exploit the episode in accordance with Section 2(d) hereof have been secured;
(d) an assignment of rights substantially in the form of Exhibit B
---------
hereto (the "Assignment Form"); and
(e) a list of the companies appearing on each episode and customer
service or fulfillment telephone number, if any, for products appearing on the
episode; and
(f) a written description (no more than a paragraph in length) of the
content of each episode.
5. Delivery and Payment Schedule.
--------------------------------
(a) Producer shall deliver the three episodes for the first week of the
Series to JEN on or before September 7, 1995, and shall thereafter deliver to
JEN three additional episodes at the end of each seven-day period until 39 total
weeks of original and Repurposed Episodes have been delivered. Producer and JEN
shall jointly determine the delivery dates for the Repurposed Episodes;
provided, however, that if Producer and JEN are unable to agree on such delivery
dates, Producer shall deliver the episodes as follows: 13 weeks of original
episodes commencing September 7, 1995, followed by six weeks of Repurposed
Episodes, followed by 13 weeks of original episodes, followed by seven weeks of
Repurposed Episodes. Producer acknowledges that time is of the essence with
respect to the foregoing delivery obligations.
(b) Subject to the full performance by Producer of its material
obligations under this Agreement, JEN shall pay to Producer for the production
of the Series a flat fee of $986,000 (the "Production Fee"), payable by check or
wire transfer of immediately available funds to Producer as follows:
-4-
<PAGE>
(i) 25% of the Production Fee not later than five days after the
execution and delivery of this Agreement;
(ii) 25% of the Production Fee not later than 10 days after the receipt by
JEN of the materials identified in Section 4 of this Agreement for each episode
of the first 13 weeks of the Series;
(iii) 25% of the Production Fee not later than 10 days after the receipt
by JEN of the materials identified in Section 4 of this Agreement for each
episode of weeks 14 through 26 of the Series; and
(iv) 25% of the Production Fee not later than 10 days after the receipt by
JEN of the materials identified in Section 4 of this Agreement for each episode
of weeks 27 through 39 of the Series.
6. Rights in the Series; Credits.
-----------------------------
(a) Ownership of Rights. JEN shall be the sole and exclusive owner of
-------------------
all rights, including copyrights, throughout the world, in and to the Pilot and
each episode of the Series and, as such owner, shall have the sole and exclusive
right to distribute, exhibit, transmit, license, modify, repurpose and otherwise
exploit the Pilot and Series in all media, whether now known or hereafter
devised, throughout the world. Producer acknowledges and agrees that it is being
commissioned by JEN to render its services under this Agreement and, for
copyright purposes, JEN shall be deemed an employer of a work-made-for-hire and
the author of the Pilot and all episodes of the Series. Producer shall execute
and deliver the Assignment Form and such other assignments and instruments as
JEN may from time to time deem reasonably necessary or desirable to evidence,
maintain, exploit, enforce or defend its right and title in or to any such
material.
(b) Copyright Notice. Producer shall include after the credits in the
----------------
Pilot and each episode of the Series the following proprietary legend:
(C) [year of first publication] JONES EDUCATION NETWORKS, INC.
ALL RIGHTS RESERVED
(c) JEN shall approve the final credits for the Pilot and each episode
of the Series. Each episode of the Series shall carry the following credits and
notices: (i) all credits as may be required by contracts with third parties
(e.g., performers, musicians, directors and copyright owners); (ii) a credit on
the first card end titles for Jon Clark as Executive-in-Charge of Productions
for JEN; (iii) a
-5-
<PAGE>
presentation credit on the last card on screen as follows, "A Jones Education
Networks, Inc. Presentation"; (iv) a credit for Producer; and (v) such other
notices as may be necessary to protect all elements of the Series.
7. Revenue Sharing.
----------------
(a) As additional compensation for its services under this Agreement,
JEN shall remit to Producer the following percentages of the "Net Revenues" (as
defined below) received by JEN from license and syndication fees of the Series
to unaffiliated parties: 25% of the first $250,000 in Net Revenues; 35% of Net
Revenues between $250,001 and $350,000 in the aggregate, and 50% of Net Revenues
in excess of $350,000.
As used herein, "Net Revenues" shall mean all revenues actually received by JEN
from the license and syndication of the Series to unaffiliated parties, less (i)
out-of-pocket distribution, marketing and other costs incurred by JEN in
generating such revenues, including but not limited to manufacturing costs,
shipping and handling charges, interest costs, third party distribution fees,
guild and other clearance fees and marketing expenses, and (ii) $25,000 per
season in respect of JEN overhead. "Unaffiliated parties" shall mean all
persons or entities other than any entity controlling, controlled by or under
common control with JEN. "Control" shall be deemed to exist when a person or
entity has an equity interest of at least 10% in such other entity.
(b) JEN shall remit any revenues payable to Producer under this
Section 7 within 60 days of the end of the calendar quarter in which such
revenues were received by JEN.
8. Distribution by Producer.
------------------------
(a) Grant of Limited Rights. JEN hereby grants to Producer (i) the
----------------------
exclusive right to broadcast (i.e., over-the-air distribution) the Series (or
elements thereof) without charge on KRON-TV in the ADI(s) that include the
Cities of San Francisco, Oakland and San Jose, California and, upon notice to
JEN, on KAKE in the ADI that includes Wichita, Kansas, and on WOWT in the ADI
that includes Omaha, Nebraska, and (ii) the non-exclusive right to cablecast the
Series (or elements thereof) on Bay-TV without charge. JEN also grants Producer
the right to use and broadcast portions (but not the entirety) of any package,
alone or in connection with other works produced by or on behalf of, or in
collaboration with, Producer.
-6-
<PAGE>
(b) Limited Syndication Rights. JEN grants to Producer the limited
--------------------------
right to offer the Series for syndication on a barter basis to the cable
regional news channels listed on Exhibit C to this Agreement (the "Regional News
---------
Channels"). Producer shall notify JEN of any proposed syndication agreement,
and JEN shall have a period of 10 business days to approve or disapprove, in its
sole discretion, the proposed agreement. If JEN has not communicated its
approval or disapproval with such 10-day period, JEN shall be deemed to have
approved the proposed agreement. Producer shall receive a 10% off-the-top
syndication commission from any revenues derived from Regional News Channel
syndication agreements obtained by Producer. Producer shall have no
distribution or syndication rights in the Series except as specifically set
forth in this Section 8(b). Notwithstanding the foregoing, Producer shall have
no obligation to syndicate the Series to the Regional News Channels and, if
Producer elects not to exercise its syndication rights hereunder, JEN shall be
entitled to exercise such rights, in its sole discretion (provided that, in such
event, Producer shall have no obligation to participate in the national barter
advertising inventory).
(c) Revenue Sharing From Syndication. Producer shall have the right
--------------------------------
to sell the barter inventory from any approved syndication agreement that it
obtains with a Regional News Channel for the initial year of the Series. For
the second and any subsequent year of the Series, JEN and Producer shall use
their best efforts to agree as to which party is best able to sell the barter
inventory. If the parties are unable to reach an agreement with respect to this
matter, then all such rights shall remain exclusively with JEN. The proceeds of
any sales of the barter inventory from syndication agreements with a Regional
News Channel, less any syndication commission to Producer, as provided in
subsection (b) above, shall be split by Producer and JEN on a 50/50 basis, after
deducting a 15% sales commission to the selling party.
9. Inspection of Records. During the term of this Agreement and for one
---------------------
year after termination or expiration of this Agreement, either party shall have
the right to inspect and audit the records of the other party relating to the
license or syndication of the Series, upon reasonable notice and during normal
business hours, in order to confirm compliance with the revenue sharing
provisions of this Agreement. The party whose records are being inspected shall
provide reasonable cooperation and assistance to the inspecting party. Any
inspection and audit under this Section 9 shall be at the inspecting party's
expense, unless the inspection and audit reveals an underpayment of 10% or more,
in which case the underpaying party shall immediately reimburse the inspecting
party for all reasonable costs of the inspection and audit, and remit the amount
of the underpayment together with simple
-7-
<PAGE>
interest at an annual rate of eight percent calculated from the original payment
due date.
10. Promotions and Publicity by Producer.
-------------------------------------
(a) Producer shall air up to two, 30-second, JEN-created advertising
spots per day on Bay-TV for the promotion of JEN or any of its networks. The
spots made available to JEN shall be for promotion of JEN or one or more of its
cable networks. The provided spots shall rotate throughout the Bay-TV schedule.
Producer shall provide JEN with one spot for promotional purposes in the
national barter, but only to the extent that unsold inventory allows. Producer
shall also provide JEN with one spot within the Series as cablecast on Bay-TV
for promotion only as unsold inventory allows. Producer shall air the Series as
a regularly scheduled program on Bay-TV. In addition, if the Series is aired on
WOWT or KAKE, as permitted herein, then Producer shall provide JEN with one spot
within the Series as aired on such stations, for promotional purposes, but only
to the extent that unsold inventory allows.
(b) Producer shall include JEN in all of its publicity for the Series,
except with respect to local publicity that is so limited in size or duration as
to make it impractical to include JEN. JEN shall provide Producer with
customary publicity and press materials for this purpose. JEN shall have the
right to approve in advance (i) any material changes proposed by Producer to be
made to publicity materials supplied by JEN, (ii) all original publicity
materials created by Producer for the Series (except to the extent that such
materials have previously been approved by JEN), and (iii) all press releases
intended for a a national audience relating to the Series, except to the extent
that such press releases are comprised primarily of material previously approved
by or supplied by JEN.
11. Representations and Warranties.
--------------------------------
(a) Producer represents and warrants to JEN that (i) it is a duly
organized and validly existing corporation under the laws of California; (ii) it
has the requisite power and authority to enter into this Agreement and to fully
perform its obligations hereunder; and (iii) it is under no contractual or other
legal obligation which in any way interferes with its ability to fully, promptly
and completely perform its obligations under this Agreement.
(b) JEN represents and warrants to Producer that (i) it is a duly
organized and validly existing corporation under the laws of Colorado; (ii) it
has the requisite power and authority to enter into this Agreement and to fully
perform its
-8-
<PAGE>
obligations hereunder; and (iii) it is under no contractual or other
legal obligation which in any way interferes with its ability to fully, promptly
and completely perform its obligations under this Agreement. JEN further
represents and warrants to Producer that, with respect to content that it
provides to Producer for use in the Series, which Producer may use or not use in
its sole discretion, JEN has obtained all rights, clearances, releases and
licenses necessary to exploit the Series as contemplated in this Agreement.
12. Indemnification.
------------------
(a) Producer shall at all times indemnify and hold JEN, its directors,
officers, employees, agents, subsidiaries, licensees and assigns, and those
authorized by JEN to distribute, broadcast, exhibit and exploit the Series in
accordance with the rights granted by this Agreement, harmless from and against
any and all claims, damages, costs, liabilities and expenses, including
reasonable attorneys' fees and costs, arising out of or caused by (i) breach or
alleged breach by Producer of any representation, warranty or agreement made by
Producer herein, or (ii) any act or omission by Producer, its agents and
contractors, in connection with the performance of this Agreement.
(b) JEN shall at all times indemnify and hold Producer, its directors,
officers, employees, agents, subsidiaries, licensees and assigns, and those
authorized by Producer to distribute, broadcast, exhibit and exploit the Series
in accordance with the rights granted by this Agreement, harmless from and
against any and all claims, damages, costs, liabilities and expenses, including
reasonable attorneys' fees and costs, arising out of or caused by (i) breach or
alleged breach by JEN of any representation, warranty or agreement made by JEN
herein, or (ii) any act or omission by JEN, its agents and contractors, in
connection with the performance of this Agreement.
(c) Promptly after receipt by a party entitled to indemnification
under this Agreement (the "Indemnitee") of written notice of the assertion of
any claim or the commencement of any litigation or legal proceeding with respect
to any matter referred to in this Section 12, such party shall give written
notice thereof to the party from whom indemnification is sought (the
"Indemnitor") and thereafter shall reasonably cooperate with and keep the
Indemnitor reasonably informed with respect thereto. Compliance by the
Indemnitee with the notice and cooperation requirements of the preceding
sentence shall be conditions to the Indemnitor's indemnification obligations
hereunder. If any litigation is brought against the Indemnitee, the Indemnitor
shall assume the defense thereof with counsel reasonably satisfactory to the
Indemnitee. The Indemnitee shall be entitled to participate in such
-9-
<PAGE>
defense with counsel of its choice, at its sole expense. The Indemnitor shall
not settle any litigation unless the settlement shall include as an
unconditional term thereof the giving by the claimant or the plaintiff of a
release of the Indemnitee, satisfactory to the Indemnitee, from all liability
with respect to such litigation.
13. Option to Renew; Right of First Refusal.
----------------------------------------
(a) Producer hereby irrevocably grants to JEN the exclusive option to
require Producer to produce and deliver additional seasons of the Series, up to
four additional seasons in total. Jones may exercise this option for the
ensuing season by giving Producer written notice on or before January 15 of each
year. The terms and conditions of this Agreement shall also govern each such
renewal year, except that the Production Fee for such renewal year shall be 5%
higher than the previous year's Production Fee.
(b) On or before March 15 of any season of the Series, JEN shall offer
to Producer the first opportunity to produce a one-hour television program, to
be completed on or before August 31 of that year. JEN shall determine the
content and the budget, including production fee, of the television program, in
its sole discretion. Producer shall have a period of 20 days after receipt of
JEN's term sheet with respect to the proposed production to give JEN notice of
whether it will accept the offer. If Producer fails to accept JEN's offer, JEN
shall have the unlimited right to produce the program itself or through a third
party (on terms no less favorable than those offered to Producer).
(c) In addition to the foregoing, during the term of this Agreement,
JEN shall use reasonable efforts to identify production opportunities for
Producer during each season's 13-week hiatus. To the extent that any such
production opportunity is offered to Producer, such opportunity shall be the
subject of a separate budget and production agreement to be agreed upon by JEN
and Producer. JEN shall have no liability or obligation to Producer if JEN is
unable to identify any such production opportunities or if JEN and Producer are
unable to agree upon a budget and other terms for such production.
14. General.
---------
(a) Relationship. The relationship between JEN and Producer under this
Agreement is that of independent contractors only. Nothing in this Agreement
shall be construed so as to constitute JEN and Producer as partners or joint
venturers, or either party hereto as the employee or agent of the other party
hereto, or in any other manner other than as independent contractors.
-10-
<PAGE>
(b) Designated Representatives. The identified representative of JEN
--------------------------
in connection with this Agreement is Bob Jones. The identified representative of
Producer is Al Holzer. Either party may change its designated representative by
giving notice to the other party. Only designated representatives of the parties
shall be authorized to grant approvals under this Agreement.
(c) Notices. All notices, demands, requests, or other communications
which may be or are required to be given, served, or sent by any party to any
other party pursuant to this Agreement shall be in writing and shall be mailed
by "overnight" or express mail or courier service or certified mail, return
receipt requested, or shall be transmitted by hand delivery, telegram, telex, or
facsimile transmission (if an additional copy is sent by "overnight" or express
mail or courier service in addition to the facsimile transmission), addressed as
follows:
(i) If to Producer:
KRON-TV
10001 Van Ness Avenue
San Francisco, CA 94109
Attention: Mr. Al Holzer, Vice President
Telephone: (415) 561-8768
Facsimile Transmission: (415) 561-8142
(ii) If to JEN:
Jones Education Networks, Inc.
9697 E. Mineral Avenue
Englewood, Colorado 80112
Attention: President
Telephone: (303) 792-3111
Facsimile Transmission: (303) 799-1644
With a copy to General Counsel at the same address.
Each party may designate by notice in writing a new address to which any notice,
demand, request or communication may thereafter be so given, served or sent.
Each notice, demand, request, or communication which shall be mailed, delivered
or transmitted in the manner described above shall be deemed sufficiently given,
served, sent and received for all purposes at such time as it is delivered to
the
-11-
<PAGE>
addressee, with the return receipt, the delivery receipt, the affidavit of
messenger (and in the case of communications by facsimile transmission, the
affidavit of the "overnight" or express mail or courier service delivering the
additional copy or, with respect to a telex, the answer-back) being deemed
conclusive (but not exclusive) evidence of such delivery, or at such time as
delivery is refused by the addressee upon presentation.
(d) Headings. Section and subsection headings contained in this
--------
Agreement are inserted for convenience of reference only, shall not be deemed to
be a part of this Agreement for any purpose, and shall not in any way define or
affect the meaning, construction or scope of any of the provisions hereof.
(e) Further Assurances. Each of the parties hereto hereby agrees to
------------------
take or cause to be taken such further actions, to execute, deliver and file or
cause to be executed, delivered and filed such further documents and
instruments, and to use best efforts to obtain such consents, as may be
necessary or as may be reasonably requested in order to fully effectuate the
purposes, terms and conditions of this Agreement.
(f) Entire Agreement. This Agreement constitutes the entire agreement
----------------
between the parties hereto with respect to the subject matter hereof and
supersedes all prior oral or written agreements, commitments or understandings
with respect to the matters provided for herein.
(g) Amendment; Waiver. No amendment, modification or discharge of
-----------------
this Agreement shall be valid or binding unless set forth in writing and duly
executed by all parties hereto. No failure or delay by any party in exercising
any right, power or privilege under this Agreement (and no course of dealing
between the parties) shall operate as a waiver of any such right, power or
privilege. No waiver of any default on any one occasion shall constitute a
waiver of any subsequent or other default. No single or partial exercise of any
such right, power, or privilege shall preclude the further or full exercise
thereof.
(h) Severability. The invalidity or unenforceability of any provision
------------
of this Agreement shall in no way affect the validity or enforceability of any
other provision of this Agreement.
(i) Governing Law. This Agreement, the rights and obligations of the
-------------
parties hereto, and any claims or disputes relating thereto, shall be governed
by and construed in accordance with the laws of the State of California
(excluding the choice of law rules thereof).
-12-
<PAGE>
(j) Construction. This Agreement has been negotiated by JEN and
------------
Producer and their respective legal counsel, and legal or equitable principles
that might require the construction of this Agreement or any provision of this
Agreement against the party drafting this Agreement shall not apply in any
construction or interpretation of this Agreement.
(k) Assignments. This Agreement shall be binding upon and inure to
-----------
the benefit of the parties hereto and their respective permitted successors and
assigns. Producer may not assign its rights or obligations hereunder without
the prior written consent of JEN. Notwithstanding the foregoing, this Agreement
may be assigned by Producer, and JEN's consent shall be deemed given, in the
event of the sale or other transfer of all or substantially all of the control,
assets, and/or ownership of the KRON-TV division of The Chronicle Publishing
Company. JEN may not assign its rights or obligations hereunder without the
prior written consent of Producer, which consent shall not be unreasonably
withheld; provided, however, that JEN shall be permitted to assign any or all of
its rights and obligations hereunder to any subsidiary or affiliate of JEN.
(l) Survival. Notwithstanding the expiration or earlier termination
--------
of this Agreement, the provisions of Sections 6, 7, 8, 11, 12 and 14 shall
survive and continue in full force and effect.
-13-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above.
JONES EDUCATION NETWORKS, INC.,
a Colorado corporation
By: /s/ W. W. Griffin
-----------------
Title: President
-----------------
THE CHRONICLE PUBLISHING COMPANY
a Nevada corporation
------
By: /s/ Amy McCombs
-----------------
Title: President and CEO
-----------------
-14-
<PAGE>
Exhibit A
---------
Description of the Series
-------------------------
New Media News is a half-hour, single-anchor news program (23 minutes of content
per episode) focusing on the new technology and computer industries and
reporting on the latest from the technology frontier.
-15-
<PAGE>
Exhibit B
---------
Assignment Form
---------------
For good and valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, _________________, whose address is _______
_________________________________ ("Producer"), does hereby irrevocably assign,
transfer, set over, and convey to Jones Education Networks, Inc., a Colorado
corporation ("JEN"), whose address is 9697 East Mineral Avenue, Englewood,
Colorado 80112, its successor and assigns, all copyrights, renewals and
extensions thereof, and all right, title and interest in and to the television
program forming a part of the television series entitled New Media News and
identified more specifically as episode _________________ of such series (the
"Episode") and the script upon which the Episode is based. Such rights include,
without limitation, all of Producer's right, title and interest that may affix
under any copyright law now or hereinafter in force and effect in the United
States of America or in any other country or countries, to be held and enjoyed
by JEN, its successors and assigns, fully, entirely and absolutely.
This Assignment is executed in accordance with and is subject to the
terms and conditions of the Production Agreement, dated as of September 1, 1995,
between Producer and JEN.
IN WITNESS WHEREOF, Producer has caused this Assignment to be duly
executed by its authorized officer on the ________ day of __________, 199__.
[PRODUCER]
By:
________________________
Title:
________________________
-16-
<PAGE>
Exhibit C
---------
Regional News Channels
----------------------
Chicagoland News
New York News 1
Long Island Newschannel 12
Orange County News (OCN)
New England NewsChannel
NewsChannel 8 - Washington, D.C.
and such other channels as shall be mutually agreed upon by JEN and Producer.
(17932)
-17-
<PAGE>
Exhibit 10.7
PROGRAMMING DISTRIBUTION AGREEMENT
----------------------------------
THIS PROGRAMMING DISTRIBUTION AGREEMENT ("Agreement") is made as of the 1st day
of December, 1994, by and between Jones Education Networks, Inc., a Colorado
corporation ("Jones"), and Telecom Holding Company, Ltd., a corporation
organized under the laws of the Kingdom of Thailand ("Distributor"), whose
address is Fortune House No. 1, Ratchada Phisek Road, Huay KHWANG, Bangkok
10310, Thailand.
IN CONSIDERATION OF THE MUTUAL COVENANTS, STIPULATIONS AND REPRESENTATIONS
CONTAINED HEREIN, THE PARTIES TO THIS AGREEMENT AGREE AS FOLLOWS:
1. GRANT OF EXCLUSIVE LICENSE
--------------------------
Subject to the terms and conditions of this Agreement, Jones hereby grants
to Distributor the license to exhibit or distribute in the Kingdom of
Thailand, via satellite, video tape or other means to all variations of
cable television, satellite master antenna television, multipoint
distribution system, multipoint multichannel distribution system,
television receive-only satellite receiver, direct broadcast satellite or
any other electronic means used to deliver cable television programming to
customers, the programming identified on Exhibit A attached to this
---------
Agreement, as such Exhibit may be amended from time to time in accordance
with Section 3(a) hereof (the "Programming"). This license shall be
exclusive during the initial one-year term of this Agreement.
2. TERM AND TERMINATION
--------------------
(a) Unless earlier terminated as provided in this Agreement, the initial
term of this Agreement shall terminate one year from the Launch Date (as
defined in Section 3(b) below). This Agreement shall automatically renew
on a non-exclusive basis for two successive one (1) year terms, unless
either party gives written notice of termination at least forty-five (45)
days prior to the expiration of the then current one-year term or this
Agreement is superseded by another agreement between Distributor and Jones.
(b) Except as otherwise provided herein, neither Distributor nor Jones may
terminate this Agreement except upon sixty (60) days prior written notice
and then only if the other has made a material misrepresentation in this
Agreement or breaches any of its material obligations in this Agreement and
such
<PAGE>
misrepresentation or breach (which shall be specified in such notice) is
not or cannot be cured within sixty (60) days of such notice.
3. CONTENT OF PROGRAMMING
----------------------
(a) Jones shall have the exclusive authority to determine from time to time
the content, selection and format of the programming that will constitute
the Programming, and shall have the right to amend Exhibit A from time to
---------
time during the term of this Agreement to change, substitute or alter the
description of the Programming, provided that the Programming shall always
be educational in nature, and provided further that any of such amendments,
changes, substitutions and alterations shall not materially affect the
value of the Programming as contemplated in Exhibit A.
---------
(b) Commencing on or before March 1, 1995, Jones shall make available for
transfer to Distributor, FOB Englewood, Colorado, or such other no more
distant shipping point selected by Jones, master video tapes of the
Programming in NTSC BETACAM format, and thereafter throughout the term of
this Agreement. The Programming shall consist of forty-two (42) hours of
Programming per week, which shall be in six (6) hour daily blocks (each, a
"Programming Block"). Jones shall make tapes available to Distributor at
least 30 days prior to the anticipated airing of the Programming by
Distributor. Distributor shall launch the Programming on April 1, 1995
(the "Launch Date").
4. LICENSE FEE AND PAYMENTS
------------------------
(a) Upon the execution of this Agreement, Distributor shall pay to Jones,
by wire transfer of funds to an account designated by Jones, a start-up fee
of US $100,000. This fee shall be non-refundable.
(b) Commencing on March 1, 1995 and continuing throughout the term of this
Agreement, subject to compliance by Jones with its obligations hereunder
including without limitation the obligations set forth in Section 3(b),
Distributor shall pay to Jones or its designated payment agent, on or
before the first (1st) day of each calendar month, a monthly license fee of
US $35,000 for the Programming (the "License Fee").
(c) Notwithstanding the foregoing, if the sum of (i) the direct and
indirect costs of providing any marketing, pre-launch or launch support
required by this Agreement or requested by Distributor, and (ii) the direct
and indirect costs incurred by Jones in connection with the production and
delivery of the
-2-
<PAGE>
Programming, including but not limited to the materials and labor costs of
preparing the master videotapes of the Programming and making the master
tapes available to Distributor (collectively, the "Distribution Costs"),
exceeds an average of US $35,000 per month over the course of any three-
month period, then Distributor shall reimburse Jones for any such
Distribution Costs immediately upon presentation by Jones of reasonable
documentation evidencing such costs. If, on the other hand, the
Distribution Costs average less than US $31,500 per month over the course
of any three-month period, then Distributor shall receive a credit against
future License Fee payments equal to the following multiplied by three:
$35,000 minus (Avg. Monthly Distribution Costs During Period x 110%)
A final reconciliation of the adjustments required by this subsection (c)
shall take place within 60 days of the expiration of the initial term and
each renewal term of this Agreement.
(d) Jones' failure, for any reason, to send an invoice for a particular
monthly payment shall not relieve Distributor of its obligation to make any
payment in a timely manner consistent with the terms of this Agreement.
Past due amounts shall bear interest at a rate equal to the greater of (i)
one percent (1%) per month, or (ii) the maximum legal rate permitted under
law, and Distributor shall be liable for all reasonable costs and expenses
(including, without limitation, reasonable court costs and attorneys' fees)
incurred by Jones in collecting any past due amounts. A License Fee shall
not be considered past due if it is paid in full within 30 days of its due
date.
(e) Accompanying each payment during the term of this Agreement,
Distributor shall provide a true and complete monthly report, signed by the
chief financial officer of Distributor or his/her authorized designee, in a
form satisfactory to Jones, specifying the average number of Subscribers
during the subject payment period (computed by dividing the number of
Subscribers on the first and last day of the payment period by two (2)) and
certifying the accuracy of such information and containing such other
information as may be reasonably required by Jones. For purposes of this
Agreement, the term "Subscriber" shall mean (i) each residential customer
receiving and paying for a level of cable television service which includes
the Programming, and (ii) the number of basic equivalent subscribers
computed by dividing the monthly revenue for basic cable television service
paid by bulk accounts (such as apartment buildings, cooperatives,
condominiums and mobile home parks) receiving and paying for a level of
cable television service which includes the Programming by the standard
-3-
<PAGE>
residential rate for such level of cable television service for the system
distributing the Programming.
5. DISTRIBUTION OF PROGRAMMING
---------------------------
(a) Subject to compliance by Distributor with any applicable government
policies, laws and regulations of Thailand, including the terms of
Distributor's operating license requirements and obligations, Distributor
shall distribute the Programming in its entirety without addition,
deletion, alteration, editing or amendment, including any copyright
notices, credits and similar notices, trademarks or tradenames included in
the Programming; provided, however, that Distributor may add, at its own
expense, subtitles to the Programming which provide an accurate translation
of the audio portion of the Programming, and provided further that
Distributor may delete any material included in the Programming that
violates any applicable government policies, laws or regulations of
Thailand. During the term of this Agreement, Distributor shall offer the
Programming on each System on the "basic" tier of service, which for
purposes of this Agreement means the tier of service with the highest
Penetration. For purposes of this Agreement, the term "Penetration" means
the ratio of the number of subscribers in any System receiving and paying
for the level or tier of cable television service to the total number of
subscribers of the System.
(b) Distributor shall distribute the Programming in accordance with the
terms of this Agreement throughout the entire term of this Agreement, and
will not replace, delete, terminate or otherwise disrupt, discontinue or
cease transmission of the Programming. The Programming Block for a
particular day may be repeated during the day up to four times (so as to
constitute a full twenty-four (24) hour per day channel).
(c) Distributor shall designate one (1) channel on each System for the
delivery of the Programming. The Programming may be exhibited on a shared
channel basis with Thai educational or informational programming, provided
that the Programming itself shall be separately branded and identified as
the programming of "Mind Extension University: The Asian Campus", or such
other name as may be determined by Jones.
(d) The Programming shall be aired by Distributor in accordance with the
schedule provided by Jones. In the event that such airing schedule is not
met due to causes beyond the control of Distributor, such as shipping
delays, transmission failures or the like, the Programming shall be aired
as immediately
-4-
<PAGE>
as possible after the correction of the problem causing the original
failure to deliver the Programming.
(e) Subject to then existing law and the applicable provisions of this
Agreement, Distributor shall not itself, and shall not authorize others to,
copy, tape or otherwise reproduce any part of the Programming without
Jones' prior written authorization, and shall take reasonable and practical
security measures to prevent the unauthorized copying or taping by others.
(f) During the term of this Agreement, Jones and Distributor may agree that
the development and provision of advertising within the Programming is
appropriate. In the event advertising is provided in the Programming, the
parties agree to negotiate an arrangement regarding fees to be charged and
commissions to be paid, based on customary arrangements then current in the
advertising industry.
6. TAXES AND FEES
--------------
In addition to the license fees payable by Distributor pursuant to Section
4 of this Agreement, and any other costs payable by Distributor pursuant to
this Agreement, Distributor shall pay all customs, VAT or other taxes, fees
or charges that are imposed by Thai law by reason of the importation of the
tapes and Programming to Thailand or the use of the tapes and Programming
in Thailand. In addition, in the event that there is a Thai withholding
tax payable on the remittance to be made to Jones pursuant to either
Section 4 or this Section 6, Distributor shall absorb the entire amount of
the tax withheld and shall be responsible for the payment of the
withholding tax on any such remittances. Jones represents and warrants to
Distributor that it is located outside of Thailand, that it does not have
any permanent establishment in Thailand, and that, for purposes of this
Agreement, Jones shall provide and deliver the Programming from outside of
Thailand.
7. PROMOTION AND MARKETING OF THE PROGRAMMING
------------------------------------------
(a) Distributor shall use its best efforts to promote, market and sell the
Programming in its service area. Distributor shall promote and market the
Programming on a basis and to an extent equal to the marketing and
promotion efforts devoted to any other programming included on the channel
on which the Programming is delivered, and to any other channels included
in any package of services in which the Programming is included.
-5-
<PAGE>
(b) Jones may, from time to time during the term of this Agreement, supply
Distributor with promotional material related to the Programming.
Distributor shall distribute any such promotional material to persons
receiving the Programming and in connection with its efforts to gain
subscribers for its services. If Distributor requests the services and
support of Jones personnel in connection with the launch, marketing or
promotion of the Programming or otherwise in connection with the
distribution of the Programming, then Distributor shall reimburse Jones for
all reasonable out-of-pocket expenditures incurred by Jones and the salary
expense of any Jones personnel who are dedicated to such efforts.
(c) At Jones's request, Distributor shall provide Jones with all available
data regarding the viewership, marketing and promotion of the Programming
by Distributor. Subject to applicable federal, state and local law
(including the franchises pursuant to which the Systems are operated),
Distributor shall also render such other assistance to Jones as Jones may
request in connection with any marketing test, survey, poll or other
research which Jones may undertake in connection with the Programming.
8. TRADEMARKS
----------
All right, title and interest in and to the Programming, and all materials,
ideas, formats and concepts, computer software or other rights of whatever
nature related thereto, shall remain the property of Jones and/or its
affiliates. Further, Distributor acknowledges and agrees that all names,
logos, marks, copyright notices or designations utilized by Jones and/or
its affiliates in connection with the Programming (the "Marks") are the
sole and exclusive property of Jones and/or its affiliates, and no rights
or ownership are intended to be or shall be transferred to Distributor
pursuant to this Agreement. Distributor's use of the Marks shall be
limited to the advertising and promotion of its carriage of the Programming
pursuant to this Agreement and shall be in a form approved by Jones in
advance of such use. Jones shall provide Distributor with samples of the
Marks, which Distributor shall use in their entirety (including all service
mark and trademark notices) whenever the Marks are used by Distributor.
9. REPRESENTATIONS AND INDEMNIFICATION
-----------------------------------
(a) Jones represents and warrants to Distributor that (i) it is a
corporation duly organized and validly existing under the laws of the State
of Colorado; (ii) Jones has the corporate power and authority to enter into
this Agreement and to fully perform its obligations hereunder; (iii) Jones
is under no contractual or
-6-
<PAGE>
other legal obligation that in any way interferes with its ability to
fully, promptly and completely perform hereunder; and (iv) nothing
contained in the Programming shall violate the civil or property rights,
copyrights, trademark rights or right of privacy of any person, firm or
corporation except that no representation and warranty is given with
respect to music performance rights.
(b) Distributor represents and warrants to Jones that (i) Distributor is a
corporation duly organized and validly existing under the laws of the
Kingdom of Thailand; (ii) Distributor has the requisite power and authority
to enter into this Agreement and to fully perform its obligations in this
Agreement; and (iii) Distributor is under no contractual or other legal
obligation which in any way interferes with its ability to fully, promptly
and completely perform hereunder.
(c) Distributor and Jones shall each indemnify and forever hold harmless
the other, the other's affiliate companies and their respective officers,
directors, employees and agents from all liabilities, claims, costs,
damages and expenses (including, without limitation, reasonable counsel
fees) arising out of any breach or claimed breach by it of any
representation or any of its obligations pursuant to this Agreement.
Jones's liability for damages arising out of its inability or failure to
deliver the Programming shall be limited to the relevant amount of the
License Fee that relates to the Programming that Jones failed to deliver.
(d) The party entitled to indemnification hereunder (the "Indemnified
Party") shall notify the other party hereto (the "Indemnifying Party") in
writing of the claim or action for which such indemnity allegedly applies.
The Indemnifying Party shall undertake the defense of any such claim or
action and permit the Indemnified Party to participate therein at the
Indemnified Party's own expense. The settlement of any such claim or
action by an Indemnified Party without the Indemnifying Party's prior
written consent shall release the Indemnifying Party from its obligations
under this Agreement with respect to such claim or action so settled.
(e) Neither party shall be liable to the other for the failure to fulfill
its obligations under this Agreement (other than the obligation to make all
payments when due) to the extent such failure is caused by or arises out of
an act of war, strike, riot, labor dispute, national disaster, technical
failure, or any other reason beyond the control and not the fault of the
party whose obligation is prevented during the period of such occurrence.
Upon the cure of any occurrence not exceeding ninety (90) days, the term of
this Agreement shall be extended for a period equivalent to the period of
such occurrence. If any such occurrence shall
-7-
<PAGE>
exceed ninety (90) days, then this Agreement may thereafter be terminated
by either party without liability to the other.
10. CONFIDENTIALITY
---------------
Neither Distributor nor Jones shall disclose to any third party (other than
its respective affiliates and employees), any information with respect to
the terms and provisions of this Agreement, including by way of press
release(s), except: (i) to the extent necessary to comply with law or
legal reporting or disclosure requirements or the valid order of a court of
competent jurisdiction, in which event the party making such disclosure
shall so notify the other as promptly as practicable and, if possible,
prior to making such disclosure shall seek confidential treatment of such
information; (ii) as part of its normal reporting or review procedure to
its parent company, its auditors and its attorneys; provided, however, that
-------- -------
such parent company, auditors and attorneys agree to be bound by the
provisions of this Section; (iii) in order to enforce its rights pursuant
to this Agreement; and (iv) if mutually agreed by Distributor and Jones in
writing.
11. GENERAL
-------
(a) This Agreement shall inure to the benefit of and be binding upon the
parties hereto and their respective successors and assigns. Notwithstanding
the foregoing, this Agreement may not be assigned by Distributor without
the prior written consent of Jones, except to an entity which controls, is
controlled by or is under common control with Distributor and which
operates a cable television service in Thailand (including Thai CableVision
Public Company Limited), provided that no such assignment shall relieve
Distributor of any obligation under this Agreement.
(b) Nothing contained herein shall be deemed to create, and the parties do
not intend to create, any relationship of partners or joint venturers as
between Distributor and Jones. Neither Distributor nor Jones shall be or
hold itself out as the agent of the other under this Agreement. The
obligations of Distributor and Jones under this Agreement are subject to
all applicable federal, state and local laws, rules and regulations.
(c) A waiver by either party of any term or condition of this Agreement in
any one instance shall not be deemed or construed as a continuing waiver or
a waiver of any subsequent breach of this Agreement. This Agreement sets
forth the entire understanding of the parties with respect to the subject
matter hereof and supersedes all prior understandings and agreements, oral
or written between
-8-
<PAGE>
the parties. This Agreement may not be modified except in a writing
executed by both parties to this Agreement.
(d) This Agreement and all collateral matters shall be construed in
accordance with the internal laws of the State of Colorado applicable to
agreements fully made and to be performed therein, irrespective of the
place of actual execution or performance. Each party shall have available
to it all rights, remedies and recourse at law or in equity to be exercised
in the event of breach or threatened breach of this Agreement.
(e) The invalidity or unenforceability of any provision of this Agreement
shall in no way affect the validity or enforceability of any other
provision of this Agreement.
(f) All notices, statements and other communications given under this
Agreement shall be in writing and shall be delivered by facsimile
transmission, telegraph, personal delivery, certified mail, return receipt
requested, or by next day express delivery, addressed, if to Jones to Jones
Education Networks, Inc. at 9697 East Mineral Avenue, P.O. Box 3309,
Englewood, Colorado 80155, Attn.: President (Fax: 303-799-1644); and if to
Distributor, at its address set forth in the first paragraph of this
Agreement, or by facsimile at _________________________. The date of such
facsimile transmission, telegraphing or personal delivery or the next day
if by express delivery, or the date three (3) days after mailing, shall be
deemed the date on which such notice is given and effective.
-9-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have entered into this Agreement as of
the date and year first written above.
DISTRIBUTOR:
TELECOM HOLDING COMPANY, LTD.
By: /s/ [Illegible signature]
-------------------------
Name:
-------------------------
Title:
-------------------------
JONES EDUCATION NETWORKS, INC.
By: /s/ Gregory J. Liptak
-------------------------
Gregory J. Liptak
Group President/Global Distribution
-10-
<PAGE>
Exhibit A
---------
to
--
Programming Distribution Agreement
----------------------------------
Description of the Programming
------------------------------
The Programming will generally consist of some combination, to be
determined by Jones, of programming that endeavors to expose the viewer to the
activities one might find in a school, on a campus, or in other learning
environments, including but not limited to, educational, instructional and
informational programming and, in addition, such programming as might relate to
or evolve from schools, campuses or other learning environments including
bookstores, field trips, laboratory, observatory, library and other course
related trips or outings, and marketing activities including the sale of
materials, books, tapes and other items directly relating to any of the above-
mentioned educational or learning activities and environments. The Programming
may also include advertising to the extent and in a nature deemed appropriate by
ME/U; provided, however, that such advertising shall be consistent with then
-------- -------
current prevailing industry average frequencies and duration, and shall be
consistent with this description of the Programming. The Programming will also
include materials related to computers, faxes, electronic mail, CD-ROM, CD-I,
and other activities related to new media developments.
(14098)
-11-
<PAGE>
Exhibit 10.8
PROGRAM LICENSE CONTRACT
------------------------
THIS PROGRAM LICENSE CONTRACT is made and entered into and is effective as
of the 28 day of June, 1996, by and between JONES EDUCATION NETWORKS/CHINA,
INC., a corporation organized and existing under the laws of the State of
Colorado, United States of America ("JENC"), and CHINA EDUCATION TV PRODUCTIONS,
a separate institution legal person established under the laws of the People's
Republic of China ("PRC") responsible for international cooperation business
("CETP"), which is wholly owned and controlled by CHINA EDUCATION TELEVISION.
WHEREAS, CETP controls and operates certain television networks (satellite
television education network) throughout the PRC and is interested in
broadcasting on one or more of such networks certain educational programming
relating to computers, computer technology and computer training; and
WHEREAS, JENC, through its affiliate, Jones Computer Network, Inc.,
operates a satellite delivered cable television network in the United States of
America and has access to programming that would meet the needs of CETP; and
WHEREAS, CETP has requested that JENC make certain educational programming
available to it, and JENC desires to make and provide such programming, subject
to the terms and conditions of this Contract.
NOW, THEREFORE, in consideration of the foregoing and mutual exchange and
discussion ,the parties hereto hereby agree as follows:
1. PROVISION OF PROGRAMMING.
-------------------------
(a) JENC hereby agrees to license on a non-exclusive basis to CETP three
(3) fifty-two (52) minute blocks of television programming each week during the
term of this Contract, for a total of one hundred fifty-six (156) programming
blocks during the first year of this Contract (the "Programming") for
distribution in the territory of the PRC currently governed by PRC law (the
"Territory"). Each program block offered to CETP pursuant hereto shall be
different and shall not be a duplicate or repeat of a previously offered program
block. All program blocks offered shall contain forty-six (46) minutes of
<PAGE>
program content and six (6) minutes of advertising, with the program content
being computer related programming, which may include but shall not be limited
to, information on computer technology and software, computer training, computer
news information, uses of computers including information concerning the
Internet, and other computer related topics.
(b) All Programming shall be supplied to CETP in PAL Betacam format and in
the English language. To ensure translation and dubbing, JENC shall supply CETP
with written manuscripts for at least two months' Programming one hundred and
fifty (150) days prior to the proposed broadcast and supply CETP with original
tapes for at least two months' Programming one hundred and twenty (120) days
prior to the proposed broadcast. The initial broadcast of Programming shall be
no earlier than October 1, 1996 and no later than January 31, 1997. CETP shall
notify JENC within fifteen (15) days after receipt of the specific shows
included in the Programming as to whether it will broadcast such particular
proposed Programming. If CETP discovers any programming inconsistent with its
synopsis, then JENC shall be obligated to offer other Programming to CETP for
the proposed broadcast time. If CETP cannot confirm whether or not to broadcast
Programming within fifteen (15) days, JENC shall not be responsible for
replacement of Programming and may authorize CETP to broadcast on a repeat basis
Programming previously accepted by CETP and previously broadcast by CETP.
(c) CETP shall be responsible for and shall undertake to make all necessary
arrangements with customs and import agencies of the PRC to ensure the timely
importation of the Programming and other materials into the PRC. Upon CETP's
directions, JENC shall mail the Programming materials to China at its expense in
a manner agreed by the parties hereto and CETP shall be responsible for the
collection of the Programming materials.
2. DISTRIBUTION OF PROGRAMMING.
----------------------------
(a) CETP agrees to distribute any Programming accepted by it on its
satellite delivered network known as CETV-1, which is available on the APSTAR-1
satellite, and on its broadcast network known as CETV-BJ, UHF-35. CETP shall
use its best efforts to ensure a high quality of signal transmission for the
Programming.
(b) The Programming will be broadcast each week initially in the morning
hours on Tuesday, Wednesday and Thursday, and the same Programming will then be
repeated in the evening hours on Friday, Saturday and
-2-
<PAGE>
Sunday. Specific broadcast times for the Programming will be mutually agreed
upon by CETP and JENC.
(c) The time blocks during which the Programming will be distributed by
CETP will be identified and branded as the Mandarin Chinese equivalent of
"Computer World" unless and until CETP and JENC agree upon a different
identification and brand. CETP shall take all actions necessary to register the
name "Computer World" at its expense with the appropriate trademark authorities
in the PRC. The name and trademark are designated and limited to use by this
cooperation . Neither of the parties may use the name or trademark without the
consent of the other party.
(d) CETP shall comply with all applicable laws, rules, regulations,
permits, approvals and licensing requirements for distribution of the
Programming in the Territory, obtain and maintain all required approvals,
licenses and permits active and in good standing and indemnify and hold JENC
harmless from any action taken as a result of loss of such approvals, licenses
or permits. CETP shall provide to JENC, copies of all applicable approvals,
licenses, permits and the renewals thereof, upon signing and acknowledgment of
this Contract. In the event of loss of any approval, license or permit that
impairs CETP's ability to operate, CETP shall immediately notify JENC by the
most expeditious means and shall cease all distribution of the Programming in
the Territory where the non-compliance occurs.
(e) CETP may not sub-license or distribute the Programming or Trademarks
(as defined in Section 3(a)) to any third party for use by such third party
without the prior written consent of JENC.
(f) CETP will produce, at its expense, sixty (60) seconds of promotional
spots for the Computer World programming block. Such promotional spots shall be
broadcast three (3) times every day, on either CETV-1, CETV-BJ35, or a
combination thereof, as CETP may elect, except that such promotional spots shall
not be run during the Computer World programming block agreed in this Contract.
3. MODIFICATION OF PROGRAMMING.
----------------------------
(a) Upon the review and confirmation of CETP, all Programming will be
distributed by CETP in the form in which it is provided to CETP by JENC without
modification, addition, deletion, alteration, editing or amendment, including
any copyright notices, cast, trademarks or trade names
-3-
<PAGE>
contained therein. CETP shall register in the PRC in the name of JENC the
trademarks set forth in Exhibit A attached hereto (the "Trademarks") at JENC's
---------
expense. To protect the Programming's copyrights, the parties hereto will
provide in detail in a memorandum for their rights and obligations. Except for
agreed captions for copyrights notices, logos, cast, etc., neither of the
parties hereto shall add any additional copyright notices, cast, trademarks,
logos or other captions onto or into the Programming without further negotiation
between parities hereto. As between JENC and CETP, JENC reserves to itself all
right, title and interest in and to the Programming and the Trademarks, and all
materials, ideas, formats and concepts contained therein, and all of such right,
title and interest shall remain the sole and exclusive property of JENC. CETP
shall not obtain any rights to the Programming or Trademarks other than the
specific and express rights licensed by JENC to CETP herein.
(b) CETP shall have the right to produce and insert, up to eight (8)
minutes of non-advertising material in each fifty-two (52) minute block of
Programming supplied by JENC (the "Interstitial"). CETP shall be entitled to
determine the positioning of all eight (8) minutes and may split the aggregate
eight (8) minutes into such groupings of minutes or portions thereof as CETP may
elect. Notwithstanding the foregoing, CETP may not use the Interstitial in any
manner, whether in content, placement or otherwise, which adversely affects the
integrity of the Programming in which the Interstitial is incorporated. The
parties agree that the Interstitial will be used by CETP for introductory pieces
consisting of commentary from a Chinese computer expert who will provide
appropriate background and/or ancillary material related to the Programming for
which the introduction is prepared, or commentary during or at the end of the
Programming from a similar person with a similar focus. The Interstitial shall
contain no advertising material. CETP shall ensure that nothing in the
Interstitial will be derogatory or defamatory of the content provided in the
Programming.
(c) CETP shall have the right to insert or overlay on the Programming a
voice over translation of the audio track of the Programming, including all
advertising. The voice over translation shall be in Mandarin Chinese and shall
be done by persons or teams fluent in such language and adequately trained in
English and computer related technology and terms to ensure the accuracy of
technology terms and its consistence with the content in the English original
tape. CETP shall be responsible for, and shall pay all costs of, obtaining all
necessary voice over translations, subject to the obligation of JENC to pay
certain costs as set forth in Section 6 of this Contract. All voice over
translations shall be completed by CETP according to a schedule agreed by
-4-
<PAGE>
parties hereto so as not to interfere with the broadcast schedule for the
Programming. Any delay in completing the voice over translation shall be the
sole responsibility of CETP.
(d) CETP shall provide inventory control and distribution control of all
original tapes and related Programming material and ensure that the handling of
said material is done in strict accordance with the terms and conditions of this
Contract. CETP shall assist JENC in the protection of any of JENC's rights or
interests in and to the Programming and Trademarks. CETP shall take all
reasonable efforts to prevent the unauthorized distribution or use of the
Programming or use of the Trademarks. CETP warrants that it shall not make any
claim, and shall exercise reasonable efforts to prevent any act which may
violate, impair or otherwise bring damage or infringement upon the intellectual
property and license of the Programming and Trademarks, and further, shall
promptly notify JENC of any infringement or unauthorized use of the Programming
and Trademarks or variation thereof by others immediately following it becoming
aware of such event and shall cooperate fully with JENC in any legal action
taken by JENC against any party alleged to be infringing. Upon the termination
or expiration of this Contract, for whatever reason, CETP shall immediately
return to JENC all original English language master tapes, all original master
tapes of the Programming as broadcast by CETP, and all copies of any of such
master tapes. No copies of the Programming in any form shall be retained by
CETP.
4. TRADEMARK LICENSE. During the term of this Contract, JENC grants to
------------------
CETP a non-exclusive license to use the Trademarks and copyright notices related
to or contained in the Programming in connection with CETP's promotion and
distribution of the programming in the territory. CETP shall make no use of the
Trademarks and copyright notices in any promotion that would be deemed as
commercial activities and detrimental to the rights and interests of JENC.
5. ADVERTISING.
------------
(a) Subject to the Advertising Law and other regulations governing
reviewing and examination of advertisements in China, JENC shall edit all
Programming offered to CETP to allow for a total of six (6) minutes of
advertising time. JENC shall have the sole and exclusive right to determine the
placement of the advertising spots within the Programming. JENC shall have the
right to sell all of such advertising time to such sponsors and/or advertisers
as it may elect and at such rates as it may determine. All revenues from the
sale
-5-
<PAGE>
of advertising on the Programming shall be retained solely and exclusively
by JENC.
(b) JENC will use commercially reasonable efforts to insert all advertising
spots into the PAL beta video tapes prior to shipment of such tapes to CETP.
Where such insertion cannot be accomplished prior to shipment, JENC shall
provide CETP with the advertising spots by separate PAL beta tape or other
mutually agreed means, and CETP shall be responsible for inserting such
advertising spots into the Programming forty-five (45) days prior to
broadcasting the Programming unless JENC and CETP agree to insertion upon less
than 45 days' notice.
(c) CETP shall provide JENC with a monthly notice certifying the times of
the broadcast of the Programming and the advertisements.
6. TRANSLATION COSTS.
------------------
(a) CETP and JENC hereby agree that JENC shall be responsible for paying
the voice over translation costs as set forth in Exhibit B attached hereto and
---------
by this reference incorporated herein. No increase shall be made in the voice
over translation costs during the term of this Contract.
(b) JENC shall pay to CETP, within twenty (20) days after execution of this
Contract, one-third of the total voice over translation costs for the Initial
Term (as hereinafter defined) of this Contract. Within twenty (20) days after
the completion of the voice over translation and broadcast of the Programming,
JENC shall pay to CETP the second one-third of the total voice over translation
costs for the Initial Term of this Contract. The remaining one-third of the
total voice over translation costs for the Initial Term of this Contract shall
be paid upon completion of the voice over translation of all Programming
supplied by JENC to CETP for the Initial Term of this Contract.
(c) All payments required to be made to CETP hereunder shall be paid in
United States Dollars, and shall be made by wire transfer of the required funds
to a bank or banks, in the United States of America or elsewhere, designated by
CETP pursuant to written notice given in accordance with Section 13(h) of this
Contract.
7. TERM. This Contract shall be effective upon due execution and delivery
-----
by both parties hereto. Except as otherwise provided herein, the term of this
contract shall be for a period from the date of broadcasting the
-6-
<PAGE>
Programming until one (1) year (the "Initial Term"). This Contract may
thereafter be extended upon mutual agreement of JENC and CETP for an additional
one year term (the "Renewal Term"). if either party desires to extend the
Contract for the Renewal Term, such party shall give written notice including
its proposed term and condition for extension to the other at least one hundred
twenty (120) days prior to the expiration of the Initial Term. If such extension
is agreed upon by the parties prior to the expiration of the Initial Term, then
the Contract shall extend for the Renewal Term. If no mutually acceptable
agreement is reached prior to the end of the Initial Term or if neither party
gives the other notice of its desire to extend the term, then this Contract
shall expire as of the end of the Initial Term.
8. TERMINATION RIGHTS.
-------------------
(a) Either party may terminate this Contract by giving written notice to
the other in the event that the other party has breached any of its material
representations and warranties contained herein, or in the event that the other
party has failed to perform any of its material obligations required to be
performed hereunder. Any notice of termination shall specify the alleged breach
or failure to perform and the party receiving any such notice shall have sixty
(60) days to cure the alleged breach or failure to perform. In the event that
such a cure is not effected within such sixty (60) day period, then this
Contract shall terminate.
(b) Upon any termination of this Contract pursuant to Section 8(a) hereof,
the terminating party shall have all rights and remedies available to it in a
court of law, except that neither party shall be liable to the other for
incidental or consequential damages, whether foreseeable or not, nor shall
either party be liable to the other for punitive damages for any reason
whatsoever.
9. FORCE MAJEURE. Except as herein provided, neither Jenc nor Cetp shall
--------------
have any rights against the other party hereto for the non-operation of
facilities or the non-furnishing of the Programming if such non-operation or
non-furnishing is due to an act of God; inevitable accident; fire; lockout;
flood; tornado; hurricane; strike or other labor dispute; riot or civil
commotion; earthquake; war; act of government or governmental instrumentality;
failure of performance by a common carrier; failure in whole or in part of
technical facilities; or other cause (financial inability excepted) beyond such
party's reasonable control (a "Force Majeure Event"). During the occurrence of a
Force Majeure Event, the obligations of the parties hereunder shall be
suspended. If a Force Majeure Event continues for a period in excess of
-7-
<PAGE>
thirty (30) days, then either party may elect to terminate this Contract
effective upon written notice to the other party.
10. Non-Exclusive Relationship. Cetp and JENC understand and agree that
---------------------------
the relationship created pursuant to this Contract is non-exclusive. JENC shall
be entitled to syndicate or otherwise distribute any programming, including the
Programming offered or supplied to CETP hereunder, to other parties for
distribution by any means in geographic areas that may include some or all of
the Territory; provided, however, that JENC will not distribute the Programming
-------- ------
as translated and broadcast by CETP until at least three (3) months after its
initial broadcast by CETP. CETP shall have no rights to interfere in such
distribution and JENC shall have no obligation to CETP with respect to any such
other or additional distribution.
11. REPRESENTATIONS AND WARRANTIES.
-------------------------------
(a) CETP hereby represents and warrants to JENC that (i) it has full power
and authority to enter into this Contract, and upon execution hereof, this
Contract shall constitute a binding and enforceable obligation of CETP; (ii)
CETP is under no contractual or other legal obligation which in any way
interferes with its ability to fully, promptly and completely perform hereunder;
(iii) the person executing this Contract on behalf of CETP is fully authorized
to do so; and (iv) nothing contained in any material which will be inserted into
the Programming by CETP and/or its agents, including but not limited to the
Interstitial and the voice over translation, will violate the civil or property
rights, copyrights, trademark rights or right of privacy of any person, firm or
corporation, or constitute libel, slander or defamation as against the United
States, any person, firm or corporation, except that no representation or
warranty is given with respect to music performance rights.
(b) JENC hereby represents and warrants to CETP that (i) it has full power
and authority to enter into this Contract, and upon execution hereof, this
Contract shall constitute a binding and enforceable obligation of JENC; (ii)
JENC is under no contractual or other legal obligation which in any way
interferes with its ability to fully, promptly and completely perform hereunder;
(iii) the person executing this Contract on behalf of JENC is fully authorized
to do so; and (iv) nothing contained in the Programming will violate the civil
or property rights, copyrights, trademark rights or right of privacy of any
person, firm or corporation, or constitute libel, slander or defamation as
against the PRC, any person, firm or corporation, except that no representation
or warranty is given with respect to music performance rights.
-8-
<PAGE>
(c) JENC and CETP shall each indemnify, defend and forever hold harmless
the other, the other's affiliated companies and their respective officers,
directors, employees, partners and agents from all liabilities, claims, costs,
damages and expenses (including, without limitation, counsel fees and court
costs) arising out of any breach or claimed breach by it of any representation
or any of its obligations pursuant to this Contract. It is hereby agreed that
the indemnifying party shall have the right to assume the full defense of any or
all claims or litigation to which its indemnity applies and that the indemnified
party will cooperate fully (at the cost of the indemnifying party) with the
indemnifying party in such defense and in the settlement of such claims or
litigation, and the indemnified party shall make no compromise or settlement of
any such claims without the prior written consent of the indemnifying party.
The settlement of any claim without the prior written consent of the
indemnifying party shall release the indemnifying party from its obligations
hereunder with respect to such claim or action so settled.
(d) The representations, warranties and indemnities contained in this
Section 11 shall continue throughout the term of this Contract and the
indemnities shall survive the expiration or termination of this Contract.
12. TAXES.
------
(a) CETP shall be liable for all customs duties, import value added tax, or
other taxes imposed by the government of the PRC, any of its governmental
subdivisions, or any local governmental authority on the delivery of Programming
(including the physical tape and the educational content) by JENC to CETP
pursuant to this Contract. CETP shall not be liable for any taxes imposed on
advertising revenues received by JENC provided, however, that if the tax
--------- -------
consequences of the advertising make the continuation of this contract
impracticable from a financial standpoint to JENC, as determined by JENC in its
sole discretion, JENC shall be entitled to terminate this contract on 120 days'
prior written notice.
(b) CETP shall take reasonable actions to assist JENC in obtaining approval
from the government of the PRC, any of its governmental subdivisions, or any
local governmental authority, that JENC qualifies as a resident of the United
States of America eligible to be taxed on royalty income arising in the PRC at a
withholding rate of ten percent (10%) pursuant to Article 11 of the Agreement
between the Government of the United States of America and the Government of the
People's Republic of China for the Avoidance of
-9-
<PAGE>
Double Taxation and the Prevention of Tax Evasion with respect to Taxes on
Income, brought into force on October 22, 1986.
(c) To the extent CETP is required to withhold any taxes of JENC relating
to the transactions contemplated by this Contract , CETP shall provide JENC with
reasonable documentary evidence that such taxes have been withheld and paid to
the appropriate governmental authority.
13. DISPUTE RESOLUTION.
-------------------
(a) The parties shall attempt to resolve any dispute arising from or in
connection with this Contract through friendly consultation between the Parties.
If after consultation, the dispute is not settled, either party may submit the
matter in dispute to a judicial court for resolution.
(b) The parties agree that any judicial proceeding brought against CETP
with respect to this Contract may be brought in any court of competent
jurisdiction in the State of Colorado, and by execution and delivery of this
Contract, CETP accepts for itself generally and unconditionally the jurisdiction
of any such court, and irrevocably agrees to be bound by such judicial
proceedings and any judgment rendered by such court in connection with this
Contract. CETP irrevocably agrees to, and accepts, service upon it by mail of
all process in any such proceeding in any such court in the State of Colorado,
such service being hereby acknowledged by CETP to be effective and binding on it
in every respect.
14. GENERAL.
--------
(a) This Contract shall inure to the benefit of and be binding upon the
parties hereto and their respective successors and permitted assigns.
Notwithstanding the foregoing, this Contract may not be assigned by either party
without the prior written consent of the other, which consent shall not be
unreasonably withheld; provided, however, JENC may assign or transfer this
-------- -------
Contract without the prior written consent of CETP to any corporation or other
entity which is controlling, controlled by, or under common control with JENC.
(b) Neither JENC nor CETP shall be, or hold itself out as, the agent of the
other under this Contract. No person receiving the Programming from CETP shall
be deemed to have any privity of contract or direct contractual or other
relationship with JENC by virtue of this Contract or JENC's provision of the
Programming to CETP hereunder. Likewise, no supplier of advertising
-10-
<PAGE>
or anything else included in the Programming by JENC shall be deemed to have any
privity of contract or direct contractual or other relationship with CETP by
virtue of this Contract or CETP's distribution of the Programming hereunder.
Nothing contained herein shall be deemed to create, and the parties do not
intend to create, any relationship of partners, joint venturers, agents or
participants in a foreign investment enterprise, as between CETP and JENC, and
neither party is authorized to or shall act toward third parties or the public
in any manner which would indicate any such relationship with the other.
(c) This Contract contains the entire understanding of the parties and
supersedes all prior understandings of the parties relating to the subject
matter herein. This Contract may not be modified except in writing executed by
all parties hereto. Any waiver of any provision of this Contract must be in
writing and signed by the party whose rights are being waived and no waiver by
either CETP or JENC of any breach of any provision hereof shall be or be deemed
to be a waiver of any preceding or subsequent breach of the same or any other
provision of this Contract.
(d) This Contract and all collateral matters shall be construed in
accordance with and governed by the laws of the State of Colorado applicable to
contracts fully made and to be performed therein, irrespective of the place of
actual execution or performance. The English language shall be the controlling
language with respect to the interpretation and meaning of this Contract.
(e) The invalidity or unenforceability of any provision of this Contract
shall in no way affect the validity or enforceability of any other provision of
this Contract.
(f) JENC and CETP each acknowledge that this Contract was fully negotiated
by the parties and, therefore, no provision of this Contract shall be
interpreted against any party because such party or its legal representative
drafted such provision.
(g) No third party shall be a beneficiary of, or have any rights by virtue
of, this Contract.
(h) All notices and other communications given hereunder shall be in
writing and shall be delivered by facsimile transmission, telegraph, personal
delivery or by express courier, addressed to the respective parties at the
following addresses:
-11-
<PAGE>
IF TO CETP: CHINA EDUCATION TV PRODUCTIONS
Education Television
Building #305
160 Fuxingmennei St., Xicheng District
Beijing, 100031, China
Attention: Director
Facsimile: 86-10-6608-4299
IF TO JENC: JONES EDUCATION NETWORKS, INC.
9697 E. Mineral Avenue
Englewood, Colorado 80112
United States of America
Attention: President
Facsimile: 303-799-1644
The date of facsimile transmission, telegraph or personal delivery, or the
business day five (5) days after delivery to an express courier if by express
courier, shall be deemed the date of which any notice is given and effective.
(i) The titles and headings of the sections in this Contract are for
convenience only and shall not in any way affect the interpretation of this
Contract.
IN WITNESS WHEREOF, the parties hereto have executed this Contract as
of the day and year first written above.
CHINA EDUCATION TV PRODUCTIONS
By:/s/ Cui Zhiming
---------------
Title:Director
--------
Date:June 28, 1996
-------------
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<PAGE>
JONES EDUCATION NETWORKS/
CHINA, INC.
a corporation organized and existing
under the laws of the State of Colorado,
United States of America
By:/s/ Wallace W. Griffin
----------------------
Title:President
---------
Date:June 28, 1996
-------------
(24279)
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<PAGE>
EXHIBIT A
---------
Jones Education Networks/China, Inc.
Jones Computer Network, Inc.
Mind Extension University, Inc.
Computer World
10 Nanoseconds of Fame
Digital Gurus
MultiMedia Gulch
New Media News
Knowledge Network
Knowledge TV
<PAGE>
EXHIBIT B
---------
VOICE OVER TRANSLATION COSTS DETERMINED AS FOLLOWS:
- ---------------------------------------------------
ASSUMPTIONS:
- ------------
52 Minutes per block of Programming
Three 52 Minutes of new Programming per week, for a total of 156 new programs
during the Initial Term
Each new program is repeated once for a total of 312 programs
CALCULATIONS:
- -------------
Total Length for Voice Over Translation for Initial Term
- --------------------------------------------------------
<TABLE>
<CAPTION>
52 Minutes x 3 Programs Per Week x 52 Weeks per Year = 8,112 Minutes
<S> <C> <C>
Voice Over Translation Service
- ------------------------------
8,112 Minutes x US$25.00 per Minute = US$202,800.00
-------------
Blank Tapes
- -----------
312 programs x US$35.00 per tape = US$10,920.00
-------------
Interstitials
- -------------
8 minutes x 156 new programs x US$100.00 = US$124,800.00
-------------
Repeat Service
- --------------
US$160,000.00
- -------------
TOTAL AMOUNT US$498,520
- ------------ ----------
One Third of Total Amount = US$166,173.34
</TABLE>
-15-
<PAGE>
Exhibit 10.16
REPRESENTATION AGREEMENT
------------------------
THIS REPRESENTATION AGREEMENT ("Agreement") is made and entered into as of
the 15th day of July, 1994, by and between Higher Education Group, Inc., a
Colorado corporation ("HEG"), and Jones Education Networks, Inc., a Colorado
corporation ("Jones").
Recitals
--------
A. HEG has offered to represent Jones in connection with the distribution
of certain video programming in the Territory (as hereinafter defined).
B. Jones desires to be represented by HEG on the terms and conditions set
forth herein.
Agreement
---------
Therefore, in consideration of the foregoing and subject to the terms and
conditions set forth herein, the parties hereby agree as follows:
1. Representation of Jones. Subject to the provisions of this Agreement,
------------------------
Jones hereby grants to HEG the right to act as Jones' agent in the distribution
to cable television operators in the Territory of video programs, as generally
described on Exhibit A attached hereto (the "Jones Programming")
---------
2. Territory. The geographic area covered by this Agreement and the area
---------
in which the respective obligations of the parties under this Agreement are
applicable is Taiwan, the Republic of China (the "Territory").
3. Nature of Relationship. The right of HEG to act as Jones' agent
----------------------
granted in Section 1 hereof shall (i) apply only with respect to the Jones
Programming and to no other programming, and (ii) be exclusive with respect to
the distribution of the Jones Programming in the Territory. Nothing in this
Agreement shall be deemed to create, and the parties do not intend to create,
any relationship of partners or joint venturers as between HEG and Jones.
Neither HEG nor Jones shall be or hold itself out as the agent of the other
under this Agreement, except as and to the extent described in this Agreement.
HEG shall have no power to bind Jones contractually or to incur any debt or
obligation on behalf of Jones. HEG shall not at any time enter into any contract
with any person, firm, or corporation that shall purport to bind Jones in any
matter
<PAGE>
whatsoever without written authority from Jones, and any such contract entered
into by HEG shall not be binding upon Jones.
4. Obligations of HEG.
---------------------
(a) HEG shall use its best efforts to secure Programming Distribution
Agreements, in the form attached hereto as Exhibit B, from cable television
---------
operators in the Territory. HEG shall have no authority to make or commit to
make any changes to the form of Programming Distribution Agreement attached
hereto as Exhibit B without the prior written approval of Jones. Cable
---------
television operators in the Territory which (i) execute a Programming
Distribution Agreement and (ii) hold a valid franchise license issued pursuant
to the Cable Television Law of the Republic of China and all other necessary
permits and licenses to operate a cable television system in the Territory are
referred to in this Agreement as "Distributors".
(b) HEG shall coordinate all aspects of the distribution of the Jones
Programming by Distributors in the Territory. HEG shall be responsible for
billing and collecting license fees and any other amounts owed by Distributors
to Jones under Programming Distribution Agreements with Jones. HEG shall
require payment of all license fees in cash or cash equivalents. HEG shall
deposit all amounts collected from Distributors in an account approved by Jones
that is located within the Territory.
(c) HEG shall keep accurate books and records in connection with its
activities under this Agreement. During the term of this Agreement, and for the
calendar quarter concluding immediately after the expiration or termination of
this Agreement, HEG shall prepare and deliver to Jones, within 45 days after the
completion of each calendar quarter, an unaudited statement of revenues
collected from Distributors under this Agreement for the quarter then ended,
which statement shall be accompanied by the certification of the financial
officer responsible for its preparation. At least once each year during the
term of this Agreement, HEG shall deliver an audited statement of the revenues
collected from Distributors during the preceding 12-month period. Jones shall
have the right to inspect and audit the records of HEG relating to this
Agreement, at the expense of Jones, upon reasonable notice and during normal
business hours, in order to verify the financial statements delivered pursuant
to this subsection (d).
(d) HEG shall be responsible for obtaining, at its sole cost and
expense, all necessary licenses and permits required to perform its obligations
under this Agreement. HEG shall fully adhere to all applicable legal
requirements in the performance of its obligations under this Agreement.
-2-
<PAGE>
(e) HEG shall make its representatives available to meet with
representatives of Jones at least once each calendar quarter for the purpose of
assessing the project's progress and to discuss future plans and activities.
5. Obligations of Jones.
--------------------
(a) Jones shall produce master video tapes of the Jones Programming in NTSC
SVHS format. Jones, in consultation with HEG, shall coordinate the duplication
of the tapes and the shipment of the tapes to the Territory. Jones shall make
the tapes available to HEG for distribution at least seven days prior to the
anticipated airing of the Jones Programming in the Territory.
(b) Jones shall keep accurate books and records in connection with its
activities under this Agreement. During the term of this Agreement, and for the
calendar quarter concluding immediately after the expiration or termination of
this Agreement, Jones shall prepare and deliver to HEG, within 45 days after the
completion of each calendar quarter, an unaudited statement of the direct
expenses incurred in the performance of its obligations under this Agreement,
including the cost of developing the Jones Programming, duplicating and shipping
the video tapes containing the Jones Programming, and providing the marketing
support required by subsection (c) of this Section 5. Each statement shall be
accompanied by the certification of the financial officer responsible for its
preparation. Jones shall have the right to inspect and audit the records of HEG
relating to this Agreement, at the expense of HEG, upon reasonable notice and
during normal business hours, in order to verify the statements delivered
pursuant to this subsection (b).
(c) Jones shall make marketing and promotional materials available to HEG,
and provide other marketing support to HEG, in accordance with the marketing
plan attached as Exhibit C to this Agreement.
---------
(d) Jones shall make its representatives available to meet with
representatives of HEG at least once each calendar quarter for the purpose of
assessing the project's progress and to discuss future plans and activities.
6. Compensation; Expenses.
----------------------
(a) Within 45 days after the end of each calendar quarter, HEG shall be
entitled to receive a fee from Jones equal to fifty percent (50%) of the Net
Revenues (as hereinafter defined) generated from the distribution of the Jones
-3-
<PAGE>
Programming under this Agreement. For purposes of this Agreement, the term "Net
Revenues" shall mean (i) all cash or other property directly or indirectly
received from a Distributor in connection with any Programming Distribution
Agreement, less (ii) the direct costs incurred by Jones in connection with the
development and production of the Programming, including duplicating and
shipping the video tapes containing the Jones Programming, and the direct cost
of the marketing support required by this Agreement, .
(b) Except as provided in subsection (a) of this Section 6, all
expenses incurred by HEG or Jones in connection with the performance of their
respective obligations under this Agreement shall be and remain the sole
responsibility of the party incurring such expenses.
7. Term and Termination.
--------------------
(a) Unless earlier terminated as provided in this Section 7, the term
of this Agreement shall commence on the date hereof and shall continue for a
period of five years. This Agreement shall automatically renew for an additional
term of five years upon the expiration of the initial term, unless either Jones
or HEG gives the other written notice of its desire not to renew this Agreement,
at least 90 days prior to the expiration of the then current term, because the
collaboration has not been profitable during the initial term, or is not
reasonably expected to be profitable during the renewal term. Except as
otherwise expressly set forth herein, this Agreement may not be terminated by
either party except for a breach of the terms hereof, and then only after
written notice of such alleged breach has been delivered to the breaching party
and such party has had 60 days to cure such breach.
(b) Notwithstanding anything to the contrary in this Agreement, either
Jones or HEG may terminate this Agreement immediately upon written notice to the
other if, by January 1, 1995, HEG has not obtained executed Programming
Distribution Agreements in the form attached hereto as Exhibit B (with only such
---------
modifications as to which Jones has given its written approval) from
Distributors whose systems provide cable television programming, in the
aggregate, to at least 200,000 basic cable subscribers in the Territory.
(c) Notwithstanding anything to the contrary in this Agreement, HEG may
terminate this Agreement upon at least 180 days written notice to Jones of a
material change in the laws or regulations in the Territory that would render
HEG's performance of this Agreement illegal or commercially impracticable.
-4-
<PAGE>
8. Future Activities by HEG and Jones. If the distribution of the Jones
----------------------------------
Programming in the Territory is profitable and stable, in the sole opinion of
both Jones and HEG, the parties shall enter into good faith discussions
regarding collaboration on additional revenue generating projects involving
educational cable television programming in the Territory, including but not
limited to offering student certificate and degree programs and selling
advertising (the "Additional Projects"). If the parties agree to collaborate on
any Additional Projectsin the Territory, the financial terms shall be
substantially the same as those set forth in Section 6 of this Agreement (i.e.,
HEG to receive a fee equal to 50% of net revenues). Neither HEG nor Jones shall
engage in any Additional Projects in the Territory during the term (including
any renewal term) of this Agreement, except in collaboration with one another.
9. Property Rights. All right, title and interest in and to the Jones
----------------
Programming, and all materials, ideas, formats and concepts, computer software
or other rights of whatever nature related thereto are, and shall remain, the
sole and exclusive property of Jones or its affiliates. Further, HEG hereby
acknowledges and agrees that the Programming and the names "Jones", "Mind
Extension University", "The Education Network", "Jones Computer Network" and all
other names, logos, marks, copyright notices or designations utilized by Jones
or its affiliates in connection with the Jones Programming or otherwise
(collectively, the "Marks") are the sole and exclusive property of Jones and/or
its affiliates, and no rights or ownership are intended to be or shall be
transferred to HEG or any other person. HEG may use the Marks in connection
with its activities as a representative of Jones under this Agreement only in
advertising or promotional materials that have be submitted to and approved by
Jones in advance of their use.
10. Representations and Warranties. Jones represents and warrants to HEG
------------------------------
that it is a corporation duly organized and validly existing under the laws of
the State of Colorado, United States of America; that it has the corporate power
and authority to enter into this Agreement and to fully perform its obligations
hereunder; and that it is under no contractual or other legal obligation that in
any way interferes with its ability to fully perform its obligations hereunder.
HEG represents and warrants to Jones that it is a corporation duly organized and
validly existing under the laws of Colorado; that it has the corporate power and
authority to enter into this Agreement and to fully perform its obligations
hereunder; and that it is under no contractual or other legal obligation that in
any way interferes with its ability to fully perform its obligations hereunder.
-5-
<PAGE>
11. Indemnification.
---------------
(a) HEG shall indemnify and hold harmless Jones and its directors,
officers, employees, attorneys and agents (the "Jones Indemnitees") against and
in respect of any and all claims, suits, actions, proceedings (formal and
informal), investigations, judgments, deficiencies, damages, settlements,
liabilities and legal and other expenses (collectively, "Losses") as and when
incurred, which arise out of or are based upon any breach of any representation,
warranty, covenant or agreement of HEG contained in this Agreement.
(b) Jones shall indemnify and hold harmless HEG and its directors,
officers, employees, attorneys and agents (the "HEG Indemnitees") against and in
respect of any and all Losses, as and when incurred, which arise out of or are
based upon any breach of any representation, warranty, covenant or agreement of
Jones contained in this Agreement.
12. Other Provisions.
-----------------
(a) This Agreement shall inure to the benefit of and be binding upon
the parties hereto and their respective successors and assigns. Notwithstanding
the foregoing, HEG shall not subcontract or delegate to any third party any
portion of its obligations under this Agreement without the prior written
consent of Jones, except that HEG may assign this Agreement, in whole or in
part, to a wholly-owned subsidiary of HEG.
(b) All notices, statements and other communications given under this
Agreement shall be in writing and shall be delivered by facsimile transmission,
telegraph, personal delivery, certified mail, return receipt requested, or by
next day express delivery, addressed, if to Jones, to Jones Education Networks,
Inc., 9697 East Mineral Avenue, P.O. Box 3309, Englewood, Colorado 80155, Attn.:
President (Fax: 303-799-1644), with a copy to Legal Department at the same
address and facsimile number; and if to HEG, to Higher Education Group, Inc.,
29713 Troutdale Scenic Drive, C-2, P.O. Box 892, Evergreen, Colorado 80439-7738
(Fax: 303-674-2205) The date of such facsimile transmission, telegraphing or
personal delivery, or the next day if by express delivery, or the date three (3)
days after mailing, shall be deemed the date on which such notice is given and
effective.
(c) A waiver by either party of any term or condition of this
Agreement in any one instance shall not be deemed or construed as a continuing
waiver or a waiver of any subsequent breach thereof. This Agreement sets forth
the entire understanding of the parties with respect to the subject matter
hereof
-6-
<PAGE>
and supersedes all prior understandings and agreements, oral or written between
the parties hereto. This Agreement may not be modified except in a writing
executed by both parties hereto.
(d) This Agreement and all collateral matters shall be construed in
accordance with the internal laws of the State of Colorado applicable to
agreements fully made and to be performed therein, irrespective of the place of
actual execution or performance.
(e) The invalidity or unenforceability of any provision of this
Agreement shall in no way affect the validity or enforceability of any other
provision of this Agreement.
The parties hereto have entered into this Agreement as of the date first
set forth above.
HIGHER EDUCATION GROUP, INC.
By: /s/ David J. Figuli
------------------------------------
Name: David J. Figuli
------------------------------------
Title: President
-----------------------------------
JONES EDUCATION NETWORKS, INC.
By: /s/ Gregory J. Liptak
-------------------------------------
Gregory J. Liptak
Group President/Global Distribution
-7-
<PAGE>
Exhibit A
---------
to
--
Representation Agreement
------------------------
Jones Programming
-----------------
The Jones Programming shall consist of educational programming produced or
obtained by Jones and/or its affiliates. Jones shall have the exclusive
authority to determine from time to time the content, selection and format of
the educational programming that will constitute the Jones Programming
-8-
<PAGE>
Exhibit C
---------
to
--
Representation Agreement
------------------------
Marketing Plan
--------------
The base marketing plan for the Territory consists of the following:
1. Development and distribution of network promotional video tapes to
drive Distributor growth (estimated first year expense of $5,000).
2. Trade magazine advertising - one ad per month (estimated first year
expense of $20,000).
3. Development and printing of affiliate sales and support materials
(estimated first year expense of $15,000).
4. Convention booth, once per year (estimated first year expense of
$5,000).
5. Premium items for distribution to Distributors and at the convention
(estimated first year expense of $5,000).
6. Other items jointly approved by HEG and Jones.
-9-
<PAGE>
EXHIBIT 10.17
PROGRAMMING DISTRIBUTION AGREEMENT
------------------------------------
THIS PROGRAMMING DISTRIBUTION AGREEMENT ("Agreement") is made as of the 28th day
of September, 1994, by and between Jones Education Networks, Inc., a Colorado
corporation ("Jones"), and Space Vision, Inc., a corporation organized under the
laws of the Republic of China ("Distributor"), whose address is 9F, A2, No.97,
Section 2, Tun Haw S. Rd., Taipei, Taiwan.
IN CONSIDERATION OF THE MUTUAL COVENANTS, STIPULATIONS AND REPRESENTATIONS
CONTAINED HEREIN, THE PARTIES TO THIS AGREEMENT AGREE AS FOLLOWS:
1. GRANT OF EXCLUSIVE LICENSE
--------------------------
(a) Subject to the limitations, terms and conditions of this Agreement,
Jones hereby grants to Distributor the exclusive license to Distribute (as
defined below) the programming identified on Exhibit A attached to this
---------
Agreement, as such Exhibit may be amended from time to time in accordance
with Section 3(a) hereof (the "Programming"), to cable television system(s)
located in Taiwan, the Republic of China (each a "System" and collectively
the "Systems").
(b) For purposes of this Agreement, the "Operating Area" of any System
shall mean the geographical area where the operator of the System is
authorized to construct, operate, manage or maintain a cable television
system by the appropriate governmental authority of the Republic of China.
(c) For purposes of this Agreement, "Distribute" shall mean the delivery
of the Programming to Systems by video tape, or by satellite or microwave
signal, and the subsequent delivery to subscribers through the Systems'
cable distribution plant.
2. TERM AND TERMINATION
--------------------
(a) Unless earlier terminated as provided in this Agreement, the term of
this Agreement shall commence on September 28, 1994, and terminate three
(3) years from and after the data when Programming is available for
distribution by Distributor. This Agreement shall automatically renew for
successive one (1) year terms unless either party gives written notice of
termination at least forty-five (45) days prior to the expiration of the
then current term.
(b) Except as otherwise provided herein, neither Distributor nor Jones
may terminate this Agreement except upon sixty (60) days prior written
notice and then only if the other has made a material misrepresentation in
this Agreement or breaches any of its material obligations in this
Agreement and such misrepresentation or breach
<PAGE>
(which shall be specified in such notice) is not or cannot be cured within
sixty (60) days of such notice.
3. CONTENT OF PROGRAMMING
----------------------
(a) Jones shall have the exclusive authority to determine from time to
time the content, selection and format of the programming that will
constitute the Programming, and shall have the right to amend Exhibit A
---------
from time to time during the term of this Agreement to change, substitute
or alter the description of the Programming. Jones agrees to consult with
Distributor from time to time in order to obtain the advice of the
Distributor as to the type of Programming that will be most attractive to
the local market.
(b) Jones shall make available for transfer to Distributor, FOB Englewood,
Colorado or such other no more distant shipping point selected by Jones,
master video tapes of the Programming in BETACAM NTSC format for initial
channel launch on January 1, 1995 and thereafter monthly throughout the
term of this Agreement. The tapes provided shall be subtitled in Mandarin
Chinese unless, in the exercise of Jones' reasonable judgment, such
subtitling is unnecessary or the content of the program is not suited for
subtitling; provided, however, that Jones shall consult with Distributor
prior to the initial launch of the Programming in Taiwan, and from time to
time thereafter, regarding the general standards that Jones will use to
determine whether the content of any program is not suited for subtitling.
The Programming shall initially consist of forty-two (42) hours of
Programming per week, which shall be in six (6) hour daily blocks (each, a
"Programming Block"). Jones shall make the tapes available to Distributor
at least thirty (30) days prior to the anticipated airing of the
Programming by Distributor. Distributor's right to distribute the
Programming contained on the video tapes or any copies made therefrom shall
expire ten (10) days after the date on which such Programming was scheduled
to be cablecast unless otherwise approved by Jones. Jones will make
available to Distributor the Programming schedule for each month no less
than forty-five (45) days prior to the first day of the scheduled month.
(c) If any of the BETACAM master tapes delivered by Jones to Distributor
are defective, Jones shall deliver new master tapes without defects to the
point of entry in Taipei, Taiwan, within seven days after receiving written
notice from the Distributor.
4. TAPE FEES AND PAYMENTS
----------------------
(a) On or before the thirtieth (30th) day following the conclusion of
each calendar month throughout the term of this Agreement, Distributor
shall pay to Jones' designated payment agent, Higher Education Group,
Inc., doing business as American Higher Education Centers, Inc. ("AHEC"),
tape fees in an amount calculated in accordance with the provisions of
Exhibit B attached hereto and payable in NTD equivalent. For the two years
---------
beginning January 1, 1995, the NTD equivalent shall be
2
<PAGE>
determined using the U.S. Dollar to NTD exchange rate in effect at the
time of payment, as quoted by Citibank or its successor financial
institution. Beginning January 1, 1997, and each year thereafter during the
term of this Agreement, the equivalent for such year shall be determined by
using the average end of month U.S. Dollar to NTD exchange rate during the
previous two-year period, as quoted by Citibank or its successor financial
institution. Jones may designate a different payment agent by giving
written notice to Distributor. Distributor unconditionally guarantees the
payment of the Minimum Guaranteed Tape Fees set forth on Exhibit B
regardless of the actual number of subscribers that receive the
Programming. The payment of the Minimum Guaranteed Tape Fee for the first
three months of 1995 will be paid to Jones' designated payment agent in
advance no later than the close of business on October 15, 1994 in the
amount of USD 155,700.
(b) Jones' payment agent shall invoice Distributor for monthly tape fees.
Failure, for any reason, to receive an invoice for a particular monthly
payment shall not relieve Distributor of its obligation to make any payment
in a timely manner consistent with the terms of this Agreement. If
Distributor is in default with respect to any payment required by Section
4(a), in addition to Distributor's liability for the amount in default,
Distributor shall pay interest of one and one-half percent (1-1/2%) per
month, prorated for partial months, of the amount in default, and in
addition, Distributor shall be liable for all reasonable costs and expenses
(including court costs and attorneys' fees) incurred by Jones or AHEC in
collecting any past due payments. If Distributor is in default with respect
to any payment required by Section 4(a) and such default remains uncured
for more than sixty (60) calendar days, or, if Distributor defaults in its
payment obligations under Section 4(a) two or more times in any twelve
month period, then, at the option of Jones, the exclusive right to
distribute granted in Section l(a) may be terminated; provided that the
termination of such rights shall not terminate this agreement or relieve
Distributor of any of its obligations hereunder.
(c) Accompanying each payment during the term of this Agreement,
Distributor shall provide a true and complete monthly report, signed and
certified by the chief financial officer of Distributor or his/her
authorized designee, in a form satisfactory to Jones, identifying each
System on which the Programming is carried and the chargeable number of
subscribers of each System, as agreed upon by the System and Distributor,
during the subject payment period, and specifying the gross revenues
received, directly or indirectly, by Distributor from each System during
the subject payment period for the Programming, and containing such other
information as may be reasonably required by Jones for accurate billing
purposes.
(d) Distributor shall keep true and accurate books and records directly
relating to this Agreement in accordance with generally accepted accounting
principles. All such books and records shall be maintained by Distributor
for a period of three (3) years following the year to which such books and
records relate. Jones, AHEC or their authorized representatives shall have
the right, at their own cost, to inspect, audit and copy any such books and
records of Distributor. Such inspection, auditing and
3
<PAGE>
copying shall be limited to two times per year. Further, Jones shall
provide at least 10 days prior written notice before such inspection,
auditing or copying. Jones and AHEC agree that the books and records of
Distributor shall be subject to the confidentiality provisions of Article
10 of this Agreement. Acceptance by Jones or its agents of any payment by
Distributor shall not be construed as acceptance of any calculation thereof
or any aforementioned subscriber count supplied in the monthly report, or
as a waiver of any rights of Jones hereunder.
5. DISTRIBUTION OF PROGRAMMING
---------------------------
(a) Distributor shall distribute the Programming, and shall require each
System operator to distribute the Programming, in its entirety without
addition, deletion, alteration, editing or amendment, including any
copyright notices, credits and similar notices, trademarks or tradenames
included in the Programming unless otherwise approved in writing by Jones.
During the term of this Agreement, Distributor shall require that the
Programming appear on each System on the "basic" tier of service, which for
purposes of this Agreement means the tier of service with the highest
Penetration (as hereinafter defined). For the purposes of this Section, the
term "Penetration" means the ratio of the number of subscribers in any
System receiving and paying for the level or tier of cable television
service to the total number of subscribers of the System.
(b) Distributor shall distribute the Programming throughout the entire
term of this Agreement, and require in writing that each System operator
use the Programming, only in accordance with the limitations, terms and
conditions of this Agreement, and will not replace, delete, terminate or
otherwise disrupt, discontinue or cease transmission of the Programming, or
by agreement or contract permit or allow any System operator to do any of
the foregoing. The Programming Block for a particular day shall be repeated
on each System such that the Programming shall constitute a full twenty-
four (24) hour per day channel on each System.
(c) Distributor shall designate or cause to be designated one (1) channel
on each System for the delivery of the Programming and the Programming
shall not be wrapped with or exhibited on any shared channel basis with any
other programming.
(d) The Programming shall be aired in accordance with the schedule
provided by Jones. In the event that such an airing schedule is not met due
to causes beyond the control of Distributor, the Programming shall be aired
as immediately as possible after the correction of the problem causing the
original failure to deliver the Programming.
(e) Distributor is authorized to and shall copy the BetaCam master
provided by Jones in sufficient quantities as shall be necessary for each
System and shall timely deliver the tapes to the System operators.
Distributor shall take reasonable and practical security measures to
prevent the unauthorized copying or taping by others. Jones represents and
warrants that Distributor shall have the right to Distribute, and
4
<PAGE>
System operators shall have the right to cablecast, the Programming without
any claims of infringement or other third party claims, and that the
Programming shall be free from restrictions or limitations imposed by
third parties, affecting the distribution of the Programing. Jones shall be
solely responsible to remove any such limitations or restrictions.
Distributor shall not distribute or exhibit, and shall not authorize,
license or permit the distribution or exhibition of, the Programming by any
means or device, whether now known or hereafter devised, other than through
Systems which hold all necessary licenses and permits to operate in Taiwan.
6. OTHER COST
----------
In addition to the tape fees payable by Distributor pursuant to Section 4
of this Agreement, and any other costs payable by Distributor pursuant to
this Agreement, Distributor shall pay all customs, VAT or other taxes, fees
or charges related to the distribution of the copies of the tapes and
Programming to the Systems and airing of the Programming or the use of the
tapes and Programming in Taiwan. Distributor shall be responsibie for the
payment of all customs, VAT or other taxes, fees or charges related to the
importation or use of the BetaCam master tapes and any promotional
materials.
7. PROMOTION AND MARKETING OF THE PROGRAMMING
------------------------------------------
(a) Distributor shall use its best effort, to promote, market and sell
the Programming to Systems in Taiwan. Distributor shall promote and market
the Programming on a basis and to an extent equal to the marketing and
promotion efforts devoted to the other channels included in any package of
service in which the Programming is included.
(b) Jones, at no additional cost to Distributor, may from time to time
during the term of this Agreement supply Distributor with promotional
material related to the Programming. The promotional materials may include
but not necessarily be limited to course catalogs, program schedules and
advertising slicks. Distributor shall use good faith efforts to distribute
any such promotional material to System operators and persons receiving the
Programming and in connection with its efforts to gain subscribers.
(c) At Jones' request, Distributor shall provide Jones with all
available data regarding the viewership, marketing and promotion of the
Programming by Distributor. Subject to applicable federal, state and local
law (including, the franchises pursuant to which the Systems are
operated), Distributor shall also render such other reasonable assistance
to Jones as Jones may request in connection with any marketing test,
survey, poll or other research which Jones may undertake in connection with
the Programming.
5
<PAGE>
(d) Jones shall obtain the agreement of AHEC to maintain in Taiwan an
educational service center to support the students who enroll in counts of
study offered in conjunction with the Programming.
8. TRADEMARKS
----------
All right, title and interest in and to the videotapes shall pass to
Distributor upon transfer, provided that all right, title and interest in
and to the Programming contained on the videotapes, and all materials,
ideas, formats and concepts, computer software or other rights of whatever
nature related thereto, shall remain the property of Jones and/or its
affiliates. Further, Distributor acknowledges and agrees that all names,
logos, marks, copyright notices or designations utilized by Jones and/or
its affiliates in connection with the Programming (the "Marks") are the
sole and exclusive property of Jones and/or its affiliates, and no rights
or ownership are intended to be or shall be transferred to Distributor
pursuant to this Agreement. Distributor may use the Marks to advertise and
promote the carriage of the Programming by Systems. Distributor may
authorize an operator of a System to use the Marks only (i) to advertise
and promote the Programming in a manner approved by Jones, and (ii) in the
carriage of the Programming on the operator's System. Distributor shall
notify Jones of any unauthorized use of the Marks of which it has
knowledge, and shall cooperate with all reasonable requests made by Jones
in seeking to prohibit or remediate such unauthorized use. Jones shall
provide Distributor with samples of the Marks, which Distributor shall use
in their entirety (including all service mark and trademark notices)
whenever the Marks are used by Distributor.
9. REPRESENTATIONS AND INDEMNIFICATION
-----------------------------------
(a) Jones represents and warrants to Distributor that (i) it is a
corporation duly organized and validly existing, under the laws of the
State of Colorado; (ii) Jones has the corporate power and authority to
enter into this Agreement and to fully perform its obligations hereunder;
(iii) Jones is under no contractual or other legal obligation that in any
way interferes with its ability to fully, promptly and completely perform
hereunder; and (iv) nothing contained in the Programing shall violate the
civil or property rights, copyrights, trademark rights or right of privacy
of any person, firm or corporation.
(b) Distributor represents and warrants to Jones that (i) Distributor is a
corporation duly organized and validly existing under the laws of the
Republic of China; (ii) Distriburor has the requisite power and authority
to enter into this Agreement and to fully perform its obligations in this
Agreement; (iii) Distributor is under no contractual or other legal
obligation which in any way interferes with its ability to fully, promptly
and completely perform hereunder.
(c) Distributor and Jones shall each indemnify and forever hold
harmless the other, the other's affiliate companies and their respective
officers, directors, employees and
6
<PAGE>
agents from all liabilities, claims, costs, damages and expenses
(including, without limitation, reasonable counsel fees) arising out of any
breach or claimed breach by it of any representation or any of its
obligations pursuant to this Agreement. Jones's liability for damages
arising out of its inability or failure to deliver the Programming shall be
limited to tape fee credits for the period of any such failure.
(d) The party entitled to indemnification hereunder (the "Indemnified
Party") shall notify the other party hereto (the "Indemnifying Party") in
writing of the claim or action for which such indemnity allegedly applies.
The Indemnifying Party shall undertake the defense of any such claim or
action and permit the Indemnified Party to participate therein at the
Indemnified Party's own expense. The settlement of any such claim or action
by an Indemnified Party without the Indemnifying Party's prior written
consent shall release the Indemnifying Party from its obligations under
this Agreement with respect to such claim or action so settled.
(e) Neither party shall be liable to the other for the failure to fulfill
its obligations under this Agreement (other than the obligation to make all
payments when due) to the extent such failure is caused by or arises out of
an act of war, strike, riot, labor dispute, national disaster, technical
failure, or any other reason beyond the control of the party whose
obligation is prevented during the period of such occurrence.
(f) Distributor shall not be liable for any action or omission to act by
the Systems which results in an infringement of the copyright or any other
right of Jones or its affiliates, so long as Distributor is in compliance
with its obligations as set forth in this Agreement and provided that
Distributor has not authorized, and has used its best efforts to avoid, any
such action or omission.
10. CONFIDENTIALITY
---------------
Neither Distributor nor Jones shall disclose to any third party (other than
its respective affiliates and employees), any information with respect to
the terms and provisions of this Agreement, including by way of press
release(s), except: (i) to the extent necessary to comply with law or legal
reporting or disclosure requirements or the valid order of a court of
competent jurisdiction, in which event the party making such disclosure
shall so notify the other as promptly as practicable and, if possible,
prior to making such disclosure shall seek confidential treatment of such
information; (ii) as part of its normal reporting or review procedure to
its parent company, its auditors and its attorneys; provided, however that
-------- --------
such parent company, auditors and attorneys agree to be bound by the
provisions of this Section; (iii) in order to enforce its rights pursuant
to this Agreement; and (iv) if mutually agreed by Distributor and Jones in
writing.
7
<PAGE>
11. GENERAL
-------
(a) This Agreement shall inure to the benefit of and be binding upon the
parties hereto and their respective successors and assigns. Notwithstandlng
the foregoing, this Agreement may not be assigned by Distributor without
the prior written consent of Jones.
(b) Nothing contained herein shall be deemed to create, and the parties do
not intend to create, any relationship of partners or joint venturers as
between Distributor and Jones. Neither Distributor nor Jones shall be or
hold itself out as the agent of the other under this Agreement. The
obligations of Distributor and Jones under this Agreement are subject to
all applicable federal, state and local laws, rules and regulations.
(c) A waiver by either party of any term or condition of this Agreement in
any one instance shall not be deemed or construed as a continuing waiver or
a waiver of any subsequent breach of this Agreement. This Agreement sets
forth the entire understanding of the parties with respect to the subject
matter hereof and supersedes all prior understandings and agreements, oral
or written between the parties. This Agreement may not be modified except
in a writing executed by both parties to this Agreement.
(d) This Agreement and all collateral matters shall be construed in
accordance with the internal laws of the Republic of China.
(e) The invalidity or unenforceability of any provision of this Agreement
shall in no way affect the validity or enforceability of any other
provision of this Agreement.
(f) All notices, statements and other communications given under this
Agreement shall be in writing and shall be delivered by facsimile transmission,
telegraph, personal delivery, certified mail, return receipt requested, or by
next day express delivery, addressed, if to Jones to AHEC at 5F-l, 32 Roosevelt
Road, Section 1, Taipei 100, Taiwan, Republic of China (Fax: 886-2-322-5323),
with a copy to Jones Education Networks, Inc. at 9697 East Mineral Avenue, P.O.
Box 3309, Englewood, Colorado 80155, Attn.: President (Fax: 303-799-1644); and
if to Distributor, at its address set forth in the first paragraph of this
Agreement, or by facsimile at 886-2-706-6340. The date of such facsimile
transmission, telegraphing or personal delivery or the next day if by express
delivery, or the date three (3) days after mailing, shall be deemed the date on
which such notice is given and effective.
8
<PAGE>
IN WITNESS WHEREOF, the parties hereto have entered into this Agreement as of
the date and year first written above.
SPACE VISION, INC.
/s/ Rudolph Lee
---------------------------
Rudolph Lee
Chairman
JONES EDUCATION NETWORKS, INC.
/s/ Gregory J. Liptak
-----------------------------
Gregory J. Liptak
Group President/Global Distribution
AHEC HEREBY AGREES TO PERFORM ITS OBLIGATIONS AS SET FORTH IN THIS AGREEMENT.
HIGHER EDUCATION GROUP, INC.
By: /s/ David J. Figuli
-----------------------
David J. Figuli
President
9
<PAGE>
Exhibit A
---------
to
--
Programming Distribution Agreement
----------------------------------
Description of the Programming
------------------------------
The daily Programming Blocks will generally consist of some combination, to be
determined by Jones, of educational programming that falls into one or more of
the following areas:
1. Academic Instruction - instruction on subjects such as basic accounting,
business writing, communications skills, math and science.
2. Computer Skills - instruction on basic computer skills, how to buy computer
products and use of computer software applications.
3. Pragmatic Skills - programming designed to allow the viewer access to new
skills immediately applicable to everyday life.
4. General Interest - programming that is designed to provide general
information concerning educational trends or interests or trends or interests
related to computer products and technology.
10
<PAGE>
Exhibit B
---------
to
--
Programming Distribution Agreement
----------------------------------
Distributor shall pay Tape Fees as follows:
<TABLE>
<CAPTION>
Minimum Monthly
---------------
Calendar Qtr. Guaranteed Tape Fee (USD) Monthly Rate Per Subscriber (USD)
- ------------- ------------------------------------------------------------------
Year One
--------
<S> <C> <C> <C> <C>
First $51,900/month Up to 150,000 0.346
Over 150,000 0.000
Second $69,200/month Up to 200,000 0.346
Over 200,000 0.000
Third $86,500/month Up to 250,000 0.346
Over 250,000 0.000
Fourth $103,800/month Up to 300,000 0.346
Over 300,000 0.000
Year Two
--------
First $112,450/month 0.346
Second $121,100/month 0.346
Third $129,750/month 0.346
Fourth $138,400/month 0.346
</TABLE>
l1
<PAGE>
Exhibit 10.18
AMENDMENT AGREEMENT
-------------------
This Amendment Agreement is made and entered into as of the 28th day of
September, 1994, by and between Higher Education Group, Inc., a Colorado
corporation ("HEG"), and Jones Education Networks, Inc., a Colorado corporation
("Jones").
Recitals
--------
A. HEG and Jones are parties to that certain Representation Agreement,
dated July 15, 1994 (the "Representation Agreement"). HEG has proposed the
distribution of the Jones Programming through Space Vision, Inc. of Taipei,
Taiwan, a corporation formed and existing under the laws of the Republic of
China ("Space Vision")
B. Jones is, on this date, entering into a Programming Distribution
Agreement with Space Vision, a copy of which is attached hereto as Exhibit A
---------
(the "Space Vision Agreement"). Pursuant to the Space Vision Agreement, Jones
is granting to Space Vision the exclusive right to distribute the Jones
Programming in the Territory for a limited term.
C. In order to proceed with the Space Vision Agreement, Jones and HEG have
agreed to amend certain provisions of the Representation Agreement, as set forth
below.
D. All capitalized terms used in this Agreement and not otherwise defined
shall have the meanings ascribed in the Representation Agreement.
Agreements
----------
Therefore, in consideration of the foregoing and other good and valuable
consideration, the receipt and adequacy of which is hereby acknowledged, and
subject to the terms and conditions set forth below, the parties agree as
follows:
1. To permit Jones to enter into the Space Vision Agreement, HEG hereby
relinquishes its rights under the Representation Agreement to distribute the
Jones Programming in the Territory. If the Space Vision Agreement terminates,
expires, is amended by Space Vision and Jones without the prior approval of HEG,
or is otherwise nullified or set aside, HEG shall automatically be restored to
its full rights of exclusive distribution in the Territory as set forth
<PAGE>
in the Representation Agreement, subject to the termination provisions set forth
in Section 7 of the Representation Agreement, as amended by this Agreement.
2. Subsection (a) of Section 4 of the Representation Agreement is hereby
deleted in its entirety and replaced with the following:
"(a) HEG shall use its best efforts to secure Programming Distribution
Agreements, in the form attached hereto as Exhibit B, from cable television
---------
operators or cable programming distributors in the Territory. HEG shall
have no authority to make or commit to make any changes to the form of
Programming Distribution Agreement attached hereto as Exhibit B without the
---------
prior written approval of Jones. Cable television operators or cable
programming distributors in the Territory which execute a Programming
Distribution Agreement are referred to in this Agreement as
"Distributors"."
3. Section 4 of the Representation Agreement is hereby further amended by
adding the following new subsection:
"(f) HEG shall reimburse Jones for 25% of its actual expenditures, on a
cash basis, for subtitling in Mandarin Chinese the Jones Programming as
required by the Space Vision Agreement; provided, however, that (i) HEG
shall only be obligated to pay the lesser of the actual costs incurred by
Jones or the cost of the equivalent subtitling services as available on a
commercially reasonable basis from outside sources, and (ii) HEG shall only
be obligated to pay for the subtitling of videotapes actually delivered
pursuant to the Space Vision Agreement. HEG acknowledges and agrees that
it will obtain no ownership or other interest in the subtitling or the
Jones Programming by reason of this reimbursement or any other provision of
this Agreement."
4. For as long, and only as long, as the Jones Programming is distributed
in the Territory by a cable programming distributor, including but not limited
to Space Vision,, the parties agree that Jones need not comply with the
obligations set forth in subsections (a) and (c) of Section 5 of the
Representation Agreement.
5. For as long, and only as long, as the Jones Programming is distributed
in the Territory by a cable programming distributor, including but not
-2-
<PAGE>
limited to Space Vision, subsection (a) of Section 6 of the Representation
Agreement is amended to read as follows:
"(a) Within 45 days after the end of each calendar month, HEG shall be
entitled to receive a fee from Jones equal to 46.679% of the Net Revenues
(as hereinafter defined) generated from the distribution of the Jones
Programming under this Agreement; provided, however, that (i) the fee shall
equal 41.679% of any Net Revenues generated in the 1996 calendar year, and
(ii) Jones shall pay to HEG $67,882.37 within 15 days of receiving from
Space Vision the advance payment required under the Space Vision Agreement,
which is due on or about October 15, 1994 (with final reconciliation of
HEG's fee with respect to such revenue to occur on or before May 15, 1995).
For purposes of this Section 6(a), the term "Net Revenues" shall mean all
cash or other property directly or indirectly received from a cable
programming distributor for distribution of the Jones Programming in the
Territory, less the sum of (i) the direct costs of providing any marketing,
pre-launch or launch support required under the terms of the Space Vision
Agreement or approved in writing by HEG (including $5,380 in support
provided by Jones prior to the date of this Amendment Agreement), and (ii)
the direct costs incurred by Jones in connection with the production of the
Jones Programming, including but not limited to the materials and labor
costs of preparing the master videotapes of the Jones Programming and
shipping the master videotapes to the point of delivery (but excluding
subtitling costs, which are covered by Section 4(f)), provided that, with
respect to the Space Vision Agreement, the deduction for all such
production costs (excluding subtitling costs) shall not exceed an amount
equal to the following percentages of the cash or other property received
from Space Vision under the Space Vision Agreement during the designated
period: in 1994 and 1995, 13.2% of the amount paid or payable in 1994 and
1995; in 1996, 8% of the amount paid or payable in 1996; in 1997, 8% of the
amount paid or payable in 1997; in 1998, 7.5% of the amount paid or payable
in 1998; and in 1999, 7.5% of the amount paid or payable in 1999."
6. Subsection (b) of Section 6 of the Representation Agreement is hereby
deleted in its entirety and replaced with the following:
-3-
<PAGE>
"(b) Except as otherwise provided in this Agreement, all expenses incurred
by HEG or Jones in connection with the performance of their respective
obligations under this Agreement shall be and remain the sole
responsibility of the party incurring such expenses."
7. The parties hereby waive any right they may have to terminate the
Representation Agreement pursuant to subsection (b) of Section 7.
8. Section 7 is hereby amended by adding new subsections (d) and (e), as
follows:
"(d) On or before December 31, 1994, the parties will agree upon
mutually acceptable, semi-annual performance standards with respect to the
activities described in Section 8 of this Agreement. Notwithstanding
anything to the contrary in this Agreement, either Jones or HEG may
terminate this Agreement upon at least 60 days written notice to the other
if (i) the parties are unable to agree upon mutually acceptable performance
standards by December 31, 1994, or (ii) any agreed-upon performance
standard is not achieved notwithstanding the reasonable and good faith
efforts of the party wishing to terminate this Agreement, and provided that
there is also a reasonable expectation that the ensuing performance
standard cannot be achieved. If this Agreement is terminated pursuant to
this subsection (d), the compensation provisions of Section 6(a) shall
nonetheless survive.
(e) Notwithstanding anything to the contrary in this Agreement, Jones may
terminate this Agreement immediately upon written notice to HEG if at any
time during the term of this Agreement (i) Space Vision is no longer
distributing the Jones Programming in the Territory pursuant to the Space
Vision Agreement or any replacement or successor agreement between Jones
and Space Vision relating to the distribution of the Jones Programming in
the Territory (a "New Space Vision Agreement"), and (ii) within 120 days of
the expiration or termination of the Space Vision Agreement or a New Space
Vision Agreement, HEG is unable to secure (A) an executed Programming
Distribution Agreement, in the form attached hereto as Exhibit B, from one
---------
or more cable television operators in the Territory, and/or (B) an
-4-
<PAGE>
executed distribution agreement in the form of the Space Vision Agreement
from one or more cable programming distributors in the Territory (other
than Space Vision), providing aggregate distribution of the Jones
Programming to the following minimum number of subscribers in the Territory
at a minimum monthly fee of USD 0.37 per subscriber:
Applicable Calendar Year Minimum Number
------------------------ --------------
of Subscribers
--------------
1995 200,000
1996 300,000
1997 350,000
1998 425,000
1999 500,000
In the event this Agreement is terminated pursuant to this subsection (e),
Jones shall not enter into any agreement with Space Vision regarding the
distribution of the Jones Programming in the Territory for a period of one
year."
9. Section 8 of the Representation Agreement is hereby deleted in its
entirety and replaced with the following:
"8. Additional Activities in the Territory.
---------------------------------------
(a) Jones shall immediately commence good faith efforts to identify and
enter into agreements with educational institutions to offer student
certificate and degree programs in the Territory in connection with the
Jones Programming; provided, however, that Jones shall have no obligation
to enter into any agreement that would require Jones to expend or commit to
expend any of its own funds or resources to develop or produce any new
programming or to revise or modify any existing programming (except for the
subtitling of such programming as provided herein). In connection
therewith, HEG, through its affiliated company, American Higher Education
Centers, Inc. ("AHEC") or its successor, shall operate, at its own expense
and under license from Jones, an educational student service center in
Taipei, Taiwan. The Taiwan student center shall be reflective of, in
concept and function, the Jones student center in Englewood, Colorado (the
"Jones Student Center"), to the extent reasonably necessary under the
-5-
<PAGE>
circumstances; provided, however that AHEC shall have no obligation to
provide hardware, software or equipment that is not readily available or is
proprietary to Jones. HEG acknowledges and agrees that the Jones Student
Center was developed and refined by Jones at considerable expense over a
significant period of time. Accordingly, Jones is granting to HEG hereby
only a license to operate a Jones Student Center in Taiwan during the term
of this Agreement, and no ownership or control over the materials, ideas,
formats, concepts, computer software or other rights of whatever nature
related to the Jones Student Center are conveyed hereby. Upon the
termination or expiration of this Agreement, HEG shall immediately deliver
to Jones all copies, in whatever written or electronic form or format, of
all Mind Extension University student lists, records and other data and
documents related to the operation of the Jones Taiwan Student Center, in
addition to any equipment, materials, or intellectual property conveyed by
Jones to HEG during the term of this Agreement.
Within 45 days after the end of each calendar month, HEG shall be entitled
to receive a fee from Jones equal to 50% of the Net Revenues (as
hereinafter defined) generated from certificate and degree programs and any
services ancillary thereto. For purposes of this Section 8(a), the term
"Net Revenues" shall mean all revenues directly or indirectly received for
tuition and fees from enrollment of students in courses delivered by means
of the Jones Programming and products and services derived from the Jones
Programming (including videotapes), less the amount required, if any, to be
paid to the educational institution sponsoring or providing such courses or
the credit for such courses, provided that if the educational institution
is an affiliate of Jones, the amount to be paid shall not exceed the amount
that is typically paid to unaffiliated institutions of the same type for
the same type of courses, credit, services or products.
(b) "Jones hereby appoints HEG as its exclusive agent for the sale of
advertising avails in connection with the distribution of the Jones
Programming in the Territory; provided, however, that Jones shall retain
the right to sell any unsold advertising avails. The foregoing appointment
shall expire upon the expiration or termination of the Space Vision
Agreement. Jones shall advise HEG of advertising production standards,
advertising rates and
-6-
<PAGE>
discounts, the advertising inventory and the production schedule for the
Jones Programming from time to time as soon as such information is
available. HEG shall provide a video tape of any commercial sold in BETACAM
NTSC format to Jones at its offices in Englewood, Colorado, in accordance
with the production schedule provided by Jones. Jones shall pay HEG a
commission of 37.5% of the gross revenues derived and collected from the
sale of advertising in connection with the Jones Programming distributed in
the Territory. Jones shall pay advertising commissions to HEG on a monthly
basis. HEG shall be responsible for the payment of any advertising agency
commissions or fees. The parties agree that all advertising-related
activities shall be conducted in accordance with applicable Taiwanese law.
10. The Representation Agreement, as amended by this Amendment Agreement,
may be assigned by HEG to a subsidiary of HEG or a company that is controlled by
David J. Figuli, so long as (i) the assignee agrees in writing to assume the
obligations of HEG under the Representation Agreement, and (ii) HEG
unconditionally guarantees the performance of such subsidiary or company.
11. Except as provided in this Amendment Agreement, the terms of the
Representation Agreement shall remain unmodified, unamended and in full force
and effect.
The parties hereto have executed this Amendment Agreement effective as of
the date first set forth above.
HIGHER EDUCATION GROUP, INC.
By: /s/ David J. Figuli
-------------------
David J. Figuli
President
JONES EDUCATION NETWORKS, INC.
By: /s/ Gregory J. Liptak
---------------------
Gregory J. Liptak
Group President/Global Distribution
-7-
<PAGE>
Exhibit 10.19
[Jones Education Networks Letterhead]
February 24, 1995
Higher Education Group, Inc.
29713 Troutdale Scenic Drive
Suite C-2
Evergreen, CO 80439-7738
Attn: Mr. David Figuli, President
Re: Educational Services Center/Advertising - Taiwan
Dear Mr. Figuli:
This letter is intended to supplement and amend that certain Representation
Agreement, dated as of July 15, 1994 (the "Representation Agreement"), by and
between Jones Education Networks, Inc. ("JEN") and Higher Education Group, Inc.
("HEG"), as amended by an Amendment Agreement, dated as of September 28, 1994
(the "Amendment Agreement"). In particular, this letter will confirm our
agreement with respect to (1) certain performance and operational standards for
the Taiwan Educational Services Center to be operated by HEG, and (2) JEN's
appointment of HEG in the Representation Agreement as its exclusive agent for
the sale of advertising in connection with the Jones Programming distributed in
the Republic of China (Taiwan). All capitalized terms used in this letter and
not otherwise defined will have the meanings given to such terms in the
Representation Agreement and/or Amendment Agreement.
1. Taiwan Educational Services Center. With respect to the Taiwan
----------------------------------
Educational Services Center, we agree as follows:
a. As used in this letter, "Home Office" refers to the Jones
Educational Services Center in Englewood, Colorado, and "Taiwan Educational
Services Center" refers to the educational services center to be operated by HEG
in Taipei, Taiwan, in connection with the Jones Programming.
b. We agree that the success of this relationship will depend on
communication, coordination, cooperation and collaboration between us. The
Taiwan Educational Services Center will function as an order taking and program
coordination facility with respect to the Jones Programming distributed in
Taiwan.
<PAGE>
Higher Education Group, Inc.
February 24, 1995
Page 2
The Taiwan Educational Services Center will maintain, at its sole cost
and expense, adequate personnel, facilities and systems as necessary (i) to
provide for all required in-person services, (ii) to handle all calls from and
to students and prospective students, and (iii) to obtain, warehouse and
distribute all required learning materials and supplies. Adequate personnel,
facilities and systems will be based on reasonably expected student demand and
that which is necessary to operate an effective and productive student
acquisition system.
c. The Taiwan Educational Services Center will follow the processes and
procedures established by the Home Office, its affiliates and the participating
universities and colleges (the "Participating Institutions") for all
application, admission, registration, and enrollment functions. The Taiwan
Educational Services Center will obtain accurate information from each
prospective student and electronically transfer it, at its sole cost and expense
and in a specified format, to the Home Office within one Taiwan business day of
the transaction. Acceptable transfer methodology will include the use of the
Internet and/or CompuServe and any other methods approved by the Home Office.
d. If the Participating Institutions require a system to facilitate
communication between prospective and enrolled students, on the one hand, and
academic advisors and/or faculty members on the other, then the Home Office will
work with the Taiwan Educational Services Center to design the required system.
The Taiwan Educational Services Center will implement the required system at its
sole cost and expense. The Taiwan Educational Services Center may charge
students a reasonable fee for the use of and the cost of administering any
required electronic communications system.
e. The Taiwan Educational Services Center will purchase from the Home
Office student educational/informational packets to provide to prospective and
enrolled students. The Home Office will sell, and the Taiwan Educational
Services Center will purchase, these packets pursuant to the terms of an
Agreement for Distribution and Sale of Products of even date herewith between
HEG and Mind Extension University Bookstore, Inc. (the "Distribution
Agreement"). The Taiwan Educational Services Center may implement a
supplementary application fee to be charged to each student applying for
enrollment in any program or course offered in connection with the Jones
Programming distributed in Taiwan in an amount sufficient to cover the cost of
such packets.
<PAGE>
Higher Education Group, Inc.
February 24, 1995
Page 3
f. Pursuant to the Distribution Agreement, the Taiwan Educational Services
Center will also purchase all instructional material, including audio-visual,
cassette and print material, that is required by the Home Office and the
Participating Institutions to be used by students for each course offered
through the Jones Programming. The Taiwan Educational Services Center may
establish and charge a reasonable fee for the instructional material.
g. The parties acknowledge that the Home Office and the Participating
Institutions will set the tuition, fees and other charges for each educational
course offered through the Jones Programming. The Home Office will consult with
the Taiwan Educational Services Center from time to time with respect to market
factors in Taiwan and use this information in setting such charges. The
methodology employed to establish tuition fees and other charges will include a
profit factor. The Taiwan Educational Services Center will collect all tuition,
fees, and other course charges from students and deposit all such amounts in a
Taipei bank account to be established by JEN, less a percentage to be agreed
upon by the parties, which shall be retained by HEG to cover any refunds of such
fees and charges to students. Deposits will be made within one Taiwan business
day of receipt of funds.
h. Within 45 days after the end of each calendar month, the Home Office
will remit to HEG a fee equal to 50% of the Net Course Revenues. "Net Course
Revenues" will equal the actual receipts, less any refunds, generated from
tuition, fees and other charges paid by students in connection with courses
delivered in Taiwan through the Jones Programming, less the amount required to
be paid to the Participating Institution sponsoring or providing such courses or
the credit for such courses, provided that if the Participating Institution is
an affiliate of JEN, the amount to be paid will not exceed the amount that is
typically paid to unaffiliated institutions of the same type for the same type
of courses or credit.
i. The Taiwan Educational Services Center will administer or implement, at
its sole cost and expense, all assessment, evaluation and testing procedures
supplied and prescribed by the Home Office and Participating Institutions. The
Taiwan Educational Services Center will transmit, at its sole cost and expense,
the results from all such evaluation and testing procedures to the Home Office
in a manner specified by the Home Office. The Taiwan Educational Services
Center may charge a reasonable fee to students to cover the cost and expense of
all assessment, evaluation and testing procedures prescribed by the Home Office
and Participating Institutions and provided to students.
<PAGE>
Higher Education Group, Inc.
February 24, 1995
Page 4
j. When agreed upon by the Home Office, Participating Institutions and
HEG, the Taiwan Educational Services Center may provide other services to ME/U
students, including without limitation assessment of prior learning,
international degree equivalency services, non-credit/non-educational
institution training conversion services, credit bank services, and
reference/resume file (electronic) services. In providing these services to
ME/U students, the Taiwan Educational Services Center will follow the procedures
prescribed by the Home Office. For purposes of this Agreement, "ME/U student"
means any student who has, at any time prior to the provision of any such
service, applied to enroll or enrolled in any course or program offered in
Taiwan through the Jones Programming or has or is conducting course work in
connection with the Jones Programming. Fees will be charged for these services,
as mutually determined by the Home Office and HEG. The Taiwan Educational
Services Center will collect any such fees and deposit all such amounts in a
Taipei bank account to be established by JEN. Deposits will be made within one
Taiwan business day of receipt of funds. Within 45 days after the end of each
calendar month, the Home Office will remit to HEG a fee equal to 50% of the
gross revenues generated from such additional services.
k. The parties expect that the Taiwan Educational Services Center will be
successful in terms of the number of student enrollments as well as profitable
for both JEN and HEG. The parties agree to evaluate the success of the Taiwan
Educational Services Center once each year, during the month of May, commencing
in May 1996. If either party, in the exercise of its reasonable judgment,
determines in the course of this annual evaluation that the operation of the
Taiwan Educational Services Center is unsuccessful or unprofitable to such
party, or likely to become so, and cannot reasonably be modified so as to become
successful or profitable, then the rights and obligations of HEG under the
Representation Agreement, as amended and supplemented by this letter, with
respect to the Taiwan Educational Services Center may be terminated upon at
least 90 days written notice to the other party. Any such termination will not
affect the agreements, rights and obligations of JEN and HEG set forth in this
letter or in the Representation Agreement (as amended by the Amendment
Agreement) relating to matters other than the Taiwan Educational Services
Center. Furthermore, in such event, the parties acknowledge that JEN, by itself
or through others, will have the right to operate a student services center in
Taiwan without restriction and without obligation to HEG.
2. Advertising Avails. With respect to HEG acting as JEN's exclusive
------------------
advertising agent in Taiwan, we agree as follows:
<PAGE>
Higher Education Group, Inc.
February 24, 1995
Page 5
a. HEG will sell advertising avails with respect to the Jones Programming
at a rate no less than US$2.00 per second. HEG will be entitled to a commission
of 37.5% of the gross revenues derived and collected from its sale of such
advertising. HEG will remit to JEN all revenues collected from its sale of such
advertising, less HEG's commission, within one Taiwan business day of receipt.
HEG will be responsible for the payment of any advertising agency commissions or
fees in connection with any advertising it sells.
b. The Jones Programming will, on average, include at least six minutes of
advertising avails per hour.
c. HEG will submit all advertising to JEN at a location to be designated
by JEN, at least 45 days prior to the first day of the month in which such
advertising is scheduled to air in Taiwan. All advertising submitted by HEG
will be in BETACAM NTSC format.
d. Jones retains the right to sell any unsold advertising avails with
respect to the Jones Programming.
3. Preparation of Amended and Restated Representation Agreement. The
------------------------------------------------------------
parties acknowledge that many details relating to the relationship between the
Home Office and the Taiwan Educational Services Center will require
clarification or further definition in the ensuing weeks. In that regard, and
in order to bring together in a single document all of the agreements and
understandings between HEG and JEN with respect to the Taiwan project, the
parties agree to use their respective best efforts to prepare an Amended and
Restated Representation Agreement, which will contain in definitive form all of
the respective rights and obligations of the parties with respect to their
relationship in Taiwan, but which shall not be inconsistent with the
Representation Agreement, as amended and supplemented by the Amendment Agreement
and this letter, unless the parties shall mutually agree in their sole
discretion. Until the execution of such an agreement, the Representation
Agreement, as amended and supplemented by the Amendment Agreement and this
letter, will govern the relationship of the parties.
4. Acknowledgment of Assignment JEN hereby acknowledges that HEG has
--------------------------
assigned all of its rights and obligations under the Representation Agreement
(as amended by the Amendment Agreement), to Meridian Gate Holdings
<PAGE>
Higher Education Group, Inc.
February 24, 1995
Page 6
Ltd.("Meridian"), which is a company that is controlled by David J. Figuli.
Meridian hereby acknowledges that it has agreed in writing to assume the
obligations of HEG under the Representation Agreement (as amended by the
Amendment Agreement), and HEG, by its signature below, acknowledges and confirms
that it unconditionally guarantees the performance of Meridian thereunder.
If there is a conflict between the provisions of this letter and the
provisions of the Representation Agreement (as amended by the Amendment
Agreement), the provisions of this letter will prevail. Otherwise, the
Representation Agreement (as amended by the Amendment Agreement) remains in full
force and effect and JEN and Meridian hereby ratify the terms and provisions
thereof.
If the foregoing accurately states our agreement, please sign below and
return one copy of this letter to us.
Sincerely,
JONES EDUCATION NETOWRKS, INC.
By: /s/ Bernard J. Luskin
----------------------------------
Bernard J. Luskin
Group President/Global Operations
AGREED TO:
MERIDIAN GATE HOLDINGS LTD.:
By: /s/ David J. Figuli
----------------------------------
David J. Figuli, President
HIGHER EDUCATION GROUP, INC.
By: /s/ David J. Figuli
----------------------------------
David J. Figuli, President
<PAGE>
[LOGO OF SPACE VISION INC. APPEARS HERE]
Exhibit 10.20
AGREEMENT
---------
This AGREEMENT is made as of the 18th day of November, 1994, by and between
Jones Education Networks, Inc., a corporation organized under the laws of
Colorado, U.S.A. (hereinafter called Jones"), and Space Vision, Inc,, a
corporation organized under the laws of the Republic of China (hereinafter
called "SVI"), with reference to matters of the translation and
subtitling of video programs wherein the two parties have signed the
Program Distribution Agreement dated 28th day of September, 1994.
The parties agree as follows:
I. Jones hereby authorizes SVI to make all necessary arrangements for the
translation and the subtitling of the video programs of Mind Extension
University (hereinafter called "ME/U").
2. For the consideration of translation and subtitling accuracy, Jones
shall provide SVI with Betacam Program Tapes of ME/U, and written program
scripts.
3. Following completion of the translation and subtitling of the video
programs by SVI, SVI may directly distribute the video programs to the
Systems Operator, as according to the terms of the Program Distribution
Agreement dated 28th day of September, 1994.
4. Jones shall unconditionally guarantee the following matters:
a) The payment of all expenses for the translation and subtitling
of video programs; as that described in Exhibit A, attached to
this Agreement.
b) Jones is lawfully in possession of the Programs, and
has the right, without any limitations or restrictions, to
authorize SVI to translate and subtitle the programs that
Jones provides.
5. Each month, after SVI receives the batch of Betacam Program Tapes, Jones
shall wire the monthly translation and subtitling payments for the previous
month, in the amount of US$49,500, on the 15th day of each month
-----------------------------
thereafter, to SVI's account, which is listed as follows:
Bank : First Commercial Bank
Address : Savings Department
No. 184, Shin-Yi Rd. Sec. 4
Taipei, Taiwan
R O. C.
Swift # : FCBKTWTP
Account No : 094-40-005061
The Account Of : Space Vision, Inc.
<PAGE>
[LOGO OF SPACE VISION INC. APPEARS HERE]
6. This Ageement shall be binding upon and inure to the benefit of, the
parties hereto and their respective successors and permitted assignees.
Neither party shall assign this Agreement or any, rights or obligations
hereunder without the prior written express consent of the other party.
7. This Agreement shall be governed by, and construed in all respects in
accordance with the laws of the Republic of China. The parties hereto,
hereby irrevocabiy submit to the jurisdiction of the Taipei District Court
in respect of this Agreement.
This Agreement contitutes the entire agreement between the parties, and can
only be amended in writing.
IN WITNESS WHEREOF, the parties hereto have entered into this Agreement as
of the date and the year first written above.
Space Vision, Inc.
/s/ RUDOLPH LEE
----------------------------
Rudolph Lee
Chairman
Jones Education Networks Inc.
/s/ GREGORY J. LIPTAK
----------------------------
Gregory J. Liptak
Group President/Global Distribution
<PAGE>
[LOGO OF SPACE VISION INC. APPEARS HERE]
EXHIBIT A
---------
Jones shall pay the translation and the subtitling fees to Space
Vision as follows:
<TABLE>
<CAPTION>
Work descriptions Price per hour
----------------- --------------
<S> <C>
Translation and Chinese Character Key-in USD 230.00
Betacam Program Tape Material Fee USD 45.00
Total Amount( per program hour) USD 275.00
Total Amount(180 program hours) USD49,500.00
---------
</TABLE>
Note: 1. The above price list is quoted based on Betacam NTSC format
with scripts provided.
------------
2. The above price quoted shall be revised through a negotiation
between Jones and SVI if the exchange rate fluctuates over
15%.
---
<PAGE>
Exhibit 10.21
SERVICES AGREEMENT
------------------
THIS SERVICES AGREEMENT ("Agreement") is entered into as of the 16th day of
December, 1994, by and between JONES EDUCATION NETWORKS, INC. (the "Owner"), and
JONES INTERACTIVE, INC., a company incorporated under the laws of Colorado (the
"Interactive").
R E C I T A L S
A. Interactive is engaged in the management and operation of information
technology systems and has experience in all phases of such management and
operations.
B. Owner desires to obtain the benefit of the experience, knowledge,
trained personnel, supervision and services of Interactive, and desires to
retain Interactive, upon the terms and conditions set forth herein; and
Interactive desires to promote such services, upon the terms and conditions
herein after set forth.
A G R E E M E N T
In consideration of the premises and the mutual covenants and agreements
contained herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
ARTICLE I
RETENTION OF INTERACTIVE; THE SERVICES
1.1 Retention of Interactive. The Owner hereby retains Interactive and
------------------------
Interactive hereby agrees to provide services (the "Services") to the Owner upon
the terms hereinafter contained until its appointment shall be terminated as
hereinafter provided.
<PAGE>
1.2 The Services.
-------------
Interactive shall (subject to the overall policy and supervision of the
Owner) provide and perform the Services in a diligent, professional and
businesslike manner. The Services shall consist of the following:
(a) Design, Construction and Maintenance of Software. Interactive shall be
------------------------------------------------
responsible for the design, construction, installation and maintenance or
acquisition of all computer software, including (i) the operating systems, (ii)
applications, (iii) tools and languages including data bases, interfaces and
such other software as may become available over the term of this Agreement.
(b) Design, Construction and Maintenance of Data and Voice Communications
---------------------------------------------------------------------
Facilities. Interactive shall be responsible for designing, constructing and
- ----------
maintaining all data and voice communications facilities necessary to support
the employees of the Owner in utilizing the Services. This shall include all
services and connections to external data resources (e.g. InterNet, Prodigy, and
similar services). Interactive will, in consultation with the Owner, select all
equipment and vendors in support of this data communications service.
(c) Operation of the Data Center. For purposes of this Agreement, the term
----------------------------
"Data Center" shall mean (i) the portion of the Owner's headquarters' premises
consisting of all computer rooms, data and voice communications rooms, (ii) all
computer equipment located in central or regional sites; (iii) all equipment
related to the environmental control and operational stability of the subject
facility including power regulation, water detection, fire detection and
suppression, access security, electrical cabling, computer cabling, including
local area networks, wide area networks, data libraries, tape libraries; (iv)
and all related facilities and services. Interactive shall be responsible for
all aspects of the daily operation of the Data Center, including (i) hardware
operations, (ii) hardware maintenance, acquisition and disposal, (iii) staffing
(but not at the system level), (iv) changes and rearrangements, (v) backups and
related off-site backup storage, (vi) disaster recovery planning and
implementation, and (vii) all related activities necessary to the proper and
effective operation of the Data Center. Notwithstanding anything in the
foregoing to the contrary, the parties understand and agree that in the non-
headquarters premises of the Owner (i.e. its system offices), that Interactive's
Services shall be with respect to the equipment within the computer rooms (but
-2-
<PAGE>
not the computer rooms themselves), nor shall Interactive be responsible for any
local staffing for information services at such regional offices.
(d) Remote Offices of Owner. With regard to remote offices, this Agreement
-----------------------
anticipates that there will be some data processing equipment and services that
will be provided by the local management of the Owner's offices. In all cases,
the acquisition of such equipment will be coordinated with Interactive and will
conform to and be part of the Annual Plan referenced in Section 2.1. The intent
of this Agreement is that information processing throughout the Owner's
organization will be part of an overall strategy and architecture that is
prepared (and revised if necessary) by Interactive for Owner's review and
approval. This Agreement also anticipates that some computer and
telecommunications computer rooms will be provided and staffed by the personnel
of the remote offices. The Owner will take all reasonable measures to provide
that such facilities are secure and environmentally safe, consistent with the
housing of electronic computers and telecommunications equipment.
(e) Help Desk and Problem Management. Interactive shall provide Help Desk
--------------------------------
(a resource for answering questions regarding the Services) and problem
resolution support to all employees of the Owner as is necessary to use the
software, data and voice communications, hardware, and similar related
activities of the Owner. Interactive will coordinate the training of Owner's
employees in all aspects associated with the services.
(f) Desktop Workstations. Interactive shall provide all desktop
--------------------
workstation support for personal computers, X-terminals, terminals, telephone
devices and other similar workstation devices which either provide access to
information or data held in the Data Center or provide computing capacity at an
employee's desk or place of work; and
(g) Records Management. Interactive shall implement and support records
------------------
management policies and procedures necessary to insure the safe and secure
electronic storage and retention of all computer-based data of the Owner as
defined by the Owner. These policies and procedures will include, but are not
limited to (i) security policies and procedures, (ii) backup procedures
(including a comprehensive disaster recovery plan), (iii) off-site vaulting, and
(iv) data base structures and standards. Ownership of all data associated with
Owner's use of Interactive's services shall remain with the Owner. Ownership of
other Interactive customers' data will remain with those other customers. No
data will be exchanged between customers without the express, written consent
-3-
<PAGE>
of all affected customers. Security of Owner's data will be the responsibility
of Interactive but the integrity of such data will be the responsibility of the
Owner. For this purpose, the term "integrity" refers to the accuracy of the data
contained within the date base.
(h) Consulting Services. Interactive associates will, at the Owner's
-------------------
request, participate in various planning, consulting, review, and other such
meetings and committees outside the scope of the annual plan. Such
participation will be considered a service and will be reimbursed as an employee
expense as defined in Section 3.1(b).
Nothing in this Agreement shall preclude Owner from contracting with
affiliated or non-affiliated parties for the development of information system
related products and services, in that it is anticipated that Owner will from
time-to-time require the services of other providers of information technology
services for the purposes of developing and distributing Owner's products and
services. Owner agrees to consult with Interactive for a reasonable period of
time (not to exceed 30 days) to determine whether Interactive can provide such
products or services on a mutually agreeable basis.
1.3 Miscellaneous Rights and Powers of Interactive. Subject to the terms
----------------------------------------------
and conditions of this Agreement, and in accordance with the respective Annual
Plans pursuant to Section 2.1, Interactive shall have the right and power (in
the name of the Owner or Interactive, as appropriate) to perform on behalf of
Owner the following services or to cause the same to be performed:
(a) If not provided for in an Annual Plan, the purchase or lease of
property in an amount not to exceed $25,000 per item or an aggregate of $100,000
in any quarter, without the written consent of the Owner;
(b) Enter into such contracts on behalf of and in the name of the Owner for
the furnishing of utilities and maintenance of the Data Center as Interactive
deems necessary for the proper operation and maintenance thereof and which are
consistent with the Annual Plans, as hereafter defined.
1.4 Performance. Interactive agrees that it shall use its best efforts to
-----------
provide the Services in accordance with the standards herein set forth and
consult with and keep Owner advised as to all material matters relating thereto.
-4-
<PAGE>
1.5 Indemnification. Interactive hereby undertakes to hold harmless and
---------------
indemnify the Owner against all actions, proceedings, claims, costs, demands and
expenses which may be brought against, suffered or incurred by the Owner by
reason of Interactive's non-performance of its duties under the terms of this
Agreement, including all legal, professional and other expenses incurred by
Owner insofar as the claim shall arise from the gross negligence, bad faith,
fraud or willful default in the performance or non-performance by Interactive of
its obligations and duties under the terms of this Agreement.
ARTICLE II
ANNUAL PLANS
2.1 Annual Plan. Each year during the term of this Agreement Interactive
-----------
shall prepare and submit to Owner a plan (the "Annual Plan") for that year which
shall provide for a service level agreement, a development plan and a financial
budget (including the support services offered to Owner's customers as part of
Owner's product). The Annual Plan will be presented to the Owner at least 90
days prior to the start of a new year and Owner will respond to Interactive with
additions or changes at least 60 days prior to the start of the new year. The
Annual Plan will also provide a forecasted general plan for the next thirty-six
(36) months, including a forecast of the gross amount of capital expenditures.
Any differences existing between Owner and Interactive 60 days prior to the
start of the Plan year will be resolved by mutual negotiations. If, 30 days
prior to the start of the Plan year the Plan has not been agreed to, the prior
year's budget will be renewed for the following year, increased or decreased by
the current year's Consumer Price Index - all items. This renewed budget will
be in full force and effect until such time as the Annual Plan is finalized.
(a) Each service level agreement will form the basis of understanding
between Interactive and Owner for the year involved as to the level of service
for (i) computer response time limits, (ii) data storage requirements, (iii)
acceptable response times for service calls such as Help Desk, PC Support,
Problem determination and resolution, (iv) data communications circuit
performance, and (v) related performance metrics and standards associated with
the efficient operation of a Data Center and related system facilities.
(b) Each development plan prepared by Interactive will list, with
associated level of effort estimates, all known outstanding requests for
-5-
<PAGE>
software acquisition, modification, development and all related software
activities. Interactive will consult with Owner to establish possible
priorities for these requests. Each development plan will list all associated
hardware, staff, data communications, and related resources which will be
required to implement the plan with costs for these items being itemized in the
budget portion of the Annual Plan. If the Owner approves the development plan,
the Owner must also approve all of the associated hardware, staff and related
items in the budget that are necessary to support the development.
(c) Each annual budget will be prepared to reflect the anticipated expenses
of Interactive and will be subject to the approval of Owner. The budget will
also reflect the anticipated charges to all Owner-affiliated INTERACTIVE
customers, including the Owner. Interactive will also provide budget figures on
a fiscal as well as on a calendar basis, as needed. If the parties are not able
to reach agreement on a budget, the procedure for resolution of disputes set
forth in (e) below shall be followed.
(d) Quarterly reports will be prepared by Interactive which will compare
actual performance to the approved Annual Plan. This quarterly report will be
presented to Owner within 30 days of the availability of appropriate data.
(e) In case of a dispute with regard to an Annual Plan pending the
settlement thereof, Interactive will be entitled to continue to provide the
Services in accordance with the standards herein set forth at levels of
expenditure contained in the Annual Plan for the current year. In addition, the
parties agree to use their reasonable efforts to resolve such dispute promptly.
If not resolved in thirty (30) days, the parties agree to submit the matter to
mediation by a single mediator which they shall select. If such mediator is not
selected within the ten (10) days following such thirty day period, the mediator
shall be selected by the General Counsel of Owner.
(f) Interactive shall at all times comply with the applicable Annual Plan;
providing, however, that Interactive upon the written approval of Owner shall be
entitled to reallocate the amount budgeted with respect to any item in such
Annual Plan to another item budgeted herein. Reallocations which total less
than $10,000 in the aggregate annually do not require such approval.
Interactive shall be entitled to make additional reasonable and appropriate
expenditures up to $25,000 not authorized under the then applicable Annual Plan
in case of emergencies arising out of unforeseen circumstances. In all cases,
Interactive and Owner may negotiate additional
-6-
<PAGE>
expenditures to meet changing business needs without renegotiating this entire
contract or the existing Annual Plan.
ARTICLE III
REIMBURSEMENT OF EXPENSES; MANAGEMENT FEE
3.1 Reimbursement of the Expenses of Interactive. In consideration of the
--------------------------------------------
performance of the Services, the Owner shall reimburse Interactive for those
costs set forth in its Annual Plans under the categories "J250" and "J251"
consisting of:
(a) Such percentage of the costs of Interactive's corporate overhead as is
fairly attributable to its services hereunder;
(b) The cost of employees of Interactive which are provided to Owner to
accomplish the objectives pursuant to Agreement. Such reimbursements shall be
at cost and shall include all direct and indirect charges (including reasonable
allowances for overhead costs), and all related out-of-pocket costs and expenses
properly and necessarily incurred by Interactive in performing its services
hereunder;
(c) All other out-of-pocket costs and expenses properly and necessarily
incurred by Interactive in performing its services hereunder;
(d) All expenses incurred in the providing of the services outlined in this
Agreement including an allocation of hardware and equipment expenses;
The total of (a) through (d) above is herein referred to as "Interactive's
Costs"
3.2 Monthly Reimbursement. Interactive's Costs shall be calculated and
---------------------
reimbursed monthly.
3.3 Management Fee. For its services under this Agreement, Interactive
--------------
shall be entitled to receive a fee (the "Management Fee") . The Management Fee
shall be 10% of Interactive's Costs. The Management Fee shall be calculated and
payable monthly.
-7-
<PAGE>
ARTICLE IV
TERM AND TERMINATION RIGHTS
4.1 Term. The term of this Agreement shall commence on the date first
----
above written and shall expire at midnight on December 31, 2004. Thereafter,
this Agreement shall be renewable from year to year unless terminated by either
party upon 90 days notice given in any such year.
4.2 Defaults by Interactive. The following events shall constitute
-----------------------
defaults by Interactive under this Agreement:
(a) Interactive shall fail to keep, observe or perform any material
covenant, agreement, term or provision of this Agreement to be kept, observed or
performed by Interactive and any such default shall continue, without reasonable
efforts to cure the default, for a period of forty-five (45) days after written
notice thereof to Interactive; or
(b) If Interactive shall apply for or consent to the appointment of a
receiver, trustee or liquidator of Interactive or of all or a substantial part
of its assets, file a voluntary petition in bankruptcy, or admit in writing its
inability to pay its debts as they come due, making a general assignment for the
benefit of creditors, file a petition or an answer seeking reorganization or
arrangement with creditors or to take advantage of any insolvency law, or file
an answer admitting the material allegations of a petition filed against
Interactive in any bankruptcy, reorganization or insolvency proceeding, or if an
order, judgment or decree shall be entered by any court of competent
jurisdiction, on the application of a creditor, adjudicating Interactive a
bankrupt or insolvent or approving a petition seeking reorganization of
Interactive or appointing a receiver, trustee or liquidator of Interactive or of
all or a substantial part of its assets, and such order, judgment or decree
shall continue unstayed and in effect for any period of sixty (60) consecutive
days.
Upon the occurrence of (a) or (b) above, Owner shall have the right to
terminate this Agreement effective upon thirty (30) days written notice.
4.3 Defaults by Owner. The following events shall constitute defaults by
-----------------
Owner under this Agreement:
-8-
<PAGE>
(a) Owner shall, without fault of Interactive, fail to keep, observe or
perform any material covenant, agreement, term or provision of this Agreement to
be kept, observed or performed by Owner, including payment, and such default
shall continue, without reasonable efforts to cure the default, for a period of
forty-five (45) days after written notice thereof by Interactive; or
(b) If Owner shall apply for or consent to the appointment of a receiver,
trustee or liquidator of Owner or of all or a substantial part of its assets,
file a voluntary petition in bankruptcy or admit in writing its inability to pay
its debts as they come due, make a general assignment for the benefit of
creditors, file a petition or an answer seeking reorganization or arrangement
with creditors or to take advantage of any insolvency law, or file an answer
admitting the material allegations of a petition filed against Owner in any
bankruptcy, reorganization or insolvency proceeding, or if an order, judgment or
decree shall be entered by any court of competent jurisdiction, on the
application of a creditor, adjudicating Owner a bankrupt or insolvent or
approving a petition seeking reorganization of Owner or appointing a receiver,
trustee or liquidator of Owner of all or a substantial part of the assets of
Owner and such order, judgment or decree shall continue unstayed and in effect
for any period of ten (10) consecutive days.
Upon the occurrence of (a) or (b), above, Interactive shall have the right
to terminate this Agreement effective upon thirty (30) days written notice.
4.4 Effect of Termination.
----------------------
(a) The termination of this Agreement under the provision of this Article
shall not affect the rights of a party with respect to any damages it has
suffered as a result of any breach of this Agreement, nor shall such termination
affect the rights of a party with respect to liability or claims accrued, or
arising out of events occurring, prior to the date of termination.
(b) In the event of termination of this Agreement, all sums due to
Interactive pursuant to Article III hereof, shall be calculated as of the date
of such termination and shall be paid by Owner within ten (10) days of such
termination.
4.5 Remedies Cumulative. Neither the right of termination nor the right
-------------------
to sue for damages nor any other remedy available to either party
-9-
<PAGE>
hereunder shall be exclusive of any other remedy given hereunder or now or
hereafter existing at law or in equity.
ARTICLE V
ASSIGNMENT
5.1 Consent Required. Neither party shall assign this Agreement without
----------------
the prior written consent of the other. It is understood and agreed that any
consent granted to any assignment shall not be deemed a waiver of the covenants
herein contained against assignment in any subsequent case.
5.2 Successors and Assigns. Subject to the foregoing, this Agreement
----------------------
shall inure to the benefit of and be binding upon the parties hereto, their
respective heirs, legal representatives, permitted successors and assigns.
ARTICLE VI
GENERAL PROVISIONS
6.1 Non-Exclusivity. Nothing herein contained shall prevent Interactive
---------------
or any of its Affiliates (the "interested party") from (i) selling goods or
services or otherwise contracting or entering into any transaction with the
Owner or others or (ii) from being interested in any such transaction, and the
interested party shall not be called upon to account in respect of any such
contract or transaction or benefit derived therefrom.
6.2 Force Majeure. Interactive shall not be responsible for the loss of
-------------
or damage to any property of the Owner or for any failure to fulfill its duties
hereunder if such loss damage or failure shall be caused by or directly or
indirectly due to war damage, enemy action, the act of any Government or other
authority, riot, civil commotion, rebellion, storm, tempest, accident, fire,
lock-out, strike or other cause whether similar or not beyond the control
Interactive provided that Interactive shall use its reasonable efforts to
minimize the effects of the same.
6.3 Confidentiality. Neither of the parties hereto shall (except under
---------------
compulsion of law or pursuant to a securities offering), either before or after
the termination of this Agreement, disclose to any person not authorized by the
relevant party to receive the same any confidential information relating to
-10-
<PAGE>
such party or to the affairs of such party of which the party disclosing the
same shall have become possessed during the period of this Agreement and each
party shall use all reasonable endeavors to prevent any such disclosure as
aforesaid.
6.4 Delays. No failure on the part of any party to exercise, and no delay
------
on its part in exercising, any right or remedy under this Agreement will operate
as a waiver thereof nor will any single or partial exercise of any right or
remedy preclude any other right or remedy. The rights and remedies provided in
this Agreement are cumulative and not exclusive of any rights or remedies
provided by law.
6.5 Amendments. Any provision of this Agreement may be amended only if
----------
the parties so agree in writing.
6.6 Illegality. The illegality, invalidity or unenforceability of any
----------
provision of this Agreement under the law of any jurisdiction shall not affect
its legality, validity or enforceability under the law of any other jurisdiction
nor the legality, validity or enforceability of any other provision.
6.7 Counterparts. This Agreement may be executed in any number of
------------
counterparts and by each party hereto on separate counterparts, both of which
when so executed shall be an original, but all the counterparts shall together
constitute one and the same instrument.
6.8 Notices. Any notice by either party to the other shall be in writing
-------
and shall be given, and be deemed to have been duly given, if either delivered
personally, telecopied or mailed to the address of such party set forth below.
Either party may at any time change the address for notices to such party by
delivery or mailing, as aforesaid, of a notice stating the change and setting
forth the changed address. Such notices shall be sent as follows:
If to Owner, to: Jones Education Networks, Inc.
9697 East Mineral Avenue
P. O. Box 3309
Englewood, Colorado 80155-3309
Attention: Chief Executive Officer
Telephone: (303) 792-3111
Copy to: General Counsel
-11-
<PAGE>
If to Interactive, to: Jones Interactive, Inc.
9697 East Mineral Avenue
P. O. Box 3309
Englewood, Colorado 80155-3309
Attention: President
Telephone: (303) 792-3111
Copy to: General Counsel
6.9 No Partnership or Joint Venture; Agency. In the performance of its
---------------------------------------
duties hereunder, Interactive shall act solely as agent of Owner. Nothing
herein shall constitute or be construed to be or create a partnership or joint
venture between the Owner and Interactive.
6.10 Understanding and Agreements. This Agreement constitutes the entire
----------------------------
agreement between the parties relating to the subject matter hereof, superseding
all prior agreements or undertakings, oral or written.
6.11 Headings and References. The Article and Clause headings contained
-----------------------
herein are for convenience of reference only and are not intended to define,
limit or describe the scope or intent of any provision of this Agreement.
Except as otherwise specifically indicated, all references to Clause and Article
numbers refer to Clause and Article numbers of this Agreement, and the words
"herein," "hereunder," "hereinafter" and words of similar import refer to this
Agreement as a whole and not to any particular section or subdivision thereof.
6.12 Third Parties. None of the obligations hereunder of either party
-------------
shall run to, operate for the benefit of, or be enforceable by any party other
than the parties to this Agreement or by a party deriving rights hereunder as a
result of an assignment permitted pursuant to the terms hereof.
6.13 Law of the Contract. This Agreement shall be governed by and
-------------------
construed in accordance with the laws of Colorado.
-12-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed or caused this
Agreement to be executed, all as of the day and year first above written.
JONES EDUCATION NETWORKS, INC.
By:/s/ Rene Ortiz
---------------
JONES INTERACTIVE, INC.
By:/s/ Rich Nortnik
----------------
14465
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<PAGE>
Exhibit 10.22
TRANSPONDER LICENSES AGREEMENT
------------------------------
THIS TRANSPONDER LICENSES AGREEMENT is made and entered effective as of the
1st day of January, 1995, by and between Jones Space Segment, Inc. ("Space
Segment"), Jones Infomercial Networks, Inc. ("JIN") and Jones Computer Network,
Ltd. ("JCN").
RECITALS
--------
A. Space Segment has entered into that certain C-3/C-4 Satellite
Transponder Service Agreement dated July 29, 1989, between GE American
Communications, Inc. ("GE") and itself (the "Transponder Agreement").
B. Pursuant to the Transponder Agreement, Space Segment is entitled to use
Transponder No. 20, on domestic communications satellite C-3 (the "Transponder")
on a full-time basis.
C. JIN and JCN require use of the Transponder and Space Segment desires to
accommodate such usage, all according to the terms and conditions of this
Agreement.
D. JIN and JCN are cable networks. Other such networks may become parties
to this Agreement from time-to-time. JIN, JCN and such other networks are
hereafter referred to as the "Networks".
AGREEMENT
---------
In consideration of the foregoing and the mutual covenants and agreements
set forth herein, the parties hereby agree as follows:
1. Licenses. Space Segment hereby grants to each of the Networks a
--------
license to use the Transponder on the terms and conditions set forth in this
Agreement. No Network shall have the right to preempt any other Network.
2 Term. This Agreement shall commence on the effective date hereof and
----
shall continue, unless otherwise terminated by Space Segment, through December
31, 2004.
3 Payments. Space Segment shall receive from each full-time Network the
--------
amount listed in Schedule A each month during the term of this
<PAGE>
Agreement as a license fee. The amount received from each Network will be
adjusted based on the number of Networks using the transponder on a full-time
basis. Partial months shall be pro-rated.
4. Termination. This Agreement may be terminated as to a Network at any
-----------
time by Space Segment by giving such Network at least thirty (30) days prior
written notice of its desire to terminate this Agreement; provided, however,
that Space Segment agrees not to exercise its right to terminate this Agreement
in such a manner as to cause substantial disruption to uses already scheduled to
be made of the Transponder. In addition, this Agreement may be terminated at
any time by Space Segment in the event that GE terminates its consent to the use
of the Transponder as provided herein.
5. Representations. The Networks agree not to use the Transponder for any
---------------
unlawful purpose, to at all times comply with applicable laws and regulations
relating to its use of the Transponder, and to comply with and be bound by the
terms and conditions of the Transponder Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first written above.
JONES SPACE SEGMENT, INC.,
a Colorado corporation
By:/s/ Glenn R. Jones
------------------
JONES INFOMERCIAL NETWORKS, INC.,
a Colorado corporation
By:/s/ Gregory J. Liptak
---------------------
JONES COMPUTER NETWORK, LTD.,
a Colorado corporation
By:/s/ Elizabeth Steele
--------------------
14295
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<PAGE>
<TABLE>
<CAPTION>
Jones Space Segment, Inc.
Schedule A
MONTHLY AMOUNT WITH THE FOLLOWING NUMBER OF NETWORKS
----------------------------------------------------
CALENDAR ANNUAL MONTHLY
YEAR AMOUNT AMOUNT ONE TWO THREE FOUR FIVE SIX
- -------------- ----------- ------- -------- -------- -------- ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1995 2,425,350 202,113 202,113 101,056 67,371 50,528 40,423 33,685
1996 2,556,450 213,038 213,038 106,519 71,013 53,259 42,608 35,506
1997 2,687,550 223,963 223,963 111,981 74,654 55,991 44,793 37,327
1998 2,818,650 234,888 234,888 117,444 78,296 58,722 46,978 39,148
1999 2,949,750 245,813 245,813 122,906 81,938 61,453 49,163 40,969
2000 3,080,850 256,738 256,738 128,369 85,579 64,184 51,348 42,790
2001 3,211,950 267,663 267,663 133,831 89,221 66,916 53,533 44,610
2002 3,343,050 278,588 278,588 139,294 92,863 69,647 55,718 46,431
2003 3,474,150 289,513 289,513 144,756 96,504 72,378 57,903 48,252
2004 3,605,250 300,438 300,438 150,219 100,146 75,109 60,088 50,073
</TABLE>
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<PAGE>
Exhibit 10.25
TRANSPONDER LICENSES AGREEMENT
------------------------------
THIS TRANSPONDER LICENSES AGREEMENT is made and entered effective as of the
1st day of January, 1995, by and between Jones Satellite Holdings, Inc.,
("Satellite Holdings"), Jones Galactic Radio, Inc. ("JGR") and Mind Extension
University, Inc. ("ME/U").
RECITALS
--------
A. Satellite Holdings has entered into that certain G-5 Satellite
Transponder Service Agreement dated August 30, 1989, between Hughes
Communications Galaxy, Inc. ("Hughes") and itself (the "Transponder Agreement").
B. Pursuant to the Transponder Agreement, Satellite Holdings is entitled
to use Transponder No. 21, on domestic communications satellite G-5 (the
"Transponder") on a full-time basis.
C. JGR and ME/U require use of the Transponder and Satellite Holdings
desires to accommodate such usage, all according to the terms and conditions of
this Agreement.
D. JGR and ME/U are hereafter referred to as the "Networks".
AGREEMENT
---------
In consideration of the foregoing and the mutual covenants and agreements
set forth herein, the parties hereby agree as follows:
1. Licenses. Satellite Holdings hereby grants to each of the Networks a
--------
license to use the Transponder on the terms and conditions set forth in this
Agreement. No Network shall have the right to preempt any other Network.
2 Term. This Agreement shall commence on the effective date hereof and
----
shall continue, unless otherwise terminated by Space Segment, through May 7,
2004.
3 Payments. Space Segment shall receive from each full-time Network the
--------
amount listed in Schedule A each month during the term of this Agreement as a
license fee. Partial months shall be pro-rated.
<PAGE>
4. Termination. This Agreement may be terminated as to a Network at any
-----------
time by Satellite Holdings by giving such Network at least thirty (30) days
prior written notice of its desire to terminate this Agreement; provided,
however, that Satellite Holdings agrees not to exercise its right to terminate
this Agreement in such a manner as to cause substantial disruption to uses
already scheduled to be made of the Transponder. In addition, this Agreement
may be terminated at any time by Satellite Holdings in the event that Hughes
terminates its consent to the use of the Transponder as provided herein.
5. Representations. The Networks agree not to use the Transponder for any
---------------
unlawful purpose, to at all times comply with applicable laws and regulations
relating to its use of the Transponder, and to comply with and be bound by the
terms and conditions of the Transponder Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first written above.
JONES SATELLITE HOLDINGS, INC.,
a Colorado corporation
By: /s/ Glenn R. Jones
------------------------------
JONES GALACTIC RADIO, INC.,
a Colorado corporation
By: /s/ Gregory J. Liptak
------------------------------
MIND EXTENSION UNIVERSITY, INC.
a Colorado corporation
By: /s/ Gregory J. Liptak
------------------------------
14410
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<PAGE>
<TABLE>
<CAPTION>
JONES SATELLITE HOLDINGS, INC.
SCHEDULE A
Monthly Amount Due From
-----------------------
Calendar Annual Monthly
Year Amount Amount JGR MEU
- ----------------- ------------- ------- ---------- -----------
<S> <C> <C> <C> <C>
1995 2,785,200 232,100 58,025 174,075
1996 2,785,200 232,100 58,025 174,075
1997 2,785,200 232,100 58,025 174,075
1998 2,785,200 232,100 58,025 174,075
1999 2,785,200 232,100 58,025 174,075
2000 2,785,200 232,100 58,025 174,075
2001 2,785,200 232,100 58,025 174,075
2002 2,785,200 232,100 58,025 174,075
2003 2,785,200 232,100 58,025 174,075
2004 928,400 77,367 19,342 58,025
</TABLE>
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<PAGE>
EXHIBIT 10.26
[LETTERHEAD OF M. KANE & COMPANY, INC. APPEARS HERE]
May 29, 1996
The Board of Directors
Jones Education Networks, Inc.
9697 East Mineral Avenue
Englewood, CO 80112
Attention: Mr. Wallace Griffin
President CONFIDENTIAL
This letter agreement ("Agreement") confirms the engagement of M. KANE &
COMPANY, INC., ("MKC") by Jones Education Networks, Inc. (the "Company") to
render certain financial advisory services to the Company.
1.0 Services. MKC agrees to perform the following services (the "Services"):
1.0.1 review the recent historical financial information and business
operations, prospects and forecasts of future financial results of the
Company which are made available to MKC by the Company and such other
matters as MKC deems relevant to enable it to render financial advice and
assistance to the Company, including, without limitation, the pro forma
effects, from a financial point of view, of certain prospective
incremental additions and deletions ("Incremental Business") to the base
business of the Company;
1.0.2 derive the current (baseline) enterprise value of the Company, with and
without the Incremental Business, on an aggregate and market value basis
and perform a time-phased valuation analysis;
1.0.3 identify, evaluate, configure and recommend possible courses of action,
from a financial point of view, for maximizing shareholder value under
guidelines and objectives mutually agreed upon by the Company and MKC and
prepare a presentation setting forth certain options and their
prospective financial consequences (the "Strategic Financial Feasibility
Study");
1.0.4 present the Strategic Financial Feasibility Study to the Company's Board
of Directors ("Board");
1.0.5 assist the Company to evaluate and select a financial transaction
("Transaction") appropriate to the Company's expressly stated business
and financial objectives, and, if an Initial Public Offering ("IPO") of
the Company's Common Stock is selected as the preferred Transaction,
continue as follows:
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May 29, 1996
Page 2
1.0.6 assist the Company to structure the financial aspects of the IPO,
including, without limitation the approximate aggregate size of the
transaction and the preferred valuation strategy;
1.0.7 assist the Company to prepare an introductory presentation to prospective
co-managing (lead) underwriters in the form of a written summary and
electronic presentation;
1.0.8 assist the Company to evaluate and select one or more co-managing
underwriters of the IPO (including the lead manager);
1.0.9 assist the Company to negotiate the terms and conditions relating to the
IPO;
1.0.10 assist the Company to prepare the "Business Section" of the S-1
Registration Statement;
1.0.11 assist the Company to prepare for underwriter financial due diligence,
and;
1.0.12 serve as a co-manager of the IPO (non-lead), subject to MKC's
satisfaction, in its sole discretion, with its due diligence examination
of the Company and financial market conditions.
1.1 INTEGRITY OF INFORMATION. The Company recognizes and confirms that in
providing the Services, MKC will be using and relying upon data, material
and other information furnished by the Company and their respective
employees and representatives ("Information"). The Company hereby agrees
and represents that all Information furnished to MKC by the Company in
connection with this Agreement shall be accurate and complete in all
material respects at the time furnished and that if such Information, in
whole or in part, becomes materially inaccurate, misleading or incomplete
during the term of MKC's engagement hereunder, the Company will so advise
MKC in writing and correct any such inaccuracy or omission. Accordingly,
MKC assumes no responsibility for the accuracy and completeness of such
Information. MKC will not be required to make an independent verification
of any Information. All Information concerning the Company so furnished
that is not publicly available will be treated in strict confidence and
will not be revealed by MKC unless legally compelled, and then only upon
written prior notice to the Company. MKC will seek confidential treatment
of any material so disclosed. The Company agrees that it and its counsel
are responsible for ensuring that a Transaction, including any legal
agreements, applications or other materials used in the Transaction (the
"Transaction Documents"), will comply in all respects with applicable
law.
________________________________________________________
M. KANE & COMPANY, INC.
INVESTMENT BANKERS
Complex Business, Technology or Transaction: Resourceful Financial Adisory
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May 29, 1996
Page 3
2.0 COMPENSATION: The Company agrees to pay MKC via wire transfer or check
the following fees (the "Compensation") for the Services as follows, time
being of the essence and all such payments to be fully earned when paid:
2.1 a non-refundable cash Advisory Retainer (the "Advisory Retainer"),
payable at the rate of $20,000 per month commencing upon the execution of
this Agreement and every month thereafter until the consummation or
abandonment of the IPO ("Retainer Payments"). All Retainer Payments paid
pursuant to the foregoing (including $50,000 already paid in respect of
Services already commenced for the Company and the $20,000 Advisory
Retainer to be paid upon execution of this Agreement) shall be credited
against (that is, deducted from), the "Success Fee(s)" (as hereinafter
defined) which may become due and payable hereunder after payment of the
"Milestone Success Fee" (as hereinafter defined).
2.2 Success Fee(s) ("the Success Fee(s)"), as follows:
2.2.1 the Company shall compensate MKC with a cash Success Fee in the amount of
one and seven eighths percent (1.875%) of the "Gross Proceeds" of the IPO
("Gross Proceeds" being defined as aggregate offering size, including
amounts sold by selling shareholders and any amounts attributable to the
exercise of the over-allotment option by the underwriters). Upon the date
of execution by the Company of a letter of intent with a lead-managing
underwriter to engage in an IPO at any time, the Company will remit to
MKC twenty-five percent (25.0%) of the estimated cash component of the
Success Fee, computed as 25.0% of 1.875% of the Gross Proceeds (or, if
expressed as a range, the average Gross Proceeds) identified in the
letter of intent (the "Milestone Success Fee"). The Advisory Retainer
shall not be credited against the Milestone Success Fee. The balance of
the Success Fee shall be paid on the settlement date(s) of the IPO and
the exercise of the overallotment option (if any), respectively, and
shall be net of all credits for any previously remitted Retainer payments
and the Milestone Success Fee. It is not necessary for MKC to actually
serve as the Company's co-manager of the IPO to be entitled to receive
any of the Success Fees pursuant to this paragraph;
2.2.2 the Company shall also compensate MKC with a 5-year warrant to purchase
the Company's common stock at a per share exercise price equal to 120% of
the IPO per share offering price upon consummation of the IPO, in an
aggregate amount equal to one half of one percent (0.5%) of the Gross
Proceeds of the IPO. MKC agrees to be bound by customary underwriter
lock-up provisions imposed exclusively in connection with the prospective
IPO and the shares underlying the warrant shall carry a provision for
cashless exercise and customary registration rights including, but not
limited to, one demand and unlimited piggyback registration rights. It is
not necessary for MKC to actually serve as
_______________________________________________________
M. KANE & COMPANY, INC.
INVESTMENT BANKERS
Complex Business, Technology or Transaction: Resourceful Financial Adisory
<PAGE>
May 29, 1996
Page 4
the Company's co-manager of the IPO to be entitled to receive any of the
Success Fees pursuant to this paragraph;
2.2.3 if MKC assists the Company in arranging a Transaction other than an IPO,
the Company agrees to pay MKC mutually acceptable compensation taking
into account, among other things, the results obtained and the custom and
practice among investment bankers acting in similar transactions. MKC
agrees to credit all Retainer Payments and the Milestone Success Fee, to
the extent previously remitted to MKC, against any Success Fee earned
with respect to a Transaction other than an IPO.
3.0 EXPENSES. In addition to the Compensation provided for hereunder, and
irrespective of whether a Transaction is consummated, the Company agrees
to reimburse MKC for all of its reasonable out-of-pocket fees and
expenses arising out of MKC's engagement hereunder, not to exceed $20,000
prior to the IPO Road Show (and an additional $15,000 during the IPO Road
Show), without the Company's permission, which shall not be unreasonably
withheld. Reasonable out-of-pocket fees and expenses include, but are not
limited to, such costs as travel, accommodations, telephone, telex,
courier service, copying, direct computer and data base expenses,
secretarial overtime, fees and disbursements of legal counsel and
accountants and transaction closing announcements ("Expenses"). The
Company will advance MKC $5,000 for Expenses by wire transfer or check
upon the execution of this Agreement ("the Deposit"). All Expenses will
be accounted for monthly. Expenses initially will be offset against the
Deposit. All additional Expenses, to the extent permitted hereunder, will
be billed monthly and are payable within thirty (30) days of invoice. All
Expenses not previously reimbursed shall be due and payable on the
expiration or termination of this Agreement. This Paragraph 3 shall
survive the termination or expiration of this Agreement.
4.0 IDEMNIFICATION. Execution of this Agreement shall obligate the Company to
the indemnification terms set forth in Appendix A attached hereto and
incorporated herein by reference as if fully set forth below. This
Paragraph 4 shall survive the termination or expiration of this
Agreement.
5.0 TERM. The term ("Term") of this engagement shall extend from the date
hereof to the later of the consummation or abandonment of the IPO, or
September 30, 1996. Any party may terminate this Agreement at any time by
giving each other party at least thirty (30) days prior written notice of
any such termination. Upon termination or expiration the Company shall
pay to MKC all Compensation earned and, to the extent not covered by the
Deposit and permitted hereunder, all Expenses incurred to the date
thereof. MKC shall promptly return any portion of the Deposit not
chargeable against Expenses incurred
_______________________________________________________
M. KANE & COMPANY, INC.
INVESTMENT BANKERS
Complex Business, Technology or Transaction: Resourceful Financial Advisory
<PAGE>
May 29, 1996
Page 5
pursuant hereto prior either to the date of: 1) receipt of notice of
termination; or 2) expiration of the Agreement. MKC shall be entitled to
(a) Success Fee(s), as set forth in Paragraph 2, if an IPO is consummated
within six (6) months of the termination or expiration of this Agreement.
The Company's obligation hereunder shall survive the termination or
expiration of this Agreement.
6.0 DISCLOSURE. The Services or financial advice to be provided by MKC under
this Agreement shall not be disclosed publicly nor made available to
third parties other than existing shareholders without MKC's prior
written approval, except as required by law.
7.0 LIMITATION. The Company recognizes that MKC has been retained only by the
Company, and that the Company's engagement of MKC is not deemed to be on
behalf of and is not intended to confer rights upon any individual
shareholder, owner, creditor or partner of the Company (differentially to
any other within the same class) or any other person not a party hereto
as against MKC or any of MKC's affiliates or the respective directors,
officers, agents, employees or representatives of either MKC or any of
MKC's affiliates. Unless otherwise expressly agreed, no one other than
the Company is authorized to rely upon the engagement of MKC hereunder or
any statements, advice, opinions or conduct by MKC.
8.0 PUBLICITY. The Company and MKC mutually agree that any references to MKC
or the Company, or any affiliate of MKC or the Company, in any release or
communication, is subject to MKC's and the Company's prior written
approval, which consent will not be unreasonably withheld. If either MKC
resigns or is terminated prior to the dissemination of any Transaction
Document or any other release or communication, reference made therein to
MKC shall be at MKC's express written option. If a Transaction is
consummated, MKC may place an appropriate announcement in the Wall Street
Journal and such other newspapers and periodicals as the Company and MKC
shall mutually determine, stating the essential facts of the Transaction
and the capacity within which MKC acted in connection with the
Transaction.
9.0 EXCLUSIVITY. The Company agrees to retain MKC on an exclusive basis to
perform the Services related to an IPO until the earlier of the
expiration or termination of this Agreement, with the exception that this
Agreement contemplates that the Company will be engaging co-managers for
its prospective IPO.
10.0 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE
OF DELAWARE AND MAY NOT BE AMENDED OR MODIFIED EXCEPT IN A WRITING SIGNED
BY ALL PARTIES.
____________________________________________________
M. KANE & COMPANY, INC.
INVESTMENT BANKERS
Complex Business, Technology or Transaction: Resourceful Financial Advisory
<PAGE>
May 29, 1996
Page 6
11.0 SUCCESSORS. This Agreement and all rights and obligations thereunder
shall be binding upon and inure to the benefit of each party's
successors, but may not be assigned without the prior written consent of
the other party.
12.0 THIRD PARTY SERVICES. MKC will not be liable for, or have its
compensation reduced by, any obligation the Company or anyone else may
incur to a third party for that third party's services in connection with
any transaction contemplated hereby.
Please confirm that the foregoing is in accordance with your
understanding by signing and returning to us the enclosed duplicate of this
letter. We look forward to working with you on this assignment.
Very truly yours, Agreed to and Accepted this
M. KANE & COMPANY, INC. 29 day of May, 1996.
JONES EDUCATION NETWORKS, INC.
By: /s/ Michael W. Kane, President By: /s/ Wallace Griffin, President
--------------------------------- ---------------------------------
Michael W. Kane, President Wallace Griffin, President
_________________________________________________
M. KANE & COMPANY, INC.
INVESTMENT BANKERS
Complex Business, Technology or Transaction: Resourceful Financial Advisory
<PAGE>
MAY 29, 1996
Page 7
APPENDIX A
The Company agrees to indemnify MKC, including M. Kane & Company, Inc., its
employees, directors, officers, agents, affiliates, and each person, if any, who
controls it within the meaning of either Section 20 of the Securities Exchange
Act of 1934 or Section 15 of the Securities Act of 1933 (each such person,
including M. Kane & Company, Inc. is referred to as an "Indemnified Party') from
and against any losses, claims, damages and liabilities, joint or several
(including, all legal or other expenses reasonably incurred by an Indemnified
Party in connection with the investigation, preparation or providing evidence
for, or defense of, any threatened or pending claim, action or proceeding,
whether or not resulting in any liability) ('Damages'), as and when incurred, to
which such Indemnified Party, in connection with its services or arising out of
its engagement hereunder, may become subject under any applicable Federal or
state law or otherwise, including but not limited to, liability (i) caused by or
arising out of an untrue statement or an alleged untrue statement of a material
fact or the omission or the alleged omission to state a material fact necessary
in order to make the statement not misleading in light of the circumstance under
which it was made, (ii) caused by or arising out of any act or failure to act,
or (iii) arising out of MKC's engagement or the rendering by any Indemnified
Party of its services under this Agreement; provided, however, that the Company
will not be liable to the Indemnified Party hereunder to the extent that any
Damages are found in a final non-appealable judgment by a court of competent
jurisdiction to have resulted solely from the gross negligernce, bad faith or
willful misconduct of the Indemnified Party seeking indemnification hereunder.
The Company also agrees that the Indemnified Parties shall not have any
liability (whether direct or indirect, in contract or tort or otherwise) to the
Company for or in connection with the retention of MKC, except to the extent
such liability is found in a final non-appealable judgment by a court of
competent jurisdiction to have resulted solely from gross negligence, bad faith
or willful misconduct.
If for any reason other than a final non-appealable judgment finding any
Indemnified Party liable for Damages for its gross negligence, bad faith or
willful misconduct the foregoing indemnity is unavailable to an Indemnified
Party or insufficient to hold an Indemnified Party harmless, then the Company
shall contribute to the amount paid or payable by an Indemnified Party as a
result of such Damages in such proportion as is appropriate to reflect not only
the relative benefits received by the Company and its shareholders on the one
hand and MKC on the other, but also the relative fault of the Company and the
Indemnified Party as well as any relevant equitable considerations, subject to
the limitation that in no event shall the total contribution of all Indemnified
Parties to all such Damages exceed the amount of Compensation actually received
and retained by MKC hereunder after deduction of all applicable taxes to which
the Indemnified Parties are subject. Promptly after receipt by the Indemnified
Party of notice of any claim or of the commencement of any action in respect of
which indemnity may be sought, the Indemnified Party will notify the Company in
writing of the receipt or commencement thereof and the Company shall have the
right to assume the defense of such claim or action (including the employment of
counsel reasonably satisfactory to the Indemnified Party and the payment of fees
and expenses of such counsel), provided that the Indemnified Party shall have
the right to control its defense if, in the opinion of its counsel, the
Indemnified Party's defense is unique or separate to it as the case may be, as
opposed to a defense pertaining to the Company. In any event, the Indemnified
Party shall have the right to retain counsel reasonably satisfactory to the
Company at the Company's expense, to represent it in any claim or action in
respect of which indemnity may be sought and agrees to cooperate with the
Company and the Company's counsel in the defense of such claim or action, it
being understood, however, that the Company shall not, in connection with any
such claim or action or separate but substantially similar or related claims or
actions in the same jurisdiction arising out of the same general allegations or
circumstances, be liable for the reasonable fees and expenses of more than one
separate firm of attorneys, for all the Indemnified Parties unless the defense
of one Indemnified Party is unique or separate from that of another Indemnified
Party subject to the same claim or action. In the event that the Company does
not promptly assume the defense of a claim or action, the Indemnified Party
shall have the right to employ counsel reasonably satisfactory to the Company,
at the Company's expense, to defend such claim or action. The omission by an
Indemnified Party to promptly notify the Company of the receipt or commencement
of any claim or action in respect of which indemnity may be sought will relieve
the Company from any liability the Company may have to such Indemnified Party
only to the extent that such a delay in notification materially prejudices the
Company's defense of such claim or action. The Company shall not be liable for
any settlement of any such claim or action effected without its written consent,
which shall not be unreasonably withheld or delayed. Any obligation pursuant to
this Appendix A shall survive the termination or expiration of this Agreement.
_____________________________________________________
M. KANE & COMPANY, INC.
INVESTMENT BANKERS
Complex Business, Technology or Transaction: Resourceful Financial Advisory
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF JONES EDUCATION NETWORKS, INC.
Jones Computer Network, Ltd.
Jones Education Networks/China, Inc.
The Mind Extension Institute, Inc.
Mind Extension University Bookstore, Inc.
Mind Extension University, Inc.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
report and to all references to our Firm included in or made a part of this
Form S-1 Registration Statement for Jones Education Networks, Inc.
ARTHUR ANDERSEN LLP
Denver, Colorado
August 29, 1996
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