<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 10, 1997
REGISTRATION NO. 333-15657
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
AMENDMENT NO. 1 TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
JONES INTERNATIONAL NETWORKS, LTD.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
COLORADO 7922 84-1250515
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
JURISDICTION OF CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
INCORPORATION OR
ORGANIZATION)
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. MARC WEINGARTEN, ESQ.
N. ANTHONY JEFFRIES, ESQ. DEBORAH FREEDMAN, ESQ.
DAVIS, GRAHAM & STUBBS LLP SCHULTE ROTH & ZABEL LLP
370 SEVENTEENTH STREET, SUITE 4700 900 THIRD AVENUE
DENVER, COLORADO 80202 NEW YORK, NEW YORK 10022
(303) 892-9400 (212) 756-2000
----------------
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. [_]
----------------
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 SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PROSPECTUS
SUBJECT TO COMPLETION, DATED JANUARY 10, 1997
3,350,000 SHARES
JONES INTERNATIONAL NETWORKS, LTD.
CLASS A COMMON STOCK
----------
All shares of Class A Common Stock offered hereby are being offered by Jones
International Networks, Ltd. (the "Company"). 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 $11.00 and $13.00 per share. See "Underwriting" for a
discussion of the factors considered in determining the initial public offering
price. Approximately $28.3 million of the $36.0 million net proceeds of this
offering will be used to repay debt owed to affiliates of the Company. See "Use
of Proceeds." The Company's Class A Common Stock has been approved for
quotation on the Nasdaq National Market under the trading symbol "JNET."
Holders of Class A Common Stock are entitled to 1/20th 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 that 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 shares of
Class B Common Stock are not convertible into shares of Class A Common Stock.
Holders of the Class A Common Stock will receive the same per share
consideration (except with respect to voting rights) as the holders of the
Class B Common Stock in any Company merger, reorganization or recapitalization.
The Company will not support a tender offer or exchange offer unless the per
share consideration (except with respect to voting rights) to both classes is
the same. See "Description of Capital Stock" and "Risk Factors--Anti-Takeover
Effects; Potential Unfavorable Treatment in Takeover." Immediately following
the offering (assuming no exercise of the Underwriters' over-allotment option),
Glenn R. Jones, the beneficial owner of all of the Class B Common Stock, will
have approximately 89% of the combined voting power of the Company's total
outstanding common stock. See "Principal Shareholder" and "Risk Factors--Voting
Rights; Control by Principal Shareholder."
SEE "RISK FACTORS" BEGINNING ON PAGE 9 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE CLASS A COMMON
STOCK.
----------
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>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share................................... $ $ $
Total(3).................................... $ $ $
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(1) See "Underwriting" for information concerning indemnification of the
Underwriters and other information, 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 of the offering estimated at $1.4 million payable
by the Company, which includes amounts payable to M. Kane & Company, Inc.
in consideration of certain financial advisory services provided to the
Company. See "Underwriting."
(3) The Company has granted an option to the Underwriters, exercisable within
30 days of the date hereof, to purchase up to 502,500 additional shares of
Class A Common Stock for the purpose of covering over-allotments, if any.
If the Underwriters exercise such option in full, the total Price to
Public, Underwriting Discount and Proceeds to Company will be $ , $
and $ , respectively. See "Underwriting."
----------
The shares of Class A Common Stock are offered by the Underwriters when, as
and if delivered to and accepted by them, subject to their right to reject any
order in whole or in part and subject to certain other conditions. It is
expected that delivery of certificates representing the shares will be made
against payment on or about , 1997 at the office of Oppenheimer & Co.,
Inc., Oppenheimer Tower, World Financial Center, New York, New York 10281.
OPPENHEIMER & CO., INC.
HAMBRECHT & QUIST
M. KANE & COMPANY, INC.
The date of this Prospectus is , 1997
<PAGE>
[The heading on this page is "Jones International Networks, Ltd." The page
is divided into three sections. The first section is labeled "Radio
Programming" which is placed above eleven color logotypes. Each logotype is
the symbol of one of the Company's radio programs. The second section is
labeled "Television Networks" and contains the color logotypes of the
Company's two television networks. The third section is labeled "Distribution
Facilities" and presents a color photograph of the Company's production
facilities and satellite transmission antennae.]
[ART]
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 the historical and pro forma
Consolidated Financial Statements and Notes thereto appearing elsewhere in this
Prospectus. Unless the context requires otherwise, references to the Company
herein include Jones International Networks, Ltd. and its direct and indirect
subsidiaries and references to Common Stock herein refer collectively to the
Class A Common Stock and Class B Common Stock. In addition, unless the context
requires otherwise, all information in this Prospectus, including numbers and
percentages of the Company's Common Stock: (i) assumes that the Underwriters'
overallotment option has not been exercised, (ii) reflects the 220-for-one
stock split of the Class A Common Stock and Class B Common Stock and (iii)
reflects the completion of each of the other transactions (collectively, the
"Pre-Offering Transactions") described herein under "Prospectus Summary--Pre-
Offering Transactions," which are 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
Jones International Networks, Ltd. (the "Company") creates, develops,
acquires, produces and distributes programming to radio stations, cable
television system operators and other video distributors. The Company: (i)
provides radio programming to radio stations in exchange for advertising time
that it resells to national advertisers, (ii) provides television programming
to cable television system operators and other video distributors, (iii) sells
advertising time on its two television networks and receives license fees for
its country music television network and (iv) owns and operates its own
playback, uplink and satellite transmission facilities that both distribute the
Company's programming and are subleased to others for a fee.
The Company was founded by Glenn R. Jones. Mr. Jones is the Chairman and
Chief Executive Officer of Jones Intercable, Inc. ("Jones Intercable"), one of
the top ten cable television multiple system operators ("MSOs") serving more
than 1.4 million basic subscribers in 48 cable television systems in the United
States. Mr. Jones has been instrumental in leading the Company's early growth
and continues as its majority stockholder and chairman. Mr. Jones has been a
leader in the cable television business for over 35 years and in 1994 he was
inducted into the Broadcasting and Cable Hall of Fame.
The Company launched its first 24-hour satellite delivered radio program in
1989 and now provides 11 radio programs to 1,228 radio station affiliates in
the United States and Canada. Approximately 60 of these affiliates receive more
than one program from the Company. The Company's nine 24-hour music programs
include popular music formats such as country and adult contemporary. The
Company also distributes one long-form country music countdown program and one
short-form country music news program. The Company generally provides its radio
programming to radio stations in exchange for advertising time that the Company
resells to national advertisers. In some cases, the Company also charges radio
stations a license fee for radio programming. The Company, directly and through
a joint venture, also provides audio music and information programming for
distribution via cable television systems and for other applications.
The Company's television programming is distributed through two networks:
Product Information Network ("PIN") and Great American Country ("GAC"). The
Product Information Network Venture (the "PIN Venture"), a joint venture among
the Company, a subsidiary of Cox Communications, Inc. ("Cox") and Adelphia
Communications Corporation ("Adelphia"), operates
3
<PAGE>
the PIN network, a 24-hour television network that airs long-form advertising
generally known as "infomercials." The Company introduced the PIN network in
October 1993 to capitalize on the rapidly growing infomercial industry. The PIN
network airs informational programming from major advertisers that include Ford
Motor Company, State Farm Insurance, Schering-Plough Corporation and Sony
Corporation, among others. In addition, the PIN network airs traditional direct
response infomercials. The PIN network is currently available to approximately
7.3 million subscribers through 168 cable systems. Approximately 2.3 million of
these subscribers are located in 12 of the top 25 Designated Market Areas
("DMAs"). The GAC network is a 24-hour country music video network that was
introduced in December 1995 to capitalize on the popularity of country music.
The GAC network is currently available to approximately 0.9 million subscribers
through 51 cable systems.
The Company's satellite delivery and production support services provide
reliable and efficient playback, trafficking, uplinking and satellite
transmission services to the Company's networks. The Company believes that
these distribution services allow it to have strict management and quality
control over the distribution of its programming. The Company also sells its
satellite delivery and production support services to certain related companies
and to a third party. For the delivery of television programming, the Company
has long-term leases for two transponders on strategically positioned
satellites. Through the recent implementation of new digital compression
technologies that are available to the Company for both of its leased satellite
transponders, the Company has an increased amount of transponder capacity for
its own television programming and for sublease to third party television
networks. The Company also subleases space on other satellite transponders for
delivery of its radio programming.
To attract advertisers, radio and television media require programming that
is appealing to listeners and viewers. Given radio's wide reach and relatively
low advertising costs, it is one of the most cost-effective means to reach
targeted demographic groups. The Company believes that most radio stations
utilize some syndicated or network programming, similar to that provided by the
Company, due to the talent, time and expense required to develop a full day of
in-house programming. In addition, the Company believes infomercials provide
television advertisers with a cost-effective medium through which to deliver
sales messages, product introductions or demonstrations to a targeted audience.
The Company believes that as the benefits of infomercial programming become
more widely understood, the number of advertisers and the volume of infomercial
programming will continue to grow. The Company's country music television
network also participates in a growing media sector. According to industry
sources, country music is one of America's most popular music formats and one
of the fastest growing segments of the music industry in the United States.
Finally, the Company also believes that there is growing market demand for
satellite delivery and production support services, which the Company can
provide, to distribute television programming via satellite.
The Company's objective is to increase its revenue and operating cash flow by
employing the following strategies: (i) creating, developing, acquiring,
producing and distributing additional high-quality programming, (ii) increasing
the distribution of its radio and television networks by expanding its
marketing and sales activities directed at radio stations, MSOs and
advertisers, (iii) acquiring and/or creating complementary businesses and (iv)
capitalizing on its satellite delivery and production support facilities.
The Company was incorporated as a Colorado corporation in 1993, and it is the
successor to certain affiliated entities that previously conducted certain of
its businesses. 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>
RECENT DEVELOPMENTS
Effective August 15, 1996, the Company acquired its radio programming
business through the purchase of all of the common stock of Jones Galactic
Radio, Inc. ("Galactic Radio") from Jones Global Group, Inc. ("Global Group"),
an affiliate of the Company, for a purchase price of $1.2 million in cash and a
$16.0 million note payable to Global Group.
Effective September 30, 1996, the Company acquired its playback, trafficking
and uplinking facilities through the purchase of all of the common stock of
Jones Earth Segment, Inc. ("Earth Segment") from Glenn R. Jones and Jones
International, Ltd. ("Jones International"), affiliates of the Company, for
110,833 shares and 472,500 shares, respectively, of the Company's Class A
Common Stock. As a result of this transaction, the Company assumed debt of
approximately $6.6 million owed by Earth Segment to Jones Intercable that was
incurred in connection with the construction of Earth Segment's facilities.
These transactions have been treated as a reorganization of entities under
common control (similar to a pooling of interests) and are included in the
Company's historical and pro forma Consolidated Financial Statements for all
periods presented in such statements. The Company intends to utilize a portion
of the proceeds of this offering to repay the debt incurred and assumed in
connection with the foregoing transactions. See "Use of Proceeds" and "Certain
Relationships and Related Transactions."
PRE-OFFERING TRANSACTIONS
PIN Venture Ownership Change. Since February 1995, the Company has owned 50%
or less of the PIN Venture, the entity that owns and operates the PIN network.
Immediately prior to the consummation of the offering, the Company will acquire
from Adelphia an 8.35% equity interest in the PIN Venture in exchange for
approximately 262,500 shares of the Company's Class A Common Stock. As a result
of this transaction, the Company will own approximately 54% of the PIN Venture
and, going forward, will be able to consolidate the operations of the PIN
Venture for financial reporting purposes.
Minority Interests in Jones Infomercial Networks and Great American
Country. Also immediately prior to the consummation of the offering, the
Company will acquire Glenn R. Jones' 19% equity interest in Jones Infomercial
Networks, Inc., the subsidiary through which the Company has invested in the
PIN Venture, and Mr. Jones' 19% equity interest in Great American Country,
Inc., the subsidiary through which the Company operates the GAC network, in
exchange for 333,333 shares of the Company's Class A Common Stock.
Jones Space Segment Transaction. Also immediately prior to the consummation
of the offering, the Company will acquire the satellite transponder leases and
related subleases owned by Jones Space Segment, Inc. ("Space Segment"), an
affiliate of the Company, in exchange for 416,667 shares of the Company's Class
A Common Stock.
The foregoing transactions are referred to collectively in this document as
the "Pre-Offering Transactions" and are given effect in the Company's pro forma
Consolidated Financial Statements presented elsewhere in this Prospectus.
5
<PAGE>
THE OFFERING
Class A Common Stock
offered by the Company:.... 3,350,000 shares
Common Stock to be
outstanding after the
offering:
Class A Common Stock...... 6,330,953 shares
Class B Common Stock...... 1,385,120 shares
---------
Total...................
7,716,073 shares(1)
---------
---------
Use of proceeds............. The Company intends to use the net proceeds from
the offering as follows: (i) approximately $16.0
million to repay the debt incurred in connection
with the acquisition of the Company's radio
network business, (ii) approximately $6.6 million
to repay the debt assumed in connection with the
acquisition of the Company's satellite services
facilities, (iii) approximately $5.7 million to
repay affiliate advances and (iv) approximately
$7.7 million for general corporate purposes,
including working capital and the acquisition
and/or creation of complementary businesses. See
"Use of Proceeds."
Voting rights............... Holders of Class A Common Stock are entitled to
1/20th 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 shares of Class B
Common Stock are not convertible into shares of
Class A Common Stock. See "Description of Capital
Stock." Immediately following the offering, Glenn
R. Jones, the beneficial owner of the Class B
Common Stock, will have approximately 89% of the
combined voting power of the Company's
outstanding Common Stock. See "Principal
Shareholder" and "Risk Factors--Voting Rights;
Control by Principal Shareholder,--Anti-Takeover
Effects; Potential Unfavorable Treatment in
Takeover, --Conflicts of Interest; Transactions
with and Reliance on Affiliates."
Nasdaq National Market
symbol................ JNET
- --------
(1) Excludes: (i) 630,000 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 January 10, 1997 and (ii) 13,958 shares (16,052
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 120% of
the initial public offering price. See "Management--Stock Option Plan" and
"Underwriting."
6
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------- ------------------
1993 1994 1995 1995 1996
------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AND
AFFILIATE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue...................... $ 5,222 $ 6,572 $ 9,683 $ 7,053 $ 9,074
Operating expense............ 6,112 8,533 10,683 7,753 10,199
Operating loss............... (890) (1,961) (1,000) (700) (1,125)
Net loss before taxes and
minority interests.......... (782) (1,743) (1,720) (1,144) (1,177)
Net loss..................... (828) (1,657) (1,382) (902) (793)
Net loss per common
share(1).................... $ (.25) $ (.49) $ (.41) $ (.27) $ (.24)
Weighted average number of
common shares outstanding... 3,354 3,354 3,354 3,354 3,354
OTHER DATA:
Cash Flows Provided By (Used
In) Operating Activities.... $ 2,938 $ (6,933) $ (347) $ (990) $ 453
Cash Flows Provided By (Used
In) Investing Activities.... (4,384) (1,271) (1,698) (1,056) (1,796)
Cash Flows Provided By (Used
In) Financing Activities.... 1,444 8,266 1,987 1,987 1,341
EBITDA(2).................... (345) (1,349) -- 89 491
Radio station average quarter
hour audience(3)(4)......... 516 670 765 764 1,070
Radio station affiliates(4).. 718 925 929 949 1,212
PIN network subscribers(4)... 275 1,489 4,825 4,303 7,260
GAC network subscribers(4)... -- -- 14 -- 896
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
-----------------------
ACTUAL AS ADJUSTED(5)
------- --------------
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Cash................................................... $ 3 $ 10,249
Working capital........................................ (1,641) 11,787
Total assets........................................... 12,592 22,838
Long-term debt and capital lease obligation............ 22,562 7
Total shareholders' investment......................... (14,014) 21,968
</TABLE>
- --------
(1) For the year ended December 31, 1995 and the nine months ended September
30, 1996 the net loss per common share would have been $(.22) and $(.10),
respectively, had it been calculated to give effect to: (i) the use of
approximately $6.6 million and $22.6 million of the offering to repay debt
(and the related increase of approximately 546,000 and 768,000 in the
number of weighted average common shares outstanding) and (ii) the
exclusion of the corresponding interest expense related to such debt of
approximately $670,000 and $628,000, and net of income taxes of
approximately $137,000 and $240,000, respectively.
(2) EBITDA is earnings before interest income (expense), provision for income
taxes, depreciation and amortization. EBITDA is not a recognized measure of
performance under generally accepted accounting principles ("GAAP") and
should not be considered in isolation or as a substitute for net income,
cash flows provided by (used in) operating, investing or financing
activities and other income and cash flow statement data prepared in
accordance with GAAP, or as a measure of liquidity or profitability.
(3) Average quarter hour audience ("AQH") represents the average audience
(persons age 12 or older) listening to radio stations broadcasting the
Company's 24-hour radio programming during any 15-minute period from 6 am -
7 pm, Monday through Friday, as measured by the Arbitron rating service.
Radio advertising is generally sold on the basis of the total listening
audience as quantified by the AQH.
(4) Represents amounts at the end of the periods indicated. The GAC network was
launched in December 1995.
(5) Adjusted to give effect to the sale of 3,350,000 shares of Class A Common
Stock offered by the Company hereby, at an assumed offering price of $12.00
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 (as if the offering and the application of the
net proceeds therefrom had occurred on September 30, 1996). See "Use of
Proceeds."
7
<PAGE>
PRO FORMA SUMMARY CONSOLIDATED FINANCIAL DATA
The following table gives effect to the Pre-Offering Transactions as if they
had occurred at the beginning of the period indicated for Statement of
Operations Data and at September 30, 1996 for Balance Sheet Data. See
"Prospectus Summary--Pre-Offering Transactions."
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------- ------------------
1993 1994 1995 1995 1996
------- ------- ------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AND AFFILIATE
DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenue................ $11,221 $11,292 $16,491 $ 12,003 $ 16,634
Operating expense...... 9,648 10,811 15,661 11,356 15,061
Operating income....... 1,573 481 798 625 1,546
Net loss before taxes
and minority
interests............. (1,777) (2,692) (3,030) (2,139) (1,321)
Net loss............... (1,572) (2,303) (2,343) (1,633) (1,134)
Net loss per common
share(1).............. $ (.38) $ (.56) $ (.54) $ (.37) $ (.26)
Weighted average number
of common shares
outstanding........... 4,104 4,104 4,366 4,366 4,366
OTHER DATA:
Cash Flows Provided By
(Used In) Operating
Activities............ $ 3,542 $(6,164) $ 2,957 $ 1,792 $ 1,644
Cash Flows Provided By
(Used In) Investing
Activities............ (4,384) (1,271) (4,669) (4,142) (1,796)
Cash Flows Provided By
(Used In) Financing
Activities............ 1,331 7,426 1,028 1,136 214
EBITDA(2).............. 5,086 3,996 5,402 4,141 4,862
Radio station average
quarter hour
audience(3)(4)........ 516 670 765 764 1,070
Radio station
affiliates(4)......... 718 925 929 949 1,212
PIN network
subscribers(4)........ 275 1,489 4,825 4,303 7,260
GAC network
subscribers(4)........ -- -- 14 -- 896
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
------------------------
PRO FORMA,
PRO FORMA AS ADJUSTED(5)
--------- --------------
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Cash.................................................. $ 84 $ 10,330
Working capital....................................... (1,026) 12,402
Total assets.......................................... 40,207 49,753
Long-term debt and capital lease obligation........... 53,689 31,134
Total shareholders' investment........................ (18,990) 16,992
</TABLE>
- --------
(1) For the year ended December 31, 1995 and the nine months ended September
30, 1996 the net loss per common share would have been $(.37) and $(.15),
respectively, had it been calculated to give effect to: (i) the use of
approximately $6.6 million and $22.6 million of the offering to repay debt
(and the related increase of approximately 546,000 and 768,000 in the
number of weighted average common shares outstanding) and (ii) the
exclusion of the corresponding interest expense related to such debt of
approximately $670,000 and $628,000, and net of income taxes of
approximately 137,000 and 240,000, respectively.
(2) EBITDA is earnings before interest income (expense), provision for income
taxes, depreciation and amortization. EBITDA is not a recognized measure of
performance under GAAP and should not be considered in isolation or as a
substitute for net income, cash flows provided by (used in) operating,
investing or financing activities and other income and cash flow statement
data prepared in accordance with GAAP, or as a measure of liquidity or
profitability.
(3) AQH represents the average audience (persons age 12 or older) listening to
radio stations broadcasting the Company's 24-hour radio programming during
any 15-minute period from 6 am - 7 pm, Monday through Friday, as measured
by the Arbitron rating service. Radio advertising is generally sold on the
basis of the total listening audience as quantified by the AQH.
(4) Represents amounts at the end of the periods indicated. The GAC network was
launched in December 1995.
(5) Adjusted to give effect to the sale of 3,350,000 shares of Class A Common
Stock offered by the Company hereby, at an assumed offering price of $12.00
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 (as if the offering and the application of the
net proceeds therefrom had occurred on September 30, 1996). See "Use of
Proceeds."
8
<PAGE>
RISK FACTORS
An investment in the shares of Class A Common Stock offered hereby involves
a high degree of risk. Prospective investors should consider carefully the
following factors, as well as all of the other information set forth in this
Prospectus, in evaluating an investment in the Class A Common Stock offered
hereby. This Prospectus may contain forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended (the
"Securities Act") and Section 21E of the Securities Exchange Act of 1934, as
amended. Discussions containing such forward-looking statements may be found
in the material set forth under "Risk Factors," "Management's Discussion and
Analysis of Financial Condition and Results of Operations," and "Business," as
well as elsewhere in the Prospectus. Actual events or results may differ
materially from those discussed in the forward-looking statements as a result
of various factors, including, without limitation, the risk factors set forth
below and the matters set forth in the Prospectus generally.
HISTORY OF NET LOSSES; EXPECTED FUTURE NET LOSSES
The Company has sustained net losses of $0.8 million, $1.7 million, $1.4
million and $0.8 million, and operating losses of $0.9 million, $2.0 million,
$1.0 million and $1.1 million, for the years ended December 31, 1993, 1994 and
1995, and for the nine months ended September 30, 1996, respectively. The net
losses have resulted in an accumulated deficit of $14.0 million as of
September 30, 1996. Such net losses and accumulated deficit are generally
greater on a pro forma basis. There can be no assurance that the Company will
ever generate net income. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
RELIANCE ON AFFILIATES FOR FINANCING; RISKS OF INABILITY TO OBTAIN ADDITIONAL
FINANCING
The Company's cash flow provided by (used in) operating activities was $2.9
million, $(6.9) million, $(0.3) million and $(0.5) million for the years ended
December 31, 1993, 1994 and 1995, and for the nine months ended September 30,
1996, respectively. The Company has relied on advances and loans from Jones
International and related companies to fund a portion of its cash needs. Jones
International and such related companies are under no obligation to provide,
nor does the Company expect them to provide, additional financial assistance
to the Company subsequent to the consummation of this offering. Although the
Company believes that the net proceeds of this offering, together with its
cash flow from operations and the credit facility it is currently negotiating,
will be sufficient to satisfy the Company's capital requirements through at
least December 31, 1997, there can be no assurance to such effect or that the
Company will be able to meet its longer term capital requirements. The Company
is negotiating a commitment from a commercial bank for a $25 million revolving
credit facility (subject to the Company's attainment of certain financial
ratios). Upon the consummation of this offering, the Company anticipates being
limited to less than $4 million of available borrowings pursuant to these
financial ratios. There can be no assurance, however, that the Company will be
able to negotiate a final agreement for the credit facility, achieve or
maintain the financial ratios necessary to enable it to borrow under the
credit facility, or obtain any other sources of financing on acceptable terms,
if at all. In addition, future equity financing could have a dilutive effect
on the Company's then existing shareholders. If the Company is unable to
obtain financing on acceptable terms in the future, it could suffer a material
adverse effect. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources."
RISKS ASSOCIATED WITH DISTRIBUTION OF TELEVISION PROGRAMMING
The Company's business is dependent in part upon the distribution of the PIN
and GAC networks through cable television systems and other video
distributors. In terms of cable distribution, the PIN and GAC networks compete
for a limited number of available cable channels with a large number of well-
established programmers supplying a variety of alternative programming,
including entertainment, sports, news, public affairs and educational
programming. In addition, cable programming distribution is controlled by
MSOs, some of which
9
<PAGE>
are affiliated with competing program providers. Also, sales of cable systems
by MSOs that have affiliation agreements with the Company could result in a
loss of subscribers to the Company's television networks if the new cable
system owners do not retain the Company's programming. Because advertising
revenue generated by the PIN and GAC networks is a function of distribution,
the Company's success in the distribution of its television programming will
directly affect the amount of advertising revenue generated by the Company's
television networks. If the Company is unable to maintain or increase the
distribution of the PIN and/or GAC networks, it could suffer a material
adverse effect.
RELIANCE ON AFFILIATED PARTIES FOR DISTRIBUTION OF TELEVISION PROGRAMMING
A significant portion of the PIN network's distribution is on cable systems
owned and/or managed by affiliates of the PIN Venture's three partners. While
the PIN Venture has entered into affiliation agreements with a number of the
largest MSOs in the United States, as well as with a number of small MSOs,
carriage on each of the systems operated by an MSO is not guaranteed by such
agreements and, in many cases, these agreements do not guarantee the
distribution of the PIN network's programming for 24 hours per day. In
additon, the GAC network, which was launched in December 1995, is distributed
primarily on cable television systems owned or managed by Jones Intercable, an
affiliate of the Company. Under the terms of this affiliation agreement, the
license fees paid by Jones Intercable may be reduced in March 1997 if the GAC
network has not entered into an affiliation agreement by that date with
another MSO with at least 400,000 basic subscribers on terms, including
license fees, comparable to those between the GAC network and Jones
Intercable. There can be no assurance that the Company will be able to meet
this criteria and accordingly, that the license fees paid by Jones Intercable
will not be reduced in March 1997. The Company's expansion plans for the PIN
and GAC networks are dependent, in part, upon its ability to enter into
affiliation agreements with additional MSOs and other video programming
distributors and to renew existing affiliation agreements with current MSOs
when such agreements expire. 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.
RISKS ASSOCIATED WITH ACQUISITION AND DISTRIBUTION OF RADIO PROGRAMMING
The Company's ability to maintain and increase the distribution of its radio
networks and to increase the audience for its radio programming is dependent
upon, among other factors, its ability to assess consumer preferences
accurately, its ability to develop, acquire and distribute radio programming
that is attractive to radio listeners, and the amount of radio programming
produced in-house by radio stations. The Company acquires certain of its radio
programming from third party programmers pursuant to license agreements that
provide that the third party programmers bear the costs incurred in developing
and producing the programming. These license agreements are typically for a
term of three to five years. The Company does not generally retain the rights
to the programming upon the termination of these license agreements. There can
be no assurance that the Company will be able to continue to develop or
acquire radio programming on acceptable terms that will be desirable to its
targeted markets. There can similarly be no assurance that the Company will be
able to enter into new affiliation agreements, or maintain its existing
affiliation agreements, with radio stations.
DEPENDENCE ON ADVERTISING REVENUE
The Company is heavily dependent on advertising revenue. For the nine months
ended September 30, 1996, advertising revenue comprised 53% of the Company's
total revenue. Attracting advertisers is dependent upon the Company's ability
to demonstrate that its networks are able to deliver the type and quantity of
radio listeners and television viewers that such
10
<PAGE>
advertisers seek to target with their advertising. The Company's success in
this endeavor will be affected by a number of factors, including, among
others, the Company's ability to expand the distribution of its networks, to
deliver high quality, entertaining programming that is appealing to additional
listeners and viewers and to increase awareness of its networks and measure
the type and quantity of radio listeners and television viewers tuned to its
networks. There can be no assurance that the Company will be successful in
this endeavor.
The Company's advertising revenue and operating results also may be
adversely affected by economic downturns. Such economic downturns, if
prolonged, might have an adverse impact on radio and television advertising
and on the Company's financial condition and results of operations. In
addition, advertising revenue may be impacted by many other factors beyond the
Company's control, including, but not limited to: (i) the amount of funds that
advertisers dedicate to radio and television advertising in general and to the
Company's networks in particular, (ii) the popularity of programming and
ratings achieved by third party radio station affiliates that broadcast the
Company's radio programming or utilize its services, (iii) the number of
advertisers who seek audiences within the demographic groups to which the
Company's networks target programming, (iv) competition within national and
regional markets from other media and (v) regulatory restrictions on
advertising (e.g., beer, wine, liquor or cigarette advertising). There can be
no assurance that the Company will be able to maintain its existing
advertisers or attract additional advertisers in the future. The Company could
suffer a material adverse effect if it is unable to maintain or increase its
advertising revenue.
DEPENDENCE ON ADVERTISING RELATIONSHIPS
The Company's radio network advertising revenue is highly dependent on the
efforts of its national advertising representation firm, Media America, Inc.
("Media America"). For the nine months ended September 30, 1996, 96% of the
Company's radio advertising revenue was derived from sales made through Media
America. The Company contracts with Media America for the sale of advertising
on its 24-hour radio formats and the Crook & Chase Country CountDown program
pursuant to agreements that expire in May 1998 and January 1997, respectively.
In addition, the Company contracts with Media America for the majority of the
GAC network's advertising sales pursuant to a contract that expires in
December 1998. There can be no assurance that Media America will continue to
be able to sell advertising time on the Company's networks. Nor can there be
any assurance that the Company will be able to renew its contracts with Media
America, or obtain a suitable replacement, on acceptable terms.
The Company's television network advertising revenue is highly dependent on
its relationships with National Media Group ("National Media") and Consumer
Resource Network ("CRN"). The Company sells large blocks of airtime on the PIN
network to National Media and CRN. For the nine months ended September 30,
1996, 59% of the Company's television advertising revenue was derived from
sales of airtime to these firms. The rates per one-half hour of airtime that
CRN and National Media pay to the PIN network fluctuate based on, among other
things, the number of subscribers to the PIN network. The Company's contracts
with National Media and CRN expire in April 1997 and December 1997,
respectively. The Company believes that National Media and CRN may consider
launching their own infomercial networks in the future. There can be no
assurance that National Media and CRN will continue, maintain or increase the
amount of airtime purchased on the PIN network. Nor can there be any assurance
that the Company will be able to renew its contracts with these firms, or
obtain suitable replacements, on acceptable terms.
The termination of the Company's relationships with Media America, National
Media or CRN could have a material adverse effect on the Company.
11
<PAGE>
INABILITY TO SUSTAIN OR MANAGE GROWTH
The Company's revenue has grown in recent years primarily as a result of
increased advertising and licensing revenue generated by its programming
networks. 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 the PIN and GAC networks, both
through MSOs, as well as through alternative distribution systems such as
direct broadcast satellite services ("DBS"), multi-system, multi-point
distribution services ("MMDS") and video distribution systems being
established by various telecommunications companies; maintaining and expanding
distribution of its radio networks; developing and acquiring additional
programming for the Company's radio networks that is consistent with listener
preferences; and attracting and maintaining advertisers that are willing to
pay competitive rates. 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
and likely will require the Company to recruit additional management
personnel. As part of its business strategy, the Company will consider
acquiring and/or creating complementary businesses. The success of this
strategy depends not only upon the Company's ability to identify and acquire
suitable businesses, but also upon its ability to integrate acquired
businesses into its organization effectively and to retain and motivate key
personnel of acquired businesses. In addition, the Company may face
competition from other companies for acquisition candidates. There 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, that it will
be able to attract and retain sufficient management personnel necessary for
continued growth, or that it will be able to successfully make strategic
investments or acquisitions. The failure to accomplish any of the foregoing
could have a material adverse effect on the Company.
RISKS ASSOCIATED WITH SUBSTANTIAL LEVERAGE
The Company has historically been highly leveraged. Although a substantial
portion of the proceeds of the offering will be used to repay debt owed to
affiliates and will reduce the Company's leverage, the Company will remain
highly leveraged after such repayment. On a pro forma basis, and after giving
effect to the offering and the use of proceeds therefrom, the Company would
have had total long-term indebtedness of approximately $31.1 million and a
ratio of long-term indebtedness to total capitalization of 65% as of September
30, 1996 (as if the offering and the use of proceeds took place on that date).
The Company's long-term debt will consist almost entirely of capitalized lease
obligations acquired in the Jones Space Segment transaction. See "Prospectus
Summary--Pre-Offering Transactions". The degree to which the Company is
leveraged will restrict the Company's ability to obtain additional financing
in the future for working capital, capital expenditures, acquisitions, general
corporate purposes or other purposes and will require the Company to dedicate
a significant portion of the Company's cash flow from operations to payments
under its capitalized lease obligations. The Company would suffer a material
adverse effect if it were unable to meet its capitalized lease obligations.
DEPENDENCE UPON KEY PERSONNEL
The Company is dependent on the efforts and abilities of its senior
management, including those of Glenn R. Jones, its Chairman of the Board,
Gregory J. Liptak, its President, Jay B. Lewis, its Group Vice President/Chief
Financial Officer and Eric Hauenstein, the Vice President/General Manager of
its radio networks. The Company does not have employment agreements with, and
12
<PAGE>
does not carry key life insurance on, any of its employees. The loss or
interruption of the services of key members of management could have a
material adverse effect on the Company. In addition, the Company's success
depends in part upon its ability to attract and retain talented writers,
performers and other creative personnel. Although the Company believes that
its relations with its creative personnel are good and that it will continue
to be successful in attracting and retaining qualified creative personnel,
there can be no assurance that the Company will be able to continue to do so.
See "Business --Associates and Others" and "Management."
RISKS ASSOCIATED WITH THE PIN VENTURE
The PIN network is operated by the PIN Venture, a joint venture among the
Company, Cox and Adelphia. The Company has a majority-ownership interest in
the PIN Venture and manages the day-to-day operations of the PIN Venture. The
other venture partners, however, have certain voting rights with respect to
major decisions concerning the venture. In addition, the PIN Venture may in
the future issue equity to its existing partners or new partners which would
dilute the Company's interest in the PIN Venture and could result in the
venture's operations no longer being consolidated for financial reporting
purposes. If, for any reason, the Company is unable to consolidate the PIN
Venture's results of operations, the presentation of the Company's financial
statements would change because the PIN Venture's revenue and operating
income, if any, would not be included in the Company's consolidated revenue
and operating income. As a result, the market price for the Class A Common
Stock could decline. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Pre-Offering Transactions and Stock
Split" and "Business--Television Programming Networks--The PIN Venture
Agreement."
RISKS ASSOCIATED WITH SATELLITE DELIVERY AND PRODUCTION SUPPORT SERVICES;
TRANSPONDER LEASES
The Company delivers its television programming through its own satellite
delivery and production support facilities, and subleases transponder space
from third parties to deliver its radio programming. The Company also earns
revenue by providing satellite delivery and production support services to the
Company's affiliates and a third party. The Company's satellite delivery and
production support services cause the Company to incur substantial ongoing
fixed costs, particularly the cost of leasing satellite transponders, and,
therefore, the Company must generate significant revenue from these services
in order to generate net income from these services. In addition, on a pro
forma basis, 53% of this revenue for the nine months ended September 30, 1996
was derived from lease payments by affiliates of the Company. There can be no
assurance that the Company will be able to maintain or increase its revenue
from these services.
The Company's satellite transponder agreements provide various protections
to the Company in the event of satellite failure and the transponders are not
subject to preemption by third parties in most instances. Although these
agreements provide that the lessor will place the Company's programming on a
replacement satellite, there can be no assurance that this would occur. There
are a limited number of domestic communications satellites available for the
transmission of cable television programming to cable system operators. The
availability of transponders in the future is dependent on a number of factors
over which the Company has no control. These factors include, primarily, the
limited availability of desirable orbital slots for commercial communications
satellites, the successful launches of additional commercial communications
satellites by third parties and competition and demand for transponder leases
on existing and new satellites. 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. See "Business--Satellite Delivery and Production Support Services."
13
<PAGE>
COMPETITION
Competition in the radio programming market is intense. The Company's radio
networks compete for both advertising dollars and radio station affiliates
with four major network radio distribution companies in the U.S., as well as
with a larger number of smaller independent producers and distributors. In
addition, the three largest competitors in the industry are affiliated with
major station owners, have recognized brand names and have large networks
which include affiliates to which such competitors pay compensation to
broadcast the network's commercials. There can be no assurance that the
Company will be able to compete successfully for radio advertising revenue.
Radio networks also face competition from improving technologies available
to local radio stations that may enable them to pre-record their local
announcers and automate their operations, thereby allowing them to reduce
costs and operate more efficiently. Another potential technological advance,
Digital Audio Radio Service ("DARS"), may permit national radio stations to
broadcast digital quality radio programming nationwide to homes, automobiles
and other locations via satellite. The Company cannot predict what effect the
potential future development of digital automation or DARS will have on the
radio industry or the Company.
Competition in the television programming market is also intense. The
Company's television networks compete for distribution on cable systems, for
viewers and for advertising revenue with hundreds of cable and broadcast
television networks supplying a variety of infomercial and entertainment
programming. The PIN network competes directly with at least three other
infomercial networks and believes that new infomercial networks are currently
being planned or formed that also will compete directly with the PIN network.
The PIN network also competes with at least 30 cable television networks, many
of which have a substantial number of viewers, that air infomercial
programming. The Company expects to encounter additional competition for
viewers as the implementation of technological advances, including 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. There can be no assurance that the infomercial concept will continue
to be acceptable to advertisers and consumers or that it will be able to
compete against other forms of advertising. The GAC network has one principal
direct competitor, a network that distributes its programming to approximately
half of the cable television subscribers in the United States. There can be no
assurance that the Company will be able to expand the distribution of its
television networks or compete successfully against the other networks.
The Company competes in the delivery of domestic satellite services with
microwave carriers, satellite service providers and full service teleports,
many of which have substantially greater financial and other resources than
the Company.
As there are generally few barriers to entry into the Company's markets, the
Company could in the future face competition from new competitors offering
services similar to those of the Company. The Company's radio and television
networks also compete with other forms of media for advertising dollars, such
as broadcast television, print, outdoor and other media. Many of the Company's
competitors have greater resources than the Company and there can be no
assurance that the Company will be able to compete successfully in the future.
If the Company is unable to compete successfully for distribution of its
networks and advertising revenue, it could suffer a material adverse effect.
See "Business--Competition."
VOTING RIGHTS; CONTROL BY PRINCIPAL SHAREHOLDER
Holders of Class A Common Stock have limited voting rights. Holders of Class
A Common Stock are entitled to 1/20th of a vote per share, and holders of
Class B Common Stock are entitled
14
<PAGE>
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 holder of Class B Common
Stock, voting separately as a class. The shares of Class B Common Stock are
not convertible into shares of Class A Common Stock. See "Description of
Capital Stock." Thus, the holder of the Class B Common Stock will have the
power to control all matters requiring shareholder approval. Following the
completion of this offering, Glenn R. Jones will beneficially own 100% of the
voting power of the outstanding Class B Common Stock and 89% of the total
voting power of the outstanding Class A Common Stock and Class B Common Stock
combined. See "Certain Relationships and Related Transactions," "Principal
Shareholder" and "Description of Capital Stock."
ANTI-TAKEOVER EFFECTS; POTENTIAL UNFAVORABLE TREATMENT IN TAKEOVER
The voting control by the holders of the Class B Common Stock and certain
provisions of the Company's articles of incorporation may be deemed to have
certain anti-takeover effects. 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. 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 majority 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. In addition, the holders of the
Class B Common Stock may also arrange or approve an acquisition of voting
control of the Company that is favorable to them and does not involve the
holders of Class A Common Stock. See "Principal Shareholder" and "Description
of Capital Stock."
CONFLICTS OF INTEREST; TRANSACTIONS WITH AND RELIANCE ON AFFILIATES
The Company has engaged in and expects to continue to engage in certain
transactions with its affiliates. To date, these transactions have involved
primarily loans and advances to the Company, affiliation agreements for the
distribution of the Company's television programming, leasing of the Company's
satellite and production support services, lease agreements and service
agreements related to certain technical, computer and administrative services
provided to the Company. For the nine months ended September 30, 1996,
approximately $3.4 million, or 20%, of the Company's pro forma total revenue
and approximately $3.7 million, or 25%, of its pro forma total expenses
involved related party transactions. While Mr. Liptak and Mr. Lewis will
devote all of their time to the Company's business, certain of the Company's
other officers and directors are also officers and directors of the Company's
affiliates and will devote substantial amounts of their time to these
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 agreements between the Company and
such affiliates are not and will not be the result of arm's-length
negotiations. Although the Company has adopted a policy that requires any new
material related party transaction to be approved by a majority of the
disinterested members of the Board of Directors (the "Board"), there can be no
assurance that the terms of any transactions between the Company and its
related companies have been or will be as favorable as the Company could
obtain from unrelated parties. See "--Dependence upon Key Personnel" and
"Certain Relationships and Related Transactions."
15
<PAGE>
SEASONALITY
Advertising revenue in the radio and television industries fluctuates due to
seasonality in such industries. The Company believes that radio network
revenue is typically lowest in the first quarter and television network
revenue is typically lowest in the third quarter. Other than the fees paid by
the Company to third parties for certain of its radio programming and the fees
paid in connection with the distribution of the PIN network, the Company's
costs have not varied significantly with respect to the seasonal fluctuation
of revenue. In the future, the Company's results of operations may fluctuate
from quarter to quarter. See "--Absence of Prior Public Market; Determination
of Offering Price; Possible Volatility of Stock Price," "Selected Consolidated
Financial Data" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
BROAD DISCRETION AS TO USE OF PROCEEDS AFTER REPAYMENT OF DEBT
The Company intends to use the portion of the net proceeds of the offering
remaining after the repayment of debt owed to affiliates for general corporate
purposes, including the possible acquisition or creation of complementary
businesses. The Company has not entered into any acquisition agreement and has
not yet determined the particular means by which it will seek to expand its
business through acquisitions. As a result, a portion of the net proceeds will
be available for items that are not yet identified and the Company will have
broad discretion with respect to the application of such proceeds. See "Use of
Proceeds."
INTELLECTUAL PROPERTY
The Company regards its original programming as proprietary and relies
primarily on a combination of statutory and common law copyright, trademark
and trade secret laws, customer licensing agreements, nondisclosure agreements
and other methods to protect its proprietary rights. If substantial
unauthorized use of the Company's programming 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 program content and distribution methods. In addition, there
can be no assurance that third parties will not claim that the Company's
current or future programming infringes on the proprietary rights of others. A
rights infringement claim against the Company could have a material adverse
effect on the Company.
GOVERNMENT REGULATION
Although the Company's radio and television networks are not generally
directly regulated by the Federal Communications Commission ("FCC"), the radio
stations, cable television systems and other video distributors to which the
Company sells its programming are regulated. As a result, the federal laws and
FCC regulations that affect these entities indirectly affect the Company.
The ownership, operation and sale of radio stations are subject to the
jurisdiction of the FCC. Among other things, the FCC adopts and implements
regulations and policies that directly or indirectly affect the ownership,
operations and sale of radio and television stations, and has the power to
impose penalties for violations of its rules or federal statutes. Such
regulation may adversely affect the Company's business. The Telecommunications
Act of 1996 (the "Telecom Act") is significantly changing the radio broadcast
industry by repealing national limits on the number of radio stations that may
be owned by one entity and by relaxing the common ownership rules in a single
market. These measures have led to greater radio industry consolidation. The
effects of the Telecom Act on the broadcasting industry and thus on the
Company's radio networks are uncertain, and there can be no assurance that it
will not negatively impact the Company's
16
<PAGE>
operations in the future. There can be no assurance that material adverse
changes in regulations affecting the radio industry, in general, or the
Company, in particular, will not occur in the future.
The cable television industry is subject to extensive federal, state and
local regulation. Regulation can take the form of rate controls, programming
carriage requirements and programming content restrictions. Such regulation
could affect the availability of time on local cable television systems for
sale by the Company as well as the price at which such time is available.
There can be no assurance that material adverse changes in regulations
affecting the cable television industry, in general, or the Company, in
particular, will not occur in the future.
The Company's satellite delivery and production support services are
directly regulated by the FCC. The Company holds FCC microwave and earth
station uplink licenses that it utilizes to provide delivery and support
services. Because the licenses held by the Company relate primarily to the
technical operation of its microwave and uplink facilities, which are used for
internal purposes and program delivery, the Company believes that there are
limited regulatory burdens associated with maintaining these licenses in good
standing. There can be no assurance, however, that the Company will be able to
maintain these licenses or that additional regulatory burdens will not be
imposed upon the Company in the future. See "Business--Government Regulation."
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 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. In addition, the Company's quarterly and annual
results of operations are affected by a wide variety of factors, many of which
are outside the Company's control, which could have a material adverse effect
on the Company and the market price of the Class A Common Stock. These factors
include the timing and volume of advertising on the Company's radio networks
and television networks, the number and the size of the radio stations that
carry the Company's radio programming, the number and the size of cable
systems and other video distributors that carry the PIN and GAC networks, and
general economic conditions. Further, it is possible that in the future the
Company's revenue or operating results will be below the expectations of
public market analysts and investors. In such event, the price of the Class A
Common Stock could be materially adversely affected. In addition, if for any
reason the Company is unable to consolidate the PIN Venture's results of
operations, the presentation of the Company's financial statements would
change because the PIN Venture's revenue and operating income, if any, would
not be included in the Company's consolidated revenue and operating income. As
a result, the market price for the Class A Common Stock could decline.
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 3,350,000 shares of Class A
Common Stock sold in the offering will be freely tradeable without restriction
or further registration under the Securities Act, by persons other than
"affiliates" of the Company. The remaining 2,980,953 shares of Class A Common
Stock will be "restricted securities"
17
<PAGE>
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 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 offer to sell, sell, contract to sell, pledge
or otherwise dispose of any shares of Class A Common Stock without the prior
written consent of Oppenheimer & Co., Inc. Following the expiration of such
lock-up agreements, 2,980,953 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 January
10, 1997, 630,000 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 at the initial public offering price. See "Management." The
Company has also, in connection with this offering, agreed to grant a warrant
to M. Kane & Company, Inc. (the "MKC Warrant") to purchase 13,958 shares
(16,052 shares if the Underwriters' overallotment option is exercised in full)
of the Class A Common Stock at an exercise price equal to 120% of the initial
public offering price of the Class A Common Stock, together with certain
registration rights relating to such shares. In addition, the Company has
granted certain registration rights to Adelphia relating to approximately
262,500 shares of Class A Common Stock that it issued to Adelphia in exchange
for an 8.35% equity interest in the PIN Venture. 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," "Prospectus Summary--Pre-Offering
Transactions," "Description of Capital Stock," "Shares Eligible for Future
Sale" and "Underwriting."
IMMEDIATE AND SUBSTANTIAL DILUTION; ABSENCE OF PAYMENTS OF CASH DIVIDENDS
Purchasers of the Class A Common Stock will experience immediate and
substantial dilution, on a pro forma basis, of $10.20 (at an assumed offering
price of $12.00 per share) in net tangible book value per share. Also, 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."
18
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 3,350,000 shares of
Class A Common Stock offered hereby, assuming an initial offering price of
$12.00 per share, are estimated to be approximately $36.0 million ($41.5
million if the Underwriters' overallotment option is exercised in full) after
deduction of the 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 $16.0 million to repay debt owed to Global Group, which is
due December 31, 2003 and bears interest at 8.25% per annum, (ii)
approximately $6.6 million to repay debt owed to Jones Intercable, which is
due December 19, 1999 and bears interest at the prime rate plus 1% (which
totalled approximately 9.25% as of September 30, 1996), (iii) approximately
$5.7 million to repay advances owed to Jones International (the expected
approximate balance of such advances on the date of repayment), which have no
fixed maturity date and bear interest at the prime rate plus 2% (which
totalled approximately 10.25% as of September 30, 1996) and (iv) approximately
$7.7 million for general corporate purposes, including working capital and the
acquisition and/or creation of complementary businesses. The Company is not
currently engaged in any negotiations concerning such acquisitions. Pending
such uses, the Company intends to invest the net proceeds from the offering in
investment-grade, short-term, interest-bearing securities. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
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. In addition, the Company is currently
negotiating a credit agreement that will restrict the Company's ability to pay
dividends. 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 agreements 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.
19
<PAGE>
CAPITALIZATION
The following table sets forth, as of September 30, 1996, the actual
capitalization of the Company, the pro forma capitalization of the Company to
reflect the Pre-Offering Transactions and the pro forma capitalization of the
Company as further adjusted to reflect the sale of 3,350,000 shares of Class A
Common Stock offered by the Company at an assumed initial offering price of
$12.00 per share and the application of the net proceeds therefrom. See "Use
of Proceeds." This information should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the historical and pro forma Consolidated Financial Statements
and Notes thereto included elsewhere herein.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
--------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Long-term debt(1).............................. $ 22,562 $ 53,689 $31,134
-------- -------- -------
Shareholders' equity:
Class A Common Stock, $.01 par value;
50,000,000 shares authorized; 1,968,453
shares issued and outstanding actual;
2,980,953 shares issued and outstanding pro
forma; 6,330,953 shares issued and
outstanding pro forma as adjusted(2)........ 20 30 63
Class B Common Stock, $.01 par value;
1,385,120 shares authorized; 1,385,120
shares issued and outstanding actual, pro
forma and pro forma as adjusted............. 14 14 14
Additional paid-in capital..................... -- 3,147 39,096
Accumulated deficit............................ (14,048) (22,181) (22,181)
-------- -------- -------
Total shareholders' investment............... $(14,014) $(18,990) $16,992
-------- -------- -------
Total capitalization....................... $ 8,548 $ 34,699 $48,126
======== ======== =======
</TABLE>
- --------
(1) Long-term debt consists of notes to Global Group and Jones Intercable and,
on a pro forma basis, a capitalized lease obligation of Space Segment. See
Notes 3 and 5 of Notes to the Consolidated Financial Statements, Note 4 of
Notes to the Space Segment Financial Statements and "Use of Proceeds."
(2) Excludes: (i) 630,000 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 January 10, 1997 and (ii) 13,958 shares (16,052
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 120% of
the initial public offering price of the Class A Common Stock. See
"Management--Stock Option Plan" and "Underwriting."
20
<PAGE>
DILUTION
The pro forma net tangible book value of the Company as of September 30,
1996 was approximately $(22.1) million, or $(5.07) 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. After giving effect to the sale by the Company of the
3,350,000 shares of Class A Common Stock offered hereby (at an assumed initial
offering price of $12.00 per share and after deduction of underwriting
discounts and commissions and estimated offering expenses), the pro forma net
tangible book value of the Company at September 30, 1996 would have been $13.9
million, or $1.80 per share of Common Stock. This represents an immediate
increase in pro forma net tangible book value of $6.87 per share of Common
Stock to existing shareholders and an immediate dilution of $10.20 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........................ $12.00
Pro forma net tangible book value as of September 30,
1996...................................................... $(5.07)
Increase in pro forma net tangible book value attributable
to the offering........................................... 6.87
------
Pro forma net tangible book value after the offering......... 1.80
------
Dilution to purchasers of Class A Common Stock............... $10.20
======
</TABLE>
The following table summarizes, on a pro forma basis as of September 30,
1996, and as adjusted to reflect the sale of 3,350,000 shares of Class A
Common Stock by the Company at an assumed initial public offering price of
$12.00 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 PURCHASED TOTAL CONSIDERATION AVERAGE
----------------- ------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing shareholders........... 4,366,073 57% $19,177,698 32% $ 4.39
New investors................... 3,350,000 43% 40,200,000 68% $12.00
--------- --- ----------- ---
Total......................... 7,716,073 100% $59,377,698 100%
========= === =========== ===
</TABLE>
The preceding table excludes: (i) 630,000 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 January 10, 1997 and (ii) 13,958
shares (16,052 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
120% of the initial public offering price of the Class A Common Stock. See
"Management--Stock Option Plan" and "Underwriting."
21
<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
historical 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 for the nine months ended September 30, 1995 and
1996, and the balance sheet data at December 31, 1993, 1994 and 1995 and
September 30, 1996, 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
and 1992 are derived from unaudited financial statements of the Company not
included in this Prospectus. These 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>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------------------------- ----------------
1991 1992 1993 1994 1995 1995 1996
------- ------- -------- -------- -------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE AND AFFILIATE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF
OPERATIONS DATA:
Revenue:
Radio
programming..... $ 678 $ 3,016 $ 3,186 $ 2,541 $ 5,122 $ 3,686 $ 5,140
Television
programming..... -- -- 291 1,946 340 289 802
Satellite
delivery and
production
support......... 561 693 1,745 2,085 4,221 3,078 3,132
------- ------- -------- -------- -------- ------- -------
Total revenue... 1,239 3,709 5,222 6,572 9,683 7,053 9,074
------- ------- -------- -------- -------- ------- -------
Operating expense:
Radio
programming..... 920 1,786 1,974 2,068 3,068 2,278 2,792
Television
programming..... -- -- 355 1,568 408 300 1,304
Satellite
delivery and
production
support......... 493 786 1,532 1,849 3,512 2,496 2,603
Selling and
marketing....... 299 672 955 1,090 1,374 1,071 1,243
General and
administrative.. 406 900 1,296 1,958 2,321 1,608 2,257
------- ------- -------- -------- -------- ------- -------
Total operating
expense......... 2,118 4,144 6,112 8,533 10,683 7,753 10,199
------- ------- -------- -------- -------- ------- -------
Operating loss.... (879) (435) (890) (1,961) (1,000) (700) (1,125)
Other income
(expense)........ (21) 157 108 218 (720) (444) (52)
------- ------- -------- -------- -------- ------- -------
Loss before taxes
and minority
interests........ (900) (278) (782) (1,743) (1,720) (1,144) (1,177)
Income taxes and
minority
interest......... 133 13 (46) 86 338 242 384
------- ------- -------- -------- -------- ------- -------
Net loss.......... $ (767) $ (265) $ (828) $ (1,657) $ (1,382) $ (902) $ (793)
======= ======= ======== ======== ======== ======= =======
Net loss per
common share(1).. $ (.23) $ (.08) $ (.25) $ (.49) $ (.41) $ (.27) $ (.24)
Weighted average
number of common
shares
outstanding...... 3,354 3,354 3,354 3,354 3,354 3,354 3,354
OTHER DATA:
Cash Flows
Provided By (Used
In) Operating
Activities....... $ 565 $ 1,096 $ 2,938 $ (6,933) $ (347) $ (990) $ 453
Cash Flows Used in
Investing
Activities....... (1,049) (1,189) (4,384) (1,271) (1,698) (1,056) (1,796)
Cash Flows
Provided By
Financing
Activities....... 63 86 1,444 8,266 1,987 1,987 1,341
EBITDA(2)......... (468) 166 (345) (1,349) -- 89 491
Radio station
average quarter
hour
audience(3)(4)... -- -- 516 670 765 764 1,070
Radio station
affiliates(4).... 324 479 718 925 929 949 1,212
PIN network
subscribers(4)... -- -- 275 1,489 4,825 4,303 7,260
GAC network
subscribers(4)... -- -- -- -- 14 -- 896
<CAPTION>
DECEMBER 31,
----------------------------------------------
SEPTEMBER 30,
1991 1992 1993 1994 1995 1996
------- ------- -------- -------- -------- ----------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital... $ (896) $(2,331) $ (6,042) $ (626) $ (847) $ (1,641)
Total assets...... 2,703 3,505 8,051 9,483 10,460 12,592
Long-term debt and
capital lease
obligation....... 9,201 9,151 10,968 19,233 21,221 22,562
Total
shareholders'
investment....... (8,521) (8,786) (9,986) (11,840) (13,221) (14,014)
</TABLE>
- --------
(1) For the year ended December 31, 1995 and the nine months ended September
30, 1996 the net loss per common share would have been $(.22) and $(.10),
respectively, had it been calculated to give effect to: (i) the use of
approximately $6.6 million and $22.6 million of the offering to repay debt
(and the related increase of approximately 546,000 and 768,000 in the
number of weighted average common shares outstanding) and (ii) the
exclusion of the corresponding interest expense related to such debt of
approximately $670,000 and $628,000, and net of income taxes of
approximately 137,000 and 240,000, respectively.
(2) EBITDA is earnings before interest income (expense), provision for income
taxes, depreciation and amortization. EBITDA is not a recognized measure
of performance under GAAP and should not be considered in isolation or as
a substitute for net income, cash flows provided by (used in) operating,
investing or financing activities and other income and cash flow statement
data prepared in accordance with GAAP, or as a measure of liquidity or
profitability.
(3) AQH represents the average audience (persons age 12 or older) listening to
radio stations broadcasting the Company's 24-hour radio programming during
any 15-minute period from 6 am - 7 pm, Monday through Friday, as measured
by the Arbitron rating service. Radio advertising is generally sold on the
basis of the total listening audience as quantified by the AQH. Prior to
1993, the Company did not compile AQH data.
(4) Represents amounts at the end of the periods indicated. The PIN network
was launched in October 1993. The GAC network was launched in December
1995.
22
<PAGE>
PRO FORMA SELECTED CONSOLIDATED FINANCIAL DATA
The following pro forma selected consolidated financial data of the Company
reflect the Pre-Offering Transactions and are qualified by reference to and
should be read in conjunction with the pro forma 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 for the nine months
ended September 30, 1995 and 1996, and the balance sheet data at December 31,
1993, 1994 and 1995 and September 30, 1996, are derived from the pro forma
Consolidated Financial Statements of the Company. These 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>
NINE MONTHSENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------------- ------------------------
1993 1994 1995 1995 1996
--------- ---------- ---------- ------------------------
(IN THOUSANDS, EXCEPT PER SHARE AND AFFILIATE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenue:
Radio Programming..... $ 3,186 $ 2,541 $ 5,122 $ 3,686 $ 5,140
Television
programming.......... 291 1,946 4,450 3,192 6,514
Satellite delivery and
production support... 7,744 6,805 6,919 5,125 4,980
--------- ---------- ---------- ---------- ----------
Total revenue........ 11,221 11,292 16,491 12,003 16,634
--------- ---------- ---------- ---------- ----------
Operating expense:
Radio programming..... 1,974 2,068 3,068 2,278 2,792
Television
programming.......... 355 1,043 3,208 2,286 5,257
Satellite delivery and
production support... 5,045 4,652 4,662 3,371 2,706
Selling and
marketing............ 955 1,090 1,488 1,147 1,357
General and
administrative....... 1,319 1,958 3,267 2,298 2,975
--------- ---------- ---------- ---------- ----------
Total operating
expense............. 9,648 10,811 15,693 11,380 15,087
--------- ---------- ---------- ---------- ----------
Operating income....... 1,573 481 798 625 1,546
Other income
(expense)............. (3,350) (3,173) (3,828) (2,762) (2,868)
--------- ---------- ---------- ---------- ----------
Loss before taxes and
minority interests.... (1,777) (2,692) (3,030) (2,139) (1,321)
Income taxes and
minority interests.... 205 390 687 506 187
--------- ---------- ---------- ---------- ----------
Net loss............... $ (1,572) $ (2,302) $ (2,343) $ (1,633) $ (1,134)
========= ========== ========== ========== ==========
Net loss per common
share(1).............. $ (.38) $ (.56) $ (.54) $ (.37) $ (.26)
Weighted average number
of common shares
outstanding........... 4,104 4,104 4,366 4,366 4,366
OTHER DATA:
Cash Flows Provided By
(Used In) Operating
Activities............ $ 3,542 $ (6,164) $ 2,957 $ 1,792 $ 1,644
Cash Flows Used In
Investing Activities.. (4,384) (1,271) (4,669) (4,142) (1,796)
Cash Flows Provided by
Financing Activities.. 1,331 7,426 1,028 1,136 214
EBITDA(2).............. 5,086 3,996 5,402 4,141 4,862
Radio station average
quarter hour
audience(3)(4)........ 516 670 765 764 1,070
Radio station
affiliates(4)......... 718 925 929 949 1,212
PIN network
subscribers(4)........ 275 1,489 4,825 4,303 7,260
GAC network
subscribers(4)........ -- -- 14 -- 896
<CAPTION>
DECEMBER 31,
--------------------------------- SEPTEMBER 30,
1993 1994 1995 1996
--------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital........ $ (5,150) $ 210 $ (920) $ (1,026)
Total assets........... 40,721 39,070 36,643 40,207
Long-term debt and
capital lease
obligations........... 45,171 52,648 53,468 53,689
Total shareholders'
investment............ (12,483) (16,302) (20,362) (18,990)
</TABLE>
- --------
(1) For the year ended December 31, 1995 and the nine months ended September
30, 1996 the net loss per common share would have been $(.37) and $(.15),
respectively, had it been calculated to give effect to: (i) the use of
approximately $6.6 million and $22.6 million of the offering to repay debt
(and the related increase of approximately 546,000 and 768,000 in the
number of weighted average common shares outstanding) and (ii) the
exclusion of the corresponding interest expense related to such debt of
approximately $670,000 and $628,000, and net of income taxes of
approximately 137,000 and 240,000, respectively.
(2) EBITDA is earnings before interest income (expense), provision for income
taxes, depreciation and amortization. EBITDA is not a recognized measure
of performance under GAAP and should not be considered in isolation or as
a substitute for net income, cash flows provided by (used in) operating
investing or financing activities and other income and cash flow statement
data prepared in accordance with GAAP, or as a measure of liquidity or
profitability.
(3) AQH represents the average audience (persons age 12 or older) listening to
radio stations broadcasting the Company's 24-hour radio programming during
any 15-minute period from 6 am - 7 pm, Monday through Friday, as measured
by the Arbitron rating service. Radio advertising is generally sold on the
basis of the total listening audience as quantified by the AQH.
(4) Represents amounts at the end of the periods indicated. The PIN Network
was launched in October 1993. The GAC network was launched in December
1995.
23
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion of results of operations and financial condition
should be read in conjunction with the Company's historical and pro forma
Consolidated Financial Statements and Notes thereto appearing elsewhere in
this Prospectus. This Prospectus contains forward-looking statements that
involve risks and uncertainties. See "Risk Factors." The Company's actual
results may differ materially from the results discussed in any forward-
looking statement.
PRE-OFFERING TRANSACTIONS AND STOCK SPLIT
The following transactions, which are to be effective immediately prior to
the consummation of the offering, are collectively referred to in this
document as the "Pre-Offering Transactions." The completion of the Pre-
Offering Transactions will significantly affect the composition of the Company
following the consummation of the offering for financial reporting purposes
and have been given effect in the unaudited pro forma Consolidated Financial
Statements contained herein.
Immediately prior to the consummation of the offering, the Company will
acquire from Adelphia an 8.35% equity interest in the PIN Venture, the entity
that owns and operates the PIN network, in exchange for approximately 262,500
shares of the Company's Class A Common Stock. As a result of this transaction,
the Company will own approximately 54% of the PIN Venture and, going forward,
will be able to consolidate the operations of the PIN Venture for financial
reporting purposes. Also immediately prior to the consummation of the
offering, the Company will acquire Glenn R. Jones' 19% equity interest in
Jones Infomercial Networks, Inc., the subsidiary through which the Company has
invested in the PIN Venture, and Mr. Jones' 19% equity interest in Great
American Country, Inc., the subsidiary through which the Company operates the
GAC network, in exchange for 333,333 shares of the Company's Class A Common
Stock. Also immediately prior to the consummation of the offering, the Company
will acquire the transponder leases and related subleases owned by Space
Segment, an affiliate of the Company, in exchange for 416,667 shares of the
Company's Class A Common Stock. In addition, the Company has effected a 220-
for-one stock split of the Class A Common Stock and Class B Common Stock.
The PIN Venture may in the future issue equity to its existing partners or
new partners which would dilute the Company's interest in the PIN Venture and
could result in the venture's operations no longer being consolidated for
financial reporting purposes. If, for any reason, the Company is unable to
consolidate the PIN Venture's results of operations, the presentation of the
Company's financial statements would change because the PIN Venture's revenue
and operating income, if any, would not be included in the Company's
consolidated revenue and operating income. As a result, the market price of
the Class A Common Stock could decline.
Prior to organization of the PIN Venture in 1995, the Company wholly owned
the PIN network, and the Company's historical Consolidated Financial
Statements reflected 100% of the PIN network's results of operations. Between
the start of the PIN Venture in February 1995 and the offering, the Company
owned 50% or less of the PIN Venture and, accordingly, did not consolidate the
results of operations for the PIN Venture. As a result, the Company's 1994
historical financial statements are not comparable to those for 1995. As a
result of the acquisition of Adelphia's interest in the PIN Venture, the
Company will consolidate the results of operations of the PIN Venture for
financial reporting purposes following the consummation of the offering. The
pro forma Consolidated Financial Statements assume the historical
consolidation of the results of operations of the PIN Venture to provide a
basis of comparison consistent with the financial reporting treatment to be
effective upon consummation of the offering. As a result of the acquisition of
the satellite transponder lease agreements from Space Segment, the Company's
historical results will differ significantly from the results of operations
related to the satellite
24
<PAGE>
transponder lease and sub-lease agreements upon consummation of the offering.
As a result, the pro forma Consolidated Financial Statements assume the
historical consolidation of the results of operations of the satellite
transponder lease and sub-lease agreements to provide a basis of comparison
consistent with the financial reporting treatment to be effective upon
consummation of this offering. The acquisition of the minority interests of
Mr. Jones also is given effect in the pro forma Consolidated Financial
Statements and will not have a material impact on the Company's financial
reporting upon consummation of the offering.
The pro forma effects of the Pre-Offering Transactions are primarily to: (i)
increase television programming revenue and expense and minority interest as a
result of the increase of equity interest in PIN Venture, (ii) increase
satellite delivery and production support revenue and expense as a result of
the acquisition of satellite transponder lease agreements from Space Segment
and (iii) decrease minority interest as a result of the acquisition of
remaining equity interest in certain subsidiaries from Mr. Jones. These
effects are explained in more detail in the period-to-period comparisons that
follow.
OVERVIEW
The Company creates, develops, acquires, produces and distributes
programming to radio stations, cable television system operators and other
video distributors. The Company: (i) provides radio programming to radio
stations in exchange for advertising time that it resells to national
advertisers, (ii) provides television programming to cable television system
operators and other video distributors, (iii) sells advertising time on its
two television networks and receives license fees for its country music
television network and (iv) owns and operates its own playback, uplink and
satellite transmission facilities that both distribute the Company's
programming and are subleased to others for a fee.
The Company's revenue consists of radio programming revenue, television
programming revenue and satellite delivery and production support revenue.
Radio programming revenue consists primarily of advertising revenue and, to a
lesser extent, licensing fees paid by smaller radio station affiliates.
License fees from radio stations decreased in 1994 and have remained flat in
later periods. This reflects the Company's decision to focus on obtaining
advertising time, instead of license fees, from its affiliated radio stations.
Television programming revenue consists primarily of advertising revenue from
the sale of infomercial time on the PIN network and advertising time on the
GAC network, as well as licensing fees relating to the GAC network. Satellite
delivery and production support revenue consists of satellite transponder
lease fees, uplinking fees and other services fees.
Radio programming revenue includes advertising and licensing fees. The
Company generates radio advertising revenue by selling airtime to advertisers
who advertise their products or services on the Company's radio networks. The
Company recognizes advertising revenue upon airing of the advertisements. Any
amounts received from customers for radio advertisements that have not been
aired during the period are recorded as unearned revenue until such time as
the advertisements are aired. The Company delivers its programming to radio
stations for distribution to their listeners. Radio station licensing fees are
earned monthly based on the radio station's contractual agreement.
Television programming revenue includes advertising and licensing fees. The
Company generates television advertising revenue by selling airtime to
advertisers who advertise their products or services on the Company's
television networks. The Company recognizes advertising revenue upon airing of
the advertisements. Any amounts received from customers for television
25
<PAGE>
advertisements that have not been aired during the period are recorded as
unearned revenue until such time as the advertisement is aired. The Company
delivers its programming to cable television systems for distribution to their
viewers. Licensing fees are earned monthly based on a per subscriber rate set
pursuant to the cable operator's agreement with the Company and the number of
subscribers that are receiving the Company's programming during the respective
month.
Satellite delivery and production support revenue includes revenue from
satellite delivery, uplinking, trafficking, playback and other services. The
Company generates revenue by providing such services to affiliates and to a
third party. The Company recognizes satellite delivery and production support
revenue upon completion of the services or as provided in contractual
arrangements.
Radio advertising is generally sold on the basis of the total listening
audience as measured by the average number of listeners in the quarter hour,
or AQH, and the time of day when the advertisement is run. The AQH can range
from zero for a small-market radio station to greater than 50,000 for a large-
market radio station, with the majority of large-market stations in the range
of 10,000-20,000. In order to increase advertising rates, it is necessary to
increase the size (or rating) of the audience the program provider delivers to
national advertisers.
The Company's historical and pro forma revenue has grown in recent years due
primarily to increased advertising revenue generated by its radio networks.
The Company's objective is to increase its revenue and operating cash flow by
employing the following strategies: (i) creating, developing, acquiring,
producing and distributing additional high-quality programming, (ii)
increasing the distribution of its radio and television networks by expanding
its marketing and sales activities directed at radio stations, MSOs and
advertisers, (iii) acquiring and/or creating complementary businesses and (iv)
capitalizing on its satellite delivery and production support facilities. The
Company's ability to successfully implement its strategy and maintain or
accelerate its growth will depend on a number of factors, many of which are
beyond the Company's control, including expanding distribution for its radio
and television programming networks, developing and licensing additional
programming for the Company's radio and television networks that is consistent
with listener and viewer preferences, attracting additional advertisers and
expanding its third party customer base for its satellite delivery and
production services. There can be no assurance that the Company will be
successful in these endeavors.
In 1995 and for the nine months ended September 30, 1996, radio programming
revenue accounted for 53% and 57% of the Company's total revenue,
respectively, television programming revenue accounted for 3% and 9% of total
revenue, respectively, and satellite delivery and production support revenue
accounted for 44% and 34% of total revenue, respectively. On a pro forma basis
in 1995 and for the nine months ended September 30, 1996, radio programming
revenue accounted for 31% of the Company's total revenue for both periods,
television programming revenue accounted for 27% and 39% of total revenue,
respectively, and satellite delivery and production support revenue accounted
for 42% and 30% of total revenue, respectively.
The Company's operating expenses consist of: (i) radio programming expenses,
(ii) television programming expenses, (iii) satellite delivery and production
support expenses, (iv) selling and marketing expenses and (v) general and
administrative expenses.
Radio programming expenses consist of program licensing, programming
development and production costs, distribution and delivery costs and other
costs related to the operation of the Company's radio networks. Program
licensing, programming development and production costs include the costs of
researching, designing, producing, and licensing programs for the Company's
radio networks and other associated programming costs. Radio distribution and
delivery costs include the satellite transponder expense, uplinking charges
and other associated costs.
26
<PAGE>
Television programming expenses consist primarily of distribution and
delivery costs and other costs related to the operation of the Company's
television networks. Since substantially all of the programming is made
available to the Company at no cost by third parties and requires limited
additional production effort by the Company, programming and production costs
are not significant. Television program distribution and delivery costs include
satellite transponder expenses, uplinking charges and other associated costs.
Satellite delivery and production support expenses include a portion of the
satellite transponder expenses, uplinking charges and other associated
operating costs to provide these services to affiliates and third parties.
Selling and marketing expenses include salaries, travel and other associated
expenses related to the Company's sales and 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 costs
for the Company's executive and management staff and operational support.
Many of the costs associated with program distribution and delivery, such as
satellite transponder expense and uplinking charges, are relatively fixed with
respect to each of the Company's radio and television networks; as a result, an
increase in the Company's radio or television programming revenue should not
result in a proportionate increase in program distribution and delivery costs.
The Company charges satellite transponder and uplinking fees to its own
subsidiaries as well as to affiliates and a third party. The portions of these
expenses related to subsidiary activities are included in radio or television
programming expense as appropriate.
To date, the Company has sustained operating and net losses, including
operating losses of $0.9 million, $2.0 million, $1.0 million and $1.1 million
and net losses of $0.8 million, $1.7 million, $1.4 million and $0.8 million for
the years ended December 31, 1993, 1994 and 1995, and for the nine months ended
September 30, 1996, respectively. On a pro forma basis, the Company had
operating income of $1.6 million, $0.5 million, $0.8 million and $1.6 million
and net losses of $1.5 million, $2.1 million, $1.9 million and $0.9 million for
the years ended December 31, 1993, 1994 and 1995, and for the nine months ended
September 30, 1996, respectively.
27
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth the amount of, and percentage relationship to
total net revenue of, certain items included in the Company's historical
Consolidated Statements of Operations for the years ended December 31, 1993,
1994 and 1995 and for the nine months ended September 30, 1995 and 1996:
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
------------------------------------------ ---------------------------
1993 1994 1995 1995 1996
------------ ------------- ------------- ------------ -------------
(AUDITED AND IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
REVENUE:
Radio programming...... $3,186 61% $ 2,541 39% $ 5,122 53% $3,686 52% $ 5,140 57%
Television
programming........... 291 6% 1,946 29% 340 3% 289 4% 802 9%
Satellite delivery and
production support.... 1,745 33% 2,085 32% 4,221 44% 3,078 44% 3,132 34%
------ ---- ------- ---- ------- ---- ------ ---- ------- ----
Total revenue.......... 5,222 100% 6,572 100% 9,683 100% 7,053 100% 9,074 100%
------ ---- ------- ---- ------- ---- ------ ---- ------- ----
OPERATING EXPENSES:
Radio programming...... 1,974 38% 2,068 31% 3,068 32% 2,278 32% 2,792 31%
Television
programming........... 355 7% 1,568 24% 408 4% 300 4% 1,304 14%
Satellite delivery and
production support.... 1,532 29% 1,849 28% 3,512 36% 2,496 36% 2,603 29%
Selling and marketing.. 955 18% 1,090 17% 1,374 14% 1,071 15% 1,243 14%
General and
administrative........ 1,296 25% 1,958 30% 2,321 24% 1,608 23% 2,257 24%
------ ---- ------- ---- ------- ---- ------ ---- ------- ----
Total operating
expenses.............. 6,112 117% 8,533 130% 10,683 110% 7,753 110% 10,199 112%
------ ---- ------- ---- ------- ---- ------ ---- ------- ----
OPERATING LOSS.......... (890) (17%) (1,961) (30%) (1,000) (10%) (700) (10%) (1,125) (12%)
------ ---- ------- ---- ------- ---- ------ ---- ------- ----
OTHER INCOME (EXPENSE).. 108 2% 218 4% (720) (7%) (444) (6%) (52) (1%)
INCOME TAXES AND
MINORITY INTERESTS..... (46) (1%) 86 1% 338 3% 242 3% 384 4%
------ ---- ------- ---- ------- ---- ------ ---- ------- ----
NET LOSS................ $ (828) (16%) $(1,657) (25%) $(1,382) (14%) $ (902) (13%) $ (793) (9%)
====== ==== ======= ==== ======= ==== ====== ==== ======= ====
</TABLE>
The following table sets forth the amount of, and percentage relationship to
total net revenue of, certain items included in the Company's pro forma
Consolidated Statements of Operations for the years ended December 31, 1993,
1994 and 1995 and for the nine months ended September 30, 1995 and 1996.
<TABLE>
<CAPTION>
YEARS ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
------------------------------------------- ----------------------------
1993 1994 1995 1995 1996
------------- ------------- ------------- ------------- -------------
(UNAUDITED AND IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
REVENUE:
Radio programming...... $ 3,186 28% $ 2,541 23% $ 5,122 31% $ 3,686 31% $ 5,140 31%
Television
programming........... 291 3% 1,946 17% 4,450 27% 3,192 26% 6,514 39%
Satellite delivery and
production support.... 7,744 69% 6,805 60% 6,919 42% 5,125 43% 4,980 30%
------- ---- ------- ---- ------- ---- ------- ---- ------- ----
Total revenue.......... 11,221 100% 11,292 100% 16,491 100% 12,003 100% 16,634 100%
------- ---- ------- ---- ------- ---- ------- ---- ------- ----
OPERATING EXPENSES:
Radio programming...... 1,974 17% 2,068 19% 3,068 19% 2,278 19% 2,792 17%
Television
programming........... 355 3% 1,043 9% 3,208 19% 2,286 19% 5,257 32%
Satellite delivery and
production support.... 5,045 45% 4,652 41% 4,662 28% 3,371 28% 2,706 16%
Selling and marketing.. 955 9% 1,090 10% 1,488 9% 1,147 10% 1,357 8%
General and
administrative........ 1,319 12% 1,958 17% 3,267 20% 2,298 19% 2,975 18%
------- ---- ------- ---- ------- ---- ------- ---- ------- ----
Total operating
expenses.............. 9,648 86% 10,811 96% 15,693 95% 11,381 95% 15,087 91%
------- ---- ------- ---- ------- ---- ------- ---- ------- ----
OPERATING INCOME........ 1,573 14% 481 4% 798 5% 625 5% 1,546 9%
------- ---- ------- ---- ------- ---- ------- ---- ------- ----
OTHER INCOME (EXPENSE).. (3,350) (30%) (3,173) (28%) (3,828) (23%) (2,762) (23%) (2,868) (17%)
INCOME TAXES AND
MINORITY INTEREST...... 205 2% 390 3% 687 4% 506 4% 187 1%
------- ---- ------- ---- ------- ---- ------- ---- ------- ----
NET LOSS................ $(1,572) (14%) $(2,303) (20%) $(2,343) (14%) $(1,653) (13%) $(1,134) (7%)
======= ==== ======= ==== ======= ==== ======= ==== ======= ====
</TABLE>
28
<PAGE>
NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO NINE MONTHS ENDED SEPTEMBER
30, 1995
TOTAL REVENUE. Total revenue increased $2.0 million, or 29%, from $7.1
million for the nine months ended September 30, 1995 to $9.1 million for the
nine months ended September 30, 1996. This increase was due to an increase in
radio programming revenue and, to a lesser extent, television programming
revenue. On a pro forma basis, total revenue increased $4.6 million, or 39%,
from $12.0 million for the nine months ended September 30, 1995 to $16.6
million for the nine months ended September 30, 1996, due primarily to an
increase in both radio and television programming revenue.
Radio Programming Revenue. Radio programming revenue increased $1.4 million,
or 39%, from $3.7 million for the nine months ended September 30, 1995 to $5.1
million for the nine months ended September 30, 1996, due to a $1.4 million,
or 48%, increase in advertising revenue. Advertising revenue increased due
primarily to: (i) an increase in the rates charged by the Company for its
advertising spots as a result of a 19% increase in the AQH and (ii) the launch
of the Crook & Chase Country CountDown program in January 1996. Licensing
revenue was flat as compared to the prior period reflecting the Company's
strategy to focus on radio station affiliates with significant audiences.
These affiliates are generally not charged a license fee.
Television Programming Revenue. Television programming revenue increased
$0.5 million, or 178%, from $0.3 million for the nine months ended September
30, 1995 to $0.8 million for the nine months ended September 30, 1996, due
primarily to a $0.5 million increase in licensing revenue. Licensing revenue
increased due entirely to the launch of the GAC network on Jones Intercable
systems in December 1995. On a pro forma basis, television programming revenue
increased by $3.3 million, or 104%, from $3.2 million for the nine months
ended September 30, 1995 to $6.5 million for the nine months ended September
30, 1996, due primarily to an increase in advertising rates on the PIN network
as a result of an increase in the number of subscribers receiving the PIN
network's programming.
Satellite Delivery and Production Support Revenue. Satellite delivery and
production support revenue remained relatively flat at $3.1 million for the
nine months ended September 30, 1995 and 1996. On a pro forma basis, satellite
delivery and production support revenue decreased by $0.1 million, or 3%, from
$5.1 million for the nine months ended September 30, 1995 to $5.0 million for
the nine months ended September 30, 1996, due to a decrease in satellite
rental fees from affiliates of the Company.
TOTAL OPERATING EXPENSES. Total operating expenses increased $2.4 million,
or 32%, from $7.8 million for the nine months ended September 30, 1995 to
$10.2 million for the nine months ended September 30, 1996. This increase was
due primarily to an increase in television programming expenses and general
and administrative expenses. As a percentage of total revenue, total operating
expenses increased from 110% for the nine months ended September 30, 1995 to
112% for the nine months ended September 30, 1996. On a pro forma basis, total
operating expenses increased $3.7 million, or 33%, from $11.4 million for the
nine months ended September 30, 1995 to $15.1 million for the nine months
ended September 30, 1996, due primarily to an increase in television
programming expenses and general and administrative expenses. As a percentage
of total pro forma revenue, total pro forma operating expenses decreased from
95% for the nine months ended September 30, 1995 to 91% for the nine months
ended September 30, 1996.
Radio Programming Expenses. Radio programming expenses increased $0.5
million, or 23%, from $2.3 million for the nine months ended September 30,
1995 to $2.8 million for the nine months ended September 30, 1996, due
primarily to an increase in programming and production
29
<PAGE>
expenses. Programming production expenses increased due primarily to an
increase in the number of formats offered by the Company and the launch of the
Crook & Chase Country CountDown in January 1996. Program distribution expenses
did not increase significantly as a result of the relatively fixed nature of
many of the costs, such as the satellite transponder expense. As a percentage
of radio programming revenue, radio programming expenses decreased from 62%
for the nine months ended September 30, 1995 to 52% for the nine months ended
September 30, 1996.
Television Programming Expenses. Television programming expenses increased
$1.0 million from $0.3 million for the nine months ended September 30, 1995 to
$1.3 million for the nine months ended September 30, 1996, due primarily to an
increase in programming distribution expenses. Programming distribution
expenses increased as a result of the launch of the GAC network in December
1995. As a percentage of television programming revenue, television
programming expenses increased from 104% for the nine months ended September
30, 1995 to 163% for the nine months ended September 30, 1996. This increase
was due to the substantial start-up costs, relative to revenue, related to the
launch of the GAC network. On a pro forma basis, television programming
expenses increased by $3.0 million, or 130%, from $2.3 million for the nine
months ended September 30, 1995 to $5.3 million for the nine months ended
September 30, 1996, due primarily to an increase in amounts paid to
distributors of the PIN network as a result of increased revenue. As a
percentage of pro forma television programming revenue, pro forma television
programming expenses increased from 72% for the nine months ended September
30, 1995 to 81% for the nine months ended September 30, 1996, as a result of
the launch of the GAC network as noted above.
Satellite Delivery and Production Support Expenses. Satellite delivery and
production support expenses increased $0.1 million, or 4%, from $2.5 million
for the nine months ended September 30, 1995 to 2.6 million for the nine
months ended September 30, 1996. As a percentage of satellite delivery and
production support revenue, satellite delivery and production support expenses
were 81% for the nine months ended September 30, 1995 and 83% for the nine
months ended September 30, 1996. On a pro forma basis, satellite delivery and
production support expenses decreased by $0.7 million, or 20%, from $3.4
million for the nine months ended September 30, 1995 to $2.7 million for the
nine months ended September 30, 1996, due primarily to an increase in the
portion of such costs reflected as television programming expense as a result
of the launch of the GAC network. As a percentage of pro forma satellite
delivery and production support revenue, pro forma satellite delivery and
production support expenses decreased from 66% for the nine months ended
September 30, 1995 to 54% for the nine months ended September 30, 1996.
Selling and Marketing Expenses. Selling and marketing expenses increased by
$0.1 million, or 16%, from $1.1 million for the nine months ended September
30, 1995 to $1.2 million for the nine months ended September 30, 1996. As a
percentage of total revenue, selling and marketing expenses decreased from 15%
for the nine months ended September 30, 1995 to 14% for the nine months ended
September 30, 1996. On a pro forma basis, selling and marketing expenses
increased by $0.3 million, or 18%, from $1.1 million for the nine months ended
September 30, 1995 to $1.4 million for the nine months ended September 30,
1996. As a percentage of total pro forma revenue, total pro forma selling and
marketing expenses decreased from 10% for the nine months ended September 30,
1995 to 8% for the nine months ended September 30, 1996.
General and Administrative Expenses. General and administrative expenses
increased $0.7 million, or 40%, from $1.6 million for the nine months ended
September 30, 1995 to $2.3 million for the nine months ended September 30,
1996. Approximately $0.4 million of the increase was due to an increase in
management and operational support expenses as a result of the launch of the
GAC network and approximately $0.3 million of the increase was due to an
increase in the
30
<PAGE>
Company's radio operations. As a percentage of total revenue, general and
administrative expenses increased from 23% for the nine months ended September
30, 1995 to 24% for the nine months ended September 30, 1996. On a pro forma
basis, general and administrative expenses increased by $0.6 million, or 30%,
from $2.3 million for the nine months ended September 30, 1995 to $2.9 million
for the nine months ended September 30, 1996, due to the reasons noted above.
As a percentage of total pro forma revenue, total pro forma general and
administrative expenses remained flat at 19% for the nine months ended
September 30, 1995 and 1996.
OTHER INCOME (EXPENSE). Other income (expense) changed $0.3 million from
$(0.4) million for the nine months ended September 30, 1995 to $(0.1) million
for the nine months ended September 30, 1996 due primarily to the increased
profitability of the PIN Venture. On a pro forma basis, other income (expense)
changed by $0.1 million, or 2%, from $(2.8) million for the nine months ended
September 30, 1995 to $(2.9) million for the nine months ended September 30,
1996, due primarily to an increase in interest expense related to debt
associated with the purchase of Galactic Radio.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
TOTAL REVENUE. Total revenue increased $3.1 million, or 47%, from $6.6
million for the year ended December 31, 1994 to $9.7 million for the year
ended December 31, 1995. This increase was due to an increase in both radio
programming revenue and satellite delivery and production support revenue,
which was partially offset by a decrease in television programming revenue. On
a pro forma basis, total revenue increased $5.2 million, or 46%, from $11.3
million for the year ended December 31, 1994 to $16.5 million for the year
ended December 31, 1995, due primarily to increases in radio and television
programming revenue.
Radio Programming Revenue. Radio programming revenue increased $2.6 million,
or 102%, from $2.5 million for the year ended December 31, 1994 to $5.1
million for the year ended December 31, 1995, due primarily to a $2.2 million
increase in advertising revenue and secondarily to a $0.3 million increase in
licensing revenue. Advertising revenue increased due primarily to: (i) growth
in the number of advertising spots sold and (ii) increases in advertising
rates on the Company's radio networks as a result of a 29% increase in the
AQH. Licensing revenue increased $0.3 million, or 79%, from $0.5 million for
the year ended December 31, 1994 to $0.8 million for the year ended December
31, 1995, due primarily to an increase in the number of the Company's radio
affiliates, primarily smaller affiliates upon renewal, paying a license fee.
Television Programming Revenue. Television programming revenue decreased
$1.6 million, or 83%, from $1.9 million for the year ended December 31, 1994
to $0.3 million for the year ended December 31, 1995, due primarily to a $1.6
million, or 83%, decrease in advertising revenue. Advertising revenue
decreased due to the effects of the deconsolidation of the PIN Venture for
financial reporting purposes. This revenue had been consolidated in 1994. The
Company had no licensing revenue in either period. On a pro forma basis,
television programming revenue increased by $2.5 million, or 129%, from $1.9
million for the year ended December 31, 1994 to $4.4 million for the year
ended December 31, 1995, due primarily to an increase in advertising rates on
the PIN network as a result of an increase in the number of subscribers
receiving the PIN network's programming.
Satellite Delivery and Production Support Revenue. Satellite delivery and
production support revenue increased $2.1 million, or 102%, from $2.1 million
for the year ended December 31, 1994 to $4.2 million for the year ended
December 31, 1995. Approximately $1.1 million of this increase was due to the
results of the PIN Venture transaction and approximately $1.0 million of the
increase was due to an increase in uplinking and other revenue primarily as a
result of an increase in the volume of services provided by the Company to
affiliates and secondarily to
31
<PAGE>
increases in rates charged by the Company for trafficking, playback and other
services. Approximately $1.3 million of the increase was a result of the PIN
Venture transaction; this revenue had been eliminated in consolidation in
1994. On a pro forma basis, satellite delivery and production support revenue
increased by $0.1 million, or 2%, from $6.8 million for the year ended
December 31, 1994 to $6.9 million for the year ended December 31, 1995, due
primarily to an increase in uplinking and other revenue as mentioned above.
TOTAL OPERATING EXPENSES. Total operating expenses increased $2.2 million,
or 25%, from $8.5 million for the year ended December 31, 1994 to $10.7
million for the year ended December 31, 1995. This increase was due primarily
to an increase in radio programming expenses and satellite delivery and
production support expenses, which was partially offset by a decrease in
television programming expenses. As a percentage of total revenue, total
operating expenses decreased from 130% for the year ended December 31, 1994 to
110% for the year ended December 31, 1995. On a pro forma basis, total
operating expenses increased $4.9 million, or 45%, from $10.8 million for the
year ended December 1994 to $15.7 million for the year ended December 1995,
due to an increase in radio programming, television programming and general
and administrative expenses. As a percentage of total pro forma revenue, total
pro forma operating expenses decreased from 96% for the year ended December
31, 1994 to 95% for the year ended December 31, 1995.
Radio Programming Expenses. Radio programming expenses increased $1.0
million, or 48%, from $2.1 million for the year ended December 31, 1994 to
$3.1 million for the year ended December 31, 1995, due to increases in both
programming production and programming distribution expenses. Approximately
$0.4 million of the increase was due to an increase in programming production
expenses as a result of an increase in the number of formats offered by the
Company and an increase in salaries of existing radio on-air talent in order
to attract and retain quality personalities. The remaining $0.6 million of the
increase was due to an increase in programming distribution expenses resulting
from increased satellite rental and uplinking fees. As a percentage of radio
programming revenue, radio programming expenses decreased from 81% for the
year ended December 31, 1994 to 60% for the year ended December 31, 1995, due
to the relatively fixed nature of many of the program distribution costs.
Television Programming Expenses. Television programming expenses decreased
$1.2 million, or 74%, from $1.6 million for the year ended December 31, 1994
to $0.4 million for the year ended December 31, 1995, due primarily to a
decrease in programming distribution expenses. Programming distribution
expenses decreased primarily as a result of the effects of the PIN Venture
transaction. As a percentage of television programming revenue, television
programming expenses increased from 81% for the year ended December 31, 1994
to 120% for the year ended December 31, 1995. On a pro forma basis, television
programming expenses increased by $2.2 million, from $1.0 million for the year
ended December 31, 1994 to $3.2 million for the year ended December 31, 1995,
due to an approximately $2.1 million increase in in amounts paid to
distributors of the PIN network and an approximately $0.1 million increase in
satellite transponder expenses. As a percentage of pro forma television
revenue, pro forma television programming expenses increased from 54% for the
year ended December 31, 1994 to 72% for the year ended December 31, 1995, due
to an increase in the relative amounts paid to distributors of the PIN
network.
Satellite Delivery and Production Support Expenses. Satellite delivery and
production support expenses increased $1.7 million, or 90%, from $1.8 million
for the year ended December 31, 1994 to $3.5 million for the year ended
December 31, 1995. This increase was due to: (i) the effects of the PIN
Venture transaction and (ii) an increase in depreciation expense as a result
of increased capital expenditures for uplinking, playback and other equipment
and an increase in the volume of services provided and rates charged for
playback, production, editing
32
<PAGE>
and other services. As a percentage of satellite delivery and production
support revenue, satellite delivery and production support expenses decreased
from 89% for the year ended December 31, 1994 to 83% for the year ended
December 31, 1995. On a pro forma basis, satellite delivery and production
support expenses were flat at $4.7 million for the years ended December 31,
1994 and 1995 in accordance with the small increase in overall demand. As a
percentage of pro forma satellite delivery and production support revenue, pro
forma satellite delivery and production support expenses decreased from 68%
for the year ended December 31, 1994 to 67% for the year ended December 31,
1995.
Selling and Marketing Expenses. Selling and marketing expenses increased
$0.3 million, or 26%, from $1.1 million for the year ended December 31, 1994
to $1.4 million for the year ended December 31, 1995, due primarily to
increased marketing expenditures related to the Company's radio programming
distribution. As a percentage of total revenue, selling and marketing expenses
decreased from 17% for the year ended December 31, 1994 to 14% for the year
ended December 31, 1995. On a pro forma basis, selling and marketing expenses
increased by $0.4 million, or 37%, from $1.1 million for the year ended
December 31, 1994 to $1.5 million for the year ended December 31, 1995, due to
the reasons noted above. As a percentage of total pro forma revenue, pro forma
selling and marketing expenses decreased from 10% for the year ended December
31, 1994 to 9% for the year ended December 31, 1995.
General and Administrative Expenses. General and administrative expenses
increased $0.3 million, or 19%, from $2.0 million for the year ended December
31, 1994 to $2.3 million for the year ended December 31, 1995, due primarily
to an increase in management and operational support expenses as a result of
growth in the Company's radio operations and new business development
activities by the Company. As a percentage of total revenue, general and
administrative expenses decreased from 30% for the year ended December 31,
1994 to 24% for the year ended December 31, 1995. On a pro forma basis,
general and administrative expenses increased by $1.3 million, or 67%, from
$2.0 million for the year ended December 31, 1994 to $3.3 million for the year
ended December 31, 1995. Approximately $0.8 million of the increase was due to
increased management and operational support as a result of the growth of the
PIN network and approximately $0.5 million of the increase was due to
increased support as a result of the growth of the Company's radio operations.
As a percentage of total pro forma revenue, pro forma general and
administrative expenses increased from 17% for the year ended December 31,
1994 to 20% for the year ended December 31, 1995.
OTHER INCOME (EXPENSE). Other income (expense) changed $0.9 million from
$0.2 million for the year ended December 31, 1994 to ($0.7) million for the
year ended December 31, 1995, due primarily to an change in interest expense
as a result of an increase in debt related to the Company's satellite delivery
and production support operations. On a pro forma basis, other income
(expense) increased by $0.7 million, or 20%, from ($3.2) million for the year
ended December 31, 1994 to ($3.8) million for the year ended December 31, 1995
for the reasons noted above.
YEAR ENDED DECEMBER 31, 1994 COMPARED TO YEAR ENDED DECEMBER 31, 1993
TOTAL REVENUE. Total revenue increased $1.4 million, or 26%, from $5.2
million for the year ended December 31, 1993 to $6.6 million for the year
ended December 31, 1994. This increase was due primarily to an increase in
television programming revenue and secondarily to an increase in satellite
delivery and production support revenue, which was partially offset by a
decrease in radio programming revenue. On a pro forma basis, total revenue
increased $0.1 million, or 1% from $11.2 million for the year ended December
31, 1993 to $11.3 million for the year ended December 31, 1994 due to an
increase in television programming revenue, which was offset by decreases in
radio programming revenue and satellite delivery and production support
revenue.
33
<PAGE>
Radio Programming Revenue. Radio programming revenue decreased $0.7 million,
or 20%, from $3.2 million for the year ended December 31, 1993 to $2.5 million
for the year ended December 31, 1994, due to a decrease in licensing revenue,
which was partially offset by an increase in advertising revenue. Licensing
revenue decreased $2.7 million, or 85%, from $3.2 million for the year ended
December 31, 1993 to $0.5 million for the year ended December 31, 1994.
Advertising revenue increased $2.1 million from $0.0 million for the year
ended December 31, 1993 to $2.1 million for the year ended December 31, 1994.
The decrease in licensing revenue and the increase in advertising revenue are
both due to the Company switching from a strategy for the radio networks based
primarily on licensing fees from radio stations to a strategy based primarily
on revenue from the sale of advertising time received for the Company's
programming.
Television Programming Revenue. Television programming revenue increased
$1.6 million from $0.3 million for the year ended December 31, 1993 to $1.9
million for the year ended December 31, 1994 due to a $1.6 million increase in
advertising revenue. Advertising revenue increased due to the PIN network
having a full year of operation in 1994 as opposed to three months in 1993.
The Company had no licensing revenue in either period.
Satellite Delivery and Production Support Revenue. Satellite delivery and
production support revenue increased $0.4 million, or 19%, from $1.7 million
for the year ended December 31, 1993 to $2.1 million for the year ended
December 31, 1994, due primarily to an increase in services provided by the
Company to affiliated entities as a result of the launch of a television
network of an affiliate of the Company in 1994 and an increase in rates
charged by the Company for trafficking, playback and other services. On a pro
forma basis, satellite delivery and production support revenue decreased by
$0.9 million, or 12%, from $7.7 million for the year ended December 31, 1993
to $6.8 million for the year ended December 31, 1994 due primarily to a
decrease in the rate charged for satellite transponder rental.
TOTAL OPERATING EXPENSES. Total operating expenses increased $2.4 million,
or 40%, from $6.1 million for the year ended December 31, 1993 to $8.5 million
for the year ended December 31, 1994. This increase was due primarily to an
increase in television programming expenses and secondarily to an increase in
general and administrative expenses. As a percentage of total revenue, total
operating expenses increased from 117% for the year ended December 31, 1993 to
130% for the year ended December 31, 1994. On a pro forma basis, total
operating expenses increased $1.2 million, or 12% from $9.6 million for the
year ended December 31, 1993 to $10.8 million for the year ended December 31,
1994 due primarily to increases in television programming expenses and general
and administrative expenses, which were partially offset by a decrease in
satellite delivery and production support expenses. As a percentage of total
pro forma revenue, total pro forma operating expenses increased from 86% for
the year ended December 31, 1993 to 96% for the year ended December 31, 1994.
Radio Programming Expenses. Radio programming expenses increased $0.1
million, or 5%, from $2.0 million for the year ended December 31, 1993 to $2.1
million for the year ended December 31, 1994, due primarily to an increase in
programming production expenses as a result of efforts to attract and retain
quality programming talent. As a percentage of radio programming revenue,
radio programming expenses increased from 62% for the year ended December 31,
1993 to 81% for the year ended December 31, 1994, as a result of the
relatively fixed nature of many of the program distribution expenses.
Television Programming Expenses. Television programming expenses increased
$1.2 million from $0.4 million for the year ended December 31, 1993 to $1.6
million for the year ended December 31, 1994, due primarily to an increase in
programming distribution expenses as a result of the PIN network having a full
year of operations in 1994 as opposed to three months in 1993. As a percentage
of television programming revenue, television programming expenses decreased
34
<PAGE>
from 122% for the year ended December 31, 1993 to 81% for the year ended
December 31, 1994. On a pro forma basis, television programming expenses
increased by $0.6 million from $0.4 million for the year ended December 31,
1993 to $1.0 million for the year ended December 31, 1994 due primarily to the
reasons noted above. As a percentage of pro forma television programming
revenue, pro forma television programming expenses decreased from 122% for the
year ended December 31, 1993 to 54% for the year ended December 31, 1994, due
to the start-up costs of the PIN network in 1993.
Satellite Delivery and Production Support Expenses. Satellite delivery and
production support expenses increased $0.3 million, or 21%, from $1.5 million
for the year ended December 31, 1993 to $1.8 million for the year ended
December 31, 1994, due primarily to increased personnel and related operating
costs to meet increased demand for trafficking, playback and other services.
As a percentage of satellite delivery and production support revenue,
satellite delivery and production support expenses increased from 88% for the
year ended December 31, 1993 to 89% for the year ended December 31, 1994. On a
pro forma basis, satellite delivery and production support expenses decreased
by $0.3 million, or 8%, from $5.0 million for the year ended December 31, 1993
to $4.7 million for the year ended December 31, 1994, due primarily to a
decrease in insurance expense related to the launch of the satellite. As a
percentage of pro forma satellite delivery and production support revenue, pro
forma satellite delivery and production support expenses increased from 65%
for the year ended December 31, 1993 to 68% for the year ended December 31,
1994.
Selling and Marketing Expenses. Selling and marketing expenses increased
$0.1 million, or 14%, from $1.0 million for the year ended December 31, 1993
to $1.1 million for the year ended December 31, 1994, due primarily to
increased marketing expenditures related to the Company's radio operations. As
a percentage of total revenue, selling and marketing expenses decreased from
18% for the year ended December 31, 1993 to 17% for the year ended December
31, 1994.
General and Administrative Expenses. General and administrative expenses
increased $0.7 million, or 51%, from $1.3 million for the year ended December
31, 1993 to $2.0 million for the year ended December 31, 1994, due primarily
to increased management and operational support expenses as a result of the
PIN network having a full year of operations in 1994 as opposed to three
months in 1993. As a percentage of total revenue, general and administrative
expenses increased from 25% for the year ended December 31, 1993 to 30% for
the year ended December 31, 1994. On a pro forma basis, general and
administrative expenses did not change significantly from the historical
amounts noted above.
OTHER INCOME (EXPENSE). Other income (expense) changed $0.1 million from
$0.1 million for the year ended December 31, 1993 to $0.2 million for the year
ended December 31, 1994 due primarily to the increased profitability of
Superaudio. On a pro forma basis, other income (expense) changed by $0.2
million, or 5%, from ($3.4) million for the year ended December 31, 1993 to
($3.2) million for the year ended December 31, 1994, due primarily to a
decrease in interest expense related to a capital leases obligation.
SEASONALITY AND QUARTERLY FLUCTUATIONS
Advertising revenue in the radio and television industries fluctuates due to
seasonality in such industries. The Company believes that radio network
revenue is typically lowest in the first quarter and television network
revenue is typically lowest in the third quarter. Other than the fees paid by
the Company to third parties for certain of its radio programming and the fees
paid in connection with the distribution of the PIN network, the Company's
costs have not varied significantly with respect to the seasonal fluctuation
of revenue. The Company's quarterly and annual results of operations are
affected by a wide variety of factors, many of which are outside
35
<PAGE>
the Company's control, which could materially and adversely affect
profitability. These factors include the timing and volume of advertising on
the Company's radio networks and television networks, the number and size of
the radio stations that carry the Company's radio programming, the number and
size of cable systems and other video distributors that carry the PIN and GAC
networks, and general economic conditions.
The Company's unaudited quarterly operating results for each quarter of
fiscal 1994 and 1995 and the first three quarters of 1996 are shown below. The
historical quarterly results are not necessarily indicative of the results to
be expected in the future.
<TABLE>
<CAPTION>
QUARTERS ENDED IN 1994 QUARTERS ENDED IN 1995 QUARTERS ENDED IN 1996
--------------------------------- --------------------------------- -------------------------
1ST 2ND 3RD 4TH 1ST 2ND 3RD 4TH 1ST 2ND 3RD
QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Total revenue........... $ 834 $1,823 $2,113 $1,802 $2,267 $2,467 $2,319 $2,629 $2,429 $3,084 $3,561
Total operating
expenses............... 1,557 2,110 2,529 2,337 2,590 2,407 2,756 2,929 2,991 3,176 4,032
Operating income
(loss)................. (723) (287) (416) (535) (323) 60 (437) (300) (562) (92) (471)
Net income (loss)....... (587) (345) (369) (356) (206) 47 (745) (480) (281) (138) (374)
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's ability to successfully implement its growth strategies is
subject to the availability of cash generated from operations and equity
and/or debt financing. The capital resources to fund these strategies are
expected to be provided in the short-term by this offering, the Company's cash
flow from operations and available borrowings under the credit facility the
Company is currently negotiating. There can be no assurance, however, that the
Company will have sufficient cash flow from operations, be able to
successfully negotiate such a credit facility, or have available borrowings
under the credit facility to support these strategies. In addition, there can
be no assurance that the capital resources necessary to accomplish the
Company's growth strategies over the long-term will be available on terms and
conditions acceptable to the Company, if at all.
Since its inception, the Company has incurred net losses primarily as a
result of expenses associated with developing and launching its programming
networks. Net cash provided by (used in) operating activities for the years
ended December 31, 1993, 1994 and 1995, and the nine months ended September
30, 1996, was $2.9 million, $(6.9) million, $(0.3) million and $0.5 million,
respectively.
For the years ended December 31, 1993, 1994 and 1995, and the nine months
ended September 30, 1996, net cash used in investing activities was $4.4
million, $1.3 million, $1.5 million and $1.8 million, respectively. The
Company's investing activities in 1993 consisted primarily of the purchase of
land and the construction of the Company's satellite delivery and production
support facility in Englewood, Colorado as well as related equipment. The
Company's investing activities in 1994 consisted primarily of the purchase of
land for future expansion of the Company's facilities to deliver its
programming and additional equipment for this facility. The Company's
investing activities in 1995 consisted primarily of: (i) purchases of
equipment for the Company's satellite delivery and production facility, (ii)
purchases of equipment for the radio programming networks and (iii) the
acquisition of certain radio programming network assets. The Company's
investing activities during the nine months ended September 30, 1996 were
principally to convert the delivery system of its radio programming networks
to a digital satellite delivery system, for playback and other equipment for
the GAC network and for other miscellaneous equipment. In addition, the
Company invested $1.0 million in a radio programming venture in October 1996.
The Company's fourth quarter 1996 capital expenditures, which are expected to
be approximately $2.5 million, are primarily related to the completion of the
conversion to a digital satellite delivery system and to the purchase of the
equipment to effect the digital compression of one of the Company's satellite
transponders. The Company's capital expenditures, excluding any future
investments or acquisitions, are expected to be approximately $2.9 million in
1997.
36
<PAGE>
Net cash provided by financing activities for the years ended December 31,
1993, 1994 and 1995 and for the nine months ended September 30, 1996 were $1.4
million, $8.3 million, $1.8 million and $1.3 million, respectively. The
Company's financing activities have consisted primarily of borrowings from
affiliates. In 1994, $6.6 million of borrowings were used to finance the
construction of Earth Segment's satellite delivery and production support
facilities.
Effective August 15, 1996 the Company purchased all of the outstanding
common stock of Galactic Radio from Global Group for $17.2 million. Global
Group had acquired Galactic Radio from Jones Intercable, an affiliate of the
Company, for $17.2 million on June 14, 1996. The purchase price was paid using
$1.2 million in cash, which was advanced to the Company by Jones
International, and with the balance in the form of a $16.0 million note.
The Company intends to use a portion of the net proceeds of this offering to
repay the $16.0 million note to Global Group, the $6.6 million note to Jones
Intercable and all outstanding advances from Jones International, which
advances totaled $3.2 million at September 30, 1996, and are expected to total
approximately $5.7 million by December 1996.
The Company is currently negotiating a commitment from a commercial bank for
a $25 million credit facility. Borrowings under the credit agreement are
expected to bear interest at a maximum of LIBOR plus 2.5% (currently
approximately 8.0%), subject to reduction should the Company's financial
ratios improve. The credit facility will be a revolving facility for the first
two years and will mature five years from the date of the closing of the
definitive credit agreement, and be secured by substantially all of the assets
of the Company. The amount of available borrowings under the credit facility
will be based on certain ratios of debt to operating cash flow as defined in
the credit agreement. The Company does not expect to be able to access the
entire credit facility until at least late 1997 or early 1998 and there can be
no assurance the Company will ever achieve the ratios of debt to operating
cash flow required to access a meaningful portion, if any, of the credit
facility. Upon the consummation of this offering, the Company anticipates
being limited to less than $4 million of available borrowings pursuant to
these financial ratio provisions. The credit facility will also limit the
Company's ability to incur additional indebtedness, enter into new capitalized
lease obligations and pay dividends to its shareholders. The commercial bank's
commitment is contingent on the consummation of this offering. The Company
anticipates it will enter into a definitive credit agreement for this credit
facility late in the first quarter of 1997, however, there can be no assurance
that it will be able to negotiate a definitive agreement or obtain alternative
financing on acceptable terms, if at all. The Company has received advances
and loans from Jones International and related companies to fund its operating
and investing activities in the past and anticipates that Jones International
will make additional advances to the Company prior to the consummation of the
offering. Jones International and such related companies are under no
obligation to provide, nor does the Company expect them to provide, additional
advances or loans to the Company subsequent to the consummation of the
offering. Management believes that the net proceeds from this offering,
operating cash flow and available borrowings under the credit facility will be
sufficient to fund the Company's capital needs through at least December 31,
1997.
NEW ACCOUNTING PRONOUNCEMENTS
The Company adopted 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"), effective January 1, 1996. SFAS 121
establishes accounting standards for the impairment of long-lived assets,
certain identifiable intangibles and goodwill. 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.
37
<PAGE>
BUSINESS
OVERVIEW
The Company creates, develops, acquires, produces and distributes
programming to radio stations, cable television system operators and other
video distributors. The Company: (i) provides radio programming to radio
stations in exchange for advertising time that it resells to national
advertisers, (ii) provides television programming to cable television system
operators and other video distributors, (iii) sells advertising time on its
two television networks and receives license fees for its country music
television network and (iv) owns and operates its own playback, uplink and
satellite transmission facilities that both distribute the Company's
programming and are subleased to others for a fee.
The Company was founded by Glenn R. Jones. Mr. Jones is the Chairman and
Chief Executive Officer of Jones Intercable, one of the top ten cable
television MSOs serving more than 1.4 million basic subscribers in 48 cable
television systems in the United States. Mr. Jones has been instrumental in
leading the Company's early growth and continues as its majority stockholder
and chairman. Mr. Jones has been a leader in the cable television business for
over 35 years and in 1994 he was inducted into the Broadcasting and Cable Hall
of Fame.
The Company launched its first 24-hour satellite delivered radio program in
1989 and now provides 11 radio programs to 1,228 radio station affiliates in
the United States and Canada. Approximately 60 of these affiliates receive
more than one program from the Company. The Company's nine 24-hour music
programs include popular music formats such as country and adult contemporary.
The Company also distributes one long-form country music countdown program and
one short-form country music news program. The Company generally provides its
radio programming to radio stations in exchange for advertising time that the
Company resells to national advertisers. In some cases, the Company also
charges radio stations a license fee for radio programming. The Company,
directly and through a joint venture, also provides audio music and
information programming for distribution via cable television systems and for
other applications.
The Company's television programming is distributed through two networks:
PIN and GAC. The PIN Venture, a joint venture among the Company, Cox and
Adelphia, operates the PIN network, a 24-hour television network that airs
long-form advertising generally known as "infomercials." The Company
introduced the PIN network in October 1993 to capitalize on the rapidly
growing infomercial industry. The PIN network airs informational programming
from major advertisers that include Ford Motor Company, State Farm Insurance,
Schering-Plough Corporation and Sony Corporation, among others. In addition,
the PIN network airs traditional direct response infomercials. The PIN network
is currently available to approximately 7.3 million subscribers through 168
cable systems. Approximately 2.3 million of these subscribers are located in
12 of the top 25 DMAs. The GAC network is a 24-hour country music video
network that was introduced in December 1995 to capitalize on the popularity
of country music. The GAC network is currently available to approximately 0.9
million subscribers through 51 cable systems.
The Company's satellite delivery and production support services provide
reliable and efficient playback, trafficking, uplinking and satellite
transmission services to the Company's networks. The Company believes that
these distribution services allow it to have strict management and quality
control over the distribution of its programming. The Company also sells its
satellite delivery and production support services to certain related
companies and to a third party. For the delivery of television programming,
the Company has long-term leases for two transponders on strategically
positioned satellites. Through the recent implementation of new digital
compression technologies that are available to the Company for both of its
leased satellite transponders, the Company has an
38
<PAGE>
increased amount of transponder capacity for its own television programming
and for sublease to third party television networks. The Company also
subleases space on other satellite transponders for delivery of its radio
programming.
STRATEGY
The Company's objective is to increase its revenue and operating cash flow
by employing the following strategies:
Create, Develop, Acquire and Produce Additional High-Quality
Programming. The Company believes that there is market demand for additional
long-form and short-form radio programming in both larger and smaller markets
due to the financial and creative constraints of many radio stations combined
with their need to improve operating efficiencies. In addition, the Company
believes there is a market for various 24-hour music and information programs
that the Company does not currently distribute, such as classic country, talk
radio and urban contemporary formats. The Company intends to develop and
acquire radio programming addressing these market demands. In addition to
creating, developing and producing its own programming, to reduce its
financial exposure and to supplement its creative talent, the Company has
entered into and will continue to seek agreements with third party programmers
who bear the costs associated with developing and producing radio programming
and who have special expertise in these markets.
Increase the Distribution of its Programming by Expanding its Marketing and
Sales Activities Directed at Radio Stations, MSOs and Advertisers. To increase
its revenue, the Company must increase the distribution of and audience for
its programming. The Company plans to market its television networks primarily
to cable television systems in the top 25 DMAs. The Company relies on
financial incentives and its established relationships with MSOs to market
these networks. The Company may also seek to increase the distribution of the
PIN network by offering enhanced financial incentives to MSOs. The Company
intends to promote the benefits of long-form infomercial programming to major
advertisers, with the goal of attracting more advertising from such
advertisers and enhancing the quality of the PIN network's programming. The
Company plans to increase its radio network marketing and sales activities in
an effort to increase the number of its radio station affiliates and the size
of its audience.
Acquire or Create Complementary Businesses. The Company intends to expand
its business by acquiring and/or creating businesses complementary to its
business. Such complementary businesses could include competitors of the
Company that create, produce and distribute programming or other companies
that offer related services.
Capitalize on its Satellite Delivery and Production Support Facilities. The
Company's satellite delivery and production support facilities provide
reliable, efficient playback, trafficking, uplinking and satellite
transmission services to the Company. The Company's satellite facilities are
strategically located on the 105th meridian which enables the Company to
uplink its television programming to satellites serving international markets.
The Company believes that through the recent implementation of new digital
compression technologies that are available to the Company for both of its
leased satellite transponders, it will be able to sublease an increasing
amount of its transponder capacity to third parties.
Although the Company intends to actively pursue these strategies, there can
be no assurance that it will be successful in these endeavors.
RADIO NETWORKS
The Radio Programming Market
According to the FCC, there are approximately 10,000 commercial radio
stations in the United States. Radio is a popular medium for advertising due
to the short lead time between
39
<PAGE>
commercial production and broadcast, the relative ease and low cost of
producing radio commercials and the fact that more than half of all radio
listening occurs away from the home, closer to the point of purchase.
Advertisers consider radio to be one of the most effective media to reach
target audiences. Radio reaches its targeted demographics by using specific-
format programming. According to industry sources, total radio advertising
revenue was $11.3 billion in 1995.
Radio stations compete for advertising revenue in their respective markets.
To be competitive, radio stations are continuously seeking the highest quality
programming at the lowest cost. Radio stations develop formats, such as music,
news/talk or various types of entertainment programming, intended to appeal to
a target listening audience with demographic characteristics that will attract
national, regional and local commercial advertisers. However, limited
financial and creative resources, among other things, prevent most radio
stations from producing national quality programming. Accordingly, radio
stations rely on network programming from independent producers or
"syndicators", such as the Company, to enhance or provide their radio
programming. By placing a program with radio stations throughout the United
States, the syndicator creates a "network" of stations that carry its
programming. A radio network typically provides programming to radio stations
in exchange for a contractual amount of commercial broadcast time, usually
expressed as a number of minutes per hour, which is then resold to
advertisers. The Company believes that most commercial radio stations utilize
radio network or syndicated third party programming. The commercial broadcast
time for such programs may vary from market to market within a specified time
period, depending upon the requirements of the particular radio station
affiliate.
The Telecom Act significantly changed the radio broadcast industry by
repealing national limits on the number of radio stations that may be owned by
one entity and by relaxing the common ownership rules in a single market. As a
result, the Telecom Act has created a wave of radio station acquisitions and
increased consolidation in the industry. This, in turn, has led many ownership
groups to seek ways to cut costs, better manage their operations and improve
their efficiencies. Radio networks, such as the Company's, may address these
needs by providing quality programming to radio stations and reducing their
personnel costs.
Network radio programming is generally grouped into three formats:
24-Hour Programming. This full-time programming is aired live and hosted by
announcers. Examples of this type of programming include popular formats such
as country, adult contemporary and oldies.
Long-Form Programming. This type of programming is less than 24 hours in
duration and is designed to fill, on a daily or weekly basis, one day part,
generally a four to six-hour time period of the day such as mornings--6 a.m.
to 10 a.m., middays--10 a.m. to 3 p.m., afternoons--3 p.m. to 7 p.m.,
evenings--7 p.m. to midnight, and overnights--midnight to 6 a.m. Examples of
this type of programming include talk shows hosted by nationally known
personalities and popular countdown shows hosted by nationally known disc
jockeys.
Short-Form Programming. This type of programming generally is less than 15
minutes in duration. Examples of this type of programming include news and
commentary radio shows.
Radio advertising is generally sold on the basis of a radio program's AQH.
The AQH can range from zero for a small-market radio station to greater than
50,000 for a large-market radio station, with the majority of large-market
stations in the range of 10,000-20,000. In order to increase advertising
rates, it is necessary to increase the size (or rating) of the audience the
program provider delivers to national advertisers.
40
<PAGE>
The Company's Radio Networks
The Company distributes radio programming to 1,228 radio stations throughout
the United States and Canada. In addition, approximately 60 of these stations
receive more than one program. The Company's high-quality, distinctive
programming is designed to enable radio stations to improve and differentiate
their on-air presentations and increase their ratings, thereby increasing
advertising revenue for both the radio stations and the Company.
The Company currently delivers nine 24-hour music programs, one long-form
program and one short-form program. The Company's long-form program, the Crook
& Chase Country CountDown, is a weekly, four-hour country music countdown
show. The Company's short-form program, The Nashville News Source, is a
package of three country music news features distributed Monday through Friday
via satellite and facsimile. The service includes a ninety-second news report
and a commentary by Nashville entertainment reporter Jimmy Carter. Seven of
the 24-hour formats were developed by the Company and two, Z-Spanish and The
New Music of Your Life(TM), were acquired from third parties. The Company's
24-hour formats generally are targeted at stations in all market sizes, while
its long-form and short-form formats generally are targeted toward radio
stations in larger markets.
The following table summarizes the Company's radio programming:
<TABLE>
<CAPTION>
YEAR
NAME OF PROGRAM LAUNCHED
- --------------- --------
<S> <C>
24-HOUR
US Country(TM)......................................................... 1989
Adult Hit Radio(TM).................................................... 1989
Soft Hits(TM).......................................................... 1989
Good-Time Oldies(TM)................................................... 1990
CD Country(TM)......................................................... 1993
New Adult Contemporary................................................. 1994
Z-Spanish.............................................................. 1994
Rock Alternative(TM)................................................... 1996
The New Music of Your Life(TM)......................................... 1996
LONG-FORM
The Crook & Chase Country CountDown.................................... 1996
SHORT-FORM
The Nashville News Source.............................................. 1996
</TABLE>
The Company's radio network has 70 on-air personalities, the majority of
whom have extensive top 25 market experience. To supplement its in-house
programming expertise, from time to time the Company enters into agreements
with third-party programmers that develop and produce distinctive, high-
quality programming. These programmers have expertise in developing
programming for specific targeted audiences (e.g. ethnic, mature) and
typically employ recognized talent. An example of such a relationship is The
New Music Of Your Life(TM) program hosted by Gary Owens, Wink Martindale and
other well-known radio personalities.
The Company's agreements with third party programmers typically provide that
the Company and the third party programmer each receive 50% of the net
advertising and affiliate fee revenue generated by the programming. The
programmer creates and develops the radio program and the Company markets the
program to radio station affiliates, manages the relationship with the radio
station affiliates, manages the sale of national advertising, provides
technical support and provides other services. As a result, the programmer
typically bears the
41
<PAGE>
costs associated with developing and producing the programming. The term of
these license agreements is usually three to five years. The Company does not
generally retain the rights to the programming upon the termination of these
license agreements.
The Company markets its radio programming directly to radio stations through
its eight person affiliate sales group. The affiliate sales group utilizes
industry market research and databases to identify prospective radio station
affiliates and advertises in trade publications and attends industry
conventions and trade shows to increase awareness of its radio networks.
The Company's Other Audio Services
The Company provides music and information audio programming designed to
complement the video offerings of cable television system operators. The
Company provides these services directly and through Superaudio. Superaudio is
a partnership owned 50% by the Company and 50% by a third party that also
programs and sells premium music programming directly to cable television
operators and other video distributors. Superaudio offers nine formats of 24-
hour programming: six stereo music formats and three information and
entertainment formats. Superaudio's programming is distributed to cable
systems serving approximately seven million subscribers. The Company also
provides unobtrusive background music to cable operators to program behind a
cable television system's text and classified advertising channels.
TELEVISION PROGRAMMING NETWORKS
Market Overview--Long-Form Advertising
The Company believes that, during recent years, advertisers evaluating the
benefits of television and cable advertising have recognized the effectiveness
and reasonable cost of long-form, informational programming, commonly known as
infomercials. An infomercial is an advertisement, usually approximately one
half-hour in length and often produced in an entertainment format, that is
paid for by the advertiser on the basis of the time of day the infomercial is
aired, market size and in certain cases past results from airing on a
particular television station or cable television network. Regardless of the
presentation format, the viewers are provided information that can be used to
make informed purchasing decisions from their homes.
Increasingly, advertisers are recognizing the benefits of infomercials as an
effective marketing tool. The Company believes that infomercials provide
advertisers with a cost-effective medium through which to deliver sales
messages, product introductions or demonstrations to an interested target
audience. Advertisers are recognizing that infomercials can increase a
company's or product's brand awareness while educating potential new
customers. The viewer or potential consumer is provided information that can
be used to make more informed purchasing decisions. Unlike most traditional
television advertising, the direct response nature of many infomercials
provide advertisers with the ability to evaluate the differences in the
effectiveness of their expenditures on an immediate basis.
The Company believes that the infomercial industry has grown rapidly during
the past several years. Historically, infomercials occupied time slots that
were less profitable for broadcasters. Increasingly, infomercials are being
placed in more expensive and attractive time periods such as daytime, early
fringe and prime time, and are becoming a more widely accepted form of
advertising.
The production quality of infomercial programming by major advertisers has
also increased the credibility of the infomercial industry. In addition,
infomercials have recently been
42
<PAGE>
successfully utilized to promote newly introduced network television series
and full length feature movies. The Company believes that as the benefits of
infomercial programming become more widely understood, the number of
advertisers and the volume of infomercial programming will continue to grow.
In terms of demand for airtime, major corporate advertisers who use long-form
programming for image building rather than direct selling messages may
ultimately surpass infomercial programmers who rely on immediate sales to
viewers via telephone response. Currently, major advertisers spend only a
relatively small part of their overall advertising budget on infomercials. The
Company believes that such advertising expenditures will continue to increase.
According to industry sources, total infomercial advertising expenditures
totalled $806 million, and infomercial sales totaled $1.6 billion in 1995, up
from $663 million and $1.3 billion, respectively, in 1994.
Product Information Network
The PIN network is a satellite-delivered, long-form informational
programming service. The audience for the programming is television viewers,
primarily consisting of subscribers to cable television systems that air the
programming. The PIN network programming is provided to cable system operators
on its own dedicated channel 24-hours per day, seven-days per week. The PIN
network is distributed on either a full or part-time basis on cable television
systems representing approximately 7.3 million, or 12%, of the nation's cable
television households.
The Company developed and tested the concept of a 24-hour, long-form
advertising network in 1993. The Company launched the PIN network in October
1993 on cable television systems owned and/or managed by Jones Intercable. To
broaden the PIN network's distribution, the Company formed the PIN Venture
with Cox and Adelphia to own and operate the PIN network. Both Cox and
Adelphia distribute the PIN network on a number of their cable television
systems.
The PIN network airs a variety of infomercials. From 8:00 a.m. to midnight,
the majority of the infomercials feature the products of major companies such
as Ford Motor Company, State Farm Insurance, Schering-Plough Corporation and
Sony Corporation. The balance of the programming time, most of which occupies
the overnight time periods, is dedicated to traditional direct-response
infomercial programming, usually featuring low cost household or personal use
items.
Advertising Customers. The PIN network's programming is produced and
provided by its advertisers at no cost to the network. The PIN network's
primary customers are major companies and their representative advertising
agencies that advertise their products or services in the long-form format.
The PIN network has developed the acceptance of long-form advertising by major
companies through its agreement with CRN. The CRN relationship has helped to
build the network's reputation as a vehicle for long-form advertising from
Fortune 500 and other large companies. CRN purchases advertising time on the
PIN network to air the long-form advertising of its clients. The PIN network
now televises eight hours per day of programming created by CRN's clients,
including Ford Motor Company, Schering-Plough Corporation and State Farm
Insurance. National Media currently purchases approximately six hours of
airtime a day on the PIN network. The PIN Venture has long-term agreements
with its two largest customers, CRN and National Media, that secure air time
purchases through December 1997 and April 1997, respectively. See "Risk
Factors--Dependence on Advertising Relationships."
Distribution. The PIN network's programming is currently available to
approximately 7.3 million households in the United States on either a full or
part-time basis. The PIN network is distributed principally through cable
television systems, with a focus on those systems in the top 25 DMAs. This
focus is generally a requirement for major companies that are considering or
43
<PAGE>
currently using long-form advertising. The PIN network currently provides
programming to 168 cable television systems. The MSOs that carry the network
on a portion of their cable systems include nine of the ten largest MSOs,
including Tele-Communications, Inc., Time Warner, Inc., Comcast Corporation,
Cablevision Systems Corporation, Continental Cablevision, Marcus Cable, Cox,
Jones Intercable and Adelphia. The majority of the PIN network's present
subscriber base is provided by Cox, Jones Intercable and Adelphia. The
standard PIN network affiliation agreement generally requires a two-year
commitment of carriage. In the case of cable systems that are owned or
operated by Jones Intercable, Cox and Adelphia, the affiliation agreements are
for terms of ten years, five years and five years, respectively, and expire on
February 1, 2005, February 1, 2000 and October 1, 2001, respectively. See
"Risk Factors--Risks Associated with Distribution of Television Programming."
Incentive Program. The PIN Venture compensates cable operators for carriage
of the PIN network through an incentive program. The PIN Venture pays to cable
operators 50% of the PIN network's adjusted net advertising revenue (which is
revenue less agency commissions and bad debt expenses) attributable to the
time that the system carries the network's programming. Beginning in the first
quarter 1997, the PIN Venture expects to increase the incentive to 60% in an
effort to expand its distribution. For 1996, the incentive paid to the PIN
Venture's full-time (24 hours per day) affiliates is estimated to be $1.05 per
subscriber per year. In addition to these incentives, under certain
conditions, the PIN Venture will provide co-op advertising support to cable
operators.
The PIN Venture Agreement. The three partners in the PIN Venture are the
Company, Cox and Adelphia. Immediately prior to the consummation of the
offering, the Company will acquire from Adelphia an 8.35% equity interest in
the PIN Venture, in exchange for approximately 262,500 shares of the Company's
Class A Common Stock. Following this transaction, the Company, Cox and
Adelphia will own approximately 54%, 46% and .001%, respectively, of the PIN
Venture. Adelphia can increase its equity interest in the PIN Venture in the
future by providing additional subscribers to the PIN network on Adelphia's
cable television systems.
Pursuant to the PIN Venture Agreement, the Company manages the day-to-day
operations of the PIN Venture. The PIN Venture has an Executive Committee
consisting of five persons, two of whom are appointed by the Company, two by
Cox, and one by Adelphia. The PIN Venture Agreement contains a number of
provisions that either allow or require a partner to withdraw from the PIN
Venture. The Company or Cox could be required to withdraw if the number of
subscribers provided by either of them falls below a certain level. Such a
withdrawal would cause a dissolution of the partnership. Additionally, Cox can
withdraw from the PIN Venture after December 31, 1999. Such a withdrawal would
cause Cox to lose its equity interest in the PIN Venture. The PIN Venture
Agreement terminates on December 31, 2004, unless extended by the parties.
Market Overview--Country Music
According to industry sources, country music is one of America's most
popular music formats and one of the fastest-growing segments of the music
industry in the United States. Every week, 34 million Americans listen to
country radio and with 2,532 radio stations now programming country music
approximately 24% of all commercial radio stations, it has become the dominant
radio format in the United States, reaching eight million more listeners a
week than its closest competitor-format, adult contemporary. In 1995, country
music was the top-rated format in 41 of the nation's top 100 markets.
44
<PAGE>
Great American Country
The GAC network is a 24-hour country music video network featuring a mix of
current top country hits and the best of past country hits. The GAC network
was launched in December 1995 and is currently distributed to approximately
0.9 million subscribers on 51 cable television systems, most of which are
owned or managed by Jones Intercable, an affiliate of the Company. The Company
believes that the GAC network offers a programming mix with fewer commercials
and more attractive economic carriage terms for cable system operators,
including more local advertising spots, than its principal competitor. Since
its debut, GAC has concentrated on refining its programming and on-air
presentation in order to broaden its carriage. The Company acquires the music
videos that it airs on the GAC network at no cost from record companies, which
use this medium to promote their performing artists. The Company produces the
other programming on the GAC network. The GAC network targets the largest,
most influential and affluent market segment of the country music audience--
the 25-54 age group. The GAC network's music video mix is geared toward this
segment's preference for familiar country music artists. The Company believes
that the GAC network benefits from the Company's experience in the country
music radio programming business.
SATELLITE DELIVERY AND PRODUCTION SUPPORT SERVICES
The Company transmits its radio and television programming directly to radio
stations, cable system operators and other video distributors. The programming
is distributed via satellite transponders leased from third parties. The
Company provides playback services, trafficking and ground-to-satellite
transmission of its programming services from its uplink facility in
Englewood, Colorado. The Company's satellite facilities are strategically
located on the 105th meridian which enables the Company to uplink programming
to satellites serving international markets. The Company leases one full
satellite transponder on each of two strategically positioned GE Americom
satellites, Satcom C-3 and Satcom C-4, which deliver a variety of popular
cable television programming. The Company utilizes advanced technology in
providing uplink, playback and trafficking services. The Company recently
installed General Instrument Corporation's DigiCipher II (MPEG-2) compression
equipment. This technology allows the Company to increase the compresion of
its leased Satcom C-3 satellite transponder from 4:1 compression to 6:1
compression initially, and possibly higher levels in the future. This
technology is also available for use on the Company's leased Satcom C-4
satellite transponder. Any excess capacity created by this new technology will
be used for the distribution of the Company's programming, its affiliates'
programming or third party programming. The Company subleases transponder
space to the Company's affiliates and a third party. The Company's transponder
leases expire in 2004. The Company's subleases with its affiliate and the
third party expire in 2004 and October 1997, respectively.
COMPETITION
Competition in the radio and television network markets is intense. The
Company's radio network competes for advertising dollars and radio station
affiliates with four major network radio distribution companies in the United
States, as well as with a larger number of smaller independent producers and
distributors. In addition, the dominant competitors in the industry are
affiliated with major station owners, have recognized brand names and have
large networks which include affiliates to which such competitors pay
compensation to broadcast the network's commercials.
The Company's largest direct competitors include ABC Radio Networks,
Westwood One Radio Networks, CBS Radio Networks and Premiere Radio Networks.
The Company estimates that these networks received a majority of total network
radio advertising revenue in 1995. The principal competitive factors in the
radio industry are the quality and creativity of programming
45
<PAGE>
and the ability to provide advertisers with a cost-effective method of
delivering commercial advertisements. There can be no assurance that the
Company will be able to compete successfully for radio advertising revenue.
Radio networks also face competition from improving technologies available
to local radio stations that may enable them to pre-record their local
announcers and automate their operations, thereby allowing them to reduce
costs and operate more efficiently. Another potential technological advance,
DARs, may permit national radio stations to broadcast digital quality radio
programming nationwide to homes, automobiles and other locations via
satellite. The Company cannot predict what effect the potential future
development of digital automation or DARS will have on the radio industry or
the Company.
The Company's television networks compete for distribution on cable systems,
viewers and advertising revenue with hundreds of cable and broadcast
television networks supplying a variety of infomercial and entertainment
programming. The PIN network competes directly with at least three other
infomercial networks: Infomall TV, Access Television Network and GRTV, certain
of which have greater distribution than the Company. Infomall TV is an
infomercial network carried by its affiliated broadcast television stations.
Access Television Network delivers infomercial programming for use during
"remnant time." Remnant time is time that is made available by "rolling-over"
infomercials contained in other network programming or time that is not used
by the cable operator such as blacked out programming and unused leased access
time. GRTV, is a new infomercial network that was recently launched. Also,
Spice Entertainment Co. and Williams Worldwide have recently announced that
they have formed a joint venture to develop an infomercial network that they
expect will be launched in 1997. In addition, the Company believes that new
infomercial networks are currently being planned or formed that will compete
directly with the PIN network. The PIN network also competes with at least 30
cable television networks, many of which have a substantial number of
subscribers, that air infomercial programming.
The GAC network's principal direct competitor is Country Music Television
("CMT"), an advertiser-supported basic cable network that delivers country
music videos 24-hours per day. The Company believes that CMT's programming is
driven by the most current country music releases and is targeted to a younger
audience than the GAC network. The GAC network also competes with The
Nashville Network, which plays country music videos during a portion of the
broadcast week. Most of its music programming is focused on theater-style
music concert programming such as the Grand Ole Opry.
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. In addition, there can be
no assurance that the infomercial concept will continue to be acceptable to
advertisers and consumers or that it will be able to compete against other
forms of advertising.
The Company competes in the delivery of domestic satellite services with
microwave carriers, satellite service providers and full service teleports.
Some of the Company's principal competitors, many of which have substantially
greater financial and other resources, include Vyvx Teleport, MicroNet Inc.,
ID/B Keystone, Rainbow Network Communications, Washington International
Teleport, Inc. and Brewster Teleport. The Company believes that transmission
quality, reliability and price are the key competitive factors in this market.
As there are generally few legal barriers or proprietary rights to prevent
entry into the Company's markets, the Company could in the future face
competition from new competitors offering services similar to that of the
Company. The Company's radio and television networks
46
<PAGE>
also compete with other forms of media for advertising dollars, such as
broadcast television, print, outdoor and other media. Many of the Company's
competitors have greater resources than the Company and there can be no
assurance that the Company will be able to compete successfully in the future.
If the Company is unable to compete successfully for distribution of its
networks and advertising revenue, it could suffer a material adverse effect.
See "Risk Factors--Competition."
GOVERNMENT REGULATION
Although the Company's radio and television networks are not generally
directly regulated by the FCC, the radio stations and cable television systems
and other video distributors to which the Company sells its programming are
regulated. As a result, the federal laws and FCC regulations that affect these
entities indirectly affect the Company.
The ownership, operation and sale of radio stations are subject to the
jurisdiction of the FCC. Among other things, the FCC adopts and implements
regulations and policies that directly or indirectly affect the ownership,
operations and sale of radio and television stations, and has the power to
impose penalties for violations of its rules or federal statutes. Such
regulation may adversely affect the Company's business. The Telecom Act is
significantly changing the radio broadcast industry by repealing national
limits on the number of radio stations that may be owned by one entity and by
relaxing the common ownership rules in a single market. These measures have
led to greater radio industry consolidation. The effects of the Telecom Act on
the broadcasting industry and thus on the Company's radio networks are
uncertain, and there can be no assurance that it will not negatively impact
the Company in the future.
The cable television industry is subject to extensive federal, state and
local regulation. Regulation can take the form of price controls, programming
carriage requirements and programming content restrictions. Such regulation
could affect the availability of time on local cable television systems for
sale by the Company as well as the price at which such time is available.
There can be no assurance that material adverse changes in regulations
affecting the cable television industry, in general, or the Company, in
particular, will not occur in the future.
The Company's satellite delivery and production support services are
directly regulated by the FCC. The Company holds FCC microwave and earth
station uplink licenses, which it utilizes to provide delivery and support
services. Because the licenses held by the Company relate primarily to the
technical operation of its microwave and uplink facilities, which are used for
internal purposes and program delivery, there are only limited regulatory
burdens associated with maintaining these licenses in good standing. See "Risk
Factors--Government Regulation."
FACILITIES
All of the Company's facilities are located in Englewood, Colorado. The
Company subleases office space from Jones Intercable, an affiliate of the
Company, as well as office space and studio space from third parties. See
"Certain Relationships and Related Transactions." The Company also leases
satellite transponder capacity from a third party. In addition, the Company
owns 8.4 acres of land and a satellite uplink facility. The Company believes
its office space, studio space, satellite uplink facility and transponder
capacity are adequate to meet its current needs.
ASSOCIATES AND OTHERS
The Company refers to its employees as associates. As of September 1, 1996,
the Company had 101 full-time associates and 53 part-time associates. In
addition, the Company maintains relationships with independent writers,
program hosts, technical personnel and producers. None of the Company's
associates are covered by a collective bargaining agreement and the Company
believes its employee relations to be good.
47
<PAGE>
LEGAL PROCEEDINGS
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.
48
<PAGE>
MANAGEMENT
DIRECTORS, PROPOSED DIRECTORS AND EXECUTIVE OFFICERS
The Company currently has three directors: Glenn R. Jones, Chairman of the
Board of Directors, Gregory J. Liptak, President of the Company, and Jay B.
Lewis, Vice President/Chief Financial Officer of the Company. Concurrent with
the consummation of this offering, the Board will be expanded to consist of
five directors and the then-existing Board will fill the vacancies created by
such expansion by appointing the two nominees named below.
Set forth below is certain information concerning each person who is
presently an executive officer or director of the Company. Information is also
provided for certain key employees and director nominees. All directors hold
office for a period of one year or until their respective successors are
elected and qualified, or until their earlier resignation or removal.
<TABLE>
<CAPTION>
NAME POSITION AGE
---- -------- ---
<S> <C> <C>
Glenn R. Jones................ Chairman of the Board 66
Gregory J. Liptak............. President and Director 57
Jay B. Lewis.................. Group Vice President/Chief Financial Officer 38
and Director
Elizabeth M. Steele........... Vice President and Secretary 44
Keith D. Thompson............. Chief Accounting Officer 29
Eric Hauenstein............... Vice President/General Manager--Radio 48
Networks (1)
Phillip H. Baykian............ Vice President of Programming and 43
Operations--Radio Networks (1)
Charles Price................. Vice President/General Manager--PIN (1) 43
P. Craig Chambers............. Vice President/General Manager--GAC (1) 50
Gary D. Edens................. Director Nominee 54
Michael L. Pandzik............ Director Nominee 51
</TABLE>
- --------
(1)An officer of a subsidiary of the Company, but not of the Company itself.
The Company's bylaws provide that the Company shall have no fewer than one
director and no more than ten directors. Subject to such limitation, the
number of directors may be fixed from time to time by the Board. Executive
officers of the Company hold office until their successors are chosen and
qualified, subject to earlier removal by the Board. The Company expects to use
its best efforts, as soon as practicable after April 1, 1998, to nominate a
person selected by Adelphia to the Company's Board.
The principal occupations for at least the past five years of each of the
directors, proposed directors, executive officers and certain key employees of
the Company are as follows:
GLENN R. JONES has served as Chairman of the Board of the Company since it
was founded in 1993 and served as its President from 1993 to October 1996. 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 Chief Executive Officer and a director
of Jones Intercable, one of the ten largest MSOs in the United States, Chief
Executive Officer and Chairman of the Board of Directors of Jones Education
Company ("Jones Education"), an educational programming, products and services
company and director and vice chairman of Bell Canada International Inc. Mr.
Jones will continue to devote a substantial amount of his time to the
Company's affiliates. Mr. Jones received a B.S. in Economics from Allegheny
College and a J.D. from the University of Colorado School of Law. In 1994, Mr.
Jones was inducted into the Broadcasting and Cable Hall of Fame.
49
<PAGE>
GREGORY J. LIPTAK has served as a director of the Company since 1993, was
elected an Assistant Vice President in January 1996 and was elected as
President in October 1996. Mr. Liptak has been associated with the Jones
International group of companies since March 1985. He has served as Vice
President of Operations, Group Vice President of Operations and President of
Jones Intercable from 1985 to 1989, as President of Mind Extension University,
Inc., a subsidiary of Jones Education, and President of Jones Spacelink, Ltd.,
from 1989 to 1995. From 1975 to 1985, Mr. Liptak served as an executive
officer of Times Mirror Cable Television, Inc. Mr. Liptak received a B.S. and
M.S. in Marketing and Communications from the University of Illinois. Mr.
Liptak was also the co-founder and first president of CTAM, the Cable
Television Marketing Society, and has also served as Chairman of the Cable
Television Advertising Bureau.
JAY B. LEWIS has served as Vice President/Finance and as Chief Financial
Officer of the Company since July 1996 and was elected Group Vice
President/Finance, and appointed as a director, in October 1996. Mr. Lewis has
also served as Treasurer of the Company since September 1994. From January
1995 until October 1996, Mr. Lewis was Vice President of Finance and Treasurer
of Jones International, an affiliate of the Company, and certain of its
subsidiaries. From February 1986 to December 1994, Mr. Lewis was employed in
various capacities, including Controller and Treasurer, by Jones Spacelink,
Ltd., a former affiliate of the Company. Prior to joining the Jones
International group of companies, Mr. Lewis was employed by Arthur Young & Co.
(now Ernst & Young LLP), a public accounting firm. Mr. Lewis received a B.S.
in Accounting from the University of Wyoming in 1980.
ELIZABETH M. STEELE has served as Secretary of the Company since it was
founded in 1993 and as Vice President of the Company since November 1995. Ms.
Steele has also served as Vice President and Secretary of Jones Education
since it was founded in 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 October 1996. Mr. Thompson has also served as Chief Accounting Officer
of Jones Education since August 1996, a position he continues to hold. 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 and its
affiliates. 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.
ERIC HAUENSTEIN has served as Vice President/General Manager--Radio Networks
since 1994. During his twenty-five years of radio station management and
ownership, he has been responsible for the operation of over twenty radio
stations, including KDKB in Phoenix and KBPI in Denver. From 1991 to 1994, he
was the General Manager of three radio stations in Richmond, Virginia. He has
also served on state and national boards of directors for the radio industry
including the National Association of Broadcasters, the National Radio
Broadcasters Association, the Arizona Broadcasters Association and the
Virginia Association Broadcasters. He attended St. Louis University and the
University of Cincinnati.
50
<PAGE>
PHILLIP H. BAYKIAN has served as Vice President of Programming and
Operations--Radio Networks since 1991. Mr. Baykian has nearly 25 years in on-
air and programming experience. He served as Vice President of Programming for
Drake Chenault Radio Consultants in Albuquerque, New Mexico from 1986 to 1991.
Previously, he was Operations Consultant for TM Programming, a radio industry
programming consultant company, from 1981 to 1986. Mr. Baykian attended Delta
College at University Center.
CHARLES PRICE joined the PIN Venture as its Vice President and General
Manager in February 1996. Prior to serving as an independent consultant from
September 1995 to February 1996, Mr. Price served as President of Infomall
Cable Network, a planned subsidiary of Paxson Communications, from April 1995
to September 1995. Mr. Price served as Executive Vice President of 'S'--The
Shopping Network from June 1994 to December 1994, as Vice President, Western
Division of QVC, Inc. from 1989 to 1994, and as Vice President of Affiliate
Relations for the Cable Value Network from 1986 until 1989. Mr. Price began
his career in the cable television industry by working in management posts
with Saticom Enterprises, Inc., Warner Amex Satellite Entertainment Company
and Showtime Network, Inc. from 1980 to 1986. Mr Price received a B.A. in
Business Management and Communications from Southwest Texas State University
in 1976.
P. CRAIG CHAMBERS has served as Vice President/General Manager--GAC since
December 1995. Mr. Chambers has been involved in cable network sales,
marketing and management for 12 years. From 1991 to 1995, Mr. Chambers served
as General Manager of the Western United States and Canada region for Group W
Satellite Communication. Group W Satellite Communications' basic cable
networks include TNN--The Nashville Network, and CMT--Country Music
Television. Mr. Chambers received his MBA in Marketing from the University of
Portland and his B.S. in Journalism and Broadcasting from the University of
Oregon.
GARY D. EDENS has agreed to serve as a director of the Company upon
consummation of this offering. Mr. Edens has been President of The Hanover
Companies, Inc. since 1994. From 1984 to 1994, he served as Chairman and Chief
Executive Officer of Edens Broadcasting, Inc., the owner of nine radio
stations in four states. Mr. Edens served in various positions in the radio
business from 1964 to 1984, including President of Southern Broadcasting
Company from 1981 to 1984. Mr. Edens serves as a director of Inter-Tel, Inc.
Mr. Edens received a B.S. from the University of North Carolina.
MICHAEL L. PANDZIK has agreed to serve as a director of the Company upon
consummation of this offering. Mr. Pandzik has served as President of the
National Cable Television Cooperative since 1985. From 1966 to 1985, Mr.
Pandzik held various positions in the communications industry. Mr. Pandzik
received an M.S. from the University of Kansas and a B.S. from the University
of Nebraska.
COMMITTEES
The Company's Board currently has no committees. The Board intends to
establish an executive committee, a compensation committee and an audit
committee within 90 days after the completion of this offering. The membership
of such committees will be established after the offering.
The executive committee will consist of two directors and will be
responsible for acting in the Board's stead, except where action by the full
Board is required by law or by the Company's articles of incorporation or
bylaws. The compensation committee will consist of three directors, two of
whom will be independent directors. The compensation committee will determine
compensation, excluding awards under the Company's 1996 Stock Option Plan, for
the Company's executive officers and other employees.
51
<PAGE>
The audit committee will consist of three directors, two of whom will be
independent directors. The audit committee will be established to make
recommendations concerning the engagement of independent public accountants,
review with the independent public accountants the plans and results of the
audit engagement, approve professional services provided by the independent
public accountants, review the independence of the independent public
accountants, consider the range of audit and non-audit fees and review the
adequacy of the Company's internal accounting controls.
COMPENSATION OF DIRECTORS
The Company intends to pay its directors who are not officers of the Company
for their services as directors. 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 or one of its committees. Directors
who are also officers of the Company will not be paid any director fees. All
directors will be reimbursed for their expenses in attending Board and
committee meetings.
EXECUTIVE COMPENSATION
None of the officers, directors or other employees of the Company has an
employment contract with the Company. Glenn R. Jones, the President of the
Company during 1995 and through October 1996, received no compensation from
the Company during the years ended December 31, 1995 or 1996.
The following table sets forth certain information regarding the
compensation for services in all capacities to the Company for the years ended
December 31, 1995 and 1996 for the President of the Company and the other
executive officers of the Company whose annual salary and bonus exceeded
$100,000 during such period (collectively, the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
YEAR ANNUAL COMPENSATION
---- ----------------------- ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION(1)
--------------------------- ---------- ---------- ---------------
<S> <C> <C> <C> <C>
Glenn R. Jones 1996 $ 0 $ 0 $ 0
Chairman of the Board and
President(2) 1995 0 0 0
Gregory J. Liptak(3) 1996 156,134 46,750 8,561
President 1995 156,134 46,750 21,843
Eric Hauenstein 1996 139,006 -- 8,340
Vice President /General Manager--
Radio Networks 1995 142,713 20,000 7,370
</TABLE>
- --------
(1) The Company's employees are entitled to participate in a 401(k) profit
sharing plan and/or a deferred compensation plan. The amounts shown in
this column represent the Company's contributions to the 401(k) profit
sharing plan and/or the deferred compensation plan for the benefit of the
named person's account.
(2) Mr. Jones was President of the Company during 1995 and through October
1996, but did not receive any compensation for services rendered to the
Company during those years.
(3) Mr. Liptak became President of the Company in October 1996. Mr. Liptak's
total compensation for services rendered to the Company during 1995 and
1996 represents an allocation of the total compensation paid to Mr. Liptak
by Jones International for these years based upon the time allocated to
the Company's business. Mr. Liptak served as an executive officer of
certain of the Company's affiliates during 1995 and 1996. Subsequent to
the consummation of this offering, Mr. Liptak will devote all of his time
to the business of the Company. The Company expects that it will pay Mr.
Liptak an annual salary of $284,000 in 1997.
The Company expects to pay annual compensation in excess of $100,000 to each
of Messrs. Lewis, Price and Chambers in 1997.
52
<PAGE>
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 Board or a committee of two or
more non-employee directors. The committee or the Board 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 or the Board 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.
The Plan covers an aggregate of up to 630,000 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 or the Board determines the term of
the options and the period over which they vest and become exercisable.
SARs may be granted 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:
(i) 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
53
<PAGE>
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, (ii) there is a consolidation or merger of the
Company in which the Company is not the surviving corporation or (iii) 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 January 10, 1997, the Company had not granted any options or SARs. 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 January 10, 1997, 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
54
<PAGE>
to 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
The Company's employees are 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 16% of their annual
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 annual
compensation. 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 $25,000 to the 401(k) Plan on behalf of its
employees.
DEFERRED COMPENSATION PLAN
Certain of the Company's key employees are 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
Company's Board. Under the Deferred Compensation Plan, key employees are
permitted to defer receipt of up to 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 payable to a key employee participant depends upon the performance
of the investment funds held by the trust. During 1995, the Company
contributed approximately $51,000 to the Deferred Compensation Plan on behalf
of its key employees.
55
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 1996, the Company's Board set the compensation of the Company's
executive officers and was comprised of Mr. Jones and Mr. Liptak and
additionally, beginning in October 1996, Mr. Lewis. Messrs. Jones, Liptak and
Lewis 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 1996. As individuals, the Company's executive
officers and directors had no transactions with the Company. See "Certain
Relationships and Related Transactions" for a discussion of certain
transactions between the Company and its affiliates.
56
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In the following transactions no third party bids or appraisals were
obtained. In addition, certain of these transactions are by their nature
unique to the companies involved. Although the Company believes that these
transactions were fair to the Company, no assurance can be given that the
terms of these transactions were generally as favorable to the Company as
could have been obtained from unaffiliated third parties. The transactions
described below, other than the loans and advances, are expected to continue
subsequent to the offering and additional agreements and transactions with
affiliated parties may occur in the future. Prior to September 30, 1996, the
Company also engaged in certain transactions with Earth Segment, as well as
the entities it acquired in the Pre-Offering Transactions, which are not
described below.
Where applicable, references in this section to amounts paid to or by the
Company include amounts paid to or by the PIN Venture and Superaudio as well
as the Company.
PRE-OFFERING TRANSACTIONS
Immediately prior to the consummation of the offering, the Company will
acquire Glenn R. Jones' 19% equity interest in Jones Infomercial Networks,
Inc., the subsidiary through which the Company has invested in the PIN
Venture, and Mr. Jones' 19% equity interest in Great American Country, Inc.,
the subsidiary through which the Company operates the GAC network, in exchange
for 333,333 shares of the Company's Class A Common Stock. Also immediately
prior to the consummation of the offering, the Company will acquire the
transponder leases and related subleases owned by Space Segment, an affiliate
of the Company, in exchange for 416,667 shares of the Company's Class A Common
Stock.
ADVANCES
Since its inception, the Company has received advances from Jones
International to fund its activities. These advances have no maturity date and
accrue interest at the published prime rate plus 2% (approximately 8%, 9%, 11%
and 10% in 1993, 1994, 1995, and the first nine months of 1996, respectively).
The Company paid interest on these advances of approximately $11,000, $8,000,
$175,000 and $138,000 for the years ended December 31, 1993, 1994 and 1995 and
for the nine months ended September 30, 1996, respectively. The largest total
amount of outstanding advances from Jones International in 1995 was
approximately $2.2 million in December 1995. These advances totalled
approximately $3.2 million at September 30, 1996 and are expected to total
approximately $5.7 million by December 1996. The Company intends to use a
portion of the net proceeds from this offering to repay these advances in
full. Jones International is under no obligation to provide, nor does the
Company expect it to provide, additional financial assistance to the Company
subsequent to the consummation of this Offering. See "Use of Proceeds."
PURCHASE OF JONES GALACTIC RADIO, INC. AND JONES EARTH SEGMENT, INC.
Effective August 15, 1996, the Company purchased all of the common stock of
Galactic Radio from Global Group, an affiliate of the Company, for $17.2
million. Galactic Radio is a holding company that owns a 100% interest in
Jones Radio Network, Inc. and, indirectly, a 50% interest in Superaudio.
Global Group had acquired Galactic Radio from Jones Intercable, another
affiliate of the Company, for a $17.2 million purchase price on June 14, 1996.
The $17.2 million purchase price paid by the Company for Galactic Radio
consisted of $1.2 million in cash and a $16.0 million note payable to Global
Group. The note payable to Global Group bears interest at 8.25% per annum and
is payable quarterly. Principal payments are due in quarterly installments
beginning May 15, 2000. The note is secured by all of the assets of the
Company's radio network programming business.
57
<PAGE>
Effective September 30, 1996, the Company purchased all of the common stock
of Earth Segment from Mr. Jones and Jones International for 110,833 shares and
472,500 shares, respectively, of the Company's Class A Common Stock. Earth
Segment, now a wholly owned subsidiary of the Company, owns the real and
personal assets through which the Company provides playback, trafficking and
uplinking services.
TAX SHARING AGREEMENT
The Company joins in filing a consolidated tax return as provided for under
the terms of a tax allocation agreement with Jones International and certain
of Jones International's subsidiaries. Pursuant to the terms of the tax
allocation agreement, tax provisions (benefits) are allocated to the members
of the tax sharing group based on their respective pro rata contribution of
taxable income (loss) to Jones International's consolidated taxable income
(loss).
The tax allocation agreement gives Jones International the option to either
make a payment of the tax benefits due to the members of the tax sharing group
or to defer such payments until a subsequent taxable period in which the
member generates taxable income and has a tax payment due either to Jones
International or to a federal or state taxing authority. Such payments may be
deferred by Jones International for a period not to exceed five years from the
date the tax benefits were incurred and will accrue interest at the prime rate
in effect at the time the deferred amounts originate.
In 1993, 1994 and 1995, the Company recognized income tax benefits as a
result of the tax sharing arrangement of approximately $6,000, $73,000 and
$303,000, respectively. A current income tax benefit of $450,043 was
recognized by the Company as of September 30, 1996, which assumes Jones
International will utilize substantially all of the Company's tax losses
generated during 1996. Adjustments, if any, will be based upon Jones
International and its subsidiaries actual taxable income for the year ending
December 31, 1996. Upon the consummation of this offering, less than 80% of
the Company's outstanding Common Stock will be owned by Jones International
and, therefore, the Company will no longer be included in the Jones
International tax allocation agreement.
UPLINKING AND OTHER SERVICES
The Company has agreements to provide uplinking, playback, trafficking and
related services to Jones Education, an affiliate of the Company, that
terminate on December 31, 2004. The Company has the right to terminate the
uplinking agreement upon 30-days written notice. The Company received
approximately $1.0 million, $1.4 million, $1.9 million and $1.5 million from
Jones Education for these services in 1993, 1994 and 1995, and the nine months
ended September 30, 1996, respectively.
TRANSPONDER AGREEMENTS
The Company subleases to Jones Education a non-preemptible transponder on a
domestic communications satellite that the Company currently leases from a
third party. The Company has the right to terminate the sublease at any time
upon 30-days written notice. The monthly payments under the sublease may be
adjusted periodically through the December 2004 expiration date based on the
number of customers using the transponder. The Company received lease payments
of approximately $0, $267,000, $1.2 million and $639,000 for the years ended
December 31, 1993, 1994 and 1995 and the nine months ended September 30, 1996,
respectively.
The Company subleases from Jones Satellite Holdings, Inc. ("Satellite
Holdings"), an affiliate of the Company, an audio channel on a non-preemptible
satellite transponder on the Galaxy V
58
<PAGE>
communications satellite for approximately $58,000 per month. Satellite
Holdings has the right to terminate the sublease prior to its May 2004
expiration date upon 30-days written notice. Satellite Holdings leases the
transponder from a third party pursuant to a lease that terminates in 2004.
Satellite Holdings charged the Company lease payments of approximately
$633,000, $633,000, $696,000 and $522,000 for the years ended December 31,
1993, 1994 and 1995 and for the nine months ended September 30, 1996,
respectively.
SALES COMMISSIONS
The Company earns up to a 3% commission on its sale of airtime for
informational programming on certain network subsidiaries of Jones Education.
The Company received commissions from Jones Education of approximately $52,000
and $183,000 for the year ended December 31, 1995 and for the nine months
ended September 30, 1996, respectively.
AFFILIATE FEES
The Company licenses the GAC network to certain cable television systems
owned or managed by Jones Intercable. Jones Intercable and its affiliated
partnerships paid total license fees to the Company of approximately $509,000
for the nine month period ended September 30, 1996. This affiliation agreement
expires on December 31, 2010. See "Risk Factors--Risks Associated with
Distribution of Television Programming." Superaudio also licenses its audio
services to these systems. Jones Intercable and its affiliated partnerships
paid Superaudio approximately $720,000, $720,000, $720,000 and $540,000 in
fees for the years ended December 31, 1993, 1994 and 1995 and for the nine
months ended September 30, 1996, respectively.
The PIN network is distributed to Jones Intercable and its affiliated
parnerships and to Cox and Adelphia, both partners in the PIN Venture. The
current affiliation agreement with Jones Intercable expires on February 1,
2005. Under the terms of the affiliation agreements with these MSOs, the
Company made incentive payments of approximately 33% of its net advertising
revenue to the cable systems that carry its programming. The PIN venture now
makes incentive payments of approximately 50% of its net advertising revenue
to these systems. For the years ended December 31, 1993, 1994 and 1995 and for
the nine months ended September 30, 1996, Jones Intercable and its affilated
partnerships received incentive payments totaling approximately $0, $238,000,
$1,056,000 and $784,000.
COMPUTER SERVICES
A subsidiary of Jones International provides computer hardware and software
services and miscellaneous related support services to the Company and other
Jones International affiliates. This subsidiary charged service fees to the
Company of approximately $28,000, $125,000, $493,000 and $399,000 for the
years ended December 31, 1993, 1994 and 1995 and for the nine months ended
September 30, 1996, respectively.
OFFICE LEASE AND SUBLEASE
The Company leases and subleases office space in Englewood, Colorado from
affiliates of Jones International on a month-to-month basis. The Company paid
rent and associated expenses under these leases and subleases of approximately
$0, $0, $31,000 and $39,000 for the years ended December 31, 1993, 1994 and
1995 and for the nine months ended September 30, 1996, respectively.
ADMINISTRATIVE SERVICES
The Company reimburses Jones International and Jones Intercable for certain
administrative services provided by these companies, such as legal,
accounting, purchasing and human resources
59
<PAGE>
services. Jones International and Jones Intercable charge the Company for
these services based upon an allocation of its personnel expense associated
with providing these services. These allocated expenses totaled approximately
$243,000, $110,000, $190,000 and $293,000, for the years ended December 31,
1993, 1994 and 1995 and for the nine months ended September 30, 1996,
respectively.
CONFLICTS OF INTEREST OF MANAGEMENT
Messrs. Jones and Thompson and Ms. Steele, who are officers and/or directors
of the Company, are also officers or directors of certain 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. Effective
upon, and subject to, the consummation of this offering, any new material
related party transaction will be approved by a majority of the disinterested
members of the Board.
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 board of directors
which authorizes, approves, or ratifies the conflicting interest transaction
or solely because the directors' vote is counted for such purpose, if: (i) 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, (ii) the material facts as to the director's relationship or
interest and as to the conflicting interest transaction are disclosed or known
to the shareholders entitled to vote thereon and said shareholders
specifically authorize, approve or ratify in good faith the conflicting
interest transaction, or (iii) the conflicting interest transaction is fair as
to the corporation.
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.
See "Risk Factors--Conflicts of Interest; Transactions with and Reliance on
Affiliates."
60
<PAGE>
PRINCIPAL SHAREHOLDER
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
January 10, 1997 and as adjusted to reflect the sale of shares offered hereby
by: (i) 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, (ii) certain of
the Company's directors, and (iii) all directors and executive officers of the
Company as a group. Directors and Named Executive Officers of the Company who
do not beneficially own any shares of Class A Common Stock or Class B Common
Stock have 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 such person.
<TABLE>
<CAPTION>
CLASS A COMMON STOCK CLASS B
----------------------------------- COMMON STOCK
OWNED BEFORE OWNED AFTER OWNED BEFORE AND
OFFERING OFFERING AFTER OFFERING PERCENT OF
----------------- ----------------- ----------------- VOTE OF ALL CLASSES
NUMBER NUMBER NUMBER OF COMMON STOCK
BENEFICIAL OWNER OF SHARES PERCENT OF SHARES PERCENT OF SHARES PERCENT AFTER OFFERING
-------------------- --------- ------- --------- ------- --------- ------- -------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Glenn R. Jones(1)....... 2,718,453 92% 2,718,453 43% 1,385,120 100% 89%
All executive officers
and directors as a
group (7 person(s))(2). 2,718,453 92% 2,718,453 43% 1,385,120 100% 89%
</TABLE>
- --------
(1) Glenn R. Jones is the Chairman of the Board and Chief Executive Officer of
Jones International and owns all of the outstanding shares of Jones
International which, in turn, owns all the outstanding common stock of
Space Segment. He is therefore deemed to be the beneficial owner of the
1,594,500 shares of Class A Common Stock and 1,122,000 shares of Class B
Common Stock owned by Jones International and the 416,667 shares of Class A
Common Stock owned by Space Segment. Glenn R. Jones', Jones International's
and Space Segment's address is 9697 East Mineral Avenue, Englewood,
Colorado 80112.
(2) Consists solely of shares beneficially owned by Glenn R. Jones.
61
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The Company's authorized capital stock consists of 50,000,000 shares of
Class A Common Stock, $.01 par value per share, of which 1,968,453 shares were
outstanding on January 10, 1997, and 1,385,120 shares of Class B Common Stock,
$.01 par value per share, of which 1,385,120 shares were outstanding on such
date.
COMMON STOCK
Under the Company's articles of incorporation, the holders of the Class A
Common Stock and Class B Common Stock are entitled to vote as separate classes
with respect to those matters requiring a class vote under Colorado law, such
as certain amendments to the Company's articles of incorporation which affect
a class and certain mergers or share exchanges. 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 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 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.
The Company's articles of incorporation provide that the holders of the
Class A Common Stock shall be entitled to receive the same consideration on a
per share basis (except with respect to per share voting rights) as the
holders of the Class B Common Stock in any merger, reorganization or
recapitalization of the Company. The Company shall not support any tender
offer or exchange offer for shares of the Company in which the holders of the
Class A Common Stock are not offered the same consideration (except with
respect to per share voting rights) on a per share basis as the holders of the
Class B Common Stock.
CLASS A COMMON STOCK
Each share of Class A Common Stock casts one-twentieth 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. 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 (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).
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
62
<PAGE>
will be entitled to cast approximately 19% of the votes to be cast in matters
to be acted upon by shareholders of the Company not requiring a class vote.
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 81%
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. This provision
has no effect on the availability of equitable remedies, such as injunction or
rescission. In addition, this provision does not modify or limit the
directors' fiduciary duties to the Company.
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 believed 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
63
<PAGE>
connection with actions charging improper personal benefit to the director if
the director is adjudged liable on that basis.
The Company's ability to indemnify its directors pursuant to the foregoing
may be limited in certain circumstances. Insofar as indemnification for
liabilities arising under the Securities Act may be permitted to directors of
the Company, the Company has been advised that in the opinion of the
Securities and Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable.
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 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. A majority vote
of the shares of Common Stock will be required to alter, amend or repeal the
foregoing provisions. This provision for filling vacancies on the Board may
discourage a third party from attempting to gain control of the Company and
may maintain the incumbency of the Board. 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 Shareholder; 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.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the offering, the Company will have outstanding 6,330,953
shares (6,833,453 shares if the Underwriters' over-allotment option is
exercised in full) of Class A Common Stock. Of these shares, all 3,350,000
shares (3,852,500 shares if the Underwriters' over-allotment option is
exercised in full) sold by the Company in this offering will be freely
transferable by persons other than "affiliates" of the Company without
restriction under the Securities Act.
The remaining 2,980,953 shares of Class A Common Stock outstanding are held
by Glenn R. Jones, Chairman of the Company, Jones International, Space
Segment, and Adelphia, and will be "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. Adelphia has
received certain customary registration rights in connection with the
approximately 262,500 shares of Class A Common Stock received in the PIN
Venture transaction. The Company and its shareholders, officers and directors
have agreed not to offer to sell, sell, contract to sell, pledge or otherwise
dispose of such shares for at least 180 days after the date of this Prospectus
without the prior written consent of Oppenheimer & Co., Inc. The Company
understands that Oppenheimer & Co., Inc., may, in its discretion, waive these
agreements at any time. Following the expiration of such lock-up agreements,
2,980,953 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
64
<PAGE>
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.
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 13,958 shares (16,052 shares if the Underwriters' over-allotment
option is exercised in full) of the Class A Common Stock at an exercise price
equal to 120% of the initial public offering price of the Class A Common
Stock. In connection with the MKC Warrant, MKC also received certain
registration rights relating to the shares of Class A Common Stock underlying
the warrant. See "Underwriting."
Additionally, as of January 10, 1997, 630,000 shares of Class A Common Stock
were reserved for issuance under the Company's Stock Option Plan, none of
which were subject to outstanding options as of that date.
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. See "Risk Factors--Shares Eligible for Future Sale."
65
<PAGE>
UNDERWRITING
Subject to the terms and conditions in the Underwriting Agreement among the
Company and the Underwriters named below, for whom Oppenheimer & Co., Inc.,
Hambrecht & Quist LLC and MKC are acting as representatives (the
"Representatives"), each of the Underwriters named below have severally agreed
to purchase from the Company, and the Company has agreed to sell to the
Underwriters, the shares of Class A Common Stock set forth opposite its name:
<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF SHARES
----------- ----------------
<S> <C>
Oppenheimer & Co., Inc......................................
Hambrecht & Quist LLC.......................................
M. Kane & Company, Inc......................................
---------
Total..................................................... 3,350,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters thereunder are subject to approval of certain legal matters by
counsel and to various other conditions. The nature of the Underwriters'
obligations is such that they are committed to purchase all of the above
shares of Class A Common Stock if any are purchased.
The Underwriters propose to offer the shares of Class A Common Stock
directly to the public at the public offering price set forth on the cover
page of this Prospectus, and at such price less a concession not in excess of
$ per share to certain securities dealers, of which a concession of not in
excess of $ per share may be reallowed to certain other dealers. After this
offering, the public offering price, allowances, concessions, and other
selling terms may be changed by the Representatives.
The Underwriters have advised the Company that they do not intend to confirm
sales of Class A Common Stock offered hereby to accounts over which they
exercise discretionary authority.
The Company has granted to the Underwriters an option, exercisable within 30
days after the date of this Prospectus, to purchase from the Company up to an
aggregate of 502,500 additional shares of Class A Common Stock to cover over-
allotments, if any, at the public offering price less the underwriting
discount set forth on the cover page of this Prospectus. If the Underwriters
exercise their over-allotment option, then each of the Underwriters will have
a firm commitment, subject to certain conditions, to purchase approximately
the same percentage thereof as the number of shares of Class A Common Stock to
be purchased by it, as shown on the above table, bears to the 3,350,000 shares
of Class A Common Stock offered hereby. The Company will be obligated,
pursuant to the over-allotment option, to sell such shares to the Underwriters
to the extent such over-allotment option is exercised. The Underwriters may
exercise such over-allotment option only to cover over-allotments made in
connection with the sale of the shares of Class A Common Stock offered hereby.
The shareholders, executive officers and directors of the Company have
agreed that for a period of 180 days after the date of this Prospectus they
will not offer to sell, sell, contract to sell, pledge or otherwise dispose of
any equity securities of the Company after the date hereof, without the prior
written consent of Oppenheimer & Co., Inc., except for the shares offered
hereby. In addition, the Company has agreed that for a period of 180 days from
the date of this Prospectus it will not, without the prior written consent of
Oppenheimer & Co., Inc., offer to sell, sell, contract to sell, or otherwise
dispose of, any shares of Class A Common Stock or any other equity securities
of the Company, except for the shares offered hereby and the issuance of
shares of Class A Common Stock upon the exercise of outstanding stock options
or warrants.
66
<PAGE>
The Company has agreed to indemnify the Underwriters against certain
liabilities, losses and expenses, including liabilities under the Securities
Act and to contribute to payments that the Underwriters may be required to
make in respect thereof.
Prior to the offering, there has been no previous public market for the
Class A Common Stock. The initial public offering price for the Class A Common
Stock is to be determined by negotiation among the Company and the
Representatives.
On August 14, 1996, the Company and MKC entered into an agreement pursuant
to which MKC agreed to provide financial advice and assistance to the Company
about strategic alternatives, including financial structuring and valuation-
related analyses, and in the event that the Company elected to execute an
initial public offering, to assist the Company with its structure and conduct.
In consideration for such services, MKC has received a $110,000 fee and,
beginning as of July 1996, a retainer of $20,000 per month. MKC is also
entitled to advisory fees equal to 1.875% of the gross proceeds of this
offering, which fees are estimated to be $753,750 and will be offset by any
fees previously paid by the Company to MKC. MKC will also receive the MKC
Warrant. In addition, the Company is required to reimburse MKC for its
reasonable out-of-pocket fees and expenses. This agreement will terminate upon
the consummation of this offering.
The Company has also agreed to issue to MKC the MKC Warrant which grants the
right for five years to purchase 13,958 shares (16,052 shares if the
Underwriters' over-allotment option is exercised) of the Class A Common Stock
at an exercise price equal to 120% of the initial public offering price set
forth on the cover page of this Prospectus. The MKC Warrant will be
exercisable one year after the effective date of the Registration Statement
relating to this offering and carries one demand and unlimited "piggyback"
registration rights. The MKC Warrant is not transferable (except to certain
employees and affiliates of MKC). The exercise price and the number of shares
may, under certain circumstances, be subject to adjustment pursuant to anti-
dilution provisions. MKC was first registered as a broker-dealer in July 1994.
Its president, Michael W. Kane, previously worked as an investment banker on
underwritten public offerings.
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 between the Company 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 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 shares of Class A Common Stock being sold in this
offering will be passed upon for the Company by Davis, Graham & Stubbs LLP,
Denver, Colorado. Certain legal matters in connection with the offering will
be passed upon for the Underwriters by Schulte Roth & Zabel LLP, New York, New
York.
EXPERTS
The historical consolidated financial statements of the Company at December
31, 1994 and 1995, and at September 30, 1996, and for each of the three years
in the period ended December 31, 1995, and for the nine months ended September
30, 1995 and 1996; the historical financial statements of the PIN Venture at
December 31, 1995 and September 30, 1996 and for the eleven months ended
December 31, 1995 and the nine months ended September 30, 1996; the historical
financial statements of the Net Assets to Be Acquired from Jones Space
Segment, Inc. at December 31, 1994 and 1995, and September 30, 1996 and the
three years in the period ended December 31, 1995 and the nine months ended
September 30, 1995 and 1996; appearing in this Prospectus and the Registration
Statement to the extent and for the periods indicated in their reports have
been audited by Arthur Andersen LLP, independent public accountants, as set
forth in their reports thereon appearing elsewhere herein and in the
Registration Statement, and are included herein in reliance upon the authority
of said firm as experts in accounting and auditing in giving said reports.
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) under the Securities Act with respect to the shares of Class A 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 to which reference is made 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 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.
The Company intends to furnish its shareholders with annual reports
containing audited financial statements and a report of independent certified
public accountants. The Company will make available quarterly reports for each
of the first three quarters of each fiscal year containing unaudited summary
financial information.
68
<PAGE>
INDEX TO PRO FORMA FINANCIAL STATEMENTS
JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES PRO FORMA CONSOLIDATED
FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Overview................................................................... P-2
Unaudited Pro Forma Condensed Consolidated Balance Sheet as of September
30, 1996.................................................................. P-3
Unaudited Pro Forma Consolidated Statements of Operations for the Nine
Months ended September 30, 1996........................................... P-4
Unaudited Pro Forma Consolidated Statements of Operations for the Nine
Months ended September 30, 1995........................................... P-5
Unaudited Pro Forma Consolidated Statements of Operations for the Year
ended December 31, 1995................................................... P-6
Unaudited Pro Forma Consolidated Statements of Operations for the Year
ended December 31, 1994................................................... P-7
Unaudited Pro Forma Consolidated Statements of Operations for the Year
ended December 31, 1993................................................... P-8
Notes to Unaudited Pro Forma Consolidated Financial Statements............. P-9
</TABLE>
P-1
<PAGE>
JONES INTERNATIONAL NETWORKS, LTD.
PRO FORMA FINANCIAL STATEMENTS
OVERVIEW
The following unaudited pro forma condensed consolidated balance sheet as of
September 30, 1996, and pro forma consolidated statements of operations for
the years ended December 31, 1993, 1994 and 1995 and the nine month periods
ended September 30, 1995 and 1996, adjust the historical financial information
of the Company to reflect the Company's acquisition of 1) an 8.35% interest in
the PIN Venture from Adelphia (the "PIN Venture Transaction"), 2) Mr. Jones'
19% interest in each of Jones Infomercial Networks, Inc. and Great American
Country, Inc. (the "GRJ Transaction"), and 3) the transponder leases and
related subleases owned by Jones Space Segment, Inc. (the "Space Segment
Acquisition," and, together with the PIN Venture Transaction and the GRJ
Transaction, collectively, the "Acquisitions"). See "Prospectus Summary--Pre-
Offering Transactions." The pro forma balance sheet as of September 30, 1996
was prepared as if the Acquisitions were consummated on September 30, 1996.
The pro forma statements of operations were prepared as if the GRJ Transaction
and the Space Segment Transaction were consummated on January 1 of each period
presented and as if the PIN Venture Transaction was consummated on February 1,
1995.
Due to the affiliated relationship of the Company to Jones Infomercial
Networks, Inc., Great American Country, Inc. and Jones Space Segment, Inc.,
for pro forma purposes the GRJ Transaction and the Space Segment Acquisition
have been treated as a reorganization of entities under common control
(similar to a pooling of interests) and as such are reflected in the following
unaudited pro forma condensed consolidated financial statements for all
periods.
As of September 30, 1996, the Company owned a 46% interest in the PIN
Venture and as such accounted for its share of the revenues and expenses of
the PIN Venture on the equity method. Upon consummation of the PIN Venture
Transaction the Company will own approximately 54% of the PIN Venture and,
going forward, will be able to consolidate the operations of the PIN Venture
for financial reporting purposes. The purchase of the additional 8.35%
interest from Adelphia is estimated to have a value of approximately
$3,150,000. The impact of this purchase is reflected in the accompanying pro
forma financial statements for the twelve months ended December 31, 1995 and
the nine months ended September 30, 1996.
The unaudited pro forma financial statements should be read in conjunction
with the related historical financial statements and related notes thereto.
The pro forma information presented is not necessarily indicative of the
financial position or results that would have actually occurred had the
Acquisitions been consummated on the dates indicated or which may occur in the
future.
P-2
<PAGE>
JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
JONES COMPANY
COMPANY AS PIN SPACE PRO FORMA PRO FORMA
REPORTED VENTURE (1) SEGMENT (2) ADJUSTMENTS (3) COMBINED
----------- ----------- ----------- --------------- -----------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets......................... $ 2,286,011 $1,354,607 $ -- $ (343,909)(f) $ 3,296,709
Property, plant and equipment, net..... 8,470,442 163,431 23,704,439 -- 32,338,312
Intangible assets, net................. 398,572 3,339 -- 3,098,457 (g) 3,500,368
Other assets........................... 1,437,343 -- -- (365,238)(h) 1,072,105
----------- ---------- ----------- ---------- -----------
Total assets........................... $12,592,368 $1,521,377 $23,704,439 $2,389,310 $40,207,494
=========== ========== =========== ========== ===========
LIABILITIES AND SHAREHOLDERS' INVESTMENT
Current liabilities.................... $ 3,926,856 $ 739,361 $ -- $ (343,909)(f) $ 4,322,308
Long-term debt......................... 22,561,700 -- 31,127,255 -- 53,688,955
Other liabilities...................... 47,785 -- 780,000 -- 827,785
Minority interests..................... 70,132 -- 288,227 (h) 358,359
Shareholders' investment............... (14,014,105) 782,016 (8,202,816) 2,444,992 (h) (18,989,913)
----------- ---------- ----------- ---------- -----------
Total liabilities and shareholders'
investment............................ $12,592,368 $1,521,377 $23,704,439 $2,389,310 $40,207,494
=========== ========== =========== ========== ===========
</TABLE>
The accompanying notes to unaudited pro forma consolidated financial statements
are an integral part of these pro forma consolidated financial statements.
P-3
<PAGE>
JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
JONES COMPANY
COMPANY AS PIN SPACE PRO FORMA PRO FORMA
REPORTED VENTURE(1) SEGMENT(2) ADJUSTMENTS(3) COMBINED
----------- ---------- ----------- -------------- -----------
<S> <C> <C> <C> <C> <C>
REVENUES:
Radio programming....... $ 5,140,671 -- -- -- $ 5,140,671
Television programming:
Non-affiliated
entities.............. 110,329 5,712,484 -- -- 5,822,813
Affiliated entities.... 691,349 -- -- -- 691,349
----------- ---------- ----------- ---------- -----------
Total television
programming........... 801,678 5,712,484 -- -- 6,514,162
----------- ---------- ----------- ---------- -----------
Satellite delivery and
production support:
Non-affiliated
entities.............. -- -- 2,340,000 -- 2,340,000
Affiliated entities.... 3,132,146 -- 1,917,351 (2,409,768)(a) 2,639,729
----------- ---------- ----------- ---------- -----------
Total satellite
delivery and product
support............... 3,132,146 -- 4,257,351 (2,409,768) 4,979,729
----------- ---------- ----------- ---------- -----------
Total revenue.......... 9,074,495 5,712,484 4,257,351 (2,409,768) 16,634,562
----------- ---------- ----------- ---------- -----------
OPERATING EXPENSES:
Radio programming....... 2,792,043 -- -- -- 2,792,043
Television programming
expenses:
Non-affiliated
entities.............. 1,303,805 1,159,556 -- -- 2,463,361
Affiliated entities.... -- 3,065,727 -- (271,811)(j) 2,793,916
Satellite delivery and
production support..... 2,603,318 -- 2,240,602 (2,409,768)(a) 2,434,152
-- -- -- 271,811 (a) 271,811
Selling and marketing
expenses............... 1,242,952 114,493 -- -- 1,357,445
General and
administrative
expenses............... 2,257,130 479,183 6,169 232,384 (e) 2,974,866
----------- ---------- ----------- ---------- -----------
Total operating
expenses.............. 10,199,248 4,818,959 2,246,771 (2,177,384) 15,087,594
----------- ---------- ----------- ---------- -----------
OPERATING INCOME
(LOSS)................. (1,124,753) 893,525 2,010,580 (232,384) 1,546,968
----------- ---------- ----------- ---------- -----------
OTHER INCOME (EXPENSE):
Interest income......... 63,724 -- -- (24,553)(b) 39,171
Interest expense........ (742,112) (23,678) (2,382,061) 24,553 (b) (3,123,298)
Other expense........... (521) (25,151) -- -- (25,672)
Equity share of income
(loss) of
subsidiaries........... 627,081 -- -- (385,653)(d) 241,428
----------- ---------- ----------- ---------- -----------
Total other income
(expense)............. (51,828) (48,829) (2,382,061) (385,653) (2,868,371)
----------- ---------- ----------- ---------- -----------
Income (loss) before
income taxes and
minority interests..... (1,176,581) 844,696 (371,481) (618,037) (1,321,403)
Income tax benefit
(expense).............. 450,043 -- 142,091 -- 592,134
----------- ---------- ----------- ---------- -----------
Net income (loss) before
minority interest...... (726,538) 844,696 (229,390) (618,037) (729,269)
Minority interests in
net income (loss) of
consolidated
subsidiaries........... -- -- (405,412)(d) (405,412)
(66,415) -- -- 66,415 (c) --
----------- ---------- ----------- ---------- -----------
NET INCOME (LOSS)....... $ (792,953) $ 844,696 $ (229,390) $ (957,034) $(1,134,681)
=========== ========== =========== ========== ===========
NET LOSS PER COMMON
SHARE.................. $ (.24) $ (.26)
=========== ===========
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING..... 3,353,573 4,366,073 (i)
=========== ===========
</TABLE>
The accompanying notes to unaudited pro forma consolidated financial statements
are an integral part of these pro forma consolidated financial statements.
P-4
<PAGE>
JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
COMPANY
COMPANY AS PIN JONES PRO FORMA PRO FORMA
REPORTED VENTURE(1) SPACE SEGMENT(2) ADJUSTMENTS(3) COMBINED
----------- ---------- ---------------- -------------- -----------
<S> <C> <C> <C> <C> <C>
REVENUES:
Radio programming....... $ 3,686,360 -- -- -- $ 3,686,360
Television programming:
Non-affiliated
entities.............. 288,591 2,903,805 -- -- 3,192,396
Affiliated entities.... -- -- -- -- --
----------- --------- ---------- ---------- -----------
Total televsion
programming........... 288,591 2,903,805 -- -- 3,192,396
----------- --------- ---------- ---------- -----------
Satellite delivery and
production support:
Non-affiliated
entities.............. 8,354 -- 2,339,945 -- 2,348,299
Affiliated entities.... 3,069,967 -- 1,819,008 (2,112,633)(a) 2,776,342
----------- --------- ---------- ---------- -----------
Total satellite
delivery and product
support............... 3,078,321 -- 4,158,953 (2,112,633) 5,124,641
----------- --------- ---------- ---------- -----------
Total revenue.......... 7,053,272 2,903,805 4,158,953 (2,112,633) 12,003,397
----------- --------- ---------- ---------- -----------
OPERATING EXPENSES:
Radio programming....... 2,278,208 -- -- -- 2,278,208
Television programming
expenses:
Non-affiliated
entities.............. 190,955 294,589 -- -- 485,544
Affiliated entities.... 109,333 2,378,694 -- (687,561)(j) 1,800,466
Satellite delivery and
production support..... 2,495,461 -- 2,300,519 (2,112,633)(a) 2,683,347
-- -- -- 687,561 (j) 687,561
Selling and marketing
expenses............... 1,070,920 76,463 -- -- 1,147,383
General and
administrative
expenses............... 1,608,046 482,183 532 206,563 (e) 2,297,324
----------- --------- ---------- ---------- -----------
Total operating
expenses.............. 7,752,923 3,231,929 2,301,051 (1,906,070) 11,379,833
----------- --------- ---------- ---------- -----------
OPERATING INCOME
(LOSS)................. (699,651) (328,124) 1,857,902 (206,563) 623,564
----------- --------- ---------- ---------- -----------
OTHER INCOME (EXPENSE):
Interest income......... 40,366 -- -- (6,357)(b) 34,009
Interest expense........ (545,237) (17,690) (2,479,564) 6,357 (b) (3,036,134)
Other expense........... (16,276) -- -- -- (16,276)
Equity share of income
(loss) of
subsidiaries........... 76,481 -- -- 179,746 (d) 256,227
----------- --------- ---------- ---------- -----------
Total other income
(expense)............. (444,666) (17,690) (2,479,564) 179,746 (2,762,174)
----------- --------- ---------- ---------- -----------
Income (loss) before
income taxes and
minority interests..... (1,144,317) (345,814) (621,662) (26,817) (2,138,610)
Income tax benefit ..... 210,212 -- 136,909 -- 347,121
----------- --------- ---------- ---------- -----------
Net income (loss) before
minority interests..... (934,105) (345,814) (484,753) (26,817) (1,791,489)
Minority interests in
net loss of
consolidated
subsidiaries........... -- -- 158,469 (d) 158,469
31,907 -- -- (31,907)(c) --
----------- --------- ---------- ---------- -----------
NET LOSS................ $ (902,198) $(345,814) $ (484,753) $ 99,745 ($1,633,020)
=========== ========= ========== ========== ===========
NET LOSS PER COMMON
SHARE.................. $ (.27) $ (.37)
=========== ===========
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING .... 3,353,573 4,366,073 (i)
=========== ===========
</TABLE>
The accompanying notes to unaudited pro forma consolidated financial statements
are an integral part of these pro forma consolidated financial statements.
P-5
<PAGE>
JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
COMPANY
COMPANY AS PIN JONES PRO FORMA PRO FORMA
REPORTED VENTURE (1) SPACE SEGMENT (2) ADJUSTMENTS(3) COMBINED
----------- ----------- ----------------- -------------- -----------
<S> <C> <C> <C> <C> <C>
REVENUES:
Radio programming....... $ 5,121,310 -- -- -- $ 5,121,310
Television programming:
Non-affiliated
entities.............. 288,591 4,110,025 -- -- 4,398,616
Affiliated entities.... 51,574 -- -- -- 51,574
----------- ---------- ----------- ----------- -----------
Total television
programming........... 340,165 4,110,025 -- -- 4,450,190
----------- ---------- ----------- ----------- -----------
Satellite delivery and
production support:
Non-affiliated
entities.............. 9,844 -- 3,119,945 -- 3,129,789
Affiliated entities.... 4,211,454 -- 2,425,344 (2,846,672)(a) 3,790,126
----------- ---------- ----------- ----------- -----------
Total satellite
delivery and product
support............... 4,221,298 -- 5,545,289 (2,846,672) 6,919,915
----------- ---------- ----------- ----------- -----------
Total revenue.......... 9,682,773 4,110,025 5,545,289 (2,846,672) 16,491,415
----------- ---------- ----------- ----------- -----------
OPERATING EXPENSES:
Radio programming....... 3,067,745 -- -- -- 3,067,745
Television programming
expenses:
Non-affiliated
entities.............. 298,158 380,288 -- -- 678,446
Affiliated entities.... 109,333 3,339,011 -- (919,084)(j) 2,529,260
Satellite delivery and
production support..... 3,512,001 -- 3,077,386 (2,846,672)(a) 3,742,715
-- -- -- 919,084 (j) 919,084
Selling and marketing
expenses............... 1,374,368 113,775 -- -- 1,488,143
General and
administrative
expenses............... 2,320,760 661,768 1,020 284,025 (e) 3,267,573
----------- ---------- ----------- ----------- -----------
Total operating
expenses.............. 10,682,365 4,494,842 3,078,406 (2,562,647) 15,692,966
----------- ---------- ----------- ----------- -----------
OPERATING INCOME
(LOSS)................. (999,592) (384,817) 2,466,883 (284,025) 798,449
----------- ---------- ----------- ----------- -----------
OTHER INCOME (EXPENSE):
Interest income......... 63,792 -- -- (21,890)(b) 41,902
Interest expense........ (778,246) (33,043) (3,291,591) 21,890 (b) (4,080,990)
Other income (expense),
net.................... (16,276) 5,528 -- -- (10,748)
Equity share of income
(loss) of
subsidiaries........... 10,886 -- -- 210,877 (d) 221,763
----------- ---------- ----------- ----------- -----------
Total other income
(expense)............. (719,844) (27,515) (3,291,591) 210,877 (3,828,073)
----------- ---------- ----------- ----------- -----------
Income (loss) before
income taxes benefit
and minority
interests.............. (1,719,436) (412,332) (824,708) (73,148) (3,029,624)
Income tax benefit
(expense).............. 302,632 -- 195,107 -- 497,739
----------- ---------- ----------- ----------- -----------
Net loss before minority
interests.............. (1,416,804) (412,332) (629,601) (73,148) (2,531,885)
Minority interests in
net income (loss) of
consolidated
subsidiaries........... -- -- 188,951 (d) 188,951
35,237 -- -- (35,237)(c) --
----------- ---------- ----------- ----------- -----------
NET LOSS................ $(1,381,567) $ (412,332) $ (629,601) $ 80,566 $(2,342,934)
=========== ========== =========== =========== ===========
NET LOSS PER COMMON
SHARE.................. $ (.41) $ (.54)
=========== ===========
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING .... 3,353,573 4,366,073 (i)
=========== ===========
</TABLE>
The accompanying notes to unaudited pro forma consolidated financial statements
are an integral part of these pro forma consolidated financial statements.
P-6
<PAGE>
JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
JONES COMPANY
COMPANY AS SPACE PRO FORMA PRO FORMA
REPORTED SEGMENT (2) ADJUSTMENTS(3) COMBINED
----------- ----------- -------------- -----------
<S> <C> <C> <C> <C>
REVENUES:
Radio programming...... $ 2,541,221 $ -- $ -- $ 2,541,221
Television programming:
Non-affiliated
entities.............. 1,945,790 -- -- 1,945,790
Affiliated entities.... -- -- -- --
----------- ---------- --------- -----------
Total television
programming........... 1,945,790 -- -- 1,945,790
----------- ---------- --------- -----------
Satellite delivery and
production support:
Non-affiliated
entities.............. 15,392 3,120,000 -- 3,135,392
Affiliated entities.... 2,069,942 2,399,965 (800,001)(a) 3,669,906
----------- ---------- --------- -----------
Total satellite
delivery and product
support............... 2,085,334 5,519,965 (800,001) 6,805,298
----------- ---------- --------- -----------
Total revenue.......... 6,572,345 5,519,965 (800,001) 11,292,309
----------- ---------- --------- -----------
OPERATING EXPENSES:
Radio programming....... 2,068,239 -- -- 2,068,239
Television programming
expenses:
Non-affiliated
entities.............. 530,129 -- -- 530,129
Affiliated entities.... 1,037,817 -- (525,486)(j) 512,331
Satellite, delivery and
production............. 1,849,291 3,077,469 (800,001)(a) 4,126,759
-- -- 525,486 (j) 525,486
Selling and marketing
expenses............... 1,090,254 -- -- 1,090,254
General and
administrative
expenses............... 1,957,716 667 -- 1,958,383
----------- ---------- --------- -----------
Total operating
expenses.............. 8,533,446 3,078,136 (800,001) 10,811,581
----------- ---------- --------- -----------
OPERATING INCOME
(LOSS)................. (1,961,101) 2,441,829 -- 480,728
----------- ---------- --------- -----------
OTHER INCOME (EXPENSE):
Interest income......... 57,947 -- -- 57,947
Interest expense........ (68,082) (3,390,780) -- (3,458,862)
Other income (expense),
net.................... (8,963) -- -- (8,963)
Equity share of income
(loss) of
subsidiaries........... 236,811 -- -- 236,811
----------- ---------- --------- -----------
Total other income
(expense)............. 217,713 (3,390,780) -- (3,173,067)
----------- ---------- --------- -----------
Loss before income taxes
and minority
interests.............. (1,743,388) (948,951) -- (2,692,339)
Income tax benefit
(expense).............. 73,408 316,311 -- 389,719
----------- ---------- --------- -----------
Net loss before minority
interests.............. (1,669,980) (632,640) -- (2,302,620)
Minority interests in
net income (loss) of
consolidated
subsidiaries........... 12,900 -- (12,900) (c) --
----------- ---------- --------- -----------
NET LOSS................ $(1,657,080) $ (632,640) $ (12,900) $(2,302,620)
=========== ========== ========= ===========
NET LOSS PER COMMON
SHARE.................. $ (.49) $ (.56)
=========== ===========
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING..... 3,353,573 4,103,573 (i)
=========== ===========
</TABLE>
The accompanying notes to unaudited pro forma consolidated financial statements
are an integral part of these pro forma consolidated financial statements.
P-7
<PAGE>
JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1993
<TABLE>
<CAPTION>
JONES COMPANY
COMPANY AS SPACE PRO FORMA PRO FORMA
REPORTED SEGMENT(2) ADJUSTMENTS(3) COMBINED
---------- ---------- -------------- -----------
<S> <C> <C> <C> <C>
REVENUES:
Radio programming....... $3,185,762 $ -- $ -- $ 3,185,762
Television programming:
Non-affiliated
entities.............. 290,570 -- -- 290,570
Affiliated entities.... -- -- -- --
---------- ---------- -------- -----------
Total television
programming........... 290,570 -- -- 290,570
---------- ---------- -------- -----------
Satellite, delivery and
production support:
Non-affiliated
entities.............. 55,237 3,349,410 -- 3,404,647
Affiliated entities.... 1,690,197 2,650,000 -- 4,340,197
---------- ---------- -------- -----------
Total satellite,
delivery and product
support............... 1,745,434 5,999,410 -- 7,744,844
---------- ---------- -------- -----------
Total revenue.......... 5,221,766 5,999,410 -- 11,221,176
---------- ---------- -------- -----------
OPERATING EXPENSES:
Radio programming....... 1,973,561 -- -- 1,973,561
Television programming
expenses:
Non-affiliated
entities.............. 355,397 -- -- 355,397
Affiliated entities.... -- -- -- --
Satellite, delivery and
production............. 1,531,883 3,513,546 -- 5,045,429
Selling and marketing
expenses............... 955,223 -- -- 955,223
General and
administrative
expenses............... 1,296,061 22,942 -- 1,319,003
---------- ---------- -------- -----------
Total operating
expenses.............. 6,112,125 3,536,488 -- 9,648,613
---------- ---------- -------- -----------
OPERATING INCOME
(LOSS)................. (890,359) 2,462,922 -- 1,572,563
---------- ---------- -------- -----------
OTHER INCOME (EXPENSE):
Interest income......... 46,015 -- -- 46,015
Interest expense........ (64,521) (3,457,818) -- (3,522,339)
Other expense........... (33,872) -- -- (33,872)
Equity share of income
(loss) of
subsidiaries........... 160,882 -- -- 160,882
---------- ---------- -------- -----------
Total other income
(expense)............. 108,504 (3,457,818) -- (3,349,314)
---------- ---------- -------- -----------
Loss before income taxes
and minority
interests.............. (781,855) (994,896) -- (1,776,751)
Income tax benefit
(expense).............. 5,552 199,565 -- 205,117
---------- ---------- -------- -----------
Net loss before minority
interests.............. (776,303) (795,331) -- (1,571,634)
Minority interests in
net loss of
consolidated
subsidiaries........... (51,830) -- 51,830 (c) --
---------- ---------- -------- -----------
NET LOSS................ $ (828,133) $ (795,331) $ 51,830 $(1,571,634)
========== ========== ======== ===========
NET LOSS PER COMMON
SHARE.................. $ (.25) $ (.38)
========== ===========
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING..... 3,353,573 4,103,573 (i)
========== ===========
</TABLE>
The accompanying notes to unaudited pro forma consolidated financial statements
are an integral part of these pro forma consolidated financial statements.
P-8
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(1) To reflect the historical operating results and balance sheet information
on a consolidated basis of the PIN Venture as a result of the ownership of
a majority interest.
(2) To reflect the operating results and balance sheet information on a
consolidated basis as a result of the Space Segment Transaction.
(3) To reflect the following pro forma adjustments:
(a) To eliminate intercompany satellite delivery and production support
charges as a result of the ownership of a majority interest in PIN
Venture and the Space Segment Transaction.
(b) To eliminate intercompany interest income and expense relating to the
ownership of a majority interest in PIN Venture.
(c) To reflect the elimination of minority interests as a result of the GRJ
Transaction.
(d) Adjustment to: (i) eliminate the Company's equity share of income
(loss) of the PIN Venture prior to the Pre-Offering Transactions and
(ii) reflect the minority interest (i.e., Cox) in the PIN Venture when
consolidated on a pro forma basis.
(e) To reflect amortization of goodwill pertaining to the PIN Venture.
(f) To eliminate intercompany receivables and payables.
(g) To establish goodwill associated with the PIN Venture Transaction.
(h) To: (i) eliminate the Company's equity investment in the PIN Venture,
(ii) reflect the minority interest (i.e., Cox Consumer Information
Networks, Inc.) in the net assets of the PIN Venture and (iii) reflect
equity issued by the Company in exchange for Adelphia's interest in the
PIN Venture.
(i) To reflect the issuance of Class A Common Stock in connection with the
Pre-Offering Transactions.
(j) To reclassify the portion of satellite transponder and production
support expenses that the Company charged its own subsidiaries to
television programming expenses as a result of the pro forma effects of
the Space Segment Transaction and the PIN Venture.
P-9
<PAGE>
INDEX TO HISTORICAL FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES CONSOLIDATED
FINANCIAL STATEMENTS
Report of Independent Public Accountants................................. F-2
Consolidated Balance Sheets as of December 31, 1994 and 1995 and
September 30, 1996...................................................... F-3
Consolidated Statements of Operations for the Three Years Ended December
31, 1995, and the Nine Month Periods Ended September 30, 1995 and 1996.. F-4
Consolidated Statements of Shareholders' Investment for the Three Years
Ended December 31, 1995, and the Nine Month Period Ended September 30,
1996.................................................................... F-5
Consolidated Statements of Cash Flows for the Three Years Ended December
31, 1995, and the Nine Month Periods Ended September 30, 1995 and 1996.. F-6
Notes to Consolidated Financial Statements............................... F-7
PRODUCT INFORMATION NETWORK VENTURE
Report of Independent Public Accountants................................. F-18
Balance Sheets as of December 31, 1995 and September 30, 1996............ F-19
Statements of Operations for the Eleven Months ended December 31, 1995
and for the Nine Months ended September 30, 1996........................ F-20
Statements of Partners' Capital (Deficit)................................ F-21
Statements of Cash Flows for the Eleven Months ended December 31, 1995
and for the Nine Months ended September 30, 1996........................ F-22
Notes to Financial Statements............................................ F-23
JONES SPACE SEGMENT
Report of Independent Public Accountants................................. F-27
Statements of Net Assets to Be Acquired from Jones Space Segment, Inc. as
of December 31, 1994 and 1995 and September 30, 1996.................... F-28
Statements of Revenues and Direct Costs for the years ended December 31,
1993, 1994 and 1995 and for the Nine Months ended September 30, 1995 and
1996.................................................................... F-29
Statements of Cash Flows for the years ended December 31, 1993, 1994 and
1995 and for the Nine Months ended September 30, 1995 and 1996.......... F-30
Notes to Financial Statements............................................ F-31
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Jones International Networks, Ltd.:
We have audited the accompanying consolidated balance sheets of Jones
International Networks, Ltd. (a Colorado corporation) and subsidiaries
(collectively, "the Company") as of December 31, 1994 and 1995 and September
30, 1996, 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 and for the nine months ended September 30, 1995 and 1996.
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 September 30, 1996, and the results of its operations
and its cash flows for each of the three years in the period ended December
31, 1995 and for the nine months ended September 30, 1995 and 1996 in
conformity with generally accepted accounting principles.
Arthur Andersen LLP
Denver, Colorado
October 25, 1996
F-2
<PAGE>
JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, SEPTEMBER 30,
1994 1995 1996
------------ ------------ -------------
<S> <C> <C> <C>
CURRENT ASSETS:
Cash............................... $ 63,081 $ 5,400 $ 3,488
Accounts receivable, net of
allowance for doubtful accounts of
$156,818, $224,808,and $107,539,
respectively...................... 825,115 857,183 1,591,539
Receivable from affiliates......... 125,301 441,353 363,695
Deferred commission, current (Note
2)................................ 230,010 148,770 225,395
Other current assets............... 114,469 116,002 101,894
------------ ------------ ------------
Total current assets............... 1,357,976 1,568,708 2,286,011
------------ ------------ ------------
PROPERTY, PLANT AND EQUIPMENT (Note
2):
Land and building.................. 2,988,558 3,714,715 3,717,055
Furniture, fixtures and equipment.. 6,108,543 6,621,293 8,444,074
Leasehold improvements............. 162,782 185,544 244,794
------------ ------------ ------------
Total property, plant and
equipment......................... 9,259,883 10,521,552 12,405,923
Less accumulated depreciation...... (2,013,614) (2,935,987) (3,935,481)
------------ ------------ ------------
Net property, plant and equipment.. 7,246,269 7,585,565 8,470,442
------------ ------------ ------------
OTHER ASSETS (Note 2):
Intangible assets.................. 349,994 786,513 848,161
Less amortization.................. (345,209) (393,517) (449,589)
------------ ------------ ------------
Net intangible assets.............. 4,785 392,996 398,572
------------ ------------ ------------
Investment in affiliates........... 382,431 393,143 870,224
Deferred commission, long-term
(Note 2).......................... 460,021 491,884 450,829
Other assets....................... 31,899 27,437 116,290
------------ ------------ ------------
Total other assets................. 874,351 912,464 1,437,343
------------ ------------ ------------
Total assets...................... $ 9,483,381 $ 10,459,733 $ 12,592,368
============ ============ ============
CURRENT LIABILITIES:
Accounts payable................... $ 8,425 $ 16,479 $ 87,319
Accrued liabilities................ 285,548 613,422 402,748
Accounts payable--Jones
International (Note 4)............ 1,687,117 1,755,723 3,181,789
Interest payable (Note 3).......... -- -- 165,000
Other liabilities.................. 2,736 29,911 90,000
------------ ------------ ------------
Total current liabilities.......... 1,983,826 2,415,535 3,926,856
------------ ------------ ------------
LONG-TERM LIABILITIES:
Customer deposits (Note 2)......... 66,937 41,110 47,785
Long-term debt--third parties...... 18,633 7,991 7,200
Long-term debt--affiliated entities
(Notes 3 and 5)................... 19,214,616 21,212,532 22,554,500
------------ ------------ ------------
Total long-term liabilities........ 19,300,186 21,261,633 22,609,485
------------ ------------ ------------
MINORITY INTEREST................... 38,954 3,717 70,132
------------ ------------ ------------
SHAREHOLDERS' INVESTMENT:
Class A Common Stock; $.01 par
value; 50,000,000 shares
authorized;
1,385,120, 1,385,120 and 1,968,453
shares issued and outstanding,
respectively...................... 13,851 13,851 19,685
Class B Common Stock; $.01 par
value; 1,385,120 shares
authorized;
1,385,120 shares issued and
outstanding....................... 13,851 13,851 13,851
Accumulated deficit................ (11,867,287) (13,248,854) (14,047,641)
------------ ------------ ------------
Total shareholders' investment..... (11,839,585) (13,221,152) (14,014,105)
------------ ------------ ------------
Total liabilities and
shareholders' investment......... $ 9,483,381 $ 10,459,733 $ 12,592,368
============ ============ ============
</TABLE>
The accompanying notes to these consolidated financial statements are
an integral part of these consolidated financial statements.
F-3
<PAGE>
JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED FOR THE NINE MONTHS
DECEMBER 31, ENDED SEPTEMBER 30,
------------------------------------- ------------------------
1993 1994 1995 1995 1996
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
REVENUES: (Notes 2 and
4}
Radio programming....... $ 3,185,762 $ 2,541,221 $ 5,121,310 $ 3,686,360 $ 5,140,671
Television programming:
Non-affiliated
entities.............. 290,570 1,945,790 288,591 288,591 110,329
Affiliated entities.... -- -- 51,574 -- 691,349
----------- ----------- ----------- ----------- -----------
Total television
programming........... 290,570 1,945,790 340,165 288,591 801,678
----------- ----------- ----------- ----------- -----------
Satellite delivery and
production support:
Non-affiliated
entities.............. 55,237 15,392 9,844 8,354 --
Affiliated entities.... 1,690,197 2,069,942 4,211,454 3,069,967 3,132,146
----------- ----------- ----------- ----------- -----------
Total satellite
delivery and
production support.... 1,745,434 2,085,334 4,221,298 3,078,321 3,132,146
----------- ----------- ----------- ----------- -----------
Total revenue.......... 5,221,766 6,572,345 9,682,773 7,053,272 9,074,495
----------- ----------- ----------- ----------- -----------
OPERATING EXPENSES:
Radio programming....... 1,973,561 2,068,239 3,067,745 2,278,208 2,792,043
Television programming:
Non-affiliated
entities.............. 355,397 530,129 298,158 190,955 1,303,805
Affiliated entities
(Note 4).............. -- 1,037,817 109,333 109,333 --
Satellite delivery and
production support
(Note 4)............... 1,531,883 1,849,291 3,512,001 2,495,461 2,603,318
Selling and marketing... 955,223 1,090,254 1,374,368 1,070,920 1,242,952
General and
administrative (Note
4)..................... 1,296,061 1,957,716 2,320,760 1,608,046 2,257,130
----------- ----------- ----------- ----------- -----------
Total operating
expenses.............. 6,112,125 8,533,446 10,682,365 7,752,923 10,199,248
----------- ----------- ----------- ----------- -----------
OPERATING LOSS.......... (890,359) (1,961,101) (999,592) (699,651) (1,124,753)
----------- ----------- ----------- ----------- -----------
OTHER INCOME (EXPENSE):
Interest income ........ 46,015 57,947 63,792 40,366 63,724
Interest expense (Note
4)..................... (64,521) (68,082) (778,246) (545,237) (742,112)
Other income (expense),
net.................... (33,872) (8,963) (16,276) (16,276) (521)
Equity share of income
of subsidiaries........ 160,882 236,811 10,886 76,481 627,081
----------- ----------- ----------- ----------- -----------
Total other income
(expense)............. 108,504 217,713 (719,844) (444,666) (51,828)
----------- ----------- ----------- ----------- -----------
Loss before income tax
benefit (expense) and
minority interests..... (781,855) (1,743,388) (1,719,436) (1,144,317) (1,176,581)
Income tax benefit
(expense) (Notes 2 and
8)..................... 5,552 73,408 302,632 210,212 450,043
----------- ----------- ----------- ----------- -----------
Loss before minority
interests.............. (776,303) (1,669,980) (1,416,804) (934,105) (726,538)
Minority interests in
net income (loss) of
consolidated
subsidiaries........... (51,830) 12,900 35,237 31,907 (66,415)
----------- ----------- ----------- ----------- -----------
NET LOSS................ $ (828,133) $(1,657,080) $(1,381,567) $ (902,198) $ (792,953)
=========== =========== =========== =========== ===========
NET LOSS PER COMMON
SHARE.................. $ (.25) $ (.49) $ (.41) $ (.27) $ (.24)
=========== =========== =========== =========== ===========
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING..... 3,353,573 3,353,573 3,353,573 3,353,573 3,353,573
=========== =========== =========== =========== ===========
PRO FORMA INCOME TAX
BENEFIT (EXPENSE) (Note
8) $ -- $ -- $ -- $ -- $ --
=========== =========== =========== =========== ===========
PRO FORMA NET LOSS (Note
8)..................... $ (833,685) $(1,730,488) $(1,684,199) $(1,112,410) $(1,242,996)
=========== =========== =========== =========== ===========
PRO FORMA NET LOSS PER
COMMON SHARE (Note 8).. $ (.25) $ (.52) $ (.50) $ (.33) $ (.37)
=========== =========== =========== =========== ===========
</TABLE>
The accompanying notes to these consolidated financial statements are
an integral part of the consolidated financial statements.
F-4
<PAGE>
JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' INVESTMENT
<TABLE>
<CAPTION>
COMMON STOCK
-----------------------------------
CLASS A CLASS B ADDITIONAL TOTAL
----------------- ----------------- PAID-IN ACCUMULATED SHAREHOLDERS'
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT INVESTMENT
--------- ------- --------- ------- ---------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1,
1993................... 1,385,120 $13,851 1,385,120 $13,851 $ -- $ (9,382,074) $ (9,354,372)
Net Loss............... -- -- -- -- -- (828,133) (828,133)
--------- ------- --------- ------- ----- ------------ ------------
Balance, December 31,
1993................... 1,385,120 13,851 1,385,120 13,851 -- (10,210,207) (10,182,505)
Net Loss............... -- -- -- -- -- (1,657,080) (1,657,080)
--------- ------- --------- ------- ----- ------------ ------------
Balance, December 31,
1994................... 1,385,120 13,851 1,385,120 13,851 -- (11,867,287) (11,839,585)
Net Loss............... -- -- -- -- -- (1,381,567) (1,381,567)
--------- ------- --------- ------- ----- ------------ ------------
Balance, December 31,
1995................... 1,385,120 13,851 1,385,120 13,851 -- (13,248,854) (13,221,152)
Issuance of Common Stock
in exchange for Earth
Segment................ 583,333 5,834 -- -- -- (5,834) --
Net Loss............... -- -- -- -- -- (792,953) (792,953)
--------- ------- --------- ------- ----- ------------ ------------
Balance, September 30,
1996................... 1,968,453 $19,685 1,385,120 $13,851 $ -- $(14,047,641) $(14,014,105)
========= ======= ========= ======= ===== ============ ============
</TABLE>
The accompanying notes to these consolidated financial statements are
an integral part of the consolidated financial statements.
F-5
<PAGE>
JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED FOR THE NINE MONTHS
DECEMBER 31, ENDED SEPTEMBER 30,
------------------------------------ -----------------------
1993 1994 1995 1995 1996
---------- ----------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net loss................ $ (828,133) $(1,657,080) $(1,381,567) $ (902,198) $ (792,953)
Adjustments to reconcile
net loss to net cash
provided by (used in)
operating activities:
Depreciation and
amortization.......... 469,859 370,943 970,681 695,547 1,055,566
Equity in income of
subsidiary............ (160,882) (236,811) (10,886) (76,481) (627,081)
Minority interest in
net loss (income)..... 51,830 (12,900) (35,237) (31,907) 66,415
Net change in assets
and liabilities:
Increase in
receivables........... (44,881) (105,566) (32,068) (501,676) (734,356)
Decrease (increase) in
other current assets.. (162,149) 53,344 (1,533) 106,770 14,108
Decrease (increase) in
receivables from
affiliates............ (29,510) (95,791) (316,052) (439,488) 77,658
Decrease (increase) in
deferred commission... (147,241) (171,877) 49,377 (14,545) (35,570)
Decrease (increase) in
other assets.......... (89,605) 85,599 4,462 4,458 (88,853)
Increase (decrease) in
accounts payable...... 8,279 (16,231) 8,054 (5,756) 70,840
Increase (decrease) in
accrued liabilities... 155,255 37,148 327,874 117,229 (210,674)
Increase (decrease) in
accounts payable to
Jones International,
Ltd................... 3,731,428 (5,029,881) 68,606 60,063 1,426,066
Increase in interest
payable............... -- -- -- -- 165,000
Increase (decrease) in
other liabilities..... 33,997 (31,261) 27,175 (2,736) 60,089
Increase (decrease) in
customer deposits..... (49,983) (123,104) (25,827) 776 6,675
---------- ----------- ----------- ---------- -----------
Net cash provided by
(used in) operating
activities............ 2,938,264 (6,933,468) (346,941) (989,944) 452,930
---------- ----------- ----------- ---------- -----------
CASH FLOWS FROM
INVESTING ACTIVITIES:
Purchases of property
and equipment.......... (4,383,708) (1,641,039) (1,261,669) (632,185) (1,884,371)
Purchases of intangible
assets................. -- (5,160) (436,519) (424,374) (61,648)
Investment in joint
venture................ -- -- (174,826) (174,826) --
Distributions received.. -- 375,000 175,000 175,000 150,000
---------- ----------- ----------- ---------- -----------
Net cash used in
investing activities.. (4,383,708) (1,271,199) (1,698,014) (1,056,385) (1,796,019)
---------- ----------- ----------- ---------- -----------
CASH FLOWS FROM
FINANCING ACTIVITIES:
Proceeds from
borrowings............. 1,490,656 8,316,448 1,997,916 1,995,815 1,341,968
Repayment of
borrowings............. (46,982) (50,850) (10,642) (8,899) (791)
---------- ----------- ----------- ---------- -----------
Net cash provided by
financing activities.. 1,443,674 8,265,598 1,987,274 1,986,916 1,341,177
---------- ----------- ----------- ---------- -----------
INCREASE (DECREASE) IN
CASH................... (1,770) 60,931 (57,681) (59,413) (1,912)
---------- ----------- ----------- ---------- -----------
CASH, BEGINNING OF
PERIOD................. 3,920 2,150 63,081 63,081 5,400
---------- ----------- ----------- ---------- -----------
CASH, END OF PERIOD..... $ 2,150 $ 63,081 $ 5,400 $ 3,668 $ 3,488
========== =========== =========== ========== ===========
SUPPLEMENTAL CASH FLOW
DISCLOSURES:
Interest paid.......... $ 64,521 $ 68,082 $ 778,246 $ 545,237 $ 742,112
========== =========== =========== ========== ===========
Allocated income tax
benefit .............. $ 5,552 $ 73,408 $ 302,632 $ 210,212 $ 450,043
========== =========== =========== ========== ===========
</TABLE>
The accompanying notes to consolidated financial statements are
an integral part of these consolidated financial statements.
F-6
<PAGE>
JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995 AND
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996
(1) ORGANIZATION AND BUSINESS
Jones International Networks, Ltd. (the "Company") was incorporated in
November, 1993 as a subsidiary of Jones International, Ltd. ("Jones
International"). In connection with a contemplated initial public offering of
the Company's Class A Common Stock, the Company acquired certain other
subsidiaries of Jones International whose businesses are complementary to the
Company's business. The accompanying financial statements have been prepared
on a basis of reorganization accounting (similar to pooling of interests) as
though the Company has made the acquisitions of Jones International
subsidiaries at inception.
The Company creates, develops, acquires, produces and distributes
programming to radio stations, cable television system operators and other
video distributors. The Company: (i) provides radio programming to radio
stations in exchange for advertising time that it resells to national
advertisers, (ii) provides television programming to cable television system
operators and other video distributors, (iii) sells advertising time on its
two television networks and receives license fees for its country music
television network and (iv) owns and operates its own playback, uplink and
satellite transmission facilities that both distribute the Company's
programming and are subleased to others for a fee.
The Company does not currently have a bank or other credit facility. The
Company intends to establish a bank credit facility following the consummation
of this offering, but there can be no assurance that it will be able to secure
such a facility or any financing on acceptable terms, if at all. The Company
has received advances and loans from Jones International and related companies
to fund its operating and investing activities in the past and anticipates
that Jones International will make additional advances to the Company prior to
the consummation of the offering. Jones International and such related
companies are under no obligation to provide, nor does the Company expect them
to provide, additional advances or loans to the Company subsequent to the
consummation of the offering. Management believes that the net proceeds from
this offering and operating cash flow will be sufficient to fund the Company's
capital needs through at least December 31, 1997. However, if the offering is
not completed, other equity and/or debt financing is not obtained and if the
Company's operating cash flow is not sufficient to meet its needs, Jones
International anticipates that it will continue to make advances to the
Company as necessary, through December 31, 1997.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation--The consolidated financial statements include
the accounts of all majority-owned and controlled subsidiaries. Investments in
entities which are not majority-owned and 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 income or loss of the
Company's consolidated subsidiaries is reflected in the statement of
operations. To the extent the minority interest in the net losses of the
Company's consolidated subsidiaries exceeds the minority investment in those
subsidiaries, such excess losses are charged to the Company. These excess
losses are recovered against any future earnings. The Company recorded losses
of approximately $0, $0, and $71,000 in excess of the Company's ownership
interest in its consolidated subsidiaries during the years ended December 31,
1993, 1994 and 1995, respectively, and losses of approximately $40,000 and
$246,000 during the nine months ended September 30, 1995 and 1996,
respectively.
F-7
<PAGE>
JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Property, Plant and Equipment--Property, plant and equipment is depreciated
using the straight-line method over the estimated useful lives of 5 to 15
years. Leasehold improvements are depreciated over the lesser of five years or
the term of the lease.
Intangible Assets--Intangible assets consist primarily of affiliate
agreements obtained from a third party in May 1995. Intangible assets are
amortized over the lesser of 7 years or the term of the affiliate agreements.
Deferred Commissions--Sales commissions are amortized over the life of the
corresponding affiliate agreements from which the sale commission was paid.
The current amount represents the portion to be amortized within the next 12
months. The remaining portion is classified as long-term.
Customer Deposits--Customer deposits consist of unearned revenue associated
with affiliate fees and refundable advance payments received from radio
stations.
Income Taxes--The Company joins in filing a consolidated tax return as
provided for under the terms of a tax sharing agreement with Jones
International and Jones International's other subsidiaries. Pursuant to the
terms of the tax allocation agreement, tax provisions (benefits) are allocated
to the members of the tax sharing group based on their respective pro rata
contribution of taxable income (loss) to Jones International's consolidated
taxable income (loss).
The tax allocation agreement with Jones International gives Jones
International the option to either make a payment of the tax benefits due to
the subsidiary members of the tax sharing group or to defer such payments
until a subsequent taxable period in which the subsidiary member generates
taxable income and has a tax payment due either to Jones International or to a
federal or state taxing authority. Such payments may be deferred by Jones
International for a period not to exceed five years from the date the tax
benefits were incurred and will accrue interest at the prime rate in effect at
the time the deferred amounts originate.
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, based upon current circumstances, are not expected to be realized.
Revenue Recognition--The Company's revenue consists of radio programming
revenue, television programming revenue and satellite delivery and production
support revenue.
Radio programming revenue includes advertising and licensing fees. The
Company generates radio advertising revenue by selling airtime to advertisers
who advertise their products or services on the networks. The Company
recognizes advertising revenue upon airing of the advertisements. Any amounts
received from customers for radio advertisements that have not been aired
during the period are recorded as unearned revenue until such time as the
advertisement is aired. The Company delivers its programming to radio stations
for distribution to their listeners. Radio station licensing fees are earned
monthly based on the radio station's contractual agreement.
Television programming revenue includes advertising and licensing fees. The
Company generates television advertising revenue by selling airtime to
advertisers who advertise their products or services on the networks. The
Company recognizes advertising revenue upon the
F-8
<PAGE>
JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
airing of the advertisements. Any amounts received from customers for
television advertisements that have not been aired during the period are
recorded as unearned revenue until such time as the advertisement is aired.
The Company delivers its programming to cable television systems for
distribution to their viewers. Cable television system licensing fees are
earned monthly based on a per subscriber fee set under the terms of the cable
operator's contractual agreement and the number of subscribers that are
receiving the Company's programming during the respective month.
Satellite delivery and production support revenue includes revenue from
satellite delivery, uplinking, trafficking, playback and other services. The
Company generates revenue by providing such services to affiliates and a third
party. The Company recognizes satellite delivery and production support
revenue upon completion of the services or upon contractual arrangements.
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. Pro forma net loss per share reflects the impact of the
Company not recording any tax benefits as if it had filed its income tax
return on a separate company basis and was not a part of the tax allocation
agreement with affiliated entities.
Use of Estimates--The preparation of financial statements in conformity with
generally accepted accounting principles requires the Company 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 Company adopted 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"), effective
January 1, 1996. SFAS 121 establishes accounting standards for the impairment
of long-lived assets, certain identifiable intangibles and goodwill.
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) ACQUISITION OF JONES GALACTIC RADIO, INC. AND JONES EARTH SEGMENT, INC.
Effective August 15, 1996, the Company purchased all of the common stock of
Jones Galactic Radio ("Galactic Radio") from Jones Global Group, Inc. ("Global
Group"), an affiliate of the Company, for $17,200,000. Galactic Radio is a
holding company which owns 100% of the Company's radio network programming
business and through a subsidiary, a 50% interest in the Galactic/ Tempo
Venture ("Superaudio," See Note 7). The purchase price was paid using
$1,200,000 in cash with the balance in the form of a $16,000,000 note that
bears interest at 8.25
F-9
<PAGE>
JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
percent per annum and is payable quarterly. Principal payments are due in
quarterly installments beginning May 15, 2000. The note is included in long-
term debt to affiliated entities in the accompanying financial statements. It
matures December 31, 2003. The note is secured by all of the assets of the
Company's radio network programming business. This transaction was treated as
a reorganization of entities under common control and is included in the
Company's historical financial statements for all periods presented. The
Company intends to repay the note in full from the proceeds of the offering.
The net assets of Galactic Radio as of the purchase date totaled
approximately $5.1 million. In accordance with general accepted accounting
principles for a transfer of entities under common control, the amount of
purchase price paid by the Company in excess of Galactic Radio's net assets,
approximately $12.1 million, was charged to stockholders' equity.
Effective September 30, 1996, the Company acquired all of the common stock
of Jones Earth Segment, Inc. ("Earth Segment") from Mr. Jones and Jones
International for 110,833 shares and 472,500 shares, respectively, of the
Company's Class A Common Stock. Earth Segment, now a wholly owned subsidiary
of the Company, owns the assets through which the Company provides playback,
trafficking and uplinking services. This transaction was treated as a
reorganization of entities under common control and is included in the
Company's historical financial statements for all periods presented.
(4) TRANSACTIONS WITH AFFILIATED ENTITIES
The Company is a subsidiary of Jones International, a holding company with
ownership interests in several companies involved in various aspects of the
telecommunications industry. Jones International is wholly owned by Mr. Jones,
Chairman and Chief Executive Officer of Jones Intercable, Inc. ("Jones
Intercable") and various other subsidiaries of Jones International. Certain
members of management of the Company are also officers or directors of these
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 with affiliates, excluding the PIN Venture
and Superaudio, are described below. See Note 7 for transactions with
affiliates related to the PIN Venture and Superaudio.
Television Programming Revenue--The Company earns up to a three percent
commission on the sale of airtime for informational programming on Mind
Extension University and Jones Computer Network, which are subsidiaries of
Jones Education Company ("Jones Education") and affiliates of the Company.
Prior to October 1, 1995, the Company did not provide this service to Jones
Education. For the year ended December 31, 1995 and the nine months ended
September 30, 1996, the Company received $51,574 and $182,648, respectively,
for this service.
The Company distributes its Great American Country ("GAC") network primarily
to cable television systems owned or managed by Jones Intercable. The GAC
network, a 24-hour country music video network, was launched on December 31,
1995. Jones Intercable and its affiliated partnerships paid total license fees
to the Company of $508,701 for the nine months ended September 30, 1996.
Television Programming Expense--Jones Infomercial Networks, Inc.
("Infomercial Networks"), a subsidiary of the Company, provided programming to
Jones Intercable prior to the
F-10
<PAGE>
JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
PIN Venture and, as required under the terms of the affiliate agreement, paid
a fee of approximately 33% of the net revenue generated to the affiliates
which aired the infomercial programming. For the years ended December 31,
1993, 1994 and 1995 and for the nine months ended September 30, 1995 and 1996,
Infomercial Networks paid affiliate fees to Jones Intercable or its systems
totaling $-0-, $237,816, $109,333, $109,333 and $-0-, respectively.
Satellite Delivery and Production Support Expense--Earth Segment provides
playback, editing, duplication and uplinking services primarily to its cable
programming network affiliates. Earth Segment charges affiliates for its
services 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 for the nine months ended September 30, 1995 and 1996, Earth
Segment charged Jones Education and its affiliates $1,041,894, $1,409,136,
$1,884,481, $1,366,347 and $1,487,198, respectively, for these services.
Galactic Radio has a transponder lease agreement with Jones Satellite
Holdings ("Satellite Holdings"), an affiliate of the Company, for the use of
the sub-carriers on a non-preemtible satellite transponder. This agreement
allows Galactic Radio to use a portion of the transponder to distribute its
audio programming. Satellite Holdings has the right to terminate the license
agreement at any time upon 30 days written notice to Galactic Radio. Satellite
Holdings charged $633,000, $633,000, $696,300, $522,225 and $522,225 for the
years ended December 31, 1993, 1994 and 1995 and for the nine months ended
September 30, 1995 and 1996, respectively, for this service.
General and Administrative Expenses--The Company leases and subleases office
space in Englewood, Colorado from affiliates of Jones International. Rent and
associated expenses are allocated to the Company based on the amount of square
footage it occupies. Jones International and its affiliates charged the
Company $-0-, $-0-, $13,507, $10,292, and $22,140, for the years ended
December 31, 1993, 1994 and 1995 and the nine months ended September 30, 1995
and 1996, respectively.
A subsidiary of Jones International provides computer hardware and software
support services to the Company. This subsidiary charged the Company $12,426,
$118,488, $306,400, $232,188 and $258,254, for the years ended December 31,
1993, 1994 and 1995 and the nine months ended September 30, 1995 and 1996,
respectively, for computer services.
The Company and its consolidated subsidiaries reimburse Jones 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. Jones International and its affiliates charged the Company
$217,213, $91,119, $162,605, $137,792 and $195,543, for the years ended
December 31, 1993, 1994 and 1995 and the nine months ended September 30, 1995
and 1996, respectively, for these administrative expenses.
To assist funding its operating and investing activities, the Company has
borrowed funds from Jones International. Jones International charged interest
on its advances to the Company at rates of approximately eight, nine, and 11
percent per annum in 1993, 1994 and 1995, respectively, and approximately 10
percent per annum during the nine months ended September 30, 1996. Jones
International's interest rate is calculated using the published prime rate
plus two percent. Jones International charged the Company interest of $11,399,
$7,892, $141,644, $124,660 and $114,245, for the years ended December 31,
1993, 1994 and 1995 and the nine months ended September 30, 1995, and 1996,
respectively.
F-11
<PAGE>
JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Periodically, Jones 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 advances are then subsequently reimbursed to Jones
International on a timely basis as revenue proceeds are received by the
Company. Due to their short-term nature, such amounts payable to Jones
International are classified as a current liability in the accompanying
financial statements.
In addition, the Company incurred certain expenses related to its satellite
transponder leases with Jones Space Segment, Inc. ("Space Segment"). These
transactions are summarized below. Upon consummation of the offering, these
transactions will no longer be affiliated in nature because the Company is
acquiring the satellite transponder leases and subleases as one of the Pre-
Offering Transactions.
Satellite Delivery and Production Support Expense--The Company entered into
a renewable transponder lease agreement with Space Segment to use a portion of
a satellite transponder to distribute television programming. Space Segment
has the right to terminate the agreement at any time upon 30 days written
notice to the Company. Space Segment charged the Company $800,001, $1,212,672,
$909,504, and $1,278,234, for the years ended December 31, 1994 and 1995 and
the nine months ended September 30, 1995 and 1996, respectively, for this
service.
(5) NOTE PAYABLE
In December 1994, Earth Segment entered into a promissory note with Jones
Intercable. As of September 30, 1996 the principal amount of the note was
$6,554,500. The note is secured by all of Earth Segment's present and future
tangible and intangible property and bears interest at one percent over the
published prime rate. Interest expense, which is payable quarterly, totaled $-
0-, $669,560, $487,764 and $462,866 for the years ended December 31, 1994 and
1995 and the nine months ended September 30, 1995 and 1996, respectively. The
note matures on December 19, 1999. The Company intends to repay this note in
full from the proceeds of the offering.
(6) COMMON STOCK
Voting Rights--The Class A Common Stock has voting rights that are generally
one-twentieth 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 elect that number of directors that constitute at least 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. Mr. Jones directly or beneficially
owns all of the Class B Common Stock.
Stock Split--The Board of Directors has approved a stock split whereby each
share of the Company's Class A Common Stock will be exchanged into 220 shares
of Class A Common Stock and each share Class B Common Stock will be exchanged
into 220 shares of Class B Common Stock. These stock splits have been
reflected retroactively in the accompanying financial statements.
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 service to
the Company. The Plan covers an aggregate of up to 630,000 shares of the
Company's Class A Common Stock. No options or SARs have been granted under the
Plan.
F-12
<PAGE>
JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(7) JOINT VENTURES
The Company is a partner in two joint ventures, the PIN Venture and
Superaudio. The PIN Venture was organized in January 1995 and commenced
operations on February 1, 1995. The PIN Venture owns and operates a 24-hour-a-
day cable television network for the airing of long-form advertising
("infomercials"). Superaudio commenced operations in July 1990 and is a joint
venture which is owned 50 percent by the Company and 50 percent by a third
party. Superaudio provides audio programming services to cable television
system operators and direct broadcast satellite services companies.
Certain condensed financial information for PIN is as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
DECEMBER 31, ----------------------
1995 1995 1996
------------ ---------- ----------
<S> <C> <C> <C>
Total assets............................... $ 703,179 $ 725,109 $1,521,377
Liabilities................................ 765,859 721,271 739,361
Partners' capital (net of accumulated defi-
cit)...................................... (62,680) 3,838 782,016
Revenues................................... 4,110,025 2,903,844 5,712,484
Operating expenses......................... 4,494,842 3,231,968 4,818,959
Operating income (loss).................... (384,817) (328,124) 893,525
Net income (loss).......................... (412,332) (345,814) 844,696
</TABLE>
Certain condensed financial information for Superaudio is as follows:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
-------------------------------- ---------------------
1993 1994 1995 1995 1996
---------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Total assets............ $1,228,721 $1,081,144 $1,156,253 $1,015,551 $1,034,430
Liabilities............. 187,481 316,282 309,949 101,694 26,021
Partners' capital (net
of accumulated
deficit)............... 1,041,240 764,862 846,304 913,857 1,008,409
Revenues................ 1,767,379 1,795,968 1,898,304 1,441,043 1,654,171
Operating expenses...... 1,451,108 1,334,704 1,479,730 954,931 1,187,532
Operating income........ 316,271 461,264 418,574 486,112 466,639
Net income.............. 321,942 473,622 431,442 498,995 462,105
</TABLE>
The PIN Venture and Superaudio reimburse the Company and its affiliates for
certain allocated overhead and administrative expenses. These expenses
generally consist of salaries and related benefits, rent, data processing
services and other corporate facilities costs. The Company and its affiliates
provide engineering, marketing, administrative, accounting, information
management, and legal services to the PIN Venture and Superaudio. Allocations
of personnel costs have been based primarily on actual time spent by the
Company and its affiliates' employees.
Significant transactions for the PIN Venture and Superaudio with affiliated
entities are described below:
Audio Programming Revenue--Superaudio delivers its audio programming to
cable television systems owned by Jones Intercable and its affiliated
partnerships for a monthly fee of $60,000. For the years ended December 31,
1993, 1994 and 1995 and the nine months ended September 30, 1995 and 1996,
Jones Intercable and its affiliates paid Superaudio $720,000, $720,000,
$720,000, $540,000 and $540,000 respectively, for audio programming.
F-13
<PAGE>
JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Audio Programming Expense--The Company sells certain audio programming to
Superaudio. For the years ended December 31, 1993, 1994 and 1995, and the nine
months ended September 30, 1995 and 1996, the Company charged Superaudio
$13,000, $48,000, $55,000, $40,000 and $36,000, respectively, for audio
programming.
Television Programming Expense--The Company charges the PIN Venture a
commission on the sale of airtime for informational programming. For the nine
months ended September 30, 1996, the Company charged the PIN Venture $24,113
for this service.
Prior to January 1, 1997, the PIN Venture generally paid one-half of the
revenues generated by its infomercial programming in the form of cable system
rebates to all Systems which enter into agreements to air such programming.
Amounts paid by the PIN Venture to Jones Intercable and its affiliated
partnerships were $946,391, $706,125 and $784,148 for the year ended
December 31, 1995 and for the nine months ended September 30, 1995 and 1996,
respectively. Beginning on January 1, 1997, the PIN Venture will generally pay
60% of these revenues to such Systems.
Satellite Delivery and Production Support Expense--Earth Segment provides
playback, editing, duplication and uplinking services to the PIN Venture.
Earth Segment charged the PIN Venture $522,384, $379,122 and $492,417 for the
year ended December 31, 1995 and for the nine months ended September 30, 1995
and 1996, respectively, for these services.
The Company has satellite transponder lease agreements with Space Segment
and Satellite Holdings and in turn sub-leases these satellite transponders to
the PIN Venture and Superaudio. The Company charged the PIN Venture
$1,111,616, $808,448 and $639,117 for the year ended December 31, 1995 and for
the nine months ended September 30, 1995 and 1996, respectively, for this
service. The Company charged Superaudio $633,000, $633,000, $633,000, $474,750
and $474,750 for the years ended December 31, 1993, 1994 and 1995 and for the
nine months ended September 30, 1995 and 1996, respectively, for this service.
General and Administrative Expenses--The Company leases office space in
Englewood, Colorado from affiliates of Jones International. Rent and
associated expenses are allocated to the PIN Venture based on the amount of
square footage it occupies. Jones International and its affiliates charged the
PIN Venture $17,662, $7,311, and $16,432, for the year ended December 31, 1995
and the nine months ended September 30, 1995 and 1996, respectively.
A subsidiary of Jones International provides computer hardware and software
support services to the PIN Venture and Superaudio. The subsidiary charged the
PIN Venture $145,562, $117,486 and $110,986, the year ended December 31, 1995
and the nine months ended September 30, 1995 and 1996, respectively, for
computer services. Superaudio was charged $15,512, $6,987, $41,116, $30,632,
and $30,259, the years ended December 31, 1993, 1994 and 1995 and the nine
months ended September 30, 1995 and 1996, respectively, for computer services.
The Company and its subsidiaries reimburse Jones 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. Jones International and its affiliates charged the PIN Venture
$20,924, $9,322 and $89,238, for the year ended December 31, 1995 and the nine
months ended September 30, 1995 and 1996, respectively, for these
administrative expenses. Jones International and its affiliates charged the
Superaudio $25,996, $18,484, $6,378, $5,186, and $8,270, for the years ended
December 31, 1993, 1994 and 1995 and the nine months ended September 30, 1995
and 1996, respectively, for these administrative expenses.
F-14
<PAGE>
JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
To assist funding its operating and investing activities, the PIN Venture
has borrowed funds from Jones International and its affiliates. Jones
International charged interest on its advances to the Company at rates of
approximately 8, 9, and 11 percent per annum in 1993, 1994 and 1995,
respectively, and approximately 10 percent per annum during the nine months
ended September 30, 1996. Jones International's interest rate is calculated
using the published prime rate plus 2 percent. Jones International charged the
PIN Venture interest of $33,042, $17,690 and $23,678 for the year ended
December 31, 1995 and the nine months ended September 30, 1995, and 1996,
respectively.
(8) INCOME TAXES
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
Jones International and Jones 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 Jones International's consolidated taxable income
(loss). Income tax benefits (provisions) recognized as a result of the tax
sharing arrangement were $5,552, $73,408, $302,632, $210,212 and $450,043 for
the years ended December 31, 1993, 1994 and 1995 and the nine months ended
September 30, 1995 and 1996. A current income tax benefit of $450,043 was
recognized by the Company as of September 30, 1996, which assumes Jones
International will utilize substantially all of the Company's tax losses
generated during 1996. Adjustments, if any, will be based upon Jones
International and its subsidiaries actual taxable income for the year ending
December 31, 1996. Pro forma information is presented on the face of the
Statement of Operations as if the Company had filed its tax returns on a
separate company basis.
The difference between the statutory federal income tax rate and effective
rate is summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
------------------- ---------------
1993 1994 1995 1995 1996
----- ----- ----- ------- ------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Computed "expected tax benefit"............ $ 274 $ 610 $ 602 $ 401 $ 412
State taxes, net of federal benefit........ 25 57 56 37 38
Other...................................... 5 10 10 8 --
----- ----- ----- ------- ------
304 677 668 446 450
Valuation allowance........................ (298) (604) (365) (236) --
----- ----- ----- ------- ------
Total income tax benefit................... $ 6 $ 73 $ 303 $ 210 $ 450
===== ===== ===== ======= ======
</TABLE>
F-15
<PAGE>
JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The tax effect of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------- SEPTEMBER 30,
1994 1995 1996
------- ------- -------------
IN THOUSANDS (UNAUDITED)
<S> <C> <C> <C>
DEFERRED TAX ASSETS:
Net operating loss carryforwards............... $ -- $ 312 $ 928
Future deductible amounts associated with other
assets and liabilities........................ 3,964 4,314 5,001
------- ------- -------
3,964 4,626 5,929
DEFERRED TAX LIABILITIES:
Investments in productions, property and equip-
ment.......................................... (264) (327) (340)
VALUATION ALLOWANCE............................ (3,700) (4,299) (5,589)
------- ------- -------
Net deferred tax asset......................... $ -- $ -- $ --
======= ======= =======
</TABLE>
At December 31, 1995, the Company had net tax operating loss carryforwards of
approximately $816,000, which expire between 2004 and 2010. Although management
expects future results of operations to improve, it emphasizes the Company'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 Common
Stock, a change of greater than 50 percent of the ownership interest of the
Company's shares may occur. Tax statutes limit the utilization of existing tax
NOLs when a change greater than 50 percent occurs to a specified amount each
year. The Company 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.
(9) EMPLOYEE INVESTMENT AND DEFERRED COMPENSATION PLANS
The Company's employees are 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 up to 16% of their annual
compensation. The Company currently matches 50% of the employees' deferrals up
to a maximum of 6% of their annual compensation, 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, unless 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 nine months ended
September 30, 1995 and 1996, the Company contributed approximately $-0-, $-0-,
$24,621, $11,463 and $15,774, respectively, to the 401(k) Plan on behalf of its
employees.
Certain of the Company's key management personnel are 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
F-16
<PAGE>
JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 or their beneficiaries 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 $33,409, $33,447, $50,861, $39,836 and $49,469 for the years
ended December 31, 1993, 1994, and 1995 and for the nine months ended
September 30, 1995 and 1996, respectively.
(10) COMMITMENTS
On August 14, 1996, the Company and M. Kane & Company, Inc. ("MKC") entered
into an agreement pursuant to which MKC agreed to provide financial advice and
assistance to the Company about strategic alternatives, including financial
structuring and valuation-related analyses, and in the event that the Company
elected to execute an initial public offering, to assist the Company with its
structure and conduct. In consideration for such services, MKC has received a
$110,000 fee and, beginning as of July 1996, a retainer of $20,000 per month.
MKC is also entitled to advisory fees equal to 1.875% of the gross proceeds of
the Company's initial public offering, which fees are estimated to be $753,750
and will be offset by any fees previously paid by the Company to MKC, as well
as a warrant (the"MKC Warrant") to purchase shares of Class A Common Stock, as
described below. In addition, the Company is required to reimburse MKC for its
reasonable out-of-pocket fees and expenses. This agreement will terminate, if
not extended, on the later of December 31, 1996 or the consummation of the
Company's initial public offering.
The Company has also agreed to issue to MKC the MKC Warrant, which grants
the right for five years to purchase 13,958 shares (16,052 shares if the
Underwriters' over-allotment option is exercised) of the Class A Common Stock
at an exercise price equal to 120% of the initial public offering price. The
MKC Warrant will be exercisable one year after the effective date of the
registration statement relating to the Company's initial public offering. The
exercise price and the number of shares may, under certain circumstances, be
subject to adjustment pursuant to anti-dilution provisions.
(11) SUBSEQUENT EVENTS
The Company has filed a registration statement with the Securities and
Exchange Commission. Currently, the Company owns less than 50 percent of PIN.
Immediately prior to the consummation of the offering, the Company will
acquire from Adelphia an 8.35% percent equity interest in PIN in exchange for
approximately 262,500 shares of the Company's Class A Common Stock. As a
result of this transaction, the Company will own a majority equity interest in
the PIN Venture and will consolidate the PIN Venture for financial reporting
purposes. Also, immediately prior to the consummation of the offering, the
Company will acquire Mr. Jones' 19% equity interest in JINI, the subsidiary
through which the Company has invested in the PIN Venture and Mr. Jones' 19%
equity interest in GAC, the subsidiary through which the Company operates the
GAC network, in exchange for 333,333 shares of the Company's Class A Common
Stock. Also, immediately prior to the consummation of the offering, the
Company will acquire the transponder leases and related subleases owned by
Space Segment, an affiliate of the Company, in exchange for 416,667 of the
Company's Class A Common Stock.
F-17
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Jones International Networks, Ltd.
We have audited the accompanying balance sheets of Product Information
Network Venture (the "Partnership") as of December 31, 1995 and September 30,
1996, and the related statements of operations, partners' capital (deficit)
and cash flows for the eleven months ended December 31, 1995, and the nine
months ended September 30, 1996. These financial statements are the
responsibility of the Partnership'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 Partnership as of
December 31, 1995 and September 30, 1996, and the results of its operations
and its cash flows for the eleven months ended December 31, 1995, and the nine
months ended September 30, 1996, in conformity with generally accepted
accounting principles.
Arthur Andersen LLP
Denver, Colorado
October 25, 1996
F-18
<PAGE>
PRODUCT INFORMATION NETWORK VENTURE
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1995 1996
------------ -------------
<S> <C> <C>
CURRENT ASSETS:
Cash.............................................. $ 16,248 $ 80,158
Accounts receivable............................... 545,522 1,226,298
Allowance for doubtful accounts................... (55,861) (34,131)
-------- ----------
Net accounts receivable......................... 489,661 1,192,167
Prepaid expenses.................................. 8,540 8,399
Other current assets.............................. -- 73,883
-------- ----------
Total current assets............................ 514,449 1,354,607
-------- ----------
FIXED ASSETS (Notes 2 and 5):
Property, plant and equipment..................... 202,258 208,071
Accumulated depreciation.......................... (17,768) (44,640)
-------- ----------
Net fixed assets................................ 184,490 163,431
-------- ----------
OTHER ASSETS........................................ 4,240 3,339
-------- ----------
Total assets.................................... $703,179 $1,521,377
======== ==========
CURRENT LIABILITIES:
Accounts payable--trade........................... $ 10,940 $ 8,819
Advances from Jones Infomercial Network Ventures
(Note 3)......................................... 388,733 343,909
Accounts payable--cable system rebates (Note 2)... 130,032 301,265
Unearned revenue (Note 2)......................... 218,976 14,745
Accrued liabilities............................... 17,178 70,623
-------- ----------
Total current liabilities....................... 765,859 739,361
-------- ----------
PARTNERS' CAPITAL (DEFICIT) (Note 4):
General partners' contribution.................... 349,652 349,652
Retained earnings (accumulated deficit)........... (412,332) 432,364
-------- ----------
Total general partners' capital (deficit)....... (62,680) 782,016
-------- ----------
Total liabilities and partners' capital
(deficit)........................................ $703,179 $1,521,377
======== ==========
</TABLE>
The accompanying notes to these financial statements
are an integral part of these financial statements.
F-19
<PAGE>
PRODUCT INFORMATION NETWORK VENTURE
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE FOR THE FOR THE
ELEVEN MONTHS EIGHT MONTHS NINE MONTHS
ENDED ENDED ENDED
DECEMBER 31, 1995 SEPTEMBER 30, 1995 SEPTEMBER 30, 1996
----------------- ------------------ ------------------
(UNAUDITED)
<S> <C> <C> <C>
REVENUES:
Television programming
revenue.............. $4,110,025 $2,903,844 $5,712,484
OPERATING EXPENSES:
Television programming
expenses
Non-affiliated enti-
ties................ 380,288 310,148 1,159,556
Affiliated entities.. 3,339,011 2,363,135 3,065,727
---------- ---------- ----------
Total video program-
ming expenses...... 3,719,299 2,673,283 4,225,283
General and
administrative
expenses
(Note 3)............. 661,768 482,282 479,183
Selling and market-
ing.................. 113,775 76,403 114,493
---------- ---------- ----------
Total operating ex-
penses............. 4,494,842 3,231,968 4,818,959
---------- ---------- ----------
OPERATING INCOME
(LOSS)................. (384,817) (328,124) 893,525
---------- ---------- ----------
OTHER INCOME (EXPENSE):
Interest expense (Note
3)................... (33,043) (17,690) (23,678)
Other income (loss)... 5,528 -- (25,151)
---------- ---------- ----------
Total other income
(expense).......... (27,515) (17,690) (48,829)
---------- ---------- ----------
NET INCOME (LOSS)....... $ (412,332) $ (345,814) $ 844,696
========== ========== ==========
</TABLE>
The accompanying notes to the financial statements are an integral part of
these financial statements.
F-20
<PAGE>
PRODUCT INFORMATION NETWORK VENTURE
STATEMENTS OF PARTNERS' CAPITAL (DEFICIT)
<TABLE>
<CAPTION>
RETAINED TOTAL
EARNINGS PARTNERS'
CAPITAL (ACCUMULATED CAPITAL
CONTRIBUTIONS DEFICIT) (DEFICIT)
------------- ------------ ---------
<S> <C> <C> <C>
BALANCE, FEBRUARY 1, 1995................. $ -- $ -- $ --
Contributions........................... 349,652 -- 349,652
Net loss................................ -- (412,332) (412,332)
-------- -------- --------
BALANCE, DECEMBER 31, 1995................ 349,652 (412,332) (62,680)
Net income.............................. -- 844,696 844,696
-------- -------- --------
BALANCE, SEPTEMBER 30, 1996............... $349,652 $432,364 $782,016
======== ======== ========
</TABLE>
The accompanying notes to the financial statements
are an integral part of these financial statements.
F-21
<PAGE>
PRODUCT INFORMATION NETWORK VENTURE
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE FOR THE FOR THE
ELEVEN MONTHS EIGHT MONTHS NINE MONTHS
ENDED ENDED ENDED
DECEMBER 31, 1995 SEPTEMBER 30, 1995 SEPTEMBER 30, 1996
----------------- ------------------ ------------------
(UNAUDITED)
<S> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net income (loss)..... $(412,332) $(345,814) $844,696
Adjustments to recon-
cile net income
(loss) to net cash
provided by (used in)
operating activities:
Gain on sale of as-
sets................ (5,528) -- (2,349)
Depreciation and am-
ortization.......... 23,187 21,827 29,510
Net change in assets
and liabilities:
Increase (decrease)
in accounts payable
to Jones Infomercial
Network Ventures.... 388,733 589,294 (44,824)
Increase in accounts
receivable.......... (489,661) (406,030) (702,506)
Increase in prepaid
expenses and other
assets.............. (12,780) (20,392) (72,841)
Increase in accounts
payable--cable
system rebates...... 130,032 87,919 171,233
Increase (decrease)
in deferred revenue
and income.......... 218,976 1,000 (204,231)
Increase in accounts
payable and accrued
liabilities......... 28,118 44,058 51,324
--------- --------- --------
Net cash provided by
(used in) operating
activities......... (131,255) (28,138) 70,012
--------- --------- --------
CASH FLOWS FROM
INVESTING ACTIVITIES:
Purchase of equip-
ment................. (326,203) (316,842) (29,198)
Proceeds from the sale
of equipment......... 124,054 -- 23,096
--------- --------- --------
Net cash used in in-
vesting activi-
ties............... (202,149) (316,842) (6,102)
--------- --------- --------
CASH FLOWS FROM
FINANCING ACTIVITIES:
Contributed capital
from general part-
ners................. 349,652 349,652 --
--------- --------- --------
Net cash provided by
financing
activities......... 349,652 349,652 --
--------- --------- --------
INCREASE IN CASH........ 16,248 4,672 63,910
CASH, BEGINNING OF PERI-
OD..................... -- -- 16,248
--------- --------- --------
CASH, END OF PERIOD..... $ 16,248 $ 4,672 $ 80,158
========= ========= ========
SUPPLEMENTAL CASH FLOW
DISCLOSURES:
Interest paid......... $ 33,043 $ 17,690 $ 23,678
========= ========= ========
</TABLE>
The accompanying notes to the financial statements
are an integral part of these financial statements.
F-22
<PAGE>
PRODUCT INFORMATION NETWORK VENTURE
NOTES TO FINANCIAL STATEMENTS
FOR THE ELEVEN MONTHS ENDED DECEMBER 31, 1995
AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996
(1) ORGANIZATION AND BUSINESS
Product Information Network Venture (the "Partnership"), a partnership
formed under Colorado law, was organized in January 1995 and commenced
operations on February 1, 1995. Jones Infomercial Network Ventures, Inc., a
Colorado corporation ("Network Ventures"), Cox Consumer Information Networks
Inc., a Delaware corporation ("Cox"), and Adelphia Communications Corporation,
a Delaware corporation ("Adelphia") are the partners of the Partnership.
The Partnership owns and operates a 24-hour-a-day cable television network
for the promotion and exhibition of informational advertising
("Infomercials"). Short-form Infomercials range from 30 seconds to 2 minutes
in length and long-form Infomercials are approximately 30 minutes in length.
(2) UNAUDITED INTERIM FINANCIAL STATEMENTS
The interim financial statements as of September 30, 1995 presented in these
financial statements are in conformity with the Securities and Exchange
Commission requirements for unaudited financial statements and do not contain
all of the necessary footnote disclosures required for a fair presentation of
the Statements of Financial Position and Statements of Operations and Cash
Flows in conformity with generally accepted accounting principles. However, in
the opinion of management, this data includes all adjustments, consisting only
of normal recurring accruals, necessary to present fairly the financial
position of the Partnership as of September 30, 1995 and its results of
operations and its cash flows for the nine months ended September 30, 1995.
(3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Property, Plant and Equipment--Property, plant and equipment is depreciated
using the straight-line method over the estimated useful life of five years.
Leasehold improvements are depreciated over the lesser of 5 years or the term
of the lease.
Accounts Payable--Cable System Rebates--Prior to January 1, 1997, the
Partnership generally paid one-half of its net revenues generated by the
Infomercial programming in the form of cable system rebates to the cable
television systems ("Systems") which have entered into agreements to air the
Partnership's programming. Cable system rebates are calculated based on the
following factors: numbers of subscriber hours, channel position, and peak and
non-peak carriage. Cable system rebates are payable to the Systems, except for
Jones Intercable Systems, on or before the fifteenth day following each month
in which the revenues were earned. Cable system rebates payable to the Jones
Intercable Systems are paid in the same month they are earned. Cable system
rebates are accrued as revenues are earned by the Company. Beginning on
January 1, 1997, the PIN Venture will generally pay 60% of these net revenues
to such Systems.
Revenue Recognition--The Partnership generates advertising revenue by
selling airtime to Infomercial providers, advertising agencies and other
organizations who advertise their products or services on the network. The
Partnership recognizes revenue upon airing of the advertisements. The airtime
is sold generally for a fixed amount for a certain block of airtime or on a
per-inquiry basis. Any amounts paid by a customer for an Infomercial that has
not aired during the period is recorded as unearned revenue until such time as
the Infomercial is aired.
F-23
<PAGE>
PRODUCT INFORMATION NETWORK VENTURE
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The Partnership had three major customers during the eleven months ended
December 31, 1995 and the nine months ended September 30, 1996. The related
percentages and total gross revenue are as follows:
<TABLE>
<CAPTION>
FOR THE ELEVEN MONTHS ENDED FOR THE EIGHT MONTHS ENDED FOR THE NINE MONTHS ENDED
DECEMBER 31, 1995 SEPTEMBER 30, 1995 SEPTEMBER 30, 1996
-------------------------------- ------------------------------- -------------------------------
AMOUNT PERCENTAGE AMOUNT PERCENTAGE AMOUNT PERCENTAGE
---------------- --------------- --------------- --------------- ---------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Customer A.............. -- -- -- -- $2,625,367 43%
Customer B.............. $ 997,286 22% $ 810,371 23% 1,022,590 17%
Customer C.............. 599,335 13% 372,591 10% 708,635 12%
Customer D.............. 687,918 15% 450,430 13% -- --
Customer E.............. -- -- 469,721 13% -- --
</TABLE>
In November 1995, the Partnership entered into an agreement to provide a
block of airtime to a new customer (CRN) starting January 1, 1996. The
Partnership agreed to provide, under certain conditions, up to 12 hours a day
of airtime to this new customer for the year ending December 31, 1996, though
initially providing only 6 hours. At September 30, 1996, the Partnership was
providing this customer 8 hours a day of airtime. In August 1996, the
Partnership and this customer entered into a new agreement which specifies the
rates to be charged for 1997. Under this new agreement, if the Partnership has
available airtime and the customer provides 90 days notice, the Partnership
will air up to 12 hours per day of the customer's programming during 1997.
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.
(4) TRANSACTIONS WITH AFFILIATED ENTITIES
Network Ventures is an indirectly owned subsidiary of Jones International
Networks, Ltd. ("Jones International Networks"). Certain members of management
of the Partnership are also officers or directors of other affiliated entities
and, from time to time, the Partnership may have transactions with these
entities. Certain expenses are paid by affiliated entities on behalf of the
Partnership and are allocated at cost based on specific identification or
other reasonable methods. Significant transactions with affiliated entities
are described below.
Television Programming Revenue--The Partnership pays an up to three percent
commission to a subsidiary of Jones International Networks for the sale of
airtime for informational programming. For the eleven months ended December
31, 1995 and the nine months ended September 30, 1995 and 1996, the
Partnership paid commissions of $0, $0 and $24,113, respectively, to this
subsidiary.
F-24
<PAGE>
PRODUCT INFORMATION NETWORK VENTURE
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Television Programming Expenses--Jones Earth Segment, Inc. ("Earth Segment"),
a subsidiary of Jones International Networks, provides playback, editing,
duplication, trafficking and uplinking services primarily to its programming
affiliates. Earth Segment charges affiliates for its services using rates which
are calculated to achieve a specified rate of return on investment to Earth
Segment. For the eleven months ended December 31, 1995 and the nine months
ended September 30, 1995 and 1996, Earth Segment charged the Partnership
$522,384, $379,122 and $492,417, respectively, for these services.
Effective February 1, 1995, the Partnership agreed to pay Jones International
Networks a monthly fee of $101,056 for the use of a non-preemptible transponder
on a domestic communications satellite. The monthly rate decreased to $71,013
in 1996. For the eleven months ended December 31, 1995 and the nine months
ended September 30, 1995 and 1996, the Partnership was charged $1,111,616,
$808,448 and $639,117, respectively, for the transponder.
Prior to January 1, 1997, the Partnership generally paid one-half of the
revenues generated by its infomercial programming in the form of cable system
rebates to all Systems which enter into agreements to air such programming.
Total cable system rebates paid by the Partnership to Jones Intercable and its
affiliated partnerships, Cox and Adelphia systems were $946,391, $669,440 and
$89,180, respectively, for the eleven months ended December 31, 1995. For the
nine months ended September 30, 1995, the Partnership paid Jones Intercable and
its affiliated partnerships, and Cox $706,125 and 469,439, respectively. For
the nine months ended September 30, 1996, the Partnership paid Jones Intercable
and its affiliated partnerships, Cox and Adelphia Systems $784,148, $763,644
and $386,401, respectively. Beginning on January 1, 1997, the PIN Venture will
generally pay 60% of these revenues to such Systems.
General and Administrative--An affiliate of Jones International provides
computer support services to the Partnership. Computer expenses of $145,562,
$117,486 and $110,986 were charged to the Partnership for the eleven months
ended December 31, 1995 and the nine months ended September 30, 1995 and 1996,
respectively.
Jones Intercable owns an office building in Englewood, Colorado which it
leases to Jones International and its affiliates. Jones Intercable allocates
rent to Jones International and its affiliates based on square footage occupied
by each affiliated entity. Rent expense of $17,662, $7,311 and $16,432 was
charged to the Partnership for the eleven months ended December 31, 1995 and
the nine months ended September 30, 1995 and 1996, respectively.
The Partnership reimburses Network Ventures for certain allocated
administrative expenses. These expenses consist primarily of salaries and
related benefits. Allocations of personnel costs are based on actual time spent
by affiliated associates with respect to the Partnership. Such allocated
expenses totaled $20,924, $9,322 and $89,238 for the eleven months ended
December 31, 1995 and the nine months ended September 30, 1995 and 1996,
respectively.
To assist in funding its continuing operations, the Partnership has borrowed
funds from Network Ventures. Network Ventures charged interest in 1995 and 1996
on its advances to the Partnership at a rate of approximately 11 and 10 percent
per annum, respectively, based on the preceding month's balance. Such rate is
calculated using the published prime rate plus 2 percent. Interest charged by
Network Ventures totaled $33,042, $17,689 and $23,678 for the eleven months
ended December 31, 1995 and the nine months ended September 30, 1995 and 1996,
respectively.
(5) CONTRIBUTED CAPITAL
The capitalization of the Partnership is set forth in the accompanying
Statement of Partners' Capital (Deficit). The Partnership was initially formed
with Network Ventures and Cox as partners.
F-25
<PAGE>
PRODUCT INFORMATION NETWORK VENTURE
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Network Ventures and Cox purchased their interests in the Partnership by each
contributing $174,826 and certain cable television affiliate agreements to the
Partnership.
In October 1995, Adelphia joined the Partnership and entered into an
affiliate agreement with the Partnership. Initially, Adelphia launched the
Partnership's programming on cable systems representing approximately 400,000
subscribers. In exchange, Adelphia received a 4 percent interest in the
Partnership, thereby reducing Network Ventures' and Cox's interests to 48
percent each, and is entitled to receive an increasing ownership interest in
the Partnership. Under the terms of the affiliate agreement, when additional
Adelphia cable systems launch the Partnership's programming prior to October
1, 1996, Adelphia will receive an additional one percent for each 100,000
subscribers, up to a total of 10 percent. At September 30, 1996, Adelphia's,
Network Ventures' and Cox's ownership interests were approximately 8 percent,
46 percent and 46 percent, respectively. Prior to April 2, 1998, Adelphia is
also entitled to an additional one-half of one percent ownership interest in
the Partnership for each 100,000 subscribers over and above 1,000,000
subscribers, but not to exceed 15 percent in the aggregate.
Profits, losses and distributions of the Partnership will be allocated in
accordance with their respective ownership interests.
(6) PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1995 1996
------------ -------------
<S> <C> <C>
Leasehold improvements............................ $ 5,052 $ 5,052
Office furniture, fixtures and equipment.......... 9,023 9,023
Computer hardware and software.................... 49,247 56,131
Satellite receivers and other equipment........... 138,936 137,865
-------- --------
Total property, plant and equipment............... 202,258 208,071
Accumulated depreciation and amortization......... (17,768) (44,640)
-------- --------
Net property, plant and equipment................. $184,490 $163,431
======== ========
</TABLE>
(7) INCOME TAXES
Income taxes are not reflected in the accompanying financial statements as
such amounts accrue directly to the partners. The federal and state income tax
returns of the Partnership will be prepared and filed by the General Partners.
The Partnership's tax returns and the amount of distributable Partnership
income or loss are subject to examination by federal and state taxing
authorities. If such examinations result in changes with respect to the
Partnership's tax status, or the Partnership's recorded income or loss, the
tax liability of the General Partners would be adjusted accordingly.
F-26
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Jones International Networks, Ltd.:
We have audited the accompanying statements of net assets to be acquired
from Jones Space Segment, Inc., (the "Space Segment Assets"), as of December
31, 1994 and 1995 and September 30, 1996, and the related statements of
revenues and direct costs and cash flows for each of the three years in the
period ended December 31, 1995 and for the nine months ended September 30,
1996. These financial statements are the responsibility of Jones International
Networks, Ltd.'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 Space Segment Assets as of December 31, 1994 and
1995 and September 30, 1996, and their revenues and direct costs and their
cash flows for each of the three years in the period ended December 31, 1995
and for the nine months ended September 30, 1996, in conformity with generally
accepted accounting principles.
Arthur Andersen LLP
Denver, Colorado
October 25, 1996
F-27
<PAGE>
STATEMENTS OF NET ASSETS TO BE ACQUIRED FROM
JONES SPACE SEGMENT, INC.
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, SEPTEMBER 30,
1994 1995 1996
------------ ------------ -------------
<S> <C> <C> <C>
CURRENT ASSETS:
Cash................................. $ 642,368 $ -- $ --
Accounts receivable.................. 260,000 -- --
----------- ----------- ------------
Total current assets............... 902,368 -- --
----------- ----------- ------------
FIXED ASSETS (Notes 2 & 4)
Leased satellite transponders........ 35,010,454 35,010,454 35,010,454
Less accumulated depreciation....... (6,200,444) (9,117,914) (11,306,015)
----------- ----------- ------------
Total net fixed assets............. 28,810,010 25,892,540 23,704,439
----------- ----------- ------------
Total assets....................... $29,712,378 $25,892,540 $ 23,704,439
=========== =========== ============
LONG-TERM LIABILITIES:
Capital lease obligations (Note 4)... $33,433,602 $32,255,193 $ 31,127,255
Unearned revenue (Note 2)............ 780,000 780,000 780,000
----------- ----------- ------------
Total long-term liabilities........ 34,213,602 33,035,193 31,907,255
NET ASSETS: (4,501,224) (7,142,653) (8,202,816)
----------- ----------- ------------
Total liabilities and net assets... $29,712,378 $25,892,540 $ 23,704,439
=========== =========== ============
</TABLE>
The accompanying notes to the financial statements are an integral part of
these financial statements.
F-28
<PAGE>
STATEMENTS OF REVENUES AND DIRECT COSTS ASSOCIATED WITH THE NET ASSETS TO BE
ACQUIRED FROM JONES SPACE SEGMENT, INC.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE NINE MONTHS
DECEMBER 31, ENDED SEPTEMBER 30,
------------------------------------- ------------------------
1993 1994 1995 1995 1996
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES
Satellite, delivery
and production
support
Non-affiliated
entities (Note 3)... $ 3,349,410 $ 3,120,000 $ 3,119,945 $ 2,339,945 $ 2,340,000
Affiliated entities
(Note 3)............ 2,650,000 2,399,965 2,425,344 1,819,008 1,917,351
----------- ----------- ----------- ----------- -----------
Total revenues...... 5,999,410 5,519,965 5,545,289 4,158,953 4,257,351
----------- ----------- ----------- ----------- -----------
OPERATING EXPENSES
Satellite, delivery
and production
support expenses..... 3,513,546 3,077,469 3,077,386 2,300,519 2,240,602
General and
administrative
expenses (Note 3).... 22,942 667 1,020 532 6,169
----------- ----------- ----------- ----------- -----------
Total operating
expenses........... 3,536,488 3,078,136 3,078,406 2,301,051 2,246,771
----------- ----------- ----------- ----------- -----------
OPERATING INCOME........ 2,462,922 2,441,829 2,466,883 1,857,902 2,010,580
----------- ----------- ----------- ----------- -----------
OTHER INCOME (EXPENSE)
Interest expense...... (3,457,818) (3,390,780) (3,291,591) (2,479,564) (2,382,061)
----------- ----------- ----------- ----------- -----------
Total other expense,
net................ (3,457,818) (3,390,780) (3,291,591) (2,479,564) (2,382,061)
----------- ----------- ----------- ----------- -----------
Income (loss) before
income tax expense..... (994,896) (948,951) (824,708) (621,662) (371,481)
Income tax benefit
(expense).............. 199,565 316,311 195,107 136,909 142,091
----------- ----------- ----------- ----------- -----------
NET INCOME (LOSS)....... $ (795,331) $ (632,640) $ (629,601) $ (484,753) $ (229,390)
=========== =========== =========== =========== ===========
</TABLE>
The accompanying notes to the financial statements are an integral part of
these financial statements.
F-29
<PAGE>
STATEMENTS OF CASH FLOWS ASSOCIATED WITH THE NET ASSETS TO BE ACQUIRED FROM
JONES SPACE SEGMENT, INC.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE NINE MONTHS
DECEMBER 31, ENDED SEPTEMBER 30,
------------------------------------- ------------------------
1993 1994 1995 1995 1996
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net income (loss)..... $ (795,331) $ (632,640) $ (629,601) $ (484,753) $ (229,390)
Adjustments to
reconcile net income
(loss) to net cash
provided by (used in)
operating activities:
Depreciation
expense............. 2,917,469 2,917,469 2,917,470 2,188,102 2,188,101
Net change in assets
and liabilities:
Decrease (increase)
in accounts
receivable......... (260,000) -- 260,000 262,224 --
Decrease in other
assets............. 21,823 -- -- -- --
----------- ----------- ----------- ----------- -----------
Net cash provided by
operating
activities......... 1,883,961 2,284,829 2,547,869 1,965,573 1,958,711
----------- ----------- ----------- ----------- -----------
CASH FLOWS FROM
FINANCING ACTIVITIES:
Repayment of capital
lease obligations.... (532,182) (839,220) (1,178,408) (850,436) (1,127,938)
Funding from the
parent company....... (861,215) (1,515,657) (2,011,829) (1,757,505) (830,773)
----------- ----------- ----------- ----------- -----------
Net cash used in
financing
activities......... (1,393,397) (2,354,877) (3,190,237) (2,607,941) (1,958,711)
----------- ----------- ----------- ----------- -----------
INCREASE (DECREASE) IN
CASH................... 490,564 (70,048) (642,368) (642,368) --
----------- ----------- ----------- ----------- -----------
CASH, BEGINNING OF
PERIOD................. 221,852 712,416 642,368 642,368 --
----------- ----------- ----------- ----------- -----------
CASH, END OF PERIOD..... $ 712,416 $ 642,368 $ -- $ -- $ --
=========== =========== =========== =========== ===========
SUPPLEMENTAL CASH FLOW
DISCLOSURES:
Allocated income tax
benefit (expense).... $ 199,565 $ 316,311 $ 195,107 $ 136,909 $ 142,091
=========== =========== =========== =========== ===========
</TABLE>
The accompanying notes to the financial statements are
an integral part of these financial statements.
F-30
<PAGE>
NET ASSETS TO BE ACQUIRED FROM
JONES SPACE SEGMENT, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996
(1) ORGANIZATION AND BUSINESS
Jones Space Segment, Inc., a wholly-owned subsidiary of Jones International,
Ltd. ("Jones International"), was incorporated on October 16, 1987. Jones
Space Segment, Inc. leases two domestic communications satellite transponders
from a third party and in turn subleases the satellite transponders to several
affiliated entities and to a third party. In connection with an initial public
offering of its Common Stock, Jones International Networks, Ltd. ("Jones
International Networks"), a wholly-owned subsidiary of Jones International,
intends to acquire the satellite transponder leases and related subleases
(Such leases and subleases are referred to as the "Space Segment Assets")
owned by Jones Space Segment Inc. The accompanying financial statements have
been derived from the historical financial statements of Jones Space Segment,
Inc.
(2) UNAUDITED INTERIM FINANCIAL STATEMENTS
The interim financial statements as of September 30, 1995 presented in these
financial statements are in conformity with the Securities and Exchange
Commission requirements for unaudited financial statements and do not contain
all of the necessary footnote disclosures required for a fair presentation of
the Statements of Financial Position and Statements of Operations and Cash
Flows in conformity with generally accepted accounting principles. However, in
the opinion of management, this data includes all adjustments, consisting only
of normal recurring accruals, necessary to present fairly the financial
position of the Space Segment Assets as of September 30, 1995 and its results
of operations and its cash flows for the nine months ended September 30, 1995.
(3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Property and Equipment--Property and equipment is depreciated using the
straight-line method over the estimated useful lives of the assets. Leased
transponders are capitalized and amortized over the term of the leases which
are 12 years.
Unearned Revenue--Unearned revenue consists of advance payments and a
security deposit on the leased transponders.
Revenue Recognition--Space Segment generates revenue by leasing space on two
domestic satellite transponders to several affiliated entities and to a third
party.
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--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), was adopted effective January 1,
1996 as to the Space Segment Assets. SFAS 121 establishes accounting standards
for the impairment of long-lived assets, certain identifiable intangibles and
goodwill. Implementation of SFAS 121 had no material effect on the financial
position or results of operations of the Space Segment Assets.
F-31
<PAGE>
NET ASSETS TO BE ACQUIRED FROM
JONES SPACE SEGMENT, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(4) TRANSACTIONS WITH AFFILIATED ENTITIES
Jones Space Segment, Inc. is a subsidiary of Jones International, a holding
company with ownership interests in several companies involved in various
aspects of the telecommunications industry. Jones International is wholly
owned by Glenn R. Jones, Chairman and Chief Executive Officer of Jones
International. Jones International and Glenn R. Jones own a controlling
interest in Jones Intercable, Inc. ("Jones Intercable") and in a number of
other subsidiaries. Certain members of management of Jones Space Segment, Inc.
are also officers or directors of these affiliated entities and, from time to
time, Jones Space Segment, Inc. may have transactions with these entities.
Certain expenses are paid by affiliated entities on behalf of Jones Space
Segment, Inc., and are allocated at cost based on specific identification or
other methods which management believes are reasonable. Principal recurring
transactions are described below:
Satellite Rental, Uplinking and Other Revenue--Jones International Networks
and Jones Computer Network, Ltd. sublease a non-preemptible transponder, which
sublease is part of the Space Segment Assets. Transponder lease revenue of
$2,650,000, $2,399,965, $2,425,344, $1,819,008, and $1,917,351, was received
from affiliates for the years ended December 31, 1993, 1994, and 1995 and the
nine months ended September 30, 1995 and 1996, respectively.
Interest Income--Jones International was charged interest on its advances
with respect to the Space Segment Assets at rates of approximately 8, 9, and
11 percent per annum in 1993, 1994 and 1995, respectively, and approximately
11 and 10 percent per annum during the nine months ended September 30, 1995
and 1996, respectively. The interest rate on such advances is calculated using
the published prime rate plus two percent. Total interest related to such
advances for the years ended December 31, 1993, 1994 and 1995 and the nine
month periods ended September 30, 1995 and 1996, was $148,338, $338,882,
$513,634, $362,542 and $413,980, respectively.
(4) CAPITAL LEASE
The Space Segment Assets are comprised, in part, of a lease agreement which
provides two non-preemptible satellite transponders, one on each of two
satellites launched in 1992. The lease provides for full time usage of two
transponders for 12 years. These satellite transponders are subleased to
several affiliated entities and to a third party.
Future minimum payments under this capital lease, together with the present
value of the minimum lease payments, are as follows:
<TABLE>
<S> <C>
October to December, 1996..................................... $ 1,180,000
1997.......................................................... 4,950,000
1998.......................................................... 5,190,000
1999.......................................................... 5,430,000
2000.......................................................... 5,670,000
Thereafter.................................................... 24,225,000
-----------
Future minimum payments....................................... 46,645,000
Less amount representing interest............................. 15,517,745
-----------
Present value of minimum lease payments....................... $31,127,255
===========
</TABLE>
F-32
<PAGE>
NET ASSETS TO BE ACQUIRED FROM
JONES SPACE SEGMENT, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(5) INCOME TAXES
The Space Segment Assets are included as part of a consolidated tax return,
as provided for under the terms of a tax sharing agreement with Jones
International and Jones 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 Jones International's consolidated taxable income
(loss). Income tax benefit (expense) recognized as a result of the tax sharing
arrangement was $165,157, $201,114, $77,742, $70,147 and $(16,256) for the
years ended December 31, 1993, 1994 and 1995, and the nine months ended
September 30, 1995 and 1996, respectively.
F-33
<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 AU-
THORIZED 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 SECURI-
TIES 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 PROSPEC-
TUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IM-
PLICATION 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.............................................................. 9
Use of Proceeds........................................................... 19
Dividend Policy........................................................... 19
Capitalization............................................................ 20
Dilution.................................................................. 21
Selected Consolidated Financial Data...................................... 22
Pro Forma Selected Consolidated Financial Data ........................... 23
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 24
Business.................................................................. 38
Management................................................................ 49
Certain Relationships and Related Transactions............................ 57
Principal Shareholder..................................................... 61
Description of Capital Stock.............................................. 62
Shares Eligible for Future Sale........................................... 64
Underwriting.............................................................. 66
Legal Matters............................................................. 68
Experts................................................................... 68
Additional Information.................................................... 68
Index to Pro Forma Financial Statements................................... P-1
Index to Historical Financial Statements.................................. F-1
</TABLE>
UNTIL , 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS) ALL DEALERS
EFFECTING TRANSACTIONS IN THE CLASS A COMMON STOCK, WHETHER OR NOT PARTICIPAT-
ING 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.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
3,350,000 SHARES
[LOGO OF JONES INTERNATIONAL NETWORKS, LTD. APPEARS HERE]
JONES INTERNATIONAL
NETWORKS, LTD.
CLASS A COMMON STOCK
----------------
PROSPECTUS
----------------
OPPENHEIMER & CO., INC.
HAMBRECHT & QUIST
M. KANE & COMPANY, INC.
, 1997
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<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 $753,750 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............................................. $ 15,177
National Association of Securities Dealers, Inc. Filing Fee...... 5,509
Nasdaq Listing Application Fee................................... 33,500
Blue Sky Fees and Expenses (including legal fees)................ 25,000
Printing Expenses................................................ 125,000
Legal Fees and Expenses.......................................... 150,000
Accountants' Fees and Expenses................................... 100,000
Transfer Agent and Registrar Fees................................ 20,000
Miscellaneous Expenses........................................... 175,814
--------
Total.......................................................... 650,000
========
</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 for: (i) a breach of
the director's duty of loyalty to the Company or its shareholders, (ii) acts
or omissions by the director not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) a willful or negligent
declaration of an unlawful distribution or (iv) 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 expenses 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.
II-1
<PAGE>
Section 7 of the Underwriting Agreement (to be filed as Exhibit 1.1 hereto)
provides that the Underwriters will indemnify and hold harmless the Company
and its 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 220-for-1 stock-split):
Effective September 30, 1996, the Company acquired its playback, trafficking
and uplinking facilities through the purchase of all of the outstanding common
stock of Jones Earth Segment, Inc. from Glenn R. Jones and Jones
International, Ltd. for 110,833 shares and 472,500 shares, respectively, of
Class A Common Stock.
In August 1996, the Company agreed to grant a warrant to M. Kane & Company,
Inc. ("MKC") to purchase 13,958 shares (16,052 shares if the Underwriters'
over-allotment option is exercised in full) of the Class A Common Stock at an
exercise price equal to 120% of the initial public offering price of the Class
A Common Stock. In connection with the warrant, MKC will receive certain
registration rights that provide, among other things, that MKC will have one
demand registration right and unlimited piggy-back registration rights
relating to the shares of Class A Common Stock underlying the warrant.
Immediately prior to the consummation of this offering, the Company will
acquire: (i) an 8.35% equity interest in the PIN Venture from Adelphia
Communications Corporation in exchange for approximately 262,500 shares of
Class A Common Stock, (ii) Glenn R. Jones' 19% equity interests in Jones
Infomercial Networks, Inc. and Great American Country, Inc. in exchange for
333,333 shares of Class A Common Stock and (iii) certain transponder leases
and related subleases owned by Space Segment in exchange for 416,667 shares of
Class A Common Stock.
The Company issued (or will issue) 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.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
1.1* Form of Underwriting Agreement
3.1** Articles of Incorporation of the Company
3.2** Bylaws of the Company
3.3* Articles of Incorporation of the Company, as amended
4.1** Form of Class A Common Stock Certificate
4.2* Warrant Purchase Agreement, dated , 1996, between the Company
and M. Kane & Company, Inc.
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 Promissory Note dated December 19, 1994 in the amount of $6,554,500
from Jones Earth Segment, Inc. to Jones Spacelink, Ltd. (assumed by
the Company on September 30, 1996)
10.2 Letter Agreement dated August 14, 1996, between the Company and M.
Kane & Company, Inc.
10.3** The Company's 1996 Stock Option Plan
10.4+ Cable Sales Representation Agreement dated April 15, 1996, between
MediaAmerica, Inc. and Great American Country, Inc.
10.5+ Sales Representation Agreement dated November 1, 1995, between
MediaAmerica, Inc. and the Company
10.6+ Sales Representation Agreement dated December 1, 1995, between
MediaAmerica, Inc. and Jones Satellite Networks, Inc.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
10.7 Purchase and Sale Agreement dated August 9, 1996, between Jones
Global Group, Inc. and the Company
10.8+ Partnership Agreement of Galactic/Tempo dated May 7, 1990, between
Tempo Sound, Inc. and Galactic Radio Partners, Inc.
10.9+ Amended and Restated Partnership Agreement of Product Information
Network Venture dated October 1, 1995, among Jones Infomercial
Network Ventures, Inc., Cox Consumer Information Network, Inc. and
Adelphia Communications Corporation
10.10+ Affiliate Agreement dated January 1, 1996, among Great American
Country, Inc., Jones Programming Services, Inc. and Jones
Intercable, Inc.
10.11 Galaxy V Satellite Transponder Agreement, dated January 1, 1995,
among Jones Satellite Holdings, Jones Galactic Radio and Mind
Extension University.
10.12 Amended and Restated Affiliate Agreement dated August 1, 1994,
between Jones Infomercial Networks, Inc. and Jones Intercable,
Inc.
10.13+ Affiliate Agreement dated January 31, 1995, between Product
Information Network Venture and Cox Communications, Inc.
10.14+ Agreement dated May 1, 1995, between Product Information Network
and National Media Corporation.
10.15+ Letter Agreement dated August 23, 1996, between Product
Information Network and Seventh Medium, Inc.
10.16 License Agreement dated January 31, 1995, between Jones
International, Ltd. and Product Information Network Venture
10.17 Uplink Services Agreement dated January 1, 1995, among Jones Earth
Segment, Inc., Jones Infomercial Networks, Inc., Jones Computer
Network, Ltd., Mind Extension University, Inc. and Jones Galactic
Radio, Inc.
10.18 Transponder License Agreement dated January 1, 1995, among Jones
Space Segment, Inc., Jones Infomercial Networks, Inc. and Jones
Computer Network, Ltd.
10.19+ Satellite Transponder Service Agreement dated July 28, 1989,
entered into by Jones Space Segment, Inc.
10.20+ Transponder License Agreement dated October 28, 1992, between
Jones Space Segment, Inc. and Deutsche Welle
10.21 Tax Allocation Agreement dated August 28, 1992, among Jones
International, Ltd. and certain of its subsidiaries
10.22 Exchange Agreement relating to Jones Earth Segment, Inc. dated
September 30, 1996, between Glenn R. Jones, Jones International,
Ltd. and the Company.
10.23 Agreement dated November 6, 1996, between Jones Space Segment,
Inc. and the Company
10.24 Agreement dated November 6, 1996, between Glenn R. Jones and the
Company
10.25 Agreement dated January 7, 1997, between Adelphia Communications
Corporation and the Company
10.26 Services Agreement dated January 1, 1995, among Jones Earth
Segment, Jones Infomercial Networks, Jones Computer Network and
Mind Extension University.
21 ** Subsidiaries
23.1 Consent of Arthur Andersen LLP
23.2* Consent of Davis, Graham & Stubbs LLP (See Exhibit 5.1)
23.3** Consent of Gary D. Edens
23.4** Consent of Michael L. Pandzik
24 ** Power of Attorney
27 ** Financial Data Schedule
</TABLE>
- --------
* To be filed by amendment.
**Filed previously.
+ Filed herewith, portions of this exhibit have been omitted pending a
determination by the Securities and Exchange Commission that certain
information contained therein shall be afforded confidential treatment.
II-3
<PAGE>
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 Underwriting 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,
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the Company's bylaws, articles of incorporation or the
Underwriting 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 Securities 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 Securities 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,
the information omitted from the form of prospectus filed as part of this
registration statement in reliance 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, 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-4
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THE
REGISTRANT HAS DULY CAUSED THIS AMENDMENT NO. 1 TO A REGISTRATION STATEMENT ON
FORM S-1 (FILE NO. 333-15657) TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED,
THEREUNTO DULY AUTHORIZED, IN THE CITY OF ENGLEWOOD, STATE OF COLORADO, ON
JANUARY 10, 1997.
Jones International Networks, Ltd.
/s/ Gregory J. Liptak
By: _________________________________
GREGORY J. LIPTAK
PRESIDENT
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THIS
AMENDMENT NO. 1 TO A REGISTRATION STATEMENT ON FORM S-1 (FILE NO. 333-15657)
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 January 10, 1997
- ------------------------------------- Board of Directors
GLENN R. JONES
/s/ Gregory J. Liptak President and January 10, 1997
- ------------------------------------- Director (Principal
GREGORY J. LIPTAK Executive Officer)
/s/ Jay B. Lewis* Group Vice January 10, 1997
- ------------------------------------- President/Chief
JAY B. LEWIS Financial Officer
and Director
(Principal
Financial Officer)
/s/ Keith D. Thompson* Chief Accounting January 10, 1997
- ------------------------------------- Officer (Principal
KEITH D. THOMPSON Accounting Officer)
*By: /s/ Gregory J. Liptak
-------------------------
GREGORY J. LIPTAK
ATTORNEY-IN-FACT
</TABLE>
II-5
<PAGE>
Exhibit 10.1
PROMISSORY NOTE
---------------
$6,554,500 Englewood, Colorado
December 19, 1994
FOR VALUE RECEIVED, the undersigned, JONES EARTH SEGMENT, INC., a
Colorado corporation ("Borrower"), promises to pay to the order of JONES
SPACELINK, LTD., a Colorado corporation ("Spacelink") on or before December 19,
1999, the principal sum of Six Million Five Hundred Fifty-Four Thousand Five
Hundred Dollars ($6,554,500), together with interest on the unpaid principal
amount from time to time outstanding at the rate per annum equal to one percent
(1%) over the prime rate of interest charged from time to time by Colorado
National Bank (the "Bank") from the date hereof until all amounts hereunder are
paid in full. The effective date of each change in the interest rate on this
Note shall be the date on which a change in the Bank's prime rate is effected.
Interest, based on a 360-day year, shall be accrued for the number of days the
principal sum (or any portion thereof) is actually outstanding.
Payments of interest only shall be due and payable quarterly on August 31,
November 30, February 28 and May 31 of each year, and such payments shall be
made to Spacelink at its corporate office in immediately available funds without
setoff, counterclaim or other deduction of any nature.
Notwithstanding the face amount of this Note, Borrower's liability
hereunder shall be limited at all times to its actual aggregate outstanding
indebtedness to Spacelink, consisting of outstanding principal and interest
hereunder and all fees and costs provided for herein.
If any payment of principal or interest hereunder shall become due on a
day which is not a business day, such payment shall be made on the next
following business day. Failure of Borrower to pay the interest when due shall
be considered an event of default under this Note. If such default continues for
five (5) days after notice of default from Spacelink, the entire balance of the
indebtedness evidenced hereby will become due and payable at once, at the option
of Spacelink.
<PAGE>
If the principal amount of this Note shall not be paid when due, the
principal amount and accrued interest shall, from and after the default date,
bear interest at the rate eighteen percent (18%) per annum. Borrower agrees to
pay reasonable attorneys' fees and all other reasonable costs and expenses
incurred in the enforcement of this Note, and the collection of amounts due
hereunder, whether such enforcement or collection is by court action or
otherwise.
Other than as provided in this Note, Borrower waives demand for payment,
presentment for payment, notice of nonpayment or dishonor, protest and notice of
protest. No renewal or extension of this Note, no delay in the enforcement
hereof, and no delay or omission in exercising any right or power hereunder,
shall affect the liability of Borrower. No delay or omission by Spacelink in
exercising any power or right hereunder shall impair such right or power or be
construed to be a waiver of any default, nor shall any single or partial
exercise of any power or right hereunder preclude any or the full exercise
thereof or the exercise of any other right or power. Each legal holder shall
have and may exercise all the rights and powers given to Spacelink.
Payment of the obligations evidenced by this Note is secured by (i) a deed
of trust of even date hereof granting a security interest in certain real
property situated in Douglas County, Colorado and (ii) a security interest in
certain property more particularly described in a Security Agreement of even
date hereof.
THIS PROMISSORY NOTE SHALL BE GOVERNED BY THE LAWS OF THE STATE OF
COLORADO.
Attest: JONES EARTH SEGMENT, INC.
/s/ Mary Kay Rohrer By /s/ Elizabeth M. Steele
- ------------------------- ---------------------------------
Mary Kay Rohrer Elizabeth M. Steele
Assistant Secretary Vice President
(Corporate Seal)
For value received, the undersigned hereby unconditionally guarantees the
payment of this Note and all extensions or renewals thereof, and all expenses,
including reasonable attorneys' fees and legal expenses, incurred in the
2
<PAGE>
collection thereof, the enforcement of rights under any security therefor and
the enforcement hereof, and waives presentment, demand, notice of dishonor,
protest and all other notices whatsoever and agrees that the holder of said Note
may from time to time extend or renew said Note for any period (whether or not
longer than the original period of said Note) and grant any releases,
compromises or indulgences with respect to said Note or any extension or renewal
thereof or any security therefor or to any party liable thereunder or hereunder,
all without notice to or consent of any of the undersigned and without affecting
the liability of the undersigned hereunder.
Attest: JONES INTERNATIONAL, LTD.
/s/ Mary Kay Rohrer By /s/ ROBERT S. ZINN
- ------------------------- ----------------------------------
Mary Kay Rohrer Name: Robert S. Zinn
Assistant Secretary -------------------------------
Title: VICE PRESIDENT/CEO of AFFAIRS
------------------------------
Pay to the order of Jones Intercable, Inc.
Dated: December 20, 1994
JONES SPACELINK, LTD.
By: /s/ Gregory J. Liptak
---------------------------
Gregory J Liptak, President
3
<PAGE>
Exhibit 10.2
M. KANE & COMPANY, INC.
INVESTMENT BANKERS
10877 Wilshire Boulevard Suite 603
Los Angeles, CA 90024-9998
(310) 208-1166
Member: NASD/SIPC
August 14, 1996
The Board of Directors
Jones International Networks, Inc.
9697 East Mineral Avenue
Englewood, CO 80112
Attention: Mr. Greg Liptak
President CONFIDENTIAL
This letter agreement ("Agreement") confirms the engagement of M. KANE &
COMPANY, INC., ("MK") by Jones International 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:
<PAGE>
August 14, 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 IP0 (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 IP0 (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 Advisory
<PAGE>
August 14, 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 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 the lesser of $110,000 or 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 over-allotment 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
the Company's co-manager of the IPO to be entitled to receive any of the
Success Fees pursuant to this paragraph;
- ---------------------------------------
M. KANE & COMPANY, INC.
INVESTMENT BANKERS
Complex Business, Technology or Transaction: Resourceful Financial Advisory
<PAGE>
August 14, 1996
Page 4
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 Indemnification. 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
(excluding any periods of suspension), or December 31, 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 pursuant hereto prior either to the date of: 1) receipt of
notice of termination; or 2) expiration of the
- ---------------------------------------
M. KANE & COMPANY, INC.
INVESTMENT BANKERS
Complex Business, Technology or Transaction: Resourceful Financial Advisory
<PAGE>
August 14, 1996
Page 5
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>
August 14, 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. 20th day of August, 1996.
---- ------
JONES INTERNATIONAL NETWORKS, INC.
By:/s/ Michael W. Kane
-------------------------- By: /s/ Greg Liptak
Michael W. Kane, President -----------------------
Greg Liptak
President
- ---------------------------------------
M. KANE & COMPANY, INC.
INVESTMENT BANKERS
Complex Business, Technology or Transaction: Resourceful Financial Advisory'
<PAGE>
August 14, 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 circumstances
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 negligence, 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 Party 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 10.4
Portions of this exhibit have been omitted pending a determination by the
Securities and Exchange Commission that certain information contained herein
shall be afforded confidential treatment. The omitted portions are indicated by
three asterisks.
<PAGE>
CABLE SALES REPRESENTATION AGREEMENT
------------------------------------
This Agreement dated and effective as of April 15, 1996, between
MEDIAAMERICA, INC., a New York corporation with an address at 11 West 42nd
Street, New York, NY 10036 ("MAI") and GREAT AMERICAN COUNTRY, INC., a Colorado
corporation with an address at 9697 East Mineral Avenue, Englewood, CO 80112
("G*A*C"). The parties hereto agree as follows:
1. Engagement. Pursuant to the terms and conditions of this Agreement,
----------
G*A*C hereby engages MAI as G*A*C's exclusive sales representative (except as
provided in Section 8) during the term of this Agreement through the area served
by the Network (as defined below), such area to be known as the "Territory", in
respect of advertising sales for the Network. The Territory shall be the United
States. MAI hereby accepts the engagement and by doing so agrees to render those
services customarily rendered by first-class sales representatives in the U.S.
in the cable television industry. MAI's services hereunder shall be non-
exclusive, it being understood and agreed that MAI is entitled to be the sales
representative for services, producers and distributors other than G*A*C.
2. The Network. The Network to be represented by MAI hereunder is a 24
-----------
hour a day cable network playing country music videos entitled "Great American
Country" containing a minimum of four minutes of national advertising per hour.
G*A*C shall promptly advise MAI of any additional such formats or changes to the
formats and broadcast times/dates.
3. Parties' Obligations.
--------------------
3.1. MAI shall render its services hereunder with respect to all
national advertising time, as defined herein and
acknowledging grandfathered exclusions as specified
<PAGE>
in Exhibit A, to be inserted during the broadcasting of the
Network (the "Advertisements"). In furtherance of its
responsibilities hereunder, MAI will use its best efforts to
promote the Network, maximize and collect Gross Sales (as
defined below) derived from the Advertisements, and
coordinate its sales activities with G*A*C personnel.
3.2. MAI shall render the following services, without limitation,
at MAI's sole expense:
3.2.1. engage in customary sales promotion activities to sell
the Advertisements;
3.2.2. negotiate and enter into agreements with, and pay
commissions to, all advertising agencies and
advertisers respecting the sale of the Advertisements.
All orders for Advertisements shall be acceptable to
G*A*C in its sole discretion. MAI shall furnish to
G*A*C promptly upon execution, copies of all
agreements entered into by MAI with respect to the
Advertisements. MAI shall make no sales of
Advertisements for any period which would extend
beyond the termination of this Agreement (whether by
expiration of its term or as a result of notice)
without first receiving the written consent of G*A*C.
3.3. MAI will provide information on sales to G*A*C as each sale
is made. The G*A*C log will close at 5
-2-
<PAGE>
P.M. Mountain Time each Thursday for the broadcast week
beginning a week from the following Monday. Any advertising
time within that broadcast week remaining unsold by MAI at
closing will revert to G*A*C. Completed sales orders for each
broadcast week along with appropriate television spots will
be furnished by MAI to G*A*C one week in advance on the
Monday preceding the Monday on which the broadcast begins.
3.4 MAI shall by notice advise G*A*C at least ten (10) days
before entering into any agreement to render services
comparable to those of MAI under this Agreement to any cable
television network. Such notice shall identify the
contracting party and shall confirm that MAI will observe the
provisions of Section 4.6 of this Agreement if they become
applicable as a result of such other agreement.
4. Gross Sales; Compensation to MAI.
--------------------------------
4.1. "Gross Sales" shall mean any and all revenues and income and
other consideration derived from the sales of advertising
time, including sales of advertising on G*A*C's World Wide
Web site as hereinafter defined in Section 8.(b)., by MAI
hereunder in respect of the Advertisements pursuant to all
contracts obtained by MAI during the term of this Agreement.
"Adjusted Gross Sales" shall mean Gross Sales less only
advertising agency or media buying service
-3-
<PAGE>
commissions (not to exceed 15 percent) actually paid by MAI
to unaffiliated third parties. "Subscriber Advertising Value"
shall mean the monetary value agreed upon by the parties from
time to time during the term hereof which is to be ascribed
to each full-time subscriber of G*A*C and which for the
period commencing as of June 1, 1996 and ending on December
31, 1997 shall be deemed to be $0.50. "Threshold Amount"
shall mean (i) with respect to the period from June 1, 1996
to December 31, 1996, $125,000; and (ii) with respect to each
calendar year of the term or any renewal thereof, and agreed
to in advance by both parties, an amount equal to the product
of the then applicable Subscriber Advertising Value and the
Network's full-time subscriber base at December 31 of the
year preceding the calendar year for which such calculation
is being made.
4.2. MAI shall render bills in respect of all Gross Sales within
five (5) business days after the end of the advertising
schedule or the Standard Broadcast month in which the Network
is broadcast and shall directly receive and use its best
efforts to collect one hundred percent (100%) of all Adjusted
Gross Sales. Copies of such bills shall be mailed
concurrently to G*A*C.
4.3. As compensation for its services under this Agreement, MAI
shall receive (i) *** of all collected Adjusted Gross Sales
for
-4-
<PAGE>
Advertisements booked and run for the period April 1, 1996 to
December 31, 1996 and for each calendar year of the term
thereafter up to the applicable Threshold Amount and (ii)
*** of the excess over the applicable Threshold Amount of all
collected Adjusted Gross Sales for Advertisements booked and
run for the period June 1, 1996 to December 31, 1996 and for
each calendar year of the term thereafter.
4.4. MAI shall account to G*A*C with respect to collected Adjusted
Gross Sales as and when received from advertisers or
agencies, but in no event less often than monthly, commencing
thirty (30) days after broadcast of the advertising schedule
on the Network for as long as bills are outstanding. MAI
shall remit G*A*C's share of Adjusted Gross Sales on a weekly
basis for checks that were received by MAI that week. Copies
of corresponding advertiser/ad agency checks will be
forwarded to G*A*C along with G*A*C's share of Adjusted Gross
Sales. A complete, detailed accounts receivable report will
be forwarded to G*A*C on a monthly basis, within ten (10)
days after the end of each month.
4.5. It is expressly agreed that as to the percentage amounts of
Adjusted Gross Sales which MAI has the right to receive
pursuant to Section 4.2 above and
-5-
<PAGE>
which, if received and collected, it shall remit to G*A*C
pursuant to this Agreement, MAI shall receive such funds in
trust for and on behalf of G*A*C. MAI shall have no ownership
interest in any of such amounts and such amounts shall not be
available to any of the creditors of MAI.
4.6. ***
4.7. The parties mutually agree to keep confidential the
compensation payable under Section 4 of this Agreement,
except if disclosure is required by law (including securities
law disclosure requirements), or if such information is
disclosed by MAI or is in the public domain.
5. Employees.
----------
5.1. Neither G*A*C nor any of its subsidiaries, partners, joint
venturers, employees or agents shall employ or offer to
employ any of the current staff of MAI for a period of one
(1) year from the termination of this Agreement for any
reason.
5.2. Neither MAI nor any of its subsidiaries, partners, joint
venturers, employees or agents shall employ or offer to
employ any of the current staff of G*A*C for a period of one
(1) year from the termination of this
-6-
<PAGE>
Agreement for any reason unless: (i) prior to the termination
of this Agreement, G*A*C shall have assigned its rights and
obligations hereunder pursuant to the provisions of Section
11.2, below, or (ii) if this Agreement is terminated because
the Network has been discontinued by G*A*C.
6. Books and Records. G*A*C shall have the right to examine all of
-----------------
MAI's books, records and other information relative to the sale of the Network
Advertisements, the booking and collection of the Network's Gross Sales, the
calculation of Adjusted Gross Sales, the relative contributions by G*A*C vis-a-
vis others pursuant to Section 4.6 and all related matters upon reasonable
advance written notice to MAI at any time and at a reasonable frequency, and
shall have the right to commence arbitration thereon within one (1) year after
the termination of this Agreement. In the event G*A*C's examination of MAI's
books and records reveals an underpayment to G*A*C, then MAI shall promptly pay
any underpayment.
7. Term of the Agreement.
----------------------
7.1. The initial term of this Agreement shall commence as of
April 15, 1996, and shall continue through and including
December 31, 1998, unless sooner terminated as provided in
this Agreement. At the end of the initial term, the
agreement shall automatically be renewed for an additional
three (3) year period, unless either party has notified the
other in writing of its intention not to renew by no later
than October 1, 1998.
-7-
<PAGE>
7.2. For any renewal term, in the event that Gross Sales hereunder
are less than the Threshold Amount, as defined in Section 4.1
above, with respect to any given calendar year, G*A*C shall
have the right to terminate this Agreement by giving at least
sixty (60) days notice of such termination at any time after
the calendar year then expiring.
7.3. Upon the termination of this Agreement for any reason, if
G*A*C (or its designee) shall collect Gross Sales derived
from any contracts obtained by MAI during the term of this
Agreement, G*A*C shall pay MAI the appropriate percentage (as
determined under Section 4.3) of the Adjusted Gross Sales
after deductions permitted herein (if any) and for which MAI
shall continue to perform services, and MAI shall turn over
all relevant records to G*A*C relating to the Network or sale
of Advertisements. Each party agrees to cooperate during a
transitional period from one sales organization to another.
8. Rights of G*A*C to Hire Other Sales Representative.
---------------------------------------------------
(a) Notwithstanding any other provision of this Agreement, if the
notice referred to in Section 7.1 is given by either party, G*A*C shall have the
right at any time thereafter to hire another representative to sell advertising
on its behalf prior to the termination of the Agreement. Such other
representative may begin such activities immediately, provided that the
advertising to be sold by it shall only be for periods on or after January 1,
1999.
-8-
<PAGE>
(b) MAI shall not be G*A*C's exclusive sales representative with
respect to those accounts listed and described on Schedule A attached hereto and
made a part hereof. In addition, MAI shall have the non-exclusive right to sell
Advertisements for use on G*A*C's World Wide Web site, currently located at
www.countrystars.com. In addition, MAI shall have the non-exclusive right to
sell specific "per inquiry" advertising with the prior approval of G*A*C.
9. Meetings. The parties shall meet four (4) times each' calendar
--------
year during the term of this Agreement for the purpose of reviewing the -
performance of MAI and the working relationship of the parties.
10. Representations. Warranties and Indemnification. Each party
-----------------------------------------------
hereby represents and warrants that it has the full power and authority to enter
into this Agreement and to perform its obligations hereunder. G*A*C will use its
best efforts to obtain all releases, authorizations, consents and waivers
necessary for authorization to broadcast the material to be included in the
Network. G*A*C hereby agrees to indemnify MAI from and against any claims made
for unauthorized use by any persons, their heirs, assigns and the estates of any
such persons, whose names, voices or material are to be included in the Network,
and from and against any other losses resulting from a breach by G*A*C of these
representations and warranties. Each party hereby agrees to indemnify and hold
harmless the other party from and against any and all claims finally
adjudicated, arbitrated or settled with the consent of both parties (which
consent may not be unreasonably withheld), and any and all expenses (including
reasonable attorneys' fees), damages, causes of actions and losses, arising out
of a breach of any agreements, warranties or representations made by the
indemnifying party.
-9-
<PAGE>
11. General.
-------
11.1. Notices. All notices and documents desired or required to
-------
be given to either party hereunder must be in writing and
shall be deemed given on the date received, via express or
certified mail, return receipt requested, or the date
telexed or telefaxed, all charges prepaid, to the other
party's respective address set forth above or to such
other address as either party shall designate to the other
in writing. All statements and payments required to be
given to G*A*C hereunder shall be remitted to the address
set forth below or to such other address as G*A*C shall
designate in writing. A courtesy copy of all notices to
MAI shall be sent to David Newberg, Esq., Pirro, Collier,
Cohen, Crystal & Bock, 440 Park Avenue South, New York,
New York 10016-8012, and all notices to G*A*C are to be
sent to 9697 E. Mineral Avenue, Englewood, Colorado 80112,
Attn: Vice President and General Manager, with a courtesy
copy to General Counsel, at the same address.
11.2. Assignment. Without the consent of MM, G*A*C shall have
----------
the right to assign this Agreement to (i) any party
acquiring all or a substantial portion of its assets,
whether by merger, consolidation or otherwise, and (ii) to
any affiliate of G*A*C, Any other assignment shall require
the consent of MAI, which consent shall not be
unreasonably withheld.
-10-
<PAGE>
MAI may not assign this Agreement without the consent of
G*A*C, which consent shall not be unreasonably withheld.
Notwithstanding the foregoing, G*A*C may terminate this
Agreement on sixty (60) days prior written notice
following notification to it that the right to elect a
majority of the Board of Directors of MAI is no longer
held by either Ronald Hartenbaum, Gary Schonfeld or both
of them.
11.3. Arbitration. Any dispute arising between the parties to
-----------
this Agreement shall be submitted to and resolved by
binding arbitration in New York City and in Denver,
Colorado, in accordance with the rules of the American
Arbitration Association then in effect. The site of such
arbitration shall shift every six months, with the first
site being New York City.
11.4. Entire Agreement: Relation of the Parties. This Agreement
-----------------------------------------
expresses the entire understanding of the parties hereto
with respect to the subject matter hereof and supersedes
any and all former agreements and understandings, whether
oral or written, relating to the subject matter hereof. No
amendment or modifications may be made except in a writing
signed by the parties hereto. No waiver of default by
either party shall constitute a waiver of any other
default whether or not similar. Nothing contained in this
Agreement shall be construed to constitute either
-11-
<PAGE>
party the employee, agent, partner or joint venturer of
the other, it being understood and agreed that the
relationship of the parties is that of independent
contractors. This Agreement shall be construed in
accordance with the laws of the State of Colorado
applicable to agreements entered into and wholly performed
therein.
MEDIAAMERICA, INC.,
a New York corporation
By: /s/ Ron Hartenbaum
-------------------------------
Ron Hartenbaum
Chairman
GREAT AMERICAN COUNTRY, INC., a Colorado corporation
By: /s/ Gregory J. Liptak
-------------------------------
Gregory J. Liptak
President
-12-
<PAGE>
SCHEDULE A
***
23502
<PAGE>
Exhibit 10.5
Portions of this exhibit have been omitted pending a determination by the
Securities and Exchange Commission that certain information contained herein
shall be afforded confidential treatment. The omitted portions are indicated by
three asterisks.
<PAGE>
SALES REPRESENTATION AGREEMENT
------------------------------
This Agreement dated and effective as of November 1, 1995, between
MEDIAAMERICA, INC., a New York corporation ("MAI") and JONES INTERNATIONAL
NETWORKS, LTD., a Colorado corporation ("JIN"). The parties hereto agree as
follows:
1. Engagement. Pursuant to the terms and conditions of this
----------
Agreement, JIN hereby engages MAI as JIN's exclusive sales representative during
the term of this Agreement throughout the area served by the Network (as defined
below), such area to be known as the "Territory", in respect of ad sales for the
Network. The Territory shall be limited to the United States only and the
engagement of MAI is likewise limited to the United States. MAI hereby accepts
the engagement and by doing so agrees to render those services customarily
rendered by first-class sales representatives in the U.S. radio broadcasting
industry. MAI's services hereunder shall also be non-exclusive, it being
understood and agreed that MAI is entitled to be the sales representative for
services, producers and distributors other than JIN.
2. The Network. The Network to be represented by MAI hereunder is
-----------
titled "Crook and Chase Country Countdown," which is comprised of a weekly four
(4) hour radio show and four (4) annual "specials" utilizing country music
provided under a license agreement from Jim Owens & Associates, Inc. The
inclusion of any other programming herein shall be made only by express
agreement of the parties; it being understood that in any event the commission
rate of MAI with respect thereto shall not exceed twenty percent (20%).
3. Parties' Obligations.
--------------------
3.1. MAI shall render its services hereunder with respect to all
advertising time to be inserted during the
<PAGE>
broadcasting of the Network (the "Advertisements"). In
furtherance of its responsibilities hereunder, MAI will use
its best efforts to promote the Network, maximize and
collect Gross Sales (as defined below) derived from the
Advertisements, and coordinate its sales activities with JIN
personnel. JIN will provide adequate staff to act as a
liaison with its affiliated radio stations which receive the
Network.
3.2. MAI shall render the following services, without limitation,
at MAI's sole expense:
3.2.1. engage in customary sales promotion activities to
sell the Advertisements;
3.2.2. negotiate and enter into agreements with, and pay
commissions to, all advertising agencies and
advertisers respecting the sale of the
Advertisements. All orders for Advertisements shall
be acceptable to JIN in its sole discretion. MAI
shall furnish to JIN promptly upon execution, copies
of all agreements entered into by MAI with respect
to the Advertisements. MAI shall make no sales of
Advertisements for any period which is after this
Agreement terminates or is to terminate (whether by
expiration of its term or as a result of notice)
without first receiving the written consent of JIN.
-2-
<PAGE>
3.2.3 MAI will perform for JIN the functions of
trafficking (scheduling) JIN inventory.
3.3. No less frequently than monthly, or as dictated by
advertisers, MAI will secure, obtain and collect all
affidavits of performance from all radio stations
broadcasting the Network in the Territory. These affidavits
of performance will be made available to JIN on at least a
monthly basis. JIN shall cooperate in the enforcement of
compliance by the stations with their obligations to
promptly submit such affidavits and to adhere to applicable
scheduling requirements.
3.4. MAI will provide information on sales to JIN as each sale is
made. The JIN log will close at 5 P.M. Mountain Time each
Thursday for the broadcast week beginning a week from the
following Monday. Any advertising time within that broadcast
week remaining unsold by MAI at closing will revert to JIN.
Complete logs for each broadcast week will be furnished by
MAI to JIN one week in advance on the Monday preceding the
Monday on which the broadcast begins.
4. Gross Sales: Compensation to MAI.
--------------------------------
4.1. "Gross Sales" shall mean any and all revenues and income and
other consideration derived from the sales of advertising
time by MAI hereunder in respect of the Advertisements
pursuant to all contracts obtained by MAI during the term of
this Agreement.
-3-
<PAGE>
"Adjusted Gross Sales" shall mean Gross Sales less only
advertising agency commissions (not to exceed 15 percent)
actually paid by MAI to unaffiliated third parties.
4.2. MAI shall render bills in respect of all Gross Sales within
five (5) business days after the end of the advertising
schedule or the Standard Broadcast month in which the
Network is broadcast and shall directly receive and use its
best efforts to collect one hundred percent (100%) of all
Adjusted Gross Sales. Copies of such bills shall be mailed
concurrently to JIN.
4.3. As compensation for its services under this Agreement, MAI
shall receive (a) *** of all collected Adjusted Gross Sales
for Advertisements booked and run during the term of this
Agreement.
4.4. MAI shall account to JIN with respect to collected Adjusted
Gross Sales as and when received from advertisers or
agencies, but in no event less often than monthly,
commencing thirty (30) days after broadcast of the
advertising schedule on the Network for as long as bills are
outstanding. MAI shall remit JIN's share of Adjusted Gross
Sales on a weekly basis for checks that were received by MAI
that week. Copies of corresponding advertiser/ad agency
checks will be forwarded to JIN along with JIN's share of
Adjusted Gross Sales. A complete, detailed accounts
-4-
<PAGE>
receivable report will be forwarded to JIN on a monthly
basis, within ten (10) days after the end of each month.
4.5. It is expressly agreed that as to the percentage amounts of
Adjusted Gross Sales which MAI has the right to receive
pursuant to Section 4.1 above and which, if received and
collected, it shall remit to JIN pursuant to this Agreement,
MAI shall receive such funds in trust for and on behalf of
JIN. MAI shall have no ownership interest in any of such
amounts and such amounts shall not be available to any of
the creditors of MAI.
6. Books and Records. JIN shall have the right to examine all of
-----------------
MAI's books, records and other information relative to the sale of the Network
Advertisements, the booking and collection of the Network's Gross Sales, the
calculation of Adjusted Gross Sales, and all related matters, upon reasonable
advance written notice to MAI at any time and at a reasonable frequency, and
shall have the right to commence arbitration thereon within one (1) year after
the termination of this Agreement. In the event JIN's examination of MAI's books
and records reveals an underpayment to JIN, then MAI shall promptly pay any
underpayment.
7. Term of the Agreement.
---------------------
7.1. The term of this Agreement shall commence as of November 1,
1995, and shall continue for a period of fourteen (14)
months.
7.2. Upon the termination of this Agreement for any reason, if
JIN (or its designee) shall collect Gross
-5-
<PAGE>
Sales derived from any contracts obtained by MAI during the
term of this Agreement, JIN shall pay MAI the appropriate
percentage (as determined under Section 4.3 or Section 4.4)
of the Adjusted Gross Sales after deductions permitted
herein (if any) and for which MAI shall continue to perform
services, and MAI shall turn over all relevant records to
JIN relating to the Network or sale of Advertisements. Each
party agrees to cooperate during a transitional period from
one sales organization to another.
8. Rights of JIN to Sell Advertising.
---------------------------------
The engagement of MAI hereunder is exclusive but JIN shall have
the right to sell advertising on its behalf.
9. Representations, Warranties and Indemnification. Each party hereby
-----------------------------------------------
represents and warrants that it has the full power and authority to enter into
this Agreement and to perform its obligations hereunder. JIN will use its best
efforts to obtain all releases, authorizations, consents and waivers necessary
for authorization to broadcast the material to be included in the Network. JIN
hereby agrees to indemnify MAI from and against any claims made for unauthorized
use by any persons, their heirs, assigns and the estates of any such persons,
whose names, voices or material are to be included in the Network, and from and
against any other losses resulting from a breach by JIN of these representations
and warranties. Each party hereby agrees to indemnify and hold harmless the
other party from and against any and all claims finally adjudicated, arbitrated
or settled with the consent of both parties (which consent may not be
unreasonably withheld), and any and all expenses (including reasonable
attorneys' fees), damages, causes of actions and losses, arising out of
-6-
<PAGE>
a breach of any agreements, warranties or representations made by the
indemnifying party.
10. General.
-------
10.1. Notices. All notices and documents desired or required to
-------
be given to either party hereunder must be in writing and
shall be deemed given on the date received, via express or
certified mail return receipt requested, or the date
telexed or telefaxed, all charges prepaid, to the other
party's respective address set forth below or to such
other address as either party shall designate to the other
in writing. All statements and payments required to be
given to JIN hereunder shall be remitted to the address
set forth below or to such other address as JIN shall
designate in writing. A courtesy copy of all notices to
MAI shall be sent to David Newberg, Esq., Collier, Cohen,
Crystal & Bock, 440 Park Avenue South, New York, New York
10016-8012, and all notices to JIN are to 9697 E. Mineral
Avenue, Englewood, Colorado 80112, with a courtesy copy to
General Counsel, at the same address.
10.2. Assignments. Without the consent of MAI, JIN shall have
-----------
the right to assign this Agreement to (i) any party
acquiring all or a substantial portion of its assets,
whether by merger, consolidation or otherwise, and (ii) to
any affiliate of JIN. Any other assignment shall require
the consent of MAI, which
-7-
<PAGE>
consent shall not be unreasonably withheld. MAI may not
assign this Agreement without the consent of JIN, which
consent shall not be unreasonably withheld.
10.3. Arbitration. Any dispute arising between the parties to
-----------
this Agreement shall be submitted to and resolved by
binding arbitration in New York City and in Denver,
Colorado, according to the rules of the American
Arbitration Association. The site of such arbitration
shall shift every six months, with the first site being
New York City.
10.4. Entire Agreement; Relation of the Parties. This Agreement
-----------------------------------------
expresses the entire understanding of the parties hereto
with respect to the subject matter hereof and supersedes
any and all former agreements and understandings, whether
oral or written, relating to the subject matter hereof. No
amendments or modifications may be made except in a
writing signed by the parties hereto. No waiver of default
by either party shall constitute a waiver of any other
default whether or not similar. Nothing contained in this
Agreement shall be construed to constitute either party
the employee, agent, partner or joint venturer of the
other, it being understood and agreed that the
relationship of the parties is that of independent
contractors. This Agreement shall be construed in
accordance with the laws of the State of Colorado
-8-
<PAGE>
applicable to agreements entered into and wholly
performed therein.
MEDIAAMERICA, INC. JONES INTERNATIONAL NETWORKS, LTD.
11 West 42nd Street 9697 East Mineral Avenue
28th Floor Englewood, CO 80112
New York, NY 10036
By: /s/ Ron Hartenbaum By: /s/ Eric Hauenstein
--------------------- -----------------------------
Ron Hartenbaum Eric Hauenstein
Chairman Vice President/General Manager
20090
-9-
<PAGE>
Exhibit 10.6
Portions of this exhibit have been omitted pending a determination by the
Securities and Exchange Commission that certain information contained herein
shall be afforded confidential treatment. The omitted portions are indicated by
three asterisks.
<PAGE>
SALES REPRESENTATION AGREEMENT
------------------------------
This Agreement dated and effective as of December 1, 1995, between
MEDIAAMERICA, INC., a New York corporation ("MAI") and JONES SATELLITE NETWORKS,
INC., a Colorado corporation ("JSN"). The parties hereto agree as follows:
1. Engagement. Pursuant to the terms and conditions of this Agreement,
----------
JSN hereby engages MAI as JSN's exclusive sales representative (except as
provided in Section 8) during the term of this Agreement through the area
served by the Network (as defined below), such area to be known as the
"Territory", in respect of ad sales for the Network. The Territory shall be
limited to the United States only and the engagement of MAI is likewise
limited to the United States. MAI hereby accepts the engagement and by doing so
agrees to render those services customarily rendered by first-class sales
representatives in the U.S. radio broadcasting industry. MAI's services
hereunder shall be non-exclusive, it being understood and agreed that MAI is
entitled to be the sales representative for services, producers and distributors
other than JSN.
2. The Network. The Network to be represented by MAI hereunder is
-----------
titled "Jones Satellite Network" which is currently comprised of eight (8)
24-hour per day, satellite delivered radio formats: CD Country, US Country,
Adult Hit Radio, Good Time Oldies, Soft Hits, FM Lite, The Word-in-Music and Z-
Net. Additional 24-hour per day formats are projected to become part of the
Network. JSN shall promptly advise MAI of any additional such formats or changes
to the formats and broadcast times/dates. This Agreement does not apply to
programming which is not a 24-hour per day format. The inclusion of any such
other programming herein shall be made only by express
<PAGE>
agreement of the parties; it being understood that in any event the commission
rate of MAI with respect thereto shall not exceed ***.
3. Parties' Obligations.
---------------------
3.1. MAI shall render its services hereunder with respect to all
advertising time to be inserted during the broadcasting of
the Network (the "Advertisements"). In furtherance of its
responsibilities hereunder, MAI will use its best efforts to
promote the Network, maximize and collect Gross Sales (as
defined below) derived from the Advertisements, and
coordinate its sales activities with JSN personnel. JSN will
provide adequate staff to act as a liaison with its
affiliated radio stations which receive the Network.
3.2. MAI shall render the following services, without
limitation, at MAI's sole expense:
3.2.1. engage in customary sales promotion activities
to sell the Advertisements;
3.2.2. negotiate and enter into agreements with, and pay
Commissions to, all advertising agencies and
advertisers respecting the sale of the
Advertisements. All orders for Advertisements shall
be acceptable to JSN in its sole discretion. MAI
shall furnish to JSN promptly upon execution, copies
of all agreements entered into by MAI with respect to
the Advertisements. MAI shall make no sales of
Advertisements for any period which
-2-
<PAGE>
is after this Agreement terminates or is to terminate
(whether by expiration of its term or as a result of
notice) without first receiving the written consent
of JSN.
3.2.3 MAI will perform for JSN the functions of
trafficking (scheduling) JSN inventory.
3.3. No less frequently than monthly, or as dictated by
advertisers, MAI will secure, obtain and collect all
affidavits of performance from all radio stations
broadcasting the Network in the Territory. These affidavits
of performance will be made available to JSN on at least a
monthly basis. JSN shall cooperate in the enforcement of
compliance by the stations with their obligations to
promptly submit such affidavits and to adhere to applicable
scheduling requirements.
3.4. MAI will provide information on sales to JSN as each sale is
made. The JSN log will close at 5 P.M. Mountain Time each
Thursday for the broadcast week beginning a week from the
following Monday. Any advertising time within that
broadcast week remaining unsold by MAI at closing will
revert to JSN. Complete logs for each broadcast week will be
furnished by MAI to JSN one week in advance on the Monday
preceding the Monday on which the broadcast begins.
3.5 MAI shall by notice advise JSN at least ten (10) days before
entering into any agreement to render services
-3-
<PAGE>
comparable to those of MAI under this Agreement to any
provider of twenty-four hours per day music formats to
radio stations. Such notice shall identify the contracting
party and shall confirm that MAI will observe the provisions
of Sections 4.7 and 4.8 of this Agreement if they become
applicable as a result of such other agreement.
4. Gross Sales; Compensation to MAI.
--------------------------------
4.1 . "Gross Sales" shall mean any and all revenues and income and other
consideration derived from the sales of advertising time by MAI
hereunder in respect of the Advertisements pursuant to all contracts
obtained by MAI during the term of this Agreement. "Adjusted Gross
Sales" shall mean Gross Sales less only advertising agency
commissions (not to exceed 15 percent) actually paid by MAI to
unaffiliated third parties.
4.2. MAI shall render bills in respect of all Gross Sales within five (5)
business days after the end of the advertising schedule or the
Standard Broadcast month in which the Network is broadcast and shall
directly receive and use its best efforts to collect one hundred
percent (100%) of all Adjusted Gross Sales. Copies of such bills
shall be mailed concurrently to JSN.
4.3. As compensation for its services under this Agreement, MAI shall
receive (a) *** of all collected Adjusted Gross Sales for
-4-
<PAGE>
Advertisements booked and run for December 1995; (b) *** of all
collected Adjusted Gross Sales for Advertisements booked and run for
the twelve month period January 1, 1996 to December 31, 1996. If
Adjusted Gross Sales for such twelve month period exceed ***, the
rate will be *** with respect to the amount in excess of ***; (c) ***
of all collected Adjusted Gross Sales for Advertisements booked and
run for the twelve month period January 1, 1997 to December 31, 1997.
If Adjusted Gross Sales for such twelve month period exceed the
greater of *** or *** of the Adjusted Gross Sales for calendar 1996,
the rate will be *** with respect to the amount in excess of the
greater of *** or *** of the Adjusted Gross Sales for calendar 1996,
and (d) *** of all collected Adjusted Gross Sales for the remaining
period of this Agreement.
4.4. MAI shall account to JSN with respect to collected Adjusted Gross
Sales as and when received from advertisers or agencies, but in no
event less often than monthly, commencing thirty (30) days after
broadcast of the advertising schedule on the Network for as long as
bills are outstanding. MAI shall remit JSN's share of Adjusted Gross
Sales on a weekly basis for checks that were received by MAI that
week. Copies
-5-
<PAGE>
of corresponding advertiser/ad agency checks will be forwarded to JSN
along with JSN's share of Adjusted Gross Sales. A complete, detailed
accounts receivable report will be forwarded to JSN on a monthly
basis, within ten (10) days after the end of each month.
4.5. It is expressly agreed that as to the percentage amounts of Adjusted
Gross Sales which MAI has the right to receive pursuant to Section
4.1 above and which, if received and collected, it shall remit to JSN
pursuant to this Agreement MAI shall receive such funds in trust for
and on behalf of JSN. MAI shall have no ownership interest in any of
such amounts and such amounts shall not be available to any of the
creditors of MAI.
4.6. ***
4.7. MM will not provide to any other program producer any sharing
arrangement or participation based on advertising time contributions
made by its clients that is more favorable than is provided to JSN
under this Agreement, including the allocation of any bonuses with
respect to the inventory made available by JSN; provided that the
foregoing shall not apply to the arrangement between MAI and EFM.
-6-
<PAGE>
4.8. The parties mutually agree to keep confidential the compensation
payable under Section 4 of this Agreement, except if disclosure is
required by law (including securities law disclosure requirements),
or if such information is disclosed by MAI or is in the public
domain.
5. Employees.
---------
5.1. Neither JSN nor any of its subsidiaries, partners, joint venturers,
employees or agents shall employ or offer to employ any of the
current staff of MAI for a period of one (1) year from the
termination of this Agreement for any reason.
5.2. Neither MAI nor any of its subsidiaries, partners, joint venturers,
employees or agents shall employ or offer to employ any of the
current staff of JSN for a period of one (1) year from the
termination of this Agreement.
6. Books and Records. JSN shall have the right to examine all of MAI's books,
-----------------
records and other information relative to the sale of the Network
Advertisements, the booking and collection of the Network's Gross Sales, the
calculation of Adjusted Gross Sales, the relative contributions by JSN vis-a-vis
others pursuant to Section 4.8, and all related matters, upon reasonable advance
written notice to MAI at any time and at a reasonable frequency, and shall have
the right to commence arbitration thereon within one (1) year after the
termination of this Agreement. In the event JSN's examination of MAI's books and
records reveals an underpayment to JSN, then MAI shall promptly pay any
underpayment.
-7-
<PAGE>
7. Term of the Agreement.
---------------------
7.1. The term of this Agreement shall commence as of December 1, 1995, and
shall continue for a period of 2 1/2 years, ending on May 31, 1998,
unless sooner terminated as provided in this Agreement.
7.2. In the event that Gross Sales hereunder are less than $7,800,000 with
respect to calendar year 1996, JSN shall have the right to terminate
this Agreement by giving at least sixty (60) days notice of such
termination at any time after December 31, 1996 and before February
28, 1997. If no such notice is given before February 28, 1997, such
right to terminate shall be void.
7.3. Upon the termination of this Agreement for any reason, if JSN (or its
designee) shall collect Gross Sales derived from any contracts
obtained by MAI during the term of this Agreement, JSN shall pay MAI
the appropriate percentage (as determined under Section 4.3 or
Section 4.4) of the Adjusted Gross Sales after deductions permitted
herein (if any) and for which MAI shall continue to perform services,
and MAI shall turn over all relevant records to JSN relating to the
Network or sale of Advertisements. Each party agrees to cooperate
during a transitional period from one sales organization to another.
-8-
<PAGE>
8. ***
(a) ***
(b) ***
9. Meetings. The parties shall meet four (4) times each calendar year
--------
during the term of this Agreement for the purpose of reviewing the performance
of MAI and the working relationship of the parties. Two of such meetings shall
be held in Denver, Colorado and two in New York City. Meetings shall be held
approximately quarterly, with the exact time and place of each meeting to be
determined by the parties.
10. Representations, Warranties and Indemnification. Each party hereby
-----------------------------------------------
represents and warrants that it has the full power and authority to enter into
this Agreement and to perform its obligations hereunder. JSN will use its best
efforts to obtain all releases, authorizations, consents and waivers necessary
for authorization to broadcast the material to be included in the Network. JSN
hereby agrees to indemnify MAI from and against any claims made for unauthorized
use by any persons, their heirs, assigns and the estates of any such persons,
whose names, voices or material are to be included in the
-9-
<PAGE>
Network, and from and against any other losses resulting from a breach by JSN of
these representations and warranties. Each party hereby agrees to indemnify and
hold harmless the other party from and against any and all claims finally
adjudicated, arbitrated or settled with the consent of both parties (which
consent may not be unreasonably withheld), and any and all expenses (including
reasonable attorneys' fees), damages, causes of actions and losses, arising out
of a breach of any agreements, warranties or representations made by the
indemnifying party.
11. General.
-------
11.1. Notices. All notices and documents desired or required to
-------
be given to either party hereunder must be in writing and
shall be deemed given on the date received, via express
or certified mail return receipt requested, or the date
telexed or telefaxed, all charges prepaid, to the other
party's respective address set forth below or to such
other address as either party shall designate to the other
in writing. All statements and payments required to be
given to JSN hereunder shall be remitted to the address
set forth below or to such other address as JSN shall
designate in writing. A courtesy copy of all notices to
MAI shall be sent to David Newberg, Esq., Collier, Cohen,
Crystal & Bock, 440 Park Avenue South, New York, New York
100l6-80l2, and all notices to JSN are to 9697 E. Mineral
Avenue, Englewood, Colorado 80112, with a courtesy copy to
General Counsel, at the same address.
-10-
<PAGE>
11.2. Assignments. Without the consent of MAI, JSN shall have
-----------
the right to assign this Agreement to (i) any party
acquiring all or a substantial portion of its assets,
whether by merger, consolidation or otherwise, and (ii) to
any affiliate of JSN. Any other assignment shall require
the consent of MAI, which consent shall not be
unreasonably withheld. MAI may not assign this Agreement
without the consent of JSN, which consent shall not be
unreasonably withheld.
11.3. Arbitration. Any dispute arising between the parties to
-----------
this Agreement shall be submitted to and resolved by
binding arbitration in New York City and in Denver,
Colorado, according to the rules of the American
Arbitration Association. The site of such arbitration
shall shift every six months, with the first site being
New York City.
11.4. Entire Agreement: Relation of the Parties. This Agreement
-----------------------------------------
expresses the entire understanding of the parties hereto
with respect to the subject matter hereof and supersedes
any and all former agreements and understandings; whether
oral or written, relating to the subject matter hereof.
No amendments or modifications may be made except in a
writing signed by the parties hereto. No waiver of default
by either party shall constitute a waiver of any other
default whether or not similar. Nothing contained in this
-11-
<PAGE>
Agreement shall be construed to constitute either party
the employee, agent, partner or joint venturer of the
other, it being understood and agreed that the
relationship of the parties is that of independent
contractors. This Agreement shall be construed in
accordance with the laws of the State of Colorado
applicable to agreements entered into and wholly
performed therein.
MEDIAAMERICA, INC. JONES SATELLITE NETWORKS, INC.
11 West 42nd Street 9697 East Mineral Avenue
28th Floor Englewood, CO 80112
New York, NY 10036
By:/s/ Ron Hartenbaum By:/s/ Eric Hauenstein
----------------------- ---------------------------------
Ron Hartenbaum Eric Hauenstein
Chairman Vice President/General Manager
19233
-12-
<PAGE>
Exhibit 10.7
PURCHASE AND SALE AGREEMENT
---------------------------
THIS PURCHASE AND SALE AGREEMENT is made as of the 9th day of August, 1996,
by and between JONES GLOBAL GROUP, INC., a Colorado corporation ("Seller") and
JONES INTERNATIONAL NETWORKS, LTD., a Colorado corporation ("Buyer").
RECITALS
--------
A. Seller owns one hundred percent (100%) of the issued and outstanding
stock of Jones Galactic Radio, Inc. ("Galactic"), a company engaged in audio
programming for cable television systems and radio programming for radio
stations.
B. Seller desires to sell to Buyer, and Buyer desires to purchase from
Seller, one hundred percent (100%) of the issued and outstanding stock of
Galactic (the "Galactic Stock") upon the terms and conditions set forth in this
Agreement.
AGREEMENT
---------
In consideration of the mutual promises contained in this Agreement and
other good and valuable consideration, the receipt and adequacy of which are
hereby acknowledged, the parties hereto hereby agree as follows:
1. Purchase and Sale. Subject to the terms and conditions set forth in
-----------------
this Agreement, Seller shall sell, convey, assign, transfer and deliver to
Buyer,
<PAGE>
and Buyer shall purchase from Seller, on the Closing Date (as defined in
Paragraph 7 hereof), one hundred percent (100%) of all issued and outstanding
stock of Galactic currently held by Seller, which shall be one hundred percent
(100%) of all issued and outstanding stock of Galactic. The Galactic Stock shall
be transferred free and clear of any and all security interests, liens, pledges,
charges and encumbrances.
2. Purchase Price. The total purchase price for the Galactic Stock shall
--------------
be $17,200,000.00 (the "Purchase Price"). The Purchase Price shall be payable to
Seller at Closing as follows: (a) $1,200,000.00 in the form of a wire transfer
of immediately available funds in accordance with written wire transfer
instructions delivered by Seller to Buyer; and (b) $16,000,000.00 in the form of
a promissory note (the "Promissory Note") to be delivered by Buyer to Seller at
Closing, as hereinafter defined, in substantially the form of Exhibit 1 attached
hereto.
3. Seller's Representations. Seller hereby represents and warrants to
------------------------
Buyer that:
(a) Seller is a corporation duly organized and validly existing under
the laws of the State of Colorado. Seller has all requisite corporate power and
authority to own and operate its properties and to carry on its business as now
and where being conducted.
(b) All necessary consents and approvals have been obtained by Seller
for the execution and delivery of this Agreement except for the approval
-2-
<PAGE>
of the transaction by the Board of Directors of Seller. The execution and
delivery of this Agreement by Seller has been duly and validly authorized and
approved by all necessary action of Seller except as noted above. This Agreement
is a valid and binding obligation of Seller, enforceable against it in
accordance with its terms.
(c) Subject to the receipt of any required consents, Seller is the
owner of the Galactic Stock and has full legal power, right and authority to
sell and convey to Buyer legal and beneficial title to the Galactic Stock, and
Seller's sale to Buyer shall transfer good and marketable title thereto, free
and clear of all security interests, liens, pledges, charges and encumbrances of
every kind. The Galactic Stock is not subject to, or bound or affected by, any
proxies, voting agreements or other restrictions on the incidents of ownership
thereof.
(d) The authorized capital stock of Galactic consists solely of
50,000,000 shares of Class A Common Stock, $.01 par value per share, and 100,000
shares of Class B Common Stock, $.01 par value per share (collectively, the
"Shares"). As of the date hereof, 62,963 shares of Class A Common stock of
Galactic are issued and outstanding, and are held of record by Seller, and
62,963 shares of Galactic of Class B Common Stock are issued and outstanding,
and are held of record by Seller. The Shares have been duly authorized and are
validly issued and outstanding, fully paid and nonassessable. There are no
authorized or outstanding subscriptions, options, convertible securities,
warrants, calls or other rights of any kind issued or granted by, or
-3-
<PAGE>
binding upon, Seller or Galactic to purchase or otherwise acquire any security
of, or equity interest in, Galactic.
(e) The execution, delivery and performance of this Agreement by
Seller will not violate any provision of law and will not, with or without the
giving of notice or the passage of time, conflict with or result in any breach
of any of the terms or conditions of, or constitute a default under, any
mortgage, agreement or other instrument to which Seller is a party or by which
Seller is bound. The execution, delivery and performance of this Agreement by
Seller will not result in the creation of any security interest, lien, pledge,
charge or encumbrance upon the Galactic Stock.
4. Conditions Precedent to Buyer's Obligations. The obligations of Buyer
-------------------------------------------
under this Agreement with respect to the purchase and sale of the Galactic Stock
shall be subject to the fulfillment on or prior to the Closing Date of each of
the following conditions:
(a) All of the representations and warranties by Seller contained in
this Agreement shall be true and correct in all material respects at and as of
the Closing Date. Seller shall have complied with and performed all of the
agreements, covenants and conditions required by this Agreement to be performed
or complied with by it on or prior to the Closing Date.
(b) Seller shall have delivered to Buyer such instruments, consents
and approvals of third parties as are necessary to transfer the Galactic
-4-
<PAGE>
Stock to Buyer pursuant to this Agreement, which consents and approvals shall
not have resulted in any material change in the business of Galactic and its
subsidiaries.
(c) There shall have been no material adverse change in the business,
financial condition or operations of Galactic and its subsidiaries since
May 31, 1996.
(d) At Closing, Galactic will have no outstanding debt, other than
trade payables, customer deposits and other miscellaneous accrued liabilities,
in an aggregate amount approved prior to Closing by Buyer. All intercompany
debt of Galactic shall have been paid in full or otherwise discharged.
(e) All requisite approvals of the Board of Directors of Seller and
Buyer shall have been obtained.
5. Conditions Precedent to Seller's Obligations. The obligations of
--------------------------------------------
Seller under this Agreement with respect to the purchase and sale of the
Galactic Stock shall be subject to the fulfillment on or prior to the Closing
Date of each of the following conditions:
(a) Buyer shall have delivered the Purchase Price to Seller in
accordance with Paragraph 2 hereof.
-5-
<PAGE>
(b) Buyer shall have delivered to Seller a Security Agreement,
executed by Jones Satellite Networks, Inc., and any related documents referred
to therein, in substantially the form of Exhibit 2 attached hereto.
---------
(c) All requisite approvals of the Board of Directors of Seller and
Buyer shall have been obtained.
6. Indemnification.
---------------
(a) Indemnification by Seller. From and after Closing, Seller shall
-------------------------
indemnify and hold harmless Buyer, its affiliates, their respective officers and
directors, employees, agents and representatives and any person claiming by or
through any of them, from and against any and all claims, losses, liabilities,
damages, penalties, costs and expenses, including reasonable attorneys' fees,
arising out of or resulting from:
(i) any representations and warranties of Seller in this
Agreement not being true and accurate when made or when required by this
Agreement; or
(ii) any failure by Seller to perform any of its covenants,
agreements or obligations in this Agreement.
(b) Indemnification by Buyer. From and after Closing, Buyer shall
------------------------
indemnify and hold harmless Seller, its affiliates, officers and directors,
agents and representatives and any person claiming by or through any of them, as
the case may be, from and against any and all claims, losses, liabilities,
-6-
<PAGE>
damages, penalties, costs and expenses, including reasonable attorneys' fees,
arising out of or resulting from:
(i) any representations and warranties of Buyer in this
agreement not being true and accurate when made or when required by this
Agreement; or
(ii) any failure by Buyer to perform any of its covenants,
agreements or obligations in this Agreement; or
(iii) all liabilities and obligations of Galactic relating to, or
arising out of its activities during periods subsequent to Closing.
7. Closing. The closing hereunder (the "Closing") shall be held in the
-------
offices of Seller, 9697 East Mineral Avenue, Englewood, Colorado 80112 on
August 15, 1996, or such other date as may be designated by Buyer (the "Closing
Date"); provided that in no event shall the Closing Date be later than the date
which is 60 days from the date of this Agreement. At the Closing, all cash,
checks, share certificates, bills of sale, assignments and assumptions, notes,
security instruments and other instruments and documents referred to or
contemplated by this Agreement shall be exchanged by the parties hereto.
8. Brokerage. Seller represents and warrants to Buyer that Seller will be
---------
solely responsible for, and pay in full, any and all brokerage or finder's fees
or agent's commissions or other like payment owing in connection with Seller's
use of any broker, finder or agent in connection with this Agreement or the
transactions contemplated hereby. Buyer represents and warrants to Seller that
Buyer will be solely responsible for, and pay in full, any and all brokerage or
-7-
<PAGE>
finder's fees or agent's commissions or other like payment owing in connection
with Buyer's use of any broker, finder or agent in connection with this
Agreement or the transactions contemplated hereby. Each party hereto shall
indemnify and hold the other party hereto harmless against and in respect of any
breach by it of the provisions of this Paragraph 8.
9. Miscellaneous.
-------------
(a) Buyer shall have the right, upon notice to Seller, to assign prior
to the Closing Date, in whole or in part, its rights and obligations hereunder
to any affiliate of Buyer, including, without limitation, to any subsidiary of
Buyer or other entity controlled by, controlling or under common control with
Buyer, or, subject to Seller's consent, to any other entity.
(b) From time to time after the Closing Date, Seller shall, if
requested by Buyer, make, execute and deliver to Buyer such additional
assignments, bills of sale, deeds and other instruments of transfer, as may be
necessary or proper to transfer to Buyer all of Seller's right, title and
interest in and to the Galactic Stock covered by this Agreement. Such efforts
and assistance shall be without cost to Buyer.
(c) This Agreement embodies the entire understanding and agreement
among the parties concerning the subject matter hereof and supersedes any and
all prior negotiations, understandings or agreements in regard thereto. This
Agreement shall be interpreted, governed and construed in
-8-
<PAGE>
accordance with the laws of the State of Colorado. This Agreement may not be
modified or amended except by an agreement in writing executed by both Buyer and
Seller.
(d) Any sales, use, transfer or documentary taxes imposed in
connection with the sale and delivery of the Galactic Stock and the rights
acquired by Buyer under this Agreement shall be paid by Buyer.
(e) All exhibits attached hereto shall be deemed incorporated into
this Agreement by reference as if fully set forth herein.
IN WITNESS WHEREOF the parties have executed this Agreement as of the day
and year first above written.
SELLER
JONES GLOBAL GROUP, INC.,
a Colorado corporation
By: /s/ Jay B. Lewis
--------------------------------------
Jay B. Lewis
Vice President/Finance and Treasurer
-9-
<PAGE>
BUYER
JONES INTERNATIONAL NETWORKS, LTD.,
a Colorado corporation
By: /s/ Gregory J. Liptak
--------------------------------------
Gregory J. Liptak
Assistant Vice President
-10-
<PAGE>
Exhibit 10.8
Portions of this exhibit have been omitted pending a determination by the
Securities and Exchange Commission that certain information contained herein
shall be afforded confidential treatment. The omitted portions are indicated by
three asterisks.
<PAGE>
PARTNERSHIP AGREEMENT
OF
GALACTIC/TEMPO
A Colorado General Partnership
by and between
TEMPO SOUND, INC.
an Oklahoma corporation
and
GALACTIC RADIO PARTNERS, INC.
a Colorado corporation
<PAGE>
PARTNERSHIP AGREEMENT
---------------------
THIS PARTNERSHIP AGREEMENT is entered into as of the 7th day of May,
--- ---
1990, by and between TEMPO Sound, Inc., an Oklahoma corporation ("TSI"), and
Galactic Radio Partners, Inc., a Colorado corporation ("GRI"). The parties are
sometimes referred to collectively as the "Partners" and individually as a
"Partner".
WHEREAS, the parties desire to form a partnership upon the terms and
conditions set forth in this Agreement;
NOW, THEREFORE, in consideration of the mutual promises and covenants
hereinafter set forth, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties agree as
follows:
ARTICLE 1
ORGANIZATION
1.1. Formation. Subject to satisfaction of the conditions set
---------
forth in Section 1.6, the Partners hereby form a general partnership (the
"Partnership") which shall be governed by the terms and conditions of this
Agreement and the Colorado Uniform Partnership Act (C.R.S. (S) 7-60-101, et
--
seq.).
- ---
<PAGE>
1.2. Name. The name of the Partnership sha11 be GALACTIC/TEMPO, or
----
such other name as may be determined by unanimous decision of the Management
Committee (as defined in Section 6.1).
1.3. Purposes.
--------
a. The purposes of the Partnership shall be to provide Basic
Cable Audio Programming (as hereinafter defined) to cable television system
operators, other operators as defined in 1.3.b.i.A. below and TVRO dish
programming packagers located in the Territory (as hereinafter defined) for
distribution to their respective subscribers; and to do any and all other things
necessary, incidental or related to the foregoing purposes.
b. As used in this Agreement, the term "Basic Cable Audio
Programming" shall mean programming meeting all of the following criteria:
i. it is either:
A. provided to cable system operators, SMATV, MMDS, DBS
and other operators of other means of electronic
distribution of programming for distribution by such
operators to their subscribers for reception on the
subscribers' home televisions or home music systems at
a wholesale price to the cable system operator
-2-
<PAGE>
of $.25 or less per subscriber per month, as adjusted
annually to reflect the upward percent change in prices
in the preceding year as indicated in the Consumer
Price Index for All Urban Consumers, the U.S. City
Average for All Items, issued by the U.S. Department of
Labor, Bureau of Labor Statistics, 1967-100 (the
"CPI"); or
B. provided to "packagers" for distribution by them to
private satellite dish owners as part of a package of
programming services for reception on the dish owners'
home televisions or home music systems at a wholesale
price to the "packager" of $.25 or less per subscriber
per month, as adjusted for the CPI.
c. As used in this Agreement, the term "Territory" shall mean
the United States of America, Canada, their respective possessions and
territories in the Caribbean Sea and the Atlantic Ocean and those other islands
in the Caribbean Sea to which American copyright protection has been extended.
1.4. Principal Office. The partnership shall establish its
----------------
principal business office at 9697 East Mineral Avenue, Englewood, Colorado
80112, or such other place as the Partners may select from time to time. The
names and address of the Partners are as follows:
TEMPO Sound, Inc.
9478 W. Olympic Boulevard
Suite 301
Beverly Hills, California 90212
-3-
<PAGE>
Galactic Radio Partners, Inc.
c/o Galactic Radio, Inc.
9697 East Mineral Avenue
Englewood, Colorado 80112
1.5. Term. The Partnership shall commence on the date that the
----
Partners execute the Formation Notice (as hereinafter defined) contemplated by
Section 1.6 hereof (the "Formation Date") and unless sooner terminated in
accordance with this Agreement or as provided by law, shall continue for a term
of ten (10) years and shall continue thereafter for a renewal term of five (5)
years unless either Partner gives written notice to the other Partner at least
120 days prior to the expiration of the initial ten year term that the
Partnership will dissolve at the end of such term.
1.6. Conditions to Formation. TSI and GRI contemplate that if the
-----------------------
Partnership is formed, TSI, directly or through its parent company International
Cablecasting Technologies, Inc. ("ICT"), and GRI, through its parent company
Galactic Radio, Inc. ("Galactic"), will contribute to the Partnership, among
other things, certain affiliation agreements or rights thereunder as
contemplated by Section 2.2 hereof as follows:
-4-
<PAGE>
a. TSI intends to contribute, among other things, all rights and
associated obligations relating to the delivery of Basic Cable Audio Programming
pursuant to that certain agreement with Satellite Services, Inc. and ICT dated
July 6, 1989 (the "TCI Agreement"), and that certain agreement with Viacom dated
May 4,. 1990 (the "Viacom Agreement"). All of the material terms of the TCI
Agreement and the Viacom Agreement as they relate to the delivery of Basic Cable
Audio Programming are described on Exhibit A attached hereto. TSI hereby agrees
---------
to provide to GRI, within five (5) business days after the execution of this
Agreement, excerpted copies of the TCI and Viacom Agreements which excerpted
copies shall contain all provisions relating to the delivery of Basic Cable
Audio Programming, and shall be certified by the President of TSI as complete
and accurate copies of such provisions. GRI shall have 10 business days
following receipt of such documents to examine them to verify the accuracy of
Exhibit A attached hereto. If GRI determines, in its sole discretion, that such
- ---------
agreements do not comport with the descriptions thereof on Exhibit A, or contain
---------
other material terms not described on Exhibit A which GRI determines, in its
---------
sole discretion, to be materially adverse, GRI shall so notify TSI in writing
at or prior to the end of such 10 business day period and the parties shall
attempt to reach a new agreement with respect to the formation of
the Partnership. If no agreement is reached within 30 days of delivery of such
notice, the Partnership shall not be formed and this Agreement shall be
terminated without penalty or liability to either party.
-5-
<PAGE>
b. GRI intends to contribute, among other things, that certain
agreement with Jones Programming Services, Inc. dated May 1, 1990 (the "Jones
Agreement"). All of the material terms of the Jones Agreement are described on
Exhibit B attached hereto, GRI hereby agrees to provide to TSI, within five (5)
- ---------
business days after the execution of this Agreement, a copy of the Jones
Agreement certified by the President of GRI as a complete and accurate copy of
such agreement. TSI shall have 10 business days following receipt of such
document to examine the Jones Agreement to verify the accuracy of Exhibit B
---------
attached hereto. If TSI determines, in its sole discretion, that such agreement
does not comport with the description thereof on Exhibit B, or contains other
---------
material terms not described on Exhibit B which TSI determines, in its sole
---------
discretion, to be materially adverse, TSI shall so notify GRI in writing at or
prior to the end of such 10 business day period and the parties shall attempt to
reach a new agreement with respect to the formation of the Partnership. If no
agreement is reached within 30 days of delivery of such notice, the Partnership
shall not be formed and this Agreement shall be terminated without penalty or
liability to either party. Jones Programming Services, Inc. shall be entitled to
receive the Basic Cable Audio Programming of the Partnership at a license fee of
no more than *** per month, and on such other terms and conditions as are no
less favorable (excluding any equity participation rights or any right to pay
less than *** per month as a license fee) than the terms and conditions on which
TCI is receiving such service pursuant to the TCI Agreement. To the extent that
Exhibit B
- ---------
-6-
<PAGE>
attached hereto describes terms that are not in keeping with the above
statement, the Partners agree that the Jones Agreement may be amended such that
it does comport with the intent of the preceding sentence.
C. At such time as either TSI or GRI determines that the
conditions set forth in Section 1.6(a) or Section 1.6(b), as applicable, has
been satisfied, such Partner shall give notice thereof to the other, and if both
Partners have determined that such conditions are satisfied, the Partners shall
promptly execute a notice (a "Formation Notice") setting forth the date for the
commencement of the Partnership which shall be the first date on which all
conditions set forth in Sections 1.6(a) and 1.6(b) are satisfied.
ARTICLE 2
CAPITAL
2.1. Partners' Ownership Interests. Each Partner's ownership interest
-----------------------------
in the Partnership ("Ownership Interest") initially shall be fifty percent
(50%). Such Ownership Interest is subject to adjustment pursuant to the other
terms and provisions of this Agreement.
2.2. Initial Capital Contributions. The initial capital contributions
-----------------------------
of the Partners shall be made on the Formation Date as follows:
a. Cash.
----
TSI $15,000
---
GRI $15,000
---
-7-
<PAGE>
b. Affiliation Agreements. In addition, on the Formation Date
----------------------
each Partner shall contribute all of its current affiliation agreements with
cable television system operators in the Territory, or rights thereunder with
respect to Basic Cable Audio Programming, including the TCI Agreement, the
Viacom Agreement and the Jones Agreement, and all affiliation agreements
hereafter entered into by each Partner which are in the process of being
negotiated with cable television system operators in the Territory as of the
date of this Agreement, all of which agreements contributed by or on behalf of
each Partner are listed by Partner on Exhibit C attached hereto.
---------
2.3. Additional Capital Contributions. Subsequent to the funding of
--------------------------------
the initial capital contributions, additional capital contributions may be
required by the Partnership from time to time in such amounts and payable at
such time, in such manner and on such terms as may be determined by agreement of
the Partners as set forth in Section 6.5 of this Agreement. Such additional
capital contributions shall be provided to the Partnership by each Partner in
proportion to each Partner's Ownership Interest at the time specified in such
capital call. Neither Partner may contribute property or assets to the
Partnership without the consent of the other Partner.
-8-
<PAGE>
2.4. Default.
-------
a. If any Partner shall fail or refuse to pay any additional
capital contributions called for by the Partners pursuant to Section 2.3 hereof
in the amount, at the time, in the manner and on the terms determined by the
Partners (the "Defaulting Partner"), the other Partner (the "Complying Partner")
may, at its sole option:
i. make an additional capital contribution to the
Partnership in the aggregate amount of the additional
capital contribution required of both Partners in
response to such call, or such lesser amount as the
Complying Partner may elect (an "Aggregate Capital
Contribution");
ii. in addition to making the additional capital contribution
required of it in response to such call, make a loan to
the Defaulting Partner by advancing to the Partnership on
behalf of the Defaulting Partner the additional capital
contribution required of the Defaulting Partner, or such
lesser amount as the Complying Partner may elect (a
"Capital Loan"); or
iii. in lieu of making the additional capital contribution
required of it in response to such call, make a loan to
the Partnership in an amount equal to the aggregate
amount of the additional capital contribution required of
both Partners, or in such lesser amount as the Complying
Partner may elect, which loan shall be convertible, at
the Complying Partner's option and from time to time,
into equity in the Partnership (a "Convertible Debt
Loan").
-9-
<PAGE>
b. If the Complying Partner elects to make the Aggregate Capital
Contribution pursuant to Section 2.4.a.i., the Complying Partner's Capital
Account shall be credited with the amount of such contribution and the Ownership
Interests of the Complying Partner and the Defaulting Partner shall be adjusted
accordingly to give effect to the increased capital contribution of the
Complying Partner. If the Complying Partner elects to make a Convertible Debt
Loan pursuant to Section 2.4.a.iii., the Complying Partner may elect, at any
time that any Convertible Debt Loan is outstanding and upon 5 days prior written
notice to the Defaulting Partner (a "Conversion Election"), to convert all or
any portion of any Convertible Debt Loan into equity, and upon such conversion
the amount so converted shall be credited to the Complying Partner's account and
the Ownership Interests of the Partners shall be adjusted accordingly to give
effect to the increased capital contribution of the Complying Partner. Exhibit D
---------
attached hereto sets forth hypothetical illustrations of the Ownership Interest
adjustments contemplated by this Section 2.4.b in the event a Complying Partner
elects to make an Aggregate Capital Contribution and in the event a Complying
Partner elects to make and then convert a Convertible Debt Loan.
c. If the Complying Partner elects to make a Capital Loan
pursuant to Section 2.4.a.ii., or a Convertible Debt Loan pursuant to Section
2.4.a.iii., such loan shall bear
-10-
<PAGE>
interest at the per annum rate of two percent (2%) in excess of the prime rate
in effect from time to time as published by Chemical Bank, New York, New York,
or its successor (the "Prime Rate"). Any Capital Loan and, unless converted, any
Convertible Debt Loan shall be due and payable 30 days following a demand, or if
no demand is made, in three equal annual installments of principal plus accrued
interest on the first, second and third anniversaries of the date of such loan.
In addition, any Defaulting Partner may pay at any time or from time to time,
all or any portion of any outstanding Capital Loan, and the Partnership may pay
at any time or from time to time, if no Conversion Election has been made and
with the written approval of the Partner or Partners holding the Convertible
Debt Loans to be repaid, all or any portion of any outstanding Convertible Debt
Loan. Until all Capital Loans are paid in full and all Convertible Debt Loans
are either converted or paid in full, any distributions which the Defaulting
Partner would otherwise be entitled to receive under Article 4 or Section 10.2
shall be paid to the Complying Partner, and shall be applied first to
reimbursement of costs of collection, if any, next to accrued interest and the
balance to outstanding principal of the Capital Loans and Convertible Debt
Loans and shall reduce the installments due thereon in inverse order of their
scheduled due dates. The Capital Account of the Defaulting Partner shall
nevertheless be debited with the Defaulting Partner's share of distributions
which is
-11-
<PAGE>
applied to repayment of any Capital Loan. If a Defaulting Partner defaults in
the payment of a Capital Loan or the Partnership defaults in payment of a
Convertible Debt Loan, such loan shall become immediately due and payable, and
shall bear interest from the date of default until payment in full at a rate of
four percent (4%) per annum in excess of the Prime Rate. With respect to any
Capital Loan the Defaulting Partner agrees and with respect to any Convertible
Debt Loan the Partnership agrees to pay all costs of collection, if any,
including attorneys' fees. All Capital Loans and unconverted Convertible Debt
Loans shall automatically become due and payable upon any Transfer of the
Defaulting Partner's Ownership Interest. All Capital Loans and Convertible Debt
Loans shall be represented by a promissory note or other evidence of
indebtedness reasonably satisfactory to the Complying Partner and shall be
secured by a security interest, in the case of Capital Loans, in the Defaulting
Partner's Ownership Interest and, in the case of Convertible Debt Loans, in the
Partnership's assets. The Defaulting Partner or the Partnership, as applicable,
shall execute and deliver such promissory notes, security agreements, financing
statements and other documents relating to a Capital Loan or Convertible Debt
Loan as the Complying Partner shall reasonably request. The Defaulting Partner
hereby irrevocably appoints the Complying Partner and its duly authorized
officers and agents, with full power of substitution, as the Defaulting
Partner's
-12-
<PAGE>
attorney-in-fact to act for and in the Defaulting Partner's behalf and stead to
execute, deliver, file and record any one or more of the foregoing. The
Complying Partner shall not exercise the foregoing appointment unless the
Complying Partner is unable, after reasonable effort, to secure the Defaulting
Partner's signature on any such documents.
d. Unless and until the Complying Partner elects to make an
Aggregate Capital Contribution, Capital Loan, or Convertible Debt Loan pursuant
to Sections 2.4.a.i through iii., the unpaid amount of any additional capital
contribution shall constitute a debt of the Defaulting Partner to the
Partnership, payable without further demand, together with interest at the rate
of 2% per annum in excess of the Prime Rate and all costs of collection,
including attorneys' fees, and shall be and hereby are secured by a security
interest in the Defaulting Partner's Ownership Interest.
e. The rights granted to the Complying Partner under this
Section 2.4 shall be the exclusive remedy of the Complying Partner in the event
that the Complying Partner elects to make an Aggregate Capital Contribution and
in the event that the Complying Partner, after making a Convertible Debt Loan,
converts such loan into equity. In all other instances, the rights granted to
the Complying Partner under this Section 2.4. are in addition to any rights or
remedies,
-13-
<PAGE>
including the right to seek incidental or consequential damages, that the
Complying Partner may have under this Agreement or at law or in equity relating
to the failure or refusal of the Defaulting Partner to make any additional
capital contribution required of it in response to a capital call by the
Partners pursuant to Section 2.3 hereof.
f. If the Partnership prepays any loans made by a Partner to
the Partnership, such prepayments shall be allocated among the loans in
accordance with Section 1O.2.c.iii, and if a Defaulting Partner prepays any
Capital Loans, such prepayments shall be allocated among such loans in
accordance with their respective unpaid balances.
2.5. Interest on Capital Contributions. No interest shall be paid on
---------------------------------
any contribution to the capital of the Partnership.
2.6. Capital Accounts. There shall be established and maintained on
----------------
the books of the Partnership a separate capital account (a "Capital Account")
for each Partner. Each Partner's Capital Account shall be credited with the
amount of money and the fair market value of other property contributed to the
Partnership pursuant to this Article 2 net of any liabilities, if any, which the
partnership assumes or to which the Partnership takes subject. GRI and TSI agree
that the net
-14-
<PAGE>
fair market values of their respective affiliation agreements initially
contributed pursuant to Section 2.2.b. are equal and that the net fair market
value of each Partner's contributed affiliation agreements is $300,000. Each
Partner's allocated share of Partnership items of income, gain, loss and
deduction shall be credited or debited to its Capital Account. All Partnership
distributions to a Partner of cash or property (which shall be valued at its
fair market value net of any liabilities, if any, which the Partner assumes or
to which the Partner takes subject) shall be debited to such Partner's Capital
Account. The Capital Accounts shall be adjusted in accordance with Treas. Reg.
Section 1.704-1(b)(2)(iv)(g) for allocations of depreciation,
amortization, and gain or loss, as computed for book purposes, with respect to
such property. Notwithstanding any other provision hereof, Capital Accounts
shall be maintained in accordance with Treasury Regulations under Section 704(b)
of the Internal Revenue Code ("IRC").
2.7. Borrowing. To the maximum extent reasonably available,
----------
borrowing from third parties or, in the Management Committee's discretion,
Partners or their affiliates, rather than calls for additional capital
contributions, shall be utilized to meet the funding requirements of the
Partnership. Such financing may be arranged through a lending institution making
loans directly to the Partnership or by loans from a Partner or any affiliate
of a Partner to the Partnership
-15-
<PAGE>
represented by a promissory note or other evidence of indebtedness satisfactory
to such Partner. If financing is provided in the form of a loan from a Partner,
or any affiliate of such Partner, such loan shall be secured by a security
interest in the Partnership's assets and shall bear interest at the rate charged
to the lending Partner or affiliate by unrelated banks or lending institutions
on comparable loans for similar purposes, or if there are no such comparable
loans, at such reasonable rate as the lending Partner or affiliate may charge.
With the exception of Convertible Debt Loans, all terms of loans to the
Partnership, including the interest rate on loans from a Partner or its
affiliates, must be approved by the Management Committee.
ARTICLE 3
ALLOCATION OF PROFITS AND LOSSES
3.1. General. Except as otherwise determined below or in Section
-------
2.4(b), all profits losses and credits of the Partnership for a fiscal year
shall be allocated in accordance with the Partners' Ownership Interests.
3.2. Change In Ownership Interest. If the Partners' Ownership
----------------------------
Interests change during a fiscal year, the Partner's share of profits, losses
and credits for such fiscal year shall be determined by assigning to each day in
the fiscal
-16-
<PAGE>
year the fraction of such item equal to the Partner's Ownership Interest in
effect on such day divided by the number of days in the fiscal year, and by
taking the sum of all the amounts so allocated to days within the fiscal year;
provided that gain on the sale of Partnership assets shall be allocated in
accordance with the Ownership Interests in effect at the time of the sale.
3.3. Sale of Substantiallv All Assets. Notwithstanding the foregoing,
--------------------------------
gain or loss on the sale of all or substantially all assets of the Partnership
shall be allocated so that, to the extent possible, the Partners' resulting
Capital Account balances are in the ratio of their Ownership Interests.
3.4. Oualified Income Offset and Minimum Gain Chargeback Rules. The
---------------------------------------------------------
"qualified income offset" rules of Treas. Reg. Section l.704-l(b)(2)(ii)(d), and
the "minimum gain chargeback" rules of Temp. Treas. Reg. Sections 1.704-
lT(b)(4)(iv)(e), or any successor provisions, shall apply with respect to the
allocation of Partnership items.
3.5. Nonrecourse Debt. Any Partner nonrecourse deductions for a
----------------
taxable year shall be allocated to the Partner that made, or guaranteed, or is
otherwise liable with respect to the loan to which such deductions are
attributable, in accordance with Temp. Treas. Reg. Section l.704-lT(b)(4)(iv)(h)
-17-
<PAGE>
or any successor provision. If there is a net decrease during a Partnership
taxable year in the minimum gain attributable to a Partner nonrecourse debt, the
chargeback rules of Temp. Treas. Reg. Section l.704-lT(b)(iv)(h) or any
successor provision shall apply.
3.6. Capital Accounts. Any allocations of profit or loss pursuant to
----------------
Section 2.4(c), Section 3.3 and Section 3.4 shall, to the maximum extent
possible consistent with such Sections, be taken into account in computing
subsequent allocations of profit and loss, so that the Partners' Capital Account
balances shall be equal to the balances that would have resulted in the absence
of such Sections. The character of profit or loss allocated in such subsequent
allocations shall, to the extent possible, be the same as the allocations which
would have been made in the absence of such Sections.
3.7. Contributions of Property. In accordance with IRC Section 704(c)
-------------------------
and the Treasury Regulations thereunder, solely for federal and applicable state
and local income tax purposes, income, gain, loss and deduction with respect to
any property contributed to the Partnership shall be allocated among the
Partners so as to take account of any variation between the adjusted basis of
such property to the contributing Partner for federal income tax purposes and
its fair market value at the time of contribution.
-18-
<PAGE>
3.8. Profit or Loss. For purposes of Article 3,
--------------
"profit or loss" refers to taxable income of the Partnership as computed under
IRC Section 703, but taking into account also (i) any item of income exempt from
tax, and (ii) any item of expense described in IRC Section 705(a)(2)(B) or
treated as described in Section 705(a)(2)(B) by Regulations promulgated under
IRC Section 704(b).
ARTICLE 4
DISTRIBUTIONS
4.1. Sharing of Distributions. Any distributions, including
------------------------
distributions in kind of assets of the Partnership, shall be made in accordance
with the Partners' Ownership Interest at the time of distribution. Except as the
Partners may otherwise agree, all distributions, other than distributions to be
made upon the dissolution of the Partnership, shall be made in cash. At any time
that any distribution is made upon the dissolution of the Partnership, the
Partner or other person responsible for making such distribution shall, to the
maximum extent possible, distribute in kind those assets contributed to the
Partnership pursuant to Section 2.2.b. hereof to the Partner who so contributed
such assets. Any such distributions in kind shall be valued at the fair market
value of such assets at the time of distribution; provided, however, that in
connection with any distribution in kind made pursuant to this Section 4.1 on or
before the second
-19-
<PAGE>
anniversary of the Formation Date, those assets contributed to the Partnership
pursuant to Section 2.2.b hereof shall be deemed to have the value attributed to
them pursuant to Section 2.6 hereof. All assets, other than those originally
contributed to the Partnership pursuant to Section 2.2.b. shall, to the maximum
extent possible, be distributed in kind among the Partners and shall be valued
at the fair market value of such assets at the time of distribution. If the fair
market value at the time of distribution of the assets initially contributed by
any Partner pursuant to Section 2.2.b. is such that the distribution of such
assets to the contributing Partner would constitute an over-distribution to such
Partner, such Partner may elect to accept the distribution in kind of such
assets and pay in cash to the Partnership the amount of the over-distribution.
To the extent that distributions in kind cannot be made as contemplated hereby,
the assets of the Partnership shall be sold and distributions shall be paid in
cash or other property received by the Partnership upon such sale.
4.2. Time of Distribution. No Partner shall have the right to
--------------------
withdraw any amount from its Capital Account, or to receive any distribution or
return of capital, without the approval of the Management Committee. The
Management Committee shall, from time to time, make distributions from
Partnership operations to the Partners in amounts that it determines are
-20-
<PAGE>
not needed and may not reasonably be expected to be needed for Partnership
purposes and repayment of Partnership obligations (including expenses and 1oans)
or establishing reasonable reserves therefor.
4.3. Limits on Distributions. The Partnership shall repay principal
-----------------------
and accrued interest on any Convertible Debt Loans and on any other loans made
by any Partner or its affiliates to the Partnership prior to making any
distributions to the Partners.
ARTICLE 5
ACCOUNTING RECORDS AND FISCAL YEAR
5.1. Books and Records. The Management Committee shall determine once
-----------------
every three years who or what entity shall keep the books and records of the
Partnership, which may be a Partner or the Partnership. In the event the
Management Committee is deadlocked with respect to who should keep the books and
records of the Partnership, the Partnership shall keep its own books and
records. For the first three years after the Formation Date, GRI shall keep or
cause to be kept on behalf of the Partnership appropriate records and books of
account in reasonable detail and in accordance with generally accepted
accounting principles. The Partnership's books initially shall be audited
annually by Arthur Andersen & Co. or such other nationally recognized firm of
independent public accountants as may be selected from time to time by the
-21-
<PAGE>
Management Committee. The books and records shall be maintained at the
principal business office of the Partnership or such other place(s) as the
Partners may determine, and all such books and records shall be available for
inspection and copying by the Partners or their duly authorized representatives
during normal business hours after giving reasonable notice.
5.2. Financial Statements. The person or entity then keeping the
--------------------
books and records of the Partnership pursuant to Section 5.1 hereof shall cause
to be delivered to each Partner the following financial statements prepared, in
each case, in accordance with generally accepted accounting principles
consistently applied, and such other reports as any Partner may reasonably
request:
a. promptly upon availability, and in any event within thirty
(30) days after the end of each month, an unaudited balance sheet as of the end
of such month; and an unaudited statement of income or loss: for the interim
period through such month, such statement of income or loss of such period to
include, in reasonable detail, a comparison of actual to budgeted income or
loss;
b. promptly upon availability, and in any event within thirty'
(45) days after the end of each of the first three quarterly periods of each
fiscal year, an unaudited statement of cash flow for the year to date then
ended; and
-22-
<PAGE>
c. promptly upon availability and in any event with seventy-five
(90) days after the end of each fiscal year, a balance sheet of the Partnership
as of the end of such fiscal year and a statement of income or loss for such
fiscal year, all accompanied by an opinion thereon of the Partnership's
independent certified public accountants, such balance sheet and statement of
income and loss to include a comparison of the current fiscal year with the
immediately preceding fiscal year.
5.3. Bank Accounts. The Partners shall arrange for the Partnership to
-------------
maintain bank accounts in such banks or institutions as the Management Committee
from time to time shall select, and such accounts shall be drawn upon by checks
signed by such person or persons, and in such manner, as may be designated by
the Management Committee. All monies of the Partnership shall be deposited in
the bank account or accounts of the Partnership, and shall not be commingled
with monies of the Partners.
5.4. Tax Returns Information.
-----------------------
a. Unless otherwise determined by the Management Committee from
time to time, if the person or entity keeping the books and records of the
Partnership pursuant to
-23-
<PAGE>
Section 5.1 hereof is a Partner (or an affiliate of a Partner other than the
Partnership) such Partner, or if such person or entity is not a Partner or such
an affiliate, such Partner as the Management Committee may determine from time
to time, shall be the "Tax Matters Partner" for the Partnership, and may take
any action on behalf of the Partnership that it has authority to take as Tax
Matters Partner. In the event the Management Committee determines from time to
time that a person or entity other than GRI shall be the "Tax Matters Partner"
for the Partnership, the Management Committee may designate such alternate
person or entity; provided, however, that such changes in designation shall not
be made more frequently than once every three years. The Tax Matters Partner is
expressly authorized to perform on behalf of the Partnership or any Partner any
act that may be necessary to make this designation effective under any
regulation, ruling, procedure or instruction that may be issued by the Internal
Revenue Service. The Tax Matters Partner shall cause income and other required
foreign, federal, state and local tax returns for the Partnership to be prepared
and to be timely filed with the appropriate authorities. The Tax Matters
Partner shall not be liable to the Partnership for any act or omission taken or
suffered by it in the preparation of such tax returns provided it acted in good
faith and in the belief that such act or omission is in or is not opposed to the
best interest of the Partnership and further provided that such act or omission
is
- 24-
<PAGE>
not in violation of this Agreement and does not constitute gross negligence,
fraud or a willful violation of law.
b. The Tax Matters Partner shall cause any such tax return to be
submitted to each Partner for review and approval at least thirty (30) days
prior to its due date (including extensions) unless otherwise agreed to by the
Partners.
c. The Tax Matters Partner shall cause to be provided to each
Partner information concerning the Partnership's taxable income or loss and each
item of income, gain, loss, deduction or credit which is relevant to reporting a
Partner's share of Partnership income, gain, loss, deduction or credit for
purposes of foreign, federal or state income tax. Information required for the
preparation of a Partner's income tax returns shall be furnished to the Partners
as soon as possible after the close of the Partnership's fiscal year and, in any
event, no later than the date on which the income tax return for such fiscal
year is submitted to the Partners for review.
5.5. Fiscal Year. Unless otherwise determined by the Management
-----------
Committee, or otherwise required by law, the fiscal year of the Partnership
shall be June 1 through May 31. GRI represents that it reports on a taxable year
ending on May 31. TSI represents that it reports on a taxable year ending on
September 30.
-25-
<PAGE>
ARTICLE 6
MANAGEMENT
6.1 Obligation of the Partners. Each Partner hereby agrees that, in
--------------------------
its capacity as a Partner in the Partnership and as a person entitled to
representation on the Management Committee, it shall act in good faith in making
decisions and carrying on the business of the Partnership and shall use its best
efforts at all times to maximize the Basic Cable Audio Programming business of
the Partnership.
6.2. Management Committee. There is hereby established a Management
--------------------
Committee of four (4) members which, unless otherwise provided in this
Agreement, shall have and exercise full discretion and final authority with
respect to the affairs of the Partnership (the "Management Committee"). The
initial members of the Management Committee shall consist of two (2) members
designated by' TSI and two (2) members designated by GRI. Either Partner may
remove, at any time, its representative(s) and, upon such removal, or the death
or resignation of a member of the Management Committee, a successor shall be
designated by the Partner which appointed the Management Committee member being
removed or replaced. Each member of the Management Committee shall have one
vote, except as otherwise provided in the Agreement. Each member of the
Management Committee shall and each Partner shall cause its
-26-
<PAGE>
representatives on the Management Committee to comply with the terms of this
Agreement. In addition, each Partner shall be entitled to appoint alternate
representatives who shall be entitled to attend meetings of the Management
Committee and, in the event that a Partner's representative is unable to attend,
such alternate representative shall have full authority to act in the place of
the absent representative. Each Partner shall notify the other in writing of the
selection of its representatives and alternate representatives. If any Partner's
Ownership Interest is reduced below forty percent (40%) but not below twenty
percent (20%), one of the members of the Management Committee representing such
Partner (such member to be promptly designated by such Partner or, failing such
designation, by the other Partner) shall thereupon be removed from the
Management Committee and such Partner shall be entitled to appoint only one
member of the Management Committee until its Ownership Interest is increased to
forty percent (40%) or more. If any Partner's Ownership Interest is reduced to
below twenty' percent (20%) all of such Partner's representatives on the
Management Committee shall thereupon be removed from the Management Committee
and such Partner shall not be entitled to appoint any members of the Management
Committee or to vote in connection with Management Committee matters unless and
until its Ownership Interest is increased to twenty percent (20%) or more. The
vacancies created by' the removal of such Partner's representatives on the
Management Committee shall be filled by the other Partner.
-27-
<PAGE>
6.3. Chairman of Management Committee. The initial Chairman of the
--------------------------------
Management Committee shall be selected by GRI from among its representatives on
the Management Committee. The initial Chairman shall serve until May 31, 1991.
Thereafter, a new Chairman shall be appointed at the beginning of each fiscal
year by the Partner who did not select the Chairman in the preceding year. The
Chairman (or, if absent, the other representative of the Management Committee
appointed by the Partner which selected the Chairman) shall conduct the meetings
of the Management Committee, shall designate a secretary to the Management
Committee and shall oversee the preparation and circulation of notices, if
required, agenda and minutes. The person appointed secretary shall be a
Management Committee representative or other agent, representative or employee
of the Partner who did not appoint the then current Chairman of the Management
Committee.
6.4. Meetings of Management Committee.
--------------------------------
a. The initial meeting of the Management Committee shall take
place at such time and place as the Partners shall agree. A written agenda
setting forth all material items to be discussed at any Management Committee
meeting shall be prepared and distributed to each Partner at least five (5) days
prior to the Management Committee meeting for which the agenda was prepared.
The Management Committee
-28-
<PAGE>
may estab1ish meeting dates and other requisite notice requirements, in
addition to the written agenda requirement, adopt rules of procedure it deems
consistent herewith, and meet by means of conference telephone or similar
communications equipment. Each Partner shall have the right to call a special
meeting of the Management Committee by giving five (5) days' advance written
notice of the time, date, agenda and location of such meeting to the other
Partner. Notice of any meeting may be waived in writing by the Partners.
b. The presence at any meeting of one representative appointed
by each Partner shall constitute a quorum for the taking of any action;
provided, however, that if a Partner is not entitled to appoint at least one
member or its representative(s) are otherwise not entitled to vote, the presence
of any member of the Management Committee shall constitute a quorum for the
taking of any action. Each representative of each Partner shall be deemed to
have an irrevocable proxy on behalf of all other representatives to the
Management Committee appointed by the same Partner at any Management Committee
meeting with respect to any item set forth on the written agenda provided for
such Management Committee meeting, and unless any such other representatives are
present in person or by phone at such Management Committee meeting, those
representatives present in person or by phone shall be entitled to act on behalf
of and vote in the stead of those
-29-
<PAGE>
absent representatives for whom he is deemed to have a proxy with respect to
any item set forth on the written agenda provided for such Management Committee
meeting. In addition, any representative may appoint any other person as proxy
to act on his behalf and to vote in his stead at any meeting.
c. Unless otherwise waived in writing by the Partners, no action
may be taken by the Management Committee on a matter unless it is set forth on
the written agenda provided for the Management Committee meeting. Any action
required or permitted to be taken by the Management Committee must be by a
majority vote of the representatives present at such meeting or by unanimous
consent in writing, provided that at all times when the Ownership Interest of
any Partner is at least 40%, at least one representative of each Partner must
approve the action for it to be effective.
d. Minutes of each meeting of the Management Committee shall be
prepared and circulated to the Management Committee representatives. Upon their
adoption by the Management Committee, minutes shall be filed in the principal
office of the Partnership. Written consents to any action taken by the
Management Committee without a meeting shall also be filed with the minutes.
-3O-
<PAGE>
6.5. Actions Requiring Approval of Management Committee. The
--------------------------------------------------
Management Committee shall be responsible for all actions which do not
specifically require approval by the Partners under the terms of this Agreement.
The Management Committee shall have the power to delegate responsibility for
such actions as it deems advisable; provided, however, that the following
actions may not be delegated and shall require the approval of the Management
Committee pursuant to the voting requirements of Section 6.4:
a. the making of cash distributions to the Partners other than
as contemplated by an approved Business Plan;
b. the approval of the hiring of the Director of Marketing;
c. at any time that any Partner's Ownership Interest is less
than 20%, the call for additional capital contributions;
d. the entering into or consummation of any transaction or
agreement between the Partnership and a Partner or an affiliate of a Partner
(other than transactions contemplated by Exhibit F attached hereto or
---------
contemplated by any approved Business Plan (as such term is hereinafter
defined) );
-31-
<PAGE>
e. the borrowing of funds (except for Convertib1e Debt Loans)
or the issuance of securities by the Partnership;
f. the incurring of any expenditures which are in excess of
Fifteen Thousand Dollars ($15,000) for any one item other than as contemplated
by an approved Business Plan;
g. the adoption or change of a significant tax or accounting
practice or principle of the Partnership or the making of any significant
accounting election by the Partnership;
h. the institution, settlement or abandonment of any legal
action in the name of the Partnership;
i. the selection of the Partnership's auditors;
j. at any time that any Partner's Ownership Interest is less
than 20%, the approval or modification of business plans, including capital
expenditure budgets, operating budgets and marketing and programming plans
("Business Plans"), which shall be adopted as needed arid shall guide the
operations of the Partnership; and
-32-
<PAGE>
k. those actions which the Management Committee may take
pursuant to Sections 1.2, 5.1, 5.4.a., 5.5, 6.7.a. and 10.2.
6.6. Actions Requiring Approval of Partners.
--------------------------------------
a. The following actions shall require the unanimous consent
of the Partners:
i. the amendment of this Agreement;
ii. the taking of any action other than in accordance with the
purposes of the Partnership;
iii. the admission to the Partnership of a new Partner except
as provided in Sections 11.2 or 12.3;
iv. the sale, pledge, encumbrance or other disposition of any
substantial portion of the assets of the Partnership, except
for the pledge or encumbrance of the Partnership's assets as
security for a Convertible Debt Loan and except for
transactions contemplated by an approved Business Plan or
otherwise in the ordinary course of business;
V. the development of any plans to make products and services of
the Partnership available to a Partner for use in connection
with a Business Opportunity under Section 13.3;
vi. the development of any marketing plans related to services
not then being offered by the Partnership which contemplate
use of Partnership assets, personnel or other resources;
vii. the merger or consolidation of the Partnership with or
into any other entity;
-33-
<PAGE>
viii. the call for additional capital contributions; provided,
however, that at any time that any Partner's Ownership
Interest is less than 20%, this action shall be governed by
Section 6.5.c. hereof;
ix. the approval or modification of Business Plans, which shall
be adopted as needed and shall guide the operations of the
Partnership; provided, however, that at any time that any
Partner's Ownership Interest is less than 20%, this action
shall be governed by Section 6.5.j. hereof; and
x. the making of any significant tax election by the
Partnership.
b. No Partner shall have any authority to act for, or to assume
any obligation or responsibility on behalf of another Partner. In addition to
the other remedies specified in this Agreement, each Partner agrees to indemnify
and hold the other Partner harmless from and against any claim, demand, loss,
damage liability or expense of any kind or nature whatsoever, including
attorneys' fees, incurred by or against such other Partner and arising out of or
resulting from any action taken by the indemnifying Partner in violation
hereof.
6.7. General Manager and Director of Marketing.
-----------------------------------------
a. General Manager. The Management Committee shall, from time to
---------------
time, designate a General Manager of the partnership. Jeffrey Hansen is hereby
designated the initial General Manager of the Partnership, to serve in such
-34-
<PAGE>
position until he resigns or is replaced by action of the Management Committee.
Subject to the general oversight of the Management Committee, the General
Manager shall be delegated responsibility for the day-to-day management and
operation of the Partnership, including, without limitation, arranging for
studio, microwave, and uplink operations; studio staffing; billing; technical
advice; and equipment purchases and maintenance. The General Manager's
compensation shall be paid by the Partnership in accordance with Article 9. The
General Manager shall carry out the decisions of the Management Committee and
the terms of this Agreement, and shall not take any action in contravention of
the Business Plans or budgets and shall have no authority to take any action
requiring Management Committee approval without first obtaining such approval.
The General Manager shall attend the meetings of the Management Committee,
unless otherwise requested by the Management Committee, and shall provide such
reports with respect to the Partnership as may be requested by the Management
Committee. The General Manager will report directly to the Management Committee.
b. Director of Marketing. The General Manager shall select,
---------------------
subject to the Management Committee's approval, a Director of Marketing to whom
shall be delegated responsibility for marketing, sales, and affiliate relations
for the Partnership, including, without limitation, managing
-35-
<PAGE>
sales and affiliate relations staff, attending trade shows, developing sales and
advertising materials, making sales contacts, and preparing sales contracts.
The Director of Marketing's compensation shall be paid by the Partnership in
accordance with Article 9. The Director of Marketing will report directly to
the General Manager.
6.8. Deadlock. If in connection with a matter requiring approval by
--------
the Management Committee or the Partners the vote is evenly split in favor of
and in opposition to the matter and a resolution cannot be reached by the
Partners prior to the beginning of a new fiscal year with respect to budgets and
within 10 days with respect to other matters, a "Deadlock" results and the
following provisions shall apply:
a. If a Deadlock exists with respect to approval of a budget
other than the initial budget, a copy of which is attached hereto as Exhibit E,
---------
the budget shall be that budget used for the immediately preceding fiscal year
adjusted to reflect the percent change in prices in the preceding fiscal year as
indicated in the Consumer Price Index for All Urban Consumers, the U.S. City
Average for All Items, issued by the U.S. Department of Labor, Bureau of Labor
Statistics, 1967=100 ("CPI").
b. Except as otherwise provided herein, if a Deadlock exists
with respect to any matter other than approval of a budget, such action will not
be taken and the Partnership will continue to operate without the proposed
change being effected.
-36-
<PAGE>
ARTICLE 7
PLAN OF OPERATION AND SERVICES OF PARTNERS
7.1. Plan of Operation.
-----------------
a. The Basic Cable Audio Programming service will be offered
as follows:
i. The Basic Cable Audio Programming shall initially
consist of nine (9) formats, other than superstations,
and may be increased or decreased from time to time.
ii. The Basic Cable Audio Programming initially shall be
uplinked from the studio leased by Galactic to customers
of the Partnership via the audio subcarriers on
Transponder 8, 9 or 11 (the "Transponders"), which are
full-time, non-preemptible transponders on domestic
communications satellite Galaxy III, to the extent the
audio subcarriers on the Transponders are functional and
available to Galactic and GRI.
iii. The Partners acknowledge that neither Galactic nor any
affiliate of Galactic shall have any obligation to
undertake any action or expense to maintain any current
transponder or audio subcarrier thereof, or to procure
any other substitute transponder or any audio
subcarriers on any other transponders, including
transponders and/or audio subcarriers on "next
generation" satellites (any thereof being a "Substitute
Transponder").
-37-
<PAGE>
Notwithstanding the foregoing, if at any time within
thirty-six (36) months after the date of this Agreement,
a Substitute Transponder is or becomes available to
Galactic or GRI, and such Substitute Transponder is
located on a satellite which is or will be transmitting
the signals of at least three full-time cable networks,
and Galactic or GRI desires to offer such Substitute
Transponder to the Partnership for use, the Partnership
shall be obligated to use such Substitute Transponder
and shall pay Galactic or GRI, as applicable, an amount
equal to the fair market value of such Substitute
Transponder as determined at the date such Substitute
Transponder is offered to the Partnership; provided,
however, that the Partnership shall only be obligated to
pay for such space on the Substitute Transponder as is
necessary to meet the needs, from time to time, of the
Partnership.
b. The partnership shall develop a marketing plan with the
purpose of maximizing the Basic Cable Audio programming services of the
Partnership.
c. The Partners acknowledge that a certain amount of time (the
"Transition Period") will be required to coordinate and integrate their
respective separate Basic Cable Audio Programming businesses which exist as of
the date of this Agreement. These issues include the need to coordinate the
change in satellite to the satellite presently used by Galactic, to develop and
coordinate the format, presentation and delivery of the Partnership's
programming and the like. The Partners agree that the Management Committee shall
have
-38-
<PAGE>
responsibility for managing and resolving these issues during the Transition
Period, and shall work promptly and expeditiously to resolve such issues. The
Partners also acknowledge that the Partnership will be incurring certain
duplicitous costs during the Transition Period. In order to limit the amount of
time during which such excess costs are incurred by the Partnership, it is
hereby agreed that if the Management Committee has not resolved the transition
issues within the first sixty (60) days following the Formation Date, then the
Partnership shall thereafter only pay such costs as are contemplated to be paid
by the Partnership during its normal operations following the Transition Period.
Any costs not paid by the Partnership shall be the responsibility of the Partner
who would otherwise have incurred such costs in connection with the operation of
its separate Basic Cable Audio Programming business.
7.2. Specialized Services. If the Management Committee determines the
--------------------
need for the specialized services of a Partner or an affiliate of a Partner
(other than those contemplated by this Agreement and other than those
contemplated by an approved Business Plan), such Partner or
-39-
<PAGE>
affiliate shall submit a detailed written proposal for specialized services to
be rendered to the Management Committee for approval prior to the performance of
any such services, and, if approved, such Partner or affiliate shall be
compensated accordingly.
ARTICLE 8
EMPLOYEES
Unless individuals are loaned to the Partnership by one of the Partners
hereto pursuant to the mutual agreement of the Partners, persons performing
full-time services to the Partnership shall be deemed employees of the
Partnership. In the case of individuals loaned to the Partnership, the persons
so loaned shall remain the employees of the furnishing Partner or its affiliate,
and their costs and expenses will be charged to the Partnership in accordance
with Article 9. Any Partner may recommend individuals for full-time employee
positions with the Partnership.
ARTICLE 9
EXPENSES OF THE PARTNERSHIP;
CHARGES TO AND BY THE PARTNERSHIP
9.1. Expenses of the Partnership. The Partnership shall pay all of
---------------------------
its own operating, overhead and administrative expenses of every kind, including
the expenses of Partnership employees.
-40-
<PAGE>
9.2. No Salary. Except as set forth herein, or as subsequently agreed
---------
to in writing, no Partner shall receive any salary, commission or fee for
service rendered on behalf of the Partnership.
9.3. Compensation for Services of the Partners. The Partnership shall
-----------------------------------------
pay any Partner for goods and services, including the services of any
individuals loaned to the Partnership pursuant to Article 8 hereof, provided by
such Partner or its affiliates to the Partnership an amount equal to the fair
market value of the goods or services provided. Any amount agreed to be paid to
any Partner for goods or services provided to the Partnership shall be deemed to
be the fair market value of the goods and services so provided. GRI and its
affiliates shall provide to the Partnership the types of goods and services
identified on Exhibit F attached hereto, which shall include but not be limited
---------
to, all costs for studio, microwave and uplink services, transponders used by
the Partnership, data processing, communications and purchasing services and
personnel. The charges therefor as set forth on Exhibit F and calculated in
---------
accordance with Exhibit F are hereby deemed to be the fair market value for such
---------
goods and services.
-41-
<PAGE>
ARTICLE 10
DISSOLUTION AND LIQUIDATION
10.1. Events of Dissolution and Liquidation. The Partnership shall be
-------------------------------------
dissolved and its affairs wound up pursuant to this Agreement upon the first to
occur of any of the following events ("Events of Dissolution"):
a. the unanimous written consent of the Partners to
dissolution;
b. the sale or other disposition of substantially all of the
assets of the Partnership (excluding a mortgage, pledge or encumbrance of such
assets), unless the Partners elect to continue the business of the Partnership;
c. the declaration of a Default as an Event of Dissolution by
a nondefaulting Partner pursuant to Section 12.2.b.;
d. the entry of an order by a court of competent jurisdiction
declaring Section 2.4 or Articles 6, 11, 12 or 13 invalid or unenforceable and
the Partners are unable to negotiate a new agreement as contemplated by Section
15.13;
-42-
<PAGE>
e. the withdrawal or dissolution of a Partner, unless in any
such instance the remaining Partner elects to continue the business of the
Partnership;
f. upon any Partner (i) admitting in writing its inability to
pay its debts generally as they become due; (ii) filing a petition in bankruptcy
or a petition to take advantage of any insolvency law; (iii) making an
assignment for the benefit of its creditors; (iv) consenting to the appointment
of a receiver of itself or of the whole or any substantial part of its property;
(v) failing to obtain dismissal of any petition in bankruptcy filed against it
within 60 days of the filing thereof; or (vi) filing a petition or answer
seeking reorganization or arrangement under the federal bankruptcy laws or any
other applicable law or statute of the United States of America or any state
thereof, in each case if, and only if, the Partner not subject to any of the
foregoing events elects in writing to dissolve and wind up the Partnership;
g. the entry of an order for relief pursuant to an involuntary
petition against the Partnership under Chapter 7 of the bankruptcy law of the
United States; the filing by the Partnership of a voluntary petition for
liquidation under Chapter 7 of the Bankruptcy Code of the United States; the
general assignment by the Partnership for
-43-
<PAGE>
the benefit of creditors under the laws of any state; or the appointment of a
receiver for all or substantially all of the assets of the Partnership, unless
such receivership is dissolved within 30 days after the appointment of such
receiver; however, the filing of a voluntary petition under Chapter 11 of the
Bankruptcy Code of the United States by the Partnership, or the entry of an
order for relief pursuant to a voluntary or involuntary petition by or against
the Partnership under Chapter 11 of the Bankruptcy Code of the United States,
shall not, in itself, cause dissolution of the Partnership;
h. the happening of any event which makes it unlawful for the
Partnership business to be conducted;
i. the expiration of the term provided in Section 1.5 of this
Agreement; and
j. the occurrence or existence of any other event not
inconsistent herewith which would cause dissolution of the Partnership under the
Colorado Uniform Partnership Act.
10.2. Winding-Up. Upon the occurrence of an Event of Dissolution, the
----------
Partnership's affairs shall be wound up by the person designated by the
Management Committee to do so, or if no such person is designated, then by the
General Manager, or, if there is no General Manager, by such other person or
-44-
<PAGE>
persons required by law to wind up its affairs (the "Liquidator"), as follows:
a. A statement of the assets and liabilities of the
partnership as of the date of dissolution shall be prepared.
b. The assets and properties of the Partnership shall be
liquidated or valued at their fair market value by the Liquidator or an
appraiser selected by the Liquidator as promptly as possible, and receivables
collected, all in an orderly and businesslike manner so as not to involve undue
sacrifice.
c. The assets of the Partnership, including the proceeds of
liquidation, shall be applied and distributed in the following order of
priority:
i. to the payment of the debts and liabilities of the
Partnership to third parties;
ii. to establishing any reserves that the Liquidator, in
accordance with sound business judgment, deems reasonably
necessary for any contingent or unforeseen liabilities or
obligations of the Partnership, which reserves may be paid
over by the Liquidator to an escrow agent selected by it to
be held by such agent for the purpose of: (a) distributing
such reserves in payment of the aforementioned
contingencies, and (b) upon the
-45-
<PAGE>
expiration of such period as the Liquidator may deem
advisable, distributing the balance thereof in the
manner provided herein;
iii. to the payment, first, of Convertible Debt Loans, pro
rata in accordance with their respective unpaid
balances, and then to the payment of any other loans to
the partnership by the Partners, pro rata in accordance
with their respective unpaid balances; and
iv. subject to the provisions of Section 4.1 hereof with
respect to distributions in kind upon dissolution of
the Partnership, to the Partners in proportion to each
Partner's Ownership Interest.
If there are any outstanding Capital Loans, or Convertible Debt Loans by a
Complying Partner, any amounts otherwise payable to the Defaulting Partner under
Section 10.2.c. shall be paid to the Complying Partner until such loans are paid
in full. If there are any outstanding obligations of the Defaulting Partner to
the Partnership under Section 2.4, an amount equal to the obligations of the
Defaulting Partner to the partnership shall be paid to the Complying Partner
before any distribution is made to the Defaulting Partner under Section 10.2.c.
Distributions pursuant to this Section 10.2 shall be made within the time limits
established by Treasury Regulations under IRC Section 704(b).
-46-
<PAGE>
ARTICLE 11
RESTRICTIONS ON TRANSFER OR SALE OF
PARTNERSHIP OWNERSHIP INTEREST
11.1. Restrictions on Transfer. No Partner shall sell, transfer,
------------------------
pledge or otherwise dispose of all or any part of or rights in its Ownership
Interest ("Transfer") except in accordance with this Article 11.
Notwithstanding the foregoing, a Partner may mortgage, pledge or encumber its
Ownership Interest to a financial institution and a Partner may transfer all or
part of its Ownership Interest to any affiliate of such partner, including any
entity which controls such Partner, which is controlled by such Partner, or
which is under common control with such Partner, or any general or limited
partnership in which the Partner or any affiliate of such Partner is a general
partner (a "Permitted Transferee").
11.2. Buy-Sell Procedure.
-------------------
a. Any Partner ("Offeror") shall have the right to serve upon
the other Partner ("Offeree") a notice (the "Offering Notice") that the Offeror
is initiating the buy-sell procedure set forth in this Section 11.2. The
Offering Notice shall specify a dollar value for the entire Partnership. The
Offeree shall have ninety (90) days after receipt of the Offering Notice to
elect to sell all, but not less than all, of
-47-
<PAGE>
its Ownership Interest or to buy all, but not less than all, of the Offeror's
Ownership Interest. If the Offeree does not exercise either of its options
within ninety (90) days after the receipt of the Offering Notice, the Offeree
shall be deemed conclusively to have elected to sell its Ownership Interest in
the Partnership.
b. The price for a sale or purchase pursuant to this Section
11.2 shall be the amount which equals the Ownership Interest to be bought or
sold free and clear of all liens and encumbrances, expressed as a percentage,
times the dollar value of the entire Partnership specified in the Offering
Notice, less the dollar amount owed on Capital Loans by the selling Partner to
the purchasing Partner and plus the dollar amount owed on Capital Loans by the
purchasing Partner to the selling Partner. The full purchase price to be paid by
either the Offeror, the Offeree or the designee of either (appointed pursuant to
Section 11.2.c.) shall be paid on the Closing Date (as such term is hereinafter
defined) in cash, by certified or cashier's check or by wire transfer of funds
to an account specified at least two days prior to the Closing Date by the
person whose Ownership Interest is being purchased.
c. A Partner obligated to purchase under this Section 11.2 may
designate another person as the purchaser and shall fix a closing date (the
"Closing Date") not later
-48-
<PAGE>
than 15 days following the exercise or expiration of the options stated in
Section 11.2.a. above. The closing shall take place on the Closing Date at the
office of the Partnership or at such other place as the Partners shall mutually
agree.
d. At the closing, the selling Partner shall:
i. execute and deliver to the purchasing Partner or its
designee an assignment of its entire Ownership Interest
in the Partnership and any other instruments that such
purchasing Partner or its designee may reasonably require
to give such purchasing Partner or its designee good and
clear title, free of all liens and encumbrances, to all
of the selling Partner's right, title and interest in and
to the Partnership;
ii. pay any transfer or similar taxes arising out of, or in
connection with, the sale and transfer of its Ownership
Interest to the purchasing Partner or its designee (other
than foreign, federal, state and local net income taxes
payable by the purchasing Partner or its designee); and
iii. the purchasing Partner or its designee shall pay to the
selling Partner the purchase price in accordance with the
provisions of Section 11.2.b.
e. The sale by a Partner of its Ownership Interest in the
Partnership pursuant to this Section 11.2 shall not relieve the selling Partner
of any of its obligations under this Agreement arising prior to such transfer,
but the selling Partner shall be relieved of any obligations under this
Agreement arising subsequent to such transfer. Upon the
-49-
<PAGE>
consummation of such sale, the purchasing Partner and its designee, if any,
shall execute and deliver to the selling Partner, in form reasonably
satisfactory to the selling partner, an instrument assuming all such post-
transfer liabilities and obligations of the Partnership, together with a
covenant to hold the selling Partner harmless from and against all such
liabilities and obligations; provided that the foregoing shall not relieve the
selling Partner of any liability arising out of its breach of this Agreement.
f. If the purchasing Partner or its designee fails to
consummate the acquisition of the selling Partner's Ownership Interest on the
Closing Date, then the purchasing Partner automatically shall be deemed to have
become the selling Partner (the "New Selling Partner"), and the other Partner
(the "New Purchasing Partner") shall have the option of purchasing the Ownership
Interest of the New Selling Partner at a price in cash equal to 90% of the value
of the New Selling Partner's Ownership Interest as determined pursuant to
Section 11.2.b hereof. The closing on any such acquisition shall be on a date
selected by the New Purchasing Partner which is not more than 105 days after the
New Selling Partner's default. If the New Purchasing Partner elects not to
acquire the New Selling Partner's Ownership Interest, then the Partnership shall
continue unless or until terminated or dissolved in accordance with this
Agreement or unless or until any Partner elects to
-50-
<PAGE>
exercise its rights pursuant to Section 11.2 hereof or Section 12.3 hereof.
g. No Offering Notice may be given by a Partner within 180 days
of the date on which a Partner first gives notice that it will proceed to
purchase the other Partner's Ownership Interest pursuant to Section 12.3.a.
hereof.
11.3. Right of First Refusal.
-----------------------
a. If a Partner shall receive a bona fide offer in writing from
a third party which is not a Permitted Transferee of such Partner (a "Bona Fide
Offer") for all of its Ownership Interest and shall propose to transfer all of
its Ownership Interest in accordance with such Bona Fide Offer, then the Partner
that received the Bona Fide Offer (the "Selling Partner") shall afford the other
Partner (the "Offeree Partner") a right of first refusal to acquire such
Ownership Interest at the same price and on substantially the same terms offered
to the Selling Partner by such third party.
b. The Selling Partner shall give notice to the Offeree Partner
of the Bona Fide Offer within 3 days of the Selling Partner's determination that
it desires to accept the Bona Fide Offer (an "Offer Notice"), enclosing with
such Offer Notice a complete and correct copy of the Bona Fide Offer setting
forth all the terms thereof.
-51-
<PAGE>
c. If the Offeree Partner or any other person that the Offeree
Partner may designate (a "Designee") shall desire to exercise the right of first
refusal then it: shall do so in accordance with the following provisions:
i. the Offeree Partner or its Designee shall give written
notice thereof to the Selling Partner within thirty (30)
days after the Offer Notice was received and, if a
Designee is to effect the purchase, the Offeree Partner
shall guarantee the performance of such Designee;
ii. the Offeree Partner or its Designee shall tender payment
one terms no less favorable than those offered by such
third party (except that such terms may provide for the
payment of all Capital Loans owed by the Selling Partner
to the Offeree Partner), provided that to the extent that
the consideration offered in the Bona Fide Offer is cash
in whole or in part, the tendered payment must include an
amount of cash equal to that in the Bona Fide Offer, and
provided further that any such cash payment must be
tendered within ninety (90) days after the Offer Notice
was received; and
iii. the closing of a purchase of the Selling Partner's
Ownership Interest by the Offeree Partner or its Designee
shall be held at a mutually acceptable place on a
mutually acceptable date within such ninety (90) days.
At such closing, the Selling Partner shall, on receipt of
the payment therefor, assign its Ownership Interest to
the Offeree Partner or its Designee and shall execute
such documents as may be necessary to effectuate the
sale.
-52-
<PAGE>
d. If the Offeree Partner shall elect not to exercise its right
of first refusal or if the 90-day period shall lapse without the Offeree Partner
or its Designee tendering payment, then the Selling Partner may transfer its
Ownership Interest to the third party; provided that such transfer is effected
in accordance with all provisions of Section 11.3 and that:
i. the Selling Partner shall sell not less than its entire
Ownership Interest to the third party which made the Bona
Fide Offer;
ii. such transfer must be made upon substantially the same
terms set forth in the Offer Notice (any cash payments
called for in the Bona Fide Offer must remain the same or
higher for the transfer to be considered to be made upon
substantially the same terms set forth in the Offer
Notice);
iii. such transfer must be made within sixty (60) days after
the expiration of the 30-day period or the 90-day period,
as the case may be;
iv. the transferee shall be bound by the provisions of and
assume the obligations of the Selling Partner under this
Agreement as fully and to the same extent as though such
transferee had executed this Agreement;
v. the Selling Partner shall not be relieved of any of its
obligations under this Agreement arising prior to such
transfer, to the extent such obligations shall not be
discharged by the transferee, but the Selling Partner
shall be relieved of any obligations under this
Agreement arising subsequent to such transfer;
-53-
<PAGE>
vi. the Offeree Partner's consent to the transfer must be
obtained if any transfer is to be made hereunder when any
Default by the Selling Partner has occurred and is
continuing or when any Capital Loan or Convertible Debt
Loan from the Selling Partner to the Offeree Partner or
the Partnership, as applicable, is outstanding or during
any liquidation or dissolution proceeding of the
Partnership; and
vii. the Selling Partner and the transferee shall execute such
documents as the Offeree Partner shall reasonably request
to evidence the assumption and continuing obligations
referred to herein.
If such sale does not take place in accordance with the foregoing conditions,
then the Selling Partner shall remain a Partner as if the Offer Notice had not
been given.
e. The Selling Partner does not waive any claims or remedies it
may have in law or equity against the Offeree Partner in case the Offeree
Partner elects to purchase (or to cause a Designee to purchase) and wrongfully
fails to so purchase the Selling Partner's Ownership Interest.
ARTICLE 12
DEFAULT
12.1. Definition of Default. For the purpose of this Agreement, a
---------------------
"Default" shall occur upon:
-54-
<PAGE>
a. the failure of a Defaulting Partner to pay, within 30 days
of the time required, the full amount of any additional capital contribution
required by the Management Committee or the principal and interest due on any
Capital Loan, or to timely perform any other obligation under any documents
relating to any Capital Loan;
b. a breach by any Partner of a material term of this
Agreement, if such breach was not cured within thirty (30) days of receipt of
written notice from the other Partner that a breach had occurred;
c. the bankruptcy of a Partner, or the admission in writing by
a Partner of its inability to pay its debts as they come due; or
d. the failure of the Partnership to timely make any payments
under any loan from a Partner or its affiliates to the Partnership, including
any Convertible Debt Loan, or to timely perform any of its obligations under any
documents relating to any loan from a Partner or its affiliates to the
partnership, including any Convertible Debt Loan.
12.2. Remedies. Upon a Default, in addition to the remedies provided
--------
elsewhere in this Agreement, the nondefaulting Partner shall have:
-55-
<PAGE>
a. all rights and remedies provided by law or in equity,
including (if a secured party) the rights and remedies of a secured creditor
under the Colorado Uniform Commercial Code;
b. the right to dissolve the Partnership;
c. the right to require the Partner in Default to invoke the
buy-sell procedure set forth in Section 11.2 at any time after such Partner has
been in Default for a period of at least 120 consecutive days;
d. the right to purchase the Ownership Interest of a Partner
in Default as provided in Section 12.3.
12.3. Buy-Out of Partner in Default.
------------------------------
a. Upon the occurrence of a Default described in Section
12.1.a. or 12.1.b., the nondefaulting Partner, or the assignee or designee of
the nondefaulting Partner, shall have the right, upon notice to the Partner in
Default to purchase the Ownership Interest of the Partner in Default for a
purchase price equal to 90% of the appraised value of the Ownership Interest,
minus any amounts owed by the Partner in Default to the nondefaulting Partner
under any Capital Loans. Each party shall select an independent
-56-
<PAGE>
appraiser within thirty (30) days and such independent appraisers shall select a
third appraiser within fifteen (15) days, which third appraiser shall promptly
determine the value of the Ownership Interest of the Partner in Default;
provided, however, if a party fails to appoint an appraiser within thirty (30)
days after the above-referenced notice, the appraiser appointed by the other
party shall determine the value of the Partner in Default's Ownership Interest.
The closing of the sale of the Ownership Interest of the Partner in Default
shall take place at the office of the Partnership, or at such other place as the
Partners shall mutually agree, on a date selected by the nondefaulting Partner
which shall be within 90 days of notice of the appraiser's determination of the
value of the Ownership Interest. At the closing the purchase price shall be
paid in cash, by cashier's or certified check or by wire transfer to an account
specified by the Partner in Default at least two days prior to the Closing Date.
Transfer or similar taxes arising out of, or in connection with, the sale and
transfer of the Ownership Interest of the Partner in Default shall be paid by
the Partner in Default. The Partner in Default shall execute and deliver an
assignment of its Ownership Interest in a form acceptable to the nondefaulting
partner, or its assignee or designee. The nondefaulting Partner and its
assignee or designee, if any, shall execute and deliver an instrument assuming
all post-transfer liabilities and obligations of the Partnership.
-57-
<PAGE>
b. No notice pursuant to Section 12.3.a hereof may be given by
a nondefaulting Partner within 106 days of the date on which a Partner first
gives an Offering Notice pursuant to Section 11.2 hereof.
ARTICLE 13
NONCOMPETITION
13.1. Noncompetition with the Partnership. Affiliation agreements for
-----------------------------------
Basic Cable Audio Programming services with cable television system operators in
the Territory entered into after the date of this Agreement by either Partner
shall be entered into in the name of and on behalf of the Partnership. If an
affiliation agreement is entered into notwithstanding this provision in the name
of an individual Partner it shall be deemed a Partnership asset and such Partner
shall assign it to the Partnership. An assignment by a Partner of an
affiliation agreement pursuant to this provision shall not constitute an
additional capital contribution to the Partnership and shall have no effect on
the Partner's Ownership Interest or capital account.
13.2. Noncompetition Between the Partners. Except by virtue of their
-----------------------------------
respective status as a Partner in the partnership and except as contemplated by
this Agreement, for so long as this Agreement remains in effect, neither TSI nor
-58-
<PAGE>
GRI, nor any of their respective affiliates, employees, officers or agents shall
directly or indirectly own, manage, operate, join, control or participate in the
ownership, management, operation or control of or be connected in any manner
with the provision of Basic Cable Audio programming services other than through
the Partnership.
13.3. Remedies. The Partners further agree that the remedy at law for
--------
a breach of the foregoing would be inadequate and that the non-breaching party
hereunder shall be entitled to injunctive relief for such a breach and
attorneys' fees, which relief shall be cumulative to other remedies and relief
ordinarily available under such circumstances and shall not be construed as an
exclusive remedy or relief.
13.4. Drake-Chenau1t/Jones Satellite Services. Notwithstanding any
---------------------------------------
other provision of this Agreement, TSI and GRI agree that the offering of radio
station music programming services to radio stations as now conducted by
Galactic through the partnership known as Drake-Chenault/Jones Satellite
Services, or as such services or similar services may be provided in the future
by such partnership, Galactic, TSI, or any affiliate of Galactic or TSI,
including any Permitted Transferee, does not constitute Basic Cable Audio
Programming Services.
-59-
<PAGE>
ARTICLE 14
FORCE MAJEURE
14.1. Force Majeure. No Partner hereto shall be liable to the other
-------------
Partner and no Partner hereto shall be deemed in default hereunder for any
failure or delay in the performance of any of its covenants, agreements or
obligations, caused by or arising out of any of the following conditions of
force majeure: disaster, labor disturbances, shortage of labor or equipment,
strikes, lockouts, other industrial disturbances, acts of God, satellite,
transponder and sub-carrier failures of any nature, acts of a public enemy, war,
blockade, riot, insurrection, lightning, fire, storm, flood, inclement weather,
explosion, or any regulations, restrictions or acts of governmental agencies, or
on account of any eventualities or conditions, whether enumerated or not, beyond
the reasonable control of such Partner.
14.2. Notice of Force Majeure. The Partner affected by any condition
-----------------------
of force majeure as described in this provision shall promptly notify the other
Partner in writing and hereby agrees to use reasonable diligence to remove any
such conditions of force majeure as may occur from time to time (except GRI and
Galactic shall have no obligation to undertake any action or expense to procure
a Substitute Transponder in the event the Transponders are unavailable or
dysfunctional due
-60-
<PAGE>
to any condition of force majeure). No right of a Partner shall be affected for
failure or delay of that Partner to meet any condition of this Agreement where
such failure or delay is caused by a condition of force majeure as defined
herein, and such partner shall be excused from performance of any obligation
affected by such condition of force majeure during the period required to
overcome the delay; and the time limits provided in this Agreement to meet any
condition affected by force majeure shall be deemed and treated as extended for
a period commensurate with the delay caused by force majeure; provided, however,
nothing contained herein shall require the settlement of strikes, lockouts, or
other labor difficulties by the Partner affected contrary to its wishes, and the
disposition or manner of handling or remedying any and all such labor
difficulties is hereby expressly acknowledged to be entirely within the
discretion of the Partner concerned. Nothing contained herein shall prohibit the
Partnership from obtaining from other sources the goods and/or services which
were to have been provided by the Partner but which are affected by force
majeure.
ARTICLE 15
MISCELLANEOUS
15.1. Limits of Partnership. The relationship between the Partners
---------------------
shall be limited to the performance of
-61-
<PAGE>
matters stated in this Agreement. Nothing in this Agreement shall be construed
to create a partnership for other matters between the Partners, nor to authorize
any Partner to act as general agent for the other Partner, nor to permit any
Partner to bid for or undertake any other contract for the other Partner, nor to
borrow money on behalf of or to use the credit of the other Partner for any
purposes. Should any Partner commit acts beyond the scope of this Agreement
which cause liability to be imposed on the other Partner, the Partner committing
such acts shall indemnify the other Partner against any lost profits, damages,
losses, claims, costs, attorneys' fees and other expenses incurred by reason of
such acts.
15.2. Insurance. The Partnership shall obtain sufficient insurance
---------
to protect the Partnership from and against such liabilities and risks as are
customarily insured against by prudent persons engaged in similar businesses,
except that neither the Partnership, either Partner or Galactic shall be
required to maintain any form of insurance with respect to any Transponder,
Substitute Transponder, satellite or any associated space or terrestrial
equipment.
15.3. Confidential Information.
-------------------------
a. Each Partner has acquired, and the Partnership is expected
to acquire, certain knowledge and
-62-
<PAGE>
information, developed and experimental, not generally known in the business
relating to the business of the Partnership, including the information set forth
on the Exhibits to this Agreement and the contracts and agreements contributed
to the Partnership pursuant to Section 2.2 hereof, or entered into by the
Partnership after the date hereof, which provides each Partner, and will provide
the Partnership, with a competitive advantage relating to methods, processes,
technology, formulas, know-how, research and development programs, plans, sales
and requirements and other confidential business information, trade secrets and
data (collectively, "Confidential Information"). Confidential Information shall
not include:
i. information known to the Partner prior to formation of
the Partnership and not obtained or derived directly from
the other Partner;
ii. information which is or becomes available to the general
public other than through acts or omissions attributable
to the Partner; or
iii. information obtained from a third party who is lawfully
in possession of the same and who is not subject to a
confidentiality or nonuse obligation owed to the other
Partner, the Partnership or others with respect to that
information.
For purposes of this Agreement, specific information disclosed shall not be
deemed to be within the foregoing exceptions merely because it is embraced by
general information in the public domain. The Partners recognize that as a
result of
-63-
<PAGE>
being a party to this Partnership each Partner will obtain access to some of the
other Partner's Confidential Information as well as to the Confidential
Information of the Partnership and that the other Partner or the Partnership
would suffer great loss and irreparable harm upon disclosure or improper use of
such Confidential Information. Each Partner agrees to keep secret all
Confidential Information of the other Partner and the Partnership and agrees not
to disclose the same, except to its affiliates who agree to be bound to maintain
Confidential Information in confidence to the same extent the Partner is bound
hereunder. In addition, each Partner shall cause all employees of the Partner
or its affiliates who will have access to Confidential Information to maintain
the confidence of the Confidential Information to the same extent each Partner
is bound hereunder. Upon termination of this Agreement, all memorandum, notes,
records, writings, reports, manuals, drawings and any other items belonging to
each Partner, including all copies thereof, shall be returned to their
respective owner.
b. Notwithstanding the foregoing, without prior agreement of
the Partner or the Partnership, each Partner may make such disclosures of
Confidential Information which it is required to make by law, is advised by
counsel that it may be required to make by law, or as are necessary or advisable
under or pursuant to the rules and regulations of the
-64-
<PAGE>
Securities and Exchange Commission in connection with any offering of
securities. In addition, such disclosures as are reasonably necessary to
accomplish the overall business purposes of this Agreement may be made to
such of the following types of business individuals and entities as shall
first agree to maintain Confidential Information in confidence to the same
extent the Partner is bound hereunder and not to use Confidential Information
except for the purposes for which it is disclosed: (i) consultants,
contractors, suppliers, accountants, and the like, engaged to perform
services or provide material or equipment for the Partnership; (ii) potential
lenders of funds for any operations or activities proposed to be conducted
hereunder; (iii) individuals or entities with whom the Partner is negotiating
for resale, transfer or assignment of the Partner's Ownership Interest; and
(iv) governmental agencies to the extent that such disclosure is lawfully
required by such agencies or to the extent that such Confidential Information
is inextricably contained in information lawfully required by such agencies,
provided that the Partner will make reasonable efforts to make such disclosures
to such agencies in confidence if possible and if not possible to request such
agencies to refrain from publishing and to minimize access by others to such
Confidential Information.
-65-
<PAGE>
c. The obligation of any Partner to maintain Confidential
Information in confidence pursuant to this Section 15.3 shall expire at such
time as the Partnership is terminated or at such time as such Partner and/or any
affiliate of such Partner ceases for any reason to be a Partner in the
Partnership, except as such term may be extended by virtue of the provisions of
any affiliate agreement of the Partnership.
15.4. No Press Release. No Partner shall make any announcement,
----------------
press release or public statement relating in any manner to the Partnership
or operations under this Agreement without first furnishing the proposed text
thereof to the other Partner and obtaining the other Partner's approval in
writing, which approval shall not be unreasonably withheld; provided, however,
that the requirement for written approval is waived when public disclosure by
any Partner may be required by law or regulations promulgated thereunder, or
may, upon advice of counsel, be required by law, or is necessary or advisable
in connection with any offering of securities, or is required by judicial
order or similar pronouncement, or the rules of an established stock exchange.
Whenever practicable, such announcements, press releases and public statements
shall be issued jointly by the Partners.
15.5. Modification. No change, modification or amendment to this
------------
Agreement shall be valid unless the same is in writing and signed by both
Partners.
-66-
<PAGE>
15.6. Gender and Number. Each pronoun shall include any gender or
-----------------
number thereof as the situation requires.
15.7. Benefits and Obligations. All provisions of this Agreement
------------------------
shall be binding upon, inure to the benefit of and be enforceable by and against
the parties hereto, their permitted successors and permitted assigns.
15.8. Counterparts. This Agreement may be executed in several
------------
counterparts, each of which when so executed shall be considered as an original
and all of which together shall constitute one agreement.
15.9. Captions. The captions at the beginning of the sections of this
--------
Agreement are not a part of this Agreement but merely labels to assist in the
locating and reading of those sections and shall be ignored in construing this
Agreement.
15.10. Further Performance. The Partners covenant and agree to
-------------------
execute any further instruments and documents and perform acts which are or may
become necessary to carry out the purposes of this Agreement.
15.11. Governing Law. This Agreement shall be governed by the laws of
-------------
the State of Colorado.
-67-
<PAGE>
15.12. Notices. All notices and other communications required or
-------
permitted to be given hereunder shall be in writing and shall be deemed to have
been duly given when delivered, if delivered by hand or three (3) days after
deposit in the United States mails if mailed, first class mail, postage prepaid,
certified mail, return receipt requested:
i. If to TSI:
TEMPO Sound, Inc.
c/o International Cablecasting
Technologies Inc.
9478 W. Olympic Boulevard
Suite 301
Beverly Hills, California 90212
Attn: Jerald Rubenstein
With a copy to:
Peter A. Gross, Esq.
342 Madison Avenue, Suite 505
New York, New York 10173
ii. If to GRI:
Galactic Radio Partners, Inc.
c/o Galactic Radio, Inc.
9697 East Mineral Avenue
Englewood, Colorado 80112
Attn: President
With a copy to:
General Counsel
c/a Galactic Radio, Inc.
9697 East Mineral Avenue
Englewood, Colorado 80112
or to such other address or addresses as may hereafter be specified by notice
given by any of the above to the others.
-68-
<PAGE>
15.13. Severability. Each provision of this Agreement shall be
------------
considered severable and if for any reason any provision of this Agreement is
determined to be invalid, such invalidity shall not impair the operation or
affect other provisions of the Agreement and the parties further agree that if a
court of competent jurisdiction shall declare Section 2.4 or Articles 6, 11, 12
or 13 to be invalid or unenforceable, the parties shall in good faith
renegotiate such provisions to carry out the intent of the parties at the time
of the signing of this Agreement and if the parties fail to reach such
agreement, the partnership shall be dissolved.
15.14. Title to Property. Title to the property owned by the
-----------------
Partnership shall be held in the name of the Partnership.
15.15. Reimbursement of Certain Expenses of the Partners. Subject to
-------------------------------------------------
the limitations set forth in the Agreement, the Partners may pay certain
expenses on the Partnership's behalf and shall be entitled to reimbursement from
the Partnership for all direct expenses incurred in the operation of the
Partnership's business.
15.16. No Commissions. Each Partner hereto represents and warrants to
--------------
the other that it has not incurred any obligations or liabilities, contingent or
otherwise, for
-69-
<PAGE>
brokerage or finder's fees or agent's commissions or other like payment in
connection with this Agreement or the transaction contemplated hereby for which
any Partner will have any liability hereunder to the other Partner. Each
Partner hereto agrees to indemnify and hold the other hereto harmless against
and in respect of any breach by it of the provisions of this Section 15.16.
15.17. Merger. This Agreement constitutes the entire agreement and
------
understanding of the parties hereto with respect to the subject matter hereof
and merges and supersedes all other or prior written or oral agreements or
understandings of the parties with respect to the subject matter hereof.
IN WITNESS WHEREOF, the parties hereto have executed this Partnership
Agreement as of the date first set forth above.
TEMPO Sound, Inc.
an Oklahoma corporation
By: /s/ Jerald H. Rubinstein
--------------------------
Chairman
GALACTIC RADIO PARTNERS, INC., a
Colorado corporation
By: /s/ Glenn R. Jones
-------------------------
Chief Executive Officer
-70-
<PAGE>
Exhibit 10.9
Portions of this exhibit have been omitted pending a determination by the
Securities and Exchange Commission that certain information contained herein
shall be afforded confidential treatment. The omitted portions are indicated
by three asterisks.
<PAGE>
AMENDED AND RESTATED
PARTNERSHIP AGREEMENT
OF
PRODUCT INFORMATION NETWORK VENTURE
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
ARTICLE 1 ORGANIZATION.......................................................1
1.1 Name...............................................................1
1.2 Purpose............................................................1
1.3 Principal Office, Partners' Names and Addresses....................2
1.4 Term...............................................................2
ARTICLE 2 CAPITAL AND OTHER REQUIREMENTS.....................................3
2.1 Partners' Ownership Interests; Initial Contributions...............3
2.2 Concerning Adelphia................................................3
2.3 Additional Capital Contributions...................................6
2.4 Default in the Payment of Additional Capital Contributions.........7
2.5 Interest on Capital Contributions..................................9
2.6 Capital Accounts...................................................9
2.7 Protection Against Dilution.......................................10
ARTICLE 3 ALLOCATION OF PROFITS AND LOSSES..................................10
3.1 Allocation of Profits.............................................10
3.2 Allocation of Losses..............................................10
3.3 Allocation of Gain or Loss on Sale................................10
3.4 Change in Ownership Interest......................................10
3.5 Minimum Gain Chargeback Rules.....................................12
3.6 Nonrecourse Debt..................................................12
3.7 Curative Allocations..............................................12
3.8 Contributions of Property.........................................12
3.9 Profit or Loss....................................................12
ARTICLE 4 NON-LIQUIDATION DISTRIBUTIONS.....................................13
4.1 Distribution in Accordance with Ownership Interests...............13
4.2 Distribution Policy...............................................13
4.3 Withholding.......................................................13
</TABLE>
-i-
<PAGE>
<TABLE>
<C> <S> <C>
ARTICLE 5 ACCOUNTING RECORDS AND FISCAL YEAR................................13
5.1 Books and Records.................................................13
5.2 Financial Statements and Reports..................................14
5.3 Bank Accounts.....................................................14
5.4 Tax Returns Information...........................................14
5.5 Fiscal Year.......................................................17
5.6 Tax Elections.....................................................17
ARTICLE 6 MANAGEMENT........................................................17
6.1 Executive Committee...............................................17
6.2 Chairman of Executive Committee...................................18
6.3 Meetings of Executive Committee...................................18
6.4 Business Plan.....................................................19
6.5 Actions Requiring Approval of Executive Committee According
to Ownership Interests............................................19
6.6 Action on Programming Content.....................................21
6.7 No Authority to Act for Other Partners............................21
ARTICLE 7 SERVICES OF PARTNERS..............................................22
ARTICLE 8 DAY-TO-DAY MANAGEMENT; PARTNERSHIP EXPENSES; PARTNER
AFFILIATION AGREEMENTS............................................22
8.1 Management Services of JINI.......................................22
8.2 Partnership Expenses..............................................23
8.3 Partner Affiliation Agreements....................................23
ARTICLE 9 REPRESENTATIONS AND WARRANTIES....................................29
9.1 Due Incorporation; Authorization of Agreement.....................29
9.2 No Conflict; No Default...........................................29
9.3 Litigation........................................................30
ARTICLE 10 DISSOLUTION AND LIQUIDATION.......................................30
10.1 Events of Dissolution and Liquidation.............................30
10.2 Winding-Up........................................................32
</TABLE>
-ii-
<PAGE>
<TABLE>
<C> <S> <C>
ARTICLE 11 RESTRICTIONS ON TRANSFER OR SALE OF PARTNERSHIP OWNERSHIP
INTERESTS; GO-ALONG RIGHTS........................................34
11.1 Restrictions on Transfer..........................................34
11.2 Right of First Refusal............................................34
11.3 Go-Along Rights...................................................37
ARTICLE 12 DEFAULT...........................................................38
12.1 Definition of Default.............................................38
12.2 Remedies..........................................................38
ARTICLE 13 FORCE MAJEURE.....................................................39
13.1 Force Majeure.....................................................39
13.2 Notice of Force Majeure...........................................39
ARTICLE 14 MISCELLANEOUS.....................................................40
14.1 Limits of Partnership.............................................40
14.2 Insurance.........................................................40
14.3 Confidential Information..........................................40
14.4 Publicity.........................................................43
14.5 Modification......................................................43
14.6 Gender and Number.................................................43
14.7 Benefits and Obligations..........................................43
14.8 Counterparts......................................................43
14.9 Captions..........................................................43
14.10 Further Performance...............................................43
14.11 Governing Law.....................................................43
14.12 Notices...........................................................44
14.13 Severability......................................................45
14.14 Title to Property.................................................45
14.15 No Commissions....................................................45
14.16 Plan for a Public Offering........................................45
14.17 Powers of the Partners............................................46
14.18 Partners' Own Infomercials........................................46
</TABLE>
-iii-
<PAGE>
AMENDED AND RESTATED
--------------------
PARTNERSHIP AGREEMENT
---------------------
THIS AMENDED AND RESTATED PARTNERSHIP AGREEMENT (this "Agreement") is
effective as of the 1st day of October, 1995, by and among Jones Infomercial
Network Ventures, Inc., a Colorado corporation ("JINI"), Cox Consumer
Information Network, Inc., a Delaware corporation ("Cox"), and Adelphia
Communications Corporation, a Delaware corporation ("Adelphia"). The parties
are sometimes referred to collectively as the "Partners" and individually as a
"Partner".
WHEREAS, on January 1, 1995 Cox and JINI formed a general partnership
under the laws of Colorado known as Product Information Network Venture; and
WHEREAS, the parties desire to amend the agreement for such general
partnership and to admit Adelphia as a general partner upon the terms and
conditions set forth in this Agreement;
NOW, THEREFORE, in consideration of the mutual promises and covenants
hereinafter set forth, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties agree as
follows:
ARTICLE 1
ORGANIZATION
1.1 Name. The name of the Partnership shall be Product
----
Information Network Venture or such other name as the Executive Committee (as
defined in Section 6.1 of this Agreement) shall determine.
1.2 Purpose. The purposes of the Partnership shall be to
-------
develop fully a network (the "Network") for the promotion and exhibition of
multiple direct response television commercials ("Infomercials"), generally
ranging in length from 30 seconds to 60 minutes, depending on the requirements
needed to adequately demonstrate the particular products or services that are
the subjects of the Infomercials. The Partnership shall seek to market the
Network
<PAGE>
and related services to other cable television operators, multi-channel, multi-
point distribution systems, low power and full power television stations, full
service television networks and direct broadcast satellite and other direct to
home services, as well as similar television distribution methods which may
develop in the future. The Partnership may conduct any and all activities which
are necessary or appropriate in connection with the foregoing.
1.3 Principal Office, Partners' Names and Addresses. The
-----------------------------------------------
Partnership shall have its principal business office at 9697 East Mineral
Avenue, Englewood, Colorado 80112. It may move such office and have additional
offices at such other place or places as the Executive Committee may select from
time to time. The names and addresses of the Partners are as follows:
JINI:
Jones Infomercial Network Ventures, Inc.
9697 E. Mineral Avenue
Englewood, Colorado 80112
Cox:
Cox Consumer Information Network, Inc.
1400 Lake Hearn Drive
Atlanta, Georgia 30319
Adelphia:
Adelphia Communications Corporation
5 West Third Street
Coudersport, Pennsylvania 16915
1.4 Term. The term of the Partnership shall be until
----
December 31, 2004. Thereafter, the Partnership shall continue for successive
five-year terms unless either JINI or Cox gives written notice to the other
Partners at least 120 days prior to the expiration of the initial term, or at
least 90 days prior to the expiration of any successive five-year term, that the
Partnership will dissolve at the end of such term.
2
<PAGE>
ARTICLE 2
CAPITAL AND OTHER REQUIREMENTS
2.1 Partners' Ownership Interests; Initial Contributions.
----------------------------------------------------
The interests in the Partnership shall be designated as Ownership
Interests ("Ownership Interests"). The percentage Ownership Interests of the
Partners shall be as set forth on Exhibit A hereto (which Exhibit is hereby
incorporated herein by reference). For such Ownership Interests, the Partners
shall have contributed the assets set forth on Exhibit A-1. Each contributing
Partner represents and warrants to the other Partners that the assets so
contributed are free and clear of all liens, claims and encumbrances (except as
set forth in Exhibit A-1); that all required consents to the transfer thereof
have been obtained and that all affiliate agreements so transferred are valid,
binding and enforceable.
2.2 Concerning Adelphia.
-------------------
a.(i) Upon the effective date of this Amended and Restated
Partnership Agreement, Adelphia's sole contribution to the Partnership shall be
the Affiliation Agreement which is Exhibit G hereto. Such Affiliation Agreement
(the "Adelphia Agreement") shall be for a period of five (5) years from such
effective date. Adelphia's Ownership Interest in the Partnership will result in
a reduction of the Ownership Interests of JINI and Cox and shall be determined
as follows:
On or before October 1, 1996, Adelphia agrees to provide at least ***
subscribers to the Network. Adelphia may also provide additional
subscribers pursuant to the Adelphia Agreement. For all full-time
subscribers provided to the Network on or before October 1, 1996, Adelphia
shall receive an Ownership Interest in the Partnership equal to *** for
each *** subscribers so provided, up to a total of *** percent, and an
additional *** percent Ownership Interest in the Partnership for each ***
subscribers over and above *** subscribers, but not to exceed *** percent
in the aggregate. For all full-time subscribers provided to the Network
during the period October 2, 1996 and ending April 1, 1998, Adelphia shall
receive an
3
<PAGE>
additional *** percent Ownership Interest in the Partnership for each ***
full-time subscribers provided over and above the subscribers provided on
or before October 1, 1996. Notwithstanding the foregoing, in no event under
Section 2.2.a(i) shall Adelphia be entitled to more than a *** percent
Ownership Interest in the aggregate for the subscribers provided to the
Network. On October 1, 1996 and April 1, 1998 any fractional amount of
Ownership Interest due Adelphia, as calculated above, which is the result
of full-time subscribers provided in an amount less than a full ***
subscriber increment, will be issued to Adelphia.
(ii) Notwithstanding the above, if the Partnership has not issued, in
exchange for distribution commitments, Ownership Interests totalling ***
percent to new partners (including Adelphia, but excluding JINI and Cox) on
or before April 1, 1998, Adelphia shall be entitled to receive an
additional Ownership Interest equal to the lesser of:
***
b. *** In determining whether such partner has provided
cable television subscribers to the Network in exchange for its Ownership
4
<PAGE>
Interest, the fact that such partner also contributes an incidental amount of
cash or other property to the Partnership shall not be considered.
***
d. At the election of the Partnership, the Ownership
Interest of Adelphia shall terminate and Adelphia shall be deemed to have
withdrawn from the Partnership if (x) at any time during the period from October
2, 1996 to April 1, 1998, Adelphia fails to achieve *** of the First Adelphia
Benchmark (as defined in Section 8.3.b and such failure shall continue for a
period of 120 days or (xx) at any time after April 2, 1998, Adelphia shall have
failed to achieve *** of the Second Adelphia Benchmark (as defined in Section
8.3.b and such failure shall continue for a period of 120 days. In either such
event and upon notice that the Partnership has so elected, Adelphia shall be
deemed to have withdrawn from the Partnership and shall have no rights or
further obligations with respect to the Partnership except that Adelphia shall
be entitled to receive its share (based on its Ownership Interest as in effect
immediately prior to such withdrawal) of any
5
<PAGE>
undistributed cash balances as of the date of its withdrawal and except for the
obligations described in the following sentences of this Section 2.2, upon such
withdrawal, the Partnership shall have no further claims against Adelphia under
Section 2.2 or Section 8.3, except for any amount owed to the Partnership prior
to such withdrawal. In addition, for the two-year period commencing with its
withdrawal, Adelphia shall not solicit, directly or indirectly, in connection
with the operation of an infomercial network that is substantially similar to
the Partnership's Network, any cable television system operator with respect to
any system which, on the date of such withdrawal, was subject to an affiliate
agreement with the Partnership (the "Covered Systems"). During such two-year
period, Adelphia shall not, directly or indirectly, compete with the Partnership
in the provision of Infomercials in the areas of the Covered Systems in
connection with the operation of an infomercial network that is substantially
similar to the Partnership's Network; provided that the foregoing shall not
apply to showing infomercials on its own Systems.
e. Adelphia shall not, directly or indirectly, have any
equity interest in any infomercial network during the term of this Agreement.
For the two-year period referred to in Section 2.2.d above, Adelphia shall not,
directly or indirectly, have a greater than *** equity interest in an
infomercial network. An "infomercial network" is a nationally distributed
network, substantially all of the programming of which consists of infomercial
or informational programming.
2.3 Additional Capital Contributions.
--------------------------------
Additional capital contributions may be required by the
Partnership from time to time in such amounts and payable at such time, in such
manner and on such terms as may be determined by the Executive Committee (as
described herein), subject to the terms of this Agreement. Such additional
6
<PAGE>
capital contributions shall be provided to the Partnership by each Partner in
proportion to such Partner's Ownership Interest at the time of the Executive
Committee's capital call.
2.4 Default in the Payment of Additional Capital
--------------------------------------------
Contributions.
- -------------
a. If any Partner shall fail or refuse to pay any additional
capital contributions (the "Defaulting Partner"), the other Partners (the
"Complying Partners"), on a pro rata basis, may, at their sole option:
i. make an additional capital contribution to the
Partnership in the aggregate amount of the additional
capital contribution required of such Partner and the
Defaulting Partner in response to such call (an
"Aggregate Capital Contribution"); or
ii. make a loan to the Partnership in an amount equal to
the aggregate amount of the additional capital
contribution required of such Partner and the
Defaulting Partner (a "Deficit Loan"), secured by
both the assets of the Partnership and the Ownership
Interest of the Defaulting Partner.
b. If a Complying Partner elects to make the Aggregate
Capital Contribution of the Defaulting Partner pursuant to Section 2.4.a.i., the
Complying Partner's Capital Account (as hereafter defined) shall be credited
with the amount of such contribution. In order to give effect to the increased
capital contribution of the Complying Partner, the Ownership Interests of the
Complying Partner and the Defaulting Partner shall be adjusted according to the
relative cumulative capital contributions of such Partners as of the date of the
Aggregate Capital Contribution.
c. If a Complying Partner elects to make a Deficit Loan
pursuant to Section 2.4.a.ii, such loan shall bear interest at the per annum
rate of two percent (2%) in excess of the prime rate in effect from time to time
as published by Colorado National Bank of Denver or its successor (the "Prime
7
<PAGE>
Rate"). Any Deficit Loan shall be payable in three equal annual installments of
principal plus accrued interest on the first, second and third anniversaries of
the date thereof. A Defaulting Partner shall not be entitled to any Partnership
distributions (but shall be allocated and required to report its share of
Partnership profit and loss in accordance with Article 3), until all Deficit
Loans attributed to the Defaulting Partner are paid in full. A Defaulting
Partner may prepay its Deficit Loan at any time without penalty. Until all
Deficit Loans are paid in full, any distributions which the Defaulting Partner
would otherwise be entitled to receive under Article 4 or Section 10.2 shall be
paid to the Complying Partner, and shall be applied first to reimbursement of
costs of collection, next to accrued interest and the balance to outstanding
principal of the Deficit Loans and shall reduce the final installment due
thereon. If the Partnership defaults in payment of a Deficit Loan, such loan
shall become immediately due and payable, and shall bear interest from the date
of default until payment in full at the rate of 18% per annum. The Partnership
shall take commercially reasonable efforts to avoid a default. With respect to
any Deficit Loan, the Partnership agrees to pay all costs of collection,
including attorneys' fees. All Deficit Loans shall automatically become due and
payable upon any transfer of the Defaulting Partner's Ownership Interest. All
Deficit Loans shall be represented by a promissory note from the Partnership or
other evidence of indebtedness satisfactory to the Complying Partner and shall
be secured both by a security interest in the Defaulting Partner's Ownership
Interest and the Partnership's assets, respectively. Both the Partnership and
the Defaulting Partner shall execute and deliver such promissory notes, security
agreements, financing statements and other documents relating to a Deficit Loan
as the Complying Partner shall reasonably request.
d. If a Complying Partner does not elect to make an
Aggregate Capital Contribution or Deficit Loan, the Defaulting Partner shall not
be relieved of its obligation to contribute the unpaid amount of any additional
capital contribution, and such amount shall be payable without further demand,
together with interest at the rate of 2% per annum in excess of the Prime Rate
8
<PAGE>
and all costs of collection, including attorneys' fees, and shall be secured by
a security interest in the Defaulting Partner's Ownership Interest.
e. The rights granted to the Complying Partner under this
Section 2.4 are in addition to any rights or remedies that the Complying Partner
or the Partnership may have under this Agreement or at law or in equity relating
to the failure or refusal of the Defaulting Partner to make any additional
capital contribution required of it in response to a call by the Executive
Committee. In the event that there is a default with respect to the payment by
the Partnership to a Complying Partner of a Deficit Loan, the Complying Partner
agrees that it shall first foreclose its security interest against the assets of
the Partnership or otherwise take action against such assets (in each case to
the extent it lawfully may do so), before seeking to foreclose upon or taking
action against the Ownership Interest of the Defaulting Partner.
f. In the event that following a call for additional capital
contributions, the Partnership has not obtained the full amount of the called
funds according to the provisions of Section 2.4, the Executive Committee may
seek to obtain funds from other parties and may determine to admit additional
partners pursuant to Section 6.5 of this Agreement.
2.5 Interest on Capital Contributions. No interest shall be paid
---------------------------------
on any contribution to the capital of the Partnership.
2.6 Capital Accounts.
----------------
a. There shall be established and maintained on the books of
the Partnership a separate capital account (a "Capital Account") for each
Partner. Each Partner's Capital Account shall be credited with the amount of
money and the fair market value of other property contributed by such Partner to
the Partnership (net of liabilities secured by such contributed property that
the Partnership or any other Partner is considered to assume or take subject to
under Internal Revenue Code of 1986 ("IRC") Section 752) pursuant to Sections
2.1, 2.2, 2.3 and 2.4 of this Agreement. Each Partner's allocated share of
Partnership items of profit and loss shall be credited or debited to its Capital
Account. All Partnership distributions to a Partner of cash or property (which
shall be valued at its fair market value, net of liabilities secured by such
9
<PAGE>
distributed property that such Partner is considered to assume or take subject
to under IRC Section 752) shall be debited to such Partner's Capital Account.
Notwithstanding anything in this Section 2.6a. to the contrary, Capital Accounts
shall in any event be determined and maintained in accordance with IRC Section
704(b) and Treasury Regulations Section 1.704-1(b)(2)(iv).
b. If additional partners are admitted to the Partnership in
return for the contribution of money or other property or as a Partner or
Partners contribute additional money or other property to the Partnership in
exchange for an interest in the Partnership, the Tax Matters Partner (designated
under Section 5.4 a. of this Agreement) may, at the election of the Executive
Committee, cause the Capital Accounts of the Partners to be adjusted to reflect
a revaluation of the assets of the Partnership based on the fair market value of
such assets as determined by the Executive Committee to reflect the manner in
which unrealized income, gain, loss or deduction in such assets (that has not
previously been reflected in the Capital Accounts) would be allocated among the
Partners if there were a taxable disposition for the fair market value of such
assets on the date of admission of the additional partners. If the assets of the
Partnership are revalued pursuant to the preceding sentence, then (i) the
Partners' Capital Accounts will thereafter be adjusted in accordance with Treas.
Reg. (S) 1.704-1(b)(2)(iv)(g) for allocations to them, pursuant to Article 3, of
depreciation, amortization, and gain or loss as computed for book purposes with
respect to such assets, and (ii) allocations of depreciation, amortization, and
gain or loss as computed for tax purposes, with respect to such property shall
be determined so as to take account of the variation between the adjusted tax
basis and book value of such property consistent with the principles of IRC
Sections 704(b) and 704(c).
2.7 Protection Against Dilution. The Partners shall have a
---------------------------
preemptive right against dilution of their Ownership Interests by the admission
of other Partners. Nonetheless, the parties agree that such dilution can occur:
a. In the event that the Partnership (or any successor entity
selected to be the public vehicle) goes public, or
10
<PAGE>
b. Subject to Section 2.2b, if the Executive Committee determines
pursuant to the provisions of Section 6.5 to allow additional
persons to join the Partnership.
ARTICLE 3
ALLOCATION OF PROFITS AND LOSSES
3.1 Allocation of Profits. Except as otherwise provided in this
---------------------
Article 3, all Partnership profit shall be allocated as follows:
a) First, to the Partners in the amount of losses, if any, previously
allocated under Section 3.2 to such Partners in the reverse order of such
previous loss allocations until the amount of profit allocated to the Partners
under this Section 3.1(a) equals the total amount of loss allocated under
Section 3.2. Such allocation shall be made in the same ratio as the allocation
of any such losses;
b) Second, to the Partners in accordance with their respective
Ownership Interests.
3.2 Allocation of Losses. Except as otherwise provided in this
--------------------
Article 3, all Partnership losses shall be allocated to the Partners in
accordance with their respective Ownership Interests.
3.3 Allocation of Gain or Loss on Sale. Notwithstanding Sections
----------------------------------
3.1 and 3.2, profit or loss on the sale of all or substantially all of the
assets of the Partnership shall be allocated to the Partners so as to cause, to
the extent possible, the Capital Account balance of each Partner to bear the
same ratio to the aggregate Capital Account balances of all Partners as such
Partner's Ownership Interest.
3.4 Change In Ownership Interest. If a Partner's Ownership
----------------------------
Interest changes during a fiscal year, the Partner's share of profits, losses
and credits for such fiscal year shall be determined by assigning to each day in
the fiscal year the fraction of such item equal to the Partner's Ownership
Interest in effect on such day divided by the number of days in the fiscal year,
and by taking the sum of all the amounts so assigned within the fiscal year;
provided that gain or loss on the sale of Partnership assets shall be allocated
in accordance with the Ownership Interests in effect at the time of the sale.
11
<PAGE>
3.5 Minimum Gain Chargeback Rules. Notwithstanding any other
-----------------------------
provisions of this Article 3, items of income and gain of the Partnership shall
be allocated so as to comply with the gain chargeback requirements of Treas.
Reg. Sections 1.704-2(f) and 1.704-2(i)(4).
3.6 Nonrecourse Debt. Any Partner nonrecourse deductions for a
----------------
taxable year shall be allocated to the Partner that made, or guaranteed, or is
otherwise liable with respect to the loan to which such deductions are
attributable, in accordance with Treas. Reg. Section 1.704-2(i) or any successor
provision.
3.7 Curative Allocations. The allocations of profits and loss in
--------------------
Section 3.1 and Section 3.2 are intended to cause the Capital Account of each
Partner to equal to the amounts distributable to such Partner pursuant to
Section 4.1. Any allocations of profit or loss (or items thereof) pursuant to
Section 3.5 and Section 3.6 shall, to the maximum extent possible consistent
with such Sections, be taken into account in computing subsequent allocations of
profit and loss, so that the Partners' Capital Account balances shall be equal
to the balances that would have resulted in the absence of such Sections, and
the Tax Matters Partner is authorized to adjust the allocations of profit and
loss pursuant to Sections 3.1 and 3.2 to the extent necessary to cause the
Capital Account of each Partner to equal the amounts distributable to such
Partner pursuant to Section 4.1. The character of profit or loss allocated in
such subsequent allocations shall, to the extent possible, be the same as the
allocations which would have been made in the absence of such Sections.
3.8 Contributions of Property. In accordance with IRC Section
-------------------------
704(c) and the Treasury Regulations thereunder, solely for federal and
applicable state and local income tax purposes, income, gain, loss and deduction
with respect to any property contributed to the Partnership shall be allocated
among the Partners so as to take account of any variation between the adjusted
basis of such property to the contributing Partner for federal income tax
purposes and its fair market value at the time of contributions.
3.9 Profit or Loss. For purposes of Section 2.3 and Article 3,
--------------
"profit or loss" refers to taxable income of the Partnership as
12
<PAGE>
computed under IRC Section 703, but taking into account also (i) any item of
income exempt from tax, and (ii) any item of expense described in IRC Section
705(a)(2)(B) or treated as described in IRC Section 705(a)(2)(B) by Regulations
promulgated under IRC Section 704(b) and excluding any items specially allocated
pursuant to Sections 3.5 and 3.6 hereof.
ARTICLE 4
NON-LIQUIDATION DISTRIBUTIONS
4.1 Distributions in Accordance with Ownership Interests.
----------------------------------------------------
Distributions by the Partnership shall be made in accordance with the Ownership
Interests at the time of distribution.
4.2 Distribution Policy. The Partners hereby adopt the following
-------------------
policy (the "Distribution Policy"):
The Partnership shall make distributions to the Partners in amounts
that the Executive Committee determines are not needed and may not
reasonably be expected to be needed for Partnership purposes,
including repayment of Partnership obligations, or establishing
reasonable reserves therefor. In addition, the Partnership shall
repay principal and accrued interest on any Deficit Loans prior to
making any distributions to the Partners.
4.3 Withholding. All amounts withheld pursuant to the IRC or any
-----------
provision of any state or local tax law with respect to any payment or
distribution to a Partner shall be treated as amounts distributed to such
Partner pursuant to this Article 4.
ARTICLE 5
ACCOUNTING RECORDS AND FISCAL YEAR
5.1 Books and Records. The Partnership shall keep or cause to be
-----------------
kept appropriate records and books of account in reasonable detail and in
accordance with generally accepted accounting principles. The Partnership's
books will be audited annually by a firm of independent public accountants
selected from time to time by the Executive Committee. The books and records
shall be maintained at the principal business office of the Partnership or such
other places as the Executive Committee may determine, and all such books and
13
<PAGE>
records shall be available for inspection and copying by the Partners or their
duly authorized representatives during normal business hours after giving
reasonable notice.
5.2 Financial Statements and Reports. The Partnership shall cause
--------------------------------
to be delivered to each Partner the following financial statements prepared, in
each case, in accordance with generally accepted accounting principles
consistently applied, and such other reports as any Partner may reasonably
request:
a. promptly upon availability, and in any event within
thirty (30) days after the end of each month, an unaudited balance sheet as of
the end of such month and an unaudited statement of income or loss for the
interim period through such month, such statement of income or loss for such
period to include, in reasonable detail, a comparison of actual to budgeted
income or loss;
b. promptly upon availability, and in any event within sixty
(60) days after the end of each of the first three quarterly periods of each
fiscal year, an unaudited statement of sources and uses of funds for the year to
date then ended; and
c. promptly upon availability, and in any event within
ninety (90) days after the end of each fiscal year, a balance sheet of the
Partnership as of the end of such fiscal year and a statement of income or loss
for such fiscal year, such balance sheet and statement of income and loss to
include a comparison of the current fiscal year with the immediately preceding
fiscal year.
5.3 Bank Accounts. The Partnership shall maintain bank accounts in
-------------
such banks or institutions as the Executive Committee from time to time shall
select in accordance with the terms of this Agreement, and such accounts shall
be drawn upon by checks signed by such person or persons, and in such manner, as
may be designated by the Executive Committee. All monies of the Partnership
shall be deposited in the bank account or accounts of the Partnership, and shall
not be commingled with monies of the Partners.
5.4 Tax Returns Information.
-----------------------
14
<PAGE>
a. JINI is hereby designated "Tax Matters Partner" for the
Partnership, and may take any action on behalf of the Partnership that it has
authority to take as Tax Matters Partner. The Tax Matters Partner is expressly
authorized to perform on behalf of the Partnership or any Partner any act that
may be necessary to make this designation effective under any regulation,
ruling, procedure or instruction that may be issued by the Internal Revenue
Service. The Tax Matters Partner is authorized to represent the Partnership
before taxing authorities and courts in tax matters affecting the Partnership
and the Partners in their capacity as such, and is entitled to take any action
on behalf of the Partnership in any such tax proceeding that it, in its
reasonable business judgment, deems to be in the best interests of the Partners.
Notwithstanding the previous sentence, the Tax Matters Partner (i) shall consult
with and consider the views of the Executive Committee prior to taking any
material action in its capacity as the Tax Matters Partner; and (ii) shall not
extend any statute of limitations, file any protest, petition or pleading, or
settle any audit or judicial proceeding without the approval of the Executive
Committee.
The Tax Matters Partner shall cause income and other required
federal, state and local tax returns for the Partnership to be prepared and to
be timely filed with the appropriate authorities and, subject to Section 5.6,
shall make such elections as the Tax Matters Partner shall deem to be in the
best interest of the Partnership and the Partners. The Tax Matters Partner shall
not be liable to the Partnership for any act or omission taken or suffered by it
in the preparation of such tax returns provided it acted in good faith and in
the belief that such act or omission is in or is not opposed to the best
interest of the Partnership and further provided that such act or omission is
not in violation of this Agreement and does not constitute gross negligence,
fraud or a willful violation of law. The Tax Matters Partner shall cause any
such tax return to be submitted to each Partner for review and approval prior to
its due date (including extensions) unless otherwise agreed to by the Partners.
b. The Tax Matters Partner shall cause to be provided to
each Partner information concerning the Partnership's taxable income or loss and
each item of income, gain, loss, deduction or credit which is relevant to
15
<PAGE>
reporting a Partner's share of Partnership income, gain, loss, deduction or
credit for purposes of federal or state income tax. Information required for the
preparation of a Partner's income tax returns shall be furnished to the Partners
as soon as possible after the close of the Partnership's fiscal year and, in any
event, no later than the date on which the income tax return for such fiscal
year is submitted to the Partners for review.
c. The Tax Matters Partner shall cause to be filed timely
all federal, state, and local reports as may be required, including without
limitation, all reports required by licenses and permits, sales and use tax
reports, income tax withholding reports, FICA tax reports, unemployment
compensation reports, information reports, FCC reports and applications and
similar reports, and shall cause all payments required thereunder to be made by
the Partnership from the Partnership's funds.
d. The Tax Matters Partner shall promptly notify each of the
Partners under the following circumstances: (i) if the Tax Matters Partner
caused an amended tax return to be filed on behalf of the Partnership; (ii) if
the Tax Matters Partner extends the statute of limitations on assessments with
respect to any taxable year of the Partnership (which extension may only be made
with the prior consent of the Executive Committee); (iii) if any tax return of
the Partnership is audited or if any adjustments to any such return are
proposed; and (iv) if the Tax Matters Partner enters into a settlement agreement
relating to any Partnership item of income, gain, loss, deduction or credit for
any taxable year of the Partnership (which settlement agreement may only be
entered into with the prior consent of the Executive Committee). The Tax Matters
Partner shall promptly furnish to each of the Partners all notices concerning
administrative or judicial proceedings relating to federal income tax matters as
required under the IRC and the Treasury Regulations thereunder. In
16
<PAGE>
addition, the Tax Matters Partner shall supply such information to the Internal
Revenue Service as may be necessary to identify the Partners as "notice
partners" under IRC Section 6231. During the pendency of any administrative or
judicial proceeding relating to federal income tax matters, the Tax Matters
Partner shall furnish to each of the Partners periodic reports concerning the
status of any such proceeding. Each of the Partners who elects to participate in
any administrative or judicial proceedings shall be responsible for any expenses
incurred by such Partner in connection with such participation. The cost of any
resulting audits or adjustments of any Partner's tax return shall be borne
solely by the affected Partner.
5.5 Fiscal Year. The fiscal year of the Partnership shall be the
-----------
calendar year. Cox represents that its taxable year is the year ended December
31. JINI represents that its taxable year is the year ended May 31. Adelphia
represents that its taxable year is the year ended March 31.
5.6 Tax Elections. The Tax Matters Partner shall make the
-------------
following tax elections on behalf of the Partnership:
(a) To adopt the accrual method of accounting.
(b) Such other elections as the Executive Committee shall
decide.
ARTICLE 6
MANAGEMENT
6.1 Executive Committee.
-------------------
There is hereby established an Executive Committee of five (5)
members which, unless otherwise provided in this Agreement, shall have and
exercise full discretion and final authority with respect to the affairs of the
Partnership (the "Executive Committee"). The members of the Executive Committee
shall consist of two (2) members designated by Cox, two (2) members designated
by JINI and one (1) member designated by Adelphia. The names of the initial
members of the Executive Committee are set forth on Exhibit B hereto. A Partner
may remove, at any time, its representative(s) and,
17
<PAGE>
upon such removal, or the death or resignation of a member of the Executive
Committee, a successor shall be designated by the Partner which appointed the
Executive Committee member being removed or replaced. Each member of the
Executive Committee shall have one vote on all matters, except as provided in
Section 6.5. Each member of the Executive Committee shall comply with, and each
Partner shall cause its representatives on the Executive Committee to comply
with, the terms of this Agreement. In addition, each Partner shall be entitled
to appoint alternate representatives who shall be entitled to attend meetings of
the Executive Committee and, in the event that a Partner's representative is
unable to attend, such alternate representative shall have full authority to act
in the place of the absent representative. Each Partner shall notify the other
Partners in writing of the selection of its representatives and alternate
representatives.
6.2 Chairman of Executive Committee. The Chairman of the Executive
-------------------------------
Committee shall be selected annually, on a rotating basis and shall be one of
the representatives of JINI or Cox on the Executive Committee. The Chairman (or,
if absent, the alternate representative for the Chairman) shall conduct the
meetings of the Executive Committee, shall designate a secretary to the
Executive Committee and shall oversee the preparation and circulation of
notices, if required, agenda and minutes. The initial Chairman shall be
designated by Cox.
6.3 Meetings of Executive Committee.
-------------------------------
a. The Executive Committee may establish meeting dates and
requisite notice requirements, adopt rules of procedure it deems consistent
herewith, and meet by means of conference telephone or similar communications
equipment. The Executive Committee shall meet no less than once each year.
Each Partner shall have the right to call a special meeting of the Executive
Committee by giving five (5) days' advance written notice of the time, date and
location of such meeting to the other General Partner. Notice of any meeting
may be waived in writing.
b. The presence at any meeting of a majority of the
representatives shall constitute a quorum for the taking of any action. Except
as
18
<PAGE>
provided in Section 6.5, the vote of a majority of the representatives shall
be required to take action at a meeting. Any representative may appoint a proxy
to act on his behalf and to vote in his stead at any meeting.
c. Minutes of each meeting of the Executive Committee shall
be prepared and circulated to the Executive Committee representatives. Upon
their adoption by the Executive Committee, minutes shall be filed in the
principal office of the Partnership. Written consents to any action taken by the
Executive Committee without a meeting shall also be filed with the minutes.
6.4 Business Plan. A business plan of the Partnership (the
-------------
"Business Plan") shall be developed on an annual basis (except for the first
Business Plan) and shall reflect the plans of the Partnership for a calendar
year. The first Business Plan (which is attached to this Agreement as Exhibit
C) includes the first calendar year of operations ending December 31, 1995. The
Business Plan shall include both financial data and a description of the markets
and customers to be targeted for the subject calendar year. The financial data
will consist of a pro forma profit and loss projection and a pro forma cash flow
analysis.
6.5 Actions Requiring Approval of Executive Committee According to
--------------------------------------------------------------
Ownership Interests.
- -------------------
a. Notwithstanding any other provision of this Agreement,
the following actions shall require the approval of the Executive Committee,
with voting thereon done according to the respective Ownership Interests of the
Partners at the time. No action will be deemed approved under this Section 6.5a.
unless it has received the vote of Executive Committee members designated by the
Partners representing at least 75% of the Ownership Interests entitled to vote.
The actions are:
1. Amendment of the Partnership agreement.
2. Admission of a new partner.
19
<PAGE>
3. Sale, pledge or encumbrance of all of substantially all of the
Partnership's assets.
4. Merger or consolidation with any other entity.
5. Approval of the annual Business Plans and amendments thereto. The
Business Plans shall provide for mutually agreed-upon overhead
and transponder costs to be charged to the Partnership,
indicating those instances where a mark-up is to be charged, and
the amount of such mark-up.
6. Selection/replacement of auditors.
7. Unbudgeted expenditures in excess of $15,000 for any single
transaction or unbudgeted expenditures for each fiscal year that
total more than $30,000 in aggregate.
8. Dissolution.
9. Going public and the terms and conditions thereof.
10. Change in the scope of the business of the Partnership.
11. Implementation of capital calls, other than as provided in an
agreed-upon Business Plan. Notwithstanding anything in Section
6.5, there shall be no capital calls from October 1, 1995 to
April 2, 1997 without the vote or consent of Adelphia.
12. Acquisitions and investments or the creation of subsidiaries, in
each case other than those as agreed to in the relevant Business
Plans.
13. Bank accounts and signatories.
14. Term and condition of agreements with affiliates, other than
those covered in clause 5. above.
15. Distributions or redemptions with respect to Ownership Interests.
20
<PAGE>
16. The initiation or settlement of material litigation.
17. The initiation of any bankruptcy or insolvency filing by the
Partnership.
18. The incurrence or prepayment of any indebtedness of $25,000 or
more in the aggregate, or the issuance of any guarantees of the
indebtedness or obligations of others in an amount of $25,000 or
more in the aggregate, in each case other than pursuant to an
agreed-upon Business Plan.
19. The granting of any material liens or the pledge of assets of the
Partnership.
20. The adoption of, and material modifications to, the form of the
affiliation agreement between the Network and distributors of the
Network's programming.
21. Confirmation of the selection by JINI of the Chief Operating
Officer.
Notwithstanding the foregoing, if as a result of a sale of a portion
of its Ownership Interest, either JINI or Cox has an Ownership Interest of less
than 20%, or if Adelphia has an Ownership Interest of less than 5%, that Partner
shall not be entitled to vote with respect to the actions set forth in Section
6.5 a. until its Ownership Interest is no longer less than 20% in the case of
JINI or Cox, or 5% in the case of Adelphia.
6.6. Action on Programming Content. It is understood and agreed
-----------------------------
that the general content of programming on the Network shall be subject to the
review and approval of the Executive Committee, taking into account the
reasonable requests by cable television system managers not to carry certain
specific, objectionable programming, with any two members of the Executive
Committee having the power to veto, on such basis, the carriage of such
programming by the Network.
6.7. No Authority to Act for Other Partners. No Partner shall have
--------------------------------------
any authority to act for, or to assume any obligation or responsibility on
21
<PAGE>
behalf of another Partner. In addition to the other remedies specified in this
Agreement, each Partner agrees to indemnify and hold the other Partners harmless
from and against any claim, demand, loss, damage, liability or expense of any
kind or nature whatsoever, including attorneys' fees, incurred by or against
such other Partner and arising out of or resulting from any action taken by the
indemnifying Partner in violation hereof.
ARTICLE 7
SERVICES OF PARTNERS
Subject to approval by the Executive Committee (which may be in the
form of the approval of an Annual Plan), the Partnership shall pay any Partner
or its affiliates for goods and services, including the services of any
individuals provided to the Partnership pursuant to Article 8 hereof, an amount
equal to the fair market value of the goods or services provided, as set forth
in the Business Plan or as determined by the Executive Committee. Any amount
agreed to be paid to any Partner for goods or services provided to the
Partnership shall be deemed to be the fair market value of the goods and
services so provided. JINI and its affiliates shall provide to the Partnership
the types of goods and services set forth on Exhibit D hereto (which Exhibit is
hereby incorporated herein by reference). The charges therefor as set forth on
Exhibit D are hereby deemed to be the fair market value for such goods and
services.
ARTICLE 8
DAY-TO-DAY MANAGEMENT; EXPENSES; PARTNER AFFILIATION
AGREEMENTS
8.1 Management Services of JINI. Day-to-day management of the
---------------------------
Partnership will be provided by JINI. JINI will appoint a management team for
the Partnership, including a Chief Operating Officer who shall report to the
Executive Committee. The compensation of such management team and Chief
Operating Officer shall be subject to the provisions of Article 7 above. JINI
shall use its commercially reasonable best efforts to ensure that appropriate
22
<PAGE>
uplink and satellite facilities and satellite transponder space remains
available, through customary lease or sublease arrangements with satellite
operators, for the carriage of the Network's programming throughout the term of
the Partnership. The Partnership shall use JINI's billing hardware and
software, playback, uplink and satellite facilities, as set forth on Exhibit D
hereto and JINI shall be paid the charges therefor set forth on Exhibit D.
Exhibit D also sets forth the charges to the Partnership for such software and
facilities.
8.2 Partnership Expenses. The Partnership shall pay all expenses
--------------------
directly attributable to the Partnership which are incurred after January 1,
1995, including, but not limited to, all Network development costs, equipment,
personnel costs, marketing and promotion expenses (including sales materials and
advertising) and compensation. In addition, the Partnership shall reimburse the
Partners for their actual out-of-pocket travel and associated costs if employees
of a Partner are required to travel on Partnership business.
8.3 Partnership Affiliation Agreements.
----------------------------------
a. Each of the Partners shall use their commercially
reasonable best efforts to make the cable television subscribers of their
affiliates available to the Partnership. For purposes of this Section 8.3, the
term "subscribers" shall refer to those subscribers to the Network, as set forth
in their respective affiliation agreements.
(i) Cox has caused Cox Communications, Inc. to enter into
an affiliation agreement with the Partnership covering the
cable television systems described in Exhibit E hereto
(which is hereby incorporated herein by reference) owned by
Cox Communications, Inc., and which affiliation agreement
is substantially in the form of Exhibit F attached hereto
(the "Cox Affiliation Agreement").
(ii) JINI has assigned to the Partnership all of JINI's
right, title and interest in and to that certain Affiliate
Agreement, dated as of August 1, 1994 (and as the same has
been amended to conform to the Cox
23
<PAGE>
Affiliation Agreement, except as to the term thereof, which
shall remain a ten-year term) between JINI and Jones
Intercable, Inc. covering the cable television systems
described in Exhibit E hereto owned or managed by Jones
Intercable, Inc.
(iii) Adelphia shall, upon execution of this Agreement,
enter into the Adelphia Agreement on the terms and
conditions of Exhibit G hereto for a period of five (5)
years.
(iv) Exhibit E also sets forth the subscribers to be
provided by respective affiliates of the Partners to the
Network, along with their specific launch commitments.
Except as provided in this Agreement and the Exhibits
thereto, the Partners intend that their launch commitments
shall be approximately equal and shall cover at least one
million subscribers. If any Partner provides additional
subscribers after the fulfillment of the initial launch
commitment, the Ownership Interests of the Partners shall
not be affected thereby.
b. (i) Notwithstanding anything in Section a. above, JINI
and Cox agree that at all times the number of subscribers covered by agreements
with their respective affiliates shall be at least the lower of (i) one million
or (ii) seventy-five percent (75%) of the subscribers of JINI or Cox's
respective affiliates (the "Bench Mark"). In the event that JINI or Cox is not
in compliance with this provision, it shall have a period of one hundred twenty
(120) days to cure its default. If such default is not cured within such
period, the defaulting party shall pay to the Partnership an amount per month,
determined commencing as of the date of the default, for each subscriber (the
"Shortfall Amount") which is less than the Bench Mark. The Shortfall Amount is
the average of 125% of revenue per month per subscriber, but not less than 10
cents, based on the following formula: gross revenue minus bad debts,
24
<PAGE>
commissions and rebates, divided by peak subscribers, equals revenue per
subscriber. The revenue per subscriber shall be calculated for the three-month
period before the party falls below the Bench Mark. Such payments shall
continue for so long as the Bench Mark is not met.
(ii) Notwithstanding anything in Section a. above, Adelphia
agrees (x) that for the period October 2, 1996 through April 1, 1998, the number
of subscribers provided pursuant to the Adelphia Agreement shall be at least ***
(the "First Adelphia Bench Mark") and (xx) that commencing on April 2, 1998 and
continuing thereafter, the number of subscribers provided pursuant to the
Adelphia Agreement shall be at least the number of subscribers on April 1, 1998
(the "Second Adelphia Bench Mark"), but not less than ***. In the event that
Adelphia is not in compliance with this provision, it shall have a period of one
hundred twenty (120) days to cure its default. If such default is not cured
within such period, Adelphia shall pay to the Partnership an amount per month,
determined commencing as of the date of the default, for each subscriber (the
"Adelphia Shortfall Amount") which is less than the Adelphia Bench Mark
involved. The Adelphia Shortfall Amount is the average of *** of revenue per
month per Adelphia subscriber, but not less than ***, based on the following
formula: gross revenue generated by the Adelphia subscribers minus the related
bad debts, commissions and rebates, divided by Adelphia subscribers, equals
revenue per subscriber. The revenue per subscriber shall be calculated for the
three-month period before Adelphia falls below the Adelphia Bench Mark involved.
Such payments shall continue for so long as such Adelphia Bench Mark is not met.
c. Notwithstanding any other provision of this Agreement, Cox
may elect to withdraw from the Partnership upon giving notice to the Partnership
and to the other Partners at least ninety (90) days prior to December 31, 1999
that it will not renew the Cox Affiliation Agreement or provide an affiliate
agreement that would commit, for a period of five years, at least one million
subscribers to the Partnership on and after such date. Upon the giving of such
notice, the rights of Cox pursuant to Article 10 and 11 of this Agreement shall
terminate. If Cox gives such notice, then on December 31,
25
<PAGE>
1999, Cox shall withdraw from the Partnership and shall have no rights with
respect to the Partnership except as set forth in this Section 8.3c. To the
extent of any conflict between this Section 8.3c and any other provision of this
Agreement, this Section 8.3c shall control.
Upon Cox's withdrawal, (i) the Cox Affiliation Agreement shall
terminate and shall no longer bind the Partnership or belong to the Partnership
and (ii) Cox shall have no interest in the Partnership, its assets or
properties, nor any right to any payment therefor, provided that Cox shall be
entitled to receive its share (based on its Ownership Interest as in effect
immediately prior to such withdrawal) of any undistributed cash balances as of
the date of its withdrawal. In addition, for the two-year period commencing
with its withdrawal, Cox shall not solicit, directly or indirectly, in
connection with the operation of an infomercial network that is substantially
similar to the Partnership's Network, any cable television system operator with
respect to any system which, on the date of such withdrawal, was subject to an
affiliate agreement with the Partnership (the "Covered Systems"). During such
two-year period, Cox shall not, directly or indirectly, compete with the
Partnership in the provision of Infomercials in the areas of the Covered Systems
in connection with the operation of an infomercial network that is substantially
similar to the Partnership's Network.
d. Notwithstanding any other provision of this Agreement, Adelphia
may elect to withdraw from the Partnership upon giving notice to the Partnership
and to the other Partners at least ninety (90) days prior to the end of the term
of the Adelphia Agreement that it will not renew the Adelphia Agreement. Upon
the giving of such notice, the rights and obligations of Adelphia pursuant to
Article 10 and 11 of this Agreement shall terminate. If Adelphia gives such
notice, then at the end of the term of the Adelphia Agreement, Adelphia shall
withdraw from the Partnership and shall have no rights or obligations with
respect to the Partnership except as set forth in this Section 8.3d. To the
extent of any conflict between this Section 8.3d and any other provision of this
Agreement, this Section 8.3d shall control.
26
<PAGE>
Upon Adelphia's withdrawal, (i) the Adelphia Agreement shall terminate
and shall no longer bind the Partnership or belong to the Partnership and (ii)
Adelphia shall have no interest in the Partnership, its assets or properties,
nor any right to any payment therefor, provided that Adelphia shall be entitled
to receive its share (based on its Ownership Interest as in effect immediately
prior to such withdrawal) of any undistributed cash balances as of the date of
its withdrawal. In addition, for the two-year period commencing with its
withdrawal, Adelphia shall not solicit, directly or indirectly, in connection
with the operation of an infomercial network that is substantially similar to
the Partnership's Network, any cable television system operator with respect to
any Covered System. During such two-year period, Adelphia shall not, directly
or indirectly, compete with the Partnership in the provision of Infomercials in
the areas of the Covered Systems in connection with the operation of an
infomercial network that is substantially similar to the Partnership's Network;
provided that the foregoing shall not apply to showing infomercials on its own
Systems. Further, Adelphia shall not, directly or indirectly have any greater
than a five percent (5%) equity interest in any infomercial network for the 2
year period referred to above. Notwithstanding the above, if Adelphia renews
the Adelphia Agreement for one additional five-year term, at the end of such
five-year term, Adelphia will retain its Ownership Interest in the Partnership,
and shall remain subject to the other terms and conditions of this Agreement
with respect to such Ownership Interest.
e. In the event that a sale of one or more cable television
systems by JINI or Cox causes the number of subscribers covered by the affiliate
agreement attributable to such Partner to fall below 750,000, such Partner
shall, in addition to making the payments called for by Section 8.3b, use its
commercially reasonable efforts to cause the buyer or buyers of such cable
television systems to sign new affiliate agreements with the Partnership. If
the Partnership enters into such an agreement, the number of subscribers covered
thereby shall count toward such 750,000 subscriber level. If the number of such
subscribers remains below 750,000 for a period of one hundred twenty (120) days
following such sale, JINI or Cox, as the case may be, shall have the right,
27
<PAGE>
for a period of sixty (60) days following such one hundred twenty (120) day
period, to cause the dissolution of the Partnership if the affected Partner is
the other of them.
f. In the event that a sale of one or more cable television
systems by Adelphia causes the number of subscribers provided by Adelphia to
fall below *** of the First Adelphia Benchmark or the Second Adelphia Benchmark,
as the case may be, Adelphia shall, in addition to making the payments called
for by Section 8.3b, ***. If the Partnership enters into such an agreement, the
number of subscribers covered thereby shall count toward such required
subscriber level. In addition, if the Partnership is unable to enter into such
an agreement, the number of subscribers shall still count toward such required
subscriber level as long as the cable television system continues to carry the
Network on a full-time basis. If the number of such subscribers remains below
the required subscriber level for a period of one hundred eighty (180) days
following such sale, then for a period of sixty (60) days following such one
hundred eighty (180) day period, the Partnership shall have the right during
such sixty (60) day period to purchase the Ownership Interest of Adelphia for an
amount equal to its share (based upon its Ownership Interest as in effect
imediately prior to such withdrawal) of any undistributed cash balances as of
the date of its withdrawal and all rights of Adelphia under this Agreement shall
terminate, but the Adelphia Agreement shall not be terminated.
g. For purposes of determining the number of subscribers provided
by Adelphia under this Agreement, such number shall include those subscribers of
a cable television system acquired by Adelphia which had an
28
<PAGE>
affiliation agreement with the Network that continues after the acquisition by
Adelphia.
ARTICLE 9
REPRESENTATIONS AND WARRANTIES
As of the date hereof, each of the Partners hereby makes each of the
representations and warranties set forth in this Article 9, and such warranties
and representations shall survive the execution of this Agreement.
9.1 Due Incorporation; Authorization of Agreement. Such Partner is
---------------------------------------------
duly organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation and has the corporate power and authority to
own its property and carry on its business as owned and carried on at the date
hereof and as contemplated hereby. Such Partner is duly licensed or qualified
to do business and in good standing in each of the jurisdictions in which the
failure to be so licensed or qualified would have a material adverse effect on
its financial condition or its ability to perform its obligations hereunder.
Such Partner has the corporate power and authority to execute and deliver this
Agreement and each other agreement contemplated hereby and to perform its
obligations hereunder and thereunder and the execution, delivery and performance
of this Agreement and each such other agreement has been duly authorized by all
necessary corporate action. This Agreement constitutes the legal, valid and
binding obligation of such Partner.
9.2 No Conflict; No Default. Neither the execution, delivery and
-----------------------
performance of this Agreement nor the consummation by such Partner of the
transactions contemplated hereby will (a) conflict with, violate or result in a
breach of any of the terms, conditions or provisions of any law, regulation,
order, writ, injunction, decree, determination or award of any court,
governmental department, board, agency or instrumentality, domestic or foreign,
29
<PAGE>
or any arbitrator, applicable to such Partner, (b) conflict with, violate,
result in a breach of or constitute a default under any of the terms, conditions
or provisions of the articles of incorporation or bylaws of such Partner or of
any material agreement or instrument to which such Partner is a party or by
which such Partner is or may be bound or to which any of its material properties
or assets is subject, (c) conflict with, violate, result in a breach of,
constitute a default under (whether with notice or lapse of time or both),
accelerate or permit the acceleration of the performance required by, or require
any consent, authorization or approval under any indenture, mortgage, lease
agreement or instrument to which such Partner is a party or by which such
Partner is or may be bound, or (d) result in the creation or imposition of any
lien upon any of the material properties or assets of such Partner.
9.3 Litigation. There are no actions, suits, proceedings or
----------
investigations pending or to the knowledge of such Partner, threatened against
or affecting such Partner or any of its properties, assets or businesses in any
court or before or by any governmental department, board, agency or
instrumentality, domestic or foreign, or any arbitrator which could, if
adversely determined (or, in the case of an investigation could lead to any
action, suit, or proceeding, which if adversely determined could) reasonably be
expected to materially impair such Partner's ability to perform its obligations
under this Agreement.
ARTICLE 10
DISSOLUTION AND LIQUIDATION
10.1 Events of Dissolution and Liquidation. The Partnership shall be
-------------------------------------
dissolved and its affairs wound up pursuant to this Agreement upon the first to
occur of any of the following events ("Events of Dissolution"):
a. Action by the Executive Committee pursuant to Section 6.5a.
of this Agreement;
30
<PAGE>
b. the sale or other disposition of substantially all of the
assets of the Partnership (excluding a mortgage, pledge or encumbrance of such
assets), unless there are at least two Partners who elect to continue the
business of the Partnership;
c. action by the nondefaulting Partners to cause the dissolution
of the Partnership pursuant to Section 12.2b.;
d. the entry of a final, non-appealable order by a court of
competent jurisdiction declaring Section 2.3 or Articles 6, 11 or 12 invalid or
unenforceable and the Partners are unable to negotiate a new agreement as
contemplated by Section 14.13;
e. the bankruptcy of a Partner, unless in any such instance all of
the remaining Partners (if there be more than one) elect to continue the
business of the Partnership;
f. the entry of an order for relief pursuant to an involuntary
petition against the Partnership under Chapter 7 of the bankruptcy law of the
United States; the filing by the Partnership of a voluntary petition for
liquidation under Chapter 7 of the Bankruptcy Code of the United States; the
general assignment by the Partnership for the benefit of creditors under the
laws of any state; or the appointment of a receiver for all or substantially all
of the assets of the Partnership, unless such receivership is dissolved within
30 days after the appointment of such receiver; however, the filing of a
voluntary petition under Chapter 11 of the Bankruptcy Code of the United States
by the Partnership, or the entry of an order for relief pursuant to a voluntary
or involuntary petition by or against the Partnership under Chapter 11 of the
Bankruptcy Code of the United States, shall not, in itself, cause dissolution of
the Partnership;
g. the happening of any event which makes it unlawful for the
Partnership business to be conducted;
h. the expiration of the term provided in Section 1.5 of this
Agreement; or
i. an election by the non-affected Partner as set forth in
Section 8.3d.
31
<PAGE>
The Partners agree that except as provided in Section 8.3.c and 8.3.d,
withdrawal by, or dissolution of, a Partner is not permitted and shall not cause
a dissolution of the Partnership.
10.2 Winding-Up. Upon the occurrence of an Event of Dissolution,
----------
the Partnership's affairs shall be wound up by the Chairman of the Executive
Committee, or if there is no such Chairman, by such other person or persons
agreed by the Partners or required by law to wind up its affairs, as follows:
a. A statement of the assets and liabilities of the
Partnership as of the date of dissolution shall be prepared.
b. The assets and properties of the Partnership shall be
liquidated or valued at their fair market value by the Chairman or an appraiser
selected by the Chairman as promptly as possible, and receivables collected, all
in an orderly and businesslike manner so as not to involve undue sacrifice.
c. The assets of the Partnership, including the proceeds of
liquidation, shall be applied and distributed in the following order of
priority:
i. to the payment of the debts and liabilities of the
Partnership to third parties;
ii. to establishing any reserves that the Chairman, in
accordance with sound business judgment, deems
reasonably necessary for any contingent or unforeseen
liabilities or obligations of the Partnership, which
reserves may be paid over by the Chairman to an escrow
agent selected by it to be held by such agent for the
purpose of: (a) distributing such reserves in payment
of the aforementioned contingencies, and (b) upon the
expiration of such period as the Chairman may deem
advisable, distributing the balance thereof in the
manner provided herein;
iii. to the pari passu payment of Deficit Loans;
---- -----
32
<PAGE>
iv. to payment of any other loans to the Partnership by
the Partners;
v. to the Partners in accordance with Section 4.1 of
this Agreement.
If there are any outstanding Deficit Loans, any amounts otherwise
payable to the Defaulting Partner under this Section 10.2.c. shall be paid to
the Complying Partner until the Deficit Loans are paid in full. No Partner
shall be obligated to make up or satisfy a deficit in its capital account.
Upon dissolution of the Partnership, each Partner hereby grants to the
other Partners an exclusive (other than with respect to the granting Partner),
perpetual, royalty-free license to use any and all intellectual property rights
developed by or contributed to the Partnership, including but not limited to
trademarks, service marks, copyrights, trade secrets, and patents ("Partnership
IP Rights"); provided that the Partners acknowledge and agree that Jones
International, Ltd., which owns the name "Product Information Network," shall at
all times continue to own all rights thereto, subject only to the limited right
of the Partnership to use such name during the terms of the Partnership. Each
Partner agrees that, following the dissolution of the Partnership, it will not
challenge the validity of or right to use any Partnership IP Right by the
Partners as contemplated herein, and further agrees to cooperate in good faith,
and to execute any documents reasonably required to perfect or protect any
ownership interest in a Partnership IP Right. Following the dissolution of the
Partnership, in the event of litigation involving a Partnership IP Right, or
third-party challenge to a Partner's rights thereto, each Partner will cooperate
in good faith with, and at the expense of, the Partner choosing to litigate or
respond to such challenge.
33
<PAGE>
ARTICLE 11
RESTRICTIONS ON TRANSFER OR SALE OF
PARTNERSHIP OWNERSHIP INTERESTS; GO-ALONG RIGHTS
11.1 Restrictions on Transfer.
------------------------
No Partner shall sell, transfer, pledge or otherwise dispose of
all or any part of or rights in its Ownership Interest at any time except in
accordance with this Article 11. Notwithstanding the foregoing, (i) with the
consent of the Executive Committee, which consent shall not be unreasonably
withheld, a Partner may mortgage, pledge or encumber its Ownership Interest to a
financial institution and (ii) a Partner may transfer all or part of its
Ownership Interest to an affiliate at any time, provided that the transferring
Partner shall remain fully liable to the Partnership for all obligations of such
Partner and of such affiliate. For purposes of this Agreement, an affiliate of a
person is one who controls, is controlled by, or is under common control with,
such person.
11.2 Right of First Refusal.
----------------------
a. Commencing on January 1, 1998, if a Partner shall receive a
bona fide offer in writing from a third party which is not an affiliate of such
Partner (a "Bona Fide Offer") for all or any portion of its Ownership Interest
and shall propose to make a transfer thereof in accordance with such Bona Fide
Offer, then the Partner that received the Bona Fide Offer (the "Selling
Partner") shall afford the other Partners (the "Offeree Partners") a right of
first refusal to acquire such Ownership Interest or portion thereof at the same
price and on substantially the same terms offered to the Selling Partner by such
third party.
b. The Selling Partner shall give notice within three (3) days
of such Bona Fide Offer (an "Offer Notice") to the Offeree Partners, enclosing
with such Offer Notice a complete and correct copy of the Bona Fide Offer
setting forth all the terms thereof.
c. If an Offeree Partner or any other person that an Offeree
Partner may designate (a "Designee") shall desire to exercise the right of first
refusal then it shall do so in accordance with the following provisions:
34
<PAGE>
i. an Offeree Partner or its Designee shall give written
notice thereof to the Selling Partner within thirty
(30) days after the Offer Notice was received and, if
a Designee is to effect the purchase, the Offeree
Partner shall guarantee the performance of such
Designee;
ii. the Offeree Partner or its Designee shall tender
payment on terms no less favorable than those offered
by such third party, provided that to the extent that
the consideration offered in the Bona Fide Offer is
cash in whole or in part, the tendered payment must
include an amount of cash equal to that in the Bona
Fide Offer, and provided further that any payment must
be tendered within ninety (90) days after the Offer
Notice was received; and
iii. the closing of a purchase of the Selling Partner's
Ownership Interest (or portion thereof) by the Offeree
Partners or Designee(s) shall be held at a mutually
acceptable place on a mutually acceptable date within
such ninety (90) days. At such closing, the Selling
Partner shall, on receipt of the payment therefor,
assign its Ownership Interest (or portion thereof) to
the Offeree Partner or Designee and shall execute such
documents as may be necessary to effectuate the sale.
d. If the Offeree Partners shall elect not to exercise their
rights of first refusal, or if the 90-day period shall lapse without the
tendering of the required payment, then the Selling Partner may transfer its
Ownership Interest (or portion thereof) to the third party; provided that such
transfer is effected in accordance with all provisions hereof and that:
i. the Selling Partner shall sell its Ownership Interest
(or portion thereof) to the third party which made the
Bona Fide Offer;
35
<PAGE>
ii. such transfer must be made upon substantially the
same terms set forth in the Offer Notice i.e. the
price called for in the Bona Fide Offer must be no
less than 95% of the price set forth in the Offer
Notice for the transfer to be considered to be made
upon substantially the same terms set forth in the
Offer Notice;
iii. such transfer must be made within sixty (60) days
after the expiration of the 30-day period or the 90-
day period, as the case may be;
iv. the transferee shall be bound by the provisions of
and assume the obligations of the Selling Partner
under this Agreement as fully and to the same extent
as though such transferee had executed this Agreement;
v. the Selling Partner shall not be relieved of any of
its obligations under this Agreement arising prior to
such transfer (except to the extent such obligations
shall be discharged to the reasonable satisfaction of
the Offeree Partner by the transferee), but the
Selling Partner shall be relieved of any obligations
under this Agreement arising subsequent to such
transfer;
vi. the consent of the Offeree Partners to the transfer
must be obtained if any transfer is to be made
hereunder while any Default by the Selling Partner is
pending or any Deficit Loan secured by the Ownership
Interest of the Selling Partner is outstanding or
during any liquidation or dissolution proceeding; and
vii. the Selling Partner and the transferee shall
execute such documents as the Offeree Partners shall
reasonably request to evidence
36
<PAGE>
the assumption and continuing obligations referred to
herein.
If such sale does not take place in accordance with the foregoing conditions,
then the Selling Partner shall remain a Partner as if the Offer Notice had not
been given.
e. The Selling Partner does not waive any claims or remedies
it may have in law or equity against an Offeree Partner in case an Offeree
Partner elects to purchase (or to cause a Designee to purchase) and wrongfully
fails to so purchase all or part of the Selling Partner's Ownership Interest.
f. In the event that there is more than one Offeree Partner
and they each exercise the right of first refusal provided for above, then all
such Offeree Partners shall be entitled to exercise such rights pro rata
according to their respective Ownership Interests, excluding the Ownership
Interest of the Selling Partner.
11.3 Go-Along Rights. If a Partner proposes to sell, assign, transfer
---------------
or otherwise dispose of his Ownership Interest (which, for purposes of this
Section shall include all or any portion thereof), or any beneficial interest
therein, including a sale of all of the stock of such Partner, to another person
who is not an affiliate (such person hereinafter being referred to as the
"Transferee,") such transferring Partner (the "Transferor") shall provide notice
of such transfer to the other Partners, which notice shall include all of the
material terms and conditions of the proposed transfer and copies of each
agreement or other document pursuant to which such transfer is proposed to be
effected. Within thirty (30) days of receipt of such notice, the other Partners
shall have the right by written notice to the Transferor to require the
Transferor to use its reasonable efforts to cause to be included in the proposed
transfer to the Transferee the correlative Ownership Interests of the other
Partners to that being sold by the Transferor, on the same terms and conditions
as the proposed transfer by the
37
<PAGE>
Transferor. The Transferor shall not transfer its Ownership Interest to the
Transferee unless and until the other Partners have been given the right to
participate on the same terms and conditions as the Transferor in the proposed
transfer to the Transferee. In addition, no such transfer by the Transferor
shall be effective unless and until the Transferee agrees to be bound by all of
the terms and conditions of this Agreement, including this Section with regard
to transfers of Ownership Interests. No Transferor shall engage in any
transaction or series of transactions whose intent or effect is to circumvent
the rights granted to the Partners under this Section; provided, however, that
this Section shall not be deemed to apply to or prohibit a sale of substantially
all of the assets of, the sale of shares by, or a transfer of control of, Jones
International Networks, Inc., CableRep, Inc., or the parent or parents of any of
them.
ARTICLE 12
DEFAULT
12.1 Definition of Default. For the purpose of this Agreement,
---------------------
a "Default" shall occur upon:
a. the failure of a Partner to pay, within thirty (30) days of
the time required, the full amount of any additional capital contribution
required by the Executive Committee,
b. a breach by any Partner of a material term of this
Agreement, unless the cure of such breach, if curable, is begun within fifteen
(15) days of receipt of written notice from the other Partner that a breach has
occurred,
c. the bankruptcy or insolvency of a Partner, or
d. the failure of the Partnership to timely make any payments
under any loan from a Partner or its affiliates to the Partnership, including
any Deficit Loan, or to timely perform any of its obligations under any
documents relating to any loan from a Partner or its affiliates to the
Partnership, including any Deficit Loan. The Partnership shall not have failed
to timely make
38
<PAGE>
any payments within the meaning of the prior sentence if funds for such purpose
were available and the payments were not made due to the improper actions of the
Partner to whom the payments were owed.
12.2 Remedies. Upon a Default, in addition to the remedies provided
--------
elsewhere in this Agreement, the nondefaulting Partners shall have:
a. all rights and remedies provided by law or in equity,
including, where applicable, the rights and remedies of a secured creditor under
the Colorado Uniform Commercial Code; and
b. the right to dissolve the Partnership.
ARTICLE 13
FORCE MAJEURE
13.1 Force Majeure. No Partner hereto shall be liable to the
-------------
other Partner and no Partner hereto shall be deemed in default hereunder for any
failure or delay in the performance of any of its covenants, agreements or
obligations, caused by or arising out of any of the following conditions of
force majeure: disaster, labor disturbances, shortage of labor or equipment,
strikes, lockouts, other industrial disturbances, acts of God, acts of a public
enemy, war, blockade, riot, insurrection, lightning, fire, storm, flood,
inclement weather, physical loss of satellite carriage, explosion, or any
regulations, restrictions or acts of governmental agencies, or on account of any
eventualities or conditions, whether enumerated or not, beyond the reasonable
control of such Partner.
13.2 Notice of Force Majeure. The Partner affected by any
-----------------------
condition of force majeure as described in this provision shall promptly notify
the other Partners in writing and hereby agrees to use reasonable diligence to
remove any such conditions of force majeure as may occur from time to time. No
right of a Partner shall be affected for failure or delay of that Partner to
meet any condition of this Agreement where such failure or delay is caused by a
condition of force majeure as defined herein, and such Partner shall be excused
from performance of any obligation affected by such condition of force majeure
during the period required to overcome the delay; and the time limits provided
in this Agreement to meet any condition affected by force majeure shall be
deemed and treated as extended for a period commensurate with the delay caused
by
39
<PAGE>
force majeure; provided, however, nothing contained herein shall require the
settlement of strikes, lockouts, or other labor difficulties by the Partner
affected contrary to its wishes, and the disposition or manner of handling or
remedying any and all such labor difficulties is hereby expressly acknowledged
to be entirely within the discretion of the Partner concerned.
ARTICLE 14
MISCELLANEOUS
14.1 Limits of Partnership. The relationship between the Partners
---------------------
shall be limited to the performance of matters stated in this Agreement. Nothing
in this Agreement shall be construed to create a partnership for other matters
between the Partners, nor to authorize any Partner to act as general agent for
the other Partners, nor to permit any Partner to bid for or undertake any other
contract for the other Partners, nor to borrow money on behalf of or to use the
credit of the other Partners for any purposes. Should any Partner commit acts
relating to the Partnership beyond the scope of this Agreement which cause
liability to be imposed on the other Partner, the Partner committing such acts
shall indemnify the other Partner against any lost profits, damages, losses,
claims, costs, attorneys' fees and other expenses incurred by reason of such
acts.
14.2 Insurance. The Partnership shall obtain sufficient
---------
insurance to protect the Partnership from and against such liabilities and risks
as are customarily insured against by prudent persons engaged in similar
businesses.
14.3 Confidential Information.
------------------------
a. Each Partner has acquired, and the Partnership is expected
to acquire, certain knowledge and information, developed and experimental, not
generally known in the business, relating to the business of the Partnership
which provides each Partner, and will provide the Partnership, with a
competitive advantage relating to methods, processes, technology, formulas,
know-how, research and development programs, plans, sales and requirements and
other confidential business information, trade secrets and data (collectively,
40
<PAGE>
"Confidential Information"). Confidential Information shall include the
confidential business information of each Partner that is not directly related
to the business of the Partnership but is disclosed to the other Partners as a
result of being a party to this Partnership ("Confidential Partner
Information"). Confidential Information shall not include:
i. information known to a Partner prior to formation of
the Partnership and not obtained or derived directly
from another Partner;
ii. information which is or becomes available to the
general public other than through acts or omissions
attributable to a Partner; or
iii. information obtained from a third party who is
lawfully in possession of the same and who is not
subject to a confidentiality or nonuse obligation owed
to a Partner, the Partnership or others with respect
to that information.
For purposes of this Agreement, specific information disclosed shall not be
deemed to be within the foregoing exceptions merely because it is embraced by
general information in the public domain. The Partners recognize that as a
result of being a party to this Partnership each Partner will obtain access to
some of the other Partners' Confidential Information as well as to the
Confidential Information of the Partnership, and that the other Partners or the
Partnership would suffer great loss and irreparable harm upon disclosure or
improper use of such Confidential Information. Each Partner agrees to keep
secret all Confidential Information of the other Partners and the Partnership
and agrees (x) not to disclose the same, except to its affiliates who agree to
be bound to maintain such Confidential Information in confidence to the same
extent the Partner is bound hereunder, during or after the term of this
Agreement and (y) not to use or permit its personnel, agents or others to use
such Confidential Information for any project which competes with the
Partnership. Each Partner also agrees not to use such Confidential Information
to its own advantage during or after the term of this Agreement. In addition,
each Partner shall require all
41
<PAGE>
employees of the Partner or its affiliates who will have access to Confidential
Information to agree to be bound to maintain Confidential Information in
confidence to the same extent each Partner is bound hereunder. Upon termination
of this Agreement, all memoranda, notes, records, writings, reports, manuals,
drawings and any other items of information in any form belonging to each
Partner, including all copies thereof, shall upon written request be returned to
their respective owner.
b. Notwithstanding the foregoing, without prior agreement of the
other Partner or the Partnership, each Partner may make such disclosures of
Confidential Information which it is required to make by law, including by any
regulatory authority, or pursuant to financial disclosure requirements, and such
disclosures as are reasonably necessary to accomplish the overall business
purposes of this Agreement in connection with the following types of activities,
business individuals and entities: (i) appropriate consultants, contractors,
suppliers, accountants, and the like, engaged to perform services or furnish
equipment for the Network; (ii) potential lenders of funds for any operations or
activities proposed to be conducted hereunder; (iii) individuals or entities
with whom the Partner is negotiating for resale, transfer or assignment of the
Partner's Ownership Interest, it being understood that any individuals and
entities to whom disclosure is made shall agree in writing to observe the
confidentiality of the disclosures to them; (iv) governmental agencies to the
extent that such disclosure is lawfully required by such agencies or to the
extent that such Confidential Information is inextricably contained in
information lawfully required by such agencies, provided that the Partner will
make reasonable efforts to make such disclosures to such agencies in confidence
if possible and if not possible to request such agencies to refrain from
publishing and to minimize access by others to such Confidential Information;
and (v) pursuant to any public or private offering of securities of a Partner or
any affiliate thereof or the Partnership, it being understood that in a public
offering the disclosing party will take reasonable steps consistent with those
in clause (iv) to preserve the confidentiality of such Confidential Information
and that in a
42
<PAGE>
private offering any individuals and entities to whom disclosure
is made shall agree in writing to observe the confidentiality of the disclosures
to them.
14.4 Publicity. No Partner shall make any announcement, press
---------
release or public statement relating in any manner to the Partnership or
operations under this Agreement (except routine marketing-related announcements)
without first furnishing the proposed text thereof to the other Partner and
obtaining the other Partners' approval in writing, which approval shall not be
unreasonably withheld; provided, however, and without limitation of Section 14.3
above, that the requirement for written approval is waived when public
disclosure by any Partner is required by law or governmental regulation,
judicial order or similar pronouncement, or the rules of an established stock
exchange. Whenever practicable, such announcements, press releases and public
statements shall be issued jointly by the Partners.
14.5 Modification. No change, modification or amendment to
------------
this Agreement shall be valid unless the same is in writing and signed by all of
the Partners.
14.6 Gender and Number. Each pronoun shall include any gender
-----------------
or number thereof as the situation requires.
14.7 Benefits and Obligations. All provisions of this Agreement
------------------------
shall be binding upon, inure to the benefit of and be enforceable by and against
the parties hereto, their permitted successors and permitted assigns.
14.8 Counterparts. This Agreement may be executed in several
------------
counterparts, each of which when so executed shall be considered as an original
and all of which together shall constitute one agreement.
14.9 Captions. The captions at the beginning of the sections of
--------
this Agreement are not a part of this Agreement but are included for convenience
only, and shall be ignored in construing this Agreement.
14.10 Further Performance. The Partners covenant and agree to
-------------------
execute any further instruments and documents and perform acts which are or may
become necessary to carry out the purposes of this Agreement.
14.11 Governing Law. The Partnership will be formed and will be
-------------
governed under the laws of the State of Colorado. All questions concerning
43
<PAGE>
the intention, validity and meaning of this Agreement relating to the rights and
obligations of the Partners with respect to performance under this Agreement
shall be construed and resolved according to the laws of the State of Colorado.
14.12 Notices. All notices and other communications required or
-------
permitted to be given hereunder shall be in writing and shall be deemed to have
been duly given if delivered personally or by receipted overnight courier
providing for next business day delivery, or mailed, postage prepaid, by
registered or certified mail, return receipt requested:
i. If to JINI:
9697 E. Mineral Avenue
Englewood, Colorado 80112
Attn: President
With a courtesy copy to:
General Counsel
ii. If to Cox:
1400 Lake Hearn Drive
Atlanta, Georgia 30319
Attn: Mr. Patrick Esser
With a courtesy copy to:
General Counsel
iii. If to Adelphia:
5 West Third Street
Coudersport, PA 16915
Attn: Director of Programming
With a courtesy copy to:
General Counsel
or to such other address or addresses as may hereafter be specified by notice
given by any of the above to the others. Notices delivered personally shall be
44
<PAGE>
effective upon delivery. Notices sent by courier shall be effective on the next
business day after delivery to the courier service. Notices transmitted by
facsimile shall be effective when received. Notices delivered by registered or
certified mail shall be effective on the date set forth on the receipt of
registered or certified mail, or three days after mailing, whichever is earlier.
14.13 Severability. Each provision of this Agreement shall be
------------
considered severable and if for any reason any provision of this Agreement is
determined to be invalid, such invalidity shall not impair the operation or
affect other provisions of the Agreement and the parties further agree that if a
court of competent jurisdiction shall declare Section 2.3 or Articles 6, 11 or
12 to be invalid or unenforceable, the parties shall in good faith renegotiate
such Sections to carry out the intent of the parties at the time of the signing
of this Agreement and if the parties fail to reach such agreement, the
Partnership shall be dissolved.
14.14 Title to Property. Title to the property owned by the
-----------------
Partnership shall be held in the name of the Partnership.
14.15 No Commissions. Each Partner hereto represents and warrants
--------------
to the other Partners that it has not incurred any obligations or liabilities,
contingent or otherwise, for brokerage or finder's fees or agent's commissions
or other like payment in connection with this Agreement or the transaction
contemplated hereby for which any Partner will have any liability hereunder.
Each Partner hereto agrees to indemnify and hold the other Partners harmless
against and in respect of any breach by it of the provisions of this Section.
14.16 Plan for a Public Offering.
--------------------------
(a) The Partners presently intend that after approximately
five years from the date of this Agreement the Partnership will prepare to make
a public offering of its equity securities. Any such offering, including the
terms and conditions thereof, will be subject to Executive Committee approval
under Section 6.5a., as well as to market conditions and other conditions that
may be determined by the Executive Committee.
(b) To effect such an offering, the Executive Committee may
cause the incorporation of all of the Partnership's assets pursuant to a
45
<PAGE>
Reorganization. As used herein, a "Reorganization" shall include each of the
following transactions:
(i) the contribution and/or sale, exchange, lease, transfer,
disposition or conveyance, to any corporation(s) formed by or under the
direction of the Executive Committee, of all of substantially all of the
Partnership's assets and liabilities or all of the Ownership Interests in the
Partnership;
(ii) the merger or consolidation of the Partnership with or
into any corporation formed by or under the direction of the Executive
Committee; or
(iii) any other transaction or series of transactions
involving the Partnership that has the effect of any of the transactions
described in (i) or (ii) above or which otherwise causes or results in the
incorporation of the Partnership's assets.
(c) The Executive Committee shall be entitled, upon prior notice to
each of the Partners, to cause a registration statement for a public offering
and sale of securities in any such corporation formed pursuant to a
Reorganization that has succeeded to the Partnership's assets.
14.17 Powers of the Partners. The Partners shall have only those rights and
----------------------
powers expressly set forth in this Agreement.
14.18 Partners' Own Infomercials. If a Partner creates its own
--------------------------
Infomercials which are used on the Network, the Partnership shall acquire no
interest in such Infomercials, and all rights therein shall remain with the
Partner who created them.
IN WITNESS WHEREOF, the parties hereto have executed this Amended and
Restated Partnership Agreement as of the date first set forth above.
46
<PAGE>
JONES INFOMERCIAL NETWORK VENTURES, INC.
By: /s/ Gregory J. Liptak
Title: President
COX CONSUMER INFORMATION NETWORK, INC.
By: /s/ Agit M. Dalvi
Title: Vice President
ADELPHIA COMMUNICATIONS CORPORATION
By: /s/ Timothy Rigas
Title: Executive Vice President
47
<PAGE>
Exhibit 10.10
Portions of this exhibit have been omitted pending a determination by the
Securities and Exchange Commission that certain information contained herein
shall be afforded confidential treatment. The omitted portions are indicated
by three asterisks.
<PAGE>
Exhibit 10.10
GREAT AMERICAN COUNTRY
AFFILIATE AGREEMENT
THIS AGREEMENT is made as of the 1st day of January, 1996, by and between GREAT
AMERICAN COUNTRY, INC., a Colorado corporation ("G*A*C"), and JONES PROGRAMMING
SERVICES, INC. and JONES INTERCABLE, INC., both Colorado corporations
(collectively, "Affiliate"), whose address is 9697 E. Mineral Avenue, Englewood,
Colorado 80112.
IN CONSIDERATION OF THE MUTUAL COVENANTS, STIPULATIONS AND REPRESENTATIONS
CONTAINED HEREIN, THE PARTIES HERETO AGREE AS FOLLOWS:
1. GRANT OF LICENSE
----------------
(a) Subject to the terms and conditions of this Agreement, G*A*C hereby
grants to Affiliate the non-exclusive license to distribute the "Great
American Country" service (the "Service") within the operating area (as
hereinafter defined) of any cable or satellite master antenna television
system(s) owned or managed by Affiliate as listed on the attached
Exhibit A, as such list may be amended from time to time (the "System(s)")
---------
by mutual agreement of G*A*C and Affiliate. Affiliate shall give written
notice to G*A*C within thirty (30) days of the date Affiliate desires to
add a System to Exhibit A. Affiliate shall not delete any System from
---------
Exhibit A during the term of this Agreement.
---------
(b) For purposes of this Agreement, the "Operating Area" of any System
shall mean, with respect to a cable television system, the geographical
area where Affiliate is authorized to construct, operate, manage or
maintain a cable television system by appropriate governmental authority,
and with respect to a satellite master antenna television system, the
geographical area where Affiliate is authorized to construct, operate,
manage or maintain a satellite master antenna television system by
agreement with a third party.
<PAGE>
2. TERM
----
(a) The term of this Agreement shall commence on January 1, 1996, and
terminate fifteen (15) years thereafter. 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 Affiliate nor G*A*C may
terminate this Agreement except upon sixty (60) days prior written notice
and then only if the other has made a material misrepresentation herein or
breaches any of its material obligations hereunder and such
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 SERVICE
------------------
(a) G*A*C shall have the exclusive authority to determine the content and
format of the Service, and the selection, scheduling, substitution and
withdrawal of any program or advertisement shall remain within the sole
discretion of G*A*C. Notwithstanding the foregoing, the Service shall
consist of a twenty-four (24) hour a day, satellite-delivered country music
television network that features current and past country music videos,
information on country music artists and occasional short-form programming
that focuses on both country music and country music's performing artists.
Affiliate shall distribute the Service without addition, deletion,
alteration, editing or amendment, including any copyright notices, credits
and similar notices, trademarks or trade names contained therein.
(b) G*A*C shall make available to Affiliate not less than four (4) minutes
of commercial advertising time in each programming hour for use by
Affiliate in inserting local advertising or promotions. All such
availabilities shall be at such points in the transmission of the Service
as G*A*C determines in its sole discretion. G*A*C shall signal Affiliate's
commercial advertising time by a hidden cue tone. Affiliate shall use its
best efforts to assure that all commercial matter or advertisements it
inserts with the Service (i) are not offensive in nature; (ii) do not
suggest
-2-
<PAGE>
an affiliation between G*A*C or any programming contained in the Service,
and third party advertisers, and (iii) are generally compatible with the
commercial standards of G*A*C including, but not limited to, a prohibition
on advertising related to adult entertainment. Affiliate's commercial
advertising time shall be fixed, nonrecapturable and nonpreemptible except
in the event that G*A*C gives thirty (30) days' notice to Affiliate
preempting Affiliate's specific commercial time, provided that G*A*C makes
available to Affiliate, within sixty (60) days of such preemption, an equal
amount of commercial time in a like time period.
4. RATES AND PAYMENTS
------------------
(a) On or before the thirtieth (30th) day following each month throughout
the term of this Agreement, Affiliate shall pay to G*A*C for each Service
Subscriber of each System during the preceding month, at the address
specified. by G*A*C, license fees in an amount calculated in accordance
with the attached Exhibit B.
---------
(b) G*A*C's failure, for any reason, to send an invoice for a particular
monthly payment shall not relieve Affiliate of its obligation to make any
payment in a timely manner consistent with the terms of this Agreement.
Past due payments shall bear interest at a rate equal to the lesser of (i)
one and one-half percent (1-1/2%) per month or (ii) the maximum legal
rate permitted under law, and Affiliate shall be liable for all reasonable
costs and expenses (including, without limitation, reasonable court costs
and attorneys' fees) incurred by G*A*C in collecting any past due payments.
(c) G*A*C shall have the right to increase the applicable monthly rates to
be paid by Affiliate above the rate set forth in Exhibit B attached hereto
---------
by giving Affiliate ninety (90) days prior written notice of the increased
rate (a "Rate Notice") and the effective date of such increase (the
"Effective Date"). Affiliate shall then have the right, by written notice
given to G*A*C within thirty (30) days of the date of the Rate Notice, to
elect to terminate this Agreement as of the Effective Date specified in the
Rate Notice (a "Termination Notice"). Notwithstanding the foregoing, an
election by Affiliate to terminate this Agreement pursuant to this
Paragraph 4(c) shall be of no force and effect and this Agreement shall
-3-
<PAGE>
continue in full force and effect, without the rate increase specified in the
Rate Notice, if G*A*C elects, by delivery of written notice to Affiliate within
thirty (30) days after receipt of a Termination Notice, to rescind the proposed
rate increase.
(d) For purposes of this Agreement, the term "Subscriber" shall mean (i) each
residential customer and commercial or business establishment (including any
restaurant, barbershop, lounge, tavern, social, athletic or country club, bar,
business office, sales office, store or shop) receiving and separately paying
for basic cable television service from each System (excluding those receiving
only a lifeline service consisting solely of public, educational and
governmental access channels and other public affairs programming such as
C-SPAN), and (ii) the number of basic equivalent subscribers computed by
dividing the monthiy revenue for basic cable television service paid by bulk
accounts (such as apartment buildings, cooperatives, condominiums, mobile home
parks, hotels, and motels) of each System by the standard residential rate for
basic cable television service of that System. For purposes of this Agreement,
the term "Service Subscriber" shall mean any Subscriber receiving the Service on
any level of cable television service in any System.
(e) Accompanying each payment during the term of this Agreement, Affiliate
shall provide to G*A*C a true and complete monthly report, signed by the chief
financial officer of Affiliate or his/her authorized designee, in a form
satisfactory to G*A*C, specifying for each System the average number of Service
Subscribers of each System during the subject payment period (computed by
dividing the sum of the number of Service Subscribers on the first and last day
of the payment period by two) and certifying the accuracy of such information
and containing such other information as may be reasonably required by G*A*C for
accurate billing purposes.
(f) Affiliate 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 Affiliate for a period of
three (3) years following the year to which such books and records relate. G*A*C
or its authorized representatives shall have the right to inspect, audit and
copy any such books and records of
-4-
<PAGE>
Affiliate Acceptance by G*A*C of any payment by Affiliate 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 G*A*C hereunder.
5. DELIVERY AND DISTRIBUTION
-------------------------
(a) During the term of this Agreement, each of the Systems shall,
commencing with each such Systems' first date of carriage of the Service as
listed on Exhibit A ("Launch Date"), and subject to compliance with the
---------
terms of this Agreement, offer the Service either as part of such System's
Basic Service, Expanded Basic Service or on an A La Carte basis. "Basic
Service" shall mean the television service package which is received by all
of Affiliate's customers in a particular System. "Expanded Basic Service"
shall mean the cable television service package which is received by the
second greatest number of Affiliate's customers in a particular System and
which does not include any "pay services" (e.g., HBO, Cinemax, The Disney
Channel). "A La Carte" basis shall mean that the Service is available
individually to a Subscriber without any requirement that the Subscriber
subscribe to any service or package beyond Basic Service; provided,
--------
however, that the Service is also available in any such System as part of a
-------
package composed of at least three (3) other satellite delivered services,
which additional services are also available for purchase individually by a
Subscriber. Affiliate shall designate one (1) channel on each System for
the carriage of the Service prior to the commencement of the delivery of
the Service on such System. Affiliate may change, from time to time, the
channel designation on which the Service is carried; provided, however,
-------- -------
that Affiliate shall give G*A*C written notice of the change and the new
channel designation at least sixty (60) days prior to the effective date of
such change.
(b) Affiliate agrees to deliver the Service at least 18 hours per day,
from 7 a.m. to 1 a.m. in local time zones.
(c) G*A*C will initially transmit the Service by means of domestic
communications satellite GE American C-3, Transponder 20, and may, from
time to time, transmit the Service by means of other satellites. G*A*C will
notify Affiliate of any change in satellite not less than thirty
-5-
<PAGE>
(30) days prior to the scheduled change. In the event of any such change,
Affiliate agrees to make such arrangements as may be necessary to receive the
signal from the new satellite. Notwithstanding the above, if G*A*C delivers the
Service to a domestic communications satellite which does not carry the signal
transmission of (i) HBO or SHOWTIME or (ii) at least three (3) of the following
basic services: ESPN, MTV, Lifetime, The Family Channel, The Weather Channel,
C-Span, CNN, TNT, or Headline News; and where it reasonably appears that
Affiliate will incur expenses for additional receiving equipment that will not
be reimbursed by any third party for a particular System to receive the Service,
then in that event, Affiliate will be entitled to delete the affected System
from Exhibit A of this Agreement within thirty (30) days of receiving notice
---------
from G*A*C of the satellite selected for delivery of the Service, unless G*A*C
agrees to pay its pro rata share (based on number of signals to be received by
any System from such new satellite) of the costs associated with the additional
receiving equipment. If G*A*C agrees to pay such costs, then the affected System
may not be deleted from Exhibit A and such System shall continue to distribute
---------
the Service through the remaining term of this Agreement. G*A*C and Affiliate
shall each use their respective best efforts to maintain a high quality of
signal transmission for the Service.
(d) Subject to then existing law, Affiliate shall not itself, and shall not
authorize others to, copy, tape or otherwise reproduce any part of the Service
without G*A*C's prior written authorization, and shall take reasonable and
practical security measures to prevent the unauthorized copying or taping by
others; provided, however, that nothing herein shall prohibit Affiliate from
-------- -------
assisting its residential subscribers in connecting video cassette recorders to
record the Service. G*A*C shall endeavor to advise Affiliate of copyright,
literary and dramatic rights of, and restrictions and limitations imposed by,
program originators (including but not limited to G*A*C) affecting the
distribution of the Service, as they exist from time to time ("Intellectual
Property Rights and Requirements"). As between the parties to this Agreement,
Affiliate shall be solely responsible for compliance with any and all
Intellectual Property Rights and Requirements of which it has been given notice.
Affiliate shall not distribute or exhibit, and shall not authorize, license or
permit the distribution or exhibition of, the Service by any means or device,
whether
-6-
<PAGE>
now known or hereafter devised, other than through the Systems now or
hereafter listed in Exhibit A hereto and in accordance with the terms of
---------
this Agreement.
6. PROMOTION AND RESEARCH
----------------------
(a) Affiliate shall use reasonable efforts to promote, market and sell the
Service to Subscribers and to the general public within the Operating Area
of each System. Advertising, promotional, marketing and/or sales materials
concerning the Service which are provided to Affiliate by G*A*C shall be
used without any alteration, deletion, addition or any other change, unless
such changes are approved by G*A*C prior to use by Affiliate.
(b) At G*A*C's request, Affiliate shall provide G*A*C with all available
data regarding the marketing and promotion of the Service by Affiliate.
Subject to applicable federal, state and local law (including the
franchises, if any, pursuant to which the Systems are operated), Affiliate
also agrees to render such other assistance to G*A*C as G*A*C may request
and which Affiliate may reasonably provide in connection with any marketing
test, survey, poll or other research which G*A*C may undertake in
connection with the Service. G*A*C shall treat as confidential any names
and addresses of Subscribers which G*A*C receives from Affiliate, and shall
not utilize any such names or addresses except in connection with such
research.
7. NOTICES
-------
All notices, statements and other communications given hereunder 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 G*A*C at 9697 East Mineral Avenue,
Englewood, Colorado 80112, Attn: President, G*A*C, (Fax: 303-799-1644),
with a copy to the Legal Department and, if to Affiliate, at its address
set forth herein or by facsimile at 303-799-1644. 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.
-7-
<PAGE>
8. TRADEMARKS
----------
All right, title and interest in and to the Service, and all materials,
ideas, formats and concepts, computer software or other rights of whatever
nature related thereto shall remain the property of G*A*C. Further,
Affiliate acknowledges and agrees that all names, logos, marks, copyright
notices or designations utilized by G*A*C in connection with the Service
(the "Marks") are the sole and exclusive property of G*A*C and/or its
affiliates, and no rights or ownership are intended to be or shall be
transferred to Affiliate. Affiliate's use of the Marks shall be limited to
the advertising and promotion of its carriage of the Service over the
Systems pursuant to this Agreement. G*A*C shall provide Affiliate with
samples of the Marks which Affiliate shall use in their entirety (including
all service mark and trademark notices) whenever the Marks are used by
Affiliate.
9. REPRESENTATIONS AND INDEMNIFICATION
-----------------------------------
(a) G*A*C represents and warrants to Affiliate that (i) it is a
corporation duly organized and validly existing under the laws of the State
of Colorado; (ii) G*A*C has the corporate power and authority to enter into
this Agreement and to fully perform its obligations hereunder; (iii) G*A*C
is under no contractual or other legal obligation which in any way
interferes with its ability to fully, promptly and completely perform
hereunder; and (iv) nothing contained in the Service 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) Affiliate represents and warrants to G*A*C that (i) Affiliate is a
corporation duly organized and validly existing under the laws of the State
of Colorado; (ii) Affiliate has the requisite power and authority to enter
into this Agreement and to fully perform its obligations hereunder; (iii)
Affiliate's Systems are operating, with respect to any cable television
system, pursuant to valid franchise agreements, or licenses or other
permits duly authorized by proper local authorities, or with respect to any
satellite master antenna television systems, pursuant to valid agreements
-8-
<PAGE>
with third parties granting affiliate all necessary rights; and (iv) Affiliate
is under no contractual or other legal obligation which in any way interferes
with its ability to fully, promptly and completely perform hereunder.
(c) Affiliate and G*A*C 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. G*A*C will credit Affiliate for any continuous
interruption of Service caused by G*A*C of twenty-four (24) hours or longer,
such interruption measured from the time Affiliate notifies G*A*C of the
interruption or from the time a major outage is known to G*A*C. The amount so
credited shall be an amount equal to that portion of the monthly license fees
applicable to the period during which the Service was interrupted. G*A*C's
liability for damages arising out of its inability or failure to deliver the
Service shall be limited to the license fee credits set forth in the preceding
sentence.
(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 hereunder with respect to such claim or action so settled.
(e) Neither party hereto shall be liable to the other for the failure to
fulfill its obligations hereunder (other than the obligation to make all
payments when due hereunder) to the extent such failure is caused by or arises
out of an act of God, war, strike, riot, labor dispute, national disaster,
technical failure (including the failure of all or part of any domestic
communications satellite on which the Service is delivered), or
-9-
<PAGE>
any other reason beyond the control of the party whose obligation is
prevented during the period of such occurrence.
10. CONFIDENTIALITY
---------------
Neither Affiliate nor G A C shall disclose to any third party (other than
its respective employees, in their capacity as such), 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 (including those relating to the
public or private offering of securities) 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) and 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 Affiliate and G A C 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 Affiliate without the
prior written consent of G A C In the event that Affiliate sells,
transfers or otherwise disposes of some or all of the Systems distributing
the Service during the term of this Agreement, Affiliate's obligations
under this Agreement with respect to such Systems shall continue unless and
until the persons or entities to whom such Systems are sold or transferred
have entered into agreements with G A C for the continued distribution of
the Service for a period at least equal to the remaining term of this
Agreement at the time of such sale, transfer or other disposition.
(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
-10-
<PAGE>
between Affiliate and G A C. Neither Affiliate nor G A C shall be or hold
itself out as the agent of the other under this Agreement. The obligations
of Affiliate and G A C under this Agreement are subject to all applicable
federal, state and local laws, rules and regulators including, but not
limited to, the Communications Act of 1934, as amended and the rules and
regulations of the Federal Communications Commission.
(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 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.
IN WITNESS WHEREOF, the parties hereto have entered into this Agreement as of
the date first set forth above.
GREAT AMERICAN COUNTRY, INC.,
a Colorado corporation
By: /s/ Gregory J. Liptak
------------------------------
Title: President
----------------------------
Date: ______________________________
-11-
<PAGE>
JONES PROGRAMMING
SERVICES, INC.,
a Colorado corporation
By: /s/ Phillip Laxar
------------------------------------
Title: V.P. PROGRAMMING
----------------------------------
Date:
----------------------------------
JONES INTERCABLE, INC.,
a Colorado corporation
By: /s/ Elizabeth M. Steele
------------------------------------
Title: V.P. President
----------------------------------
Date:
----------------------------------
-12-
<PAGE>
EXHIBIT A
---------
List Each
Franchise Area No. of
Served by Each System Launch Date Subscribers
--------------------- ----------- -----------
<PAGE>
EXHIBIT B
---------
LICENSE FEES
------------
Period Base Rate
----------------
December 1, 1995 through December 30, 1997 *** Service Subscriber/Month
December 31, 1997 through December 30, 1999 *** Service Subscriber/Month
An increase of $.01 in the monthly license fee during each successive twenty
four month period thereafter during the term of the agreement.
VOLUME DISCOUNTS
----------------
An additional discount will be available based on the number of Great American
Country Subscribers as follows:
Year
- ---------------------------------------------
December 1, 1995 through December 30, 1997 ***
December 31, 1997 through December 30, 1999 ***
December 31, 1999 through December 30, 2001 ***
December 31, 2001 through December 30, 2003 ***
December 31, 2003 through December 30, 2005 ***
December 31, 2005 through December 30, 2007 ***
December 31, 2007 through December 30, 2009 ***
December 31, 2009 through December 30, 2011 ***
<PAGE>
EXHIBIT 10.11
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
-2-
<PAGE>
JONES SATELLITE HOLDINGS, INC.
SCHEDULE A
<TABLE>
<CAPTION>
Monthly Amount Due From
Calender 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>
<PAGE>
Exhibit 10.12
AMENDED AND RESTATED
JONES INFOMERCIAL NETWORKS, INC.
AFFILIATE AGREEMENT
THIS AGREEMENT, as amended and restated, is made as of the 1st day of
August, 1994, by and between JONES INFOMERCIAL NETWORKS, INC., a Colorado
corporation ("JIN"), and JONES INTERCABLE, INC. ("Affiliate"), whose address is
9697 E. Mineral Avenue, Englewood, Colorado 80112.
IN CONSIDERATION OF THE MUTUAL COVENANTS, STIPULATIONS AND
REPRESENTATIONS CONTAINED HEREIN, THE PARTIES HERETO AGREE AS FOLLOWS:
1. GRANT OF LICENSE
----------------
(a) Subject to the terms and conditions of this Agreement, JIN hereby
grants to Affiliate the non-exclusive license to distribute the "Jones
Infomercial Networks" programming service (the "Service") within the
operating area (as hereinafter defined) of any cable or satellite master
antenna television system(s) owned or managed by Affiliate as listed on the
attached Exhibit I, as such list may be amended from time to time (the
---------
"System(s)") by mutual agreement of JIN and Affiliate. Affiliate shall give
written notice to JIN within thirty (30) days of the date Affiliate desires
to add a System to Exhibit I. Affiliate shall not delete any System from
---------
Exhibit I during the term of this Agreement; provided, however, that
---------
Affiliate shall have the right to delete a System, upon prior written
notice to JIN, if Affiliate replaces such System with one or more other
Systems having, in the aggregate, at least the same number of subscribers
as the deleted System. In the event that Affiliate transfers the Systems
subject to this Agreement to another party and does not replace such
Systems with substitute Systems as contemplated by the immediately
preceding sentence, Affiliate shall use its best efforts to cause the party
to which Affiliate has transferred such Systems to assume Affiliate's
obligations under this Agreement with respect to the transferred Systems,
with such assumption to be evidenced by documentation reasonably acceptable
to JIN.
<PAGE>
(b) For purposes of this Agreement, the "Operating Area" of any System
shall mean, with respect to a cable television system, the geographical
area where Affiliate is authorized to construct, operate, manage or
maintain a cable television system by appropriate governmental authority,
and with respect to a satellite master antenna television system, the
geographical area where Affiliate is authorized to construct, operate,
manage or maintain a satellite master antenna television system by
agreement with a third party.
2. TERM
----
(a) The term of this Agreement shall commence on August 1, 1994, and
terminate on February 1, 2005. This Agreement shall automatically renew for
successive equal 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 Affiliate nor JIN may
terminate this Agreement except upon sixty (60) days prior written notice
and then only if the other has made a misrepresentation herein or breaches
any of its material obligations hereunder and such 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 SERVICE
------------------
The Service shall provide programming consisting of multiple direct
response television commercials ("infomercials") generally ranging in
length from 30 seconds to 60 minutes, depending on the requirements of
adequately demonstrating the particular products or services that are the
subjects of such infomercials. JIN shall have the exclusive authority to
determine the content and format of the Service, and the selection,
scheduling, substitution and withdrawal of any program or advertisement
shall remain within the sole discretion of JIN. Affiliate shall distribute
the Service without addition, deletion, alteration, editing or amendment,
including any copyright notices, credits and similar notices, trademarks or
trade names contained therein.
-2-
<PAGE>
4. RATES AND PAYMENTS
------------------
(a) On or before the thirtieth (30th) day following each month throughout
the term of this Agreement, JIN shall pay to Affiliate the appropriate
rebate of network revenue earned (the "rebate") in the operating area
identified by zip codes provided in Exhibit I, and calculated in accordance
---------
with Exhibit II.
----------
(b) JIN's failure, for any reason, to send a particular monthly payment
within the time frame specified shall not relieve Affiliate of its
obligation to carry the Network consistent with the terms of this
Agreement.
(c) During the term of this Agreement, each month Affiliate shall provide
to JIN a true and complete monthly report, signed by the chief financial
officer of Affiliate or his/her authorized designee, in a form satisfactory
to JIN, specifying for each System the total number of hours the Network
was carried each day of that month and the number of channels on which the
Network was viewed. In addition, Affiliate will provide JIN a monthly
report of the specific dayparts of each day during which the Network was
broadcast to each System.
(d) JIN 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 JIN for a
period of three (3) years following the year to which such books and
records relate. Affiliate or its authorized representatives shall have the
right to inspect, audit and copy any such books and records of Affiliate.
Acceptance of any rebate by Affiliate shall be construed as acceptance of
any calculation thereof.
5. DELIVERY AND DISTRIBUTION
-------------------------
(a) During the term of this Agreement, each of the Systems shall,
commencing with each such Systems' first date of carriage of the Service as
listed on Exhibit I ("Launch Date"), designate a minimum of one (1) channel
---------
on each System for the carriage of the Service prior to the commencement of
the delivery of the Service on such System. Affiliate may change, from time
to time, the channel designation on which the
-3-
<PAGE>
Service is carried. Effective January 31, 1995, Affiliate agrees to deliver
the Service a minimum of eight (8) hours per day during the time period
between 8:00 a.m. and 12:00 midnight.
(b) JIN will initially transmit the Service by means of domestic
communications satellite GE American Communications C-3, Transponder 20.
Effective September 6, 1994, JIN will transmit a digitally compressed
signal on the GE American Communications C-3 satellite. JIN will notify
Affiliate of any change in satellite not less than ninety (90) days prior
to the scheduled change. In the event of any such change, Affiliate agrees
to make such arrangements as may be necessary to receive the signal from
the new satellite. If JIN delivers the Service to a domestic communications
satellite where it reasonably appears that Affiliate will incur expenses
for additional receiving equipment other than those associated with
receiving a digitally compressed signal that will not be reimbursed by any
third party for a particular System to receive the Service, then in that
event, Affiliate will be entitled to delete the affected System from
Exhibit I of this Agreement within thirty (30) days of receiving notice
---------
from JIN of the satellite selected for delivery of the Service, unless JIN
agrees to pay its pro rata share (based on number of signals to be received
by any System from such new satellite) of the costs associated with the
additional receiving equipment. If JIN agrees to pay such costs, then the
affected System may not be deleted from Exhibit I and such System shall
---------
continue to distribute the Service through the remaining term of this
Agreement. JIN and Affiliate shall each use their respective best efforts
to maintain a high quality of signal transmission for the Service.
(c) Subject to then existing law, Affiliate shall not itself, and shall
not authorize others to, copy, tape or otherwise reproduce any part of the
Service without JIN's prior written authorization, and shall take
reasonable and practical security measures to prevent the unauthorized
copying or taping by others; provided, however, that nothing herein shall
-------- -------
prohibit Affiliate from assisting its residential subscribers in connecting
video cassette recorders to record the Service. JIN shall endeavor to
advise Affiliate of copyright, literary and dramatic rights of, and
restrictions and limitations imposed by, program originators (including but
not limited to JIN) affecting the distribution of the Service, as they
-4-
<PAGE>
exist from time to time ("Intellectual Property Rights and
Requirements"). As between the parties to this Agreement, Affiliate
shall be solely responsible for compliance with any and all Intellectual
Property Rights and Requirements of which its has been given notice.
Affiliate shall not distribute or exhibit, and shall not authorize,
license or permit the distribution or exhibition of, the Service by any
means or device, whether now known or hereafter devised, other than
through the Systems now or hereafter listed in Exhibit I hereto and in
---------
accordance with the terms of this Agreement.
6. PROMOTION AND RESEARCH
----------------------
(a) Affiliate shall use reasonable efforts to promote, market and sell
the Service to Subscribers and to the general public within the
Operating Area of each System. Advertising, promotional, marketing
and/or sales materials concerning the Service which are provided to
Affiliate by JIN shall be used without any alteration, deletion,
addition or any other change, unless such changes are approved by JIN
prior to use by Affiliate.
(b) At JIN's request, Affiliate shall provide JIN with all available
data regarding the marketing and promotion of the Service by Affiliate.
Subject to applicable federal, state and local law (including the
franchises, if any, pursuant to which the Systems are operated),
Affiliate also agrees to render such other assistance to JIN as JIN may
request and which Affiliate may reasonably provide in connection with
any marketing test, survey, poll or other research which JIN may
undertake in connection with the Service. JIN shall treat as
confidential any names and addresses of Subscribers which JIN receives
from Affiliate, and shall not utilize any such names or addresses except
in connection with such research.
7. NOTICES
-------
All notices, statements and other communications given hereunder 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 JIN at 9697 East
Mineral Avenue, Englewood, Colorado 80112, Attn: President, Jones
Infomercial
-5-
<PAGE>
Networks, Inc. (Fax: 303-799-1644), with a copy to the Legal Department
and, if to Affiliate, at its address set forth herein or by facsimile at
(303) 799-1644. 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. TRADEMARKS
----------
All right, title and interest in and to the Service, and all materials,
ideas, formats and concepts, computer software or other rights of whatever
nature related thereto shall remain the property of JIN. Further, Affiliate
acknowledges and agrees that all names, logos, marks, copyright notices or
designations utilized by JIN in connection with the Service (the "Marks")
are the sole and exclusive property of JIN and/or its affiliates, and no
rights or ownership are intended to be or shall be transferred to
Affiliate. Affiliate's use of the Marks shall be limited to the advertising
and promotion of its carriage of the Service over the Systems pursuant to
this Agreement. JIN shall provide Affiliate with samples of the Marks which
Affiliate shall use in their entirety (including all service mark and
trademark notices) whenever the Marks are used by Affiliate.
9. REPRESENTATIONS AND INDEMNIFICATION
-----------------------------------
(a) JIN represents and warrants to Affiliate that (i) it is a corporation
duly organized and validly existing under the laws of the State of
Colorado; (ii) JIN has the corporate power and authority to enter into this
Agreement and to fully perform its obligations hereunder; (iii) JIN is
under no contractual or other legal obligation which in any way interferes
with its ability to fully, promptly and completely perform hereunder; and
(iv) nothing contained in the Service 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) Affiliate represents and warrants to JIN that (i) Affiliate is a
corporation duly organized and validly existing under the laws of the State
of Colorado; (ii) Affiliate has the requisite power and authority to enter
-6-
<PAGE>
into this Agreement and to fully perform its obligations hereunder; (iii)
Affiliate's Systems are operating, with respect to any cable television
system, pursuant to valid franchise agreements, or licenses or other
permits duly authorized by proper local authorities, or with respect to any
satellite master antenna television systems, pursuant to valid agreements
with third parties granting affiliate all necessary rights; and (iv)
Affiliate is under no contractual or other legal obligation which in any
way interferes with its ability to fully, promptly and completely perform
hereunder.
(c) Affiliate and JIN 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.
(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 hereunder
with respect to such claim or action so settled.
(e) Neither party hereto shall be liable to the other for the failure to
fulfill its obligations hereunder (other than the obligation to make all
payments when due hereunder) to the extent such failure is caused by or
arises out of an act of God, war, strike, riot, labor dispute, national
disaster, technical failure (including the failure of all or part of any
domestic communications satellite on which the Service is delivered), or
any other reason beyond the control of the party whose obligation is
prevented during the period of such occurrence.
-7-
<PAGE>
10. CONFIDENTIALITY
---------------
Neither Affiliate nor JIN shall disclose to any third party (other than its
respective employees, in their capacity as such), 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) and 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 Affiliate and JIN 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
Affiliate without the prior written consent of JIN.
(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 Affiliate and JIN. Neither Affiliate nor JIN shall be or hold
itself out as the agent of the other under this Agreement. The obligations
of Affiliate and JIN under this Agreement are subject to all applicable
federal, state and local laws, rules and regulations including, but not
limited to, the Communications Act of 1934, as amended and the rules and
regulations of the Federal Communications Commissions.
(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 and supersedes all prior understandings and
-8-
<PAGE>
agreements, oral or written between the parties hereto. This Agreement may
not be modified except in a writing executed by both parties hereto.
(d) JIN reserves the right to terminate this Agreement at any time and
without cause in connection with the termination of the Service upon thirty
(30) days prior written notice.
(e) 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.
(f) 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.
(g) There is not an adequate remedy at law for a breach by Affiliate of
this Agreement, and JIN will suffer irreparable harm as a result of such a
breach. Therefore, if a breach or threatened breach of this Agreement by
Affiliate occurs, in addition to any other rights and remedies it may have,
JIN shall be entitled to injunctive relief restraining Affiliate from doing
any act in violation of this Agreement.
IN WITNESS WHEREOF, the parties hereto have entered into this Agreement, as
amended and restated, as of the date first set forth above.
JONES INTERCABLE, INC. JONES INFOMERCIAL NETWORKS, INC.
By: /s/ James B. O'Brien By: /s/ Gregory J. Liptak
-------------------------- ----------------------------
(Signature) (Signature)
Its: President Its: President
------------------------- ---------------------------
Date: January 31, 1995 Date: January 31, 1995
------------------------ --------------------------
(15383/jdf)
-9-
<PAGE>
Exhibit 10.13
Portions of this exhibit have been omitted pending a determination by the
Securities and Exchange Commission that certain information contained herein
shall be afforded confidential treatment. The omitted portions are indicated
by three asterisks.
<PAGE>
Exhibit 10.13
PRODUCT INFORMATION NETWORK VENTURE
AFFILIATE AGREEMENT
THIS AGREEMENT is made as of the 31st day of January, 1995, by and
between PRODUCT INFORMATION NETWORK VENTURE, a Colorado general partnership
("PIN"), and COX COMMUNICATIONS, INC. ("Affiliate"), whose address is 1400 Lake
Hearn Drive, Atlanta, Georgia 30319.
IN CONSIDERATION OF THE MUTUAL COVENANTS, STIPULATIONS AND
REPRESENTATIONS CONTAINED HEREIN, THE PARTIES HERETO AGREE AS FOLLOWS:
1. GRANT OF LICENSE
---------------
(a) Subject to the terms and conditions of this Agreement, PIN hereby
grants to Affiliate the non-exclusive license to distribute the
"Product Information Networks" programming service (the "Service")
within the operating area (as hereinafter defined) of any cable or
satellite master antenna television system(s) owned or managed by
Affiliate as listed on the attached Exhibit I, as such list may be
---------
amended from time to time (the "System(s)") by mutual agreement of PIN
and Affiliate. Affiliate shall give written notice to PIN within
thirty (30) days of the date Affiliate desires to add a System to
Exhibit I. Affiliate shall not delete any System from Exhibit I during
--------- ------- -
the term of this Agreement; provided, however, that Affiliate shall
have the right to delete a System, upon prior written notice to PIN,
if Affiliate replaces such System with one or more other Systems
having, in the aggregate, at least the same number of subscribers as
the deleted System. In the event that Affiliate transfers the Systems
subject to this Agreement to another party and does not replace such
Systems with substitute Systems as contemplated by the immediately
preceding sentence, Affiliate shall use its best efforts to cause the
party to which Affiliate has transferred such Systems to assume
Affiliate's obligations under this Agreement with respect to the
transferred Systems, with such assumption to be evidenced by
documentation reasonably acceptable to PIN.
(b) For purposes of this Agreement, the "Operating Area" of any System
shall mean, with respect to a cable television system, the
geographical area where Affiliate is authorized to construct, operate,
manage or maintain a cable television system by appropriate
governmental authority, and with respect to a satellite master antenna
television system, the geographical area where Affiliate is
<PAGE>
authorized to construct, operate, manage or maintain a satellite
master antenna television system by agreement with a third party.
2. TERM
----
(a) The term of this Agreement shall commence on January 31, 1995, and
terminate five (5) years thereafter. This Agreement shall
automatically renew for successive equal 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 Affiliate nor PIN may
terminate this Agreement except upon sixty (60) days prior written
notice and then only if the other has made a misrepresentation herein
or breaches any of its material obligations hereunder and such
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 SERVICE
------------------
The Service shall provide programming consisting of multiple direct
response television commercials ("infomercials") generally ranging in
length from 30 seconds to 60 minutes, depending on the requirements of
adequately demonstrating the particular products or services that are
the subjects of such infomercials. PIN shall have the exclusive
authority to determine the content and format of such Service, and the
selection, scheduling, substitution and withdrawal of any program or
advertisement shall remain within the sole discretion of PIN.
Affiliate shall distribute the Service without addition, deletion,
alteration, editing or amendment, including any copyright notices,
credits and similar notices, trademarks or trade names contained
therein.
4. RATES AND PAYMENTS
------------------
(a) On or before the thirtieth (3Oth) day following each month
throughout the term of this Agreement, PIN shall pay to Affiliate the
appropriate rebate of network revenue earned (the "rebate") in the
Operating Area served by each system identified in Exhibit I, and
---------
calculated in accordance with Exhibit II.
----------
(b) PIN's failure, for any reason, to send a particular monthly
payment within the time frame specified shall not relieve Affiliate of
its obligation to carry the Network consistent with the terms of this
Agreement.
(c) During the term of this Agreement, each month Affiliate shall
provide to PIN a true and complete monthly report, signed by the chief
financial officer of Affiliate or his/her authorized designee, in a
form satisfactory to PIN, specifying
-2-
<PAGE>
for each System the total number of hours the Network was carried each
day of that month and the number of channels on which the Network was
viewed. In addition, Affiliate will provide PIN a monthly report of
the specific dayparts of each day during which the Network was
broadcast to each System.
(d) PIN 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 PIN for a period of three (3) years following the year to which
such books and records relate. Affiliate or its authorized
representatives shall have the right to inspect, audit and copy any
such books and records of Affiliate. Acceptance of any rebate by
Affiliate shall be construed as acceptance of any calculation thereof.
5. DELIVERY AND DISTRIBUTION
-------------------------
(a) During the term of this Agreement, each of the Systems shall
designate a mininium of one (1) channel on each System for the
carriage of the service prior to the commencement of the delivery of
the Service on such System. Affiliate may change, from time to time,
the channel designation on which the Service is carried. Affiliate
agrees to deliver the Service a minimum of eight hours per day.
(b) PIN will initially transmit the Service by means of domestic
communications satellite GE American Communications C-3, Transponder
20. PIN will transmit a digitally compressed signal on the GE American
Communications C-3 satellite. PIN will notify Affiliate of any change
in satellite not less than ninety (90) days prior to the scheduled
change. In the event of any such change, Affiliate agrees to make such
arrangements as may be necessary to receive the signal from the new
satellite. If PIN delivers the Service to a domestic communications
satellite where it reasonably appears that Affiliate will incur
expenses for additional receiving equipment other than those
associated with receiving a digitally compressed signal that will not
be reimbursed by any third party for a particular System to receive
the Service, then in that event, Affiliate will be entitled to delete
the affected System from Exhibit I of this Agreement within thirty
---------
(30) days of receiving notice from PIN of the satellite selected for
delivery of the Service, unless PIN agrees to pay its pro rata share
(based on number of signals to be received by any System from such new
satellite) of the costs associated with the additional receiving
equipment. If PIN agrees to pay such costs, then the affected System
may not be deleted from Exhibit I and such System shall continue to
---------
distribute the Service through the remaining term of this Agreement.
PIN and Affiliate shall each use their respective best efforts to
maintain a high quality of signal transmission for the Service.
-3-
<PAGE>
(c) Subject to then existing law, Affiliate shall not itself, and
shall not authorize others to, copy, tape or otherwise reproduce any
part of the Service without PIN's prior written authorization, and
shall take reasonable and practical security measures to prevent the
unauthorized copying or taping by others; provided, however, that
--------- -------
nothing herein shall prohibit Affiliate from assisting its residential
subscribers in connecting video cassette recorders to record the
Service. PIN shall endeavor to advise Affiliate of copyright,
literary and dramatic rights of, and restrictions and limitations
imposed by, program originators (including but not limited to PIN)
affecting the distribution of the Service, as they exist from time to
time ("Intellectual Property Rights and Requirements"). As between the
parties to this Agreement, Affiliate shall be solely responsible for
compliance with any and all Intellectual Property Rights and
Requirements of which it has been given advance written notice.
Affiliate shall not distribute or exhibit, and shall not authorize,
license or permit the distribution or exhibition of, the Service by
any means or device, whether now known or hereafter devised, other
than through the Systems now or hereafter listed in Exhibit I hereto
---------
and in accordance with the terms of this Agreement.
6. PROMOTION AND RESEARCH
------------- --------
(a) Affiliate shall use reasonable efforts to promote, market and sell
the Service to Subscribers and to the general public within the
Operating Area of each System. Advertising, promotional, marketing
and/or sales materials concerning the Service which are provided to
Affiliate by PIN shall be used without any alteration, deletion,
addition or any other change, unless such changes are approved by PIN
prior to use by Affiliate.
(b) At PIN's request, Affiliate shall provide PIN with all available
data regarding the marketing and promotion of the Service by
Affiliate. Subject to applicable federal, state and local law
(including the franchises, if any, pursuant to which the Systems are
operated), Affiliate also agrees to render such other assistance to
PIN as PIN may request and which Affiliate may reasonably provide in
connection with any marketing test, survey, poll or other research
which PIN may undertake in connection with the Service. PIN shall
treat as confidential any names and addresses of Subscribers which PIN
receives from Affiliate, and shall not utilize any such names or
addresses except in connection with such research.
7. NOTICES
-------
All notices, statements and other communications given hereunder 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 PIN at
9697 East Mineral Avenue, Englewood, Colorado 80112, Attn: President,
Product Information Network Venture (Fax: 303-799-1644),
-4-
<PAGE>
with a copy to the Legal Department and, if to Affiliate, at its
address set forth herein or by facsimile at (404) 843-5992. 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. TRADEMARKS
----------
All right, title and interest in and to the Service, and all
materials, ideas, formats and concepts, computer software or other
rights of whatever nature related thereto shall remain the property of
PIN. Further, Affiliate acknowledges and agrees that all names, logos,
marks, copyright notices or designations utilized by PIN in connection
with the Service (the "Marks") are the sole and exclusive property of
PIN and/or its affiliates, and no rights or ownership are intended to
be or shall be transferred to Affiliate. Affiliate's use of the Marks
shall be limited to the advertising and promotion of its carriage of
the Service over the Systems pursuant to this Agreement. PIN shall
provide Affiliate with samples of the Marks which Affiliate shall use
in their entirety (including all service mark and trademark notices)
whenever the Marks are used by Affiliate.
9. REPRESENTATIONS AND INDEMNIFICATION
-----------------------------------
(a) PIN represents and warrants to Affiliate that (i) it is a general
partnership duly organized and validly existing under the laws of the
State of Colorado; (ii) PIN has the partnership power and authority to
enter into this Agreement and to fully perform its obligations
hereunder; (iii) PIN is under no contractual or other legal obligation
which in any way interferes with its ability to fully, promptly and
completely perform hereunder; and (iv) nothing contained in the
Service shall violate the civil or property rights, copyrights,
trademark rights or right of privacy or publicity of any person, firm
or corporation, or libel or slander any person, firm or corporation,
except that no representation and warranty is given with respect to
music performance rights.
(b) Affiliate represents and warrants to PIN that (i) Affiliate is a
corporation duly organized and validly existing under the laws of the
State of Delaware; (ii) Affiliate has the corporate power and
authority to enter into this Agreement and to fully perform its
obligations hereunder; (iii) Affiliate's Systems are operating, with
respect to any cable television system, pursuant to valid franchise
agreements, or licenses or other permits duly authorized by proper
local authorities, or with respect to any satellite master antenna
television systems, pursuant to valid agreements with third parties
granting affiliate all necessary rights; and (iv) Affiliate is under
no contractual or other legal obligation which in any way interferes
with its ability to fully, promptly and completely perform hereunder.
-5-
<PAGE>
(c) Affiliate and PIN 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.
(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 hereunder with respect to such claim or action so
settled.
(e) Neither party hereto shall be liable to the other for the failure
to fulfill its obligations hereunder (other than the obligation to
make all payments when due hereunder) to the extent such failure is
caused by or arises out of an act of God, war, strike, riot, labor
dispute, national disaster, technical failure (including the failure
of all or part of any domestic communications satellite on which the
Service is delivered), or any other reason beyond the control of the
party whose obligation is prevented during the period of such
occurrence.
10. CONFIDENTIALITY
---------------
Neither Affiliate nor PIN shall disclose to any third party (other
than its respective employees, in their capacity as such), 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) and 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
Affiliate and PIN 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.
-6-
<PAGE>
(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 Affiliate and PIN. Neither Affiliate nor PIN
shall be or hold itself out as the agent of the other under this
Agreement. The obligations of Affiliate and PIN under this Agreement
are subject to all applicable federal, state and local laws, rules and
regulations including, but not limited to, the Communications Act of
1934, as amended and the rules and regulations of the Federal
Communications Commission.
(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 and supersedes all prior
understandings and agreements, oral or written between the parties
hereto. This Agreement may not be modified except in writing executed
by both parties hereto.
(d) PIN reserves the right to terminate this Agreement at any time and
without cause in connection with the termination of the Service upon
thirty (30) days prior written notice.
(e) 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.
(f) 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.
(g) There is not an adequate remedy at law for a breach by Affiliate
of this Agreement, and PIN will suffer irreparable harm as a result of
such a breach. Therefore, if a breach or threatened breach of this
Agreement by Affiliate occurs, in addition to any other rights and
remedies it may have, PIN shall be entitled to injunctive relief
restraining Affiliate from doing any act in violation of this
Agreement.
(h) This Agreement may be executed in one or more counterparts, each
of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
-7-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have entered into this
Agreement as of the date first set forth above.
PRODUCT INFORMATION NETWORK COX COMMUNICATIONS, INC.
VENTURE
By: Jones Infomercial Network Ventures, By: /s/ Ajit M. Dalvi
Inc., General Partner -----------------------------
Name: Ajit M. Dalvi
Title: Senior Vice President
By: /s/ Gregory J. Liptak
____________________________
Name: Gregory J. Liptak
Title: President
-8-
<PAGE>
EXHIBIT 1
---------
Peak-Time Carriage*
- ------------------
Franchise Area Served
---------------------
by Each System No. of Subscribers**
-------------- ------------------
*** ***
- ------------------------------
* Peak-time is defined as 8 a.m.-12 midnight.
** Subscriber counts as of November 1994 EOM.
*** The parties acknowledge that the carriage of the Service on the *** system
initially will be for 6 hours between 8:00 a.m. and 12:00 midnight, rather than
the minimum of 8 hours contemplated under Section 5(a) of this Agreement. In
accordance with Section 8.3b of the Partnership Agreement of Product Information
Network Venture, dated January 31, 1995, by and between Jones Infomercial
Network Ventures, Inc. and Cox Consumer Information Network, Inc. (the
"Partnership Agreement"), during the 270 day period after the date of the
Partnership Agreement, Cox shall either (i) cause the *** system to expand
carriage to 8 hours during the time period between 8:00 a.m. and 12:00 midnight
or (ii) add another system (or systems) to this Exhibit I with a sufficient
number of subscribers (as defined in Section 8.3 of the Partnership Agreement)
so as to bring Cox into full compliance with the requirements of such Section
8.3.
<PAGE>
EXHIBIT II
----------
AFFILIATE REBATE
----------------
Calculated based upon cable distribution revenue
(gross Network revenue, less commissions and bad debt generated in the Operating
Areas identified in Exhibit I)
Rebate Percentage 50%*
* Such rebate percentage may be changed from time to time to reflect the rebate
percentage being generally made available by PIN to operators distributing the
Service on substantially the same terms and to substantially the same number of
subscribers as Affiliate; provided, however, that in no event shall the rebate
percentage be less than 50%.
<PAGE>
Exhibit 10.14
Portions of this exhibit have been omitted pending a determination by the
Securities and Exchange Commission that certain information contained herein
shall be afforded confidential treatment. The omitted portions are indicated by
three asterisks.
<PAGE>
EXHIBIT 10.14
[LETTERHEAD OF PRODUCT INFORMATION NETWORK APPEARS HERE]
MEMORANDUM
DATE: October 23, 1995
TO: Alfred Dillione
National Media Corporation
215-772-5199
FROM: Jon Shaver
RE: ADDENDUM
Airtime and Revenue Share Test Agreement
Dated: May 1, 1995
_______________________________________________________________________________
Upon examining the above contract, please correct the sentence below to read as
follows (thus indicating PIN's correct peak and non-peak time periods):
Section 1. Airtime/Programming.
-------------------
"National shall have 4 hours of airtime between 8:00 am and 12:00 am, plus at
least 2 hours of additional airtime between 12:00 am and 8:00 am."
Please sign below and return via Fax # 303-784-8549 to indicate acceptance of
this correction.
/s/ ALFRED DILLIONE /s/ JON SHAVER
- -------------------------- ---------------------------
Alfred Dillione Jon Shaver
National Media Corporation Product Information Network
11/9/95 10/23/95
- ------------------ -----------------
Date Date
<PAGE>
PRODUCT INFORMATION NETWORK
9697 East Mineral Avenue
P.O. Box 3309
Englewood, CO 80155-3309
May 1, 1995
Mr. Al Dillione
National Media Corporation
1700 Walnut Street
Philadelphia, PA 19103
Re: Product Information Network/National Media Corporation
Airtime and Revenue Sharing Agreement
------------------------------------------------------
Dear Mr. Dillione:
The following are the principal terms to which we have agreed respecting
the continued participation of National Media Corporation ("National") in
Product Information Network ("PIN"). National has provided direct response
programming for airing on PIN under the terms of a letter agreement dated
October 14, 1994. This letter agreement is intended to supersede the October 14
letter agreement with respect to airings of direct response programming on PIN
from May 1, 1995 forward.
1. Airtime/Programming. National will provide direct response
-------------------
programming for airing on PIN. Such programming shall include National's
infomercials and spots, plus third-party shows sourced by National which PIN is
not currently airing. PIN will allocate at least 6 hours per day of airtime (at
times agreed to by PIN and National) to such programming provided by National,
plus such additional airtime blocks as PIN and National may subsequently agree
upon in writing. National shall have the 4 hours of airtime between 8:00 am and
12:00 am plus at least 2 hours of additional airtime between 12:00 am and 8:00
am.
2. Payments. In consideration of the provision of PIN airtime to
--------
National as contemplated in paragraph 1 hereof, National will pay PIN a
percentage (the "PIN Percentage") of National's adjusted gross revenue from
sales of products (including "upsell" goods) made in direct response to PIN
airings of direct response programming provided by National. "Adjusted gross
revenues" shall mean gross revenues (including shipping and handling charges),
less returns and uncollectibles. The PIN Percentage shall be variable during the
term hereof and shall be determined as follows. As of the first day of each
month, the PIN Percentage shall be ***. Once the aggregate amount payable from
airings on PIN during each month equals PIN's quoted Rate Card for such airtime,
then the PIN percentage shall be reduced by *** points for each additional ***
in payments to PIN hereunder during such month; provided, however, that the
--------
PIN Percentage shall not be reduced below ***. All payments will be made on a
monthly basis, within 20 days following the end of each month.
<PAGE>
Mr. Al Dillione
May 1, 1995
Page 2
3. Term. The foregoing arrangements are to be in place for a term
----
commencing May 1, 1995 and expiring April 30, 1997. Either party may, upon 60
days prior written notice to the other, extend the term hereof for an additional
twelve-month period.
4. Guaranteed Rates. If average hourly revenues to PIN from National
----------------
during the term fall short of the following target rates, then National will
guarantee such hourly revenues to PIN. Specifically, National will pay as
minimum revenues *** per half-hour for the period between 8:00 am and 12:00 pm
and *** per half-hour for all other time periods, payable as set forth in
Section 2 above. Such minimum rates shall remain in effect for so long as the
average annual subscribership to PIN does not exceed ***. At such time (if ever)
as the average annual subscribership to PIN exceeds ***, then the foregoing
minimum rates shall be increased in direct proportion to the amount by which
average such annual subscribership exceeds ***.
5. Exclusivity. During the term hereof, National will not, without the
-----------
prior consent of PIN, enter into arrangements to air its programming on any
other 24-hour television direct response marketing channel in the nature of PIN,
with the specific exception of Info Mall. National may, however, arrange with
cable television systems for airings of its programming on such systems.
6. Miscellaneous.
-------------
(a) National will make appropriate personnel available to assist PIN
in sales calls to its operators explaining National's participation in PIN.
(b) National shall make and shall be solely responsible for all
third-party arrangements which may be necessary to handle customer orders
received through airings on PIN of direct response programming provided by
National. Each program dub supplied to PIN shall include an appropriate 800
telephone number(s). For each sale National shall cause to be recorded the
customer's ZIP code, city and state, as well as the date and hour in which the
sale was transacted. National shall provide PIN, via electronic data transfer,
daily product sales reports sorted primarily by ZIP code and secondarily by time
of day. All other sales reports provided by National to PIN shall be sorted
first by date, second by ZIP code, and third by time of day.
(c) PIN shall not be responsible for any product matters of any kind,
including collections, delivery of goods, sales taxes, refunds or returns.
National shall be solely responsible for all such matters and shall indemnify
PIN against any and all costs, expenses and liabilities of any kind which may
arise out of such matters, including costs and reasonable attorneys fees.
<PAGE>
Mr. Al Dillione
May 1, 1995
Page 3
If the foregoing accurately states your understanding of the terms to
which we have agreed, please confirm by signing below and returning a copy of
this letter to me.
Sincerely,
/s/ Keith L. Gay
Keith L. Gay
Vice President and General Manager
ACCEPTED AND AGREED:
NATIONAL MEDIA CORPORATION
By: /s/ ALFRED P. DILLIONE
------------------------
Title: Vice President, Media
---------------------
Dated: July 5, 1995
------
<PAGE>
Exhibit 10.15
Portions of this exhibit have been omitted pending a determination by the
Securities and Exchange Commission that certain information contained herein
shall be afforded confidential treatment. The omitted portions are indicated by
three asterisks.
<PAGE>
EXHIBIT 10.15
[LETTERHEAD OF PRODUCT INFORMATION NETWORK APPEARS HERE]
August 23, 1996
Mr. Steve Toth, Jr.
Seventh Medium, Inc.
2100 N. Woodward Avenue West 201
Bloomfield Hills, MI 48304-2263
Re: Revised Letter of Agreement for Purchase of Air Time on the Product
Information Network
Dear Rick:
The following sets forth the revised terms of the agreement between
Jones Infomercial Network Ventures, Inc., d/b/a Product Information Network
("PIN"), a Colorado partnership, and Seventh Medium, Inc., d/b/a Consumer
Resource Network ("CRN"), a Vermont corporation, regarding the purchase by CRN
of air time on the cable television network owned by PIN (the "Network").
1. CRN Programming. CRN will provide long-form programming for airing
---------------
on the Network. Such programming (the "CRN Programming") shall consist entirely
of long-form (approximately thirty minutes in length) infomercials featuring the
products and/or services for the so-called CRN charter participants (the "CRN
Participants"), namely Ford Motor Company, State Farm Insurance Company,
Schering-Plough Pharmaceuticals and other participants that may be added in the
future. The types of products and/or services featured in the CRN Programming
will be of high quality, presented in a manner conforming to general standards
of good taste and suitable for general audiences. CRN represents that nothing
contained in the CRN Programming shall violate the civil or property rights,
copyrights, trademark rights, music performance or synchronization rights or
right of privacy of any person, firm or corporation. PIN agrees to provide air
time on the Network for the CRN Programming on the terms and conditions of this
Agreement.
2. Air Times: Billing Rates. PIN agrees to provide, and CRN agrees to
------------------------
purchase, at least eight (8) hours per day of air time on the Network between
the hours
<PAGE>
August 23, 1996
Page 2
of 4:00 p.m. to 12:00 a.m. ET (the "Minimum Commitment Level") at the rates set
forth below:
3rd Quarter 1996
----------------
*** per Network subscriber ("Subscribers") per half hour
4th Quarter 1996
----------------
*** per Network subscriber per half hour
1997
----
*** per Network subscriber per half hour
(a) For the purpose of determining the monthly billing to CRN,
Subscribers will be determined based on the actual month's ending "equivalent"
basic subscriber count and will be measured and billed for each half hour that
CRN Programming is aired (it being understood that there will be no billing for
any programming that is preempted or otherwise prevented from being aired).
To be counted as a Subscriber, the cable system must carry PIN
for a period of time during which CRN Programming is aired. CRN shall have the
option, based upon non-contracted available air time and upon ninety (90) days
prior written notice to PIN, of increasing the amount of purchased air time
above the Minimum Commitment Level in half hour increments, up to a total of
twelve hours of air time per day, including the Minimum Commitment Level. In
order to increase the amount of purchased air time, CRN shall provide at least
ninety (90) days prior written notice to PIN as to the time slot(s) CRN desires
to expand into. Promptly upon receipt of CRN's notice, PIN shall notify CRN in
writing as to the availability of the desired time slot(s). Provided such time
slot(s) is not otherwise allocated, PIN shall reserve such time slot(s) for CRN
and notify CRN of such availability. Billing for such additional air time shall
commence as of the day CRN begins to air its programming in the expanded time
slot(s), but shall be invoiced in arrears pursuant to Paragraph 3 of this
Agreement. If the airing of such expanded programming begins on a day other than
the first day of the month, billing shall be pro rated based on the number of
days in the month in which the expanded programming occurs. Each added half hour
increment shall immediately precede 4 p.m., or the earliest start time for CRN
Programming, and shall be billed at the applicable rates set forth above.
Furthermore, CRN shall have the option of returning half hour increments to PIN
upon ninety (90) days prior written notice; provided, however, that CRN shall at
all times maintain the Minimum Commitment Level.
<PAGE>
August 23, 1996
Page 3
(b) In computing the number of Subscribers for purposes of the
above, there shall be excluded Subscribers served by the CRN affiliates in the
following areas which will receive the CRN Programming on the Network; Fairfax
County, VA; Knoxville, TN; Colorado Springs, CO; York, PA (the "CRN Systems").
For 1996, arrangements regarding the CRN Systems added to the Network shall be
as follows:
(i) CRN will continue to make payments directly to the CRN
Systems through December 31, 1996.
(ii) For 1996, all amounts ordinarily earned by the CRN Systems
under PIN's revenue sharing plan (i.e. sharing 50% of revenues) will be paid to
CRN. This would only include income earned by PIN from non-CRN Programming
actually aired by the CRN Systems. The calculation of this payment would be
determined using those hours which are strictly PIN broadcast hours. PIN will
not give credit for CRN Programming broadcast hours.
(c) During the term of this Agreement, including any renewal
thereof, CRN agrees not to solicit, negotiate or enter into any affiliation
agreements or carriage agreements with any cable television system or
alternative television distribution system, except for broadcast television
stations. Notwithstanding the foregoing, if the parties have not agreed to renew
this agreement by August 31, 1997 as provided in Paragraph 4 herein, CRN may
enter into discussions at that time with cable television systems and
alternative television distribution systems. However, in no event shall CRN
solicit or enter into discussions with PIN affiliated systems until the
expiration of PIN's contract with such affiliate. In no event, shall CRN Systems
receive the CRN Programming from the Network satellite feed (Satcom C-3;
Transponder 20) without PIN's written consent.
(d) CRN will be afforded the same rights to audit and/or
inspect PIN's revenue information as are usually given to PIN affiliates.
(e) Beginning on January 1, 1997, PIN will offer affiliate
status to all former CRN Systems pursuant to the then standard PIN affiliate
agreement. In addition, effective January 1, 1997, the subscribers served by the
systems entering into affiliate agreements with PIN will be included in the
subscriber counts for the purposes of determining the base rates set forth above
in Paragraph 2.
(f) Should CRN affiliates in Fairfax County, Virginia and
Colorado Springs, Colorado decline PIN affiliation after good faith efforts are
made by CRN to secure such affiliation, CRN will have the right to retain those
systems as CRN affiliates pursuant to the terms of Paragraph 2(b)(ii) above.
(g) The air time hours for the CRN Programming shall be
contiguous, (i.e. in consecutive periods of time). However, CRN will use its
reasonable efforts to incorporate PIN network identification (Network ID's) into
CRN's own on-air
<PAGE>
August 23, 1996
Page 4
promotional efforts, subject to client preferences and creative requirements.
The parties agree that CRN will use its reasonable efforts to explain to viewers
that CRN Programming is presented on the PIN Network. CRN agrees to produce the
PIN Network ID's and present them on the average of no less than two times per
hour during CRN programming hours. PIN shall have the exclusive right to approve
the content and presentation of these Network ID's to the extent they refer to
PIN.
(h) All air time not used by CRN will be used for infomercial
and/or informational programming generally consistent with PIN's prior
practices. However, during the term of the Agreement, PIN agrees that during the
periods of time one hour immediately prior to or one hour immediately following
the airing of CRN Programming, PIN shall not air other infomercial programming
which would be directly competitive with respect to the products and services of
those of the CRN Participants. For the purposes of this provision, "directly
competitive" shall mean: for Ford-U.S. and foreign automobile manufacturers;
for State Farm-homeowners, automobile and life insurance and for
Schering-Plough-allergy medicine and respiratory prescription pharmaceuticals.
3. Timing of Payments. PIN agrees to invoice CRN each month, in
------------------
arrears, for PIN air time, with the exception of any payment obligations to
affiliates which may require advance payment in connection with PIN's efforts on
behalf of CRN, which will in turn permit PIN to bill CRN in advance for such
payment obligations. Payment shall be due within twenty (20) days of the date of
the invoice and shall be based upon the actual number of Subscribers for the
month previous to the invoice date. PIN shall be entitled to charge interest at
the rate of 1.5% per month for any payments not made within ten (10) days of the
date due.
4. Term. This Agreement shall be effective as of July 1, 1996 and shall
----
continue through December 31, 1997. Both parties agree to commence renewal
negotiations in good faith no later than July 1, 1997. If, by August 31, 1997,
the parties are: (i) unable to agree upon the terms of renewal after good faith
efforts have been made by each party; or (ii) the parties have not agreed in
writing to extend the duration of renewal negotiations, this Agreement shall
terminate as of December 31, 1997. Additionally, this Agreement may be
terminated by either party in the event the other party materially breaches its
obligations hereunder and such breach is not cured within thirty (30) days after
notice of such breach is provided to the breaching party by the non-breaching
party.
5. Indemnification.
---------------
(a) CRN will defend, indemnify and hold harmless PIN and PIN
affiliates, and their respective officers, directors and shareholders, against
any and all claims, damages, litigation, liability, loss and expense, including
reasonable attorney's fees, arising out of: (i) the breach of CRN's
representations, warranties and agreements
<PAGE>
August 23, 1996
Page 5
contained herein; (ii) the contents of any CRN Programming: and/or (iii) the use
of any of the products promoted in CRN Programming.
(b) FIN will defend, indemnify and hold harmless CRN, its employees and
partners and their officers, directors, shareholders and employees, against any
and all claims, damages, litigation, liability, loss and expense, including
reasonable attorney's fees, arising out of: (i) the breach of any of PIN's
representations, warranties and agreements contained herein and/or (ii) the
content of any programming, other than CRN Programming, aired on the Network.
6. Miscellaneous.
-------------
(a) Any press releases concerning this Agreement or the arrangements
contemplated herein must be mutually agreed to in advance by both parties.
Additionally, any press releases in any way relating to PIN, PIN affiliates or
the participation of any affiliates in the program contemplated under this
Agreement shall require the prior written approval of PIN.
(b) This Agreement representing the entire understanding of the parties
with respect to the subject matter hereof, superseding any prior agreements,
including, without limitation, that certain letter agreement between the parties
dated November 3, 1995. This Agreement may not be modified or amended, except in
writing signed by both parties.
(c) Each of the parties represents and warrants to the other that it is
duly authorized to enter into and perform this agreement, and that no third
party licenses, approvals or consents (other than those that have been obtained)
are required for such party to fulfill its obligations hereunder.
(d) PIN shall provide to CRN on a monthly basis the following types of
information regarding the carriage of the CRN Programming on the Network: name
of market, number of homes, affiliate cable television systems, contiguous hours
per days -- days of week and channel number of the Network. PIN shall provide to
CRN on a quarterly basis an affidavit certifying that the CRN Programming was
aired by PIN according to the written schedule provided to PIN by CRN. PIN shall
also provide to CRN on a monthly basis a list of any cable systems that added or
deleted the CRN Programming on the Network including: name of market, number of
homes, ZIP code, contiguous hours per day-days of week and channel number of the
Network.
(e) Neither PIN nor any person, firm or corporation acting pursuant to
its authority, shall use the name "Consumer Resource Network", "CRN" or any
other name deceptively similar to such names or any logo, tradename or trademark
used to identify CRN Programming, in connection with any marketing campaigns,
endorsements or promotions, conducted by, or on behalf of, PIN unless PIN shall
have received prior written approval from CRN.
<PAGE>
August 23, 1996
Page 6
(f) Except as otherwise permitted under the Agreement, neither PIN nor
any person, firm or corporation acting pursuant to its authority shall use at
any time any name, tradename, logo or trademark of any client of CRN in
connection with any marketing campaigns, endorsements or promotions conducted
by, or on behalf of, PIN or otherwise associate PIN's business or programming
with any client of CRN, or in any way imply any endorsement by CRN's clients of
PIN or the products or services promoted on PIN.
(g) This Agreement shall be binding upon and insure to the benefit of
the parties hereto and their respective successors and assigns; provided,
however, that no assignment of this Agreement shall serve to extinguish or in
any way limit the primary liability of the parties hereto.
(h) Each of the parties are acting as independent contractors. Nothing
herein shall be construed to create a partnership between the parties, and
neither party shall have the right to legally bind or otherwise contractually
commit the other party, without such other party's express written permission.
(i) Any viewer mail concerning CRN or its programs or sponsors that is
delivered to PIN will be deemed the property of CRN and promptly forwarded to
CRN.
(j) Nothing herein shall be deemed to transfer to or create in PIN any
right, title or interest in CRN or the CRN programming. All such rights shall be
retained by CRN and/or its sponsors.
7. ***
If the foregoing accurately sets forth your understanding of the Agreement,
please confirm by signing below and returning a copy of this Agreement to the
undersigned.
Sincerely,
JONES INFOMERCIAL NETWORK VENTURES, INC.
a Colorado corporation
By: /s/ GREGORY J. LIPTAK
---------------------
Gregory J. Liptak
President
[SIGNATURES CONTINUED ON NEXT PAGE]
<PAGE>
August 23, 1996
Page 7
Accepted and Agreed:
SEVENTH MEDIUM, INC.
a VERMONT corporation
-------
By: /s/ T.W. MARQUIS
----------------
Name: T.W. Marquis
--------------
Title: CFO
-------------
<PAGE>
ADDENDUM "A" TO REVISED LETTER OF AGREEMENT FOR PURCHASE OF
AIR TIME ON THE PRODUCT INFORMATION NETWORK
THIS ADDENDUM is made effective the 23rd day of August, 1996, between Jones
Infomercial Network Ventures, Inc., d/b/a Product Information Network ("PIN"), a
Colorado partnership, and Seventh Medium, Inc., d/b/a Consumer Resource Network
("CRN"), a Vermont corporation.
WHEREAS, PIN and CRN have entered into a Revised Letter Agreement (the
"Agreement") contemporaneously with this Addendum, whereby CRN has agreed to
purchase air time on the Product Information Network; and
WHEREAS, PIN and CRN desire to agree upon certain provisions regarding
marketing support dollars in addition to the terms specified in the Agreement.
NOW, THEREFORE, for and in consideration of the premises contained herein,
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties agree to the following:
1. Marketing Support
-----------------
(a) Commencing July 1, 1996, cable affiliates located within
the top 25 DMAs, who, subsequent to the date of the Agreement, subscribe to PIN
for such periods of time as to include 100% of the then-available CRN
Programming on the PIN Network will be eligible for *** per subscriber per
year in marketing support dollars. For affiliates located within the top 25
DMAs subscribing to PIN subsequent to the date of the Agreement for periods of
time which include a portion but not all of the then-available CRN Programming,
such affiliate shall be eligible for a pro rated portion of the marketing
support dollars calculated by multiplying *** by a fraction, the numerator of
which is the amount of CRN Programming actually carried by the affiliate
(measured in half hour increments) and the denominator of which is the total
amount of CRN Programming available on the PIN Network (measured in half hour
increments) as of the date the affiliate subscribes to PIN. Thus, the formula
would appear as follows:
<PAGE>
Amount of CRN Programming actually carried by Affiliate*
--------------------------------------------------------
*** X Total amount of CRN Programming then available on PIN*
*Measured in half hour increments.
For example, if an affiliate subscribes to PIN as of August 1,
1996 for carriage of PIN which includes the hours of 4 p.m. and 12 a.m. EST and
CRN Programming is carried on PIN between the hours of 4 p.m. and 12 a.m., the
affiliate would be entitled to *** of the available marketing support dollars
or *** per subscriber per year. If the same affiliate subscribes to PIN as of
August 1, 1996 for carriage only during the hours of 6 p.m. and 12 a.m. EST and
CRN Programming is carried on PIN between the hours of 4 p.m. and 12 a.m., the
affiliate would be entitled to *** of the available marketing support dollars or
*** per subscriber per year, ie., *** x 12/16 (12 being equal to the amount
of actual carriage of CRN Programming by the affiliate, measured in half hour
increments and 16 being equal to the amount of total available time of CRN
Programming on PIN, measured in half hour increments, as of the date the
affiliate subscribes to PIN, that is, August 1, 1996). Conversely, if the same
affiliate subscribes to PIN as of October 1, 1996 for carriage which includes
the hours of 4 p.m. and 12 a.m. EST but CRN Programming has expanded its
programming to the hours of 3 p.m. to 12 a.m. EST, the affiliate would not be
entitled to 100% of the available marketing support dollars but instead *** or
*** per subscriber per year, i.e. *** x 16/18 (16 being equal to the amount
of actual carriage of CRN Programming by the affiliate, measured in half hour
increments and 18 being equal to the amount of total available time of CRN
Programming on PIN, measured in half hour increments, as of the date the
affiliate subscribers to PIN, that is, October 1, 1996).
For purposes of the Agreement and this Addendum, DMA shall be as
defined in the 1995 Television and Cable Television Factbook(R). Of the total
annual marketing support contribution, CRN shall contribute ***, not to exceed
*** per subscriber per year, and PIN shall contribute ***, not to exceed ***
per subscriber per year. It is agreed and understood that CRN's contribution to
the marketing support dollars shall be used to purchase local spot-market avails
to promote CRN's then-current advertising clients. PIN's contribution to the
marketing support dollars shall be used to purchase local spot-market avails to
promote PIN's Network and CRN's programming.
(b) Commencing January 1, 1997, CRN and PIN shall contribute up
to a total of *** per subscriber per year in marketing support dollars to
eligible affiliates of PIN who, as of the date of the Agreement: (i) are located
within the top 25 DMAs and (ii) carry some portion of CRN Programming
("Pre-existing Affiliates"). Pre-existing Affiliates, as listed on Exhibit A,
attached to and made a part hereof, shall be eligible for the marketing support
dollars pursuant to the formula described in Paragraph 1(a) of this Addendum and
based upon the actual amount of
-2-
<PAGE>
carriage of CRN Programming by the Pre-existing Affiliate as of the date of the
Agreement; provided, however, that payment of the marketing support dollars for
eligible Pre-existing Affiliates shall not commence until January 1, 1997.
For PIN affiliates existing as of the date of the Agreement who
do not carry PIN during hours which include CRN Programming, but, who subsequent
to the date of the Agreement, expand their PIN carriage to include hours which
include CRN Programming ("Expanded Affiliates"), eligibility for the marketing
support dollars will become effective as of the date the affiliate expands its
PIN carriage to include CRN Programming. In which case, the amount of marketing
support dollars to be paid shall be calculated using the formula outlined in
Paragraph 1(a) of this Addendum. Similarly, Pre-existing Affiliates who expand
their carriage of CRN Programming shall be eligible for marketing support
dollars, using the formula in Paragraph 1(a) of this Addendum, for the amount of
expanded carriage containing CRN Programming effective as of the date of
expanded carriage, but only for that portion of CRN Programming added subsequent
to the date of the Agreement. Such affiliates will therefore be eligible for
immediate payment of marketing support dollars for that portion of CRN
Programming added subsequent to the date of the Agreement and shall additionally
be eligible for payment of marketing support dollars as of January 1, 1997 for
that portion of CRN Programming carried as of the date of the Agreement.
(c) PIN shall be responsible for administering and managing the
payment of the marketing support dollars to the affiliates. PIN shall ensure
that CRN's obligations to provide its portion of the marketing support dollars
contemplated under this Addendum does not extend beyond the term of the
Agreement, other than a renewal thereof upon mutual written agreement. CRN shall
pay to PIN CRN's portion of the contribution on a monthly basis, regardless of
whether spots are actually aired during the month in question, and PIN shall
forward the total marketing support dollars to the affiliates. All checks paid
to affiliates for marketing support dollars shall identify CRN's contribution
and amounts thereof. PIN shall have exclusive control over the content of any
other correspondence with affiliates. Each month, PIN shall provide a statement
to CRN detailing the payments of marketing support dollars to affiliates and
a summary affidavit of the number of spots aired by each system receiving
marketing support dollars under the terms of Paragraphs 1(a) and 1(b) of this
Addendum. PIN additionally agrees to manage the verification and reporting
process with PIN cable television affiliates to ensure the compliance of those
affiliates with the marketing support program contemplated under this Addendum.
(d) PIN agrees to use its reasonable efforts to cause the CRN
Programming to be included in weekly television programming schedules which
describe the Network's programming and scheduling. PIN also agrees to use its
reasonable efforts to run :30 second spots promoting CRN on the Network, which
spots will be produced by CRN. PIN also agrees to make reasonable efforts to
cause PIN cable television affiliates to offer CRN the lowest spot-market
advertising rate
-3-
<PAGE>
offered by such affiliate to its other programmers, plus 20% in bonus spots. In
addition, PIN agrees to cooperate with and generally assist CRN in connection
with its other marketing efforts.
(c) In 1997, PIN shall not obligate CRN to provide marketing
support dollars in excess of $2,250,000 to cable affiliates in the top 25 DMAs
without the prior written consent of CRN. PIN shall not obligate CRN to any
marketing support dollars beyond 12/31/97.
2. In the event of a conflict between the terms and conditions of
the Agreement and the terms and conditions of this Addendum, the Addendum shall
prevail.
Except as expressly addressed herein, all of the terms and
conditions of the Agreement shall remain in full force and effect and unaltered
by this Addendum.
IN WITNESS WHEREOF, the parties have signed this Addendum "A" as of the
day and year first written above.
JONES INFOMERCIAL NETWORK VENTURES, INC.
a Colorado corporation
By: /s/ GREGORY J. LIPTAK
---------------------
Gregory J. Liptak
President
SEVENTH MEDIUM, INC.
a Vermont corporation
-------
By: /s/ T.W. MARQUIS
----------------
Name: T.W. Marquis
--------------
Title: CFO
-------------
-4-
<PAGE>
***
<PAGE>
***
-2-
<PAGE>
Exhibit 10.16
LICENSE AGREEMENT
-----------------
THIS LICENSE AGREEMENT (this "Agreement") is dated as of January 31, 1995,
by and between Jones International, Ltd., a Colorado corporation ("Licensor"),
and Product Information Network Venture, a Colorado general partnership
("Licensee").
W I T N E S S E T H:
--------------------
WHEREAS, Licensee is the holder of a trademark (the "Licensed Mark") for
PRODUCT INFORMATION NETWORK as a mark to be used in connection with the
promotion and exhibition of multiple direct response television commercials
("Infomercials"); and
WHEREAS, Licensee desires to use the Licensed Mark for its Infomercial
network;
NOW, THEREFORE, for value received and in consideration of the mutual
covenants below, the parties agree as follows:
1. Grant of License. Licensor hereby grants to Licensee an exclusive,
----------------
irrevocable license (the "License") to use the Licensed Mark as a service mark
for an Infomercial network.
2. Term. The term of the License shall commence upon the execution of
----
this Agreement and shall continue until the dissolution of Licensee, at which
time all rights to Licensee hereunder shall cease.
3. Quality Standards.
-----------------
(a) Licensee shall at all times use the Licensed Mark in a manner that is
of the quality and standards deemed approved by Licensor at the time this
Agreement is executed.
(b) Licensee agrees that it will not use the Licensed Mark on products or
in a manner that might tend to reflect negatively on the Licensed Mark and/or
Licensor.
(c) Licensee agrees to use the official registration notice R in connection
with the use of the Licensed Mark in printed materials and commercial
advertisements.
<PAGE>
(d) Licensor shall notify Licensee in writing of any observed failure to
maintain the quality associated with the Licensed Mark. Licensee shall have
thirty (30) days to commence and diligently prosecute efforts to correct such a
failure. If Licensee fails to correct such a failure within sixty (60) days of
receipt of notice from Licensor, Licensor may terminate this Agreement.
4. Assignment. Licensee shall not assign its rights hereunder without the
----------
prior written consent of Licensor.
5. Choice of Law. This Agreement shall be governed by the laws of the
-------------
State of Colorado as they apply to agreements executed and fully performed in
the State of Colorado (that is, without reference to the rules governing
conflicts or choice of laws).
6. Entire Agreement. This Agreement contains the entire understanding and
----------------
agreement of the parties and supersedes all other understandings and agreements
between the parties. No amendment to this Agreement shall be effective unless
it is in writing and executed by both parties.
IN WITNESS WHEREOF, the parties have executed this Agreement on the date
first written above.
JONES INTERNATIONAL, LTD.
By: /s/ Robert S. Zinn
----------------------------
Name: Robert S. Zinn
Title: V.P./Legal Affairs
PRODUCT INFORMATION NETWORK
VENTURE
By: Jones Infomercial Network Ventures,
Inc., General Partner
By: /s/ Jay B. Lewis
------------------------
Name: Jay B. Lewis
Title: Vice President
<PAGE>
Exhibit 10.17
UPLINK SERVICES AGREEMENT
-------------------------
THIS UPLINK SERVICES AGREEMENT is made and entered effective as of the
1st day of January, 1995, by and between Jones Earth Segment, Inc. ("Earth
Segment"), Jones Infomercial Networks, Inc. ("JIN") Jones Computer Network, Ltd.
("JCN"), Mind Extension University, Inc. ("ME/U") and Jones Galactic Radio, Inc.
("JGR").
RECITALS
--------
A. Earth Segment owns and operates a full-service uplink facility in
Arapahoe County, Colorado (the "Facility") from which it provides uplink
services.
B. JIN, JCN, ME/U and JGR require use of the uplink services of Earth
Segment and Earth Segment desires to provide such services, all according to the
terms and conditions of this Agreement.
C. JIN, JCN, ME/U and JGR are media networks. Other such networks
may become parties to this Agreement from time-to-time. JIN, JCN, ME/U and JGR
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. Uplink Services. Earth Segment hereby agrees to provide uplink
---------------
services to the Networks at the Facility. The services shall consist of the
transmission of programming signals from the Facility to a satellite or
satellites so that these programming services can be received and rebroadcasted
on cable system or radio stations across the United States. The uplinking shall
be either to the C-3 or G-5 satellites.
2 Term. This Agreement shall commence on the effective date hereof
----
and shall continue, unless otherwise terminated by Earth Segment, through
December 31, 2004 in the case of uplinking to the C-3 satellite and May 7, 2004
in the case of uplinking to the G-5 satellite.
<PAGE>
3. Payments. The uplinking fee paid to Earth Segment by each Network
--------
shall be comprised of a monthly uplinking service fee and an allocation of
uplink operating costs. The monthly uplinking service fee shall be $30,000 per
month for each 24-hour Network until the Facility is uplinking six 24-hour
Networks, at which time the monthly uplinking service fee shall be $25,000 per
Network. However, ME/U and JGR will be treated at one 24-hour Network and will
share the monthly uplinking service fee 75% and 25%, respectively. At such time
that the Networks using the G-5 satellite are transmitted digitally the
allocation between ME/U and JGR will be eliminated and ME/U will pay a monthly
uplinking fee consistent with the other 24-hour Networks and JGR will pay $7,500
per month.
The allocation of uplinking operating costs, which shall include all uplinking
operating costs in company S171 less depreciation expense, amortization expense,
and net of the reimbursement for facilities related rental costs, will be
allocated to the Networks pro rata based on the individual Networks uplinking
service fees to total uplinking service fees for all the Networks.
4. Termination. This Agreement may be terminated as to a Network at
-----------
any time by Earth Segment by giving such Network at least thirty (30) days prior
written notice of its desire to terminate this Agreement, provided that a
Network may terminate this Agreement at any time if its use of the transponder
on either the G-5 or C-3 satellite is terminated without the fault of the
Network.
-2-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first written above.
JONES EARTH 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 M. Steele
------------------------------
MIND EXTENSION UNIVERSITY, INC.,
a Colorado corporation
By: /s/ Gregory J. Liptak
------------------------------
JONES GALACTIC RADIO, INC.,
a Colorado corporation
By: /s/ Gregory J. Liptak
------------------------------
-3-
<PAGE>
Exhibit 10.18
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 M. Steele
------------------------------
-2-
<PAGE>
Exhibit 10.19
Portions of this exhibit have been omitted pending a determination by the
Securities and Exchange Commission that certain information contained herein
shall be afforded confidential treatment. The omitted portions are indicated by
three asterisks.
<PAGE>
C-3/C-4 SATELLITE TRANSPONDER SERVICE AGREEMENT
-----------------------------------------------
THIS AGREEMENT, is made and entered effective the 28 day of July 1989,
between GE AMERICAN COMMUNICATIONS, INC., a corporation organized under the laws
of Delaware, having its principal place of business at Four Research Way,
Princeton, New Jersey, 08540-6684 ("GE Americom") and JONES SPACE SEGMENT, INC.,
a corporation organized under the laws of Colorado, having its principal place
of business at 9697 E. Mineral Avenue, Englewood, Colorado, 80112 ("Jones").
WITNESSETH:
WHEREAS, GE Americom desires to provide to Jones and Jones desires to take
from GE Americom satellite transponder service on certain transponders on GE
Americom's communications satellites designated "C-3" and "C-4" expected to be
launched in 1992 as replacements for GE Americom's Satcom IIIR and Satcom IV
satellites, respectively; and
WHEREAS, the parties desire to define the terms and conditions under which
the service will be provided;
<PAGE>
-2-
NOW, THEREFORE, the parties, in consideration of the mutual covenants
herein expressed, agree with each other as follows:
ARTICLE 1. DEFINITIONS
- -----------------------
As used in this Agreement:
A. "Agreement" means this C-3/C-4 Satellite Transponder Service Agreement and
the Attachments hereto.
B. "C-3" means a domestic communications spacecraft designed to have twenty-
four (24) transponders, each of which has no less than sixteen (16) watts of
power, and a spare transponder amplifier arrangement of eight (8) for six (6),
to be constructed, launched and operated by GE Americom as a successor for its
in-orbit satellite commonly referred to as "Satcom IIIR."
C. "C-4" means a domestic communications spacecraft designed to have twenty-
four (24) transponders, each of which has no less than sixteen (16) watts of
power, and a spare transponder amplifier arrangement of eight (8) for six (6),
to be constructed, launched and operated by GE Americom as a successor for its
in-orbit satellite commonly referred to as "Satcom IV."
D. "Commercially Operational" means a Satellite or a transponder which is
capable of carrying audio and video including associated audio traffic with the
parameters as described in the Transponder Performance Specifications, and which
is not Commercially Unusable. GE Americom will
<PAGE>
-3-
provide Jones with test results verifying that the Transponder(s) meet the
Transponder Performance Specifications.
E. "Commercial Operational Date" means the date for each Satellite when one or
more Transponders on a Commercially Operational C-3 or C-4 Satellite first are
made available to carry customer communications traffic.
F. "Commercially Unusable" means a condition in which the Satellite so fails to
conform to its design specifications or any Transponder so fails to conform to
the Transponder Performance Specifications as to render use of the Satellite
impractical in the exercise of reasonable business judgment or preclude use of
the Transponder for its intended purpose.
G. "Earth Station" means the antennas and associated ground facilities
equipment used to transmit telecommunications signals via a communications
satellite in space.
H. "End-of-Life" or "EOL" means the first to occur of the following: when in GE
Americom's reasonable judgment the Satellite should be taken out of service
because of lack of fuel or the Satellite has become a Failed Satellite.
I. "Failed Satellite" or "Satellite Failure" means a satellite on which one or
more of the basic subsystems fail, rendering the satellite Commercially Unusable
or on which more than twelve (12) transponders are Transponder
<PAGE>
-4-
Failures.
J. "Failed Transponder" or "Transponder Failure" means, with respect to any
Transponder used by Jones under this Agreement, any of the following events:
1. If such Transponder fails to meet the Transponder Performance
Specifications in any material respect for any period of five (5) consecutive
days.
2. Twenty (20) or more "Outage Units" shall occur within any ninety (90)
consecutive days (an Outage Unit being an interruption of such Transponder of
fifteen (15) minutes or more, except that (a) each interruption of fifteen (15)
minutes or more shall be counted as a separate outage unit and (b) interruptions
caused by double illumination of the Transponder(s) used by Jones shall not be
considered an outage unit for purposes of determining Transponder Failure).
3. Such Transponder shall fail to meet the Transponder Performance
Specifications in any material respect for any period of time under
circumstances that make it clearly ascertainable or predictable that either
failure set forth in Paragraphs (1) or (2) will occur.
4. Any other event resulting in such Transponder being rendered
Commercially Unusable.
K. "Full Protection" means the in-orbit protection plan set out in Article 8 of
this Agreement.
<PAGE>
-5-
L. "Fully Protected Transponder" means a transponder which has Full Protection.
M. "Launch Failure" means a Satellite Failure or Transponder Failure which
occurs after the first intentional ignition of the launch vehicle and before the
satellite becomes Commercially Operational.
N. "Interruption" or "Outage" means any period during which a Transponder fails
to meet the Transponder Performance Specifications and such circumstances
preclude the use of the Transponder for its intended purpose.
O. "Party" means one of the signatories to this Agreement or one of its
permitted assignees or transferees.
P. "Preemptible Transponder" means a Transponder that may be preempted at any
time to restore (1) a Fully-Protected Transponder or a Transponder-Protected
Transponder which becomes a Transponder Failure or (2) other service offerings
of GE Americom, including construction delay protection and launch protection.
Q. "Protection Satellite" means the in-orbit C-band satellite designated by GE
Americom as the satellite to be used to restore a Failed Satellite. The
Protection Satellite will be either the satellite commonly referred to as Satcom
IR or C-l, unless both of these satellites are unavailable at the time the
Satellite becomes a Failed Satellite.
R. "Protection Transponder" means a Replacement
<PAGE>
-6-
Transponder, Preemptible Transponder or unassigned transponder used to restore a
failed transponder. Where a Protection Transponder is provided on a Protection
Satellite other than C-3 or C-4, it will perform to the technical specifications
of that satellite and such specifications shall be substituted for those in
Attachment A. Access to Protection Transponders will be in accordance with
Articles 8, 9, 10 and 11. With respect to simultaneous events, priority among
Protected Transponders for access to Protection Transponders shall be determined
in the order of entering into binding agreements with GE Americom for purchase
of or long term service on C-3 or C-4, except that as to Jones, the following
companies shall be deemed to have already entered into such binding agreements:
Viacom International, Inc., The Weather Channel, Inc., Hearst/ABC-Viacom
Entertainment Services, The Disney Channel, Inc., Pay-Per-View Networks, Inc.,
CBN Family Channel, National Cable Satellite Corporation (C-SPAN), Arts and
Entertainment Cable Network and Home Box Office, Inc.
S. "Replacement Transponder" means an available spare transponder amplifier and
its associated components, which is accessible for purposes of restoral and
which is capable of carrying audio and video including associated audio traffic
with the parameters as described in the Transponder Performance Specifications,
and which is not Commercially Unusable.
<PAGE>
-7-
T. "Satellite" means either C-3 or C-4, as the context of this Agreement
requires. When used in the lower case, "satellite" means a domestic
communications satellite operating in C-band (4/6 GHz).
U. "Transponder" means a radio frequency transmission channel on C-3 or C-4,
having a nominal bandwidth of 36 MHz, used to provide service to Jones pursuant
to the terms of this Agreement, or a Protection Transponder used to provide
service to Jones in the event the Transponder is or becomes a Transponder
Failure. When used in the lower case, "transponder" means a radio frequency
transmission channel on a domestic communications satellite operating in C-band.
V. "Transponder-Protected Transponder" means a Transponder which will be
restored if, at the time it becomes a Transponder Failure, a Replacement
Transponder, a Preemptible Transponder or an unassigned transponder is available
on the same Satellite. A Transponder-Protected Transponder may not be preempted
to restore another Failed Transponder, but will not be restored if the Satellite
on which it resides becomes a Satellite Failure.
W. "Transponder Performance Specifications" means the specifications for the
performance of the Transponder set forth in Attachment A.
X. "TT&C Services" or "TT&C" means tracking, telemetry and control services for
C-3 and C-4 to be provided by GE
<PAGE>
-8-
Americom, including periodic stationkeeping and attitude control maneuvers,
power management and fuel management. TT&C Services will be provided from GE
Americom's facilities in Vernon Valley, New Jersey or South Mountain,
California, or such other locations as GE Americom may determine.
Y. "Unprotected Transponder" means a transponder for which there is no
Protection Transponder in the event of a Transponder Failure or a Satellite
Failure but which is not subject to preemption by any other transponder that has
failed.
ARTICLE 2. SCOPE
- -----------------
A. GE Americom agrees to provide satellite transponder service to Jones and
Jones agrees to take such service from GE Americom, in accordance with the terms
and conditions set forth in this Agreement, on one Fully Protected Transponder
on GE Americom's C-3 Satellite and on one Fully Protected Transponder on GE
Americom's C-4 Satellite. The Transponder numbers shall be established by GE
Americom at least six (6) months prior to the launch of C-3 or C-4, as the case
may be.
B. Technical performance criteria for the C-3 and the C-4 Transponders
referred to in Article 2.A. are described in the Transponder Performance
Specifications contained in Attachment A.
C. Jones shall have the exclusive right to use the
<PAGE>
-9-
Transponders for all purposes allowable under this Agreement for the Term hereof
specified in Article 4.
ARTICLE 3. PRICE AND PAYMENT
- -----------------------------
A. Jones shall pay GE Americom each month according to the following schedule
for service on each Transponder provided hereunder, which price includes all
charges for TT&C and Full Protection:
Year of Term Payment for Transponder
------------ -----------------------
One ***
Two ***
Three ***
Four ***
Five ***
Six ***
Seven ***
Eight ***
Nine ***
Ten ***
Eleven ***
Twelve ***
In the event Jones gives notice of its intent to exercise its option specified
in Article 4, to take service beyond Year Twelve of the Term, GE Americom will
advise Jones at least four (4) months prior to the end of the Term of GE
Americom's proposed rate for service for the following year; provided, however,
that the proposed increase over
<PAGE>
- 10 -
the rate for Year Twelve may not exceed the greater of ten (10) percent or the
increase in the Consumer Price Index for all Urban Users ("CPI-U") during the
twelve (12) months preceding GE Americom's notice. The parties will negotiate
regarding the increase until three (3) months prior to the end of the Term. If
no agreement on the increase is reached by then, this Agreement will terminate
at the end of the Term. If such an agreement is reached and Jones subsequently
exercises again its option to extend the Term, subsequent increases for
following years shall be determined in the same manner as specified in this
Paragraph.
B. In addition, a prepaid Construction Delay Protection and Launch Protection
fee will be required. This fee will entitle Jones to Construction Delay
Protection for each Transponder as set out in Article 9, and Launch Protection,
as set out in Article 10, in the event of construction delay or launch vehicle
delay or Launch Failure. This fee shall be payable in thirteen equal quarterly
installments of eighty-two thousand five-hundred dollars ($82,500) beginning
August 1, 1989 and ending August 1, 1992.
C. GE Americom will render bills to Jones thirty (30) days prior to the due
date for payment of amounts owing from Jones to GE Americom under this
Agreement. GE Americom will assess a late payment charge of 1.5 percent per
month compounded monthly on payments not received by
<PAGE>
- 11 -
the payment due date. The payment due date for service in a particular month is
the first day of that month. If charges based on a monthly rate cover a period
which does not commence on the first day of a month or end on the last day of a
month, the monthly rate for the fractional part of the month shall be calculated
at a daily rate of one-thirtieth (1/30) of the monthly charge.
D. GE Americom's failure to bill or delay in billing Jones for any charge due
under this Agreement shall not relieve Jones of its obligation to pay the same
on a timely basis; provided, however, that no late payment charge shall be due
for any period for which GE Americom has failed to bill or has delayed in
billing.
E. Unless otherwise agreed in writing by the Party entitled to payment, all
transfers of funds in accordance with this Agreement from one Party to the other
shall be sent to the receiving Party at its address designated in Article 21 or
by wire transfer of immediately available funds to an account designated by the
transferee, and shall be deemed to be made upon receipt.
ARTICLE 4. TERM
- ----------------
A. The term for Transponder service on each Transponder provided under this
Agreement ("Term") shall commence on the Commercial Operational Date of the
Satellite and continue until the sooner of (1) the expiration of twelve
<PAGE>
- 12 -
(12) years or (2) the End-of-Life of C-3 (as to C-3) or the End-of-Life of C-4
(as to C-4).
B. Jones shall have an option to extend the Term for an additional twelve (12)
months beyond the expiration of the twelfth year of the Term, unless the Term
has sooner ended pursuant to Article 4.A., and subject to the parties agreeing
on an increase in the rate for service pursuant to Article 3.A. A notice of
intent to exercise this option must be provided to GE Americom at least five (5)
months prior to the end of the Term. Jones shall have similar options to extend
the Term for additional periods of twelve (12) months until the End-of-Life of
each Satellite.
C. The Term shall not, however, commence unless all payments due under this
Agreement to GE Americom as of the Commercial Operational Date of the Satellite
have been made including any interest owing on late payments. If the Term does
not commence on the Commercial Operational Date because of Jones's failure to
make all the payments then due to GE Americom including any applicable interest,
the Term shall commence upon the date GE Americom receives
<PAGE>
- 13 -
all amounts then owing from Jones, unless this Agreement is earlier terminated
by GE Americom pursuant to Article 22.C.3.
ARTICLE 5. TAXES
- -----------------
A. Except as provided in Article 5.B., prices are exclusive of all taxes and
duties, and Jones shall pay directly, or reimburse GE Americom, for all taxes
and duties which are usually and customarily paid by transponder service takers
or purchasers, including any privilege or excise taxes based on gross revenue,
pertaining to the Transponders. GE Americom shall notify Jones of any demand by
any taxing authority of which GE Americom has knowledge in connection with a tax
audit or otherwise for payment of any of the taxes for which Jones is liable
under this Article 5.A. Jones may participate, at its expense, in any
proceedings or tax audits brought against GE Americom by any taxing authority in
connection with the Transponders, the outcome of which may affect Jones's tax
liability hereunder. Jones may pay such taxes or duties for which it is
responsible in such installments and in such manner as would be available to GE
Americom.
B. GE Americom warrants that, as of the date of execution of this Agreement, it
is not aware of any taxes or duties hereunder which are or could be assessable
as of that date by any taxing authorities on the transponder service
<PAGE>
- 14 -
described in Article 2.A. GE Americom will indemnify Jones for any such taxes or
duties which are or could be so assessable as of that date and which Jones is
subsequently called upon to pay. Jones shall notify GE Americom of any demand by
any taxing authority of which Jones has knowledge in connection with a tax audit
or otherwise for payment of any of the taxes or duties for which GE Americom is
liable under this Article 5.B. GE Americom may participate, at its expense, in
any proceedings or tax audits brought against Jones by any taxing authority in
connection with Jones's Transponders, the outcome of which may affect GE
Americom's tax liability hereunder.
ARTICLE 6. SATELLITE LOCATION AND LAUNCH DATE
- ----------------------------------------------
A. GE Americom's Satcom IIIR satellite is now located at 131 degrees W.L. and
GE Americom expects to locate C-3 at the same position, subject to approval by
the Federal Communications Commission ("FCC"). GE Americom's Satcom IV satellite
is now located at 82 degrees W.L. and is permanently assigned to 81 degrees W.L.
GE Americom has filed a request with the FCC to locate C-4 at either 127 degrees
W.L. or l35 degrees W.L. Both C-3 and C-4 are expected to be launched in the
second half of 1992 and to become Commercially Operational by no later than the
second quarter of 1993.
B. GE Americom shall use reasonable efforts to locate C-3 at 131 degrees W.L.,
or at another orbital position in the
<PAGE>
- 15 -
western segment of the U.S. orbital arc no farther west than 13l degrees W.L.,
and to locate C-4 at either 127 degrees W.L. or 135 degrees W.L., and to
maintain its schedule for launch and operation of both C-3 and C-4, provided,
however, that GE Americom assumes no liability to Jones, except as expressly set
forth in this Agreement, in the event either C-3 or C-4 is not constructed, is
delayed in construction, is delayed in launch, is delayed in operation or is
positioned at an orbital location other than as specified above.
ARTICLE 7. USE OF TRANSPONDERS
- -------------------------------
A. The C-3 and C-4 Satellites are intended to be used as major cable
television programming satellites by cable services to distribute their
programming to their affiliated cable systems.
B. Jones agrees that it will use each of the Transponders provided under this
Agreement for ***. Affiliate as used herein means an entity controlled by,
controlling or under common control with Jones. Primary as used herein means an
outbound feed of the programming content of a service intended to be distributed
to cable subscribers.
C. Except as otherwise provided herein, the Transponders shall be used only
for the ***
<PAGE>
- 16 -
***, provided that separate audio may be carried on the subcarriers and the
vertical blanking interval. Jones shall have the right, however, to use the
Transponder on ***. The Transponder on C-3 may be used for such programming, in
lieu of the C-4 Transponder, with GE Americom's approval, which shall not be
unreasonably withheld.
D. Jones shall not assign or transfer its rights or obligations under this
Agreement without first obtaining GE Americom's written consent to such
assignment or transfer, which consent shall not be unreasonably withheld,
provided that the prospective assignee or transferee assumes all of Jones'
obligations under and agrees to be bound by this Agreement, including the
restrictions on use of the Transponder(s) contained in Article 7, and furnishes
evidence reasonably satisfactory to GE Americom regarding its ability to meet
Jones' financial commitments hereunder. Any transfer or assignment pursuant to
this Article 7.D. shall relieve the transferring or assigning Party of all of
its obligations under this Agreement. The restrictions in this Article 7.D.
shall not apply to:
1. Any transfer or assignment by Jones to one or more of its affiliates,
which includes any entity controlled by, controlling or under common control
with Jones;
<PAGE>
- 17 -
2. Any security interest in the Agreement or other transfer, assignment or
encumbrance of the Agreement to financial institution(s) for financing purposes,
provided that any subsequent transfer or assignment by or to any such financial
institution, upon foreclosure or otherwise, shall constitute a transfer or
assignment which is subject to the restrictions contained in this Article 7.D.;
and
3. Any license or other permission from Jones to allow third parties to
use the Transponder(s) for part time (not to exceed six (6) hours in any one
twenty-four (24) hour period) video and audio cable television programming
during periods when the Transponder(s) are not being used by Jones.
E. GE Americom's satellites, transponders, facilities, services or equipment
shall not be used for an unlawful purpose.
F. GE Americom represents and covenants that all others, including the entities
listed in Article l.R., which have taken service on or purchased C-3 or C-4
transponders will be required to *** than those contained in the first sentences
of Paragraph B and Paragraph C of this Article 7.
ARTICLE 8. IN-ORBIT PROTECTION
- -------------------------------
A. In the event a Fully Protected Transponder becomes a Transponder Failure,
GE Americom shall ***
<PAGE>
- 18 -
***. If no Replacement Transponder is available, GE Americom shall ***. If none
of these options are available, Jones shall be offered *** Service in accordance
with the Terms of Article 11.
B. The Protection Satellite shall be maintained for the purpose of restoring
Transponder Failures and Satellite Failures and protecting against Launch
Failures and construction and launch delays for the Satellite and other
satellites owned by GE Americom or third parties. If GE Americom provides
protection to satellites owned by third parties (other than a satellite owned by
Alascom, Inc. or its affiliates), such protection shall ***. The protection
Satellite shall be used on a *** basis. Unless the Protection Satellite has been
used to restore a prior Satellite Failure, it may be moved in GE Americom's sole
discretion to the orbital location of a satellite which has become a Satellite
Failure.
<PAGE>
- 19 -
C. Satcom IR is GE Americom's existing in-orbit Protection Satellite as of the
date of this Agreement. GE Americom shall launch Satcom C-1 as the replacement
for Satcom IR prior to the EOL of Satcom IR as determined by GE Americom's
projections of remaining stationkeeping fuel. If Satcom IR becomes a Satellite
Failure or is used to restore a Satellite Failure prior to its EOL, as
determined by GE Americom's projections of remaining stationkeeping fuel, GE
Americom shall attempt to launch C-1 as soon as possible. GE Americom shall
have no obligation to provide Protection Satellites other than Satcom IR and C-
1.
D. If, at any time during the Term of this Agreement, there is no Protection
Satellite available or the Protection Satellite cannot be used to restore one or
both of Jones's Transponders because it previously has been used to restore
other service offerings of GE Americom, *** The *** rate shall remain
<PAGE>
- 20 -
in effect until *** at which time the regular rate set forth in Article 3.A.
shall be reinstated.
E. In the event either C-3 or C-4 becomes a Satellite Failure, or in the event
more than one transponder on C-3 or C-4 becomes a Transponder Failure under
circumstances which prevent all such Failed Transponders from being restored,
Protection Transponders shall be assigned in accordance with Article l.R.
F. For any period service is provided on the Protection Satellite, the rate
provided in Article 9.B. shall apply in lieu of the rate in Article 3.
ARTICLE 9. CONSTRUCTION DELAY PROTECTION
- -----------------------------------------
A. In the event that the construction of C-3 and/or C-4 is delayed, such that
it is not Commercially Operational and available for Jones's use prior to the
time that the satellite on which Jones's service currently resides reaches end-
of-life, GE Americom shall provide Jones, upon request, with Interim Transponder
Service which shall be on an Unprotected Transponder on the Protection
Satellite, until such time as the delayed satellite has been launched and has
become operational. Interim Transponder Service shall be provided only to the
extent that the Protection Satellite previously has not been used to restore
other transponders or other service offerings of GE Americom such as would
prevent the provision of service to Jones's. If Interim Transponder Service
cannot be
<PAGE>
- 21 -
provided on the Protection Satellite for every transponder on any delayed
satellite for which such service is requested, transponders on the Protection
Satellite shall be assigned in accordance with Article 1.R.
B. In the event Interim Transponder Service is provided to Jones on the
Protection Satellite, in accordance with this Article 9, Jones shall pay to GE
Americom a monthly rate of $150,000 per Transponder per month.
C. To the maximum extent technically or operationally possible, consistent
with the design specifications of the Protection Satellite, transponder(s) on
the Protection Satellite provided to Jones for Interim Transponder Service shall
be of the same frequency, polarization and performance characteristics as
Jones's Transponder on the delayed Satellite(s); provided that, unless otherwise
determined by GE Americom, the odd-numbered transponders on the Protection
Satellite shall be used first.
ARTICLE 10. LAUNCH PROTECTION
- ------------------------------
A. Jones shall have Launch Protection for launch vehicle or other delays or
Launch Failure. In the event that the launch of C-3 or C-4 is delayed because
of the launch vehicle or for other reasons or there is a Launch Failure, so that
the Satellite is not operational prior to the end-of-life of the satellite on
which Jones's service currently resides, GE Americom shall provide Jones, upon
request, with Interim Transponder Service which shall be on an Unprotected
Transponder on the Protection Satellite,
<PAGE>
- 22 -
provided that the Protection Satellite previously has not been used to restore
other transponders or other service offerings of GE Americom such as would
prevent the provision of service to Jones. If Interim Transponder Service cannot
be provided on the Protection Satellite for every transponder on any delayed
satellite for which such service is requested, transponders on the Protection
Satellite shall be assigned in accordance with Article l.R.
B. In the event of a launch vehicle or other delay, service on the Protection
Satellite shall be provided to Jones for a term not to extend beyond thirty (30)
days after the delayed Satellite becomes Commercially Operational. The charges
for the service actually used by Jones shall be at the rates provided for
Interim Transponder Service under Article 9.B.
C. In the event of a Launch Failure, service on the Protection Satellite, if
requested by Jones, shall be for a minimum period of twelve (12) months. Jones
may cancel service by providing GE Americom with written notice at least six (6)
months prior to the expiration of the minimum service period requesting such
cancellation. The charges for the service actually used by Jones shall be at the
rates provided for Interim Transponder Service under Article 9.B. If not
cancelled by Jones, service shall be renewed for successive renewal terms of six
(6) months each, provided that GE Americom may increase the rate at renewal
<PAGE>
- 23 -
by the lesser of (1) ten (10) percent or (2) the increase in the Consumer Price
Index For All Urban Consumers during the prior renewal term.
D. To the maximum extent technically or operationally possible, consistent
with the design specifications of the Protection Satellite, transponder(s) on
the Protection Satellite provided to Jones for Launch Protection shall be of the
same frequency, polarization and performance characteristics as Jones's
Transponder(s) being replaced on the delayed Satellite(s), provided that, unless
otherwise determined by GE Americom, the odd-numbered transponders on the
Protection Satellite shall be used first.
ARTICLE 11. RESTORED SATELLITE SERVICE OPTION
- ----------------------------------------------
A. In the event C-3 or C-4 become a Satellite Failure, Jones's Fully Protected
Transponder on the Failed Satellite will be restored on the Protection Satellite
to the extent that the Protection Satellite and transponders on that satellite
are then available.
B. Restored Satellite Service provided as a result of C-3 or C-4 becoming a
Satellite Failure shall be provided to Jones, upon request, for a minimum period
of twelve (12) months. Jones may cancel service by providing GE Americom with
written notice at least six (6) months prior to the expiration of the minimum
service period requesting such cancellation. The charges for the service
actually
<PAGE>
- 24 -
used by Jones shall be at the rates provided for Interim Transponder Service
under Article 9.B. If not cancelled by Jones, service shall be renewed for
successive renewal terms of six (6) months each, provided that GE Americom may
increase the rate at renewal by the lesser of (1) ten (10) percent or (2) the
increase in the CPI-U during the prior renewal term.
C. In the event that one or both of Jones's Transponders become a Transponder
Failure, other than as part of a Satellite Failure, and cannot be restored on
the same Satellite as provided in Article 8.A., service on such Failed
Transponder(s) shall, at Jones's request, be restored on the Protection
Satellite, if capacity thereon is available, on a first-needed, first-served
basis. Restored Satellite Service for Failed Transponders shall be provided on
the terms and at the charges provided under Paragraph B. of this Article 11. In
the event of a Satellite Failure or a simultaneous failure of more than one
transponder including Jones's Transponders, and Restored Satellite Service
cannot be provided for every transponder for which such service is requested,
transponders on the Protection Satellite shall be assigned in accordance with
Article l.R.
D. To the maximum extent technically or operationally possible, consistent
with the design specifications of the
<PAGE>
- 25 -
Protection Satellite, transponder(s) on the Protection Satellite provided to
Jones for Restored Satellite Service shall be of the same frequency,
polarization and performance characteristics as Jones's Transponder(s) being
replaced; provided that, unless otherwise determined by GE Americom, the odd-
numbered transponders on the Protection Satellite shall be used first.
E. Restored Satellite Service is provided on Unprotected Transponders.
Further protection will be provided only if and to the extent appropriate
facilities are available at the time of failure.
F. GE Americom shall use all reasonable efforts to obtain launch insurance for
the launch of C-1, C-3 and C-4 if such insurance is available on reasonable
terms and conditions. Such insurance is intended to cover the cost of the
satellite, launch and insurance. If any of these satellites become Launch
Failures, GE Americom will apply any insurance proceeds towards providing a
replacement satellite and promptly negotiate in good faith with the entities
taking service or owning transponders on the Failed Satellite or using the
Failed Satellite for Protection with the objective of retaining them as
customers for a replacement satellite. GE Americom shall have no commitment to
replace a failed satellite unless the negotiations are successful.
<PAGE>
- 26 -
ARTICLE 12. SATELLITE SYSTEM AND AUTHORIZATIONS
- ------------------------------------------------
A. GE Americom shall have sole and exclusive control and operation of C-3 and
C-4. If circumstances occur which in GE Americom's reasonable judgment pose a
threat to the stable operation of C-3 or C-4, GE Americom shall have the right
to take appropriate action to protect the Satellite, including discontinuance or
suspension of operation of the Satellite, Jones's Transponder or any other
transponder, without any liability to Jones, except as expressly provided in
Articles 8 and 17 of this Agreement. GE Americom shall give Jones as much
notice as possible of any such discontinuance or suspension.
B. If it becomes necessary to discontinue or suspend service on one or more
transponders on C-3 or C-4, or on the Protection Satellite if Jones is then
taking service on that Satellite, and operational circumstances allow GE
Americom to select the transponder or transponders to be discontinued or
suspended, GE Americom will use reasonable efforts to make such selection in
reverse order of the dates on which legally-binding agreements for use of the
Satellite were entered into with GE Americom, in accordance with Article l.R.
("first on, last off").
C. Construction, launch, location and operation of C-3 and C-4 and GE
Americom's satellite system are subject to all applicable laws and regulations,
including without limitation, the Communications Act of 1934, as amended,
<PAGE>
- 27 -
and the Rules and Regulations of the FCC. Both parties shall comply with all
such applicable laws and regulations.
D. GE Americom agrees that, at Jones's request to do so, it will file with the
FCC an appropriate request to modify its FCC authorization(s) for C-3 and/or C-4
to permit the reception of signals from Jones's Transponders in non-United
States locations. Jones will provide to GE Americom information concerning
Jones's arrangements necessary for such a request, and will provide any
additional assistance GE Americom may need to prosecute such a request with the
FCC.
ARTICLE 13. OPERATING PROCEDURES
- ---------------------------------
A. Jones agrees to abide by and adhere to the Spacecraft Service Requirements
set forth in Attachment B of this Agreement, as such may be amended from time-
to-time for technical or operational reasons upon written notice to Jones. In
the event of any failure of Jones to comply with such operating procedures or
operation by Jones of its Transponder interferes materially with GE Americom's
other satellite services, or with the use of other transponders, Jones agrees to
discontinue such interfering operation immediately upon discovery or receiving
notice from GE Americom of the interference. In the event of Jones's failure to
discontinue, GE Americom may take such action reasonable and necessary in the
circumstances to eliminate such interference, including suspending Jones's
<PAGE>
- 28 -
use of its Transponder, without any liability for loss or damage whatsoever,
until such time as Jones is able to operate in a non-interfering manner.
B. When signals are being transmitted from a Jones-provided Earth Station,
Jones shall be responsible for proper illumination of the Transponder. Should
improper illumination be detected by GE Americom, Jones will be notified of this
and corrective action must be taken immediately. If Jones unreasonably and
repeatedly fails to correct immediately improper illumination after notification
by GE Americom, GE Americom may terminate this Agreement pursuant to Article
22.C.2.
C. Earth Station and other equipment furnished by Jones shall be so
constructed, maintained and operated as to work properly with GE Americom's
facilities. For purposes hereof, Jones's existing Earth Station located at
Morrison, Colorado, shall be considered to be in conformance with the
requirements of this Article 13.C. Jones shall provide, at its expense, the
personnel, power and space required to operate all facilities installed on the
premises of Jones. Jones shall ensure the presence of a qualified technician
knowledgeable in satellite uplinking at its transmitter locations at all times
when signals are being transmitted from any of its Earth Stations to any GE
Americom satellite or GE Americom-provided transponder. Jones at its expense
shall provide GE Americom with any descrambling or decoding devices which may be
required for signal monitoring.
<PAGE>
- 29 -
D. Satellite access specifications are set forth in Attachment B. Jones agrees
to conform its uplink Earth Station transmissions to the specifications. In
addition, at a mutually agreed to time, and prior to transmitting from a Jones-
provided Earth Station, Jones will contact GE Americom's Vernon Valley, New
Jersey communications technician and demonstrate Jones's ability to perform in
accordance with the access specifications.
E. GE Americom may, upon reasonable notice to Jones, make such inspections of
Jones's facilities accessing or operating in conjunction with the Transponder as
may be necessary to maintain the Satellites, the Transponders or GE Americom's
other facilities used in connection therewith, in satisfactory operating
condition. GE Americom will use reasonable efforts to schedule and conduct such
inspections so as not to disrupt the operation of Jones's facilities.
F. Jones may, upon adequate notice to GE Americom, conduct a reasonable number
of visits (1) to the GE facilities used to construct the satellites and (2) to
GE Americom's TT&C and other facilities used to operate and maintain the
Satellites.
ARTICLE 14. TRANSITION TO C-3/C-4
- ----------------------------------
A. To ensure the efficient and orderly transfer of service from the satellite
on which Jones's service currently resides to C-3 and C-4, a Technical Committee
<PAGE>
- 30 -
may be formed by GE Americom and Jones for the purpose of discussing and
resolving matters relating thereto as well as other technical operating matters
which may arise.
B. The matters to be covered and the composition of the Technical Committee
shall be determined from time-to-time by mutual agreement of the Parties.
C. GE Americom agrees to provide Jones with periodic progress reports at least
every six (6) months on the status of C-3 and C-4. Such reports will include
information concerning the status of the construction and launch of C-3 and C-4,
pertinent technical data, End-of-Life projections, and the current status of
customer commitments to C-3 and C-4 as well as any other relevant information.
GE Americom will also give Jones as much advance notice as possible, but no less
than thirty (30) days, of the dates that C-3 and C-4 are scheduled to become
Commercially Operational.
ARTICLE 15. INDEMNIFICATION
- ----------------------------
A. Because Jones has control of the content of the communications transmitted
over the Transponders, and any Protection Transponder which may be provided
hereunder, during any period Jones accesses any transponder, GE Americom shall
be indemnified and saved harmless by Jones from and against all loss, liability,
damage and expense, including reasonable counsel fees and disbursements, due to:
<PAGE>
- 31 -
1. Claims for libel, slander, infringement of copyright or other
intellectual property rights arising from the material transmitted over any
Transponder by Jones, by its customers or by any third party permitted to use
the transponders by Jones; and
2. Any other claim arising from any use of transponders furnished by GE
Americom by Jones, by any customer of Jones or by any third party permitted by
Jones to use the Transponders.
B. Any Party obligated to provide indemnification pursuant to this Article 15
or Article 16 (the "indemnitor") shall promptly defend any claims against the
Party entitled to indemnification from the indemnitor pursuant to this Article
15 or Article 16 (the "indemnitee") with counsel of the indemnitor's choosing at
its own cost and expense. The indemnitee shall cooperate with, and assist as
reasonably requested by, the indemnitor in the defense of any such claim,
including the settlement thereof on a basis stipulated by the indemnitor (with
the indemnitor being responsible for all costs and expenses of defending such
claim or making such settlement); provided, however, that (1) the indemnitor
will not, without the indemnitee's consent, settle or compromise any claim or
consent to any entry of judgment which does not include the giving by the
claimant or the plaintiff to the indemnitee of an unconditional release from all
liability with respect to such claim, (2) the
<PAGE>
- 32 -
indemnitee shall be entitled to participate at its sole expense in the defense
of any such claim and to employ counsel at its own expense to assist in the
handling of such claim, and (3) the indemnitee shall have the right to pay,
settle or compromise any such claim as to itself, provided that in such event
the indemnitor shall be relieved of any liability or obligation which would
otherwise then or thereafter have existed or arisen under this Article 15 or
Article 16 in respect of such claim. The indemnitor shall be relieved of its
obligations under this Article unless the indemnitee notifies the indemnitor
promptly in writing of any claim, suit or proceeding covered by Article 15.A.
and at the indemnitor's expense, gives the indemnitor such information and
assistance to settle and/or to defend any such claim, suit or proceeding as the
indemnitor may reasonably request.
ARTICLE 16. PATENT INDEMNITY
- ----------------------------
A. Jones shall be indemnified and saved harmless by GE Americom from and
against all loss, liability, damage and expense, including reasonable counsel
fees and disbursements, due to any claim, suit or proceeding brought against
Jones on the issue of infringement of any United States or foreign patent by any
product, or any part thereof, supplied by GE Americom to Jones under this
Agreement. For purposes hereof, "product" shall be defined as any satellite,
transponder, earth station or other
<PAGE>
- 33 -
communications facility, or any component or subsystem thereof. GE Americom
agrees to pay, subject to the limitations hereinafter set forth in this Article
16, any loss, liability, damage or expense, including any final judgment entered
against Jones or any settlement agreed to by GE Americom on such issue in any
such suit or proceeding defended by GE Americom. Jones agrees that GE Americom,
shall be relieved of the foregoing obligations unless Jones notifies GE Americom
promptly in writing of any such claim, suit or proceeding, and at GE Americom's
expense, gives GE Americom such information and assistance to settle and/or to
defend any such claim, suit or proceeding as GE Americom may reasonably request.
B. If the product, or any part thereof, furnished by GE Americom to Jones
becomes, or in the opinion of GE Americom may become, the subject of any claim,
suit or proceeding for infringement of any United States or foreign patent, or
in the event of an adjudication that such product or part infringes any United
States or foreign patent, or if the use of such product or part is enjoined, GE
Americom may, at its option and its expense: (1) procure for Jones the right
under such patent to use such product or part, or (2) replace such product or
part, or (3) modify such product or part, or (4) if options (1)-(3) are
infeasible, suspend service and refund any monies paid for any service not
provided.
C. GE Americom shall have no liability for any infringement arising from the
combination of such a
<PAGE>
- 34 -
product or part with a product or part furnished by Jones to GE Americom.
D. Jones shall hold GE Americom harmless against any expense, judgment or loss
for infringement of any United States or foreign patents or trademarks which
result from GE Americom's compliance with Jones's instructions regarding any
product or part furnished by Jones to GE Americon.
E. In no event shall GE Americom's total liability to Jones under, or as
a result of compliance with, the provisions of this Article exceed the aggregate
sum paid to GE Americom by Jones for service hereunder. exclusive of any refund
under option (4) in Article 16.B. above. Neither party shall be liable to the
other for loss of use, or for incidental, indirect, or consequential damages,
whether in contract or in tort.
F. The foregoing states the entire warranty by GE Americom and the exclusive
remedy of Jones, with respect to any alleged patent infringement by such product
or part.
G. No sale or service hereunder shall convey any license by implication,
estoppel or otherwise, under any proprietary or patent rights of GE Americom to
practice any process with such product or part, or for the combination of such
product or part with any other product or part.
<PAGE>
- 35 -
ARTICLE 17. LIMITATION OF LIABILITY
- ------------------------------------
A. Except as expressly otherwise provided in this Agreement, GE Americom shall
have *** to provide any Satellite, Transponder, or other satellites,
transponders, facilities, services and equipment, in accordance with this
Agreement.
B. GE Americom shall be liable for *** Otherwise, GE Americom's *** for damages
or losses arising out of mistakes, omissions, interruptions, delays, errors or
defects of any kind with respect to its performance of this Agreement, or the
use or operation of C-3 or C-4, the Transponder(s) provided to Jones hereunder,
or of other satellites, transponders, facilities, services or equipment
furnished to Jones by GE Americom, including but not limited to TT&C facilities
or services, or anything done in connection therewith, regardless of whether
occasioned by GE Americom's negligence, shall be *** Credits for Interruptions
or Outages shall be determined in accordance with Article 18
hereof.
<PAGE>
- 36 -
C. Any other provision in this Agreement notwithstanding, neither party shall
be liable, in connection with this Agreement, or the arrangements contemplated
hereby, for any *** .
D. GE Americom shall not be liable for any damages or losses due to: (1) the
fault of Jones or of any third party; or (2) the failure or unavailability of
satellites, transponders, facilities, services or equipment furnished to Jones
by any other entity which may be used in conjunction with GE Americom's
satellites, transponders, facilities, services or equipment, or any act or
omission of such other entity.
E. It is agreed and understood that the price paid by Jones is a consideration
in limiting GE Americom's liability.
ARTICLE 18. CREDITS FOR INTERRUPTIONS OR OUTAGES
- -------------------------------------------------
A. Where a credit for Interruptions or Outages is provided under this
Agreement, such credit shall be computed as set out in this Article 18.
B. The length of the Interruption shall be measured from the time Jones
notifies GE Americom of the Interruption.
<PAGE>
- 37 -
For the purpose of calculating the credit, a month is considered to have thirty
(30) days.
1. Interruptions of 24 Hours or Less
---------------------------------
Credit for Interruptions will be allowed as follows:
Length of Interruption Credit
---------------------- ------
Less than 15 minutes ***
15 mins. up to but not including 3 hours ***
3 hrs. up to but not including 6 hours ***
6 hrs. up to but not including 9 hours ***
9 hrs. up to but not including 12 hours ***
12 hrs. up to but not including 15 hours ***
15 hrs. up to 24 hrs. inclusive ***
Two or more Interruptions of fifteen (15) minutes or more, during any
period up to but not including three (3) hours, shall be considered as one
Interruption.
2. Interruptions Over 24 Hours
---------------------------
Credit will be allowed in *** day multiples for each *** period of
Interruption or fraction thereof.
No more than *** full day's credit will be allowed for any period of
*** hours.
3. An allowance will not be made where the Interruption is a result of, or
attributable in whole or in primary part, to:
(a) Jones's negligence or willful acts, or the negligence or willful
acts of its officers, directors, agents, employees, subsidiaries, parents,
affiliates, customers and viewers, or any of them; or
<PAGE>
- 38 -
(b) The failure of local television channels or transmission lines or
equipment provided by Jones; or
(c) The failure or nonperformance of any earth station not provided by
GE Americom; or
(d) Any cause for which GE Americom otherwise is not responsible under
this Agreement.
ARTICLE 19. FORCE MAJEURE
- --------------------------
A. Neither party shall be liable to the other for any failure of or delay in
performance hereunder due to causes beyond its reasonable control. These causes
include but are not limited to: acts of God; fire, flood or other natural
catastrophes; the need to comply with any law or any rule, order, regulation or
direction of the United States Government, or of any other government, including
state and local governments having jurisdiction over either party, or of any
department, agency, commission, bureau, court or other instrumentality thereof,
or of any civil or military authority; national emergencies; insurrections;
riots; acts of war; quarantine restrictions; embargoes; or strikes, lockouts,
work stoppages or other labor difficulties.
B. The parties recognize that authority to construct, launch, position and/or
operate the C-3 and C-4 Satellites and the C-1 Protection Satellite will be
needed from the FCC and that GE Americom's ability to perform is subject to the
receipt of such FCC authority. GE Americom will
<PAGE>
- 39 -
proceed in good faith to obtain on a timely basis and continue in effect all FCC
and other governmental and regulatory authorizations, approvals, licenses and
permits which it requires to meet its obligations hereunder, and has no reason
to believe that it will not obtain all such authorizations, approvals, licenses
and permits in accordance with its operational schedule.
ARTICLE 20. CONFIDENTIALITY AND NONDISCLOSURE
- ----------------------------------------------
A. Jones shall issue a public announcement of its plans to use the C-3 and C-4
Satellites for distribution of its programming, appropriate for release to cable
television trade publications, the specific language and date of release of
which shall be agreed to in advance with GE Americom. Except as provided in the
preceding sentence, both Parties shall hold in strict confidence and neither
Party shall disclose to third parties the prices, payment terms, schedules,
protection arrangements, restoration provisions and other material terms and
conditions of this Agreement, without the prior written consent of the other
Party. The restrictions on disclosure to third parties shall apply to each
Party's affiliates (including their respective employees, agents,
representatives, independent auditors or legal counsel).
B. Jones hereby acknowledges that all information provided to Jones related to
the design and performance characteristics of the Satellite, and any subsystems
or
<PAGE>
- 40 -
components thereof including the Transponders, is confidential and proprietary
and is not to be disclosed to third persons, without the prior written consent
of GE Americom.
C. To the extent that either Party discloses to the other any other information
which it considers proprietary, said Party shall identify such information as
proprietary when disclosing it to the other Party by marking it clearly and
conspicuously as proprietary information. Any proprietary disclosure to either
Party, if made orally, shall be promptly confirmed in writing and identified as
proprietary information, if the disclosing Party wishes to keep such information
proprietary under this Agreement. Any such information disclosed under this
Agreement shall be used by the recipient thereof only in its performance under
this Agreement. Neither Party shall be liable for disclosure or use of such
information marked as proprietary information as provided above which:
1. is or becomes available to the public from a source other than the
receiving Party before or during the period of this Agreement;
2. is released without restrictions in writing by the disclosing Party;
3. is lawfully obtained by the receiving Party from a third party or
parties;
4. is known by the receiving Party prior to such disclosure; or
<PAGE>
- 41 -
5. is at any time developed by the receiving Party completely
independently of any such disclosure or disclosures from the disclosing Party.
D. Neither Party shall be liable for the inadvertent or accidental disclosure
of such information marked as proprietary, if such disclosure occurs despite the
exercising of the same degree of care as the receiving Party normally takes to
preserve and safeguard its own proprietary information.
E. Notwithstanding any other provisions of this Article, neither Party shall be
liable for the disclosure of any information which it receives under this
Agreement pursuant to judicial action or decree, or pursuant to any requirement
of any Government or any agency or department thereof, having jurisdiction over
such Party, provided that in the opinion of counsel for such Party such
disclosure is required, and provided further that such Party shall have given
the other Party notice prior to such disclosure, to the extent reasonably and
legally possible.
F. No license to the other Party, under any patents, is granted or implied by
conveying proprietary information or other information to that Party and none of
such information which may be transmitted or exchanged by the respective Parties
shall constitute any representation, warranty, assurance, guaranty, or
inducement by either Party to the other with respect to the infringement of
patents or other rights of others.
<PAGE>
- 42 -
G. Except as otherwise provided in this Article, neither Party shall issue a
public notice or a news release concerning this Agreement and the transactions
contemplated hereby without the prior approval of the other, which approval
shall include the right to approve the form, content and timing of any such
release.
ARTICLE 21. NOTICES
- --------------------
A. Notice of Interruptions or Outages, or of other technical or operational
matters requiring immediate attention, may be given by telephone. GE Americom
will designate a point or points of contact where Jones may call on a 7 day-a-
week, 24 hour-a-day basis. Any notice given verbally will be confirmed in
writing as soon as practicable thereafter pursuant to the procedures set out in
Article 21.B.
B. Except as otherwise provided in Article 21.A., all necessary notices,
demands, reports, orders and requests required hereunder to be given by one
Party to the other shall be in writing and deemed to be duly given on the same
business day if sent by electronic means (i.e., telex, electronic mail or
facsimile) or delivered by hand during the receiving Party's regular business
hours, or on the date of receipt if sent by pre-paid overnight, registered or
certified mail, and addressed as follows:
<PAGE>
- 43 -
If to be given to Jones:
Vice President
Jones Space Segment, Inc.
9697 E. Mineral Avenue
Englewood, Colorado 80112
Fax No. (303) 799-1644
Phone (303) 792-3111
With a copy to:
General Counsel
Jones Space Segment, Inc.
9697 E. Mineral Avenue
Englewood, Colorado 80112
If to be given to GE Americom:
Vice President, Cable Services
GE American Communications, Inc.
Four Research Way
Princeton, NJ 08540-6684
Fax No. (609) 987-4517
Phone (609) 987-4070
C. Each Party may, on written notice to the other, specify another address or
individual to serve as a point of contact for that Party.
ARTICLE 22. TERMINATION
- ------------------------
A. Either Party may terminate this Agreement within ninety (90) days after it
acquires knowledge of an event listed below and upon ten (10) days' prior
written notice of intent to terminate to the other Party:
1. If the FCC denies, revokes or suspends any authorization, approval,
license or permit required to construct, launch, position or operate the
Satellites, or otherwise to provide service to Jones on the terms and conditions
contained in this Agreement, and GE Americom is
<PAGE>
- 44 -
unable to obtain relief from the FCC's action enabling performance of GE
Americom's obligations hereunder within one hundred twenty (120) days of the
FCC's action becoming administratively final and not subject to further FCC
review.
2. If the other Party is unable to perform its obligations under this
Agreement as a result of its becoming insolvent or the subject of insolvency
proceedings, including, without limitation, if the other Party shall be
judicially declared bankrupt or insolvent according to law, or if any assignment
shall be made of the property of the other Party for the benefit of creditors,
or if a receiver, conservator, trustee in bankruptcy or other similar officers
shall be appointed to take charge of all or any substantial part of the other
Party's property by a court of competent jurisdiction, or if a petition shall be
filed for the reorganization of the other Party under any provisions of the
Bankruptcy Act now or hereafter enacted, and such proceeding is not dismissed
within sixty (60) days after it is begun, or if the other Party shall file a
petition for such reorganization or for an arrangement under any provisions of
the Bankruptcy Act now or hereafter enacted and providing a plan for a debtor to
settle, satisfy or extend the time for the payment of debts.
3. If the entities specified in Article l.R. have not signed agreements to
take service on or to purchase at
<PAGE>
- 45 -
least six (6) transponders on C-3 and on C-4 Transponders (a) within six (6)
months of the date of execution of this Agreement, or (b) within twelve (12)
months of the date of execution of this Agreement; provided that the right to
terminate shall apply only to the Satellite(s) for which the entities specified
in Article l.R. have not signed such agreements for such number of transponders.
4. If on the projected Commercial Operational Date, fewer than twelve (12)
Transponders on C-3 and/or C-4 meet the Transponder Performance Specifications
in Attachment A, provided that the right to terminate shall apply only to the
affected Satellite(s).
5. If before the date of the launch of C-3 and/or C-4, as the case may be,
the Viacom Group (i.e. Viacom International, Inc.; The Weather Channel, Inc.
Hearst/ABC-Viacom Entertainment Services and National Cable Satellite
Corporation (C. Span)) terminates its agreement for service on or purchase of
transponders on C-3 or C-4 provided that the Jones's right to terminate shall
apply only to the satellite(s) for which the Viacom Group so terminates.
B. Jones may terminate this Agreement within ninety (90) days after Jones
acquires knowledge of an event listed below and upon ten (10) days' prior
written notice of intent to terminate to GE Americom:
1. If one or both of Jones's Transponders provided under this Agreement
does not meet in all material respects the Transponder Performance
Specifications set forth in Attachment A on the projected Commercial Operational
Date of C-3 or C-4, as the case may be, but
<PAGE>
- 46 -
only as to that Transponder which does not meet in all material respects the
Transponder Performance Specifications. In the event Jones terminates under this
Article B.l., this Agreement shall remain in full force and effect as to any
other Transponder which is provided to Jones hereunder and which meets the
Transponder Performance Specifications in all material respects.
Provided, however, that before Jones may terminate for reasons specified in
Article 22.B.1., GE Americom shall be given thirty (30) days either to bring
Jones's Transponder(s) into compliance in all material respects with the
Transponder Performance Specifications or to make available to Jones a
Protection Transponder on C-3 or C-4 which meets in all material respects the
Transponder Performance Specifications in Attachment A.
2. If C-3 or C-4 is assigned to an orbital location from which 50 state
coverage is not possible; provided that Jones's right to terminate shall apply
only to the Satellite(s) which is so assigned.
3. If C-3 and/or C-4 has not been launched by December 31, 1994, provided
that Jones's right to terminate shall apply only to the Satellite(s) which have
not been so launched.
C. GE Americom may terminate this Agreement within ninety (90) days after GE
Americom acquires knowledge of an event listed below and, as to Paragraph C.2.,
below, upon ten (10) days' prior written notice of intent to terminate to Jones:
<PAGE>
- 47 -
1. If Jones defaults in making any of the payments due to GE Americom
hereunder; provided that in such a case GE Americom shall give Jones thirty (30)
days written notice of intent to terminate and Jones may within that thirty (30)
day period cure the default.
2. If Jones's use of any transponder provided hereunder fails to conform:
(a) with the Spacecraft Service Requirements set forth in Article 13 and
Attachment B, and such nonconforming use, in GE Americom's reasonable judgment,
harms or presents a threat of harm to the Satellite and Jones does not
immediately upon being notified by GE Americom of such nonconforming use, bring
Jones's operations into compliance with such Spacecraft Service Requirements; or
(b) with the Use of Transponders specified in Article 7, and Jones does not
within five (5) business days of notice by GE Americom comply with such Use of
Transponders.
D. In the event of termination by either party due to causes specified in
Article 22.A.l prior to the Commercial Operational Dates of the Satellites, by
either party due to causes specified in Article 22.A.3,.4 and .5, by Jones due
to causes specified in Article 22.A.2 prior to the Commercial Operational Dates
of the Satellites on which Jones's Transponders reside or Article 22.B., GE
Americom shall refund in full Jones's advance payments, if any, made under
Article 3, in respect of any Transponder which is not made available to Jones.
In the event of
<PAGE>
- 48 -
termination by Jones due to causes specified in Article 22.A.2, 22.A.4 or
22.B.1, GE Americom shall also pay to Jones interest at ten (10) percent per
annum on any refund of Jones's advance payments.
E. In the event Jones terminates service on any Transponder provided hereunder
for reasons other than those for which termination by Jones is provided under
this Agreement, or in the event of termination of transponder service to Jones
by GE Americom due to causes specified in Article 22.A.2, 22.C.l or 22.C.2, GE
Americom shall be entitled to reclaim the Transponder(s) and to retain so much
of Jones's payments made under Article 3 not previously applied against service
received by Jones as liquidated damages. In such circumstances, Jones shall
immediately surrender the Transponder(s) to GE Americom. In addition, Jones
shall be obligated to pay for service for the remainder of the Term, which
payments may be prepaid, at Jones's option, using a discount factor of ten (10)
percent. GE Americom shall use all reasonable efforts to find a replacement
customer to take service on the surrendered Transponder(s). If GE Americom does
find a replacement customer, Jones will be relieved from the obligation to pay
for service, except that Jones will be responsible for payment of the difference
(1) if the total amount to be paid by the replacement customer for its service
is less than the total amount agreed to be paid by Jones hereunder; or (2) if
the replacement customer defaults in making any payment.
<PAGE>
- 49 -
F. Except for access to protection Transponders in accordance with Articles 8,
9, 10, and 11, when a payment of a refund to Jones under this Article 22, is
provided, it shall be Jones's sole and exclusive remedy under this Agreement.
G. The termination of this Agreement will not relieve either Party from
fulfilling any outstanding financial obligations to the other, or constitute a
waiver by either Party of any other rights and remedies, which have accrued
prior to the termination, that it may have against the other under this
Agreement.
H. GE Americom shall pay any refunds due to Jones under this Agreement within
thirty (30) days of the event giving rise to the refund. GE Americom shall pay
an interest charge of 1.5 percent per month on any amounts not refunded within
the above thirty (30) day period.
ARTICLE 23. PURCHASE OPTION
- ----------------------------
Jones shall have an option, exercisable at anytime prior to the End of Life
of the Satellite(s), to purchase one or both of the Transponders. The purchase
price of the Transponder shall be the net present value (using a ten (10)
percent discount factor) of the then remaining lease payments (assuming no rate
increase after the twelfth year of the Term) through the then projected End of
Life of the Satellite. With the exception of the purchase price, the other terms
and conditions of this Agreement shall apply to any purchase under this Article.
<PAGE>
- 50 -
ARTICLE 24. LIABILITY WITH RESPECT TO ARIANESPACE
- --------------------------------------------------
Jones shall have no right of action against Arianespace, other customers of
Arianespace ("third party customers") or their respective associates, for
damages for bodily harm and damage to property suffered by Jones resulting from
the performance of the Ariane launch services agreement between GE Americom and
Arianespace. Jones further irrevocably agrees to a no-fault, no-subrogation
waiver of liability and waives the right to make any claims or to instigate any
judicial proceedings in connection with such claims against Arianespace, the
third party customers of Arianespace or their associates. In the event that one
or more associates of Jones shall proceed against Arianespace, the third party
customers or their associates as a result of bodily harm or property damage
caused by Arianespace, the third party customers or their associates resulting
from the performance of the Ariane launch services agreement by such named
parties, Jones shall indemnify, hold harmless, dispose of any such claim and
defend when not contrary to the governing rules of procedures where the action
takes place, Arianespace, such third party customers and their associates from
any loss, damage, liability or expense, including attorney's fees, on account
of such damage or injury, and shall pay all expenses and satisfy all judgments
which may be incurred by or rendered against said indemnitees. As used herein,
the term "associates" means individuals of legal
<PAGE>
- 51 -
entities which act, directly or indirectly, on behalf of or at the direction of
an entity to fulfill the obligations of that entity, including the entity's
employees, suppliers and subcontractors. Nothing in this Article 24 shall limit
or alter the rights and remedies of Jones against GE Americom pursuant to this
Agreement.
ARTICLE 25. GENERAL PROVISIONS
- -------------------------------
A. Nothing contained in this Agreement shall be deemed or construed by the
Parties or by any third party to create any rights, obligations or interests in
third parties; or to create the relationship of principal and agent, partnership
or joint venture or any other fiduciary relationship or association between the
Parties.
B. No failure on the part of either Party to notify the other Party of any
noncompliance hereunder, and no failure on the part of either Party to exercise
its rights hereunder shall prejudice any remedy for any subsequent
noncompliance, and any waiver by either Party of any breach or noncompliance
with any term or condition of this Agreement shall be limited to the particular
instance and shall not operate or be deemed to waive any future breaches or
noncompliance with any term or condition. All remedies and rights hereunder and
those available in law or in equity shall be cumulative and the exercise by a
Party of any such right or remedy shall not preclude the exercise of any other
right or remedy available under this Agreement in law or in equity.
<PAGE>
- 52 -
C. This Agreement shall be construed and enforced in accordance with the
substantive laws of the State of New York. The Parties hereby consent to and
submit to the jurisdiction of the federal and state courts located in the State
of New York, and any action or suit under this Agreement may be brought by the
Parties in any federal or state court with appropriate jurisdiction over the
subject matter established or sitting in the State of New York.
D. All headings in this Agreement are inserted as a matter of convenience and
for reference purposes only, are of no binding effect, and in no respect define,
limit or describe the scope of this Agreement or the intent of any article,
paragraph or subparagraph hereof.
E. All attachments attached to this Agreement shall be deemed part of this
Agreement and incorporated herein as if fully set forth herein, and in the event
of a variation or inconsistency between the text of this Agreement and the
Attachments attached hereto, this Agreement shall govern.
F. This Agreement may be signed in any number of counterparts with the same
effect as if the signatures to each were upon the same Agreement.
G. Where appropriate, the use of the plural word shall include its singular and
the use of the singular word shall include its plural.
<PAGE>
- 53 -
H. In the event GE Americom assigns or otherwise transfers this Agreement to a
third party, GE Americom will provide sixty (60) days notice of the assignment
or transfer to Jones and will require the assignee or transferee to assume and
to promise to fulfill all of the duties and obligations of GE Americom under
this Agreement.
I. This Agreement is subject to all applicable laws and regulations, including
without limitation, the Communications Act of 1934, as amended, and the Rules
and Regulations of the FCC.
J. Unless specifically provided otherwise herein, each party shall bear its
respective costs and expenses in connection with the preparation, execution,
delivery and performance of this Agreement.
K. This Agreement, including all attachments, represents the entire
understanding and agreement between the Parties with respect to the subject
matter hereof, supersedes all prior negotiations and agreements between the
parties concerning that subject matter, and can be amended, supplemented or
changed only by an agreement in writing which makes specific reference to this
Agreement and which is signed by both Parties. To the extent that the
Attachments may be inconsistent with the text of the Agreement, the text of the
Agreement shall control.
<PAGE>
- 54 -
IN WITNESS WHEREOF, the parties hereto have executed this Agreement,
effective on the date first above written.
GE AMERICAN COMMUNICATIONS, INC.
By: /s/ Martin C. Lafferty
---------------------------------
Name: Martin C. Lafferty
----------------------------
Title: VP, Cable Services
---------------------------
Date: July 28, 1989
----------------------------
JONES SPACE SEGMENT, INC.
By: /s/ Glenn R. Jones
---------------------------------
Name: Glenn R. Jones
----------------------------
Title: President
---------------------------
Date: July 27, 1989
----------------------------
<PAGE>
Exhibit 10.20
Portions of this exhibit have been omitted pending a determination by the
Securities and Exchange Commission that certain information contained herein
shall be afforded confidential treatment. The omitted portions are indicated
by three asterisks.
<PAGE>
TRANSPONDER LICENSE AGREEMENT
-----------------------------
THIS TRANSPONDER LICENSE AGREEMENT is made and entered into this 28
day of October, 1992, by and between Jones Space Segment, Inc., a Colorado
corporation ("Licensor"), and Deutsche Welle, a public radio and television
service ("Licensee").
RECITALS
--------
A. Licensor is leasing Transponder No. 5V, a full-time, Non-
preemptible Transponder (as defined in Article 9), on the GE American
Communications, Inc. ("GE") domestic communications satellite SATCOM IV ("C-4")
pursuant to a Satellite Transponder Service Agreement dated July 28, 1989, by
and between GE and Licensor (such agreement, as amended from time to time, the
"Transponder Service Agreement"), a copy of which is attached hereto as Exhibit
A.
B. Licensor is willing to allow Licensee to take, and Licensee
desires to so take, satellite service over C-4 Transponder No. 5V (the
"Transponder") on the terms and conditions hereinafter set forth.
AGREEMENT
---------
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements hereinafter set forth, the parties hereto do agree as
follows:
ARTICLE 1. PROVISION OF SERVICE.
---------------------
1.1 Provision of Service. Licensor hereby agrees to make the
--------------------
Transponder available on a ***
<PAGE>
*** for the purposes set forth in Section 1.2 hereof during the term of this
Agreement. Notwithstanding the foregoing, Licensee shall not have the right to
the use of two Panda 1 compatible 15KHZ subcarriers on the Transponder as
designated on Exhibit B (as described below), such subcarriers being hereby
excluded from this Agreement and reserved for use or other disposition by
Licensor. Attached hereto as Exhibit B is a Video Baseband Frequency Plan with
respect to the subcarriers on the Transponder.
1.2 Use of Transponder. Licensee shall use the Transponder for the
------------------
*** . *** shall conform to the requirements of the Communications Act of 1934,
as amended (the "Communications Act"), and rules and regulations of the Federal
Communication Commission (the "FCC") and any other governmental body having
jurisdiction with respect to the matters covered hereby. Licensee shall not make
use of the Transponder for any unlawful purpose and shall at all times comply
with all applicable laws and regulations, including the Communications Act and
the rules and regulations of the FCC. All programming shall bear the name and/or
identifying symbols of Licensee.
1.3 Transponder Service Protection. Licensee shall be entitled to
------------------------------
***
-2-
<PAGE>
*** no representation or agreement is or shall be made by Licensor with respect
to the quality, design, characteristics, performance or suitability of any such
Substitute Transponder; however, *** If a Substitute Transponder is made
available by Licensor through the Transponder Service Agreement, Licensor does
not and cannot represent that a Substitute Transponder will be a Non-preemptible
Transponder. Notwithstanding the foregoing, Licensor shall retain all right to
make any and all elections and decisions, including, but not limited to, the
elections and decisions set forth in Articles 8, 11, and 22, under the
Transponder Service Agreement; provided, however, that in the event either C-4
or the Transponder becomes Commercially Unusable and Licensor has the right to
request restored service on a Substitute Transponder pursuant to Article 11 B.
or 11 C. of the Transponder Service Agreement, ***
-3-
<PAGE>
***
ARTICLE 2. TERM.
----
2.1 Commencement Date. Licensee's use of the Transponder shall
-----------------
commence on the date GE certifies to the Licensor that the Transponder is
commercially Operational (as defined in Article 9) for customer communications
(traffic (the "Commencement Date"); provided, however, that if the Commencement
Date does not occur on or before June 30, 1993, this Agreement shall terminate
and neither party shall have any obligation to the other.
2.2 Term. The term of this Agreement (the "Term") shall commence
----
on the date hereof and, unless extended in accordance with Section 2.4 hereof,
shall terminate upon the earliest of (i) 11:59 p.m. on the day prior to the
fifth (5th) anniversary of the Commencement Date, (ii) termination in accordance
with Section 2.3 hereof, or (iii) expiration of the Transponder Service
Agreement as to the Transponder.
2.3 Termination. Notwithstanding the foregoing, (a) this Agreement
-----------
shall terminate, and neither party shall thereafter have any further obligation
to the other hereunder, at such time as the Transponder Service Agreement is
terminated with respect to C-4 or Licenser's right to use the Transponder or a
Substitute Transponder is terminated or expires (other than by reason of
Licenser's willful misconduct), and Licensor elects not to obtain a Substitute
immediately due and payable the
-4-
<PAGE>
License Fee (as defined herein) for each month remaining in the originally
scheduled five (5) year Term on and after the date of such termination, if
Licensee fails (i) to make payment of any amount due hereunder within ten (10)
business days after receiving from Licensor a notice of such nonpayment, or (ii)
to cease any other activity in violation of Licensee's obligations under this
Agreement within twenty (20) days after receiving from Licensor a notice of such
violation.
2.4 Extension of Term. During the final eighteen (18) months of the
-----------------
originally scheduled five (5) year Term, Licensor shall give consideration to
offers from, and engage in discussions with, Licensee regarding the extension of
such Term. If the parties do not reach an agreement regarding the extension of
the Term at least ninety (90) days prior to the fifth (5th) anniversary of the
Commencement Date, Licensor shall have no further obligation to consider offers
from, or engage in discussions with, Licensee regarding any extension of this
Agreement.
ARTICLE 3. PAYMENTS.
---------
3.1 License Fee. For each month of the Term, Licensee agrees to pay
-----------
to Licensor, in advance, a fee of U.S. *** (the "License Fee"). The License Fee
includes payment for the Turnaround Service (as defined in Article 4 hereof). If
the Commencement Date is' a day other than the first day of a month, or this
Term ends on a day other than the last day of a month, the License Fee for such
month shall be pro-rated to reflect the actual number of days (on and after such
beginning
-5-
<PAGE>
day, or on and before such termination day, as the case may be) during which the
Transponder was made available for use by Licensee in such month. In the event
Licensor provides Licensee with a Substitute Transponder pursuant to the
Transponder Service Agreement, the License Fee will be adjusted on a dollar for
dollar basis for any increase or decrease in the fee payable by Licensor to GE
for such Substitute Transponder. For example, if Licensor must pay $5000 more
per month for a Substitute Transponder, the License Fee shall be increased by
$5000 per month. Likewise, if Licensor must pay $5000 less per month for a
Substitute Transponder under the Transponder Service Agreement, the License Fee
shall be reduced by $5000 per month. In addition, Licensee shall pay promptly
when due, or reimburse Licensor promptly on demand for, any taxes, duties or
other fees assessed or payable with respect to the taking and/or use of
Transponder services, including any privilege or excise taxes based on gross
revenues and all charges imposed by governmental authorities, including the FCC.
3.2 Security Deposit. Licensee shall pay to Licensor upon the
----------------
execution and delivery of this Agreement by the parties hereto a security
deposit in the amount of U.S. *** which deposit shall be applied to the
License Fee payable for the final three (3) months of the Term.
3.3 Credits for Interruptions or Outages. If and only if Licensor
------------------------------------
receives a credit from GE due to an Interruption (as defined in Article 9
hereof), Licensee shall be entitled to a credit against the License Fee, which
credit shall be calculated
-6-
<PAGE>
in accordance with this Section. The length of the Interruption shall be
measured from the time Licensor notifies GE of the Interruption. Licensor shall
promptly pass on to GE any notice of an Interruption it receives from Licensee.
(a) Credit for Interruptions will be allowed as follows:
<TABLE>
<CAPTION>
Length of Interruption Credit
- ---------------------- ------
<S> <C>
Less than 15 minutes ***
15 mins. up to but not including 3 hours ***
3 hrs. up to but not including 6 hours ***
6 hrs. up to but not including 9 hours ***
9 hrs. up to but not including 12 hours ***
12 hrs. up to but not including 15 hours ***
15 hrs. up to 24 hrs. inclusive ***
</TABLE>
Two or more Interruptions of fifteen (15) minutes or more, during any period up
to but not including three (3) hours, shall be considered as one Interruption.
No more than one full day's credit will be allowed for any period of twenty-four
(24) hours.
(b) If the License Fee is adjusted pursuant to Section 3.1 as a result
of a Substitute Transponder, the credit will be adjusted likewise. The amount
of the credit will be determined by calculating the daily amount of the increase
or decrease in the License Fee (the "Daily Adjustment" or "DA") assuming a
thirty (30) day month. The proportionate part of the Daily Adjustment which
corresponds to the Interruption shall be added to or subtracted from (depending
on whether the License Fee was increased or decreased) the credit amount set
forth in (a) above as follows:
-7-
<PAGE>
<TABLE>
<CAPTION>
Length of Interruption Credit
- ---------------------- ------
<S> <C>
Less than 15 minutes ***
15 mins. up to but not including 3 hours ***
3 hrs. up to but not including 6 hours ***
6 hrs. up to but not including 9 hours ***
9 hrs. up to but not including 12 hours ***
12 hrs. up to but not including 15 hours ***
15 hrs. up to 24 hrs. inclusive ***
</TABLE>
(c) An allowance will not be made for any disruption in service,
including an Interruption, which is a result of, or attributable in whole or in
primary part, to:
(i) Deutsche Welle's negligence or willful acts, or the negligence
or willful acts of its officers, directors, agents, employees, subsidiaries,
parents, affiliates; customers and viewers or any of them;
(ii) the failure of the Turnaround Service, except as provided in
Section 3.4; or
(iii) the failure of the Intelsat-K transmission.
3.4 Credits for Outages of the Turnaround Service. Any agreement with
---------------------------------------------
a Turnaround Service provider shall contain a provision for a credit for a
disruption in the Turnaround Service. If and only if Licensor receives a credit
from the provider of the Turnaround Service due to a failure or disruption of
the Turnaround Service, Licensee shall be entitled to a credit against the
portion of the License Fee which the Licensor must pay to the Turnaround Service
provider. The length of the disruption shall be measured from the time Licensor
notifies the provider of the Turnaround Service of the disruption. Licensor
shall promptly pass on to the Turnaround Service provider any
-8-
<PAGE>
notice of a disruption in service it receives from Licensee. The amount of the
credit will be determined by calculating the daily cost of the Turnaround
Service assuming a thirty (30) day month. Credit will be given on a portion of
such daily cost as follows:
<TABLE>
<CAPTION>
Length of Disruption Credit
- -------------------- --------
<S> <C>
Less than 15 minutes ***
15 mins. up to but not including 3 hours ***
3 hrs. up to but not including 6 hours ***
6 hrs. up to but not including 9 hours ***
9 hrs. up to but not including 12 hours ***
12 hrs. up to but,not including 15 hours ***
15 hrs. up to 24 hrs. inclusive ***
</TABLE>
Two or more disruptions of fifteen (15) minutes or more, during any period up to
but not including three (3) hours, shall be considered as one disruption. No
more than one full day's credit will be allowed for any period of twenty-four
(24) hours. As soon as Licensor enters into a signed agreement with a
Turnaround Service provider, Licensor shall provide Licensee with a credit
schedule as set forth above with dollar amounts included.
3.5 Payments. All payments made by Licensee hereunder shall be made
--------
to Licensor at its principal place of business, as designated in Section
10.11(b) hereof, by cashier's or certified check payable in U.S. currency, or
shall be made by wire transfer of immediately available funds to such account as
Licensor shall designate and shall be deemed to be made only upon receipt by
Licensor of collected funds.
3.6 Late Payment. If Licensor has not received all
------------
of the License Fee from Licensee on the date that such License Fee is due, then
the overdue amount shall be subject to a delinquency charge at the rate of one
and one-half percent (1.5%)
-9-
<PAGE>
per month, compounded monthly, on such overdue amount from the date such overdue
amount was originally due until the date it is actually received by Licensor.
Licensee acknowledges that such delinquency charges are reasonable under all the
circumstances existing at the time at which this Agreement is entered into by
Licensor and Licensee. Licensee agrees that acceptance of all or any portion of
any such delinquency charge by Licensor shall in no event constitute a waiver by
Licensor of Licensee's default with respect to such overdue amount nor shall it
prevent Licensor from exercising any or all other rights or remedies it may
have.
ARTICLE 4. TURNAROUND SERVICE.
-------------------
4.1 Turnaround Service. Licensor shall arrange for the reception of
------------------
the Licensee's signal from Intelsat-K satellite and the subsequent uplinking to
C-4 (the "Turnaround Service"). The Licensor shall use all reasonable efforts to
make the permanent facilities for the Turnaround Service available on the
Commencement Date or as soon thereafter as possible, and such facilities shall
in any event be available no later than forty-five (45) days after the date of
this Agreement. Licensor shall pay any and all charges relating to the
Turnaround Service that are imposed by the FCC, which charges shall then be
reimbursed by Licensee upon invoice by Licensor. The Turnaround Service shall
be performed by Licensor or an affiliate of Licensor at a site either owned or
leased by Licensor or an affiliate of Licensor, or by GE or other third party,
in the discretion of Licensor. If the Turnaround Service is performed by a
third party, Licensor shall require such party to agree to perform the
Turnaround
-10-
<PAGE>
Service in accordance with all of the terms and conditions of this Agreement.
In all events, the Turnaround Service shall be performed by a licensed operator
and the reception of the Intelsat-K signal and the uplinking to C-4 shall, with
all audio subcarriers removed, meet EIA RS-250-C satellite specifications, a
copy of which is attached hereto as Exhibit C; provided, however, that the
percentage availability (as defined in Exhibit C) shall be 99.95% percent and
not 99.99%. Licensee and Licensor acknowledge that use of the Transponder's
subcarriers by Licensee and Licensor may cause such reception and uplink to fail
to meet such specifications. Licensee and Licensor agree that any such failure
due in whole or in part to such use shall not constitute a breach of this
Agreement by Licensor and the parties shall work together to minimize any
disruption caused by the use of the subcarriers In addition, Licensee
acknowledges that its sole remedy for any disruption in the Turnaround Service
is as set forth in Section 3.4; however, if the Turnaround Service is not
provided for any period of five consecutive days during the term of this
Agreement for any reason other than (i) the failure of the Intelsat-K
transmission or (ii) Deutsche Welle's negligent or willful acts or the negligent
or willful acts of its officers, directors, agents, employees, subsidiaries,
parents, affiliates, customers and viewers or any of them, Licensor shall use
its best efforts to provide the Turnaround Service as soon thereafter as is
reasonably practicable, which efforts shall include arranging for the use of
alternative facilities for the Turnaround Service. Licensor or any other
provider of the Turnaround Service shall
-11-
<PAGE>
not alter, scramble or encrypt the programming transmitted by Licensee on the
Transponder.
ARTICLE 5. REPRESENTATIONS AND WARRANTIES OF
LICENSOR AND LICENSEE.
---------------------------------
Licensor and Licensee each represents and warrants to, and agrees with
the other that:
5.1 Authority. It has the right, power and authority to enter into,
---------
and perform its obligations under, this Agreement.
5.2 Action. It has taken all requisite action to approve the
------
execution, delivery and performance of this Agreement, and this Agreement
constitutes a legal, valid and binding obligation enforceable against it in
accordance with its terms.
5.3 Consents. The execution, delivery and performance by it of its
--------
obligations hereunder and the consummation of the transactions contemplated
hereby will not result in a material violation of, or material default under, or
constitute the occurrence of an event which would constitute a material default
under, or material noncompliance with, any applicable law, any indenture,
mortgage, deed of trust, loan agreement or other agreement or instrument to
which it is a party or by which it or any material portion of its property is
bound, its articles of incorporation or by-laws or other charter documents, as
the case may be, or any order, rule or regulation of any court or governmental
agency or body having jurisdiction over it or any of its properties.
-12-
<PAGE>
5.4 No Broker. It has not entered into any agreement or incurred any
---------
obligations or liabilities, contingent or otherwise, for brokerage or finder's
fees or agent's commission or other like payment in connection with this
Agreement or the transactions contemplated hereby, and it is not otherwise
obligated to pay such a fee or commission or to make such a payment. Each party
hereto agrees to indemnify and hold the other hereto harmless against and in
respect of any breach by it of the provisions of this Section 5.4.
ARTICLE 6. LIMITATION OF LIABILITY.
------------------------
6.1 Remedies. Licensor shall be liable for direct damages or losses
--------
with respect to its performance hereunder, including the Turnaround Service,
only when such damages or losses are due solely to Licenser's willful
misconduct; provided, however, in no event shall Licensor be liable for an
amount in excess of the License Fee paid to Licensor hereunder.
6.2 Limitation of Liability. IT IS EXPRESSLY AGREED
-----------------------
THAT LICENSER'S SOLE OBLIGATIONS, AND LICENSEE'S EXCLUSIVE REMEDIES, FOR ANY
CAUSE WHATSOEVER ARISING OUT OF OR RELATING TO THIS AGREEMENT AND/OR THE
TRANSACTIONS PROVIDED FOR HEREIN OR CONTEMPLATED HEREBY, REGARDLESS OF WHETHER
OCCASIONED BY LICENSER'S NEGLIGENCE, ARE LIMITED TO THOSE SET FORTH IN SECTIONS
2.3 AND 3.3 HEREOF AND IN THIS ARTICLE 6, AND ALL OTHER REMEDIES OF ANY KIND ARE
EXPRESSLY EXCLUDED. In no event shall Licensor be liable for any special,
indirect, incidental or consequential damages (including, but not limited to,
lost profits), regardless of the foreseeability thereof. In addition,
-13-
<PAGE>
Licensor shall have no liability for any damages occasioned by (a) any defect in
the Transponder or C-4, (b) any failure of the Transponder or C-4 to perform, or
(c) any fault of Licensee or of any third party.
6.3 Disclaimer of Warranties. EXCEPT AS SET FORTH HEREIN, LICENSOR
------------------------
DOES NOT MAKE ANY REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, TO THE
LICENSOR OR ANY OTHER PERSON OR ENTITY CONCERNING THE TRANSPONDER, C-4, ANY
SUBSTITUTE TRANSPONDER OR OTHERWISE, INCLUDING, BUT NOT LIMITED TO, WARRANTIES
OF MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OR USE.
6.4 Indemnification. Licensee shall defend and indemnify Licensor
---------------
and/or GE from any claims, liabilities, losses, costs, or damages, including
attorneys fees and costs, (a) arising out of any misrepresentation, breach of
warranty, or nonfulfillment of any agreement or covenant on the part of Licensee
under this Agreement, (b) caused by the fault or negligence of Licensee, (c)
arising under a warranty, representation, or statement by Licensee to any third
party in connection with transmissions over C-4, or (d) with respect to the
Transponder, any libel, slander, infringement of copyright, patents and other
intellectual property rights, or breach in the privacy or security of
transmissions by Licensee. The limitations of liability set forth herein shall
apply to, and the indemnification's set forth herein shall run in favor of,
Licensor and all affiliates of Licensor and GE and all affiliates of GE.
6.5 Limitation of Remedies Against Arianespace. Licensee acknowledges
------------------------------------------
that pursuant to the Transponder Service
-14-
<PAGE>
Agreement, Licensor has no right of action against Arianespace, a French
company, responsible for launching C-4 and Licensor is obligated to indemnify
Arianespace and its customers in the event Licenser's associates assert claims
as a result of the launch services. Therefore, Licensee hereby agrees that it
shall have no right of action against Arianespace, other customers of
Arianespace ("third party customers") or their respective associates, for
damages for bodily harm and damage to property suffered by Licensee resulting
from the performance of the Ariane launch services agreement between GE and
Arianespace. Licensee further irrevocably agrees to a no-fault, no-subrogation
waiver of liability and waives the right to make any claims or to instigate any
judicial proceedings in connection with such claims against Arianespace, the
third party customers of Arianespace or their associates. In the event that one
or more associates of Licensee shall proceed against Arianespace, the third
party customers or their associates as a result of bodily harm or property
damage caused by Arianespace, the third party customers or their associates
resulting from the performance of the Ariane launch services agreement by such
named parties, Licensee shall indemnify, hold harmless, dispose of any such
claim and defend when not contrary to the governing rules of procedure where the
action takes place, Licensor, Arianespace, such third party customers and their
associates from any loss, damage, liability of expense, including attorney's
fees, on accounts of such damage or injury, and shall pay all expenses and
satisfy all judgments which may be incurred by or rendered against said
indemnities.
-15-
<PAGE>
As used herein, the term "associates" means individuals or legal entities which
act, directly or indirectly, on behalf of or at the direction of an entity to
fulfill the obligations of that entity, including the entity's employees,
suppliers and subcontractors.
ARTICLE 7. FORCE MAJEURE.
--------------
Neither party shall be liable to the other and no party shall be
deemed in default hereunder for any failure of or delay in the performance of
any of its covenants, agreements or obligations (other than the payment of
amounts due hereunder, subject to Sections 3.3 and 3.4), caused by or arising
out of any of the following conditions of force majeure: disaster, labor
disturbances, shortage of labor or equipment beyond the reasonable control of
such party, strikes, lockouts, other industrial disturbances, acts of God, acts
of a public enemy, war, blockade, riot, insurrection, lightning, fire, storm,
flood, inclement weather, explosion, the need to comply with any law or any
rule, order, regulation or direction of any government, including state and
local governments, having jurisdiction over either party, or of any department,
agency, commission, bureau, court or other instrumentality thereof, or of any
civil or military authority, or on account of any eventualities or conditions,
whether enumerated or not, beyond the reasonable control of such party;
'provided, however, that a loss or Interruption of the Transponder or a
Substitute Transponder shall be governed by Sections 1.3, 2.3 and 3.3 and a
disruption of the Turnaround Service shall be governed by Sections 3.4 and 4.1.
-16-
<PAGE>
The party affected by any condition of force majeure as described in
this Article shall promptly notify the other party in writing and hereby agrees
to use reasonable diligence to remove any such condition of force majeure as may
occur from time to time. No right of a party shall be affected for failure or
delay of that party to meet any condition of this Agreement where such failure
or delay is caused by a condition of force majeure as defined herein, and such
party shall be excused from. performance of any obligation affected by such
condition of force majeure during the period required to overcome the delay; and
the time limits provided in this Agreement to meet any condition affected by
force majeure shall be deemed and treated as extended for a period commensurate
with the delay caused by force majeure; provided, however, nothing contained
herein shall extend the Term or require the settlement of strikes, lockouts, or
other labor difficulties by the party affected contrary to its wishes, and the
disposition or manner of handling or remedying any and all such labor
difficulties is hereby expressly acknowledged to be entirely within the
discretion of the party concerned.
ARTICLE 8. CONFIDENTIALITY.
----------------
8.1 Confidentiality. Each party agrees to hold in strict confidence
---------------
the information contained in this Agreement and any information obtained
pursuant to the performance by it of the agreements and obligations contained
herein or the transactions contemplated hereby, and each party hereby
acknowledges and agrees that all such information, including, without
limitation, information regarding the other party, GE and/or their respective
-17-
<PAGE>
affiliates, and all information related to the design and performance
characteristics of C-4 and any subsystems or components thereof including the
transponders, not otherwise known to the public, is confidential and proprietary
and is not to be disclosed to third persons without the prior written consent of
the party owning such information and shall not be used by the other party other
than as contemplated hereunder. Without limiting the generality of the
foregoing, neither party shall disclose to any person, including independent
auditors, legal counsel, lenders and agents, any of the prices, payment terms
and other material terms of this Agreement except:
(a) to the extent necessary to comply with law or regulations
promulgated thereunder, the valid order of a governmental agency or court
of competent jurisdiction, or the rules of an established stock exchange or
in connection with any placement of securities or filing or report under
state or federal securities laws or regulations, provided that, in the
opinion of counsel for such party, disclosure is required, and further
provided that such disclosing party shall have given the other party notice
prior to such disclosure, to the extent reasonably and legally possible,
and shall seek confidential treatment of such information;
(b) as part of its normal reporting or review procedure to its
parent company, its auditors and its attorneys and it lenders;
(c) to the extent necessary to obtain appropriate insurance, to
its insurance agent, provided
-18-
<PAGE>
that, prior to such disclosure, such agent shall be advised in writing of
the confidentiality of the information disclosed to it and, if requested by
the owner of such information, such agent shall execute a confidentiality
agreement with the disclosing party reasonably acceptable to the owner of
such information with respect to the information to be disclosed; and
(d) in order to enforce its rights and perform its obligations
pursuant to this Agreement.
8.2 GE Confidential Information. Licensee acknowledges that all
---------------------------
information provided to it related to the design and performance characteristics
of the C-4, and any subsystems or components thereof, including the Transponder,
is confidential and proprietary and may not be disclosed to third persons,
without the prior written consent of GE except if the conditions set forth in
Section 8.1(a) above are applicable.
8.3 Press Releases. Neither party shall make any announcement, press
--------------
release or public statement relating in any manner to the Agreement or the
parties' operations under this Agreement without first furnishing the proposed
text thereof to the other party and obtaining the other party's approval in
writing, which approval shall not be unreasonably withheld; provided, however,
that no such written approval shall be required when public disclosure by either
party may be required, in the judgment of such party's counsel, by law or
regulations promulgated thereunder, judicial order or similar pronouncement, the
rules of an established stock exchange or in connection with
-19-
<PAGE>
any placement of securities or filing or report under state or federal
securities laws or regulations. Whenever practicable, such announcements, press
releases and public statements shall be issued jointly by the parties.
Notwithstanding any other provision of this Agreement, the obligations of this
Section 8 shall continue after termination of this Agreement.
ARTICLE 9. DEFINITIONS.
------------
9.1 "Commercially Operational" means capable of carrying audio and
video including associated audio traffic with the parameters as described in the
Transponder Performance Specifications and which is not Commercially Unusable.
9.2 "Commercially Unusable" means a condition in which C-4 so fails
to conform to its design specifications or the Transponder so fails to conform
to the Transponder Performance Specifications as to render use of C-4
impractical in the exercise of reasonable business judgment or preclude use of
the Transponder for its intended purpose.
9.3 "Interruption" means any period during which the Transponder or a
Substitute Transponder fails to meet the Transponder Performance Specifications
and such circumstances preclude use of the Transponder for its intended purpose.
9.4 "Non-preemptible Transponder" means a Transponder that (i) may
not be preempted under the Transponder Service Agreement to restore a
Transponder which becomes Commercially Unusable or to satisfy other customers of
GE and (ii) is fully protected under the Transponder Service Agreement in that
GE is obligated to make Substitute Transponders available
-20-
<PAGE>
to Licensor in the event the Transponder becomes Commercially Unusable to the
extent such substitutes are available and subject to the rights of other parties
who have priority over Licensor.
9.5 "Substitute Transponder" means any Transponder other than the
Transponder (which may be a Transponder on a satellite other than C-4) made
available to Licensee pursuant to the Transponder Service Agreement or
otherwise.
9.6 "Transponder Performance Specifications" means the specifications
attached hereto as Exhibit D.
ARTICLE 10. MISCELLANEOUS.
--------------
10.1 Limitation on Rights: Independent Contractors. Licensee agrees
---------------------------------------------
that it shall have no rights with respect to the Transponder except as are
expressly granted hereunder and that in no event shall such rights be greater
than the rights of Licensor under the Transponder Service Agreement. The
relationship between the parties shall be that of independent contractors.
Nothing in this Agreement shall be construed to create a partnership or joint
venture or authorize one party to act as agent for the other.
10.2 Entire Agreement; Amendment; and Waiver. This Agreement and all
---------------------------------------
attachments hereto constitute the entire agreement between the parties, are
intended as the complete and exclusive statement of the terms of the agreement
between the parties, and supersede all previous or contemporaneous
understandings, commitments or representations concerning the subject matter
hereof. The parties each acknowledge that the other party has not made any
representations or warranties other
-21-
<PAGE>
than those which are contained herein. This Agreement may not be amended or
modified in any way, and none of its provisions may be waived, except by a
writing signed by an authorized officer of the party against whom the amendment,
modification or waiver is sought to be enforced. No such waiver shall
constitute a continuing waiver of similar or other breaches. A waiving party
may at any time, upon notice given in writing to the breaching party, direct
future compliance in accordance with the terms of this Agreement, in which event
the breaching party shall comply as directed from such time forward.
10.3 Assignment. Prior to any Transfer (as defined below) of this
----------
Agreement, the transferring party shall discuss the proposed Transfer with the
other party and obtain the express written consent of the other party, which
consent shall not be unreasonably withheld. "Transfer" shall mean to grant,
sell, assign, encumber, permit the utilization of, license, sublease or
otherwise convey, directly or indirectly, in whole or in part. Any purported
Transfer by either party not in compliance with the terms of this Agreement
shall be null and void and of no force and effect.
10.4 No Third-Party Beneficiary. The provisions of this Agreement
--------------------------
are for the benefit only of the parties hereto, and no third party may seek to
enforce, or benefit from, these provisions.
10.5 Benefits and Obligations. Subject to Section 10.3, all
------------------------
provisions of this Agreement shall be binding upon, inure to the benefit of and
be enforceable by and against
-22-
<PAGE>
the parties hereto, their permitted successors and permitted assigns.
10.6 Counterparts. This Agreement may be executed in several
------------
counterparts, each of which when so executed shall be considered as an original
and all of which together shall constitute one agreement.
10.7 Captions. The captions at the beginning of the Sections of this
--------
Agreement are not a part of this Agreement but merely labels to assist in the
locating and reading of those paragraphs and shall be ignored in construing this
Agreement.
10.8 Further Performance. Each of the parties hereto agrees to
-------------------
execute and deliver any further instruments and documents and perform acts which
are or may be necessary to carry out the purposes of this Agreement.
10.9 Survival of Representations and Warranties. All representations
------------------------------------------
and warranties contained herein or made by Licensor or Licensee in connection
herewith shall survive any independent investigation made by Licensee or
Licensor.
10.10 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY THE
-------------
INTERNAL LAWS OF THE STATE OF COLORADO.
10.11 Notices.
--------
(a) Notice of Interruptions, or of other technical or
operational matters requiring immediate attention, may be given by telephone.
Licensor will designate a point or points of contact where Licensee may call on
a 7 day-a-week, 24 hour-a-day basis. Any notice given verbally will be confirmed
in
-23-
<PAGE>
writing as soon as practicable thereafter pursuant to the procedures set out in
Section 10.11(b).
(b) All notices and other communications required or permitted to be
given hereunder shall be in writing and shall be deemed received when actually
received if personally delivered, when receipt is electronically confirmed if
sent by telecopy, or upon the expiration of the fifth business day after being
deposited in the mail, postage prepaid, certified or registered mail, return
receipt requested, addressed to the other party as follows:
If to Licensor:
Jones Space Segment, Inc.
9697 East Mineral Avenue
Englewood, Colorado 80112
Attention: President
Fax No.: (303) 799-1644
with a copy to:
Elizabeth M. Steele, Esq.
Vice President and General Counsel
The Mind Extension University, Inc.
9697 East Mineral Avenue
Englewood, Colorado 80112
Fax No.: (303) 799-1644
If to Deutsche Welle:
Deutsche Welle
Raderberggurtel 50
5000 Kbln 51
Germany
Attention: Dieter Weirich
Fax No.: (0221) 389-3000
or to such other address or addresses as may hereafter be specified by notice
given by any of the above to the others.
10.12 Severability. Each provision of this Agreement shall be
------------
considered severable and if for any reason any provision
-24-
<PAGE>
of this Agreement is determined to be invalid, such invalidity shall not impair
the operation or affect other provisions of this Agreement.
10.13 Taxes. Licensee is solely responsible for any taxes, charges
-----
or levies which may be asserted by any local, state, national or international,
public or quasi-public governmental entity solely as a result of the
transmission of signal via the Transponder.
IN WITNESS WHEREOF, the parties hereto have executed this Transponder
License Agreement on the date first above written.
JONES SPACE SEG
By:/s/ GLENN R. JONES
---------------------------
Title: C.E.O.
-----------------------
DEUTSCHE WELLE
By:/s/ SIGNATURE APPEARS HERE
----------------------------
Title: J.G.
------------------------
-25-
<PAGE>
EXHIBIT 10.21
Tax Allocation Agreement
------------------------
Whereas it is the policy of Jones International, Ltd. ("JI") and its qualifying
subsidiaries, presently consisting of those companies listed in Exhibit A, to
file consolidated U. S. income tax returns and selected consolidated state
income tax returns, and whereas it is therefore desirable to provide for an
appropriate allocation of the consolidated tax liabilities (benefits) among JI
and its subsidiaries, the undersigned hereby agree that:
1. For purposes of the computation of tax liability in this Section and the
computation of tax reduction in Section (2), the taxable income or loss
of each member of the consolidated tax group in which JI owns shares
directly ("JI Subsidiary") shall first be combined with the taxable
income or loss of the subsidiaries of such JI Subsidiary. The combined
taxable income or loss of these companies shall be treated as arising
form the JI Subsidiary in the computation of tax liability and tax
reduction. The separate income or loss of the companies which are
subsidiaries of the JI Subsidiary shall not be otherwise used for
purposes of computations under this agreement. Any payments required
from or to such subsidiaries are the responsibility of the JI subsidiary
and not that of JI.
If a consolidated income tax return is filed, the income of each JI
Subsidiary with taxable income in such taxable year will be totalled and
income tax will be computed thereon. For this purpose, net operating
loss carryforwards of the JI Subsidiary shall first be utilized to
offset current year taxable income of such JI Subsidiary. Such offset
shall be prior to utilization of current year losses or net operating
losses by any other JI Subsidiary as described in Section 2 of this
Agreement. In addition, such offset shall reduce the amount of net
operating losses of such JI Subsidiary available to be utilized as
described in Section 2 of this Agreement.
If a JI Subsidiary shall generate a tax credit (or has an amount of tax
credit carryforward from prior taxable years), such credit may be
utilized to offset the amount of tax liability as computed in this
Section, but only if and to the extent that such credit can be utilized
in the current year consolidated tax return.
Each JI Subsidiary with taxable income will pay to JI an amount equal to
the tax liability computed per above as multiplied by the ratio of such
JI Subsidiary's taxable income to total taxable income as determined for
purposes of this computation. Recognition shall be given to any
component of taxable income (e.g. long-term capital gain) which would be
taxed at a different rate than other taxable income.
2. If the aggregate of the consolidated tax liability allocated to the
members of the consolidated group in Section (1) is more than the actual
consolidated tax liability, the JI Subsidiary to whom such tax reduction
is attributable shall receive credit for such tax reduction and shall
receive payment, if any, as provided by Section (5) herein. To the
extent that JI Subsidiaries generate tax attributes which cannot be
totally utilized in the current consolidated tax return or by carryback
to prior tax years (e.g. unused investment tax credit and net operating
losses), the portion of these attributes for which tax benefits are
currently realized shall be apportioned among the appropriate JI
Subsidiaries on a pro-rata basis.
3. The payments to JI, as provided in Section (1), will be made in
appropriate installments on the dates payments would be required to be
made to the appropriate taxing authorities on a consolidated basis.
<PAGE>
4. JI will be responsible for filing all consolidated Federal income tax
returns and consolidated and/or unitary state income tax returns (where
allowed by applicable law and elected by parent), and for timely
submitting to the appropriate taxing authorities all tax payments due in
connection with such consolidated returns.
5. If the tax attributes of a JI Subsidiary generate a tax reduction as
discussed in Section (2), JI shall have the option to make a payment
equal to such tax reduction or allow the JI Subsidiary a credit against
any amounts payable to JI by such JI Subsidiary, or to defer such
payment until a subsequent taxable period in which the JI Subsidiary
generates taxable income and has a tax payment due either to JI under
the provisions of Section (3) above, or to a Federal or state taxing
authority.
Any deferred amounts will be due and payable no later than five years
from the date the deferred amount originated (90 days after the
consolidated tax return was filed). In addition, such deferred amounts
will accrue interest at Central Bank of Denver's prime rate in effect at
the time the deferred amount originates.
Once a JI Subsidiary has received credit for a tax reduction, it may not
thereafter use the tax attribute giving rise to such reduction for
purposes of any computation under the terms of this agreement.
6. In the event the consolidated tax liability is subsequently adjusted by
the Internal Revenue Service or otherwise, adjustments of tax liability,
credits and interest will be made as they affect qualifying JI
Subsidiaries.
7. The parties to this Agreement recognize that from time to time other
companies may become members of the JI consolidated group. The parties
agree that such new members may become parties to the Agreement by
executing the master copy of the Agreement maintained by JI. This
agreement shall apply only if a corporation is a member of the JI
consolidated group. Therefore, the provisions of this agreement shall
apply to new members effective with the date on which they become
members of the consolidated group. For corporations which "drop out" of
the consolidated group, the provisions of this agreement shall apply
until the date on which the corporation is no longer a member of the
consolidated group.
8. This Agreement, as may be amended from time to time, shall be applicable
to the consolidated income tax returns for the year ended May 31, 1992,
except for Section (5) paragraph (2), which shall be applicable
retroactively for fiscal years ended May 31, 1990 and May 31, 1991.
9. Failure of one or more parties hereto to continue as members of the JI
consolidated group shall not operate to terminate this Agreement with
respect to the other parties so long as two or more parties thereto
continue to so quality.
10. This agreement shall bind and inure to the respective successors and
assigns of the parties hereto, but no assignment shall relieve any
party's obligations hereunder without the written consent of all of the
other parties to this agreement.
Dated: As of August 28, 1992
<PAGE>
Exhibit A
<TABLE>
<CAPTION>
Company Name Parent Company FEIN Signed By
- ------------ -------------- ---- ---------
<S> <C> <C> <C>
Jones International, Ltd. N/A 84-0595284 /s/ CARL E. VOGEL
-----------------
Title
Jones Capital Markets, Inc. Jones International 84-1036206 /s/ CARL E. VOGEL
-----------------
Title
Jones Future Foundation, Ltd. Jones International 84-0852893 /s/ CARL E. VOGEL
-----------------
Title
Data Transmission, Inc. Jones International 84-0590637 /s/ CARL E. VOGEL
-----------------
Title
Jones International Securities, Ltd. Jones International 84-0902116 /s/ CARL E. VOGEL
-----------------
Title
Jones Properties, Inc. Jones International 84-0904040 /s/ CARL E. VOGEL
-----------------
Title
Jones Information Management, Inc. Jones International 84-0896219 /s/ CARL E. VOGEL
-----------------
Title
Jones Banana Network, Inc. Jones International 84-1152850 /s/ CARL E. VOGEL
-----------------
Title
Jones Marina Properties, Inc. Jones International 84-1089624 /s/ CARL E. VOGEL
-----------------
Title
Jones International Spanish Investments, Inc. Jones International 84-1124862 /s/ CARL E. VOGEL
-----------------
Title
Jones Programming Services, Inc. Jones International 84-1122297 /s/ CARL E. VOGEL
-----------------
Title
Cable Ads, Ltd. Jones International 84-0916671 /s/ CARL E. VOGEL
-----------------
Title
Jones Space Segment, Inc. Jones International 84-1074015 /s/ CARL E. VOGEL
-----------------
Title
Jones Earth Segment, Inc. Jones International 84-1092471 /s/ CARL E. VOGEL
-----------------
Title
Jones Galactic Sound, Inc. Jones International 84-1150630 /s/ CARL E. VOGEL
-----------------
Title
Jones Universal Robots, Inc. Jones International 84-1093890 /s/ CARL E. VOGEL
-----------------
Title
Jones 21st Century, Inc. Jones International 84-1064019 /s/ CARL E. VOGEL
-----------------
Title
Jones 21st Century Productions, Inc. Jones 21st Century, Inc. 84-1116661 /s/ CARL E. VOGEL
-----------------
Title
Jones Entertainment Group, Ltd. Jones 21st Century, Inc. 84-1093892 /s/ CARL E. VOGEL
-----------------
Title
Jones Universal Music, Inc. Jones Entertainment 84-1152851 /s/ CARL E. VOGEL
Group, Ltd. -----------------
Title
Jones Education Network, Inc. Jones International 84-1150623 /s/ CARL E. VOGEL
-----------------
Title
The Mind Extension University, Inc. Jones Education 84-0960447 /s/ CARL E. VOGEL
Network, Inc. -----------------
Title
Jones Satellite Holdings, Inc. The Mind Extension Applied for /s/ CARL E. VOGEL
University, Inc. -----------------
Title
The Mind Extension Regional Network, Inc. Jones Education 84-1157433 /s/ CARL E. VOGEL
Network, Inc. -----------------
Title
The Mind Extension Institute, Inc. Jones Education 84-1152849 /s/ CARL E. VOGEL
Network, Inc. -----------------
Title
</TABLE>
<PAGE>
Exhibit A (cont.)
<TABLE>
<CAPTION>
Company Name Parent Company FEIN Signed By
- ------------ -------------- ---- ---------
<S> <C> <C> <C>
The Business Learning Group, Inc. The Mind Extension 84-1150626 /s/ CARL E. VOGEL
Institute, Inc. -----------------
Title
Jones Lightwave, Ltd. Jones International 84-1093893 /s/ CARL E. VOGEL
-----------------
Title
Jones Lightwave of Atlanta, Inc. Jones Lightwave, Ltd. 84-1140618 /s/ CARL E. VOGEL
-----------------
Title
Jones Lightwave of Denver, Inc. Jones Lightwave, Ltd. 84-1167962 /s/ CARL E. VOGEL
-----------------
Title
Jones Lightwave of Tampa, Inc. Jones Lightwave, Ltd. 84-1159059 /s/ CARL E. VOGEL
-----------------
Title
Jones Lightwave of Chicago, Inc. Jones Lightwave, Ltd. 84-1184734 /s/ CARL E. VOGEL
-----------------
Title
Starsearch, Ltd. Jones International 84-0885424 /s/ CARL E. VOGEL
-----------------
Title
Jones Spacelink, Ltd. Jones International 84-0835095 /s/ CARL E. VOGEL
-----------------
Title
Jones Spacelink Funds, Inc. Jones Spacelink 84-1035500 /s/ CARL E. VOGEL
-----------------
Title
Jones Spacelink Management, Inc. Jones Spacelink 84-1035499 /s/ CARL E. VOGEL
-----------------
Title
Spacelink of Texas, Inc. Jones Spacelink 84-0914799 /s/ CARL E. VOGEL
-----------------
Title
Jones Spacelink of Hawaii, Inc. Jones Spacelink 84-1094100 /s/ CARL E. VOGEL
-----------------
Title
Jones Spacelink Cable Corporation Jones Spacelink 84-1111358 /s/ CARL E. VOGEL
-----------------
Title
Jones Spacelink Spanish Investments, Inc. Jones Spacelink 84-1117191 /s/ CARL E. VOGEL
-----------------
Title
Jones Futurex, Inc. Jones Spacelink 84-0882394 /s/ CARL E. VOGEL
-----------------
Title
The Jones Group, Ltd. Jones Spacelink 84-0913206 /s/ CARL E. VOGEL
-----------------
Title
Jones Galactic Radio, Inc. Jones Spacelink 84-1064021 /s/ CARL E. VOGEL
-----------------
Title
Jones Satellite Audio, Inc. Jones Galactic 84-1152848 /s/ CARL E. VOGEL
Radio, Inc. -----------------
Title
Jones Galactic Radio Partners, Inc. Jones Galactic 84-1150629 /s/ CARL E. VOGEL
Radio, Inc. -----------------
Title
Jones Spacelink Opportunities, Inc. Jones Spacelink 84-1174343 /s/ CARL E. VOGEL
-----------------
Title
Jones Spacelink Acquisition Corporation Jones Spacelink 84-1162042 /s/ CARL E. VOGEL
-----------------
Title
</TABLE>
<PAGE>
EXHIBIT 10.22
EXCHANGE AGREEMENT
------------------
THIS EXCHANGE AGREEMENT is made as of the 30th day of September, 1996, by
and between GLENN R. JONES ("Jones"), JONES INTERNATIONAL, LTD ("JI"), a
Colorado corporation (collectively with Jones, the "Sellers"), and JONES
INTERNATIONAL NETWORKS, LTD, a Colorado corporation ("Buyer").
RECITALS
--------
A. Sellers own all of the issued and outstanding shares (the "Shares") of
Jones Earth Segment, Inc., a Colorado corporation (the "Company"), as follows:
Jones 1196 shares of Class A Common Stock and
1196 shares of Class B Common Stock
JI 5100 shares of Class A Common Stock and
5100 shares of Class B Common Stock
B. Sellers desire to sell their shares of the Company to Buyer, and Buyer
desires to acquire said shares from Sellers in exchange for the issuance of
certain shares of the Buyer, upon the terms and conditions set forth in this
Agreement.
C. The transaction described in this Agreement shall, as between
themselves, be effective as of September 30, 1996, although certain closing
documentation may occur at a different date.
AGREEMENT
---------
In consideration of the mutual promises contained in this Agreement and
other good and valuable consideration, the receipt and adequacy of which are
hereby acknowledged, the parties hereto hereby agree as follows:
1. The Exchange. Subject to the terms and conditions set forth in this
------------
Agreement, Sellers shall sell, convey, assign, transfer and deliver to Buyer,
and Buyer
<PAGE>
shall acquire from Sellers, all of Sellers' shares in the Company, consisting of
an aggregate of 6,296 shares of Class A Common Stock and 6,296 shares of Class B
Common Stock, free and clear of all security interests, liens, pledges, claims,
charges and encumbrances.
2. Consideration. In consideration for the Shares, Buyer shall issue
-------------
shares of Buyer's Class A Common Stock (the "Buyer's Stock") to the Sellers as
follows:
Jones 110,833 shares
JI 472,500 shares
3. Sellers' Representations. Each Seller, severally and not jointly,
------------------------
hereby represents and warrants to Buyer, with respect to such Seller; that:
(a) The execution and delivery of this Agreement by such Seller has
been duly and validly authorized and approved by all necessary action of such
Seller. This Agreement is a valid and binding obligation of such Seller,
enforceable against it in accordance with its terms.
(b) Such Seller has good title to the Shares of the Company held by
such Seller, free and clear of all security interests, liens, pledges, charges
and encumbrances of every kind.
(c) The execution and delivery of this Agreement by such Seller will
not violate any provision of law and will not, with or without the giving of
notice or the passage of time, conflict with or result in any breach of any of
the terms or conditions of, or constitute a default under, any mortgage,
agreement or other instrument to which such Seller is a party or by which such
Seller is bound; provided, that the approval of the Federal Communications
Commission must be obtained regarding the transfer of control of certain
licenses held by the Company. The execution, delivery and performance of this
Agreement by such Seller will not result in the creation of any
2
<PAGE>
security interest, lien, pledge, charge or encumbrance upon the Shares owned by
such Seller.
4. Buyer's Representations. Buyer hereby represents and warrants to
-----------------------
Sellers that:
(a) The execution and delivery of this Agreement and the issuance of
the Buyer's Stock have been duly and validly authorized and approved by all
necessary action of Buyer. This Agreement is a valid and binding obligation of
Buyer, enforceable against it in accordance with its terms.
(b) The execution and delivery of this Agreement by Buyer will not
violate any provision of law and will not, with or without the giving of notice
or the passage of time, conflict with or result in any breach of any of the
terms or conditions of, or constitute default under, any mortgage, agreement or
other instrument to which Buyer is a party or by which Buyer is bound.
Execution, delivery and performance of this Agreement by Buyer will not result
in the creation of any security interest, lien, pledge, charge or encumbrance
upon the Buyer's Stock.
5. Conditions Precedent to Buyer's Obligations. The obligations of Buyer
-------------------------------------------
under this Agreement are subject to the fulfillment of each of the following
conditions:
(a) All of the representations and warranties by Sellers contained in
this Agreement shall be true and correct in all material respects at and as of
the Closing Date. Sellers shall have complied with and performed all of the
agreements, covenants and conditions required by this Agreement to be performed
or complied with by it on or prior to the Closing Date.
(b) Seller shall have delivered to Buyer such instruments, consents
and approvals as are necessary to transfer the Shares.
3
<PAGE>
(c) The necessary regulatory approvals shall have been obtained.
6. Conditions Precedent to Sellers' Obligations. The obligations of
--------------------------------------------
Sellers under this Agreement shall be subject to the fulfillment of each of the
following conditions:
(a) The necessary regulatory approvals shall have been obtained.
(b) Buyer shall have delivered the Consideration to Seller in
accordance with this Agreement.
7. Closing. The closing hereunder (the "Closing") shall be held in the
-------
offices of Seller, 9697 E. Mineral Avenue, Englewood, Colorado 80112, on such
date or dates as the parties hereto shall mutually agree (the "Closing Date").
At the Closing, all documents and other instruments and documents referred to or
contemplated by this Agreement shall be exchanged by the parties hereto, which
exchange shall be deemed effective between the parties as of the date first
above written.
8. Brokerage. Sellers represent and warrant to Buyer that Sellers will
---------
be solely responsible for, and pay in full, any and all brokerage or finder's
fees or agent's commissions or other like payment owing in connection with
Sellers' use of any broker, finder or agent in connection with this Agreement or
the transactions contemplated hereby. Buyer represents and warrants to Sellers
that Buyer will be solely responsible for, and pay in full, any and all
brokerage or finder's fees or agent's commissions or other like payment owing in
connection with Buyer's use of any broker, finder or agent in connection with
this Agreement or the transactions contemplated hereby. Each party hereto shall
indemnify and hold the other party hereto harmless against and in respect of any
breach by it of the provisions of this Paragraph.
4
<PAGE>
9. Investment Representations. The Buyer's Stock has not been registered
--------------------------
under the Securities Act of 1933, as amended, or under any state securities
laws. Accordingly, Sellers understand and agree that they are acquiring their
respective shares of the Buyer's Stock for investment and they may not sell,
transfer, or convey any interest in or to the Shares unless the Shares have been
registered under the Securities Act of 1933, as amended, and under any
applicable state securities laws, or unless suitable exemptions from such
registration are available. The certificates representing the Buyer's Stock
shall bear a legend to the foregoing effect and the share transfer records of
Buyer shares be noted to the same effect.
10. Escrow. Sellers have delivered certificates representing the Shares
------
to Buyer, to be held in escrow and delivered upon notice that any necessary
regulatory approvals have been received.
11. Miscellaneous.
--------------
(a) Buyer shall have the right, upon notice to Sellers, to assign to
its rights and obligations hereunder to any affiliate of Buyer, or, subject to
Sellers' consent, to any other entity.
(b) This Agreement embodies the entire understanding and agreement
among the parties concerning the subject matter hereof and supersedes any and
all prior negotiations, understandings or agreements in regard thereto. This
Agreement shall be interpreted, governed and construed in accordance with the
internal laws of the State of Colorado. This Agreement may not be modified or
amended except by an agreement in writing executed by both Buyer and Sellers.
[EXECUTION PAGE FOLLOWS]
5
<PAGE>
IN WITNESS WHEREOF the parties have executed this Agreement as of the date
first above written.
SELLERS:
--------
JONES INTERNATIONAL, LTD
By: /s/ Glenn R. Jones
------------------
Title: President
---------------
GLENN R. JONES:
---------------
/s/ Glenn R. Jones
------------------
BUYER:
------
JONES INTERNATIONAL
NETWORKS, LTD
By: /s/ Gregory J. Liptak
---------------------
Title: President
-------------------
6
<PAGE>
EXHIBIT 10.23
EXCHANGE AGREEMENT
------------------
(Space Segment Assets)
THIS EXCHANGE AGREEMENT is made as of the 6th day of November, 1996, by and
between JONES SPACE SEGMENT, INC., a Colorado corporation (the "Seller"), and
JONES INTERNATIONAL NETWORKS, LTD, a Colorado corporation ("Buyer").
RECITALS
--------
A. Seller is a party to certain satellite transponder leases and related
sublease identified on Exhibit A attached hereto (the "Leases").
---------
B. Seller desires to sell all rights and title in and to the Leases to
Buyer, and Buyer desires to acquire the rights and title in and to the Leases
from Seller, in exchange for the issuance of certain shares of the Buyer, upon
the terms and conditions set forth in this Agreement.
C. The transaction described in this Agreement shall be subject to, and
effective immediately prior to, the consummation of Buyer's initial public
offering of shares of Class A Common Stock under the Securities Act of 1933,
which offering is the subject of Registration No. 333-15657 (the "Registration
Statement").
AGREEMENT
---------
In consideration of the mutual promises contained in this Agreement and
other good and valuable consideration, the receipt and adequacy of which are
hereby acknowledged, the parties hereto hereby agree as follows:
1. The Exchange. Subject to the terms and conditions set forth in this
------------
Agreement, Seller shall sell, convey, assign, and transfer to Buyer, and Buyer
<PAGE>
shall acquire from Seller all of the Leases free and clear of any and all
security interests, liens, pledges, claims, charges and encumbrances.
2. Consideration. In consideration for the Leases, Buyer shall issue to
-------------
Seller 416,667 shares of Buyer's Class A Common Stock (the "Buyer's Stock") at
the closing contemplated by Section 8 of this Agreement; provided that such
number shall be adjusted, by agreement, in the event that the Buyer's initial
public offering (Registration Statement No. 333-15657) is at an initial offering
price other than $12.00 per share, or if the stock split described in the
prospectus of such public offering is done on a basis other than 220 for 1.
3. Seller's Representations. Seller hereby represents and warrants to
------------------------
the Buyer that:
(a) The execution and delivery of this Agreement by Seller has been
duly and validly authorized and approved by all necessary action of the Seller.
This Agreement is a valid and binding obligation of the Seller, enforceable
against it in accordance with its terms.
(b) The Seller has good title to the Leases, free and clear of any and
all security interests, liens, pledges, charges and encumbrances of every kind.
(c) The execution and delivery of this Agreement by Seller will not
violate any provision of law and will not, with or without the giving of notice
or the passage of time, conflict with or result in any breach of any of the
terms or conditions of, or constitute a default under, any mortgage, agreement
or other instrument to which Seller is a party or by which Seller is bound. The
execution, delivery and performance of this Agreement by the Seller will not
2
<PAGE>
result in the creation of any security interest, lien, pledge, charge or
encumbrance upon the Leases.
4. Buyer's Representations. Buyer hereby represents and warrants to the
-----------------------
Seller that:
(a) The execution and delivery of this Agreement and the issuance of
the Buyer's Stock have been duly and validly authorized and approved by all
necessary action of Buyer. This Agreement is a valid and binding obligation of
Buyer, enforceable against it in accordance with its terms.
(b) The execution and delivery of this Agreement by Buyer will not
violate any provision of law and will not, with or without the giving of notice
or the passage of time, conflict with or result in any breach of any of the
terms or conditions of, or constitute default under, any mortgage, agreement or
other instrument to which Buyer is a party or by which Buyer is bound.
Execution, delivery and performance of this Agreement by Buyer will not result
in the creation of any security interest, lien, pledge, charge or encumbrance
upon the Buyer's Stock.
5. Conditions Precedent to Buyer's Obligations. The obligations of Buyer
-------------------------------------------
under this Agreement are subject to the fulfillment of each of the following
conditions:
(a) All of the representations and warranties by Seller contained in
this Agreement shall be true and correct in all material respects at and as of
the Closing Date. Seller shall have complied with and performed all of the
agreements, covenants and conditions required by this Agreement to be performed
or complied with by it on or prior to the Closing Date.
3
<PAGE>
(b) Seller shall have delivered to Buyer such instruments, consents
and approvals as are necessary to transfer the Leases.
6. Condition Precedent to Seller's Obligations. The obligations of
-------------------------------------------
Seller under this Agreement shall be subject to the fulfillment of the following
condition:
(a) Buyer shall have delivered the Consideration to Seller in
accordance with this Agreement.
7. Condition Precedent to the Obligations of both Buyer and Seller. The
---------------------------------------------------------------
obligations of both Buyer and Seller are subject to the following condition:
(a) The Registration Statement shall have been declared effective and
the shares of Class A Common Stock of Buyer subject thereto shall have been sold
to the underwriters named therein on the terms and conditions set forth in the
related prospectus.
8. Closing. The closing hereunder (the "Closing") shall be held in the
-------
offices of Seller, 9697 E. Mineral Avenue, Englewood, Colorado 80112, on such
date or dates as the parties hereto shall mutually agree (the "Closing Date").
At the Closing, all documents and other instruments and documents referred to or
contemplated by this Agreement shall be exchanged by the parties hereto, which
exchange shall be deemed effective between the parties as of the date first
above written.
9. Brokerage. Seller represents and warrants to Buyer that Seller will
---------
be solely responsible for, and pay in full, any and all brokerage or finder's
fees or agent's commissions or other like payment owing in connection with
Seller's use of any broker, finder or agent in connection with this Agreement or
the transactions contemplated hereby. Buyer represents and warrants to Seller
that
4
<PAGE>
Buyer will be solely responsible for, and pay in full, any and all brokerage or
finder's fees or agent's commissions or other like payment owing in connection
with Buyer's use of any broker, finder or agent in connection with this
Agreement or the transactions contemplated hereby. Each party hereto shall
indemnify and hold the other party hereto harmless against and in respect of any
breach by it of the provisions of this Paragraph.
10. Investment Representations. The Buyer's Stock has not been registered
--------------------------
under the Securities Act of 1933, as amended, or under any state securities
laws. Accordingly, Seller understands and agrees that it is acquiring the
Buyer's Stock for investment and it may not sell, transfer, or convey any
interest in or to the Buyer's Stock unless said shares have been registered
under the Securities Act of 1933, as amended, and under any applicable state
securities laws, or unless suitable exemptions from such registration are
available. The certificate representing the Buyer's Stock shall bear a legend
to the foregoing effect and the share transfer records of Buyer shall be noted
to the same effect. Seller acknowledges that it has received and read a copy of
the prospectus included in the Registration Statement, which describes the
business and financial condition of the Buyer.
11. Miscellaneous.
--------------
(a) Buyer shall have the right, upon notice to Seller, to assign to
its rights and obligations hereunder to any affiliate of Buyer, or, subject to
Seller's consent, to any other entity.
(b) This Agreement embodies the entire understanding and agreement
among the parties concerning the subject matter hereof and supersedes any and
all prior negotiations, understandings or agreements in
5
<PAGE>
regard thereto. This Agreement shall be interpreted, governed and construed in
accordance with the internal laws of the State of Colorado. This Agreement may
not be modified or amended except by an agreement in writing executed by both
Buyer and Seller.
IN WITNESS WHEREOF the parties have executed this Agreement as of the date
first above written.
SELLER:
-------
JONES SPACE SEGMENT,
INC.
By: /s/ Elizabeth M. Steele
-----------------------
Name: Elizabeth M. Steele
Title: Vice President
BUYER:
------
JONES INTERNATIONAL
NETWORKS, LTD.
By: /s/ Gregory J. Liptak
----------------------
Name: Gregory J. Liptak
Title: President
6
<PAGE>
EXHIBIT A
---------
1. Satellite Transponder Service Agreement dated July 28, 1989, between
GE American Communications, Inc. and the Seller.
2. Transponder License Agreement dated January 1, 1995, between the Seller,
Jones Infomercial Networks, Inc., Jones Computer Network, Ltd. and Great
American Country, Inc.
3. Transponder License Agreement dated October 28, 1992, between the
Seller and Deutsch Welle.
4. Long-Term Earth Station Reception/Transmission Services Agreement dated
February 2, 1993, between the Seller and GE American Communications, Inc.
<PAGE>
EXHIBIT 10.24
AGREEMENT
---------
(19% Interests)
THIS AGREEMENT is made as of the 6th day of November, 1996, by and between
GLENN R. JONES ("Jones"), and JONES INTERNATIONAL NETWORKS, LTD, a Colorado
corporation ("Buyer").
RECITALS
--------
A. Jones own 1,196 shares of each of the Class A Common Stock, $.01 par
value per share, and Class B Common Stock, $.01 par value per share, of Jones
Infomercial Networks, Inc., a Colorado corporation, and 1,900 shares of each of
the Class A Common Stock, $.01 par value per share, and Class B Common Stock,
$.01 par value per share, of Great American Country, Inc., a Colorado
corporation, (hereinafter collectively referred to as the "Shares").
B. Jones desires to sell the Shares to Buyer, and Buyer desires to
acquire said shares from Jones in exchange for the issuance of shares of the
Buyer, upon the terms and conditions set forth in this Agreement.
C. The transaction described in this Agreement shall be subject to, and
effective immediately prior to, the consummation of Buyer's initial public
offering of shares of Class A Common Stock under the Securities Act of 1933,
which offering is the subject of Registration No. 333-15657 (the "Registration
Statement").
AGREEMENT
---------
In consideration of the mutual promises contained in this Agreement and
other good and valuable consideration, the receipt and adequacy of which are
hereby acknowledged, the parties hereto hereby agree as follows:
<PAGE>
1. The Exchange. Subject to the terms and conditions set forth in this
------------
Agreement, Jones shall sell, convey, assign, transfer and deliver to Buyer, and
Buyer shall acquire from Jones, all of the Shares free and clear of all security
interests, liens, pledges, claims, charges and encumbrances.
2. Consideration. In consideration for the Shares, Buyer shall issue
-------------
333,333 shares of Buyer's Class A Common Stock (the "Buyer's Stock") to Jones;
provided that such number shall be adjusted, by agreement, in the event that the
Buyer's initial public offering (Registration Statement No. 333-15657) is at an
initial offering price other than $12.00 per share, or if the stock split
described in the prospectus of such public offering is done on a basis other
than 220 for 1.
3. Jones' Representations. Jones hereby represents and warrants to Buyer
----------------------
that:
(a) This Agreement is a valid and binding obligation of Jones,
enforceable against him in accordance with its terms.
(b) Jones has good title to the Shares held by him free and clear of
all security interests, liens, pledges, charges and encumbrances of every kind.
(c) The execution and delivery of this Agreement by Jones will not
violate any provision of law and will not, with or without the giving of notice
or the passage of time, conflict with or result in any breach of any of the
terms or conditions of, or constitute a default under, any mortgage, agreement
or other instrument to which Jones is a party or by which Jones is bound. The
execution, delivery and performance of this Agreement by Jones will not result
in the creation of any security interest, lien, pledge, charge or encumbrance
upon the Shares owned by Jones.
2
<PAGE>
4. Buyer's Representations. Buyer hereby represents and warrants to
-----------------------
Jones that:
(a) The execution and delivery of this Agreement and the issuance of
the Buyer's Stock have been duly and validly authorized and approved by all
necessary action of Buyer. This Agreement is a valid and binding obligation of
Buyer, enforceable against it in accordance with its terms.
(b) The execution and delivery of this Agreement by Buyer will not
violate any provision of law and will not, with or without the giving of notice
or the passage of time, conflict with or result in any breach of any of the
terms or conditions of, or constitute default under, any mortgage, agreement or
other instrument to which Buyer is a party or by which Buyer is bound.
Execution, delivery and performance of this Agreement by Buyer will not result
in the creation of any security interest, lien, pledge, charge or encumbrance
upon the Buyer's Stock.
5. Conditions Precedent to Buyer's Obligations. The obligations of Buyer
-------------------------------------------
under this Agreement are subject to the fulfillment of each of the following
conditions:
(a) All of the representations and warranties by Jones contained in
this Agreement shall be true and correct in all material respects at and as of
the Closing Date. Jones shall have complied with and performed all of the
agreements, covenants and conditions required by this Agreement to be performed
or complied with by it on or prior to the Closing Date.
(b) Jones shall have delivered to Buyer such instruments, consents and
approvals as are necessary to transfer the Shares.
3
<PAGE>
6. Conditions Precedent to Jones' Obligations. The obligations of Jones
------------------------------------------
under this Agreement shall be subject to the fulfillment of each of the
following conditions:
(a) Buyer shall have delivered the Consideration to Seller in
accordance with this Agreement.
7. Closing. The closing hereunder (the "Closing") shall be held in the
-------
offices of Jones, 9697 E. Mineral Avenue, Englewood, Colorado 80112, on such
date or dates as the parties hereto shall mutually agree (the "Closing Date").
At the Closing, all documents and other instruments and documents referred to or
contemplated by this Agreement shall be exchanged by the parties hereto, which
exchange shall be deemed effective between the parties as of the date first
above written.
8. Brokerage. Jones represents and warrants to Buyer that Jones will be
---------
solely responsible for, and pay in full, any and all brokerage or finder's fees
or agent's commissions or other like payment owing in connection with Jones' use
of any broker, finder or agent in connection with this Agreement or the
transactions contemplated hereby. Buyer represents and warrants to Jones that
Buyer will be solely responsible for, and pay in full, any and all brokerage or
finder's fees or agent's commissions or other like payment owing in connection
with Buyer's use of any broker, finder or agent in connection with this
Agreement or the transactions contemplated hereby. Each party hereto shall
indemnify and hold the other party hereto harmless against and in respect of any
breach by it of the provisions of this Paragraph.
9. Investment Representations. The Buyer's Stock has not been registered
--------------------------
under the Securities Act of 1933, as amended, or under any state
4
<PAGE>
securities laws. Accordingly, Jones understands and agrees that he is acquiring
the shares of the Buyer's Stock for investment and he may not sell, transfer, or
convey any interest in or to the Buyer's Stock unless the Buyer's Stock has been
registered under the Securities Act of 1933, as amended, and under any
applicable state securities laws, or unless suitable exemptions from such
registration are available. The certificate representing the Buyer's Stock shall
bear a legend to the foregoing effect and the share transfer records of Buyer
shall be noted to the same effect.
10. Miscellaneous.
--------------
(a) Buyer shall have the right, upon notice to Jones, to assign to its
rights and obligations hereunder to any affiliate of Buyer, or, subject to
Jones' consent, to any other entity.
(b) This Agreement embodies the entire understanding and agreement
among the parties concerning the subject matter hereof and supersedes any and
all prior negotiations, understandings or agreements in regard thereto. This
Agreement shall be interpreted, governed and construed in accordance with the
internal laws of the State of Colorado. This Agreement may not be modified or
amended except by an agreement in writing executed by both Buyer and Jones.
[EXECUTION PAGE FOLLOWS]
5
<PAGE>
IN WITNESS WHEREOF the parties have executed this Agreement as of the date
first above written.
GLENN R. JONES:
---------------
/s/ Glenn R. Jones
------------------
Glenn R. Jones
BUYER:
------
JONES INTERNATIONAL
NETWORKS, LTD
By: /s/ Gregory J. Liptak
----------------------
Name: Gregory J. Liptak
Title: President
6
<PAGE>
EXHIBIT 10.25
AGREEMENT
(PARTNERSHIP INTEREST)
THIS AGREEMENT (the "Agreement") is made and entered into the 7th day of
January, 1997, between Adelphia Communications Corporation, a Delaware
corporation ("Adelphia"), and Jones International Networks, Ltd., a Colorado
corporation (the "Company").
R E C I T A L S
---------------
A. The Company is in the business of providing audio and video programming
and, through a subsidiary, is a partner in Product Information Network Venture,
a Colorado partnership ("PIN").
B. Adelphia is a partner in PIN.
C. Adelphia desires to sell, and the Company desires to acquire, a portion
of Adelphia's percentage ownership's interest in PIN.
D. Adelphia is to remain a partner in PIN.
NOW, THEREFORE, in consideration of the mutual covenants contained herein,
it is agreed as follows:
1. The Interest. The subject of this Agreement is an 8.35 percentage ownership
------------
interest in PIN which Adelphia holds (the "Interest"), consisting of an 8.35%
interest in the profits, losses and distributions of PIN. It is understood and
agreed that Adelphia retains an Ownership Interest in PIN which is not part of
the Interest. Upon the sale of the Interest to the Company, Adelphia shall
remain as partner in PIN upon the terms and conditions of the Second Amended and
Restated Partnership Agreement, in substantially the form attached hereto as
Exhibit A (the "Amended Partnership Agreement").
2. Sale of the Interest. Upon the terms and subject to the conditions set
--------------------
forth in this Agreement, Adelphia shall sell the Interest to the Company on the
Closing Date (as hereinafter defined) in exchange for 262,500 shares of the
Company's Class A Common Stock (the "Shares"). Such number of shares
contemplates an initial public offering price of $12.00 per share and shall be
adjusted (up or down) if the public offering price is more or less than $12.00
per share. The number of Shares shall also be subject to the effect, if any, of
<PAGE>
the admission of an additional partner to PIN prior to the Closing Date. In
such event, Adelphia and the Company agree to use their best efforts to
determine the effect of such event on PIN and on the value of the Interest. If
the parties determine that an increase in the value of the Interest has so
occurred, the Company shall issue to Adelphia an additional number of shares of
Class A Common Stock to reflect such increase in value, at the same price per
share that was used in the Company's public offering of shares described in
Section 7.2 of this Agreement. The increase in the value of the Interest shall
be as agreed to by the parties within ten (10) days following the Closing Date.
If not so agreed, the procedure for determining value set forth in Section 10.6
of this Agreement shall be used.
3. Representations and Warranties of Adelphia. Adelphia hereby makes the
------------------------------------------
following representations and warranties, each of which is true and accurate on
the date hereof, will be true and accurate on the Closing Date and shall survive
the Closing Date and be in effect notwithstanding any made by or on behalf of
the Company.
3.1 Ownership of the Interest. Adelphia has good and marketable title to
-------------------------
the Interest. Upon the Closing, the Company will acquire good and marketable
title to the Interest, free and clear of any liens, claims, restrictions or
encumbrances of any kind, except as may be provided in the Amended Agreement.
3.2 Authority. This Agreement has been duly executed and delivered to the
---------
Company by Adelphia, and no further action will be necessary on the part of
Adelphia to make this Agreement a valid and binding obligation of Adelphia,
enforceable in accordance with its terms.
3.3 Effect of Agreement. The execution, delivery and performance of this
-------------------
Agreement and the consummation of the transactions contemplated herein will not
result in a breach or violation of any of the terms and provisions of, or
constitute a default under, any statute, indenture, mortgage, or other agreement
or instrument to which Adelphia is a party or by which it is bound, or any
order, rule or regulation of any court or governmental agency or body having
jurisdiction over Adelphia, and no consent, approval, authorization or order of
any court or governmental agency or body is required for the consummation of the
transactions contemplated hereby.
-2-
<PAGE>
3.4 Investment Intent. Adelphia is acquiring the Shares for investment
-----------------
and without a present intention to make any sale, disposition, distribution or
other transfer thereof.
3.5 Investment Qualifications. Adelphia has such knowledge and experience
-------------------------
in financial and business matters to enable it (a) to utilize the information
made available to it in connection with its investment in the Shares, (b) to
understand and evaluate the merits and risks of its investment in the Shares and
(c) to protect its own interest in connection with its investment in the Shares.
Adelphia's financial condition is such that it can afford to bear the economic
risk of holding the Shares for an indefinite period of time and to suffer a
complete loss of its investment hereunder.
3.6 Information. Adelphia has received and reviewed the preliminary
-----------
prospectus used by the Company in connection with the public offering described
in Section 7.2 of this Agreement (the "Preliminary Prospectus"). Adelphia has
been given adequate opportunities to obtain any information and documents
relating to its investment in the Shares and to ask questions and receive
answers about such information and documents and about the Company, its business
and future prospects; and these opportunities have provided Adelphia with all
additional information requested or desired by it.
3.7 No Brokers or Finders. No person or entity has or will have, as a
---------------------
result of any act or omission by Adelphia, any right, interest or valid claim
against the Company for any commission, fee or other compensation as a finder or
broker, or in any similar capacity, in connection with the transactions
contemplated by this Agreement. Adelphia will pay and save the Company harmless
against any and all liability with respect to any such commission which may be
payable or determined to be payable in connection with the transactions
contemplated by this Agreement.
4. Representations and Warranties of the Company. The Company hereby makes the
---------------------------------------------
following representations and warranties, each of which is true and accurate on
the date hereof, will be true and accurate on the Closing Date and shall survive
the Closing Date and be in effect notwithstanding any investigation made by or
on behalf of Adelphia:
4.1 Organization and Good Standing. The Company is a corporation duly
------------------------------
organized, validly existing and in good standing under the laws of the State of
Colorado.
-3-
<PAGE>
4.2 Authority of Company. The execution of this Agreement by the Company,
--------------------
its delivery to Adelphia, and the authorization and issuance of the Shares have
been authorized by the Board of Directors, and this Agreement has been duly
executed by an authorized officer of the Company and delivered to Adelphia, and
no further corporate action will be necessary on the part of the Company to make
this Agreement a valid and binding obligation of the Company, enforceable in
accordance with its terms.
4.3 Articles and Bylaws. The Articles of Incorporation of the Company are
-------------------
in the form set forth as Exhibit B attached hereto, and the Bylaws of the
Company are in the form set forth as Exhibit C attached hereto.
4.4 Title to Properties and Encumbrances. The Company has title to all
------------------------------------
its material properties and assets, subject to no mortgage, pledge, lien,
charge, security interest, encumbrance or restriction, except (a) those which
were incurred in the ordinary course of business for amounts not yet due or
payable or for amounts which are being contested in good faith by appropriate
proceedings, (b) those which do not materially affect the value of or interfere
with the use made of such properties and assets and (c) those disclosed in the
Preliminary Prospectus or the final prospectus used for the Public Offering.
4.5 Litigation. There are no legal actions, suits, arbitrations or other
----------
legal, administrative or governmental proceedings pending or, to the knowledge
of the Company, threatened against the Company or its properties, assets or
business. The Company is not in default with respect to any judgment, order,
injunction or decree of any court or any governmental agency or instrumentality.
4.6 The Shares. The Shares, when issued pursuant to the terms of this
----------
Agreement, will be duly and validly authorized, issued and outstanding, fully
paid, nonassessable and free and clear of all pledges, liens, claims and
encumbrances, other than the restrictions set forth in Section 9 hereof.
4.7 Capitalization. The capitalization of the Company is as set forth in
--------------
the Preliminary Prospectus. Except as provided in the Preliminary Prospectus,
there are no outstanding subscriptions, options, warrants, calls, contracts,
demands, commitments, conversion rights or other agreements or arrangements of
any character or nature whatever (other than the rights granted to Adelphia
hereunder) under which the Company is or may be obligated to issue any shares of
capital stock of the Company or warrants or options to purchase any shares of
capital stock of the Company.
-4-
<PAGE>
4.8 No Brokers or Finders. No person or entity has or will have, as a
---------------------
result of any act or omission by the Company, any right, interest or valid claim
against Adelphia for any commission, fee or other compensation as a finder or
broker, or in any similar capacity, in connection with the transactions
contemplated by this Agreement. The Company will pay and save Adelphia harmless
against any and all liability with respect to any such commission which may be
payable or determined to be payable in connection with the transactions
contemplated by this Agreement.
5. Conditions of Adelphia's Obligation. Adelphia's obligations under this
-----------------------------------
Agreement are subject to the fulfillment prior to or on the Closing Date of the
following conditions, any of which may be waived in whole or in part by
Adelphia.
5.1 Representations and Warranties True. The representations and
-----------------------------------
warranties of the Company under this Agreement shall be true in all material
respects as of the Closing Date with the same effect as though made on and as of
the Closing Date, and a certificate of a duly authorized officer of the Company
to such effect shall have been delivered to Adelphia.
5.2 Compliance with Agreement. The Company shall have performed and
-------------------------
complied with all agreements or conditions required by this Agreement to be
performed and complied with by it prior to or as of the Closing Date, and a
certificate of a duly authorized officer of the Company to such effect shall
have been delivered to Adelphia.
5.3 No Material Change. During the period from the date of this Agreement
------------------
through and including the Closing Date, there shall not have occurred any
material change in the financial condition or business of the Company.
6. Conditions to Company's Obligations. The Company's obligations under this
-----------------------------------
Agreement are subject to the fulfillment prior to or on the Closing Date of the
following conditions, any of which may be waived in whole or in part by the
Company:
6.1 Representations and Warranties True. The representations and
-----------------------------------
warranties of Adelphia under this Agreement shall be true in all material
respects as of the Closing Date with the same effect as though made on and as of
the Closing Date.
-5-
<PAGE>
6.2 Compliance with Agreement. Adelphia shall have performed and complied
-------------------------
with all agreements or conditions required by this Agreement to be performed and
complied with by it prior to or as of the Closing Date.
7. Conditions to the Obligations of Both Parties. The obligations of both
---------------------------------------------
parties are subject to the fulfillment prior to or on the Closing Date of the
following conditions, which may be waived only by the consent of both of the
parties:
7.1 Consent Obtained. There shall have been obtained the consent of Cox
----------------
Communication Information Network, Inc. to the sale of the Interest under this
Agreement and to the terms of the Amended Partnership Agreement.
7.2 Completion of the Company's Public Offering. The Company shall have
-------------------------------------------
completed the public offering of shares of its Class A Common Stock (the "Public
Offering"). The Company agrees to deliver a copy of the final prospectus used
by the Company in the Public Offering to Adelphia at least twenty-four (24)
hours prior to the Closing, as defined in Section 8.1.
8. Closing
-------
8.1 Closing Date. The sale of the Interest shall be effected at the
------------
Closing ("Closing") which shall be held on the day of (or the business day
immediately prior to) the closing of the Public Offering by the Company. The
Company shall notify Adelphia at least twenty-four (24) hours prior to the
Closing (the "Closing Date"). The Closing shall be held at the office of the
Company.
8.2 Delivery at Closing. At the Closing, the Company shall deliver to
-------------------
Adelphia a share certificate for the Shares and Adelphia shall deliver to the
Company an assignment (in form and substance satisfactory to the Company) of the
Interest. In addition, both parties shall deliver the Registration Rights
Agreement in the form set forth as Exhibit D to this Agreement. Adelphia shall
deliver to the Partnership an amended Adelphia Affiliate Agreement having a ten
(10) year term, in the form set forth as Exhibit E to this Agreement.
-6-
<PAGE>
9. Restrictions on Transfer
------------------------
9.1 No Transfer. No transfer of any kind of any Shares, or interests
-----------
therein, shall be made unless the subject Shares have been registered under the
Securities Act of 1933, as amended, or the Company has received an opinion of
counsel, in form and substance satisfactory to the Company, that the proposed
disposition is exempt from such registration.
9.2 The Share Certificates. All certificates for the Shares shall be
----------------------
endorsed substantially as follows:
The shares of stock represented by this certificate have not been
registered under the Securities Act of 1933, as amended, and may not
be sold, assigned, pledged, or transferred in any manner unless such
shares have been so registered or the Company has received an opinion
of counsel (in form and substance satisfactory to the Company) that
the proposed transaction is exempt from such registration.
Further, the Company shall cause all certificates evidencing any of the Shares
which are transferred subsequent to the execution of this Agreement to be
endorsed with said legend.
9.3 Additional Restrictions. Adelphia agrees that for a period of 180
-----------------------
days after the closing of the Public Offering, the Shares will be further
subject to the restrictions on transfer that are imposed by the underwriters of
the Public Offering on the shares of the Company held by Adelphia, Jones
International, Ltd. and/or Glenn R. Jones.
10. Adelphia's Future Interest; Put and Call Rights
-----------------------------------------------
10.1. Effect of the Amended Partnership Agreement. As more specifically
-------------------------------------------
set forth in the Amended Partnership Agreement, the sale of the Interest to the
Company shall not affect Adelphia's rights to participate on the Executive
Committee of PIN, nor shall it affect Adelphia's participation with respect to
the matters set forth in Section 6.5 of the existing partnership agreement of
PIN, all of which rights shall carry over to the Amended Partnership Agreement.
Immediately upon the sale of the Interest, Adelphia's ownership interest
percentage in PIN and Adelphia's future ownership interest
-7-
<PAGE>
percentage in PIN will be dependent on the provisions of Section 2.2 of the
Amended Partnership Agreement which deal with the number of subscribers to PIN
provided under the Adelphia Agreement (as defined in the Amended Partnership
Agreement).
10.2 Adelphia's Future Interest. Upon the sale of the Interest,
--------------------------
Adelphia's right to earn an additional interest in PIN shall remain in effect,
with the relevant period to earn such interest being October 2, 1996 to April 1,
1998. The interest that may be earned by Adelphia under the Amended Partnership
Agreement (the "Adelphia Future Interest") shall be subject to the loss of
interest provisions of Sections 2.2d and 8.3f of the Amended Partnership
Agreement.
10.3 The Call Right of the Company. The Company shall have the right to
-----------------------------
acquire a part or all of the Adelphia Future Interest at any time after April 2,
1998 and before December 31, 1998 (the "Call").
10.4 The Put Right of Adelphia. Adelphia shall have the right to require
-------------------------
that the Company buy all of the Adelphia Future Interest at any time after April
2, 1998 and before December 31, 1998 (the "Put").
10.5 Exercise of the Put or the Call. A party who intends to exercise its
-------------------------------
right under Section 10.3 or 10.4, as the case may be, shall give thirty (30)
days notice to the other party of such election (the "Election Notice") and that
the transaction shall close on the last day of such period. The Election Notice
shall contain (i) a description of the transaction giving rise to the Election
Notice and (ii) a statement of the proposed value of the Adelphia Future
Interest (or portion thereof, in the event of a Call for only such portion)
involved in the transaction. The parties shall use their best efforts to reach
agreement on such value within the aforesaid time period. If they fail to do
so, the value shall be determined by the procedure set forth in Section 10.6
below, and the closing shall be deferred for a period not to exceed ten (10)
days to allow for the determination using such procedure.
In the event of the exercise of either the Put or the Call, the
consideration to be paid to Adelphia shall be, at the option of the Company,
either shares of Class A Common Stock of the Company, cash, or both. The value
of such shares shall be based on the average market price thereof for the twenty
(20) trading days preceding the date of the Election Notice. The average market
price for a trading day shall be the mean of the closing bid and ask prices on
the NASDAQ national stock market, or, if the Class A Common
-8-
<PAGE>
Stock of the Company is not traded on such market, the average market price for
a trading day shall be determined by applying the closest equivalent method to
the market prices on the market where said shares are traded.
At the closing, which shall be held at the offices of the Company, Adelphia
shall deliver an assignment of the Adelphia Future Interest (or portion thereof,
in the event of a Call for only such portion), in form and substance
satisfactory to the Company. The Company shall deliver the consideration
therefor, as described above. If shares of Class A Common Stock are issued as
part of the consideration, the provisions of Sections 9.1 and 9.2 of this
Agreement shall apply, and in addition, Adelphia shall have the right to have
such shares registered under the Securities Act of 1933, as amended, and the
parties shall deliver at the closing an agreement which shall provide to
Adelphia registration rights similar to those expressed in the Registration
Rights Agreement attached to this Agreement as Exhibit D.
10.6 Procedure to Determine Value. For purposes of Section 2 and 10.5 of
----------------------------
this Agreement, the valuation shall be made by one or more of the underwriters
of the Public Offering, mutually agreeable to Adelphia and the Company, or if
none is willing to provide such valuation, then it shall be made by a qualified
party selected by Adelphia and the Company. If the parties are unable to reach
agreement on a qualified party, then this matter shall be submitted to
arbitration, in Denver, Colorado, before a panel of three (3) arbitrators. The
rules of the American Arbitration Association shall apply. The party or parties
performing the valuation shall take into account the respective values of PIN as
an entirety and the Company, the admission of a new partner to PIN (if such has
occurred) and other relevant factors and processes typically used in valuing
business interests.
11. General Provisions
------------------
11.1 Survival of Representations and Warranties. All statements contained
------------------------------------------
in this Agreement, in any certificate, schedule or other instrument delivered by
or on behalf of Adelphia or the Company pursuant hereto, or in connection with
the transactions contemplated hereby, shall be deemed representations and
warranties hereunder by Adelphia or the Company respectively and shall survive
the Closing.
-9-
<PAGE>
11.2 Assignment. No assignment of this Agreement or the rights, duties or
----------
benefits thereof, shall be made without the written consent of the non-assigning
party.
11.3 Notices. Notwithstanding anything contained herein to the contrary,
-------
all notices, requests, demands and other communications hereunder shall be in
writing and shall be deemed to have been given upon delivery if personally
delivered or upon receipt at the address specified if mailed, by certified mail
or commercial delivery service, postage prepaid, to the parties or their
assignees to the following addresses (or at such other address as shall be given
in writing by any party to the others):
To Company: Jones International Networks, Ltd.
9697 E. Mineral Avenue
P.O. Box 3309
Englewood, CO 80155-3309
Attn: Mr. Jay B. Lewis
Telecopy Number: (303) 799-4675
Copy to: General Counsel
To Adelphia: Adelphia Communications Corporation
5 West Third Street
Coudersport, PA 16915
Attn: Mr. Jeff Abbas
Copy to: General Counsel
11.4 Amendments. No amendment to this Agreement shall be effective unless
----------
in writing and signed by each of the parties hereto.
11.5 Remedies Not Exclusive. Except as otherwise specifically provided,
----------------------
no remedy conferred by any of the specific provisions of this Agreement is
intended to be exclusive of any other remedy, and each and every remedy shall be
cumulative and shall be in addition to every other remedy given hereunder or now
or hereafter existing at law or in equity or by statute or otherwise, including
without limitations, specific performance, offset or damages. The election by a
party of one or more remedies shall not constitute a waiver of the right to
pursue other available remedies.
11.6 Successors and Assigns. All covenants, representations, warranties
----------------------
and agreements of the parties contained herein shall be binding upon
-10-
<PAGE>
and inure to the benefit of their respective permitted successors and permitted
assigns.
11.7 Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
11.8 Captions and Section Headings. Captions and section headings used
-----------------------------
herein are for convenience only and are not a part of this Agreement and shall
not be used in construing it.
11.9 Entire Agreement. No person, whether or not an officer, agent,
----------------
employee or representative of any party has made or has any authority to make
for or on behalf of that party any agreement, representation, warranty,
statement, promise, arrangement or understanding ("Parol Agreements") not
expressly set forth in this Agreement and any certificates, schedules or other
instruments referred to herein. This Agreement and any certificates, schedules
or other instruments referred to herein constitute the entire agreement between
the parties and supersede all prior or concurrent, oral or written, express or
implied Parol Agreements with respect to the subject matter thereof. The
parties acknowledge that in entering into this Agreement they have not and will
not in any manner rely upon any Parol Agreements not specifically set forth in
this Agreement.
11.10 Governing Law. This Agreement shall be deemed a contract made under
-------------
and shall be construed and enforced and the legality and validity of each term
and condition shall be determined in accordance with the State of Colorado
applicable to contracts fully executed and to be performed therein.
11.11 Further Cooperation. The parties agree to execute such further
-------------------
documents and perform such further acts as may be necessary or appropriate to
carry out the purpose of this Agreement and, specifically, the parties agree to
use their best efforts to obtain the consent referred to in Section 7.1 of this
Agreement.
(EXECUTION PAGE FOLLOWS)
-11-
<PAGE>
IN WITNESS WHEREOF, the parties have duly executed this Agreement on the
day and year first above written.
Jones International Networks, Ltd.
By: /s/ Gregory J. Liptak
----------------------
Title: President
--------------------
Adelphia Communications Corporation
By: /s/ Jeff Abbas
----------------------
Title:
--------------------
-12-
<PAGE>
EXHIBIT 10.26
SERVICES AGREEMENT
------------------
THIS SERVICES AGREEMENT is made and entered effective as of the 1st day of
January, 1995, by and between Jones Earth Segment, Inc. ("Earth Segment"), Jones
Infomercial Networks, Inc. ("JIN") Jones Computer Network, Ltd. ("JCN") and Mind
Extension University, Inc. ("ME/U").
RECITALS
--------
A. Earth Segment provides a variety of services to media companies.
B. JIN, JCN and ME/U require use of certain services of Earth Segment and
Earth Segment desires to provide such services, all according to the terms and
conditions of this Agreement.
C. JIN, JCN and ME/U are media networks. Other such networks may become
parties to this Agreement from time-to-time. JIN, JCN and ME/U 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. Services. Earth Segment hereby agrees to provide playback, production,
--------
post-production, editing and miscellaneous related services to the Networks.
2. Term. This Agreement shall commence on the effective date hereof and
----
shall continue, unless otherwise terminated by Earth Segment, through 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.
3. Payments. For the period ending May 31, 1995, Earth Segment shall be
--------
paid by each Network according to the following rate schedule: production,
post-production and editing services at $225 per hour, playback and traffic
services at $24 per hour and tape duplication at $4 per tape. Thereafter, and
for each year during the remaining term of this Agreement, Earth Segment shall
prepare and submit to the Networks a plan (the "Annual Plan") for that fiscal
year which shall provide for the services to be provided to the Networks,
<PAGE>
the rates to be paid for the services and a financial budget. The Annual Plan
will be presented to the Networks at least 90 days prior to the start of the
fiscal year and the Networks will respond to Earth Segment 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 Networks and Earth Segment 60 days prior to the
start of the fiscal year will be resolved by mutual negotiations.
The rates charged the Networks for the various services will be based on
the fiscal financial budget and must be sufficient to provide the production,
traffic and playback services department of Earth Segment with pretax net income
at 15% of revenues. The rates determined from the Annual Plan will be the rates
charged to the Networks for that fiscal year.
Any services requested by the Networks, which were not contemplated in the
Annual Plan, will be addressed by mutual negotiation and may require an
adjustment to the rates in effect for that fiscal year.
4. Termination. This Agreement may be terminated as to a Network at any
-----------
time by Earth Segment by giving such Network at least thirty (30) days prior
written notice of its desire to terminate this Agreement.
-2-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first written above.
JONES EARTH 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 M. Steele
-----------------------
MIND EXTENSION UNIVERSITY, INC.,
a Colorado corporation
By: /s/ Gregory J. Liptak
---------------------
14469
-3-
<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
Amendment No. 1 to Form S-1 Registration Statement for Jones International
Networks, Ltd.
/s/ ARTHUR ANDERSEN LLP
-----------------------
ARTHUR ANDERSEN LLP
Denver, Colorado
January 10, 1997
