<PAGE>
As filed with the Securities and Exchange Commission on August 21, 1998
Registration Statement No. 333-________
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_______________
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
_______________
JONES INTERNATIONAL NETWORKS, LTD.
(Exact name of Registrant as specified in its charter)
For a list of Co-Registrants, see page (iii)
<TABLE>
<S> <C> <C>
Colorado 7922 84-1470911
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
9697 East Mineral Avenue
Englewood, Colorado 80112
(303) 792-3111
(Address, including zip code, and telephone number, including
area code, of Registrant's and Co-Registrants' principal executive office)
Jay B. Lewis
Vice President/Finance
Jones International Networks, Ltd.
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)
Copy to:
Patricia A. Peterson, Esq.
Davis, Graham & Stubbs LLP
P.O. Box 185
Denver, Colorado 80201
(303) 892-9400
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
If the securities being registered on this form are being offered in connection
with the formation of a holding company and there is compliance with General
Instruction G, check the following box. / /
<PAGE>
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 statement for the same offering. / /
If this form is a post-effective amendment filed pursuant to Rule 462(d) 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. / /
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
========================================================================================================
Proposed Proposed
Title of each class maximum maximum
of securities to be Amount to be offering price per aggregate offering Amount of
registered registered unit(1) price(1) registration fee(1)
---------- ---------- ---- ----- ----------------
<S> <C> <C> <C> <C>
11 3/4% Senior
Secured Notes due
2005 $100,000,000 100% $100,000,000 $29,500
Guarantees of the
11 3/4% Senior
Secured Notes due
2005(2) N/A N/A N/A N/A
========================================================================================================
</TABLE>
(1) Estimated solely for the purposes of calculating the amount of the
registration fee in accordance with Rule 457(f) under the Securities Act of
1933.
(2) Represents the guarantees of the 11 3/4% Senior Secured Notes due 2005 to
be issued by the Co-Registrants. Pursuant to Rule 457(n), no additional
registration fee is being paid regarding these guarantees. The guarantees
are not traded separately.
_______________
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 THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
(ii)
<PAGE>
TABLE OF CO-REGISTRANTS
<TABLE>
<CAPTION>
=======================================================================================================================
Primary Standard Industrial IRS Employer
Name State of Organization Classification Code Number Identification Number
---- --------------------- -------------------------- ---------------------
<S> <C> <C> <C>
JPN, Inc. Colorado 7922 84-1250515
Jones Radio Holdings, Inc. Colorado 7922 84-1452541
Great American Country, Inc. Colorado 7922 84-1322917
Jones Space Holdings, Inc. Colorado 4899 84-1400488
Jones Infomercial Networks,
Inc. Colorado 7922 84-1250514
Jones Earth Segment, Inc. Colorado 4899 84-1092471
Jones Galactic Radio, Inc. Colorado 7922 84-1064021
Jones Galactic Radio
Partners, Inc. Colorado 7922 84-1150629
Jones Radio Network, Inc. Colorado 7922 84-1152848
Jones Audio Services, Inc. Colorado 7922 84-1363223
MediaAmerica, Inc. New York 7313 84-1467401
Jones Radio Network
Ventures, Inc. Colorado 7922 84-1361177
Jones Infomercial Network
Ventures, Inc. Colorado 7922 84-1298089
Jones/Owens Radio
Programming LLC Colorado 7922 84-1362977
Jones MAI Radio, Inc. Colorado 7922 84-1467402
</TABLE>
(iii)
<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 BY 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.
SUBJECT TO COMPLETION
DATED AUGUST 21, 1998
PROSPECTUS
JONES INTERNATIONAL NETWORKS, LTD.
OFFER TO EXCHANGE 11 3/4% SENIOR SECURED NOTES DUE 2005 FOR ALL OF ITS
OUTSTANDING 11 3/4% SENIOR SECURED NOTES DUE 2005
The Exchange Offer will expire at 5:00 P.M., New York City time, on
_______________, ___________, 1998, unless extended.
Jones International Networks, Ltd. (the "Company"), hereby offers, upon the
terms and subject to the conditions set forth in this Prospectus and the
accompanying Letter of Transmittal (which together constitute the "Exchange
Offer"), to exchange $1,000 principal amount of its 11 3/4% Senior Secured Notes
Due 2005 (the "Exchange Notes") for each $1,000 principal amount of its
outstanding 11 3/4% Senior Secured Notes Due 2005 (the "Old Notes"), of which
$100,000,000 in aggregate principal amount are outstanding as of the date
hereof. The Exchange Offer has been registered under the Securities Act of 1933,
as amended (the "Securities Act"), pursuant to a registration statement of which
this Prospectus is a part (the "Registration Statement"). The form and terms of
the Exchange Notes will be substantially identical in all material respects to
the form and terms of the Old Notes, including interest rate and interest
payment dates, except that the exchange will have been registered under the
Securities Act and therefore the Exchange Notes will not bear legends
restricting the transfer thereof. In addition, the Additional Interest (as
defined) provisions will be modified or eliminated as appropriate and holders of
the Exchange Notes will not be entitled to certain rights of holders of the Old
Notes under the Exchange and Registration Rights Agreement (as defined), which
rights with respect to Old Notes that are exchanged will terminate upon the
consummation of the Exchange Offer. See "Description of the Notes--Exchange
Offer; Registration Rights." The Exchange Notes will evidence the same debt as
the Old Notes which they replace and will be entitled to the benefits of the
Indenture dated as of July 10, 1998 governing the Old Notes and the Exchange
Notes. The Exchange Notes and the Old Notes are considered collectively to be a
single class for all purposes under the Indenture, including, without
limitation, waivers, amendments and redemptions and are sometimes referred to
herein collectively as the "Notes." See "The Exchange Offer" and the
"Description of the Notes." References throughout this Prospectus to the "Notes"
are to the Old Notes and the Exchange Notes collectively.
The Company will accept for exchange any and all validly tendered Old Notes
which are not withdrawn prior to 5:00 p.m., New York City time, on
_______________, __________, 1998 ("Expiration Date"); provided, however, that
if the Company, in its sole discretion, has extended the period of time for
which the Exchange Offer is open, the term "Expiration Date" means the latest
time and date to which the Exchange Offer is extended. Tenders of Old Notes may
be withdrawn at any time prior to the Expiration Date. Old Notes may be
tendered only in integral multiples of $1,000.
SEE "RISK FACTORS" BEGINNING ON PAGE 15 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED IN CONNECTION WITH THE EXCHANGE OFFER.
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.
The date of this Prospectus is September _____, 1998.
<PAGE>
Interest on the Exchange Notes will be payable semi-annually on January 1
and July 1 of each year, commencing January 1, 1999. The Exchange Notes will
mature on July 1, 2005. Except as described below, the Company may not redeem
the Exchange Notes prior to July 1, 2003. On or after such date, the Company
may redeem the Exchange Notes, in whole or in part, at any time, at the
redemption prices set forth herein, together with accrued and unpaid interest,
if any, to the date of redemption. In addition, at any time and from time to
time on or prior to July 1, 2001, the Company may, subject to certain
requirements, redeem up to 35% of the aggregate principal amount of the Exchange
Notes with the cash proceeds of one or more Equity Offerings (as defined) at a
redemption price equal to 111.75% of the principal amount to be redeemed,
together with accrued and unpaid interest, if any, to the date of redemption,
provided, that at least 65% of the aggregate principal amount of the Notes
remains outstanding immediately after each such redemption. The Exchange Notes
will not be subject to any sinking fund requirement. Upon the occurrence of a
Change of Control (as defined), the Company will be required to make an offer to
repurchase the Exchange Notes at a price equal to 101% of the principal amount
thereof, together with accrued and unpaid interest, if any, to the date of
repurchase.
The Exchange Notes will be senior obligations of the Company. The Exchange
Notes will rank pari passu in right of payment with all existing and future
Senior Indebtedness (as defined) of the Company and will rank senior to all
existing and future Subordinated Obligations (as defined) of the Company. The
Company is a holding company that conducts substantially all of its operations
through subsidiaries. The Exchange Notes will be secured by the capital stock
of the Company's wholly-owned subsidiary, JPN, Inc., and its direct
subsidiaries. The Exchange Notes will be unconditionally guaranteed (the
"Guarantees") by each of the Company's Restricted Subsidiaries (as defined) (the
"Subsidiary Guarantors"). The Guarantees are senior obligations of the
Subsidiary Guarantors and rank pari passu in right of payment with all existing
and future Senior Indebtedness of the Subsidiary Guarantors, other than Bank
Indebtedness (as defined) and Capitalized Lease Obligations (as defined), and
will rank senior in right of payment to all existing and future Subordinated
Obligations of the Subsidiary Guarantors. The Guarantees are not secured.
THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL THE COMPANY ACCEPT
SURRENDERS FOR EXCHANGE FROM, HOLDERS OF OLD NOTES IN ANY JURISDICTION IN WHICH
THE EXCHANGE OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE WITH THE
SECURITIES OR BLUE SKY LAWS OF SUCH JURISDICTION.
<PAGE>
The Old Notes were sold by the Company on July 10, 1998 to NatWest
Capital Markets Limited (the "Initial Purchaser") pursuant to a Purchase
Agreement dated July 2, 1998 by and between the Company and the Initial
Purchaser (the "Purchase Agreement"). Pursuant to the Purchase Agreement, the
Company and the Initial Purchaser entered into an Exchange and Registration
Rights Agreement dated as of July 10, 1998 (the "Exchange and Registration
Rights Agreement") which granted the holders of the Old Notes certain exchange
and registration rights. The Exchange Offer is being made to satisfy certain of
the Company's obligations under the Exchange and Registration Rights Agreement.
Based upon existing interpretations by the staff of the Commission
which were issued to third parties, the Company believes that the Exchange Notes
will be freely transferable by holders thereof (other than affiliates of the
Company and the Subsidiary Guarantors) after the Exchange Offer without further
registration under the Securities Act if the holder of the Exchange Notes
represents that it is acquiring the Exchange Notes in the ordinary course of
business, that it has no arrangement or understanding with any person to
participate in the distribution (within the meaning of the Securities Act) of
the Exchange Notes and that it is not an affiliate of the Company or the
Subsidiary Guarantors, as such terms are interpreted by the Commission; provided
that broker-dealers ("Participating Broker-Dealers"), if any, receiving Exchange
Notes in the Exchange Offer will have a prospectus delivery requirement with
respect to resales of such Exchange Notes. The Commission has not considered the
Exchange Offer itself in the context of its interpretations and there can be no
assurance that the staff of the Commission would make a similar determination
with respect to the Exchange Offer. The Commission has taken the position that
the Participating Broker-Dealers may fulfill their prospectus delivery
requirements with respect to the Exchange Notes (other than a resale of an
unsold allotment from the original sale of the Old Notes) with the prospectus
contained in the Exchange Offer Registration Statement. The Company has agreed
if, at the time of the completion of the Exchange Offer, information in the
Letter of Transmittal submitted by exchanging holders indicates that there are
holders that are Participating Broker-Dealers or otherwise subject to prospectus
delivery requirements, the Company will, for such period of time as is necessary
to comply with applicable law up to the date that is 180 days after consummation
of the Exchange Offer, make available a prospectus meeting the requirements of
the Securities Act to such persons, if any, for use in connection with any
resale of such Exchange Notes.
The Exchange Offer is not conditioned on any minimum amount of Old
Notes being tendered for exchange. The Company will not receive any proceeds
from the Exchange Offer and will pay all of its expenses incident thereto.
Tenders of Old Notes pursuant to the Exchange Offer may be withdrawn at any time
prior to the Expiration Date. In the event that the Company terminates the
Exchange Offer (which is not anticipated) and does not accept for exchange any
Old Notes, the Company will promptly return the Old Notes to the holders
thereof. Old Notes not tendered or accepted will remain outstanding. See "The
Exchange Offer."
Prior to this Exchange Offer, there has been no public market for the
Old Notes or the Exchange Notes. The Company does not intend to list the
Exchange Notes on any securities exchange or to seek approval for quotation
through any automated quotation system. There can be no assurance that a market
for the Exchange Notes will develop. To the extent that a market for the
Exchange Notes does develop, the market value of the Exchange Notes will depend
upon many factors, including the Company's financial condition and results of
operations and other conditions. See "Risk Factors--Absence of Public Market."
Each Exchange Note will bear interest at the rate of 11 3/4% per annum
from the most recent date to which interest has been paid or duly provided for
on the Old Note surrendered in exchange for such Exchange Note or, if no
interest has been paid or duly provided for on such Old Note, from July 10, 1998
(the date of original issuance of such Old Note). Interest on the Exchange
Notes will be payable semiannually on January 1 and July 1 of each year,
commencing on the first such date following the original issuance date of the
Exchange Notes.
Holders of Old Notes whose Old Notes are accepted for exchange will
not receive accrued interest on such Old Notes for any period from and after the
last Interest Payment Date (as defined) to which interest has been paid or duly
provided for on such Old Notes prior to the original issue date of the Exchange
Notes or, if no such interest has been paid or duly provided for, will not
receive any accrued interest on such Old Notes, and will be deemed to have
waived the right to receive any interest on such Old Notes accrued from and
after such Interest Payment Date or, if no such interest has been paid or duly
provided for, from and after July 10, 1998.
i
<PAGE>
-----------------
ADDITIONAL INFORMATION
Upon consummation of the Exchange Offer, the Company will be required
to file reports and other information with the Securities and Exchange
Commission (the "Commission") pursuant to the information requirements of the
Securities and Exchange Act of 1934, as amended (the "Exchange Act"). The
Company intends to furnish the holders of the Exchange Notes with annual reports
containing consolidated financial statements audited by independent certified
public accountants following the end of each fiscal year and with quarterly
reports containing unaudited financial information for each of the first three
quarters of each fiscal year following the end of such quarter.
The Company has filed with the Commission a Registration Statement on
Form S-4 under the Securities Act with respect to the Exchange Offer. As
permitted by the rules and regulations of the Commission, this Prospectus, which
is a part of the Registration Statement, omits certain information, exhibits,
schedules and undertakings set forth in the Registration Statement. For further
information pertaining to the Company and the securities offered hereby,
reference is made to such Registration Statement and the exhibits and schedules
thereto. Statements contained in this Prospectus as to the contents or
provisions of any documents referred to herein are not necessarily complete, and
in each instance, reference is made to the copy of the document filed as an
exhibit to the Registration Statement.
The Registration Statement may be inspected without charge at the
office of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549.
Copies of the Registration Statement may be obtained from the Commission at
prescribed rates from the Public Reference Section of the Commission at such
address, and at the Commission's regional offices located at 7 World Trade
Center, 13th Floor, New York, New York 10048, and at Northwestern Atrium Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661. In addition,
registration statements and certain other filings made with the Commission
through its Electronic Data Gathering, Analysis and Retrieval ("EDGAR") system
are publicly available through the Commission's site on the Internet's World
Wide Web, located at http://www.sec.gov.
FORWARD-LOOKING INFORMATION
This Prospectus contains certain forward-looking statements. Such
forward-looking statements may concern, among other things, the market and
prospects for radio and television programming, the market and demand for
satellite delivery and production support services, the Company's ability to
continue to consolidate the PIN Venture (as defined) for financial reporting
purposes, its ability to increase the distribution of its television networks
and the timing of such distribution, the expected impact of the GAC Equity
Agreements (as defined) and the Acquisition (as defined) on the Company's
financial condition, results of operation and business prospects, the Company's
ability to increase the audience for its radio programming, the Company's
ability to develop or acquire new radio and television programming, the
Company's ability to sell advertising airtime on its radio and television
networks, the Company's ability to market such airtime and to increase its
advertising rates, the Company's ability to lease its unused satellite
transponder capacity and the price and timing of any leases that may be entered
into, plans for acquiring and/or creating complementary businesses and value-
added services, the Company's ability to integrate the operations of
MediaAmerica and increase the Company's profitability, the competition in the
radio and television businesses, the technology of delivering the Company's
programming, the Company's ability to operate effectively and profitably,
including to pursue its planned investment strategy in accordance with the
operating restrictions and cash flow requirements imposed by the Indenture,
including its ability to access bank or other
ii
<PAGE>
financing, and other statements of expectations, beliefs, future plans and
strategies, anticipated developments and other matters that are not historical
facts. In particular, any statements, express or implied, concerning future
operating results or the ability to generate revenues and operating income to
service the Notes, including Great American Country's projected subscriber
level, license fees and advertising revenues expected to be received that were
used in preparing the pro forma information presented elsewhere herein and the
information under the caption "Management's Discussion and Analysis of
Financial Condition and Results of Operations" are forward-looking statements.
Such forward-looking statements generally are accompanied by words such as
"expect," "predict," "anticipate," "should," "assume," "believe," "plan,"
"intend" or other words that convey the uncertainty of future events or
outcomes.
Such forward-looking information is based upon management's current
plans, expectations, estimates and assumptions and is subject to a number of
risks and uncertainties that could significantly affect current plans,
anticipated actions, the timing of such actions and the Company's financial
condition and results of operations. As a consequence, actual results may differ
materially from expectations, estimates or assumptions expressed in or implied
by any forward-looking statements made by or on behalf of the Company. The risks
and uncertainties include generally risks and uncertainties associated with the
Company's substantial leverage, restrictions imposed by the Indenture, the
acquisition and distribution of television and radio programming and the
development or acquisition of programming that audiences will like, risks and
uncertainties associated with reliance on others for the distribution of
television programming, risks associated with the Acquisition, uncertainties
associated with the integration of acquired companies and businesses, dependence
on the sale of advertising airtime and to generate advertising revenues, risks
associated with the PIN Venture, risks and uncertainties associated with the
satellite delivery and production support market and technology and those other
risks and uncertainties discussed herein under "Risk Factors." Also, the impact
of competition on all aspects of the business is not predictable. Additionally,
unpredictable or unknown factors not discussed herein could have material
adverse effects on actual results related to matters which are the subject of
forward-looking information. Forward-looking statements speak only as of the
date of this Prospectus. The Company does not intend to update these cautionary
statements.
iii
<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. Unless the context requires otherwise and when statistical data
are provided as of a specific date, all information reflects the completion of
the Acquisition. The Company was incorporated in May 1998. The Company formerly
was a wholly-owned subsidiary of Jones Network Holdings LLC ("Network
Holdings"), a Colorado limited liability company. Network Holdings' wholly-owned
subsidiary, JPN, Inc. was incorporated in November 1993. Effective upon the
closing of the offering of the Old Notes in July 1998 and the Acquisition (as
defined), the Company acquired all of the shares of JPN, Inc. from Network
Holdings, and the members of Network Holdings exchanged their Class A Ownership
Interests and Class B Ownership Interests in Network Holdings for shares of
Class A Common Stock and Class B Common Stock, respectively, of the Company, and
Network Holdings was dissolved (the "Reorganization"). All information in this
Prospectus assumes that the Reorganization occurred on January 1, 1995.
Investors should consider carefully the information set forth under the heading
"Risk Factors".
THE COMPANY
Jones International Networks, Ltd. (the "Company") provides radio
programming to radio stations in the U.S. and cable television programming to
cable system operators. The Company's radio programming includes twelve 24-hour
formats and 18 syndicated programs that are broadcast by approximately 2,300
radio station affiliates throughout the United States to over 60 million weekly
listeners. The Company's cable television programming consists of Great American
Country (country music videos) and the Product Information Network (long-form
advertising). Pursuant to affiliate agreements with five of the ten largest
multiple-system operators ("MSOs"), as well as the two cable programming
cooperatives and others, Great American Country was distributed to 4.6 million
subscribers at August 15, 1998. The Product Information Network is presently
distributed to 278 cable systems and broadcast affiliates and is available to
18.6 million households. The Company has successfully expanded the reach of its
cable television programming to a broad number of major MSOs as a result of the
extensive experience of the Company's senior management team, including Mr.
Glenn R. Jones, the Company's Chairman and majority shareholder.
In July, 1998, the Company acquired substantially all the assets of
MediaAmerica, Inc. ("MediaAmerica") (the "Acquisition"). MediaAmerica was
founded in 1987 to provide advertising representation services to providers of
radio programming, such as the Company, and in 1994 expanded to provide radio
programming and other services to radio stations. The Acquisition provides the
Company with a group of experienced executives who have long-standing
relationships with many advertising agencies and advertisers that the Company
believes will be valuable in driving its advertising-related revenue growth. See
"The Acquisition and Related Transactions."
The Company primarily derives its revenues from the sale of its commercial
radio or cable television airtime inventory to national advertisers that are
attracted to the Company's ability to efficiently reach a large national
audience across a variety of demographics and markets. The Company also receives
license fees from MSOs that carry Great American Country and provides satellite
delivery and production support services for its own programming operations as
well as to others. The Company's strategy is to increase advertising revenues by
continuing to increase its base of radio station affiliates and cable system
affiliates, thereby broadening its audience of radio listeners and cable
television viewers. The Company also plans to diversify and expand its sources
of revenues by developing new radio and cable television programming, acquiring
complementary businesses (such as MediaAmerica), offering programming-related
and other value-added services and leasing satellite transponder
1
<PAGE>
capacity made available by more efficient digital compression techniques. There
is no assurance that the Company will be successful in these efforts.
The Company provides a wide variety of advertisers many different ways to
reach their target audiences through network radio and cable television. Given
network 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's radio audience demographics are primarily adults, ages 25-54. Great
American Country, the Company's country music television network, also targets
this attractive demographic sector. According to industry sources, country music
is one of America's most popular music formats and has been one of the fastest
growing segments of the music industry. In addition, the Company believes the
Product Information Network's long-form advertising provides television
advertisers with a cost-effective medium to deliver sales messages, product
introductions and demonstrations to targeted audiences. The Company believes
that the number of advertisers and the volume of long-form advertising will
continue to grow as the Product Information Network's coverage of U.S.
households increases and Fortune 500 companies and other major advertisers
increasingly take advantage of the benefits of long-form advertising to reach
their desired audience.
RADIO PROGRAMMING. The Company, through its radio programming division,
Jones Radio, typically provides programming to its radio affiliates in exchange
for commercial airtime inventory which it sells to national advertisers. Jones
Radio's programming and related services offer radio stations a cost-efficient
alternative to the talent, time and expense required to develop in-house
programming. In addition, Jones Radio's variety of appealing 24-hour formats,
primarily country and adult contemporary, and its nationally recognized group of
syndicated programs and personalities, enable radio stations to distinguish
themselves within their increasingly competitive markets. As a group, Jones
Radio's radio station affiliates generally capture larger audience (measured by
average quarter hour listeners ("AQH")) as a result of broadcasting Jones
Radio's programming, which can result in additional local advertising revenues
for these radio stations. Jones Radio has been a successful provider of country
music programming, one of the most popular music formats with over 4 million
U.S. listeners each week. Jones Radio provides its programming to approximately
30% of all country radio stations in the United States and believes it is the
largest provider of country music programming to U.S. radio stations. Between
December 31, 1994 and June 30, 1998, Jones Radio's base of radio station
affiliates grew from 925 to 1,510, representing a compound annual growth rate
("CAGR") of 14.1%. For the same period, Jones Radio has experienced a 37.9% CAGR
in AQH, growing from 670,000 at December 31, 1994 to 2,473,000 at June 30, 1998.
In addition to its advertising representation business, MediaAmerica provides
radio programming and services to 990 radio station affiliates in mostly larger
markets. As a result of the Acquisition, Jones Radio has more than doubled its
AQH to 6.5 million, which represents 60 million total weekly listeners. While
Jones Radio has historically provided programming to radio stations in small and
medium-sized markets, it is currently focusing its programming development
efforts to appeal to larger markets. Jones Radio has radio station affiliates in
all 50 states and in all of the top 50 markets.
RADIO ADVERTISING REPRESENTATION SERVICES. As a result of the Acquisition,
the Company offers advertising representation services to providers of radio
programming throughout the United States. As a representation firm, MediaAmerica
historically acted as an intermediary between advertisers and radio programming
providers, such as the Company. The Company was one of MediaAmerica's largest
customers in 1997 for this type of service. The Company plans to develop
numerous cross-selling opportunities and other synergies that arise from the
complementary nature of MediaAmerica's services and customer base.
TELEVISION PROGRAMMING--GREAT AMERICAN COUNTRY. Great American Country is a
24-hour country music video network that capitalizes on the popularity of
country music and leverages the Company's core competency in country music
programming. Great American Country represents a high-quality alternative to
currently available country music networks and offers MSOs attractive incentives
for carriage. In order to drive subscriber growth, Great American Country
generally offers affiliates a one-time cash launch incentive and waives license
fees for a certain period which varies based on the level of subscriber
commitment. The Company is enhancing its near-term operating cash flow through
new agreements with two significant MSOs to issue them shares of the Company's
2
<PAGE>
Class A Common Stock in return for which Great American Country will be paid
license fees from the date of launch (the "GAC Equity Agreements"). Great
American Country has affiliate agreements with five of the ten largest MSOs,
including Adelphia Communications Corporation ("Adelphia"), Comcast Cable
Communications, Inc. ("Comcast"), Jones Intercable, Inc. ("Jones Intercable"),
TCI Communications, Inc. ("TCI") and Time Warner Networks, Inc. ("Time Warner"),
as well as the two cable programming cooperatives, Telesynergy, Inc. and
National Cable Television Cooperative, Inc. The Company believes that by
offering its carriage incentive programs, competitive license fee rates and
twice the amount of local advertising avails than its primary competitor, it
will attract additional subscribers from existing and new MSO affiliates that
are increasingly seeking to decrease costs and generate more advertising
revenues.
TELEVISION PROGRAMMING--PRODUCT INFORMATION NETWORK. The Company introduced
the Product Information Network in October 1993 to capitalize on the growing
infomercial industry which, based on industry statistics, represents
approximately $1 billion of airtime expenditures. The Product Information
Network is aired on a full-time (24-hour) basis or on a part-time basis, thereby
affording cable and broadcast affiliates the opportunity to generate incremental
revenues from otherwise under-utilized time. The Product Information Network
airs long-form informational programming from all of the major infomercial
producers, such as Guthy-Renker Corporation and National Media Corporation, as
well as Fortune 500 advertisers that have included AT&T Corporation, Dupont,
Ford Motor Company, GTE Corporation, Microsoft Corporation, State Farm Life
Insurance Co., and Schering-Plough Corporation. Since December 31, 1994, the
Product Information Network has increased its base of cable subscribers and
broadcast households from 1.5 million to 18.6 million at June 30, 1998,
representing a CAGR of 74.1%. The Product Information Network is presently
distributed to 9.7 million full-time equivalent subscribers through 278 cable
systems and broadcast affiliates. The MSOs that carry the network on a portion
of their cable systems include nine of the ten largest MSOs, including Adelphia,
Cablevision Systems Corporation ("Cablevision"), Comcast, Cox Communications,
Inc. ("Cox"), Jones Intercable, Marcus Cable Company, LP ("Marcus Cable"),
MediaOne Group, TCI and Time Warner. The Product Information Network operates
through a joint venture among the Company, Adelphia and Cox (the "PIN Venture").
SATELLITE DELIVERY AND PRODUCTION SUPPORT SERVICES. The Company supports
the production and distribution of its radio and cable television programming
operations through its state-of-the-art satellite uplinking facilities. The
Company's satellite delivery and production support services provide reliable
and efficient playback, trafficking, uplinking and satellite transmission
services to the Company's radio and cable television programming operations and
to certain related companies. The Company believes that the integration of these
distribution services gives it strict management and quality control over the
distribution of its programming. The Company has financed its ownership of two
analog satellite transponders through a capital lease that was fully prepaid
with a portion of the proceeds of the offering of the Old Notes. The channel
capacity on one satellite transponder has been digitally compressed to seven
channels, four of which are currently leased to Product Information Network,
Great American Country and two related parties. This transponder could now be
digitally compressed into additional channels if demand warranted. In August
1998, the Company entered into a lease agreement with an unaffiliated party for
the lease of three digital channels until August 31, 1999. The other satellite
transponder is an analog channel which the Company recently leased to a third
party. The Company believes that the demand for its satellite delivery and
production support services should increase as digital programming and
distribution technologies continue to develop and cable systems complete
upgrades and rebuilds to expand their channel capacity. The cable systems'
expansion of their channel capacity provides more programming space for cable
programmers who, in turn, would require satellite transponders to provide the
programming.
COMPETITIVE STRENGTHS
EXPERIENCED MANAGEMENT TEAM WITH STRONG RELATIONSHIPS WITH RADIO STATION
AFFILIATES, MSOS AND ADVERTISERS. Glenn R. Jones, the Company's Chairman and
majority shareholder is also the Chairman and Chief Executive Officer of Jones
Intercable, one of the ten largest MSOs in the United States. It is anticipated
that following consummation of the pending acquisition from entities affiliated
with Mr. Jones of shares representing a controlling interest in Jones Intercable
by Comcast Corporation, Mr. Jones will no longer be affiliated with Jones
Intercable. Mr. Jones has assembled a management team with
3
<PAGE>
extensive experience in all aspects of the Company's businesses. The Company's
senior management team has an aggregate of 141, 94 and 142 years of experience
in the radio, cable television and advertising industries, respectively. The
Company's radio programming experience dates back to 1989 when it launched its
first 24-hour satellite delivered format. The rapid increase in radio station
affiliates is the result of the Company's sales and marketing efforts, which
emphasize its quality programming, customer service and experienced air talent.
The Company's cable television programming has benefited substantially from
management's experience and relationships with major MSOs, with five of the ten
largest MSOs affiliating with Great American Country and cable systems owned by
nine of the ten largest MSOs affiliating with the Product Information Network.
Finally, the Acquisition provides the Company with a group of experienced
executives who have long-standing relationships with many advertising agencies
and advertisers that the Company believes will be valuable in driving
advertising-related revenue growth.
LARGE AND GROWING INSTALLED BASE OF LISTENERS AND SUBSCRIBERS WITH
ATTRACTIVE DEMOGRAPHICS. The Company's radio and cable television programming
reaches a large nationwide audience, in most cases, 24 hours a day, seven days a
week. The Company's audience includes 60 million weekly radio listeners and 18.6
million households for the Product Information Network. This audience has grown
dramatically over the past five years, as the Company has developed or acquired
new and improved programming for an increasing number of radio station and cable
system affiliates. The Company's audience is represented by a variety of
demographics in small, medium-sized and large markets, which the Company
believes appeals to a broad array of national advertisers. As the Company's
audience increases, the Company believes it will be able to obtain a more than
proportional increase in advertising revenues.
SIGNIFICANT OPERATING LEVERAGE WITH LOW PROGRAMMING COSTS AND STATE-OF-THE-
ART INFRASTRUCTURE. The Company's radio and cable television programming costs
are low relative to many of its competitors. The Company's programming
operations utilize state-of-the-art digital equipment to automate its operations
and thus reduce its operating costs. Great American Country receives country
music videos at no cost from the record label companies, and the Product
Information Network's advertisers purchase airtime from the Company to broadcast
their programs. The Company's satellite uplinking and distribution costs are
generally fixed and, as a result, additional radio or cable television
programming can be distributed by the Company at minimal incremental cost.
INTEGRATED PROVIDER OF HIGH-QUALITY RADIO PROGRAMMING. The Company is
strategically positioned as an independent provider of radio programming. In
their increasingly competitive markets, radio stations may seek programming from
the Company, because as an "independent," the Company does not own or operate
competitive radio stations. The Company's independence also enables it to act as
a radio programming distributor for large group radio station owners, such as
CapStar Broadcasting Corp. ("CapStar"). The Company ensures the quality of the
distribution of its radio programming in part through its integrated state-of-
the-art satellite uplinking and distribution facilities which employ recent
innovations in digital storage and delivery.
COMPLEMENTARY ACQUISITION OF MEDIAAMERICA YIELDS SUBSTANTIAL BENEFITS. The
Acquisition offers a number of opportunities for the Company and is expected to
enhance its profitability. MediaAmerica had $15.1 million of net revenues in
1997. MediaAmerica will also enable the Company to pursue programming alliances
with parties to which it previously had no access. For example, the Company and
MediaAmerica are in joint discussions with a major cable television network to
develop a group of news and entertainment radio programs utilizing the network's
talent and news gathering resources. The Company believes there are also
potential synergies in MediaAmerica's radio programming operations, which add 14
radio programs provided through 990 radio station affiliates to an audience of
28 million weekly listeners. Finally, MediaAmerica's management team brings an
aggregate of 142 years of experience in the radio advertising representation
industry. The Company believes that MediaAmerica's long-standing relationships
with advertising agencies and advertisers should significantly enhance the
Company's ability to drive advertising-related revenue growth; although there
can be no assurance to that effect.
4
<PAGE>
COMBINATION OF RADIO AND CABLE TELEVISION OFFERS ADVERTISERS EFFICIENT
MEANS OF REACHING A LARGE AUDIENCE. As a diversified provider of radio and cable
television programming, the Company provides to a wide variety of advertisers
many different ways to reach their target audience. Radio is one of the most
cost-effective means to reach targeted demographics. According to industry
sources, 167 million people listen to radio each day. Similarly, cable
television is a relatively inexpensive means to target large audiences as
compared to broadcast television. According to industry sources, 68 million of
97 million U.S. TV households subscribe to cable and 54% of viewing time is on
cable networks. The Company believes it is strategically positioned to offer
both radio and cable television advertising inventory in a single package. For
example, the Company is developing joint media proposals for advertisers to
target a large nationwide audience through the Company's country music radio
programs and Great American Country.
STRATEGY
The Company's objective is to increase its revenues and operating income by
employing the following strategies:
DISTRIBUTE PROGRAMMING TO A LARGER AUDIENCE. To increase its revenues from
advertisers, the Company must increase the distribution of, and audience for,
its programming. Jones Radio plans to increase its marketing and sales
activities in an effort to increase the number of its radio station affiliates
and the size of its audience. The Company also plans to continue to aggressively
market its cable television networks to both cable operators and other multi-
channel distributors, including direct broadcast satellite services systems
("DBS"), multi-point, multi-system distribution systems ("MMDS") and others. The
Company relies on financial incentives and its established relationships with
MSOs to market these networks.
DEVELOP OR ACQUIRE ADDITIONAL HIGH-QUALITY PROGRAMMING. The Company
believes that there is market demand for additional long-form and short-form
radio programming due to the financial constraints and limited creative
resources of many radio stations and their need to improve operating
efficiencies. In addition, the Company believes there are additional market
opportunities for 24-hour music and information programs that the Company does
not currently distribute, such as news/talk radio. Jones Radio intends to
develop and/or acquire radio programming addressing these market demands. An
example of new radio programming includes "Nashville Nights," a national long-
form country night-time show targeted at larger markets, which is being produced
in a venture with CapStar. The Company is exploring opportunities to produce
additional low-cost cable television programming based on the strength of its
relationships with major MSOs and its success with Great American Country and
the Product Information Network. The Company believes that any new cable
television programming would typically serve unfilled or underserved niches and,
similar to Great American Country, would most likely serve as an attractive
competitively priced alternative to an existing cable network.
INCREASE ADVERTISING REVENUES. The Company's primary goal in driving
revenue growth is to increase its audience by developing new programming and
expanding its base of radio station and cable system affiliates. In addition,
the Company's new radio programs are designated to increasingly target larger
markets which typically generate higher advertising rates. Management believes
that when Great American Country's attainment of a 5 million subscriber level is
reached, of which there is no assurance, the Company will be able to target a
broader group of advertisers and derive significantly higher advertising
revenues based on traditional spot advertising as opposed to direct response
advertising. Finally, the Company intends to promote the benefits of long-form
advertising to Fortune 500 companies and other major advertisers, with the goal
of attracting more advertising from such advertisers, enhancing the quality of
the Product Information Network's programming and increasing the rates for its
advertising time.
ACQUIRE OR CREATE COMPLEMENTARY BUSINESSES AND VALUE-ADDED SERVICES. The
Company intends to expand its business by acquiring and/or creating businesses
complementary to its business. The Acquisition represents an example of this
strategy. The Company believes that numerous opportunities exist, both
in the development of new
5
<PAGE>
programming and the acquisition of complementary businesses. A portion of the
proceeds from the offering of the Old Notes will provide the Company with
additional resources for these purposes.
INCREASE UTILIZATION OF SATELLITE TRANSPONDER CAPACITY AND PRODUCTION
SUPPORT FACILITIES. The Company's satellite delivery and production support
facilities provide reliable and efficient playback, trafficking, uplinking and
satellite transmission services to the Company's radio and cable television
programming operations, to certain related companies and to a third party. The
Company has seven channels on its digitally compressed satellite transponder,
which could be digitally compressed into additional channels if demand
warranted. All seven channels on this satellite transponder are leased . The
Company also has one analog channel on another satellite transponder which is
leased. The Company believes that its remaining compressible satellite
transponder capacity represents a valuable asset because of the potential demand
from new cable programmers for satellite transponder space, the opportunity to
provide profitable uplinking and other services along with the satellite
transponder space, and the availability of satellite transponder space in-house
in the event that the Company develops or acquires additional cable television
networks in the future.
COMPANY BACKGROUND
The Company was founded by Glenn R. Jones. Mr. Jones is the Chairman and
Chief Executive Officer of Jones Intercable, one of the ten largest MSOs serving
more than 1.4 million subscribers through 37 cable television systems in the
United States. Mr. Jones has been instrumental in leading the Company's early
growth and continues as its majority shareholder and Chairman. Mr. Jones
beneficially owns 100% of the Company's Class B Common Stock, which has the
right as a class to elect 75% of the Company's Board of Directors, and 78.9% of
the Company's Class A Common Stock, and he controls the election of the six
members of the Company's Board of Directors (subject to certain contractual
agreements made in connection with the Acquisition). 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. Jones Intercable is a significant
customer of the Company, as it distributes Great American Country and the
Product Information Network to most of its subscribers. This relationship is
expected to continue in accordance with current contractual arrangements after
the closing of the acquisition by Comcast Corporation of certain shares
representing a controlling interest in Jones Intercable from Mr. Jones and other
major shareholders of Jones Intercable. Two affiliated companies, Jones
Education Company and Knowledge TV, Inc., also lease satellite transponder
capacity and purchase uplinking and other services from the Company.
The Company was incorporated as a Colorado corporation and 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.
6
<PAGE>
THE EXCHANGE OFFER
The Exchange Offer ...... The Company is offering to exchange $1,000
principal amount of Exchange Notes for each $1,000
principal amount of Old Notes that is properly
tendered and accepted. The form and terms of the
Exchange Notes are substantially identical in all
material respects as the form and terms of the Old
Notes except that the exchange will have been
registered under the Securities Act and therefore
the Exchange Notes will not bear legends
restricting the transfer thereof. In addition, the
Additional Interest provisions will be modified or
eliminated as appropriate and holders of the
Exchange Notes will not be entitled to certain
rights of holders of the Old Notes under the
Exchange and Registration Rights Agreement, which
rights with respect to Old Notes that are
exchanged will terminate upon the consummation of
the Exchange Offer. See "The Exchange Offer--
Payment of Additional Interest Under Certain
Conditions." The issuance of the Exchange Notes is
intended to satisfy certain obligations of the
Company contained in the Exchange and Registration
Rights Agreement. Subject to certain conditions, a
holder who wishes to tender must transmit a
properly completed and duly executed Letter of
Transmittal to United States Trust Company of New
York (the "Exchange Agent") on or prior to the
Expiration Date. For procedures for tendering, see
"The Exchange Offer."
Based upon existing interpretations by the staff
of the Commission issued to third parties, the
Company believes the Exchange Notes will be freely
transferable by holders thereof (other than
affiliates of the Company and the Subsidiary
Guarantors) after the Exchange Offer without
further registration under the Securities Act if
the holder of the Exchange Notes represents that
it is acquiring the Exchange Notes in the ordinary
course of business, that it has no arrangement or
understanding with any person to participate in
the distribution (within the meaning of the
Securities Act) of the Exchange Notes and that it
is not an affiliate of the Company or the
Subsidiary Guarantors, as such terms are
interpreted by the Commission; provided that
broker-dealers ("Participating Broker-Dealers")
receiving Exchange Notes in the Exchange Offer
will have a prospectus delivery requirement with
respect to resales of such Exchange Notes. The
Commission has not considered the Exchange Offer
itself in the context of its interpretations and
there can be no assurance that the staff of the
Commission would make a similar determination with
respect to the Exchange Offer. The Commission has
taken the position that the Participating Broker-
Dealers may fulfill their prospectus delivery
requirements with respect to the Exchange Notes
(other than a resale of an unsold allotment from
the original sale of the Old Notes) with the
prospectus contained in the Exchange Offer
Registration Statement. The Company has agreed if,
at the time of the completion of the Exchange
Offer, information in the Letter of Transmittal
submitted by exchanging holders indicates that
there are holders that are Participating Broker-
Dealers or otherwise subject to prospectus
delivery requirements, the Company will, for
such period of time as is necessary to comply with
applicable law up to the date that is 180 days
after consummation of the Exchange Offer, make
available a prospectus meeting the requirements of
the Securities Act to such persons, if any, for
use in connection with any resale of such Exchange
Notes.
7
<PAGE>
Exchange and Registration
Rights Agreement ........ The Old Notes were sold by the Company on July 10,
1998 to the Initial Purchaser pursuant to the
Purchase Agreement. Pursuant to the Purchase
Agreement, the Company and the Initial Purchaser
entered into the Exchange and Registration Rights
Agreement. This Exchange Offer is intended to
satisfy certain obligations of the Company
contained in the Exchange and Registration Rights
Agreement, which terminate upon the consummation
of the Exchange Offer. The holders of the Exchange
Notes are not entitled to any exchange or
registration rights with respect to the Exchange
Notes. The Old Notes are subject to the payment of
Additional Interest under certain circumstances if
the Company is not in compliance with its
obligations under the Exchange and Registration
Rights Agreement. See "The Exchange Offer, Payment
of Additional Interest Under Certain
Circumstances."
Expiration Date ......... The Exchange Offer will expire at 5:00 p.m., New
York City time, on the "Expiration Date." As used
herein, the term "Expiration Date" means 5:00
p.m., New York City time, on _______________,
__________, 1998; provided, however, that if the
Company, in its sole discretion, has extended the
period of time for which the Exchange Offer is to
remain open, the term "Expiration Date" means the
latest time and date to which the Exchange Offer
is extended.
Withdrawal .............. Tenders of Old Notes pursuant to the Exchange
Offer may be withdrawn at any time prior to the
Expiration Date by sending a written notice of
withdrawal to the Exchange Agent. Any Old Notes so
withdrawn will be deemed not to have been validly
tendered for exchange for purposes of the Exchange
Offer. Any Old Notes not accepted for exchange for
any reason will be returned without expense to the
tendering holder thereof as promptly as
practicable after the expiration or termination of
the Exchange Offer. See "The Exchange Offer--Terms
of the Exchange Offer; Period for Tendering Old
Notes."
Certain Conditions to
the Exchange Offer ...... The Exchange Offer is subject to certain customary
conditions, which may be waived by the Company.
See "The Exchange Offer--Certain Conditions to the
Exchange Offer."
Federal Income Tax
Consequences ............ The exchange of the Old Notes for Exchange Notes
pursuant to the Exchange Offer should not
constitute a taxable exchange for federal income
tax purposes. See "Certain United States Federal
Income Tax Considerations."
Use of Proceeds ......... There will be no proceeds to the Company from the
issuance of the Exchange Notes pursuant to the
Exchange Offer.
Exchange Agent .......... United States Trust Company of New York is serving
as Exchange Agent in connection with the Exchange
Offer.
8
<PAGE>
CONSEQUENCES OF FAILURE TO EXCHANGE OLD NOTES
Holders of Old Notes who do not exchange their Old Notes for Exchange Notes
pursuant to the Exchange Offer will continue to be subject to the restrictions
on transfer of such Old Notes as set forth in the legends thereon as a
consequence of the issuance of the Old Notes pursuant to exemptions from, or in
transactions not subject to, the registration requirements of the Securities Act
and applicable state securities laws. Accordingly, such Old Notes may only be
offered, sold, pledged or otherwise transferred (A)(i) to a person whom the
seller reasonably believes is a qualified institutional buyer within the meaning
of Rule 144A under the Securities Act ("Rule 144A") in a transaction meeting the
requirements of Rule 144A, (ii) in an offshore transaction meeting the
requirements of Rule 903 or Rule 904 of Regulation S under the Securities Act,
(iii) pursuant to an exemption from registration under the Securities Act
provided by Rule 144 thereunder ("Rule 144"), if available or (iv) pursuant to
another exemption from registration as set forth in the legend on the Old Notes
and (B) in accordance with all applicable securities laws of the states of the
United States. The Company does not anticipate that it will register the Old
Notes under the Securities Act. See "Risk Factors--Consequences of Failure to
Exchange Old Notes" and "The Exchange Offer--Consequences of Failure to
Exchange."
THE EXCHANGE NOTES
The form and terms of the Exchange Notes are substantially identical in all
material respects to the form and terms of the Old Notes except that the
exchange will have been registered under the Securities Act and therefore the
Exchange Notes will not bear legends restricting the transfer thereof. In
addition, the Additional Interest provisions will be modified or eliminated as
appropriate and holders of the Exchange Notes will not be entitled to certain
rights of holders of the Old Notes under the Exchange and Registration Rights
Agreement, which rights with respect to Old Notes that are exchanged will
terminate upon the consummation of the Exchange Offer. See "Description of the
Notes--Exchange Offer; Registration Rights." The Exchange Notes will evidence
the same debt as the Old Notes (which they replace) and will be issued under,
and be entitled to the benefits of, the Indenture. See "Description of the
Notes" for further information and for definitions of certain capitalized terms
used below.
Each Exchange Note will bear interest at the rate of 11 3/4% per annum from
the most recent date to which interest has been paid or duly provided for on the
Old Note surrendered in exchange for such Exchange Note or, if no interest has
been paid or duly provided for on such Old Note, from July 10, 1998 (the date of
original issuance of such Old Notes). Interest on the Exchange Notes will be
payable semiannually on January 1 and July 1 of each year, commencing on the
first such date following the original issuance date of the Exchange Notes.
Holders of Old Notes whose Old Notes are accepted for exchange will not
receive accrued interest on such Old Notes for any period from and after the
last Interest Payment Date to which interest has been paid or duly provided for
on such Old Notes prior to the original issue date of the Exchange Notes or if
no such interest has been paid or duly provided for, will not receive any
accrued interest on such Old Notes, and will be deemed to have waived the right
to receive any interest on such Old Notes accrued from and after such Interest
Payment Date or, if no such interest has been paid or duly provided for, from
and after July 10, 1998.
9
<PAGE>
THE NOTES
Securities............... $100,000,000 aggregate principal amount of 11 3/4%
Senior Secured Notes due 2005.
Maturity Date............ July 1, 2005.
Interest Payment Dates... January 1 and July 1 of each year, commencing on
January 1, 1999.
Optional Redemption...... Except as described below and under "Change of
Control," the Company may not redeem the Notes
prior to July 1, 2003. On or after such date, the
Company may redeem the Notes, in whole or in part,
at any time at the redemption prices set forth
herein, together with accrued and unpaid interest,
if any, to the date of redemption. In addition, at
any time and from time to time on or prior to July
1, 2001, the Company may, subject to certain
requirements, redeem up to 35% of the aggregate
principal amount of the Notes with the cash
proceeds received from one or more Equity
Offerings at a redemption price equal to 111.75%
of the principal amount to be redeemed, together
with accrued and unpaid interest, if any, to the
date of redemption, provided that at least 65% of
the aggregate principal amount of the Notes
remains outstanding immediately after each such
redemption.
Change of Control........ Upon the occurrence of a Change of Control, the
Company will be required to make an offer to
repurchase the Notes at a price equal to 101% of
the principal amount thereof, together with
accrued and unpaid interest, if any, to the date
of repurchase.
Ranking.................. The Notes rank pari passu in right of payment with
all existing and future Senior Indebtedness of the
Company and rank senior in right of payment to all
existing and future Subordinated Obligations of
the Company. Claims of holders of the Notes are
structurally subordinated to claims of holders of
indebtedness of the Company's subsidiaries.
Security................. The collateral securing the Notes consists of the
capital stock of the Company's wholly-owned
subsidiary, Jones Programming, and its direct
subsidiaries. The Guarantees are not secured.
Guarantees............... The Notes are unconditionally guaranteed, jointly
and severally, by each of the Subsidiary
Guarantors. The Guarantees are senior unsecured
obligations of each Subsidiary Guarantor and rank
pari passu in right of payment with all existing
and future Senior Indebtedness of each Subsidiary
Guarantor, other than Bank Indebtedness and
Capitalized Lease Obligations, and rank senior in
right of payment to all existing and future
Subordinated Obligations of each Subsidiary
Guarantor.
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<PAGE>
Restrictive Covenants.... The indenture under which the Notes are issued
(the "Indenture") contains certain covenants that,
among other things, limit (i) the incurrence of
additional indebtedness by the Company and its
subsidiaries, (ii) the payment of dividends on,
and redemption of, capital stock of the Company
and the redemption of certain subordinated
obligations of the Company, (iii) investments,
including investments over a certain amount in any
entity that is not a Wholly-Owned Subsidiary, (iv)
sales of assets and subsidiary stock, (v)
transactions with affiliates and (vi)
consolidations, mergers and transfers of all or
substantially all of the assets of the Company.
The Indenture also prohibits the restriction of
certain distributions and asset transfers from
Restricted Subsidiaries. All the limitations and
prohibitions are subject to a number of important
qualifications and exceptions.
Transfer Restrictions;
Absence of a
Public Market ........ If issued, the Exchange Notes will generally be
freely transferable but will be new securities for
which there will not initially be a market. The
Old Notes are designated for trading in the PORTAL
market. The Initial Purchaser has advised the
Company that it may make a market in the Old Notes
and in the Exchange Notes. However, the Initial
Purchaser is not obligated to do so, and any
market-making may be discontinued at any time
without notice. The Company does not intend to
apply for listing of the Old Notes, or, if issued,
the Exchange Notes, on any securities exchange or
automated dealer quotation system. See "Exchange
Offer and Registration Rights" and "Plan of
Distribution."
Use of Proceeds.......... The Company will receive no proceeds from the
issuance of the Exchange Notes. The net proceeds
from the offering of the Old Notes was
approximately $95.2 million. See "Use of
Proceeds."
For more complete information regarding the Notes, see "Description of
Notes."
11
<PAGE>
SUMMARY UNAUDITED RECONSOLIDATED AND PRO FORMA FINANCIAL DATA
The following table sets forth certain summary unaudited reconsolidated and
pro forma consolidated financial data of the Company for the periods ended and
as of the dates indicated and are derived from and described in "Selected
Unaudited Pro Forma Financial Data" and in "Selected Unaudited Reconsolidated
Financial Data." The summary unaudited reconsolidated income statement and other
data give effect to the consolidation on a pro forma basis of the Company's
subsidiary, the PIN Venture (the "Reconsolidation"), as if this transaction had
occurred at the beginning of each of the periods presented. The summary
unaudited pro forma income statement and other data are further adjusted to
reflect the Acquisition, the offering of the Old Notes and the application of
the net proceeds therefrom, the payment of launch incentive fees, receipt of
subscriber license fees and issuance of Class A Common Stock pursuant to the GAC
Equity Agreements and the conversion of the $10 million note to Global Group
into shares of Class A Common Stock (collectively, the "Transactions") as if
they had occurred at the beginning of the periods presented. The summary
unaudited pro forma balance sheet data give effect to the Transactions as if
they had occurred on June 30, 1998. The summary unaudited reconsolidated and pro
forma financial data are provided for informational purposes only and should not
be construed to be indicative of what the Company's results of operations or
financial condition would have actually been had any of the aforementioned
Transactions been consummated as of such dates or to project the Company's
results of operations or financial condition for any future period or date.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
------------------------------------------ ------------------------------
RECON-
RECONSOLIDATED PRO FORMA SOLIDATED REPORTED PRO FORMA
--------------------- --------- --------- -------- ----------
1995 1996 1997 1997 1997 1998 1998
-------- --------- --------- ---------- -------- -------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues:
Radio programming............. $ 5,121 $ 6,978 $10,200 $14,041 $ 5,090 $ 3,739 $ 5,400
Radio advertising and sales
representation.............. -- -- -- 11,285 -- -- 4,314
Television programming........ 4,450 9,191 14,860 15,484 6,756 7,865 8,126
Satellite delivery and
production support.......... 6,921 6,944 6,485 6,485 3,493 2,128 2,128
------- ------- ------- ------- ------- ------- -------
Total revenues................. 16,492 23,113 31,545 47,295 15,339 13,732 19,968
------- ------- ------- ------- ------- ------- -------
Total operating expenses....... 15,694 21,420 28,992 40,136 13,677 16,326 21,882
------- ------- ------- ------- ------- ------- -------
Operating income (loss)........ 798 1,693 2,553 7,159 1,662 (2,594) (1,914)
------- ------- ------- ------- ------- ------- -------
Interest expense, net.......... 4,039 4,456 5,578 12,081 2,854 2,541 6,062
Other expense, net............. (212) (318) 785 785 820 191 260
Income tax provision (benefit). (498) (387) (1,342) (1,188) (356) 268 311
Minority interests (a)......... (189) 484 1,072 1,072 587 69 69
------- ------- ------- ------- ------- ------- -------
Net loss....................... $(2,342) $(2,542) $(3,540) $(5,591) $(2,243) $(5,663) $(8,616)
======= ======= ======= ======= ======= ======= =======
OTHER DATA:
EBITDA (b).................... $ 5,334 $ 6,281 $ 6,877 $12,875 $ 4,004 $ 369 $ 1,843
Depreciation and
amortization (c)............ 4,195 4,825 5,230 6,622 2,612 2,651 3,445
Capital expenditures.......... 1,588 3,310 1,386 1,551 1,007 539 645
Ratio of earnings to fixed
charges (d)................. -- -- -- -- -- -- --
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
------------------------------- -----------------------------------
RECONSOLIDATED PRO FORMA RECONSOLIDATED REPORTED PRO FORMA
---------------------------------- --------- --------------- --------- ---------
1995 1996 1997 1997 1997 1998 1998
------- ------- -------- --------- ------- -------- --------
(IN THOUSANDS, EXCEPT RATIOS AND RADIO STATION AFFILIATE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
AUDIENCE DATA (AT END OF PERIOD):
Radio AQH (24-hour formats) (e)............. 765 1,090 1,148 1,148 1,105 1,324 1,324
Radio AQH (syndicated) (e).................. -- 834 1,048 4,644 799 1,148 4,808
Radio station affiliates.................... 929 1,273 1,484 2,139 1,317 1,510 2,255
Great American Country households........... 14 1,049 1,550 2,750 1,172 3,578 4,060
Product Information Network
households............................... 4,825 8,111 11,500 11,500 10,552 18,630 18,630
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1998
---------------------------------
AS REPORTED PRO FORMA
---------------- ---------------
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents........... $ 2,445 $26,260(f)
Working capital..................... (6,395) 23,079
Total assets........................ 40,762 112,223
Total long-term debt (g)............ 27,591 100,000
Minority interests (h).............. 822 822
Shareholders' deficit............... (23,869) (3,379)
</TABLE>
____________________
(a) Represents minority interest in the net income (loss) of the Company's
consolidated subsidiaries.
(b) EBITDA represents operating income (loss) plus depreciation and amortization
plus cash distributions from accumulated earnings of the Company's
unconsolidated 50%-owned Superaudio subsidiary minus the EBITDA attributable
to the minority interests in the Company's consolidated 54%-owned PIN
Venture subsidiary. (See calculations in the table below.) Management
believes that EBITDA is a measure commonly used by analysts and investors to
determine a company's ability to service and incur its debt. EBITDA should
not be considered in isolation or as a substitute for net income (loss),
cash flows from operating activities or other consolidated income or cash
flow statement data prepared in accordance with generally accepted
accounting principles or as a measure of profitability or liquidity.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
---------------------------- -----------------------------------
RECON-
RECONSOLIDATED PRO FORMA SOLIDATED REPORTED PRO FORMA
---------------------------------- --------- --------- ---------- ---------
1995 1996 1997 1997 1997 1998 1998
---------- ------------ -------- ----------- --------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
CALCULATION OF EBITDA:
Operating income (loss)................... $ 798 $1,693 $2,553 $ 7,159 $1,662 $(2,594) $(1,914)
Plus: Depreciation and
amortization........................... 4,195 4,825 5,230 6,622 2,612 2,651 3,445
Plus: Cash distributions from
Superaudio............................. 175 300 100 100 -- 350 350
Less: EBITDA attributable to PIN
Venture's minority interests........... (166) 537 1,006 1,006 270 38 38
------ ------ ------ ------- ------ ------- ------
EBITDA $5,334 $6,281 $6,877 $12,875 $4,004 $ 369 $1,843
</TABLE>
(c) Excludes the amortization of debt issuance costs.
(d) The ratio of earnings to fixed charges is determined by dividing (i) the sum
of earnings before extraordinary items and accounting changes, interest
expense, taxes and that portion of operating lease rental expense which is
representative of an interest factor by (ii) interest expense. For
Reconsolidated Financial Data, earnings were insufficient to cover fixed
charges by $3,265, $2,471 and $2,999 for the years ended December 31, 1995,
1996 and 1997, respectively. For Reported Financial data, earnings were
insufficient to cover fixed charges by $4,788 for the six months ended June
30, 1998. For Pro Forma Financial Data, earnings were insufficient to cover
fixed charges by $4,896 and $7,698 for the year ended December 31, 1997 and
the six months ended June 30, 1998, respectively. The ratio does not take
into account depreciation and amortization.
13
<PAGE>
(e) AQH represents the average audience (persons age 12 or older) listening to
radio stations broadcasting the Company's advertising inventory (i) during
any 15-minute period from 6am-7pm, Monday through Friday for 24-hour formats
or (ii) during any 15-minute period that the program is being broadcast for
syndicated programs, each as measured by the Arbitron rating service. Radio
advertising is generally sold on the basis of the listening audience as
quantified by the AQH.
(f) Includes $10.0 million of restricted cash from the net proceeds of the
Offering that was deposited into a Reserve Account.
(g) Includes current and non-current maturities of long-term debt and capital
lease obligations.
(h) Represents the minority interest in the net assets of the Company's
consolidated subsidiaries.
14
<PAGE>
RISK FACTORS
Investors should carefully consider the following risk factors, as well as
other information contained in this Prospectus. This Prospectus contains
forward-looking statements . These statements appear in a number of places and
include statements regarding the intent, belief or current expectations of the
Company, its directors or its officers, primarily with respect to the future
operating performance of the Company. Investors are cautioned that any such
forward-looking statements are not guarantees of future performance and involve
risks and uncertainties, and that actual results may differ materially from
those in the forward-looking statements as a result of various factors. The
accompanying information contained in this Prospectus, including the information
set forth below, identifies certain important factors that could cause such
differences. See "Forward-Looking Information."
CONSEQUENCES OF A FAILURE TO EXCHANGE OUTSTANDING NOTES
The Old Notes have not been registered under the Securities Act or any
state securities laws and therefore may not be offered, sold or otherwise
transferred except in compliance with the registration requirements of the
Securities Act and any other applicable securities laws, or pursuant to an
exemption therefrom or in a transaction not subject thereto, and in each case in
compliance with certain other conditions and restrictions, including the
Company's and the Trustee's right in certain cases to require the delivery of
opinions of counsel, certifications and other information prior to any such
transfer. Old Notes that are not exchanged pursuant to the Exchange Offer will
continue to bear a legend reflecting such restrictions on transfer. In
addition, upon consummation of the Exchange Offer, holders of Old Notes that
remain outstanding will not be entitled to have such Old Notes registered under
the Securities Act, subject to certain limited exceptions. The Company
currently intends to register under the Securities Act Old Notes that remain
outstanding after consummation of the Exchange Offer only if such Old Notes are
held by the Initial Purchaser or persons ineligible to participate in the
Exchange Offer, neither of which is anticipated.
The Exchange Notes and any Old Notes that remain outstanding after
consummation of the Exchange Offer will constitute a single series of debt
securities under the Indenture and, accordingly, will vote together as a single
class for purposes of determining whether holders of the requisite percentage in
outstanding principal amount thereof have taken certain actions or exercised
certain rights under the Indenture. See "Description of the Notes."
ABSENCE OF PUBLIC MARKET
The Exchange Notes are being offered to the holders of the Old Notes. The
Old Notes were resold by the Initial Purchaser to qualified institutional buyers
pursuant to Rule 144A under the Securities Act. The Old Notes are eligible for
trading in the Private Offerings, Resales and Trading through Automated Linkages
("PORTAL") Market, the National Association of Securities Dealers' screen based,
automated market for trading of securities eligible for resale under Rule 144A.
There currently is no market for the Exchange Notes and the Exchange Offer is
not conditioned upon any minimum or maximum aggregate principal amount of Old
Notes being tendered for exchange. Although the Initial Purchaser may make a
market in the Old Notes and has advised the Company that it currently intends to
make a market in the Exchange Notes, it is not obligated to do so and may
discontinue such market making at any time without notice. The Company does not
currently intend to apply for listing of the Old Notes or the Exchange Notes on
a national securities exchange or automated quotation system. Accordingly, no
assurance can be given that an active market will develop for any of the Notes
or as to the liquidity of the trading market for any of the Notes. If a trading
market does not develop or is not maintained, holders of the Exchange Notes may
experience difficulty in reselling their Exchange Notes or may be unable to sell
them at all. If a market for the Exchange Notes develops, any such market may
be discontinued at any time. To the extent that a market for the Exchange Notes
does develop, the market value of the Exchange Notes will depend upon many
factors, including prevailing interest rates, market conditions, yields on
alternative investments, general economic conditions, the Company's financial
condition and results of operations and other conditions. Historically, the
market for non-investment grade debt has been subject to disruptions that have
caused substantial volatility in the prices of securities similar to the
Exchange Notes. There can be no assurance that, if a market for the Exchange
Notes were to develop, such a market would not be subject to similar
disruptions.
15
<PAGE>
SUBSTANTIAL LEVERAGE; POTENTIAL INABILITY TO PAY DEBT WHEN DUE
The Company has and will have a significant amount of debt outstanding. The
Company presently has approximately $100 million of indebtedness. See
"Capitalization" and "Selected Unaudited Pro Forma Financial Data."
Because the Company has a significant amount of debt outstanding, and is
subject to significant financial and operating restrictions, the Company could
experience several adverse consequences that may impair or impede its ability to
pay principal and interest on the Notes as they become due as a result of
maturity, acceleration, redemption or other repurchase obligation, such as a
change of control, or may cause it to be otherwise in default. Such consequences
include the following:
. Substantial amounts of the cash flow from the Company's operations
will have to be used for the payment of the principal and interest on
the Notes and other indebtedness, and will not be available to use for
other purposes, which may result in a competitive disadvantage.
. The Company could be unable to obtain additional financing,
particularly bank financing, in the future on favorable terms, or at
all, to use for working capital, acquisitions, capital expenditures,
refinancing or other purposes.
. As a result of the foregoing, the Company could be more vulnerable to
changes in economic conditions and in its industry and may not be able
to withstand competitive pressures, to keep up with technological
developments, to consummate acquisitions or to capitalize on business
opportunities.
Furthermore, it is possible that the Company will not have the available
cash or be able to generate the cash flow required to pay the principal and
interest that will become due on the Notes or to pay its other outstanding
indebtedness, in the long term. For the year ended December 31, 1997 and the six
months ended June 30, 1998, on a pro forma basis, earnings were insufficient to
cover fixed charges by $4.9 million and $7.7 million, respectively. Payment of
interest for the full term of the Notes will require an increase in cash flows
from operations, which will continue to be affected by various factors discussed
herein, including in "Risk Factors" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations." Continued losses would have a
material adverse effect on the Company's results of operations and financial
condition and could adversely affect its ability to meet its obligations, in the
long term, including obligations under the Notes. The Company's cash flow
depends upon its future performance and financial, economic and other factors,
some of which are beyond its control.
If the Company is unable to generate cash flow from operations or otherwise
in amounts sufficient for it to be able to pay its debt as it becomes due as a
result of maturity, acceleration, redemption or other repurchase obligation,
such as a change of control, the Company may be required to refinance all or a
portion of such debt or sell equity securities or some or all of its assets. The
Company is restricted by the terms of the Indenture in its ability to incur
additional indebtedness. Even without such restrictions, the Company may not be
able to refinance all or a portion of its debt or sell its equity securities or
the assets of its subsidiaries on a timely basis, on acceptable terms or at all.
In such event, the Company may be in default on the Notes and other
indebtedness, and payment of such debt could be accelerated. See "Description of
Notes."
16
<PAGE>
RISKS RELATED TO HOLDING COMPANY STATUS; DEPENDENCE UPON EARNINGS AND CASH FLOWS
OF SUBSIDIARIES AND ADVANCES AND LOANS FROM AFFILIATES; STRUCTURAL SUBORDINATION
The Company is a holding company with no business operations of its own.
The Company's assets are the direct and indirect equity interests in its
subsidiaries, through which the Company conducts its business operations.
Accordingly, the Company depends, and will continue to depend, significantly
upon the earnings and cash flows of, and dividends and distributions from, its
subsidiaries to pay its expenses, meet its obligations and pay interest and
principal on the Notes and its other indebtedness. Furthermore, the creditors of
the Company's subsidiaries are, and will continue to be, entitled to payment of
obligations owing to them before the subsidiaries can dividend or distribute
their earnings to the Company. In addition, the terms of the Company's joint
ventures generally require the mutual consent of the Company and its joint
venture partners to distribute or advance funds to the Company. The Company
cannot assure the holders of the Notes that its subsidiaries will generate
sufficient earnings and cash flow for the subsidiaries to pay dividends or
otherwise provide funds to enable the Company to pay its expenses, meet its
obligations and pay interest and principal on the Notes and its other
indebtedness or that other restrictions on the subsidiaries would not prohibit
such payments. If the Company cannot do so, it may not be able to pay its
indebtedness as it becomes due and, as a result, may be in default on such
indebtedness, including the Notes, and payment of such indebtedness could be
accelerated. Historically, the Company has relied on advances and loans from
Jones International and its affiliates to fund a portion of its cash needs, with
cumulative borrowings of $23.0 million, $28.6 million, $26.4 million and $15.4
million as of December 31, 1995, 1996 and 1997 and June 30, 1998, respectively.
Jones International and related parties are under no obligation to provide
additional financial assistance to the Company, and the Company does not expect
that such funding will be available in the future. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources" and "Description of Notes."
The Indenture permits certain indebtedness to be incurred by subsidiaries
and joint ventures of the Company and creditors of such subsidiaries may be
permitted to obtain a security interest in the assets of such subsidiaries,
subject to certain thresholds. Claims of holders of the Notes will be
effectively subordinated to the indebtedness and other liabilities and
commitments of the Company's subsidiaries and joint ventures and will be limited
to the extent of the Company's direct or indirect equity interest in such
entities. Consequently, in the event of an insolvency, liquidation,
reorganization, dissolution or other winding up of the Company's subsidiaries
and joint ventures, the claims of the Company's creditors, including holders of
the Notes, will be subject to the prior claims of those entities' creditors,
including trade creditors, and any prior or equal claim of any joint venture
partner. Upon the occurrence of a payment default under, or acceleration of,
bank indebtedness, bank creditors of subsidiaries with a security interest in
the assets of such subsidiaries may be entitled to restrict the payment of
dividends to the Company and, if secured by the assets of the subsidiaries,
would be permitted to foreclose on the assets of such subsidiaries.
RESTRICTIONS IMPOSED BY TERMS OF THE INDENTURE
The terms and conditions of the Indenture impose restrictions that affect
the ability of the Company to incur debt, make distributions, sell assets,
create liens, make investments or engage in merger and acquisition activity. The
Indenture imposes certain restrictions on the Company's ability to operate
through joint ventures, such as the PIN Venture, a form of entity that has been
used in the past and which the Company anticipates using in the future. See
"Description of Notes--Certain Covenants." The financial requirements of and
calculations in the Indenture are not governed by, and may not conform to,
generally accepted accounting principles, so that certain accounting measures
and coverages reflected in this Prospectus do not necessarily reflect how such
measures and coverages would be calculated under the Indenture. The Company is
also required to limit its transactions with related parties. The restrictive
covenants contained in the Indenture, as well as the highly leveraged position
of the Company, could significantly limit the ability of the Company to respond
to changing business or economic conditions or to substantial declines in
operating results. The ability of the Company to comply with the provisions in
the Indenture can be affected by events beyond the Company's control.
17
<PAGE>
UNENFORCEABILITY OR UNAVAILABILITY OF THE GUARANTEES OF THE RESTRICTED
SUBSIDIARIES; FRAUDULENT CONVEYANCE CONSIDERATIONS
Various federal and state fraudulent conveyance laws enacted for the
protection of creditors apply to the Guarantees issued by the Subsidiary
Guarantors and could make these Guarantees unenforceable or otherwise avoidable
in whole or in part. In addition, such laws could make the Guarantees
subordinate to indebtedness that the Subsidiary Guarantors owe to creditors
other than the holders of the Notes. A court could find one or more of the
Guarantees unenforceable or avoidable or could subordinate them to other
indebtedness, including for any of the following reasons:
. If the Subsidiary Guarantor does not receive fair consideration or
reasonably equivalent value for giving its Guarantee and
. is insolvent,
. becomes insolvent as a result of giving the Guarantee,
. is engaged or is about to engage in a business or transaction
for which the remaining assets of such Subsidiary constitute
unreasonably small capital to carry on its business, or
. intends to incur, or believes that it would incur, debts beyond
its ability to pay as they mature.
. If the Subsidiary Guarantor does so with the intent to hinder, delay
or defraud any of its present or future creditors or if the Subsidiary
Guarantor is contemplating insolvency in order to prefer one or more
of its creditors over other creditors.
The measure of insolvency for purposes of a fraudulent conveyance claim
will vary depending upon the law of the jurisdiction applied in the proceeding.
Generally, a court may find that a subsidiary is insolvent at a particular time
if the sum of its debts, including contingent liabilities, is greater than the
fair market value of its assets or if the fair market value of its assets is
less than the amount that would be required to pay its probable liability in
respect of existing debts, including contingent liabilities, as they become
absolute and mature.
A court considering whether a guarantee is unenforceable or avoidable as a
fraudulent conveyance or whether to subordinate a guarantee to other
indebtedness may focus on, among other things, the benefits, if any, realized by
the subsidiary giving the guarantee. Part of the proceeds of the offering of the
Old Notes were used for repayment of Company obligations and for prepayment of a
capital lease on which a Subsidiary of the Company is obligor. The Guarantees of
the Notes are for the benefit of the Company and only indirectly for the benefit
of the Subsidiary Guarantors, and a court may find that the obligations of the
Subsidiary Guarantors were incurred for less than reasonably equivalent value or
fair consideration. In order to decrease the likelihood that a court would find
that any or all of the Guarantees are unenforceable or avoidable or should be
subordinated, the obligations of each Subsidiary Guarantor under its Guarantee
will be limited to the maximum amount that will, after giving effect to all of
the liabilities of such Subsidiary Guarantor, result in such obligations not
being held unenforceable or avoidable or subordinated to other indebtedness. The
Company cannot give any assurances that a court, particularly in light of
developments that may occur after the Notes are issued, would apply the above
tests or that a court would not find for any other reason that the Guarantees
are unenforceable or avoidable or should be subordinated.
If a court were to find that a Guarantee is unenforceable or avoidable in
whole or in part as a fraudulent conveyance, holders of the Notes would not have
any claim against the Subsidiary Guarantor giving such guarantee to the extent
the Guarantee was avoidable and would be creditors only of the Company and any
of its Subsidiary Guarantors that gave Guarantees that are not found to be
unenforceable or avoidable. As a result, the claims of the
18
<PAGE>
holders of the Notes against the Subsidiary Guarantor whose Guarantee was not
enforceable or avoidable would be subject to the prior payment of all other
liabilities of such Subsidiary Guarantor. If any of the above events occurs,
there may not be sufficient assets to satisfy all or any part of the claims of
the holders of the Notes.
DIFFICULTY IN SECURING FUTURE BANK OR OTHER INDEBTEDNESS
The Company believes that it may be necessary during the period that the
Notes are outstanding to secure bank or other financing. While the Indenture
permits the Company to incur a limited amount of bank or other indebtedness, and
permits such borrowings to be secured by assets of the Company's subsidiaries,
the Indenture restricts the terms of such bank or other indebtedness, including
the ability of a bank or other lender to limit the flow of funds from the
subsidiaries to the Company. Banks or other financial institutions may not be
willing to lend to the Company under such circumstances, particularly in light
of the Company's overall leverage position, or may not be willing to lend on
terms that are acceptable to the Company. The inability of the Company to obtain
bank or other financing during the term of the Notes could have a material
adverse effect on the Company and its ability to meet its cash flow needs, and
could limit the Company's ability to implement its business strategy.
HISTORY OF NET LOSSES
On a historical basis, the Company has sustained net losses of $2.0
million, $2.3 million, $3.5 million and $5.7 million and operating income (loss)
of $1.5 million, $0.9 million, $2.3 million and ($2.6) million, for the years
ended December 31, 1995, 1996 and 1997 and the six months ended June 30, 1998.
Net losses have resulted in an accumulated deficit of $33.1 million as of June
30, 1998. On a pro forma basis, operating income (loss) and net losses would
have been $7.2 million and $5.6 million, respectively, for the year ended
December 31, 1997 and $(1.9) million and $8.6 million, respectively, for the six
months ended June 30, 1998. The Company's ability to incur additional
indebtedness and to make investments under the Indenture is determined in part
by the Company's Consolidated Cash Flow (as defined) and Cumulative Available
Cash Flow (as defined), each of which is derived from earnings. There can be no
assurance that the Company will generate net income in the future. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Description of Notes--Certain Covenants--Limitation on
Indebtedness" and "--Limitation on Restricted Payments."
TRANSACTIONS WITH AND RELIANCE ON RELATED PARTIES; CONFLICTS OF INTEREST
The Company has engaged, and expects to continue to engage, in certain
transactions with related parties. To date, these transactions have involved
primarily loans and advances, affiliation agreements for the distribution of
cable television programming, leasing of satellite transponder and production
support services, and lease and service agreements related to certain technical,
computer and administrative services. For the year ended December 31, 1997,
approximately $5.0 million, or 11%, of the Company's pro forma total revenues
and approximately $6.5 million, or 16%, of its pro forma total operating
expenses involved related party transactions. In addition, $27.6 million of the
proceeds of the offering of the Old Notes was used to prepay the obligation
under a capital lease. See "Certain Relationships and Related Transactions--
Transfer of Satellite Transponder Leases." $16.7 million of such proceeds were
used to repay outstanding indebtedness under Radio Holdings' credit facility
with a commercial bank, which was incurred in March 1998 and was used to repay
related party advances and to repay a related party note. See "Use of Proceeds."
Principal management employees devote substantially all of their time to the
Company's business. Because certain officers and directors of the Company are
also officers and directors of related parties, the terms of any distribution,
programming, production, lease or other agreements between the Company and such
related parties are not the result of arm's-length negotiations. There can be no
assurance that the terms of any transactions between the Company and related
parties have been or will be as favorable as the Company could obtain from
unrelated parties or that such transactions will continue in the future, on
their current or other terms. The Indenture provides that, with certain
exceptions, future dealings with related parties must be approved by the
disinterested members of the Board of Directors of the Company and transactions
over a specified threshold are subject to the receipt of a fairness opinion from
a nationally recognized independent investment banking firm. See "--Dependence
on Key Personnel," "Certain Relationships and Related Transactions" and
"Description of Notes--Certain Covenants."
19
<PAGE>
RISKS ASSOCIATED WITH ACQUISITION AND DISTRIBUTION OF RADIO PROGRAMMING
The Company's ability to maintain and increase the distribution of its
radio network and to increase the audience for its radio programming is
dependent upon, among other factors, the radio stations' demand for the
Company's radio programming and the Company's ability to assess consumer
preferences accurately and to develop, acquire and distribute radio programming
that is attractive to radio listeners. Even though the Company has recently
launched several new radio programs, there can be no assurance that the Company
will be able to continue to develop or acquire radio programming that will be
accepted in 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. As radio station ownership
is consolidated into larger station groups, more radio station owners may
develop and produce programming in-house and thereby reduce their need for the
type of radio programming provided by the Company. See "Business--Radio
Programming--The Radio Network-Jones Radio."
DEPENDENCE ON ADVERTISING REVENUES
The Company is heavily dependent on advertising revenues. For the year
ended December 31, 1997, advertising revenues comprised 82% of the Company's
total pro forma revenues. The Company's ability to attract advertisers is
dependent upon its ability to demonstrate that its radio and cable television
networks are able to deliver the type and quantity of radio listeners and cable
television viewers that such advertisers seek to target with their advertising.
The Company's ability to maintain or increase its advertising revenues is, and
will continue to be, affected by a number of factors, including the ability to
expand the distribution of the networks, to deliver high quality entertaining
programming that is appealing to additional listeners and viewers and to
increase awareness of its networks. There is no assurance of success in this
endeavor. In addition, competitive conditions in the industry may have an
adverse effect on the number of advertising spots sold and the advertising rates
in the market.
Advertising revenues and operating income also may be adversely affected by
economic downturns. Such economic downturns, if prolonged, might have an adverse
impact on radio and cable television advertising and on the Company's financial
condition and results of operations. In addition, advertising revenues 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 cable
television advertising in general and to the Company's networks in particular,
(ii) the popularity of programming and ratings achieved by 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 networks target their programming, (iv)
competition within national and regional markets from radio, television and
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. If the Company is not able to do so, its advertising
revenues and operating results will be adversely affected. See "--Competition"
and "Business."
DEPENDENCE ON ADVERTISING RELATIONSHIPS
Historically, the Company's radio network advertising revenues have been
highly dependent on the efforts of MediaAmerica. In 1997, 97% of the Company's
radio advertising revenues were derived from sales made through MediaAmerica.
The Company believes that sales of advertising time through the new MediaAmerica
division will not be adversely affected, but there can be no assurance to that
effect. See "--Risks Regarding the Acquisition."
20
<PAGE>
The Product Information Network's advertising revenues historically have
been highly dependent on its relationships with five national media agencies. In
1997, 53% of the PIN Venture's gross advertising revenues were derived from
sales of airtime to two national media agencies. The Product Information
Network's contract with one of the agencies, representing 12% of 1997 gross
advertising revenues, expires in December 1998 and will automatically renew for
an additional six months unless the Product Information Network is notified
otherwise. The agreement with the other agency, representing 41% of the PIN
Venture's 1997 gross advertising revenues, was mutually terminated in July 1997.
While the Product Information Network has replaced the large block of airtime
placed by such agency through sales to other advertisers, it has not been able
to fill such airtime with the type of non-traditional infomercials of Fortune
500 companies provided by such agency. The termination of the relationship with
such agency and the resulting loss of non-traditional infomercials from major
corporate advertisers has resulted in a decrease in the number of hours of
airtime on the Product Information Network devoted to such infomercials. There
can be no assurance that the remaining media agency will continue, maintain or
increase the amount of airtime it purchases. In addition, there can be no
assurance that the Product Information Network will be able to renew its
contract with such agency, or obtain a suitable replacement, on acceptable
terms. See "Business--Television Programming--The Product Information Network."
RISKS ASSOCIATED WITH DISTRIBUTION OF TELEVISION PROGRAMMING
Growth in the Company's television programming business is largely
dependent upon the distribution of Great American Country and the Product
Information Network through cable television systems and other video
distributors. With respect to cable distribution, Great American Country and the
Product Information Network compete for a limited number of available cable
channels with a large number of other cable television programmers supplying a
variety of alternative programming, including entertainment, sports, news,
public affairs and educational programming. Many of these programmers provide
substantial cash incentives to cable television systems and other video
distributors that the Company may not be able to match. In addition, cable
programming distribution is controlled by MSOs, some of which are affiliated
with competing program providers. Sales of cable systems by MSOs, or sales of
MSOs, that have affiliation agreements with the Company could result in a loss
of subscribers if the new cable system owners do not retain the programming, and
the number of lost subscribers could be material. Jones Intercable, a
significant distributor of Great American Country and the Product Information
Network, expects to sell during 1998 and the first quarter of 1999, through its
managed partnerships, cable television systems representing approximately
283,000 and 420,000 subscribers for Great American Country and the Product
Information Network, respectively. The buyers of such cable television systems
may not continue to subscribe for the Company's cable television programs. In
addition, some affiliation agreements allow the MSOs to delete the Company's
programming on a system-by-system basis. Because advertising revenues generated
by Great American Country and the Product Information Network are a function of
distribution, success in the distribution of the Company's cable television
programming will directly affect the amount of advertising revenues generated by
the Company's cable television networks. The Company's expansion plans for Great
American Country and the Product Information Network are dependent, in part,
upon the ability to retain and expand its distribution from existing affiliation
agreements, to renew existing affiliation agreements when such agreements
expire, and to obtain affiliation agreements with additional MSOs and other
video programming distributors. There can be no assurance that the Company will
be able to negotiate new affiliation agreements, expand its distribution or
retain or renew existing affiliation agreements. See "Business--Television
Programming."
RISKS RELATED TO DISTRIBUTION OF THE PRODUCT INFORMATION NETWORK
A significant portion of the Product Information 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
systems owned by nine of the ten largest MSOs in the United States, as well as
with a number of smaller MSOs, carriage on each of the systems operated by an
MSO is not guaranteed by such agreements and, in
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many cases, these agreements do not provide for the distribution of the Product
Information Network's programming for 24 hours per day. Most affiliation
agreements for the Product Information Network, other than those with the
Company's partners in the PIN Venture, are short-term in nature. Many of the
MSOs which carry the Product Information Network may also carry programming
which is competitive with the Product Information Network. See "Risks Associated
with the Product Information Network," "Business--Overview--Strategy" and "--
Television Programming--The Product Information Network" and "Certain
Relationships and Related Transactions."
RISKS REGARDING THE ACQUISITION
A substantial portion ($26.7 million) of the proceeds of the offering of
the Old Notes was used to pay the cash portion of the consideration in the
Acquisition. MediaAmerica provides advertising representation services and more
recently has entered the radio programming business. Provision of advertising
representation services is a new business for the Company and presents the risks
associated with integration of a business in which the Company has no prior
experience. While the Company has historically made acquisitions, primarily from
affiliated entities, it has never made a significant acquisition from an
unrelated party. Because MediaAmerica and the Company's radio programming
operations are in the same line of business, and subject to the same market
trends, the Acquisition could increase the Company's vulnerability to adverse
market trends. The Company expects that its accounting for the Acquisition will
result in a significant amount of goodwill, and if the benefits of the
Acquisition do not substantiate the carrying value, write-offs could be
required, which could adversely affect the Company's operating income and
earnings. See "--Substantial Leverage; Potential Inability to Pay Debt When
Due."
The benefits expected to be realized from the Acquisition will depend on
the Company achieving synergies, particularly in radio programming, and in
retaining and increasing MediaAmerica's current customer base. MediaAmerica
produces programming which competes with some of the programming produced by its
representation customers. As a result of the Acquisition, the range of
programming produced by the Company will expand and thereby increase the
possibility that a customer or potential customer will perceive the programming
produced by the Company to be competitive with its own programming. These
customers may be more reluctant to utilize the Company's advertising
representation services after the Acquisition because of the Company's
competitive position, and thus the market for customers for the advertising
representation division may be adversely affected.
The Company relies on the services of Messrs. Ron Hartenbaum and Gary
Schonfeld (the "MediaAmerica Principals"), the principal executives and former
owners of MediaAmerica, to support and strengthen the Company's advertising
representation business. The MediaAmerica Principals have three-year employment
agreements with the Company which provide that they will not compete with the
Company during the term of their employment and for two years after the
employment agreements terminate. There is no assurance that the MediaAmerica
Principals will remain with the Company for the full term of the employment
agreements or thereafter. Further, no assurance can be given that the Company
will be successful in the advertising representation business, or that the
MediaAmerica Principals will be integrated into the Company's operations so as
to cause this business to maintain operations at current levels or to grow.
Certain agreements between MediaAmerica and its existing clients allow the
clients to terminate the agreements if the MediaAmerica Principals are no longer
involved in the business. Even in the absence of such provisions, clients may
discontinue or reduce the level of services provided by MediaAmerica if the
MediaAmerica Principals are no longer employed by the Company.
The terms of several of MediaAmerica's representation agreements with some
of its major clients are scheduled to expire in 1998 and 1999, unless renewed.
The Company intends to seek to obtain renewals of such agreements in due course,
but there can be no assurance that any such renewals will be obtained.
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INABILITY TO SUSTAIN OR MANAGE GROWTH
The Company's revenues have grown in recent years primarily as a result of
increased advertising and licensing revenues generated by the Company's radio
and television programming networks and syndicated programs. The ability to
maintain growth will depend on a number of factors, many of which are beyond the
Company's control, including maintaining and expanding distribution of Great
American Country and the Product Information Network through MSOs, as well as
through alternative distribution systems such as DBS, MMDS and video
distribution systems being established by various telecommunications companies;
maintaining and expanding distribution of its radio network; developing and/or
acquiring additional programming for the radio network that is consistent with
listener preferences; developing and/or acquiring additional cable television
programming that will be carried by MSOs; 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
management personnel and may require additional management personnel.
As part of its business strategy, the Company intends to acquire and/or
create complementary businesses. See "Business--Overview--Strategy." The success
of this strategy depends on the availability of such businesses for acquisition
and the availability of resources to effect such acquisition, as well as the
Company's ability to integrate acquired businesses into its organization
effectively and to retain and motivate key personnel of acquired businesses. The
recent rapid consolidation of the radio programming industry has reduced the
availability of potential acquisition targets complementary to the radio
programming business. The Company may not be successful in its endeavors to
identify and acquire businesses suitable for acquisition. Certain complementary
businesses may not be available because of price or because other objectives of
potential sellers may not be met. The Company faces competition in its
acquisition strategy from other companies, some of which may have substantially
greater financial resources. There can be no assurance that the Company will be
able to manage its expanding operations effectively or that it will be able to
attract and retain sufficient management personnel necessary for continued
growth. Furthermore, there is no assurance that, because of the significance of
its debt service requirements, the Company will be able to carry out its growth
strategies.
RISKS ASSOCIATED WITH SATELLITE DELIVERY AND PRODUCTION SUPPORT SERVICES
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 revenues
by providing satellite delivery and production support services to a related
party. If such related party were no longer able to obtain and pay for such
services, the loss of revenues would be significant to the Company and there is
no assurance that a replacement could be obtained on similar terms. The
satellite delivery and production support services have represented substantial
fixed costs. The satellite transponder agreement covers two transponders. One
is a digitally compressed transponder, on which seven channels are leased. The
other transponder was leased to a third party as of July, 1998. See "Business--
Satellite Delivery and Production Support Services." The Company could increase
its channel capacity by further digital compression if demand warranted. There
are a number of other companies which are competing with the Company to lease
their transponder capacity, certain of which are offering lease rates that are
lower than those being offered by the Company. There can be no assurance that
the Company will be able to lease whatever capacity may be available at any
particular time. The Company used $27.6 million of the proceeds of the offering
of the Old Notes to prepay the capital lease obligations under the satellite
transponders, which allows the Company to now own the transponders. See "Use of
Proceeds." There can be no assurance that the payments to be received in
connection with the lease of the transponders over the remaining life of the
satellites, as well as the value to the Company of having available satellite
capacity for its own use, will recoup the price of the satellite transponders.
The satellites may not have a useful life beyond 2004, at which time the Company
will be required to locate replacements to use for its programming. The
Indenture restricts the incurrence of Indebtedness through capital lease
obligations and, accordingly, there can be no assurance that the Company will be
able to enter into new satellite leases at that time on favorable terms, if at
all.
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The satellite transponder agreement referred to above provides various
protections in the event of satellite failure, and the transponders are not
subject to preemption by third parties in most instances. Although the agreement
provides that if service is unavailable for any reason on the satellite, the
lessor is required to 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. See "Business--Satellite Delivery and Production
Support Services."
RISKS ASSOCIATED WITH THE PRODUCT INFORMATION NETWORK
The growth expectations for the Product Information Network are largely
dependent on increasing the number of hours of long-form advertising from
Fortune 500 companies, as this advertising results in higher rates for airtime
sold and is more attractive to MSOs. In addition, increased advertising from
major corporate advertisers decreases the reliance of the Product Information
Network on national media infomercial buyers. See "--Dependence on Advertising
Relationships." While the Product Information Network has implemented a strategy
to accomplish this goal, the strategy may not be successful, and it may not be
able to air as many of these long-form advertisements as it has in the past. See
"Business--Overview--Strategy."
The Product Information Network is operated by the PIN Venture, a joint
venture among the Company, Cox and Adelphia. Pursuant to the agreement governing
the PIN Venture, 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
other venture partners, however, have voting rights with respect to major
decisions concerning the venture and there is a risk that the partners may not
agree on significant aspects of the PIN Venture's business plans. Unlike the
Company, Cox and Adelphia are major MSOs and may have different goals and
objectives with respect to the PIN Venture's affiliation agreements with MSOs,
particularly the amount of the rebate payable to MSOs by the PIN Venture. See
"Business--Television Programming."
The Company, Cox and Adelphia own approximately 53.8%, 45.4% and 0.8%,
respectively, of the PIN Venture. 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 by the Company for financial reporting purposes.
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. See "--Risks Associated with Distribution of
Television Programming." Such a withdrawal would cause a dissolution of the PIN
Venture. The PIN Venture by its terms expires on December 31, 2004, but Cox
could elect to terminate its participation after 1999. Such a withdrawal would
cause Cox to lose its equity interest in the PIN Venture.
If, for any reason, the Company is unable to consolidate the PIN Venture's
results of operations, the Company's financial statements would change because
the PIN Venture's revenues and operating income, if any, would not be included
in the Company's consolidated revenues and operating income. On a pro forma
basis for the year ended December 31, 1997, the PIN Venture accounted for 28% of
the Company's consolidated revenues and 26% of consolidated operating income.
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DEPENDENCE ON KEY PERSONNEL
The Company is dependent on the efforts and abilities of its senior
management, including Glenn R. Jones, Chairman of the Board, Gregory J. Liptak,
President, Jay B. Lewis, Group Vice President and Chief Financial Officer, Eric
Hauenstein, the President and General Manager of the radio network, and Jeffrey
C. Wayne, the President and Chief Operating Officer of cable television network
operations. In addition, as a result of the Acquisition, the Company employs
Messrs. Ron Hartenbaum and Gary Schonfeld as executives in charge of its radio
network and advertising representation operations. Except for Messrs. Hartenbaum
and Schonfeld, the Company does not have employment agreements with, and does
not carry key life insurance on, any of its employees. 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 it will be able to continue to do so. See "Business--
Employees" and "Management."
The Company is also dependent upon the talents and abilities of its
advertising account executives. The account executives have personal
relationships with the national advertisers and their advertising agencies which
are important to the Company's ability to continue to maintain and increase the
Company's share of the radio advertising market. While the Company believes that
its relations with its account executives are good and that it will continue to
be successful in attracting and retaining qualified sales personnel, there can
be no assurance that it will be able to do so. See "--Dependence on Advertising
Revenues."
COMPETITION
Competition in the radio programming market is intense. The Company's radio
network competes for both advertising and radio station affiliations with major
network radio distribution companies, as well as with a large number of smaller
independent producers and distributors. The radio programming industry has
recently experienced rapid consolidation, which has increased competition from
well financed larger radio programming distribution companies. The largest
competitors in the industry are affiliated with major station owners. These
competitors have recognized brand names as well as 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 revenues in the future.
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 technological advance, Digital Audio Radio
Service ("DARS"), permits 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 advertising representation business acquired from MediaAmerica will
also be subject to significant competition. The radio advertising representation
business is highly competitive, both in terms of competition to gain program
provider clients and to sell airtime inventory to advertisers. The Company's
radio advertising representation firm competes with major network radio
distribution companies, which operate divisions that both sell their own
company's airtime inventory and also contract with third party radio programmers
to sell their airtime inventory. Over the last two years, many independent
program providers have been acquired by major network distribution companies.
These companies have large amounts of airtime inventory to sell and have
significant resources. The formation by certain group radio station owners of
radio networks, such as AMFM, has adversely affected, and may continue to
adversely affect, the Company's advertising revenues.
Competition in the cable television programming market is also intense. The
Company's cable television networks compete for distribution of programming on
cable systems, for viewers and for advertising revenues with
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hundreds of cable and broadcast television networks which provide a variety of
infomercial and entertainment programming.
Great American Country has one principal direct competitor, a large network
with substantial financial resources that distributes its programming to
approximately 60% of the cable television subscribers in the United States. In
attempting to expand its distribution, Great American Country will directly
compete for carriage with such network, which has undertaken a substantial
campaign in at least one major market to retain its subscribers and may do so in
other markets. There can be no assurance that the Company will be able to expand
the distribution of its cable television networks or compete successfully
against the other networks.
The Product Information Network competes directly with at least three other
long-form advertising networks and believes that new infomercial networks are
currently being planned or formed that also will compete directly with the
Product Information Network. The Product Information Network also competes with
at least 30 cable television networks that air long-form advertising, many of
which have a substantial number of viewers. 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, allows
cable systems to greatly expand their channel capacity and, as a result, their
ability to add new networks. There can be no assurance that long-form
advertising will continue to be attractive to advertisers and consumers or that
it will be able to continue to compete against other forms of advertising.
The Company competes in the delivery of domestic satellite services with
satellite owners, satellite service providers, microwave carriers 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 and cable television, print, outdoor, the Internet 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. See "Business--Competition."
SEASONALITY
Advertising revenues in the radio and cable television industries fluctuate
due to seasonality in such industries. The Company believes that radio network
revenues are typically lowest in the first quarter and cable television network
revenues are typically lowest in the third quarter. With the Acquisition, the
Company expects that its seasonal trend of lower first quarter revenues will be
more significant. Other than the fees paid by the Company to third parties for
certain of its radio programming, the fees paid by the Company in connection
with the distribution of the Product Information Network and the sales
commissions paid to account executives for radio advertising representation
sales, the Company's expenses have not historically varied significantly
relative to the seasonal fluctuation of revenues. 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 materially and adversely
affect profitability. These factors include the timing and volume of advertising
on the Company's radio network and cable 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
Product Information Network and Great American Country and general economic
conditions. There can be no assurance that the seasonality of the Company's
business will not adversely affect its ability to generate cash flow from
operations in certain periods in amounts sufficient for it to be able to pay it
debts, including the Notes, as they become due.
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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 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 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 these licenses will be able to be maintained or that
additional regulatory burdens will not be imposed in the future. See "Business--
Government Regulation."
YEAR 2000
The Year 2000 issue is the result of many computer programs being written
such that they will malfunction when reading a year of "00". This problem could
cause system failure or miscalculations causing disruptions of business
processes. The Company has initiated an assessment of its computer applications
to determine the extent of the problem. Based on this assessment, the Company
believes that the majority of its computer applications supporting business
processes, including accounting and billing, are designed to handle the Year
2000 appropriately; however, there can be no assurance to such effect. The
Company is currently focusing its efforts on the impact of the Year 2000 issue
on service delivery. The Company currently has no definitive estimate of the
cost or the extent of the impact, if any, this problem will have on service
delivery. To the extent that computer applications do not comply with Year 2000
requirements, there can be no assurance that potential system interruptions or
the cost necessary to update such applications will not have a material adverse
effect on the Company's business, financial condition and results of operations.
The Company has initiated communications with its significant suppliers and
customers to determine the extent to which the Company is vulnerable to the
failure by such parties to remediate Year 2000 compliance issues. No assurance
can be given, however, that the noncompliance of the systems of any of these
parties would not have a material adverse effect on the Company's business,
financial condition, competitive position and results of operations and its
ability to pay the interest on and principal of the Notes.
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 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.
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THE EXCHANGE OFFER
REASON FOR THE EXCHANGE OFFER
The Old Notes were issued on July 10, 1998 in an offering that was exempt
from registration under the Securities Act. Accordingly, the Old Notes may not
be offered, sold or otherwise pledged, hypothecated or transferred in the United
States unless registered under the Securities Act or unless an exemption from
such registration requirements and applicable state securities laws is
available. The Company and the Initial Purchaser have entered into an exchange
and registration rights agreement dated July 10, 1998 (the "Exchange and
Registration Rights Agreement") pursuant to which the Company agreed for the
benefit of the holders of the Old Notes, that it will, at its cost, within 45
days after July 10, 1998, the original issue date of the Old Notes (the "Issue
Date"), file a registration statement (the "Exchange Offer Registration
Statement") under the Securities Act with respect to an offer to exchange the
Old Notes for newly issued notes of the Company which will have the form and
terms substantially identical in all material respects to the form and terms of
the Old Notes (the "Exchange Notes"), including interest rate and interest
payment dates, except that the exchange will have been registered under the
Securities Act and therefore the Exchange Notes will not bear legends
restricting the transfer thereof. In addition, the Additional Interest
provisions will be modified or eliminated as appropriate and holders of the
Exchange Notes will not be entitled to certain rights of holders of the Old
Notes under the Exchange and Registration Rights Agreement, which rights with
respect to Old Notes that are exchanged will terminate upon the consummation of
the Exchange Offer. See "Description of the Notes--Exchange Offer; Registration
Rights." The Company agreed to use its best efforts to cause the Exchange Offer
Registration Statement to be declared effective within 120 days after the Issue
Date. The Registration Statement, of which this Prospectus is a part, is
intended to be the Exchange Offer Registration Statement required to be filed by
the Company, therefore the Company believes it has satisfied such requirement.
The Company has also agreed to use its best efforts to consummate the Exchange
Offer within 180 days after the Issue Date.
The Company is hereby offering the Exchange Notes (and the related
guarantees) in exchange for surrender of the Old Notes (and the related
guarantees). The Company will keep the Exchange Offer open for not less than 30
business days (or longer if required by applicable law) after the date notice of
the Exchange Offer is mailed to the holders of the Old Notes. For each of the
Old Notes surrendered pursuant to the Exchange Offer, the holder who surrendered
such Old Note will receive an Exchange Note having a principal amount equal to
that of the surrendered Old Note. Interest on each Exchange Note will accrue
from the last interest payment date on which interest was paid on the Old Note
surrendered in exchange therefor or, if no interest has been paid on such Old
Note, from the Issue Date. The Exchange Notes will evidence the same debt as the
Old Notes which they replace and will be issued under, and be entitled to the
benefits of, the Indenture.
RESALE OF THE EXCHANGE NOTES
Based upon existing interpretations by the staff of the Commission issued
to third parties, the Company believes that the Exchange Notes will be freely
transferable by holders thereof (other than affiliates of the Company and the
Subsidiary Guarantors) after the Exchange Offer without further registration
under the Securities Act if the holder of the Exchange Notes represents that it
is acquiring the Exchange Notes in the ordinary course of business, that it has
no arrangement or understanding with any person to participate in the
distribution (within the meaning of the Securities Act) of the Exchange Notes
and that it is not an affiliate of the Company or the Subsidiary Guarantors, as
such terms are interpreted by the Commission; provided that broker-dealers
("Participating Broker-Dealers") receiving Exchange Notes in the Exchange Offer
will have a prospectus delivery requirement with respect to resales of such
Exchange Notes. The Commission has not considered the Exchange Offer itself in
the context of its interpretations and there can be no assurance that the staff
of the Commission would make a similar determination with respect to the
Exchange Offer. The Commission has taken the position that the Participating
Broker-Dealers may fulfill their prospectus delivery requirements with respect
to the Exchange Notes (other than a
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resale of an unsold allotment from the original sale of the Old Notes) with the
prospectus contained in the Exchange Offer Registration Statement. The Company
has agreed if, at the time of completion the Exchange Offer, information in the
Letter of Transmittal submitted by exchanging holders indicates that there are
holders that are Participating Broker-Dealers or otherwise subject to prospectus
delivery requirements, the Company will, for such period of time as is necessary
to comply with applicable law up to the date that is 180 days after consummation
of the Exchange Offer, make available a prospectus meeting the requirements of
the Securities Act to such persons, if any, for use in connection with any
resale of such Exchange Notes.
TERMS OF THE EXCHANGE OFFER; PERIOD FOR TENDERING OLD NOTES
Upon the terms and subject to the conditions set forth in this Prospectus
and in the accompanying Letter of Transmittal (which together constitute the
Exchange Offer), the Company will accept for exchange any and all Old Notes
which are properly tendered on or prior to the Expiration Date and not withdrawn
as permitted below. The Company will issue $1,000 principal amount of Exchange
Notes in exchange for each $1,000 principal amount at maturity of outstanding
Old Notes surrendered pursuant to the Exchange Offer. Old Notes may be tendered
only in integral multiples of $1,000.
As of the date of this Prospectus, an aggregate of $100,000,000 in
principal amount of the Old Notes is outstanding. The Exchange Offer is being
made or about __________, 1998, to all record holders of Old Notes.
Holders of the Old Notes do not have any appraisal or dissenters' rights in
connection with the Exchange Offer.
The Company expressly reserves the right, at any time or from time to time,
to extend the period of the Exchange Offer, and thereby delay acceptance for
exchange of any Old Notes, by giving written notice of such extension to the
holders thereof as described below. During any such extension, all Old Notes
previously tendered will remain subject to the Exchange Offer and may be
accepted for exchange by the Company. Any Old Notes not accepted for exchange
for any reason will be returned to the tendering holders thereof as soon as
practicable after the expiration of the Exchange Offer.
The Company reserves the right to amend or terminate the Exchange Offer
upon the occurrence of any of the conditions of the Exchange Offer specified
below under "--Certain Conditions of the Exchange Offer." The Company will give
written notice of any extension, amendment, nonacceptance or termination to the
holders of the Old Notes as promptly as practicable, such notice in the case of
any extension to be issued by means of a press release or other public
announcement no later than 9:00 a.m., New York City time, on the next business
day after the previously scheduled Expiration Date.
PROCEDURES FOR TENDERING OLD NOTES
The tender of Old Notes by a holder thereof as set forth below and the
acceptance thereof by the Company will constitute a binding agreement between
the tendering holder and the Company upon the terms and subject to the
conditions set forth in this Prospectus and in the Letter of Transmittal.
Except as set forth below, a holder who wishes to tender Old Notes for exchange
pursuant to the Exchange Offer must provide a properly completed and duly
executed Letter of Transmittal, including all other documents required by such
Letter of Transmittal, to the Exchange Agent at one of the addresses set forth
below under "--Exchange Agent" on or prior to the Expiration Date. In addition,
either (i) certificates for such Old Notes must be received by the Exchange
Agent along with the Letter of Transmittal, or (ii) a timely confirmation of a
book-entry transfer including an Agent's Message (a "Book-Entry Confirmation")
of such Old Notes, if such procedure is available, into the Exchange Agent's
account at The Depository Trust Company (the "Book-Entry Transfer Facility")
pursuant to the procedure for book-entry transfer described below, must be
received by the Exchange Agent prior to the Expiration Date, or (iii) the holder
must comply with the guaranteed delivery procedures described below.
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THE METHOD OF DELIVERY OF OLD NOTES, LETTERS OF TRANSMITTAL AND ALL OTHER
REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE HOLDERS. IF SUCH DELIVERY
IS BY MAIL, IT IS RECOMMENDED THAT REGISTERED MAIL, PROPERLY INSURED, WITH
RETURN RECEIPT REQUESTED, BE USED. IN ALL CASES, SUFFICIENT TIME SHOULD BE
ALLOWED TO ASSURE TIMELY DELIVERY.
NO LETTERS OF TRANSMITTAL OR OLD NOTES SHOULD BE SENT TO THE COMPANY.
Any beneficial owner whose Old Notes are registered in the name of a
broker, dealer, commercial bank, trustee or other nominee and who wishes to
tender should contact such registered holder and instruct such registered holder
to tender on behalf of the beneficial owner. If such beneficial owner wishes to
tender on its own behalf, it must, prior to completing and executing the Letter
of Transmittal and delivering its Old Notes, either make appropriate
arrangements to register ownership of the Old Notes in such beneficial owner's
name or obtain a properly completed power of attorney from the registered holder
of such Old Notes. If the Letter of Transmittal is signed by a person or
persons other than the registered holder or holders of Old Notes, such Old Notes
must be endorsed or accompanied by appropriate powers of attorney, in either
case signed exactly as the name or names of the registered holder or holders
that appear on the Old Notes.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed unless the Old Notes surrendered for exchange
pursuant thereto are tendered (i) by a registered holder of the Old Notes who
has not completed the box entitled "Special Issuance Instructions" or "Special
Delivery Instructions" on the Letter of Transmittal or (ii) for the account of
an Eligible Institution (as defined herein below). In the event that signatures
on a Letter of Transmittal or a notice of withdrawal, as the case may be, are
required to be guaranteed, such guarantees must be by a firm which is a member
of a registered national securities exchange or a member of the National
Association of Securities Dealers, Inc. or by a commercial bank or trustee
having an office or correspondent in the United States (collectively, "Eligible
Institutions"). If Old Notes are registered in the name of a person other than
a signer of the Letter of Transmittal, the Old Notes surrendered for exchange
must be endorsed by, or be accompanied by a written instrument or instruments of
transfer or exchange, in satisfactory form as determined by the Company in its
sole discretion, duly executed by the registered holder with the signature
thereon guaranteed by an Eligible Institution.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of Old Notes tendered for exchange will be determined by
the Company in its sole discretion, which determination shall be final and
binding. The Company reserves the absolute right to reject any and all tenders
of any Old Notes not properly tendered or not to accept any Old Notes whose
acceptance might, in the judgment of the Company, be unlawful. The Company also
reserves the absolute right to waive any defects or irregularities or conditions
of the Exchange Offer as to any particular Old Notes either before or after the
Expiration Date (including the right to waive the ineligibility of any holder
who seeks to tender Old Notes in the Exchange Offer). The interpretation of the
terms and conditions of the Exchange Offer as to any particular Old Notes either
before or after the Expiration Date (including the Letter of Transmittal and the
instructions thereto) by the Company shall be final and binding on all parties.
Unless waived, any defects or irregularities in connection with tenders of Old
Notes for exchange must be cured within such reasonable period of time as the
Company shall determine. Neither the Company nor the Exchange Agent shall be
under any duty to give notification of any defect or irregularity with respect
to any tender of Old Notes for exchange, nor shall they incur any liability for
failure to give such notification.
If the Letter of Transmittal or any Old Notes or powers of attorney are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing, and, unless waived by
the Company, proper evidence satisfactory to the Company of their authority to
so act must be submitted.
Each holder who wishes to exchange its Old Notes for Exchange Notes in the
Exchange Offer will be required to represent that any Exchange Notes to be
received by it will be acquired in the ordinary course of its business and
30
<PAGE>
that at the time of the commencement of the Exchange Offer it has no arrangement
or understanding with any person to participate in the distribution (within the
meaning of the Securities Act) of the Exchange Notes and that it is not an
affiliate of the Company.
If the holder is not a broker-dealer, it will be required to represent that
it is not engaged in, and does not intend to engage in, the distribution of the
applicable Exchange Notes. If the holder is a broker-dealer that will receive
Exchange Notes for its own account in exchange for Notes that were acquired as a
result of market making activities or other trading activities, it will be
required to acknowledge that it will deliver a prospectus in connection with any
resale of such Exchange Notes.
ACCEPTANCE OF OLD NOTES FOR EXCHANGE; DELIVERY OF EXCHANGE NOTES
Upon satisfaction or waiver of all of the conditions to the Exchange Offer,
the Company will accept, promptly after the Expiration Date, all Old Notes
properly tendered and will issue the Exchange Notes promptly after acceptance of
the Old Notes. See "--Certain Conditions of the Exchange Offer" below. For
purposes of the Exchange Offer, the Company shall be deemed to have accepted
properly tendered Old Notes for exchange when, as and if the Company has given
oral or written notice thereof to the Exchange Agent, with written confirmation
of any oral notice to be given promptly thereafter.
The issuance of Exchange Notes for Old Notes that are accepted for exchange
pursuant to the Exchange Offer will be made only after timely receipt by the
Exchange Agent of certificates for such Old Notes or a timely Book-Entry
Confirmation of such Old Notes into the Exchange Agent's account at the Book-
Entry Transfer Facility, a properly completed and duly executed Letter of
Transmittal and all other required documents. If any tendered Old Notes are not
accepted for any reason set forth in the terms and conditions of the Exchange
Offer, or if Old Notes are submitted for a greater amount than the holder
desires to exchange, Old Notes in the appropriate denomination will be promptly
returned to the holder thereof or, in the case of Old Notes tendered by book-
entry procedures described below, such non-exchanged Old Notes will be credited
to an account maintained with such Book-Entry Transfer Facility designated by
the tendering holder as promptly as practicable after the expiration or
termination of the Exchange Offer.
CERTAIN CONDITIONS OF THE EXCHANGE OFFER
Notwithstanding any other term of the Exchange Offer, the Company will not
be required to accept for exchange, or to issue Exchange Notes in exchange for,
any Old Notes and may terminate or amend the Exchange Offer as provided herein
prior to the Expiration Date, if because of any changes in law, or applicable
interpretations thereof by the Commission, or because any action or proceeding
is instituted or threatened in any court or governmental agency with respect to
the Exchange Offer, the Company determines that it is not permitted to effect
the Exchange Offer.
INTEREST ON THE EXCHANGE NOTES
Each Exchange Note will bear interest at the rate of 11 3/4% per annum from
the most recent date to which interest has been paid or duly provided for on the
Old Note surrendered in exchange for such Exchange Note or, if no interest has
been paid or duly provided for on such Old Note, from July 10, 1998 (the date of
original issuance of such Old Notes). Interest on the Exchange Notes will be
payable semiannually on January 1 and July 1 of each year, commencing on the
first such date following the original issuance date of the Exchange Notes.
Holders of Old Notes whose Old Notes are accepted for exchange will not
receive accrued interest on such Old Notes for any period from and after the
last Interest Payment Date to which interest has been paid or duly provided
31
<PAGE>
for on such Old Notes prior to the original issue date of the Exchange Notes or
if no such interest has been paid or duly provided for, will not receive any
accrued interest on such Old Notes, and will be deemed to have waived the right
to receive any interest on such Old Notes accrued from and after such Interest
Payment Date or, if no such interest has been paid or duly provided for, from
and after July 10, 1998.
BOOK-ENTRY TRANSFER
The Exchange Agent will make a request to establish an account with respect
to the Old Notes at the Book-Entry Transfer Facility for purposes of the
Exchange Offer promptly after the date of this Prospectus, and any financial
institution that is a participant in the Book-Entry Transfer Facility's systems
may make book-entry delivery of Old Notes by causing the Book-Entry Transfer
Facility to transfer such Old Notes into the Exchange Agent's account at the
Book-Entry Transfer Facility in accordance with such Book-Entry Transfer
Facility's procedures for transfer. However, although delivery of Old Notes may
be effected through book-entry transfer at the Book-Entry Transfer Facility, the
Letter of Transmittal or facsimile thereof, or an Agent's Message, with any
required signature guarantees and any other required documents, must, in any
case, be transmitted to and received by the Exchange Agent at one of the
addresses set forth below under "--Exchange Agent" on or prior to the Expiration
Date or the guaranteed delivery procedures described below must be complied
with.
The term "Agent's Message" means a message, transmitted by DTC to, and
received by, the Exchange Agent and forming a part of a book-entry confirmation,
which states that DTC has received an express acknowledgment from the tendering
participant, which acknowledgment states that such participant has received and
agrees to be bound by the terms of the Letter of Transmittal, and the Company
may enforce the Letter of Transmittal against such participant.
GUARANTEED DELIVERY PROCEDURES
If a registered holder of the Old Notes desires to tender such Old Notes
and the Old Notes are not immediately available, or time will not permit such
holder's Old Notes or other required documents to reach the Exchange Agent
before the Expiration Date, or the procedure for book-entry transfer cannot be
completed on a timely basis, a tender may be effected if (i) the tender is made
through an Eligible Institution, (ii) prior to the Expiration Date, the Exchange
Agent has received from such Eligible Institution a properly completed and duly
executed Letter of Transmittal (or a facsimile thereof) and Notice of Guaranteed
Delivery, substantially in the form provided by the Company (by telegram, telex,
facsimile transmission, mail or hand delivery), setting forth the name and
address of the holder of the Old Notes and the amount of Old Notes, stating that
the tender is being made thereby and guaranteeing that within five trading days
(on the Nasdaq Stock Market's National Market (the "Nasdaq National Market"))
after the date of execution of the Notice of Guaranteed Delivery, the
certificates for all physically tendered Old Notes, in proper form for transfer,
or a Book-Entry Confirmation, as the case may be, and any other documents
required by the Letter of Transmittal will be deposited by the Eligible
Institution with the Exchange Agent, and (iii) the certificates for all
physically tendered Old Notes, in proper form for transfer, or a Book-Entry
Confirmation, as the case may be, and all other documents required by the Letter
of Transmittal, are received by the Exchange Agent within five Nasdaq National
Market trading days after the date of execution of the Notice of Guaranteed
Delivery.
WITHDRAWAL RIGHTS
Tenders of Old Notes may be withdrawn by the tendering parties at any time
prior to the Expiration Date.
For a withdrawal to be effective, a written notice of withdrawal must be
received by the Exchange Agent at one of the addresses set forth below under "--
Exchange Agent." Any such notice of withdrawal must specify the name
32
<PAGE>
of the person having tendered the Old Notes to be withdrawn, identify the Old
Notes to be withdrawn (including the amount of such Old Notes), and (where
certificates for Old Notes have been transmitted) specify the name in which such
Old Notes are registered, if different from that of the withdrawing holder. If
certificates for Old Notes have been delivered or otherwise identified to the
Exchange Agent, then, prior to the release of such certificates the withdrawing
holder must also submit the serial numbers of the particular certificates to be
withdrawn and a signed notice of withdrawal with signatures guaranteed by an
Eligible Institution unless such holder is an Eligible Institution. If Old Notes
have been tendered pursuant to the procedure for book-entry transfer described
above, any notice of withdrawal must specify the name and number of the account
at the Book-Entry Transfer Facility to be credited with the withdrawn Old Notes
and otherwise comply with the procedures of such facility. All questions as to
the validity, form and eligibility (including time of receipt) of such notices
will be determined by the Company, whose determination shall be final and
binding on all parties. Any Old Notes so withdrawn will be deemed not to have
been validly tendered for exchange for purposes of the Exchange Offer. Any Old
Notes which have been tendered for exchange but which are not exchanged for any
reason will be returned to the holder thereof without cost to such holder (or,
in the case of Old Notes tendered by book-entry transfer into the Exchange
Agent's account at the Book-Entry Transfer Facility pursuant to the book-entry
transfer procedures described above, such Old Notes will be credited to an
account with such Book-Entry Transfer Facility specified by the holder) as soon
as practicable after withdrawal, rejection of tender or termination of the
Exchange Offer. Properly withdrawn Old Notes may be retendered by following one
of the procedures described under "--Procedures for Tendering Old Notes" above
at any time on or prior to the Expiration Date.
EXCHANGE AGENT
United States Trust Company of New York has been appointed as the Exchange
Agent for the Exchange Offer. All executed Letters of Transmittal should be
directed to the Exchange Agent at the addresses set forth below. Questions and
requests for assistance, requests for additional copies of this Prospectus or of
the Letter of Transmittal and requests for Notices of Guaranteed Delivery should
be directed to the Exchange Agent addressed as follows:
Deliver To: United States Trust Company of New York, Exchange Agent
<TABLE>
<CAPTION>
BY MAIL: BY HAND:
<S> <C>
United States Trust Company of New York United States Trust Company of New York
P.O. Box 841, Peter Cooper Station 111 Broadway, Lower Level
New York, NY 10276-0841 New York, NY 10006
Attention: Corporate Trust and Agency Services Attention: Corporate Trust and Agency Services
</TABLE>
FOR INFORMATION, CALL:
(800) 225-2398
Fax: (212) 420-6155
BY OVERNIGHT COURIER OR EXPRESS MAIL:
United States Trust Company of New York
770 Broadway, 13th Floor
New York, NY 10003
Attention: Corporate Trust and Agency Services
33
<PAGE>
DELIVERY OF A LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH
ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH
ABOVE DOES NOT CONSTITUTE A VALID DELIVERY OF SUCH LETTER OF TRANSMITTAL.
FEES AND EXPENSES
The Company will not make any payment to brokers, dealers or others
soliciting acceptances of the Exchange Offer.
The expenses to be incurred in connection with the Exchange Offer will be
paid by the Company.
ACCOUNTING TREATMENT
For accounting purposes, the Company will recognize no gain or loss as a
result of the Exchange Offer. The expenses of the Exchange Offer will be
amortized over the term of the Exchange Notes.
TRANSFER TAXES
Holders who tender their Old Notes for exchange will not be obligated to
pay any transfer taxes in connection therewith, except that holders who instruct
the Company to register Exchange Notes in the name of, or request that Old Notes
not tendered or not accepted in the Exchange Offer be returned to, a person
other than the registered tendering holder will be responsible for the payment
of any applicable transfer tax thereon.
CONSEQUENCES OF FAILURE TO EXCHANGE
Participation in the Exchange Offer is voluntary. Holders of the Old Notes
are urged to consult their financial and tax advisors in making their own
decisions on what action to take. See "Certain United States Federal Income Tax
Considerations."
The Old Notes that are not exchanged for the Exchange Notes pursuant to the
Exchange Offer will remain restricted securities and may only be offered, sold,
pledged or otherwise transferred (A)(i) to a person whom the seller reasonably
believes is a qualified institutional buyer within the meaning of Rule 144A in a
transaction meeting the requirements of Rule 144A, (ii) in an offshore
transaction meeting the requirements of Rule 903 or Rule 904 of Regulations S
under the Securities Act, or (iii) pursuant to an exemption from registration
under the Securities Act provided by Rule 144 thereunder or other exemption from
such registration (if available) and (B) in accordance with all applicable
securities laws of the states of the United States. Under certain
circumstances, the Company is required to file a Shelf Registration Statement
(as defined below) on behalf of the Initial Purchaser or those holders of Old
Notes who are not eligible to participate in the Exchange Offer. See
"Description of the Notes--Exchange Offer; Registration Rights."
PAYMENT OF ADDITIONAL INTEREST UNDER CERTAIN CIRCUMSTANCES
If the Exchange Offer is not consummated within 180 days after the Issue
Date, or, under certain circumstances, if the Initial Purchaser or any holder of
Notes (other than the Initial Purchaser) who is not eligible to participate in
the Exchange Offer so requests (each a "Shelf Request"),the Company will at its
cost, (a) within 45
34
<PAGE>
days of such Shelf Request, file a shelf registration statement (a "Shelf
Registration Statement") covering resales of the Notes held by such requesting
holders (the "Shelf Notes"), (b) use its best efforts to cause such Shelf
Registration Statement to be declared effective under the Securities Act no
later than 120 days following a Shelf Request and (c) use its best efforts to
keep effective such Shelf Registration Statement until the earlier of two years
after the Issue Date or such shorter time as all of the applicable Notes have
been sold thereunder or all applicable Notes have ceased to be Registrable Notes
(as defined). The Company will, in the event of the filing of a Shelf
Registration Statement, provide to each holder of the Shelf Notes copies of the
prospectus which is a part of such Shelf Registration Statement, notify each
such holder when such Shelf Registration Statement has become effective and take
certain other actions as are required to permit unrestricted resales of the
Shelf Notes. A holder that sells its Shelf Notes pursuant to a Shelf
Registration Statement generally will be required to be named as a selling
security holder in the related prospectus and to deliver a prospectus to
purchasers, will be subject to certain of the civil liability provisions under
the Securities Act in connection with such sales and will be bound by the
provisions of the Exchange and Registration Rights Agreement which are
applicable to such holder (including certain indemnification obligations).
The Exchange and Registration Rights Agreement provides that as liquidated
damages and as the sole and exclusive remedy therefor, additional interest (the
"Additional Interest") will become payable under certain circumstances with
respect to the Notes as follows:
(i) if the Exchange Offer Registration Statement or Shelf Registration
Statement is not filed within, in the case of the Exchange Offer
Registration Statement, 45 days following the Issue Date or, in the
case of the Shelf Registration Statement, 45 days following a Shelf
Request, Additional Interest will accrue on the Old Notes, in the
case of the Exchange Offer Registration Statement, or the Shelf
Notes, in the case of the Shelf Registration Statement, over and
above the stated interest at a rate of 0.50% per annum for the first
30 days commencing on the 46th day after the Issue Date or the Shelf
Request, respectively, such Additional Interest rate increasing by
an additional 0.50% per annum at the beginning of each subsequent
30-day period.
(ii) if the Exchange Offer Registration Statement or Shelf Registration
Statement is not declared effective within, in the case of the
Exchange Offer Registration Statement, 120 days following the Issue
Date or, in the case of the Shelf Registration Statement, 120 days
following a Shelf Request, Additional Interest will accrue on the
Old Notes, in the case of the Exchange Offer Registration Statement,
or the Shelf Notes, in the case of the Shelf Registration Statement,
over and above the stated interest at a rate of 0.50% per annum for
the first 90 days commencing on the 121st day after the Issue Date
or the Shelf Request, respectively, such Additional Interest rate
increasing by an additional 0.50% per annum at the beginning of each
subsequent 90-day period; or
(iii) if (A) the Company has not exchanged all Old Notes validly tendered
in accordance with the terms of the Exchange Offer on or prior to
180 days after the Issue Date or (B) the Exchange Offer Registration
Statement ceases to be effective at any time prior to the time that
the Exchange Offer is consummated or (C) if applicable, the Shelf
Registration Statement has been declared effective and such Shelf
Registration Statement ceases to be effective at any time prior to
the second anniversary of the Issue Date (unless all the Notes have
been sold thereunder or all applicable Notes have ceased to be
Registrable Notes (as defined)), then Additional Interest will
accrue on the Old Notes, with respect to (x) and (y), and the Shelf
Notes, with respect to (z), over and above the stated interest at a
rate of 0.50% per annum for the first 90 days commencing on (x) the
181st day after the Issue Date with respect to the Old Notes validly
tendered and not exchanged by the Company, in the case of (A) above,
or (y) the day the Exchange Offer Registration Statement ceases to
be effective or usable for its intended purpose in the case of (B)
above, or (z) the day such Shelf Registration Statement ceases to be
effective in the case of (C) above, such Additional Interest rate
increasing by an additional 0.50% per annum at the beginning of each
subsequent 90-day period;
35
<PAGE>
provided, however, that the Additional Interest rate on the Old Notes or the
Shelf Notes under clauses (i), (ii) or (iii) above, may not exceed in the
aggregate 2.0% per annum; and provided further, that (1) upon the filing of the
Exchange Offer Registration Statement or Shelf Registration Statement (in the
case of clause (i) above), (2) upon the effectiveness of the Exchange Offer
Registration Statement or Shelf Registration Statement (in the case of clause
(ii) above), or (3) upon the exchange of Exchange Notes for all Old Notes
tendered (in the case of clause (iii)(A) above), or upon the effectiveness of
the Exchange Offer Registration Statement which had ceased to remain effective
in the case of clause (iii)(B) above), or upon the effectiveness of the Shelf
Registration Statement which had ceased to remain effective (in the case of
clause (iii)(C) above), Additional Interest on the Notes as a result of such
clause (or the relevant subclause thereof), as the case may be, will cease to
accrue.
The Company has already met the conditions regarding the filing and
effectiveness of the Exchange Offer Registration Statement in (i) and (ii)
above, accordingly as to such registration statement, (i) and (ii) are no longer
applicable.
The above is a summary of the terms set forth in more detail in the
Exchange and Registration Rights Agreement and such summary is qualified by
reference to such agreement, which is filed as an exhibit to the Exchange Offer
Registration Statement.
36
<PAGE>
USE OF PROCEEDS
The Company will receive no proceeds from the issuance of the Exchange
Notes pursuant to the Exchange Offer.
The net proceeds to the Company from the offering of the Old Notes were
$95.2 million after deducting the fees and expenses of $4.8 million payable by
the Company. Of the net proceeds, the Company used (i) $27.6 million to prepay
the capital lease obligation relating to the satellite transponders, which
allows the Company to now own the transponders, (ii) $26.7 million to finance
the cash portion of the Acquisition, and (iii) $16.7 million to repay
outstanding indebtedness under Radio Holdings' $30 million revolving credit
facility. The remaining $24.2 million will be used for general corporate
purposes, $10.0 million of which was deposited into the Reserve Account. Cash
balances in the Reserve Account are restricted to use for only acquisitions and
payment of principal of or interest on the Notes. Borrowings under Radio
Holding's credit facility bore interest at a maximum rate of LIBOR plus 2.875%
(approximately 7.9% at June 30, 1998) and was otherwise repayable between March
31, 2000 and March 31, 2002. Borrowings under this credit facility were used to
repay certain indebtedness and to pay credit facility fees. See "Certain
Relationships and Related Transactions--Advances" and "--Purchase of Galactic
Radio and Earth Segment." In connection with the offering of the Old Notes, the
Company terminated the Radio Holdings' credit facility.
37
<PAGE>
CAPITALIZATION
The following table sets forth the unaudited capitalization of the Company
as of June 30, 1998 (i) on a historical basis as reported, and (ii) on a pro
forma basis to reflect the Transactions. This table should be read in
conjunction with the Company's historical consolidated financial statements and
the related notes thereto and the other information included elsewhere in this
Offering Memorandum. See "Use of Proceeds," "Selected Unaudited Pro Forma
Financial Data," "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and "Selected Unaudited Reconsolidated Financial
Data."
<TABLE>
<CAPTION>
JUNE 30, 1998
--------------------------------
REPORTED PRO FORMA
-------------- ----------------
<S> <C> <C>
(DOLLARS IN THOUSANDS)
Cash and cash equivalents ................................................ $ 2,445 $ 16,260
Restricted cash(1) ....................................................... -- 10,000
-------- --------
Total cash, cash equivalents and restricted cash ......................... $ 2,445 $ 26,260
======== ========
Debt:
Credit facility ................................................... $ 16,705 $ --
11 3/4% Senior Secured Notes due 2005 ............................. -- 100,000
Capital lease obligation .......................................... 27,591 --
Jones Global Group Note(2) ........................................ 10,000 --
-------- --------
Total debt ..................................................... 54,296 100,000
-------- --------
Minority interests ....................................................... 822 822
Shareholders' deficit:
Class A Common Stock, $.01 par value: 50,000,000 shares
authorized; 2,980,953, and 4,381,905 shares issued and
outstanding, respectively ...................................... 30 44
Class B Common Stock, $.01 par value: 1,785,120 shares
authorized; 1,785,120, and 1,785,120 shares issued and
outstanding, respectively ...................................... 18 18
Additional paid-in capital ........................................ 9,143 29,619
Accumulated deficit ............................................... (33,060) (33,060)
-------- --------
Total shareholders' deficit .................................... (23,869) (3,379)
-------- --------
Total capitalization ..................................................... $ 31,249 $ 97,443
======== ========
</TABLE>
(1) Restricted to acquisitions and payment of principal of and interest on the
Notes.
(2) Concurrent with the closing of the offering of the Old Notes, the Jones
Global Group Note was converted into 666,667 shares of Class A Common Stock
valued at $15 per share.
38
<PAGE>
SELECTED UNAUDITED PRO FORMA FINANCIAL DATA
OVERVIEW
The following Selected Unaudited Pro Forma Financial Data as of and for the
six months ended June 30, 1998 have been derived from the unaudited financial
statements of the Company and the unaudited financial statements of
MediaAmerica. The Unaudited Pro Forma Statement of Operations for the year ended
December 31, 1997 is based on the unaudited reconsolidated financial statements
of the Company and the audited financial statements of MediaAmerica. The
Selected Unaudited Pro Forma Financial Data adjust the unaudited and, with
respect to 1997, reconsolidated financial statements to reflect the
Transactions.
The Selected Unaudited Pro Forma Financial Data reflect adjustments that
are based upon available information and factually supportable assumptions that
the Company believes are reasonable and do not necessarily reflect the results
of operations or the financial position of the Company that actually would have
resulted had the Acquisition been consummated or the GAC Equity Agreements been
in place. Pro forma adjustments above have been reflected, as of the date or for
the periods indicated. In preparing the Selected Unaudited Pro Forma Financial
Data, the Company believes it has utilized reasonable methods to conform the
basis of presentation.
The Selected Unaudited Pro Forma Financial Data and accompanying notes
should be read in conjunction with the Selected Consolidated Financial Data of
the Company as well as the consolidated financial statements of the Company and
MediaAmerica, the Selected Unaudited Reconsolidated Financial Data beginning on
page R-1 and the other financial information pertaining to the Company,
including "Use of Proceeds," "Capitalization" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" included elsewhere
herein.
THE ACQUISITION
On July 10, 1998, the Company acquired certain of the assets and assumed
certain of the liabilities of MediaAmerica. Pursuant to the Acquisition,
MediaAmerica received $26.7 million in cash and $6.0 million in shares of Class
A Common Stock of the Company valued at $15 per share. MediaAmerica also
received approximately 142,000 additional shares of Class A Common Stock, valued
at $15 per share, in the amount of the estimated working capital adjustment
calculated on the date of the closing of the Acquisition, subject to final
adjustment sixty days after closing. In addition, MediaAmerica can earn up to $5
million in additional shares of Class A Common Stock valued at $15 per share,
with remaining amounts to be paid in cash, based on certain multiples of
"EBITDA" (earnings before interest, taxes, depreciation and amortization) from
the MediaAmerica business (as defined) for the twelve-month period following the
closing of the Acquisition (the "Earnout"). The closing of the Acquisition was
contingent on and was closed simultaneous with the closing of the offering of
the Old Notes on July 10, 1998.
The Acquisition will be accounted for by the purchase method of accounting,
under which the purchase price of MediaAmerica will be allocated to the tangible
and intangible assets and liabilities of MediaAmerica. The Selected Unaudited
Pro Forma Financial Data have been prepared based upon certain assumptions made
by management regarding a preliminary estimate of the purchase price allocation.
Actual accounting regarding the Acquisition may differ from the pro forma
adjustments based on the balances of the assets and liabilities of MediaAmerica
and the final purchase price allocation.
39
<PAGE>
THE GAC EQUITY AGREEMENTS
In the first quarter of 1998, Great American Country and the Company
entered into equity affiliate agreements with two MSOs. Pursuant to the terms of
such agreements, the Company agreed to issue shares of Class A Common Stock to
the MSOs in return for the MSOs providing Great American Country's programming
to no less than 550,000 subscribers by May 31, 1998, an additional 500,000
subscribers by December 31, 1998 and to another 150,000 subscribers by December
31, 1999. The total number of shares to be issued is based on the number of
subscribers provided by the MSOs. As of June 30, 1998, 714,770 subscribers had
been provided by the MSOs. As a result, the Company is required to issue 104,237
shares to such MSOs. If the MSOs provide the remaining 485,230 additional
subscribers by the dates specified, the Company would be required to issue a
total of 70,763 additional shares to such MSOs. At August 1, 1998, 101,124
shares of Class A Common Stock had been issued to one of the MSOs.
Pursuant to the GAC Equity Agreements, the MSOs agreed to pay a specified
rate per subscriber, less a volume discount based on the level of subscribers
provided. Pro forma subscriber license fee revenues were calculated based on the
total number of subscribers that these MSOs agreed to provide to Great American
Country and the agreed upon rate per subscriber. In addition, launch incentive
payments of $1.2 million are to be paid by the Company under the GAC Equity
Agreements.
<PAGE>
JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES
UNAUDITED PRO FORMA STATEMENT OF FINANCIAL POSITION
JUNE 30, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMPANY COMPANY
REPORTED MEDIAAMERICA(a) ADJUSTMENTS PRO FORMA
-------------- ------------------- ----------------- -------------
<S> <C> <C> <C> <C>
ASSETS:
Cash and cash equivalents........................ $ 2,445 $ 809 13,006 (b) $ 16,260
Restricted cash.................................. -- -- 10,000 (b) 10,000
Accounts receivable.............................. 2,799 7,150 -- 9,949
Other current assets............................. 504 684 -- 1,188
-------- ------- ------------- --------
Total current assets........................ 5,748 8,643 23,006 37,397
-------- ------- ------------- --------
Property, plant and equipment.................... 26,920 840 27,760
Goodwill......................................... 3,009 -- 30,040 (c) 33,049
Intangible assets................................ 1,082 2,202 3,300 (d) 6,584
Other long-term assets........................... 4,003 41 3,389 (e) 7,433
-------- ------- ------------- --------
Total assets................................ $ 40,762 $11,726 $59,735 $112,223
======== ======= ============= ========
LIABILITIES AND
SHAREHOLDERS' INVESTMENT
(DEFICIT):
Accounts payable................................. $ 1,264 $ 5,751 $(1,111)(e) $ 5,904
Accrued liabilities.............................. 1,954 405 -- 2,359
Other current liabilities........................ 8,925 99 (2,969)(f) 6,055
-------- ------- ------------- --------
Total current liabilities................... 12,143 6,255 (4,080) 14,318
-------- ------- ------------- --------
Note payable--affiliated entity.................. 10,000 -- (10,000)(f) --
Senior secured notes............................. --- -- 100,000 (f) 100,000
Credit facility.................................. 16,705 -- (16,705)(f) --
Capital lease obligations........................ 24,922 -- (24,922)(f) --
Other long-term liabilities...................... 39 423 -- 462
-------- ------- ------------- --------
Total long-term liabilities................. 51,666 423 48,373 100,462
-------- ------- ------------- --------
Minority interests............................... 822 -- -- 822
Shareholders' investment (deficit):
Class A Common Stock........................... 30 50 (36)(g) 44
Class B Common Stock........................... 18 -- -- 18
Additional paid-in capital..................... 9,143 292 20,184 (g) 29,619
Retained earnings (accumulated
deficit)..................................... (33,060) 4,706 (4,706)(g) (33,060)
-------- ------- ------------- --------
Total shareholders'
investment (deficit).................... (23,869) 5,048 15,442 (3,379)
-------- ------- ------------- --------
Total liabilities and shareholders'
investment (deficit)........................... $ 40,762 $11,726 $59,735 $112,223
======== ======= ============= ========
</TABLE>
See notes to selected unaudited pro forma financial data.
41
<PAGE>
JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMPANY COMPANY
REPORTED MEDIAAMERICA ADJUSTMENTS PRO FORMA
------------- ----------------- ----------------- -------------
<S> <C> <C> <C> <C>
INCOME STATEMENT DATA:
REVENUES:
Radio programming.................................. $ 3,739 $ 998 $663 (h) $ 5,400
Radio advertising sales representation............. -- 4,990 (676)(h) 4,314
Television programming............................. 7,865 -- 13 (h) 8,126
248 (i) --
Satellite delivery and production support.......... 2,128 -- -- 2,128
------- ------ ------- -------
Total revenues................................... 13,732 5,988 248 19,968
------- ------ ------- -------
OPERATING EXPENSES:
Radio programming.................................. 3,490 -- -- 3,490
Radio advertising sales representation............. -- 1,154 -- 1,154
Television programming............................. 6,667 -- -- 6,667
Satellite delivery and production support.......... 2,330 -- -- 2,330
Selling and marketing.............................. 1,747 1,874 -- 3,621
General and administrative......................... 2,092 2,390 138(j) 4,620
------- ------ ------- -------
Total operating expenses......................... 16,326 5,418 138 21,882
------- ------ ------- -------
OPERATING INCOME (LOSS).......................... (2,594) 570 110 (1,914)
------- ------ ------- -------
OTHER EXPENSE (INCOME):
Interest expense................................... 2,640 24 3,556 (k) 6,220
Interest income.................................... (99) (59) -- (158)
Equity share of income of subsidiary (n)........... (73) -- -- (73)
Other expense (income), net........................ 264 69 -- 333
------- ------ ------- -------
Total other expense (income)..................... 2,732 34 3,556 6,322
------- ------ ------- -------
Loss before income taxes and minority
interests......................................... (5,326) 536 (3,446) (8,236)
Income tax provision............................... 268 43 -- 311
------- ------ ------- -------
Loss before minority interests..................... (5,594) 493 (3,446) (8,547)
Minority interests in net loss of consolidated
subsidiaries...................................... 69 -- -- 69
------- ------ ------- -------
NET LOSS........................................... $(5,663) $ 493 $(3,446) $(8,616)
======= ====== ======= =======
OTHER DATA:
EBITDA (o)......................................... $ 369 $ 823 $ 651 $ 1,843
Depreciation and amortization (p).................. 2,651 253 541 3,445
Capital expenditures............................... 539 106 -- 645
Cash distributions from Superaudio (q)............. 350 -- -- 350
EBITDA attributable to PIN Venture's
minority interests (r).......................... 38 -- -- 38
</TABLE>
See notes to selected unaudited pro forma financial data.
42
<PAGE>
JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMPANY COMPANY
---------------------------
REPORTED RECONSOLIDATED MEDIAAMERICA ADJUSTMENTS PRO FORMA
---------- --------------- ------------- --------------- ------------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
REVENUES:
Radio programming..................................... $10,200 $10,200 $ 1,702 2,139 (h) $14,041
Radio advertising sales representation................ -- -- 13,436 (2,151)(h) 11,285
Television programming................................ 12,002 14,860 -- 12 (h) 15,484
612 (i)
Satellite delivery and production support............. 6,910 6,485 -- -- 6,485
------- ------- ------- ------- -------
Total revenues..................................... 29,112 31,545 15,138 612 47,295
------- ------- ------- ------- -------
OPERATING EXPENSES:
Radio programming..................................... 5,816 5,816 -- -- 5,816
Radio advertising sales representation................ -- -- 1,296 -- 1,296
Television programming................................ 9,272 11,226 -- -- 11,226
Satellite delivery and production support............. 4,685 4,481 -- -- 4,481
Selling and marketing................................. 2,918 3,022 4,594 -- 7,616
General and administrative............................ 4,168 4,447 5,219 35 (j) 9,701
------- ------- ------- ------- -------
Total operating expenses........................... 26,859 28,992 11,109 35 40,136
------- ------- ------- ------- -------
OPERATING INCOME................................... 2,253 2,553 4,029 577 7,159
------- ------- ------- ------- -------
OTHER EXPENSE (INCOME):
Interest expense...................................... 5,677 5,677 14 6,716 (k) 12,407
Interest income....................................... (108) (99) (227) -- (326)
Write-off of deferred offering costs (l).............. 938 938 -- -- 938
Officers' incentive compensation...................... -- -- 2,600 (2,600)(m) --
Equity share of loss (income) of subsidiaries (n)..... (396) (227) -- -- (227)
Other expense (income), net........................... 74 74 -- -- 74
------- ------- ------- ------- -------
Total other expense................................ 6,185 6,363 2,387 4,116 12,866
------- ------- ------- ------- -------
Income (loss) before income taxes and minority
interests.......................................... (3,932) (3,810) 1,642 (3,539) (5,707)
Income tax provision (benefit)........................ (1,342) (1,342) 154 -- (1,188)
------- ------- ------- ------- -------
Income (loss) before minority interests............... (2,590) (2,468) 1,488 (3,539) (4,519)
Minority interests in net income of consolidated
subsidiaries....................................... 903 1,072 -- -- 1,072
------- ------- ------- ------- -------
NET INCOME (LOSS)..................................... $(3,493) $(3,540) $ 1,488 $(3,539) $(5,591)
======= ======= ======= ======= =======
OTHER DATA:
EBITDA (o)............................................ $ 6,661 $ 6,877 $ 4,326 $ 1,672 $12,875
Depreciation and amortization (p)..................... 5,130 5,230 297 1,095 6,622
Capital expenditures.................................. 1,367 1,386 165 -- 1,551
Cash distributions from Superaudio (q)................ 100 100 -- -- 100
EBITDA attributable to PIN Venture's minority
interests (r)...................................... 822 1,006 -- -- 1,006
</TABLE>
See notes to selected unaudited pro forma financial data.
43
<PAGE>
NOTES TO SELECTED UNAUDITED PRO FORMA FINANCIAL DATA
(a) Represents only those assets acquired and those liabilities assumed in the
Acquisition.
The Unaudited Pro Forma Statement of Financial Position gives effect to the
following unaudited pro forma adjustments:
(b) Represents the receipt of gross proceeds of $100.0 million from the
offering of the Old Notes less (i) the payment of a $27.6 million capital
lease obligation relating to the satellite transponders, (ii) the payment
of $26.7 million for the cash portion of the Acquisition, (iii) the
repayment of $16.7 million of outstanding indebtedness under Radio
Holdings' revolving credit facility, (iv) the deposit of $10.0 million into
the Reserve Account, (v) the payment of $4.8 million of issuance costs
related to the offering of the Old Notes and (vi) the payment of $1.2
million related to launch incentive fees to the MSOs under the GAC Equity
Agreements.
(c) Represents goodwill of approximately $30.0 million related to the
Acquisition based on a preliminary allocation of the purchase price in
accordance with the purchase method of accounting.
(d) Represents (i) intangible assets of approximately $2.1 million related to
the Class A Common Stock expected to be issued under the GAC Equity
Agreements and (ii) intangible assets of approximately $1.2 million related
to the payment of launch incentive fees to the MSOs under the GAC Equity
Agreements.
(e) Represents the payment of $4.8 million for issuance costs related to the
offering of the Old Notes. The Company had already incurred approximately
$1.1 million of the $4.8 million total estimated issuance costs as of June
30, 1998, with such amount reflected in accounts payable.
(f) Represents the (i) addition of $100.0 million in Notes pursuant to the
offering of the Old Notes, (ii) payment of a $27.6 million capital lease
obligation relating to the satellite transponders, (iii) repayment of $16.7
million of outstanding amounts under the Radio Holdings' revolving credit
facility and (iv) conversion of the $10.0 million Jones Global Group Note
into shares of the Company's Class A Common Stock valued at $15 per share.
(g) Represents the (i) addition of $6.0 million in Class A Common Stock issued
pursuant to the Acquisition, (ii) addition of $2.4 million in shares of
Class A Common Stock expected to be issued in the Acquisition pursuant to
the working capital adjustment, (iii) addition of $2.1 million in shares of
Class A Common Stock expected to be issued pursuant to the GAC Equity
Agreements, (iv) conversion of the $10.0 million Jones Global Group Note
into shares of the Company's Class A Common Stock valued at $15 per share
and (v) elimination of MediaAmerica's shareholders' investment.
The Unaudited Pro Forma Statements of Operations give effect to the
following unaudited pro forma adjustments:
(h) Represents the reclassification of representation fees charged by
MediaAmerica to the Company from radio advertising sales representation to
radio programming and cable programming.
(i) Represents subscriber license fees expected to be received under the GAC
Equity Agreements, which are not included in the historical revenues of the
Company.
<PAGE>
NOTES TO SELECTED UNAUDITED PRO FORMA FINANCIAL DATA--(CONTINUED)
(j) Reflects the (i) amortization over 40 years of goodwill resulting from the
Acquisition, (ii) elimination of certain expenses related to the
Acquisition and (iii) amortization relating to the GAC Equity Agreements as
summarized below:
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, 1997 JUNE 30, 1998
------------------- -----------------
(IN THOUSANDS)
The Acquisition:
<S> <C> <C>
Amortization of Acquisition goodwill....................... $ 764 $ 376
Identified cost savings related to the Acquisition......... (760) (403)
Nonrecurring legal expenses................................ (300) --
----- -----
Subtotal................................................. (296) (27)
GAC Equity Agreements:
Amortization of subscriber incentive payments.............. 121 60
Amortization of intangibles................................ 210 105
----- -----
Subtotal................................................. 331 165
----- -----
Total.................................................... $ 35 $ 138
===== =====
</TABLE>
(k) The pro forma adjustment to interest expense reflects interest expense on
the Notes plus the amortization of debt financing costs related to the Notes
and the revolving credit facility minus historical interest expense.
(l) Represents portion of deferred financing costs incurred during 1996 and 1997
in connection with a proposed initial public offering that was deemed not
transferable to other financing activities.
(m) Represents the elimination of MediaAmerica's officers' incentive
compensation.
(n) Represents the Company's share of the net loss (income) of its
unconsolidated Superaudio joint venture, which is 50% owned by the Company
and is accounted for under the equity method.
(o) EBITDA represents operating income (loss) plus depreciation and amortization
plus cash distributions from the Company's unconsolidated 50%-owned
Superaudio subsidiary, minus the EBITDA attributable to the minority
interests in the Company's consolidated 54%-owned PIN Venture subsidiary.
Management believes that EBITDA is a measure commonly used by analysts and
investors to determine a company's ability to service and incur its debt.
EBITDA should not be considered in isolation from or as a substitute for net
income (loss), cash flows from operating activities or other consolidated
income or cash flow statement data prepared in accordance with generally
accepted accounting principles or as a measure of profitability or
liquidity.
(p) Excludes the amortization of debt issuance costs.
(q) Represents cash distributions from the accumulated earnings of the Company's
unconsolidated Superaudio joint venture.
(r) Represents the EBITDA attributable to the minority interests in the
Company's consolidated 54%-owned PIN Venture subsidiary.
45
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The historical statements of operations and statements of financial position
data as of and for each of the years in the five-year period ended December 31,
1997 have been derived from the consolidated financial statements of the
Company, which have been audited by Arthur Andersen LLP, independent auditors.
The selected consolidated financial data as of and for the six months ended June
30, 1997 and 1998 have been derived from unaudited financial statements included
elsewhere herein. In the opinion of management, these statements include all
adjustments, consisting solely of normal recurring accruals and other
adjustments as discussed in "Management's Discussion and Analysis of Financial
Condition and Results of Operations," necessary for the fair presentation of
financial position and of the results of operations for those periods. The
results of operations for the six months ended June 30, 1998 may not be
indicative of results that may be expected for the full year ending December 31,
1998.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------------------------------
1993 1994 1995 1996 1997
----------- ----------- ----------- ----------- -----------
(IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
REVENUES:
Radio programming............................ $ 3,186 $ 2,541 $ 5,121 $ 6,978 $ 10,200
Television programming....................... 290 1,946 340 1,153 12,002
Satellite delivery and production support.... 7,745 6,805 9,666 8,523 6,910
---------- ---------- ---------- ---------- ----------
Total revenues............................. 11,221 11,292 15,127 16,654 29,112
---------- ---------- ---------- ---------- ----------
OPERATING EXPENSES:
Radio programming............................ 1,974 2,068 3,068 4,163 5,816
Television programming....................... 355 1,149 366 1,157 9,272
Satellite delivery and production support.... 5,045 4,546 6,530 5,451 4,685
Selling and marketing........................ 955 1,090 1,374 1,737 2,918
General and administrative................... 1,319 1,958 2,322 3,270 4,168
---------- ---------- ---------- ---------- ----------
Total operating expenses................... 9,648 10,811 13,660 15,778 26,859
---------- ---------- ---------- ---------- ----------
OPERATING INCOME (LOSS)...................... 1,573 481 1,467 876 2,253
---------- ---------- ---------- ---------- ----------
OTHER EXPENSE (INCOME):
Interest expense............................. 3,522 3,459 4,070 4,500 5,677
Interest income.............................. (194) (58) (64) (72) (108)
Write-off of deferred offering costs (a)..... -- -- -- -- 938
Equity share of income of subsidiary (b)..... (161) (237) (11) (829) (396)
Other expense (income), net.................. 34 9 16 (12) 74
---------- ---------- ---------- ---------- ----------
Total other expense........................ 3,201 3,173 4,011 3,587 6,185
---------- ---------- ---------- ---------- ----------
Loss before income taxes and minority
interests................................... (1,628) (2,692) (2,544) (2,711) (3,932)
Income tax provision (benefit)............... (170) (389) (498) (387) (1,342)
---------- ---------- ---------- ---------- ----------
Loss before minority interests............... (1,458) (2,303) (2,046) (2,324) (2,590)
Minority interests in net income (loss) of
consolidated subsidiaries................... -- -- -- (9) 903
---------- ---------- ---------- ---------- ----------
NET LOSS..................................... $ (1,458) $ (2,303) $ (2,046) $ (2,315) $ (3,493)
========== ========== ========== ========== ==========
BASIC AND DILUTED NET LOSS PER
COMMON SHARE................................ $(0.36) $(0.56) $(0.50) $(0.56) $(0.79)
========== ========== ========== ========== ==========
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING.......................... 4,103,573 4,103,573 4,103,573 4,103,573 4,400,448
========== ========== ========== ========= =========
<CAPTION>
SIX MONTHS
ENDED
JUNE 30,
----------- -----------
1997 1998
----------- -----------
(UNAUDITED)
<S> <C> <C>
INCOME STATEMENT DATA
REVENUES:
Radio programming............................. $ 5,090 $ 3,739
Television programming........................ 3,898 7,865
Satellite delivery and production support..... 3,918 2,128
---------- ----------
Total revenues.............................. 12,906 13,732
---------- ----------
OPERATING EXPENSES:
Radio programming............................. 2,804 3,490
Television programming........................ 3,006 6,667
Satellite delivery and production support..... 2,605 2,330
Selling and marketing......................... 1,266 1,747
General and administrative.................... 1,863 2,092
---------- ----------
Total operating expenses.................... 11,544 16,326
---------- ----------
OPERATING INCOME (LOSS)....................... 1,362 (2,594)
---------- ----------
OTHER EXPENSE (INCOME):
Interest expense.............................. 2,867 2,640
Interest income............................... (22) (99)
Write-off of deferred offering costs (a)...... 938 --
Equity share of income of subsidiary (b)...... (287) (73)
Other expense (income), net................... -- 264
---------- ----------
Total other expense......................... 3,496 2,732
---------- ----------
Loss before income taxes and minority
interests.................................... (2,134) (5,326)
Income tax provision (benefit)................ (356) 268
---------- ----------
Loss before minority interests................ (1,778) (5,594)
Minority interests in net income (loss) of
consolidated subsidiaries.................... 418 69
---------- ----------
NET LOSS...................................... $ (2,196) $ (5,663)
========== ==========
BASIC AND DILUTED NET LOSS PER
COMMON SHARE................................. $ (0.50) $ (1.19)
========== ==========
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING........................... 4,366,073 4,766,073
========== ==========
</TABLE>
46
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
------------------------------------------- ------------
1993 1994 1995 1996 1997 1997 1998
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
(UNAUDITED)
(IN THOUSANDS, EXCEPT RATIOS AND RADIO STATION AFFILIATE DATA)
OTHER DATA:
Cash provided by (used in) operating
activities............................... $ 2,938 $ 6,933 $ 364 $ 4,776 $ 7,589 $ 2,574 $ (8,145)
Cash used in investing activities.......... 4,348 1,271 1,873 3,971 1,156 741 696
Cash provided by (used in) financing
activities............................... 1,444 8,266 809 (807) (2,720) (1,488) 7,569
EBITDA (c)................................. 4,960 4,144 5,530 5,652 6,661 3,788 369
Depreciation and amortization.............. 3,387 3,288 3,888 4,476 5,130 2,512 2,651
Capital expenditures....................... 4,384 1,641 1,262 2,969 1,367 1,002 539
Ratio of earnings to fixed charges (d)..... -- -- -- -- -- -- --
AUDIENCE DATA (AT END OF PERIOD):
Radio station AQH (24-hour formats) (e).... 516 670 765 1,090 1,148 1,105 1,324
Radio station AQH (syndicated) (e)......... -- -- -- 834 1,048 798 1,148
Radio station affiliates................... 718 925 929 1,273 1,484 1,317 1,510
Great American Country households.......... -- -- 14 1,049 1,550 1,172 3,578
Product Information Network households..... 275 1,489 4,825 8,111 11,500 10,552 18,630
BALANCE SHEET DATA:
Cash and cash equivalents.................. $ 715 $ 705 $ 5 $ 4 $ 3,717 $ 349 $ 2,445
Working capital (deficit).................. (5,150) 276 (847) (6,615) (9,331) (5,109) (6,395)
Total assets............................... 40,721 39,196 36,352 38,298 41,358 42,026 40,762
Total long-term debt....................... 45,171 52,667 53,476 53,277 45,312 52,333 54,296
Minority interests (f)..................... -- -- -- 291 1,593 1,145 822
Shareholders' deficit...................... (12,484) (16,302) (20,360) (23,269) (18,206) (22,793) (23,869)
</TABLE>
(a) Represents portion of deferred financing costs incurred during 1996 and 1997
in connection with a proposed initial public offering that was deemed not
transferable to other financing activities.
(b) Represents the Company's share of the net loss (income) of its
unconsolidated Superaudio joint venture, which is 50% owned by the Company
and is accounted for under the equity method.
(c) EBITDA represents operating income (loss) plus depreciation and amortization
plus cash distributions from the Company's unconsolidated 50%-owned
Superaudio subsidiary minus the EBITDA attributable to the minority
interests in the Company's consolidated 54%-owned PIN Venture subsidiary.
Management believes that EBITDA is a measure commonly used by analysts and
investors to determine a company's ability to service and incur its debt.
EBITDA should not be considered in isolation from or as a substitute for net
income (loss), cash flows from operating activities or other consolidated
income or cash flow statement data prepared in accordance with generally
accepted accounting principles or as a measure of profitability or
liquidity.
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
--------------------------- -----------
1993 1994 1995 1996 1997 1997 1998
----- ----- ----- ----- ----- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C>
(UNAUDITED)
(IN THOUSANDS)
CALCULATION OF EBITDA:
Operating income (loss)........................... 1,573 481 1,467 876 2,253 1,362 (2,594)
Plus: Depreciation and amortization............... 3,387 3,288 3,888 4,476 5,130 2,512 2,651
Plus: Cash distributions from Superaudio.......... -- 375 175 300 100 -- 350
Less: EBITDA attributable to PIN Venture's
minority interests............................... -- -- -- -- 822 86 38
----- ----- ----- ----- ----- ----- ------
EBITDA.......................................... 4,960 4,144 5,530 5,652 6,661 3,788 369
</TABLE>
(d) The ratio of earnings to fixed charges is determined by dividing the sum of
earnings before (i) extraordinary items and accounting changes, interest
expense, taxes and that portion of operating lease rental expense which is
representative of an interest factor by (ii) interest expense. Earnings were
insufficient to cover fixed charges by $1,790, $2,554, $2,380, $3,249,
$3,282, and $4,857 for the years ended December 31, 1993, 1994, 1995, 1996,
1997 and the six months ended June 30, 1998, respectively.
47
<PAGE>
(e) AQH represents the average audience (persons age 12 or older) listening to
radio stations broadcasting the Company's advertising inventory (i) during
any 15-minute period from 6am-7pm, Monday through Friday for 24-hour formats
or (ii) during any 15-minute period that the program is being broadcast for
syndicated programs, each as measured by the Arbitron rating service. Radio
advertising is generally sold on the basis of the listening audience as
quantified by the AQH.
(f) Represents the minority interest in the net assets of the Company's
consolidated subsidiaries.
48
<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 consolidated and
reconsolidated financial statements and notes thereto appearing elsewhere in
this Prospectus. This Prospectus contains forward-looking statements that
involve risks and uncertainties. See "Forward-Looking Information" and "Risk
Factors." The Company's actual results may differ materially from the results
discussed in any forward-looking statement.
RECONSOLIDATED TRANSACTION
Prior to the organization of the PIN Venture in 1995, the Company wholly owned
the Product Information Network and the Company's historical consolidated
financial statements reflected 100% of the Product Information Network's results
of operations. From the formation of the PIN Venture in February 1995 to the
acquisition by the Company of Adelphia's 8.35% interest on April 1, 1997, 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 of the
acquisition of Adelphia's interest, the Company owns approximately 54% of the
PIN Venture and, effective April 1, 1997, consolidates the results of operations
of the PIN Venture for financial reporting purposes. The Selected Unaudited
Reconsolidated Financial Data appearing on page R-1 hereof assume the historical
consolidation of the results of operations of the PIN Venture on a pro forma
basis to provide for comparison consistent with the financial reporting
treatment effective upon the purchase of Adelphia's 8.35% interest.
OVERVIEW OF OPERATIONS
The Company creates, develops, acquires and produces programming which it
distributes 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 cable television programming to cable television system operators and
other video distributors, sells advertising time on its two cable television
networks and receives license fees for its country music television network, and
(iii) owns and operates playback, uplink and satellite transmission facilities
that are used to distribute the Company's programming and also are subleased to
others for a fee.
Prior to the Acquisition, the Company's revenues consisted of radio
programming revenues, cable television programming revenues and satellite
delivery and production support revenues. Radio programming revenues consist
primarily of advertising revenues and, to a lesser extent, license fees paid by
smaller radio station affiliates. License fees from radio stations have remained
stable over the past three years, reflecting the Company's decision to focus on
obtaining advertising time, instead of license fees, from its affiliated radio
stations. The Company generates radio advertising revenues by selling airtime to
advertisers who advertise their products or services on the Company's radio
network. The Company recognizes advertising revenues 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 revenues
until such time as the advertisements are aired. The Company delivers its
programming to radio stations for distribution to their listeners. Radio station
license fees are earned monthly based on each radio station's contractual
agreement.
Television programming revenues consist primarily of advertising revenues from
the sale of infomercial time on the Product Information Network and advertising
time on Great American Country, as well as license fees relating to Great
American Country. The Company generates cable television advertising revenues by
selling airtime to advertisers who advertise their products or services on the
Company's television networks. The Company recognizes advertising revenues upon
airing of the advertisements. Any amounts received from customers for television
advertisements that have not been aired during the period are recorded as
unearned revenues until such time as the advertisements are aired. The Company
delivers its programming to cable television systems and broadcast affiliates
for distribution to their viewers. License 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 month.
49
<PAGE>
Satellite delivery and production support revenues include revenues from
satellite delivery, uplinking, trafficking, playback and other services. The
Company generates revenues primarily by providing such services to related
parties. The Company recognizes satellite delivery and production support
revenues upon completion of the services or as provided by contract.
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 network. Program licensing
and programming development and production costs include the costs of
researching, designing, producing, and licensing programs for the Company's
radio network and other associated programming costs. Radio distribution and
delivery costs include satellite transponder expenses, uplinking charges and
other associated costs.
Television programming expenses consist primarily of distribution and delivery
costs and other costs related to the operation of the Company's cable television
networks. Because 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.
Cable 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 expenses and other associated
operating costs to provide these services.
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 management and management staff and operational support
and management staff.
Many of the costs associated with program distribution and delivery, such as
satellite transponder expenses and uplinking expenses, are relatively fixed with
respect to each of the Company's radio and cable television networks; as a
result, an increase in the Company's radio or cable television programming
revenues 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 related parties and third parties. The
portions of these expenses related to subsidiary activities are included in
radio or television programming expense as appropriate.
Total other expense consists primarily of net interest expense, write-off of
deferred offering costs, equity share of loss (income) of subsidiaries and other
miscellaneous items.
50
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth the amount of, and percentage relationship to
total net revenues of, certain items included in the Company's historical
consolidated statements of operations for the years ended December 31, 1995,
1996 and 1997 and the six months ended June 30, 1997 and 1998, respectively:
REPORTED RESULTS:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------------------
1995 1996 1997
-------------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
REVENUES:
Radio programming................................ $ 5,121 34% $ 6,978 42% $10,200 35%
Television programming........................... 340 2 1,153 7 12,002 41
Satellite delivery and production support........ 9,666 64 8,523 51 6,910 24
------- --- ------- --- ------- ---
Total revenues.................................. 15,127 100 16,654 100 29,112 100
------- --- ------- --- ------- ---
OPERATING EXPENSES:
Radio programming................................ 3,068 20 4,163 25 5,816 20
Television programming........................... 366 2 1,157 7 9,272 32
Satellite delivery and production support........ 6,530 43 5,451 33 4,685 16
Selling and marketing............................ 1,374 9 1,737 10 2,918 10
General and administrative....................... 2,322 16 3,270 20 4,168 14
------- --- ------- --- ------- ---
Total operating expenses........................ 13,660 90 15,778 95 26,859 92
------- --- ------- --- ------- ---
OPERATING INCOME (LOSS)........................... 1,467 10 876 5 2,253 8
------- --- ------- --- ------- ---
OTHER EXPENSE..................................... 4,011 27 3,587 21 6,185 21
INCOME TAX PROVISION/BENEFIT AND MINORITY
INTERESTS........................................ (498) (3) (396) (2) (439) (1)
------- --- ------- --- ------- ---
NET LOSS.......................................... $ 2,046 14% $ 2,315 14% $ 3,493 12%
======= === ======= === ======= ===
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
-------------------------------------------
1997 1998
--------------------- --------------------
(UNAUDITED)
<S> <C> <C> <C> <C>
REVENUES:
Radio programming................................ $ 5,090 39% $ 3,739 27%
Television programming........................... 3,898 30 7,865 57
Satellite delivery and production support........ 3,918 31 2,128 16
------- ---- ------- ----
Total revenues.................................. 12,906 100 13,732 100
------- ---- ------- ----
OPERATING EXPENSES:
Radio programming................................ 2,804 22 3,490 25
Television programming........................... 3,006 23 6,667 49
Satellite delivery and production support........ 2,605 20 2,330 17
Selling and marketing............................ 1,266 10 1,747 13
General and administrative....................... 1,863 14 2,092 15
------- ---- ------- ----
Total operating expenses........................ 11,544 89 16,326 119
------- ---- ------- ----
OPERATING INCOME (LOSS)........................... 1,362 11 (2,594) (19)
------- ---- ------- ----
OTHER EXPENSE..................................... 3,496 27 2,732 20
INCOME TAX PROVISION/BENEFIT AND MINORITY 62 1 337 2
INTERESTS........................................ ------- ---- ------- ----
NET LOSS.......................................... $(2,196) (17)% $(5,663) (41)%
======= ==== ======= ====
</TABLE>
51
<PAGE>
The following table sets forth the amount of, and percentage relationship to
total net revenues of, certain items included in the Company's reconsolidated
statements of operations for the years ended December 31, 1995, 1996 and 1997
and for the six months ended June 30, 1997 and 1998:
RECONSOLIDATED RESULTS:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------------------------------------
1995 1996 1997
----------------------- ------------------- -----------------------
<S> <C> <C> <C> <C> <C> <C>
REVENUES:
Radio programming................................ $ 5,121 31% $ 6,978 30% $10,200 32%
Television programming........................... 4,450 27 9,191 40 14,860 47
Satellite delivery and production support........ 6,921 42 6,944 30 6,485 21
------- --- ------- --- ------- ---
Total revenues.................................. 16,492 100 23,113 100 31,545 100
------- --- ------- --- ------- ---
OPERATING EXPENSES:
Radio programming................................ 3,068 19 4,163 18 5,816 18
Television programming........................... 3,208 19 6,331 27 11,226 36
Satellite delivery and production support........ 4,662 28 4,621 20 4,481 14
Selling and marketing............................ 1,488 9 1,977 9 3,022 10
General and administrative....................... 3,268 20 4,328 19 4,447 14
------- --- ------- --- ------- ---
Total operating expenses........................ 15,694 95 21,420 93 28,992 92
------- --- ------- --- ------- ---
OPERATING INCOME (LOSS)........................... 798 5 1,693 7 2,553 8
------- --- ------- --- ------- ---
OTHER EXPENSE..................................... 3,827 23 4,138 18 6,363 20
INCOME TAX PROVISION (BENEFIT) AND MINORITY (687) (4) 97 0 (270) (1)
INTERESTS........................................ ------- --- ------- --- ------- ---
NET LOSS.......................................... $ 2,342 14% $ 2,542 11% $ 3,540 11%
======= === ======= === ======= ===
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
-------------------------------------------
1997 1998
--------------------- --------------------
(UNAUDITED)
<S> <C> <C> <C> <C>
REVENUES:
Radio programming................................ $ 5,090 33% $ 3,739 27%
Television programming........................... 6,756 44 7,865 57
Satellite delivery and production support........ 3,493 23 2,128 16
------- ---- ------- ----
Total revenues.................................. 15,339 100 13,732 100
------- ---- ------- ----
OPERATING EXPENSES:
Radio programming................................ 2,804 18 3,490 25
Television programming........................... 4,960 32 6,667 49
Satellite delivery and production support........ 2,401 16 2,330 17
Selling and marketing............................ 1,370 9 1,747 13
General and administrative....................... 2,142 14 2,092 15
------- ---- ------- ----
Total operating expenses........................ 13,677 89 16,326 119
------- ---- ------- ----
OPERATING INCOME (LOSS)........................... 1,662 11 (2,594) (19)
------- ---- ------- ----
OTHER EXPENSE..................................... 3,674 24 2,732 20
INCOME TAX PROVISION (BENEFIT) AND MINORITY 231 2 337 2
INTERESTS........................................ ------- ---- ------- ----
NET LOSS.......................................... $(2,243) (15)% $(5,663) (41)%
======= ==== ======= ====
</TABLE>
52
<PAGE>
SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO SIX MONTHS ENDED JUNE 30, 1997
Total Revenues. Total revenues increased $0.8 million, or 6%, from $12.9
million as reported for the six months ended June 30, 1997 to $13.7 million as
reported for the six months ended June 30, 1998. This increase was due primarily
to an increase in Great American Country advertising revenues and the
consolidation of the PIN Venture. On a reconsolidated basis, total revenues
decreased $1.6 million, or 10%, from $15.3 million for the six months ended June
30, 1997 to $13.7 million for the six months ended June 30, 1998, due primarily
to decreases in both radio programming revenues and satellite delivery and
production support revenues. The decrease in radio programming revenues is due
to a decrease in the number of advertising spots sold. The decrease in
satellite delivery and production support revenues is due to the expiration in
October 1997 of the third party satellite delivery and production support
service agreement.
Radio Programming Revenues. Radio programming revenues decreased $1.4
million, or 27%, from $5.1 million as reported for the six months ended June 30,
1997 to $3.7 million as reported for the six months ended June 30, 1998, due to
a $1.4 million, or 31%, decrease in advertising revenues. Advertising revenues
decreased primarily due to a decrease in the number of advertising spots sold.
Sales of radio advertising for the three months ended June 30, 1998 were
adversely affected by the recent entry into the market of AMFM, which added
approximately 20% more radio advertising inventory to the marketplace, thereby
increasing competition for network radio advertsing dollars and causing a
decrease in the number of advertising spots sold in the first six months of 1998
compared to the similar period in the prior year. Licensing revenues remained
relatively stable reflecting the Company's strategy to focus on radio station
affiliates with significant audiences, which are generally not charged a license
fee. On a reconsolidated basis, radio programming revenues and the changes
therein were consistent with the amounts as reported. While the Company is
experiencing higher sell-out levels in the third quarter as compared to the
first half of 1998, there can be no assurance that future competition from AMFM
in the network radio advertising market will not materially adversely affect the
Company's radio operations.
Television Programming Revenues. Television programming revenues increased
$4.0 million, or 102%, from $3.9 million as reported for the six months ended
June 30, 1997 to $7.9 million as reported for the six months ended June 30,
1998, due primarily to: (i) an increase of $3.3 million in advertising revenues
due to the consolidation of the PIN Venture, (ii) an increase of $0.3 million in
advertising revenues on the Product Information Network as a result of the
increase in the number of subscribers receiving its programming, (iii) an
increase of $0.3 million in Great American Country advertising revenues due to
higher advertising rates being charged for airtime as a result of an increase in
the number of its subscribers, and (iv) an increase of $0.1 million in Great
American Country affiliate fees due to an increase in the number of its
subscribers. On a reconsolidated basis, television programming revenues
increased by $1.1 million, or 16%, from $6.8 million for the six months ended
June 30, 1997 to $7.9 million for the six months ended June 30, 1998, due to (i)
an increase of $0.7 million in advertising revenues on the Product Information
Network as a result of an increase in the number of subscribers receiving its
programming, which generated higher advertising rates, (ii) an increase of $0.3
million in Great American Country advertising revenues for the reason noted
above and (iii) an increase of $0.1 million in Great American Country affiliate
fees.
Satellite Delivery and Production Support Revenues. Satellite delivery and
production support revenues decreased $1.8 million, or 46%, from $3.9 million as
reported for the six months ended June 30, 1997 to $2.1 million as reported for
the six months ended June 30, 1998 due to (i) the expiration in October 1997 of
a third party satellite delivery and production support services agreement,
resulting in a reduction of $1.6 million in satellite delivery revenues, and
(ii) the consolidation of the PIN Venture which for financial statement
reporting purposes resulted in the elimination of $0.4 million in satellite
delivery revenues. This decrease was partially offset by an increase in
satellite delivery and production support fees charged to related parties. The
Company recently leased three digital channels and will provide certain related
services to a third party beginning August 15, 1998 through August 31, 1999,
subject to early termination at the option of the Company. The revenues from
this lease and service agreement are $138,000 per month. In addition, the
Company leased the C-4 satellite transponder to a third party beginning in July
1998 through December 31, 2002, at which time the third party may terminate and
pay the Company $750,000 or extend the lease through the end of lease. The
Company also leased one digital channel and certain related services to an
affiliate beginning July 1998 through July 1, 2001. These agreements will
generate revenues of approximately $160,000 and $97,000 per month, respectively.
On a reconsolidated basis, satellite
53
<PAGE>
delivery and production support revenues decreased $1.4 million, or 39%, from
$3.5 million for the six months ended June 30, 1997 to $2.1 million for the six
months ended June 30, 1998 due primarily to the expiration of the third party
satellite delivery and production support services agreement in October 1997.
The decrease was partially offset by an increase in satellite delivery and
production support fees charged to related parties.
Total Operating Expenses. Total operating expenses increased $4.8 million,
or 41%, from $11.5 million as reported for the six months ended June 30, 1997 to
$16.3 million as reported for the six months ended June 30, 1998. This increase
was due primarily to an increase in television programming expenses, radio
programming expenses and selling and marketing expenses. The increase in
television programming expenses was due primarily to the consolidation of the
PIN Venture. The increase in radio programming expenses was due primarily to an
increase in programming production expenses. The increase in selling and
marketing expenses was due primarily to increased marketing efforts undertaken
for Great American Country as well as due to increased commission expense paid
to sales associates for such increased distribution. As a percentage of total
revenues, total operating expenses increased from 89% for the six months ended
June 30, 1997 to 119% for the six months ended June 30, 1998. On a
reconsolidated basis, total operating expenses increased $2.6 million, or 20%,
from $13.7 million for the six months ended June 30, 1997 to $16.3 million for
the six months ended June 30, 1998, due primarily to the increases discussed
above (other than the consolidation of the PIN Venture) and an increase in the
amount paid to cable systems receiving the Product Information Network. As a
percentage of total reconsolidated revenues, total reconsolidated operating
expenses increased from 89% for the six months ended June 30, 1997 to 119% for
the six months ended June 30, 1998.
Radio Programming Expenses. Radio programming expenses increased $0.7
million, or 24%, from $2.8 million as reported for the six months ended June 30,
1997 to $3.5 million as reported for the six months ended June 30, 1998, due
primarily to an increase in programming production expenses. Programming
production expenses increased approximately $0.7 million due to an increase in
the number of formats and syndicated programs offered by the Company. As a
percentage of radio programming revenues, radio programming expenses increased
from 55% for the six months ended June 30, 1997 to 93% for the six months ended
June 30, 1998. On a reconsolidated basis, radio programming expense and the
changes therein were consistent with the amounts as reported.
Television Programming Expenses. Television programming expenses increased
$3.7 million, or 122%, from $3.0 million as reported for the six months ended
June 30, 1997 to $6.7 million as reported for the six months ended June 30,
1998, due primarily to the consolidation of the PIN Venture. As a percentage of
television programming revenues, television programming expenses increased from
77% for the six months ended June 30, 1997 to 85% for the six months ended June
30, 1998. On a reconsolidated basis, television programming expenses increased
by $1.7 million, or 34%, from $5.0 million for the six months ended June 30,
1997 to $6.7 million for the six months ended June 30, 1998 due primarily to an
increase in amounts paid to cable systems receiving the Product Information
Network. In late 1997, the Company made the decision to increase the amounts
paid per subscriber to cable television systems which carry the Product
Information Network in order to increase the rate of growth in the number of
subscribers receiving the Product Information Network. As a result of these
efforts, the number of full-time equivalent subscribers grew by 23% from June
30, 1997 to June 30, 1998. As a percentage of reconsolidated television
programming revenues, reconsolidated television programming expenses increased
from 74% for the six months ended June 30, 1997 to 85% for the six months ended
June 30, 1998.
Satellite Delivery and Production Support Expenses. Satellite delivery and
production support expenses decreased $0.3 million, or 11%, from $2.6 million as
reported for the six months ended June 30, 1997 to $2.3 million as reported for
the six months ended June 30, 1998 due primarily to the consolidation of the PIN
Venture and the allocation of the satellite delivery and production support
expenses attributable to the Product Information Network to television
programming expenses from satellite delivery and production support expenses. As
a percentage of satellite delivery and production support revenues, satellite
delivery and production support expenses increased from 66% for the six months
ended June 30, 1997 to 109% for the six months ended June 30, 1998 due to the
expiration in October 1997 of the third party satellite delivery and product
support service agreement. On a reconsolidated basis, satellite delivery and
production support expenses remained relatively stable at approximately $2.3
million for the six months ended June 30, 1997 and 1998. As a percentage of
reconsolidated satellite delivery and production support revenues,
reconsolidated satellite delivery and production support expenses increased from
68% for the six months ended June 30, 1997 to 109% for the six months ended June
30, 1998. This
54
<PAGE>
increase is due primarily to the decrease in revenues as a result of the
expiration in October 1997 of a third party satellite delivery and production
support service agreement.
Selling and Marketing Expenses. Selling and marketing expenses increased
$0.5 million, or 38%, from $1.3 million as reported for the six months ended
June 30, 1997 to $1.8 million as reported for the six months ended June 30, 1998
due to an increase of $0.4 million in marketing expenditures to increase Great
American Country's distribution and an increase of $0.1 million due to the
consolidation of the PIN Venture. As a percentage of total revenues, selling and
marketing expenses increased from 10% for the six months ended June 30, 1997 to
13% for the six months ended June 30, 1998. On a reconsolidated basis, selling
and marketing expenses increased $0.4 million, or 28%, from $1.4 million for the
six months ended June 30, 1997 to $1.8 million for the six months ended June 30,
1998. The increase is due primarily to an increase in marketing and commission
expenditures to increase Great American Country's distribution as well as due to
increased commission expense paid to sales associates for such increased
distribution. As a percentage of total reconsolidated revenues, total
reconsolidated selling and marketing expenses increased from 9% for the six
months ended June 30, 1997 to 14% for the six months ended June 30, 1998.
General and Administrative Expenses. General and administrative expenses
increased $0.2 million, or 12%, from $1.9 million as reported for the six months
ended June 30, 1997 to $2.1 million as reported for the six months ended June
30, 1998 due primarily to an increase in management and operational support for
the Company's radio operations. As a percentage of total revenues, general and
administrative expenses increased from 14% for the six months ended June 30,
1997 to 15% for the six months ended June 30, 1998. On a reconsolidated basis,
general and administrative expenses remained relatively flat at $2.1 million for
the six months ended June 30, 1997 and 1998. As a percentage of total
reconsolidated revenues, total reconsolidated general and administrative
expenses increased from 14% for the six months ended June 30, 1997 to 15% for
the six months ended June 30, 1998.
Total Other Expense. Total other expense decreased $0.8 million from $3.5
million as reported for the six months ended June 30, 1997 to $2.7 million as
reported for the six months ended June 30, 1998. The decrease was due to a
write-off of deferred offering costs of $0.9 million in 1997 for which no
similar expense was incurred in the first six months of 1998 and $0.3 million of
expenses incurred in the first half of 1998 related to the MediaAmerica
acquisition and the Notes offering. On a reconsolidated basis, total other
expense decreased by $1.0 million from $3.7 million for the six months ended
June 30, 1997 to $2.7 million for the six months ended June 30, 1998, due
primarily to the reasons noted above and to the decrease in equity in income of
subsidiaries in net income due to the consolidation of the PIN venture.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO DECEMBER 31, 1996
Total Revenues. Total revenues increased $12.4 million, or 75%, from $16.7
million as reported for the year ended December 31, 1996 to $29.1 million as
reported for the year ended December 31, 1997. This increase was due primarily
to increases in both television and radio programming revenues. The increase in
television programming revenues is due primarily to a 98% increase in the number
of Great American Country's households from December 31, 1996 to December 31,
1997. The increase in radio programming revenues is due to a 5% increase in the
number of radio affiliates from December 31, 1996 to December 31, 1997. On a
reconsolidated basis, total revenues increased $8.4 million, or 36%, from $23.1
million for the year ended December 31, 1996 to $31.5 million for the year ended
December 31, 1997 due primarily to increases in both radio and television
programming revenues for the reasons noted above.
Radio Programming Revenues. Radio programming revenues increased $3.2
million, or 46%, from $7.0 million as reported for the year ended December 31,
1996 to $10.2 million as reported for the year ended December 31, 1997 due to a
$3.2 million, or 52%, increase in advertising revenues. Advertising revenues
increased due primarily to an increase in the rates charged by the Company for
its advertising spots as a result of an increase in AQH. Licensing revenues
remained relatively stable, reflecting the Company's strategy to focus on radio
station affiliates with significant audiences, which are generally not charged a
license fee. On a reconsolidated basis, radio programming revenues and the
changes therein were consistent with the amounts as reported.
55
<PAGE>
Television Programming Revenues. Television programming revenues increased
$10.8 million, or 940%, from $1.2 million as reported for the year ended
December 31, 1996 to $12.0 million as reported for the year ended December 31,
1997, due primarily to: (i) an increase of $10.4 million in advertising revenues
due to the consolidation of the PIN Venture and (ii) an increase in Great
American Country advertising and license revenues of $0.4 million due primarily
to higher advertising rates being charged for airtime on Great American Country
as a result of an increase in the number of subscribers receiving Great American
Country's programming, a decrease in the amount of unsold airtime, and an 84%
increase in the number of sold direct response paid spots. On a reconsolidated
basis, television programming revenues increased by $5.7 million, or 62%, from
$9.2 million for the year ended December 31, 1996 to $14.9 million for the year
ended December 31, 1997 due primarily to higher advertising rates being charged
for airtime on the Product Information Network and Great American Country as a
result of an increase in the number of subscribers receiving their programming.
Satellite Delivery and Production Support Revenues. Satellite delivery and
production support revenues decreased $1.6 million, or 19%, from $8.5 million as
reported for the year ended December 31, 1996 to $6.9 million as reported for
the year ended December 31, 1997 due primarily to the expiration in October 1997
of a third party satellite delivery and production support services agreement
and the consolidation of the PIN Venture. The decrease was partially offset by
an increase in production support fees charged to related parties. On a
reconsolidated basis, satellite delivery and production support revenues
decreased $0.4 million, or 7%, from $6.9 million for the year ended December 31,
1996 to $6.5 million for the year ended December 31, 1997 due primarily to the
expiration of a third party satellite delivery and production support services
agreement.
Total Operating Expenses. Total operating expenses increased $11.1 million,
or 70%, from $15.8 million as reported for the year ended December 31, 1996 to
$26.9 million as reported for the year ended December 31, 1997. This increase
was due to increases in television programming expenses, radio programming
expenses, selling and marketing and general and administrative expenses. These
increases were primarily due to the consolidation of the PIN Venture. As a
percentage of total revenues, total operating expenses decreased from 95% for
the year ended December 31, 1996 to 92% for the year ended December 31, 1997. On
a reconsolidated basis, total operating expenses increased $7.6 million, or 35%,
from $21.4 million for the year ended December 31, 1996 to $29.0 million for the
year ended December 31, 1997 due to an increase in television programming
expenses, radio programming expenses and selling and marketing expenses due to
the reasons noted below. As a percentage of total reconsolidated revenues, total
reconsolidated operating expenses decreased from 93% for the year ended December
31, 1996 to 92% for the year ended December 31, 1997.
Radio Programming Expenses. Radio programming expenses increased $1.6
million, or 40%, from $4.2 million as reported for the year ended December 31,
1996 to $5.8 million as reported for the year ended December 31, 1997 due
primarily to an increase in programming production and distribution expenses.
Programming production expenses increased approximately $1.4 million due to an
increase in the number of formats and syndicated programs offered by the
Company. Programming distribution expenses, such as the satellite transponder
and uplink expenses, increased approximately $0.2 million due to an increase in
the costs of distributing the new formats and syndicated programs offered by the
Company. As a percentage of radio programming revenues, radio programming
expenses decreased from 60% for the year ended December 31, 1996 to 57% for the
year ended December 31, 1997. On a reconsolidated basis, radio programming
expenses and the changes therein were consistent with the amounts as reported.
Television Programming Expenses. Television programming expenses increased
$8.1 million, or 701%, from $1.2 million as reported for the year ended December
31, 1996 to $9.3 million as reported for the year ended December 31, 1997, due
primarily to the consolidation of the PIN Venture. As a percentage of television
programming revenues, television programming expenses decreased from 100% for
the year ended December 31, 1996 to 77% for the year ended December 31, 1997. On
a reconsolidated basis, television programming expenses increased by $4.9
million, or 77%, from $6.3 million for the year ended December 31, 1996 to $11.2
million for the year ended December 31, 1997, due primarily to an increase in
amounts paid to distributors of the Product Information Network. As a percentage
of reconsolidated television programming revenues, reconsolidated television
programming expenses increased from 69% for the year ended December 31, 1996 to
76% for the year ended December 31, 1997.
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<PAGE>
Satellite Delivery and Production Support Expenses. Satellite delivery and
production support expenses decreased $0.8 million, or 14%, from $5.5 million as
reported for the year ended December 31, 1996 to $4.7 million as reported for
the year ended December 31, 1997 due primarily to the launch in late 1995 and
early 1996 of Great American Country and allocation of the satellite delivery
and production support expenses attributable to Great American Country to
television programming expenses from satellite delivery and production support
expenses. As a percentage of satellite delivery and production support revenues,
satellite delivery and production support expenses increased from 64% for the
year ended December 31, 1996 to 68% for the year ended December 31, 1997. On a
reconsolidated basis, satellite delivery and production support expenses
decreased $0.1 million, or 3%, from $4.6 million for the year ended December 31,
1996 to $4.5 million for the year ended December 31, 1997. As a percentage of
reconsolidated satellite delivery and production support revenues,
reconsolidated satellite delivery and production support expenses increased from
67% for the year ended December 31, 1996 to 69% for the year ended December 31,
1997.
Selling and Marketing Expenses. Selling and marketing expenses increased
$1.2 million, or 68%, from $1.7 million as reported for the year ended December
31, 1996 to $2.9 million as reported for the year ended December 31, 1997 due
primarily to an increase in marketing expenditures of approximately $0.7 million
related to the Company's radio programming marketing activities, an increase in
marketing expenditures of approximately $0.1 million related to the Company's
television programming marketing activities and an increase in marketing
expenditures of approximately $0.4 million related to the consolidation of the
PIN Venture. As a percentage of total revenues, selling and marketing expenses
remained relatively stable at 10% for the years ended December 31, 1996 and
1997. On a reconsolidated basis, selling and marketing expenses increased by
$1.0 million, or 53%, from $2.0 million for the year ended December 31, 1996 to
$3.0 million for the year ended December 31, 1997 due primarily to the reasons,
other than the consolidation of the PIN Venture, noted above. As a percentage of
total reconsolidated revenues, total reconsolidated selling and marketing
expenses increased from 9% for the year ended December 31, 1996 to 10% for the
year ended December 31, 1997.
General and Administrative Expenses. General and administrative expenses
increased $0.9 million, or 27%, from $3.3 million as reported for the year ended
December 31, 1996 to $4.2 million as reported for the year ended December 31,
1997 due primarily to the consolidation of the PIN Venture. As a percentage of
total revenues, general and administrative expenses decreased from 20% for the
year ended December 31, 1996 to 14% for the year ended December 31, 1997. On a
reconsolidated basis, general and administrative expenses increased $0.1
million, or 3%, from $4.3 million for the year ended December 31, 1996 to $4.4
million for the year ended December 31, 1997. As a percentage of total
reconsolidated revenues, total reconsolidated general and administrative
expenses decreased from 19% for the year ended December 31, 1996 to 14% for the
year ended December 31, 1997.
Total Other Expense. Total other expense increased $2.6 million as reported
from $3.6 million for the year ended December 31, 1996 to $6.2 million as
reported for the year ended December 31, 1997. The increase was due to a write-
off of deferred offering costs of approximately $0.9 million, an increase of
approximately $1.2 million in interest expense relating to the Jones Global
Group Note and an increase of approximately $0.5 million in interest expense
relating to advances from Jones International. On a reconsolidated basis, total
other expense increased by $2.2 million from $4.1 million for the year ended
December 31, 1996 to $6.3 million for the year ended December 31, 1997, due to
the reasons noted above.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO DECEMBER 31, 1995
Total Revenues. Total revenues increased $1.6 million, or 10%, from $15.1
million as reported for the year ended December 31, 1995 to $16.7 million as
reported for the year ended December 31, 1996. This increase was due primarily
to an increase in radio programming revenues and, to a lesser extent, television
programming revenues. Radio programming revenues increased primarily due to an
increase in the rates charged by the Company as a result of an increase in AQH
and the launch of the Crook and Chase Country CountDown program in January 1996.
Television programming revenues increased primarily due to the launch of Great
American Country in December 1995. On a reconsolidated basis, total revenues
increased $6.6 million, or 40%, from $16.5 million for
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the year ended December 31, 1995 to $23.1 million for the year ended December
31, 1996, due to the reasons described above and an increase in advertising
rates on the Product Information Network.
Radio Programming Revenues. Radio programming revenues increased $1.9
million, or 36%, from $5.1 million as reported for the year ended December 31,
1995 to $7.0 million as reported for the year ended December 31, 1996, due
primarily to a $1.9 million, or 44%, increase in advertising revenues.
Advertising revenues increased due primarily to: (i) an increase in the rates
charged by the Company for its advertising spots as a result of a 23% increase
in AQH, which accounted for $1.2 million of the increase, and (ii) the launch of
the Crook and Chase Country CountDown program, which accounted for $0.7 million
of the increase. Licensing revenues were stable as compared to the prior period,
reflecting the Company's strategy to focus on radio station affiliates with
significant audiences, which are generally not charged a license fee. On a
reconsolidated basis, radio programming revenues and the changes therein were
consistent with the amounts as reported.
Television Programming Revenues. Television programming revenues increased
$0.9 million, or 239%, from $0.3 million as reported for the year ended December
31, 1995 to $1.2 million as reported for the year ended December 31, 1996, due
primarily to a $0.7 million increase in licensing revenues and $0.1 million
increase in advertising revenues. Licensing and advertising revenues increased
due primarily to the launch of Great American Country on Jones Intercable
systems in December 1995. On a reconsolidated basis, television programming
revenues increased by $4.7 million, or 107%, from $4.5 million for the year
ended December 31, 1995 to $9.2 million for the year ended December 31, 1996,
due primarily to the reasons described above and an increase in advertising
rates on the Product Information Network as a result of an increase in the
number of households receiving its programming.
Satellite Delivery and Production Support Revenues. Satellite delivery and
production support revenues decreased $1.2 million, or 12%, from $9.7 million as
reported for the year ended December 31, 1995 to $8.5 million as reported for
the year ended December 31, 1996, due primarily to a decrease in satellite
production support fees charged to related parties. On a reconsolidated basis,
satellite delivery and production support revenues remained relatively stable at
$6.9 million for the year ended December 31, 1995 and 1996.
Total Operating Expenses. Total operating expenses increased $2.1 million,
or 16%, from $13.7 million as reported for the year ended December 31, 1995 to
$15.8 million as reported for the year ended December 31, 1996. This increase
was due primarily to increases in radio programming expenses, television
programming expenses and general and administrative expenses. These increases
were due primarily to the launch of Great American Country. As a percentage of
total revenues, total operating expenses increased from 90% for the year ended
December 31, 1995 to 95% for the year ended December 31, 1996. On a
reconsolidated basis, total operating expenses increased $5.7 million, or 36%,
from $15.7 million for the year ended December 31, 1995 to $21.4 million for the
year ended December 31, 1996, due primarily to an increase in television
programming expenses and, to a lesser extent, radio programming expenses and
general and administrative expenses. As a percentage of total reconsolidated
revenues, total reconsolidated operating expenses decreased from 95% for the
year ended December 31, 1995 to 93% for the year ended December 31, 1996.
Radio Programming Expenses. Radio programming expenses increased $1.1
million, or 36%, from $3.1 million as reported for the year ended December 31,
1995 to $4.2 million as reported for the year ended December 31, 1996 due
primarily to an increase in programming production expenses. Programming
production expenses increased $0.4 million due to an increase in the number of
formats offered by the Company and $0.7 million due to the launch of the Crook
and Chase Country CountDown program. Programming distribution expenses did not
increase significantly as a result of the relatively fixed nature of many of the
costs, such as satellite transponder expenses. As a percentage of radio
programming revenues, radio programming expenses remained consistent at 60% for
the years ended December 31, 1995 and 1996. On a reconsolidated basis, radio
programming expenses and the changes therein were consistent with the amounts as
reported.
Television Programming Expenses. Television programming expenses increased
$0.8 million, or 216%, from $0.4 million as reported for the year ended December
31, 1995 to $1.2 million as reported for the year ended December 31, 1996 due
primarily to an increase in programming distribution expenses. Programming
distribution
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expenses increased as a result of the launch of Great American Country. As a
percentage of television programming revenues, television programming expenses
decreased from 107% for the year ended December 31, 1995 to 100% for the year
ended December 31, 1996. This decrease was due to the substantial start-up
costs, relative to revenues, related to the launch of Great American Country in
1995. On a reconsolidated basis, television programming expenses increased by
$3.1 million, or 97%, from $3.2 million for the year ended December 31, 1995 to
$6.3 million for the year ended December 31, 1996 due primarily to an increase
in amounts paid to distributors of the Product Information Network. As a
percentage of reconsolidated television programming revenues, reconsolidated
television programming expenses decreased from 72% for the year ended December
31, 1995 to 69% for the year ended December 31, 1996.
Satellite Delivery and Production Support Expenses. Satellite delivery and
production support expenses decreased $1.0 million, or 17%, from $6.5 million as
reported for the year ended December 31, 1995 to $5.5 million as reported for
the year ended December 31, 1996. As a percentage of satellite delivery and
production support revenues, satellite delivery and production support expenses
decreased from 68% for the year ended December 31, 1995 to 64% for the year
ended December 31, 1996. On a reconsolidated basis, satellite delivery and
production support expenses remained relatively stable at $4.6 million for the
years ended December 31, 1995 and 1996. As a percentage of reconsolidated
satellite delivery and production support revenues, reconsolidated satellite
delivery and production support expenses remained relatively stable at 67% for
the years ended December 31, 1995 and 1996.
Selling and Marketing Expenses. Selling and marketing expenses increased
$0.3 million, or 26%, from $1.4 million as reported for the year ended December
31, 1995 to $1.7 million as reported for the year ended December 31, 1996.
Selling and marketing expenses increased due primarily to: (i) an increase of
$0.2 million due to the launch of Great American Country and (ii) an increase of
$0.1 million due to the launch of the Crook and Chase Country CountDown program.
As a percentage of total revenues, selling and marketing expenses increased from
9% for the year ended December 31, 1995 to 10% for the year ended December 31,
1996. On a reconsolidated basis, selling and marketing expenses increased by
$0.5 million, or 33%, from $1.5 million for the year ended December 31, 1995 to
$2.0 million for the year ended December 31, 1996 for the reasons noted above.
As a percentage of total reconsolidated revenues, total reconsolidated selling
and marketing expenses remained stable at 9% for the years ended December 31,
1995 and 1996.
General and Administrative Expenses. General and administrative expenses
increased $1.0 million, or 41%, from $2.3 million as reported for the year ended
December 31, 1995 to $3.3 million as reported for the year ended December 31,
1996. Approximately $0.7 million of the increase was due to an increase in
management and operational support expenses as a result of the launch of Great
American Country and approximately $0.2 million of the increase was due to an
increase in management and operational support for the Company's radio
operations. As a percentage of total revenues, general and administrative
expenses increased from 15% for the year ended December 31, 1995 to 20% for the
year ended December 31, 1996. On a reconsolidated basis, general and
administrative expenses increased by $1.0 million, or 32%, from $3.3 million for
the year ended December 31, 1995 to $4.3 million for the year ended December 31,
1996 due to the reasons noted above. As a percentage of total reconsolidated
revenues, total reconsolidated general and administrative expenses decreased
from 20% for the year ended December 31, 1995 to 19% for the year ended December
31, 1996.
Total Other Expense. Total other expense decreased $0.4 million from $4.0
million as reported for the year ended December 31, 1995 to $3.6 million as
reported for the year ended December 31, 1996 due primarily to an increase in
equity share of income of subsidiary, which was partially offset by an increase
in interest expense. On a reconsolidated basis, total other expense increased by
$0.3 million from $3.8 million for the year ended December 31, 1995 to $4.1
million for the year ended December 31, 1996 due primarily to an increase in
interest expense related to debt represented by the Jones Global Group Note.
SEASONALITY AND QUARTERLY FLUCTUATIONS
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Advertising revenues in the radio and cable television industries fluctuate
due to seasonality in such industries. The Company believes that radio network
revenues are typically lowest in the first quarter and cable television network
revenues are typically lowest in the third quarter. With the Acquisition, the
Company expects that its seasonal trend of lower first quarter revenues will be
more significant. Other than the fees paid by the Company to third parties for
certain of its radio programming, the fees paid by the Company in connection
with the distribution of the Product Information Network and the sales
commissions paid to account executives for radio and advertising representation
sales, the Company's expenses have not historically varied significantly
relative to the seasonal fluctuation of revenues. 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 materially and adversely
affect profitability. These factors include the timing and volume of advertising
on the Company's radio network and cable 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
Product Information Network and Great American Country, and general economic
conditions.
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. On a pro forma basis to reflect the placement of the Notes and
the use of the proceeds therefrom, the Company had cash and cash equivalents of
$26.2 million (as of June 30, 1998), including $10.0 million of cash set aside
in the Reserve Account, and will be limited by the Indenture in its ability to
enter into other debt financing. There can be no assurance that the Company will
have sufficient cash flow from operations after debt service to support these
strategies in the long term. 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 or, if available, will be on terms and
conditions acceptable to the Company.
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, 1995, 1996, 1997 and the six-month period ended June 30, 1998
was $0.4 million, $4.8 million, $7.6 million and $(8.1) million, respectively.
Net cash provided by (used in) operating activities decreased for the six-month
period ended June 30, 1998 because of modest revenue growth and significantly
higher expenses during the period, as described above. Net cash used in
operating activities for the six-month period ended June 30, 1998 includes the
net repayment of $4.1 million of advances from Jones International.
For the years ended December 31, 1995, 1996, 1997 and for the six-month
period ended June 30, 1998, net cash used in investing activities was $1.9
million, $4.0 million, $1.2 million and $0.7 million, respectively. 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 network and (iii) the
acquisition of certain radio programming network assets. In 1996, the Company's
investing activities related primarily to the conversion of the delivery system
of its radio programming networks to a digital satellite delivery system and the
purchase of automated playback and other equipment for Great American Country
and miscellaneous equipment. In addition, the Company invested $1.0 million in a
radio programming venture, Jones/Owens Radio Programming LLC, in October 1996.
The Company's 1997 net capital expenditures of approximately $1.4 million were
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. During the first six
months of 1998, the Company's capital expenditures totaled $539,000. Total
capital expenditures for the 1998 year are estimated to be $1.1 million
primarily to purchase equipment to further digitally compress the Satcom C-3
satellite transponder and to add formats and programming for Jones Radio. During
the first six months of 1998, the Company made subscriber incentive payments for
Great American Country totalled $0.2 million. Total subscriber incentive
payments for 1998 are estimated to be $3.5 million.
Net cash provided by (used in) financing activities for the years ended
December 31, 1995, 1996, 1997 and for the six month period ended June 30, 1998
were $0.8 million, $(0.8) million, $(2.7) million, and $7.6 million,
respectively. For these periods, the Company's financing activities consisted
primarily of borrowings under the Company's credit facility and from related
parties and repayments of a capital lease obligation and loans from related
parties.
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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, a related party, 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, with the balance
paid in the form of a $16.0 million note. Effective September 30, 1997, $6.0
million of the $16.0 million note payable to Global Group was converted into
400,000 shares of the Company's Class B Common Stock at $15 per share. Effective
upon the closing of the offering of the Notes, the remaining $10 million of the
Jones Global Group Note was converted into 666,667 shares of Class A Common
Stock valued at $15 per share.
In July 1998, the Company acquired substantially all of the assets and
liabilities of MediaAmerica. Pursuant to the Acquisition, MediaAmerica received
$26.7 million in cash and $6.0 million in shares of Class A Common Stock of the
Company. MediaAmerica also received approximately 142,000 additional shares of
Class A Common Stock, valued at $15 per share, as the estimated working capital
adjustment calculated on the date of closing. In addition, MediaAmerica may
receive up to $5 million in additional shares of Class A Common Stock, with the
excess, if any, to be paid in cash, pursuant to the Earnout.
In March 1998, Radio Holdings entered into a five year $30 million secured
revolving credit facility with a commercial bank. Borrowings under the credit
facility bore interest at a maximum of LIBOR plus 2.875% (approximately 7.9% at
June 30, 1998). Borrowings of $16.7 million under the credit facility were
outstanding as of June 30, 1998. The Company terminated this credit facility in
connection with the offering of the Notes. Borrowings of $16.3 million under the
credit facility were used to repay a $6.6 million note payable to Jones
Intercable and to repay $9.7 million in advances from Jones International. In
July 1998, the Company repaid the credit facility, using the proceeds from the
old Notes offering.
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 not make additional advances to the
Company in the future. Outstanding advances from Jones International and related
parties at June 30, 1998 were approximately $5.4 million. The Company expects to
repay these advances with cash flow from operations and/or available cash
balances. Jones International and such related companies are under no obligation
to provide additional advances or loans to the Company.
The Company has historically financed its ownership of two analog satellite
transponders through a capital lease agreement that was fully prepaid with $27.6
million of the proceeds of the offering of the Old Notes. The channel capacity
on one satellite transponder has been digitally compressed to seven channels,
four of which are currently leased to Product Information Network, Great
American Country and two related parties. This transponder could now be
digitally compressed into additional channels if demand warranted. The Company
recently leased the other three digital channels and certain related services
until August 31, 1999, subject to early termination at the option of the
Company. The revenues from this lease are $138,000 per month. In addition, the
Company has leased the C-4 satellite transponder to a third party beginning July
1998, and one digital channel and certain related services to an affiliate
beginning July 1, 1998. These agreements will generate revenues of
approximately $160,000 and $97,000 per month, respectively.
Pursuant to the terms of one GAC Equity Agreement, an MSO was granted a put
option in respect of the shares of Class A Common Stock that may be issued to it
under such agreement. The put option provides that, if as of December 31, 2001,
the Company or its successor has not completed a public offering of its
securities, the MSO may within 60 days of such date require the Company to
purchase its Class A Common Stock. If the put election is made, the Company or
its successor would be required to purchase the Class A Common Stock at a price
equal to all or a portion of the license fees that would have been paid during
the period between the date of the agreement and the exercise date of the put
option. The purchase price would be based on the total number of MSO subscribers
receiving Great American Country as of December 31, 1998. In the event the MSO
provides the full number of subscribers committed under the agreement by
December 31, 1998, the estimated purchase price of the Class A
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Common Stock in the event the put option is exercised would be approximately
$1,176,000. The Company intends to continue to enter into similar arrangements
in the future, to the extent permitted under the terms of the Indenture.
The Company depends, and will continue to depend, significantly upon the
earnings and cash flows of, and dividends and distributions from, its
subsidiaries to pay its expenses, meet its obligations and pay interest and
principal on the Notes and its other indebtedness. The terms of the Company's
joint ventures generally require the mutual consent of the Company and its joint
venture partners to distribute or advance funds to the Company. There are no
significant contractual restrictions on distributions from each of the
Subsidiary Guarantors (as defined) to the Company. Management believes that the
proceeds from the Notes and operating cash flow, including the cash flows of,
and dividends and distributions from its subsidiaries will be sufficient to fund
the Company's capital needs through at least December 31, 1998. The Company
deposited $10.0 million of the proceeds of the offering of the Notes in a
Reserve Account which will be used for acquisitions and payment of principal of
and interest on the Notes. However, payment of interest for the full term of the
Notes will require an increase in cash flows from operations, which will
continue to be affected by various factors discussed herein, including in "Risk
Factors."
NEW ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards 128 ("SFAS 128") entitled, "Earnings
per Share." SFAS 128 is effective for fiscal years ending after December 15,
1997; early adoption is not permitted. SFAS 128 replaces primary and fully
diluted earnings per share with basic and diluted earnings per share,
respectively. Under SFAS 128, net loss per share for the periods reported would
be the same for both basic and fully diluted.
In February 1997, the FASB issued SFAS No. 129, "Disclosure of Information
About Capital Structure," which is effective for financial statements for
periods ended after December 15, 1997. This statement establishes standards for
disclosing information about an entity's capital structure. The Company has
adopted this statement. The adoption of this statement did not have a material
impact on the financial statements.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income," which is effective for the year ending December 31, 1998. This
statement establishes standards for the reporting and display of comprehensive
income and its components in financial statements and thereby a measure of all
changes in equity of an enterprise that result from transactions and other
economic events other than transactions with owners.
In June 1997, the FASB issued SFAS No. 131, "Disclosure About Segments of
an Enterprise and Related Information," which is effective for the year ending
December 31, 1998. This statement changes the requirements under which publicly
held companies report disaggregated information.
The Company will adopt SFAS No. 130 and No. 131 on their respective dates.
Management of the Company does not expect that the adoption of these statements
will have a material impact on the financial statements.
IMPACT OF THE YEAR 2000 ISSUE
The Year 2000 issue is the result of many computer programs being written
such that they will malfunction when reading a year of "00." This problem could
cause system failure or miscalculations causing disruptions of business
processes.
The Company has initiated an assessment of its computer applications to
determine the extent of the problem. Based on this assessment, the Company has
determined that the majority of its computer applications supporting business
processes, including accounting and billing, are designed to handle the Year
2000 appropriately.
The Company is currently focusing its efforts on the impact of the Year
2000 issue on service delivery. The Company has established an internal team to
address this issue. The Company is identifying and testing all date sensitive
equipment involved in delivering service to its customers. In addition, the
Company will assess its options regarding repair or replacement of affected
equipment during this testing. The Company currently has no definitive estimate
of the cost or the extent of the impact, if any, this problem will have on
service delivery; however, the
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Company does not believe that the impact will be material. The Company
anticipates completion of its testing in 1998, at which time it will assess the
financial impact on the Company.
The Company has initiated communications with its significant suppliers and
customers to determine the extent to which the Company is vulnerable to the
failure by such parties to remediate Year 2000 compliance issues. The Company
currently has no definitive estimate of the extent of the impact of the failure
of its suppliers and customers to be Year 2000 compliant.
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BUSINESS
OVERVIEW
The Company provides radio programming to radio stations in the U.S. and
cable television programming to cable system operators. The Company's radio
programming includes twelve 24-hour formats and 18 syndicated programs that are
broadcast by approximately 2,300 radio station affiliates throughout the United
States to over 60 million weekly listeners. The Company's cable television
programming consists of Great American Country (country music videos) and the
Product Information Network (long-form advertising). Pursuant to affiliate
agreements with five of the ten largest multiple-system operators ("MSOs"), as
well as the two cable programming cooperatives and others, Great American
Country was distributed to 4.6 million subscribers at August 15, 1998. The
Product Information Network is distributed to 278 cable systems and broadcast
affiliates and is available to 18.6 million households. The Company has
successfully expanded the reach of its cable television programming to a broad
number of major MSOs as a result of the extensive experience of the Company's
senior management team, including Mr. Glenn R. Jones, the Company's Chairman and
majority shareholder.
In July, 1998, the Company acquired substantially all of MediaAmerica's
assets. MediaAmerica was founded in 1987 to provide advertising representation
services to providers of radio programming, such as the Company, and in 1994
expanded to provide radio programming and other services to radio stations. The
Acquisition provides the Company with a group of experienced executives who have
long-standing relationships with many advertising agencies and advertisers that
the Company believes will be valuable in driving its advertising-related revenue
growth.
The Company primarily derives its revenues from the sale of its commercial
radio or cable television airtime inventory to national advertisers that are
attracted to the Company's ability to efficiently reach a large national
audience across a variety of demographics and markets. The Company also receives
license fees from MSOs that carry Great American Country and provides satellite
delivery and production support services for its own programming operations as
well as to others. The Company's strategy is to increase advertising revenues by
continuing to increase its base of radio station affiliates and cable system
affiliates, thereby broadening its audience of radio listeners and cable
television viewers. The Company also plans to diversify and expand its sources
of revenues by developing new radio and cable television programming, acquiring
complementary businesses (such as MediaAmerica), offering programming-related
and other value-added services and leasing satellite transponder capacity made
available by more efficient digital compression techniques. There is no
assurance that the Company will be successful in these efforts.
The Company provides a wide variety of advertisers many different ways to
reach their target audiences through network radio and cable television. Given
network 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's radio audience demographics are primarily adults, ages 25-54. Great
American Country, the Company's country music television network, also targets
this attractive demographic sector. According to industry sources, country music
is one of America's most popular music formats and has been one of the fastest
growing segments of the music industry. In addition, the Company believes the
Product Information Network's long-form advertising provides television
advertisers with a cost-effective medium to deliver sales messages, product
introductions and demonstrations to targeted audiences. The Company believes
that the number of advertisers and the volume of long-form advertising will
continue to grow as the Product Information Network's coverage of U.S.
households increases and Fortune 500 companies and other major advertisers
increasingly take advantage of the benefits of long-form advertising to reach
their desired audience.
Radio Programming. The Company, through its radio programming division,
Jones Radio, typically provides programming to its radio affiliates in exchange
("barter") for commercial airtime inventory which it sells to national
advertisers. Jones Radio's programming and related services offer radio stations
a cost-efficient alternative to the talent, time and expense required to develop
in-house programming. In addition, Jones Radio's variety of appealing
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24-hour formats, primarily country and adult contemporary, and its nationally
recognized group of syndicated programs and personalities, enable radio stations
to distinguish themselves within their increasingly competitive markets. As a
group, Jones Radio's radio station affiliates generally capture larger audience
(measured by AQH) as a result of broadcasting Jones Radio's programming, which
can result in additional local advertising revenues for these radio stations.
Jones Radio has been a successful provider of country music programming, one of
the most popular music formats with over 4 million U.S. listeners each week.
Jones Radio provides its programming to approximately 30% of all country radio
stations in the United States and believes it is the largest provider of country
music programming to U.S. radio stations. Between December 31, 1994 and June 30,
1998, Jones Radio's base of radio station affiliates grew from 925 to 1,510
representing a CAGR of 14.1%. For the same period, Jones Radio has experienced a
37.9% CAGR in AQH, growing from 670,000 at December 31, 1994 to 2,473,000 at
June 30, 1998. In addition to its advertising representation business,
MediaAmerica provides radio programming and services to 990 radio station
affiliates in mostly larger markets. As a result of the Acquisition, Jones Radio
has more than doubled its AQH to 6.5 million, which represents 60 million total
weekly listeners. While Jones Radio has historically provided programming to
radio stations in small and medium-sized markets, it is currently focusing its
programming development efforts to appeal to larger markets. Jones Radio has
radio station affiliates in all 50 states and in all of the top 50 markets.
Radio Advertising Representation Services. As a result of the Acquisition,
the Company offers advertising representation services to providers of radio
programming throughout the United States. As a representation firm, MediaAmerica
historically acted as an intermediary between advertisers and radio programming
providers, such as the Company. The Company was one of MediaAmerica's largest
customers in 1997 for this type of service. The Company plans to develop
numerous cross-selling opportunities and other synergies that arise from the
complementary nature of MediaAmerica's services and customer base.
Television Programming--Great American Country. Great American Country is a
24-hour country music video network that capitalizes on the popularity of
country music and leverages the Company's core competency in country music
programming. Great American Country represents a high-quality alternative to
currently available country music networks and offers MSOs attractive incentives
for carriage. In order to drive subscriber growth, Great American Country
generally offers affiliates a one-time cash launch incentive and waives license
fees for a certain period which varies based on the level of subscriber
commitment. The Company is enhancing its near-term operating cash flow through
new agreements with two significant MSOs to issue them shares of the Company's
Class A Common Stock in return for which Great American Country will be paid
license fees from the date of launch. Great American Country has affiliate
agreements with five of the ten largest MSOs, including Adelphia, Comcast, Jones
Intercable, TCI, and Time Warner, as well as the two cable programming
cooperatives, Telesynergy, Inc. and National Cable Television Cooperative, Inc.
The Company believes that by offering carriage incentive programs, competitive
license fee rates and twice the amount of local advertising avails than its
primary competitor, it will attract additional subscribers from existing and new
MSO affiliates that are increasingly seeking to decrease costs and generate more
advertising revenues.
Television Programming--Product Information Network. The Company introduced
the Product Information Network in October 1993 to capitalize on the growing
infomercial industry which, based on industry statistics, today represents
approximately $1 billion of airtime expenditures. The Product Information
Network is aired on a full-time (24-hour) basis or on a part-time basis, thereby
affording cable and broadcast affiliates the opportunity to generate incremental
revenues from otherwise under-utilized time. The Product Information Network
airs long-form informational programming from all of the major infomercial
producers, such as Guthy-Renker Corporation and National Media Corporation, as
well as Fortune 500 advertisers that have included AT&T Corporation, Dupont,
Ford Motor Company, GTE Corporation, Microsoft Corporation, State Farm Life
Insurance Co., and Schering-Plough Corporation. Since December 31, 1994, the
Product Information Network has increased its base of cable subscribers and
broadcast households from 1.5 million to 18.6 million at June 30, 1998,
representing a CAGR of 74.1%. The Product Information Network is distributed to
9.7 million full-time equivalent subscribers through 278 cable systems and
broadcast affiliates. The MSOs that carry the network on a portion of their
cable systems include nine of the ten largest MSOs, including Adelphia,
Cablevision, Comcast, MediaOne Group, Cox, Jones Intercable, Marcus Cable, TCI
and Time Warner. The Product Information Network operates through the PIN
Venture.
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Satellite Delivery and Production Support Services. The Company supports
the production and distribution of its radio and cable television programming
operations through its state-of-the-art satellite uplinking facilities. The
Company's satellite delivery and production support services provide reliable
and efficient playback, trafficking, uplinking and satellite transmission
services to the Company's radio and cable television programming operations and
to certain related companies. The Company believes that the integration of these
distribution services gives it strict management and quality control over the
distribution of its programming. The Company has financed its ownership of two
analog satellite transponders through a capital lease that was fully prepaid
with a portion of the proceeds of the offering of the Old Notes. The capacity on
one satellite transponder has been digitally compressed to seven channels, four
of which are leased to Product Information Network, Great American Country and
two related parties. In August 1998, the Company entered into a lease agreement
with an unaffiliated party for the lease of three digital channels until August
31, 1999. This transponder could be digitally compressed into additional
channels if demand warranted. The other satellite transponder is an analog
channel which the Company recently leased to a third party. The Company believes
that the demand for its satellite delivery and production support services
should increase as digital programming and distribution technologies continue to
develop and cable systems complete upgrades and rebuilds to expand their channel
capacity. The cable systems' expansion of their channel capacity provides more
programming space for cable programmers who, in turn, would require satellite
transponders to provide the programming.
STRATEGY
The Company's objective is to increase its revenues and operating income by
employing the following strategies:
Distribute Programming to a Larger Audience. To increase its revenues from
advertisers, the Company must increase the distribution of, and audience for,
its programming. Jones Radio plans to increase its marketing and sales
activities in an effort to increase the number of its radio station affiliates
and the size of its audience. The Company also plans to continue to aggressively
market its cable television networks to both cable operators and other multi-
channel distributors, including DBS, MMDS and others. The Company relies on
financial incentives and its established relationships with MSOs to market these
networks.
Develop or Acquire Additional High-Quality Programming. The Company
believes that there is market demand for additional long-form and short-form
radio programming due to the financial constraints and limited creative
resources of many radio stations and their need to improve operating
efficiencies. In addition, the Company believes there are additional market
opportunities for 24-hour music and information programs that the Company does
not currently distribute, such as news/talk radio. Jones Radio intends to
develop and/or acquire radio programming addressing these market demands. An
example of new radio programming includes "Nashville Nights," a national long-
form country night-time show targeted at larger markets, which is being produced
in a venture with CapStar. The Company is exploring opportunities to produce
additional low-cost cable television programming based on the strength of its
relationships with major MSOs and its success with Great American Country and
the Product Information Network. The Company believes that any new cable
television programming would typically serve unfilled or underserved niches and,
similar to priced alternative to an existing cable network.
Increase Advertising Revenues. The Company's primary goal in driving
revenue growth is to increase its audience by developing new programming and
expanding its base of radio station and cable system affiliates. In addition,
the Company's new radio programs are designated to increasingly target larger
markets which typically generate higher advertising rates. Management believes
that when Great American Country's attainment of a 5 million subscriber level is
reached, of which there is no assurance, the Company will be able to target a
broader group of advertisers and derive significantly higher advertising
revenues based on traditional spot advertising as opposed to direct response
advertising. Finally, the Company intends to promote the benefits of long-form
advertising to Fortune 500 companies and other major advertisers, with the goal
of attracting more advertising from such advertisers, enhancing the quality of
the Product Information Network's programming and increasing the rates for its
advertising time.
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Acquire or Create Complementary Businesses and Value-Added Services. The
Company intends to expand its business by acquiring and/or creating businesses
complementary to its business. The Acquisition represents an example of this
strategy. The Company believes that numerous opportunities exist, both in the
development of new programming and the acquisition of complementary businesses.
A portion of the proceeds from the offering of the Old Notes will provide the
Company with additional resources for these purposes.
Increase Utilization of Satellite Transponder Capacity and Production
Support Facilities. The Company's satellite delivery and production support
facilities provide reliable and efficient playback, trafficking, uplinking and
satellite transmission services to the Company's radio and cable television
programming operations and to certain related companies. The Company has seven
channels on its digitally compressed satellite transponder, which could be
digitally compressed into additional channels if demand warranted. All seven
channels on this satellite transponder are leased. The Company also has one
analog channel on another satellite transponder which is leased. The Company
believes that its remaining compressible satellite transponder capacity
represents a valuable asset because of the potential demand from new cable
programmers for satellite transponder space, the opportunity to provide
profitable uplinking and other services along with the satellite transponder
space, and the availability of satellite transponder space in-house in the event
that the Company develops or acquires additional cable television networks in
the future.
RADIO PROGRAMMING
The Radio Programming Market
According to the FCC, there are approximately 10,500 commercial radio
stations in the United States. Radio broadcasting has consistently maintained a
steady share of total advertising revenues in the United States, in part because
it is among the most cost effective forms of advertising. Radio allows the
advertiser to target specific demographic groups in particular geographic areas
at a relatively low cost, making it available to small, local advertisers as
well as large, regional and national advertisers. This cost advantage makes
radio advertising spending less susceptible to downturns in the economy.
Moreover, more than one-half of all radio listening is done outside of the home,
closer to the point of purchase. With the exception of 1991, radio advertising
expenditures have increased every year, growing at a compound annual rate of
7.6% since 1961. According to industry sources, total radio advertising revenues
were $13.6 billion in 1997.
Radio stations compete for advertising revenues 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. National programming broadcast on an exclusive geographic basis can
help differentiate a station within its market, and thereby enable a station to
increase its audience and local advertising revenues. 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 or per day,
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 and the terms of the contract with the
affiliate.
The Telecommunications Act of 1996 (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,
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may address these needs by providing high quality programming to radio stations
and reducing the radio stations' costs.
There are four basic types of programs from which a station may select: 24-
hour programming, long-form programming, short-form programming and services.
24-Hour Programming. This "round-the-clock" 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 daypart basis, a one- 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, or
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 5
minutes in duration. Examples of this type of programming include news and
commentary radio shows.
Services. In addition, radio networks provide radio stations services such
as weather reports and comedy services designed to assist on air talent in
preparation for these shows. An example includes comedy services, consisting of
sound bites, song parodies and fake commercials.
The Radio Network--Jones Radio
The Company, through its radio programming division, Jones Radio, provides
for the programming needs of radio stations by supplying them with programs and
services that individual stations may not be able to produce on their own. The
Company offers radio stations a wide selection of regularly scheduled,
syndicated programming as well as 24-hour continuous play formats. Because these
programs and formats are produced by the Company, the stations have minimal
production costs. Typically, each program is offered for broadcast by the
Company exclusively to one station in its geographic market, which assists the
station in competing for audience share in its local marketplace.
The Company enters into affiliation agreements with radio stations.
Pursuant to these affiliation agreements, the Company typically provides
programming to its radio affiliates in exchange for commercial airtime inventory
which it sells to national advertisers ("barter"). With respect to the 24-hour
formats, the Company may also receive a fee from the affiliated stations for the
right to broadcast the formats. The Company's affiliation agreements for 24-hour
formats are generally three years in length; long-form and short-form formats
and service agreements are generally one year.
The Company has affiliation agreements with 2,238 radio stations throughout
the United States and Canada, with approximately 600 of these stations receiving
more than one program. The Company's programming is sold on an exclusive basis
in the radio station's city of license. However, the Company is able to place
different programs within the same market. There are currently over 100 markets
in which the Company has a program on three or more radio stations in the
market. The Company controls the production of its programming, allowing it to
tailor its programs to respond to current and changing listening preferences.
This 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 revenues for both the radio stations and
the Company. The Company is able to deliver to national advertisers frequency,
reach and the primary demographic the national advertisers target, the 25 to 54
year old adult. The Company currently sells advertising to over 100 national
advertisers, including Chrysler Corp., Encore Media, General Motors Corp., Ocean
Spray Inc., Procter & Gamble and Radio Shack.
The Company sells its airtime to advertisers either as "up-front" or
"scatter" purchases. Up-front purchases are early advertiser commitments for
national broadcast time typically lasting 26 to 52 weeks. Scatter purchases are
contracts for a specific period of time that are typically sold at or above up-
front market prices. Advertising prices
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vary significantly based on prevailing market conditions. The Company's strategy
for growth in advertising revenues is to increase its audience size for its
programming and to expand the programming it offers to radio stations. See
"Business--Overview--Strategy."
The Company delivers twelve 24-hour music programs that cover the types of
major music formats used by the majority of radio stations across the United
States. The Company has radio station affiliates in all 50 states and in all of
the top 50 markets. This programming is designed to provide all the programming
for the Company's affiliated radio stations, replacing their in-house air talent
and significantly reducing their production costs. In order to present a
localized "sound," the Company's air talents record unique liners and
positioning statements for each affiliate which are cued through the satellite
for broadcast at the local station. In addition, the programming provides local
breaks for the radio station to insert locally sold commercials, news, weather
or traffic. The Company is able to attract and retain programming personnel to
provide the radio stations with a high level of experience, consistency and
quality not available in the majority of their local markets. The Company has
also invested in equipment with redundancy (back-up capability) that its radio
station affiliates can rely on without going off the air due to network
equipment problems. The radio stations provide the Company with a set amount of
their airtime, and in some cases, fees, in exchange for the programming.
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The Company also produces syndicated shows consisting of long-form
programs, short-form programs, specials and services. The Company's long-form
programs include weekly countdown shows hosted by nationally known talent such
as Crook & Chase and Charlie Tuna, music artist interview shows featuring
interviews with popular music talents of today and yesterday. The short-form
programs are 60 to 90 second entertainment news reports that are interactive
with the affiliated radio stations, features on recreation and oldies music and
a consumer feature hosted by the national consumer advocate, David Horowitz.
The following table summarizes the Company's radio programming:
<TABLE>
<CAPTION>
YEAR
LAUNCHED OR
PROGRAM NAME DESCRIPTION ACQUIRED
------------ ----------- --------
<S> <C> <C>
24-Hour
Adult Hit Radio(TM) Hot adult contemporary 1989
Soft Hits(TM) Soft adult contemporary 1989
US Country(TM) Mainstream country 1989
Good-Time Oldies(TM) 60's based oldies 1990
CD Country(TM) Hot country, personality driven 1993
NAC (New Adult Contemporary)(TM) Smooth jazz 1994
Z-Spanish(TM) Hispanic contemporary hit radio 1994
Rock Alternative(TM) Modern adult contemporary 1996
The New Music of Your Life(TM) Adult standards 1996
Classical Collection(TM) Well-known and best-loved masterpieces 1997
Classic Hit Country(TM) Country artists of the 60's & 70's 1997
Rock Classics(TM) Mainstream classic rock 1997
Long-Form
Crook & Chase Centerstage Specials(TM) Special shows programmed for holidays 1996
The Crook & Chase Country(TM) Country's amiable ambassadors features 1996
CountDown(TM) today's top country songs
AOR Specials Shows programmed for holidays 1998*
Country's Most Wanted In-studio appearances and artist interviews 1998*
HardDrive(TM) A Billboard magazine's syndicated program 1998*
of the year nominee, featuring alternative
rock artists and music weekly
The Hitlist with Elvis Duran & Elliot A top 40 countdown featuring NY's Z100 1998*
morning drive team
The McLaughlin Radio Hour+ Hosted by John McLaughlin 1998*
Personal Notes Showcases the best new contemporary jazz 1998*
music and artists
Up Close Weekly music and interviews featuring 1998*
album-oriented rock artists
Your Weekend with Jim Brickman Lifestyle information and celebrity guests 1998*
for adult contemporary stations
Weekly Top 30 Country countdown hosted by well-known 1998*
personality Charlie Tuna
</TABLE>
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<TABLE>
<CAPTION>
YEAR
LAUNCHED OR
NAME OF PROGRAM DESCRIPTION ACQUIRED
--------------- ----------- --------
<S> <C> <C>
Short-Form
The Jimmy Carter Entertainment Interactive entertainment report 1996
Report(TM)
Outdoor Life Radio Features award-winning outdoor writer 1997
Scott Linden
Fight Back! With David Horowitz+ Popular consumer advocate 1998*
News from the 21st Century A look at the impact of new technology on 1998*
everyday lives
Oldies Calendar With Charlie Tuna A daily calendar with information culled 1998*
from Charlie's years of interviews with
artists
Services
American Comedy Network (ACN)(TM) Premier comedy service for morning shows 1998*
ACN/PDQ Satellite version of ACN 1998*
Fax Off! Show prep for rock stations 1998*
</TABLE>
* MediaAmerica programming.
+ License to syndicate.
The Company's radio programming includes twelve 24-hour formats and 18
syndicated programs that are broadcast by approximately 2,300 radio station
affiliates throughout the United States to over 60 million weekly listeners. The
Company's radio network has over 90 on-air personalities, the majority of whom
have extensive top 25 market experience. In addition, the Company believes that
its programming management is among the best in the industry, consisting of
format experts with over 285 years of combined radio experience. These program
directors access music research and consultants to assist in creating high-
quality programming. To supplement its in-house programming expertise, from time
to time the Company enters into agreements to distribute distinctive, high-
quality programming developed and produced by third party programmers. 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 program hosted by
Gary Owens, Wink Martindale, Pat Boone and other well-known radio personalities.
Agreements with third party programmers usually provide that the programmer
creates and develops the radio program, while the Company markets the program to
radio station affiliates, manages the relationship with the radio station
affiliates, manages the sale of national advertising, and provides technical
support and other services. The term of these license agreements is usually
three to five years. Programming produced under these agreements generated
approximately 10% of the Company's revenues in 1997.
The Company markets its radio programming directly to radio stations
through its 13-person affiliate sales group. These affiliate salespeople develop
close professional relationships with the radio station affiliates in order to
position the Company to serve the station's programming needs. The affiliate
sales group utilizes industry market research and databases to identify
prospective radio station affiliates. The in-house marketing team assists in the
sales effort with marketing campaigns, direct mail, trade advertising and sales
materials. In addition, the Company's presence at industry conventions and trade
shows is designed to increase awareness of its radio programming.
The Company is constantly evaluating new programming possibilities, both
in-house and with third parties. These possibilities include the national
syndication of existing programming and the development of new programming for
syndication. When programming or talent is currently being broadcast on a
station owned by a large radio group, it is usually advantageous to partner with
the owner of the station to maintain or increase carriage on the group's radio
stations.
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In July 1998, the Company launched a nighttime long-form country show
called "Nashville Nights" with CapStar, one of the top ten national radio
groups, which is broadcast on its premiere country radio station in Nashville.
The Company is responsible for all sales and marketing efforts and is a 50%
owner in the venture that produces the program.
The Company and MediaAmerica are in joint discussions with a major cable
television network to develop a group of news and entertainment radio programs
utilizing the network's talent and news gathering resources. If these
discussions are successful, the resulting programs would be expected to launch
in 1999.
RADIO ADVERTISING REPRESENTATION SERVICES
The Radio Advertising Market
The diversity in formats and programs has intensified competition among
stations for local advertising revenues. A radio station has two principal
methods of effectively competing for these revenues. First, it can differentiate
itself in its local market by selecting and successfully executing a format
targeted at a particular audience, thus enabling advertisers to place their
commercial messages on stations aimed at audiences with certain demographic
characteristics. A station can also broadcast special programming, syndicated
shows, sporting events or national news product not available to its competitors
within its format. National programming broadcast on an exclusive geographic
basis can help differentiate a station within its market and thereby enable a
station to increase its audience and local advertising revenues.
Radio advertising is generally sold on the basis of a radio program's AQH.
AQH is typically defined as the average number of persons listening to a
particular station for at least five minutes in a 15-minute period within a
specific daypart. 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. Radio advertising time can
be purchased on a local, national or network basis. Local purchases allow an
advertiser to target a very specific geographic area; however, this process is
time-consuming and is not cost efficient. National spot buys can be targeted to
specific markets, but again, tend to be less cost efficient for the advertiser.
Advertising purchased from a radio network is one method by which an advertiser
targets its commercial messages to a specific demographic audience, thereby
achieving national coverage on a cost efficient basis. 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.
MediaAmerica
Most radio stations carry some form of syndicated programming during part
of the day or week. This demand for syndicated programming has resulted in a
large number of syndicated program producers, some of which on a standalone
basis are not able to accumulate sufficient audience or national coverage to
attract advertising revenues from national advertisers. MediaAmerica was created
in 1987 to service these independent producers. By consolidating the advertising
sales revenues from multiple syndicators in addition to MediaAmerica's owned
programming, MediaAmerica has the economies of scale to staff a national sales
organization beyond what the individual producers could afford on their own.
Additionally, MediaAmerica has the ability to aggregate the commercial broadcast
time of these syndicators and present the resulting packages for sale to
national advertisers such as General Motors Corp., Procter & Gamble, Warner-
Lambert Company, and J.C. Penney Company, Inc. This ability to aggregate time
benefits the syndicators by giving them access via a professional sales
organization to advertisers which are normally not interested in purchasing
commercial broadcast time which does not deliver a specific threshold level of
audience. Advertisers benefit through the ease of buying from one professional,
larger source and the confidence that comes from an established multi-faceted
supplier versus an independent producer. The producer pays the advertising sales
representative firm a commission for the sale of the commercial broadcast time
and related services such as inventory management, commercial scheduling, proof-
of-performance distribution and collection, and financial services.
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As of June 30, 1998, MediaAmerica represented approximately 70 programs or
services produced by approximately 30 programmers. Such programs include, among
others, the Weather Channel Radio Network, Newsweek on Air and Nascar Motor
Racing Network. In general, the representation agreements are up to five years
in duration and provide for varying commissions as a percentage of net sales
(the revenues from the sale of advertising time after deduction of the standard
advertising agency fee). MediaAmerica also provides sales and marketing to radio
station affiliates for certain programs. These additional services increase the
amount of the commission MediaAmerica receives. These agreements typically give
MediaAmerica exclusive national advertising sales rights but are non-exclusive
with respect to the programming MediaAmerica can represent.
MediaAmerica has been in existence for over 11 years, and throughout that
period has developed relationships with many major advertising agencies and
clients. MediaAmerica's reputation enables it to sell its clients' commercial
broadcast time at favorable rates and achieve high sellout levels.
MediaAmerica's eleven advertising account executives and sales managers are
located in the five major advertising buying markets in the United States (New
York, Los Angeles, Chicago, Detroit and Dallas). These account executives market
the commercial broadcast time of MediaAmerica's producers and owned programs via
personal selling to national advertisers and their advertising agencies. The
sales team, including the principals, has an average of 18 years experience in
the radio advertising sales and sales management arena.
In order to serve its many producers and advertising clients, MediaAmerica
has developed a state of the art, proprietary software system that handles the
sales proposal, commercial inventory management and order processing for its
advertising sales. In addition, the Company's research department continuously
analyzes a variety of data to provide its salespeople with accurate estimates of
listening audiences plus creative means with which to demonstrate the particular
advantages of the programs MediaAmerica sells, as well as network radio's
advantages over other media. MediaAmerica utilizes audience listening data from
Arbitron, an independent rating service, to develop its audience and demographic
reports for all its programs.
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, a joint venture which
is owned 50% by an indirect subsidiary of 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 that consist of six analog stereo music formats
and three analog information and entertainment formats. Superaudio's term as a
joint venture will expire in 2000 unless extended. Superaudio's programming is
distributed to cable systems serving approximately 4 million households.
TELEVISION PROGRAMMING--GREAT AMERICAN COUNTRY
The Cable Television Market
As of 1997, cable television was in approximately 70% of all homes in the
United States, and approximately 82% of U.S. households with an annual income of
at least $60,000. Industry sources indicate that in 1997 Americans spent $27.9
billion subscribing to cable services. Many advertisers consider cable
television a cost-effective medium to reach audiences using picture, sound and
motion at considerably cheaper rates than broadcast television. Total U.S. cable
advertising revenues were $7.9 billion in 1997, a 17% increase from 1996. The
average cable household devoted three and one-half hours a day watching
advertising-supported basic cable television in 1997.
The Country Music Industry
According to industry sources, country music is one of the most popular
music formats in the United States. Every week, approximately 44 million
Americans listen to country music radio. With 2,528 radio stations programming
country music, representing approximately 24% of all commercial radio stations,
country music has
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become the dominant radio format in the United States. Country music radio
reaches 7 million more listeners per week than adult contemporary, the next most
popular format. In 1997, country music was the top-rated format in 35 of the
nation's top 100 markets.
Great American Country
Great American Country is a 24-hour country music video network featuring a
mix of current top country hits and past country hits. Great American Country
was distributed to approximately 4.6 million subscribers at August 15, 1998. The
Company believes that Great American Country 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
competitors. Great American Country has six minutes per hour of national avails
and four minutes per hour of local avails. In addition, Great American Country
programs an average of 14 videos per hour, or 3 more videos on average per hour
than its primary competitor. Since its debut, Great American Country has
concentrated on refining its programming and on-air presentation in order to
broaden its carriage. Great American Country acquires its music videos at no
cost from record companies, which use this medium to promote their performing
artists. The Company produces or acquires the other programming on Great
American Country. Great American Country targets the largest and most
influential and affluent market segment of the country music audience--the 25-54
age group. Management believes that Great American Country has significantly
benefited from the Company's experience in the country music radio programming
business and is pursuing additional cross-promotional opportunities.
In order to drive subscriber growth, Great American Country generally
offers affiliates a one-time cash launch incentive and waives license fees for a
period which varies based on the level of subscriber commitment. The Company is
enhancing its near-term operating cash flow through new agreements with two
significant MSOs to issue them shares of the Company's Class A Common Stock in
return for which Great American Country will be paid license fees from the date
of launch. Great American Country has affiliate agreements with five of the ten
largest MSOs, including Adelphia, Comcast, Jones Intercable, TCI and Time
Warner, as well as the two cable programming cooperatives, Telesynergy, Inc. and
the National Cable Television Cooperative, Inc. Management believes that when
Great American Country's attainment of a 5 million subscriber level is reached,
of which there is no assurance, the Company will be able to target a broader
group of advertisers and derive significantly higher advertising revenues based
on traditional spot advertising as opposed to relying on direct response
advertising. As a result, the Company believes that as its audience increases,
it will be able to obtain a more than proportional increase in advertising
revenues. In addition, the Company believes that by offering carriage incentive
programs, competitive license fee rates and twice the amount of local
advertising avails than its primary competitor, it will attract additional
subscribers from existing and new MSO affiliates that are increasingly looking
to decrease costs and generate more advertising revenues.
Great American Country derives its revenues from subscriber fees and
national advertising. Typically the average length of Great American Country's
affiliate agreements is ten years. Monthly license fees for Great American
Country are approximately $.05 per subscriber, which rate the Company believes
to be attractive and competitive. Great American Country's affiliate agreements
typically provide for annual escalators of $.005 per subscriber per year. Great
American Country began selling national advertising in the last quarter of 1997
and currently generates approximately $155,000 per month in advertising
revenues. Great American Country's advertising sales are impacted by a variety
of factors, including distribution, ratings, advertising rates, sellout ratios
and the number of avails allocated for national advertising. Management believes
that as the network's distribution grows, advertising rates will outpace the
rate of distribution growth, and the network will begin to attract traditional
advertising clients and reduce the amount of avails for direct response
advertisements, which are typically at a much lower rate.
The Company is evaluating a variety of additional revenue opportunities for
the future. These include web site advertising, merchandise sales, catalog sales
and syndicated programming in conjunction with Jones Radio.
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TELEVISION PROGRAMMING--THE PRODUCT INFORMATION NETWORK
Long-Form Advertising Market
The Company believes that, during recent years, advertisers evaluating the
benefits of broadcast and cable television advertising have recognized the
effectiveness and reasonable cost of long-form, informational programming,
commonly known as infomercials. An infomercial is an advertisement where airtime
time is paid for by the advertiser on the basis of the time of day the
infomercial is aired and the number of homes reached. Infomercials are usually
one half-hour in length and are often produced in an entertainment format with
high production quality. 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 provides advertisers with the
ability to sell products or services over the phone or to encourage the viewer
to take other action, such as visiting a web site for more information or
visiting a retail outlet.
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. 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
totaled $787 million, and infomercial sales totaled $1.4 billion in 1996, up
from $806 million and $1.1 billion, respectively, in 1995.
The Product Information Network
The Product Information Network is a satellite-delivered, long-form
advertising programming service owned by the PIN Venture, a joint venture among
the Company, Cox and Adelphia. The audience of the programming is primarily
cable subscribers of the Product Information Network's affiliated systems. The
Product Information Network is provided to cable system operators on its own
dedicated channel 24 hours a day, seven days a week.
The Company developed and tested the concept of a 24-hour, long-form
advertising network in 1993. The Company launched the Product Information
Network in October 1993 on cable television systems owned and/or managed by
Jones Intercable. To broaden the Product Information Network's distribution, the
Company formed a partnership with Cox to own and operate the Product Information
Network. Adelphia became a partner approximately one year later. Both Cox and
Adelphia distribute the Product Information Network on a number of their cable
television systems. See "Risk Factors--Risks Associated with the Product
Information Network."
As of June 30, 1998, the Product Information Network was distributed on a
full or part-time basis on cable television systems representing approximately
15.5 million, or approximately 22.6%, of the nation's cable subscribers on a
full- or part-time basis, as well as to over 3.1 million broadcast households.
The Product Information Network is distributed to 9.7 million full-time
equivalent subscribers through 278 cable systems and
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broadcast affiliates. The MSOs that carry the network on a portion of their
cable systems include nine of the ten largest MSOs, including Adelphia,
Cablevision, Comcast, Cox, Jones Intercable, Marcus Cable, Media One Group, TCI
and Time Warner. Approximately 2.6 of the 3.1 million broadcast households are
through KSTV in the Los Angeles market. The majority of the Product Information
Network's present full-time subscriber base is provided by Cox, Adelphia and
Jones Intercable. The standard Product Information Network affiliation agreement
generally requires a one-year commitment of carriage. In the case of cable
systems that are owned or operated by Cox, Adelphia or Jones Intercable, the
affiliation agreements are for terms of five years, ten years, and ten years,
respectively, and expire on January 31, 2000, October 1, 2005 and February 1,
2005, respectively. See "Risk Factors--Risks Associated with Distribution of
Television Programming."
The Product Information Network compensates cable operators for carriage of
the Product Information Network through a revenue sharing program. Such
compensation, which is generally in the form of an annual rebate per subscriber,
averages approximately 70% of the Product Information Network's adjusted net
advertising revenues (which are revenues less agency commissions and bad debt
expenses) attributable to the time that the system carries the network's
programming. For 1997, the Product Information Network paid its full-time (24
hours a day) affiliates an average of approximately $1.40 per subscriber per
year.
The Product Information Network's programming is produced and provided by
its advertisers at no cost to the network. The majority of current programming
consists of traditional infomercials from major infomercial producers, including
Guthy-Renker Corporation, National Media Corporation and American Telecast. The
strategy of the Product Information Network is to continue to diversify and
strengthen its advertising base by further developing relationships with Fortune
500 companies. Over the last approximately twelve months, Fortune 500 companies
who have advertised on the Product Information Network include AT&T Corporation,
Dupont, Ford Motor Company, GTE Corporation, Microsoft Corporation, State Farm
Life Insurance Co. and Schering-Plough Corporation. The Product Information
Network, through its new focus on major companies, is in the process of
developing direct relationships with high profile companies in order to reduce
its dependence on traditional infomercial programming for a significant portion
of its advertising revenues. See "Risk Factors--Dependence on Advertising
Relationships."
The Product Information Network plans to attract major corporate
advertisers involved in the travel business through its new agreement with Robin
Leach, who will provide the narration and background for infomercials which
feature travel themes. The Product Information Network is marketing this as a
two-hour block and is negotiating with a number of travel-oriented companies and
others as part of its efforts to obtain higher rates for this type of long-form
infomercial programming. If the Product Information Network is successful in
these efforts, it intends to explore similar types of infomercial programming by
the use of "star" talent as the connection between the infomercial theme and the
infomercial advertising.
The Product Information Network is also considering a variety of other
means to broaden the distribution of its programming and to increase the rates
charged for its advertising time. These include the possibility of an additional
satellite "feed," entering into sales representation agreements with other cable
networks to gain broader distribution and bringing in additional MSOs as equity
partners in the Product Information Network, thereby gaining access to their
subscribers.
SATELLITE DELIVERY AND PRODUCTION SUPPORT SERVICES
The Company transmits its radio and cable television programming directly
to radio stations, cable system operators and other video distributors. The
programming is distributed via satellite transponders leased from third parties
and from affiliates. The Company provides playback services, trafficking and
ground-to-satellite transmission of its programming services from its uplink
facility in Englewood, Colorado.
The Company owns 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. In January 1997, the Company installed General Instrument
Corporation's DigiCipher II (MPEG-2) compression equipment, which
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increased the compression of its Satcom C-3 satellite transponder from 4:1
compression to 6:1 compression. The Company has recently installed additional
equipment which increased the capacity to seven channels. The Company could
digitally compress the C-3 transponder to add additional channels at minimal
incremental cost. Any excess capacity created by this new technology could be
used for the distribution of the Company's programming, related party
programming or third party programming.
Four of the digital channels available on the Satcom C-3 satellite
transponder are being used by each of Great American Country, the Product
Information Network and two related parties. The term of each lease for such
channels is generally for the remaining life of the satellite except that one of
the related parties leased a channel on Satcom C-3 for a seven-year term with a
one-time option, exercisable by the related party on six months' advance notice,
to terminate the lease on July 1, 2001. In August 1998, the Company entered into
a lease agreement with an unrelated party to lease three digital channels on the
Satcom C-3 transponder for the period August 15, 1998 through August 31, 1999.
The lessee will have the right to renew for successive monthly periods. The
aggregate monthly charge for the three channels (included related services
provided by the Company) is $138,000. The Company has recently leased the C-4
transponder to an unrelated party. This lease provides for monthly lease
payments averaging $160,000, with higher lease payments in early years and lower
lease payments in the later years. The lease term commenced in July 1998 and
will terminate on December 31, 2002, with an option, exercisable by the lessee,
to extend the lease through October 16, 2004. If the lessee does not exercise
the option to extend the lease, it must make a one-time penalty payment to the
Company of $750,000. The Company's satellite uplinking and distribution costs
are generally fixed and, as a result, additional radio or cable television
programming can be distributed by the Company at minimal cost. The Company
continues to market its additional compressible capacity on its Satcom C-3
transponder and related services. The Company expects that the satellite
transponders will be effective to provide distribution for radio and television
programming until 2004, at which time it will be required to locate replacements
to use for its programming.
COMPETITION
Radio Network
The Company's radio network competes for national advertising revenues and
radio station affiliates with major network radio distribution companies in the
United States, as well as with a large number of smaller independent producers
and distributors. 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. Moreover, beginning in early 1997 many of the Company's
larger competitors began to consolidate thereby intensifying competition.
In September 1997, Chancellor Media, an owner of a large group of radio
stations, announced that it was forming a national radio network, AMFM, that
will utilize Chancellor Media's existing talent and, in conjunction with CapStar
Broadcasting Partners, a related party, serve over 400 radio stations. In
January 1998, AMFM began taking one minute per hour of advertising time from
both the Chancellor and CapStar radio stations and reselling the commercial time
to national advertisers who typically buy network radio. This arrangement has
diluted the pool of advertising available to other radio networks, including the
Company's radio network. Additionally, AMFM's radio station line-up is
concentrated in larger markets than the typical radio network, increasing its
attractiveness to national advertisers.
The Company's largest direct competitors include ABC Radio Networks,
Westwood One/CBS Radio Networks, Jacor Communications and AMFM. The principal
competitive factors in the radio industry are the quality and creativity of
programming 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 revenues.
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 technological advance, DARS, permits
national radio stations to
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broadcast digital quality radio programming nationwide to homes, automobiles and
other locations via satellite. In February 1997, the FCC auctioned two licenses
for DARS. The Company cannot predict what effect the potential future
development of digital automation or DARS will have on the radio industry or the
Company.
Radio Advertising Representation Services
The radio advertising representation business is highly competitive, both
in terms of competition to gain program provider clients and to sell commercial
inventory to national advertisers. The Company's radio advertising
representation firm competes with the major network radio distribution
companies, which operate divisions that both sell their own company's airtime
inventory and also contract with third party radio programmers to sell their
national commercial inventory. Over the last two years, many independent program
providers have been acquired by the major network distribution companies. These
companies have large amounts of commercial inventory to sell and have
significant resources.
The Company also competes on behalf of its clients for advertising dollars
with other media such as broadcast and cable television, print, outdoor, the
Internet and other media. The primary factors determining success in the radio
advertising representation service industry are strong relationships with
advertising agencies and national advertisers, acquisition and maintenance of
representation contracts from producers with high quality products and
experienced advertising sales personnel.
Television Networks
The Company's television networks compete for distribution on cable
systems, viewers and advertising revenues with hundreds of cable and broadcast
television networks supplying a variety of entertainment and infomercial
programming.
Great American Country's principal direct competitor is Country Music
Television ("CMT"), an advertiser-supported basic cable network that delivers
country music videos 24 hours a day. The Great American Country network also
competes with The Nashville Network ("TNN"), which plays country music videos
during a portion of the broadcast week. Most of TNN's music programming is
focused on theater-style music concert programming such as the Grand Ole Opry.
CBS, Inc., which owns the CBS broadcasting network, owns CMT and TNN.
The Product Information 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 Product Information Network.
Infomall TV is an infomercial network carried by its affiliated broadcast
television stations. Access Television Network delivers infomercial programming
for use primarily during "remnant time." Remnant time is time that is made
available by "rolling-over" or replacing 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 an infomercial network that
was recently launched. Guthy-Renker, GRTV's parent company, is a major supplier
of infomercial programming to the Product Information Network. The Company
believes that new infomercial networks are currently being planned or formed
that will compete directly with the Product Information Network. The Product
Information Network also competes with at least 30 cable television networks,
many of which have a substantial number of subscribers, that air infomercial
programming.
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. As a
result, their ability to add new networks will be enhanced. 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.
Satellite Delivery and Production Support Services
The Company competes in the delivery of domestic satellite services with
satellite owners, satellite service providers, microwave carriers and full
service teleports. Some of the Company's principal competitors, many of
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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, price and the location of
uplink facilities are the key competitive factors in this market.
Other Competitive Factors
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. 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 revenues, the Company's operating
results could be adversely affected. 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.
Among other things, the FCC adopts and implements regulations and policies
that directly or indirectly affect the ownership, operation 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 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. These measures have led to significant radio industry consolidation. The
Telecom Act has resulted in a greater number of radio group owners seeking to
reduce costs. There can be no assurance that future effects of such legislation
will not negatively impact the Company.
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. Both Great
American Country and the Product Information Network are subject to the FCC's
new rules requiring closed captions for the hearing impaired on all programming
beginning in the first quarter of 2000. The Company expects that compliance with
these new rules will not have an adverse effect on the Company's financial
condition. 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 these licenses 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."
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FACILITIES
The Company's principal executive offices are located in Englewood, Colorado.
The Company subleases office space from affiliates of Jones International as
well as office space and studio space from third parties. See "Certain
Relationships and Related Transactions." In addition, the Company owns 8.4 acres
of land in Englewood, Colorado. The Company believes its office space, studio
space and Earth Segment's satellite uplink facility are adequate to meet its
current needs. The following table lists the location and square footage of the
Company's facilities and indicates whether they are owned or leased:
<TABLE>
<CAPTION>
ENTITY UTILIZING FACILITY LOCATION SQUARE FOOTAGE OWNED/LEASED
------------------------- -------- -------------- ------------
<S> <C> <C> <C>
Earth Segment Englewood, Colorado 13,194 Owned
Company Englewood, Colorado 556 Leased
Company Englewood, Colorado 658 Leased
Jones Radio Englewood, Colorado 9,049 Leased
Jones Radio/Superaudio Englewood, Colorado 2,794 Leased
Jones Radio/Superaudio Englewood, Colorado 2,551 Leased
Jones Radio/Superaudio Englewood, Colorado 3,102 Leased
Great American Country Englewood, Colorado 500 Leased
PIN Venture Englewood, Colorado 2,806 Leased
MediaAmerica New York, New York 18,868 Leased
MediaAmerica Chicago, Illinois 250 Leased
MediaAmerica Milford, Connecticut 1,966 Leased
MediaAmerica Dallas, Texas 150 Leased
MediaAmerica Detroit, Michigan 125 Leased
</TABLE>
EMPLOYEES
The Company refers to its employees as associates. As of June 30, 1998, the
Company had 114 full-time and 68 part-time associates, and MediaAmerica had 66
full-time and 7 part-time associates. In addition, the Company maintains
relationships with independent writers, program hosts, technical personnel and
producers. None of the associates are covered by a collective bargaining
agreement, and the Company believes its employee relations to be good.
LEGAL PROCEEDINGS
From time to time, 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 its financial condition or results of operations.
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THE ACQUISITION AND RELATED TRANSACTIONS
MEDIAAMERICA
MediaAmerica was founded in 1987 by Messrs. Ron Hartenbaum and Gary Schonfeld
(the "Principals"), both of whom had prior executive experience with a major
radio network before they organized MediaAmerica. The Company, MediaAmerica and
the Principals entered into an agreement dated June 2, 1998 (the "Exchange
Agreement") which provided that the Company acquire substantially all of the
assets and assume certain of the obligations of MediaAmerica for an aggregate
consideration of $32.7 million, payable $26.7 million in cash and $6.0 million
in shares of Class A Common Stock of the Company (equal to 400,000 shares),
subject to a "working capital adjustment" which, in general, is the sum of
current assets less the sum of current liabilities at closing. A positive
working capital adjustment is paid in additional shares of Class A Common Stock
of the Company at an agreed value of $15 per share. At closing on July 10, 1998,
the Company issued approximately 142,000 shares of Class A Common Stock pursuant
to an estimated working capital adjustment. A final adjustment is to be made
within sixty days after closing. In addition, MediaAmerica can earn up to $5
million in shares of Class A Common Stock, with the excess, if any, to be paid
in cash, pursuant to the Earnout.
The assets of MediaAmerica consist principally of advertising representation
agreements with its various clients and radio programming and related agreements
pursuant to which it receives advertising time (and in some cases, fees) for
providing radio programming or services to radio stations. The radio programming
is either "long" or "short" form programs or services and consists of those
identified in the table under "Business--Jones Radio--The Radio Network." These
programs are licensed to 990 radio station affiliates throughout the U.S., of
which 139 are in major markets. MediaAmerica acquired the majority of these
radio programs in mid-to-late 1997.
RELATED TRANSACTIONS
The Acquisition is intended to qualify for partially tax-free treatment under
Section 351 of the Internal Revenue Code of 1986 and, as a result, MediaAmerica
would recognize taxable gain to the extent of the cash portion of the exchange
consideration. To the extent taxable gain is so recognized, the Company will
obtain additional basis in the acquired assets equal to the amount of gain
recognized by MediaAmerica.
As part of the Exchange Agreement, the Company, MediaAmerica and the
Principals entered into a number of additional agreements, consisting of
employment agreements with the Principals, a registration rights agreement, and
a "Post-Closing Agreement." The employment agreements are for three years and
restrict the Principals from competing with the Company during the term of
employment and for two years after the employment agreements terminate. These
agreements provide for annual salaries of $300,000 for each Principal and
eligibility for a variety of employee benefits and plans generally made
available to the Company's key associates at their level.
The registration rights agreement provides for two "demand" registrations for
the shares of Class A Common Stock of the Company issued in the MediaAmerica
transaction plus an unlimited number of "piggy-back" registration rights, all of
which are to be provided at no cost to the Principals or to MediaAmerica (except
for sales commissions and certain legal costs).
The Post-Closing Agreement gives MediaAmerica the right to cause the Company
to purchase the shares of the Company owned by MediaAmerica at any time after
three years from closing. The price would be the fair market value thereof, as
determined by agreement or by an appraisal conducted by an independent
investment banking firm. The Company has a correlative right to require that
MediaAmerica sell such shares to the Company at fair market value as decided
above. Such rights terminate upon an initial public offering (as defined) by
the Company. Before MediaAmerica can require the Company to buy its shares, the
Company must have "unrestricted cash" (as defined) available to make the
purchase. This condition lapses after seven and one quarter years from the date
of closing. If the Company has exercised its purchase right and there is a
"change of control" (as defined) involving a higher price within six months
thereafter, the Company must pay the Principals certain additional
consideration. The Post-Closing Agreement also grants the Principals the right
to designate certain nominees to both the Boards of Directors of the Company and
Galactic Radio, Inc., a subsidiary of the Company which has oversight
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of all radio-related operations. The Post-Closing Agreement also grants certain
other rights regarding the Class A Common Stock of the Company as a class and
provides that transactions with affiliates must be on terms substantially the
same as those from a third party.
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MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES
The Company currently has six directors: Glenn R. Jones, Chairman of the
Board, Gregory J. Liptak, President of the Company, Jay B. Lewis, Group Vice
President/Finance and Chief Financial Officer of the Company, Ron Hartenbaum,
Chief Executive Officer - Radio Network, Yrma G. Rico and Fred A. Vierra.
Set forth below is certain information concerning each person who is an
executive officer or director of the Company. Information is also provided for
certain key employees. 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>
DIRECTOR
--------
NAME POSITION AGE SINCE
- ---- -------- --- -----
<S> <C> <C> <C>
Glenn R. Jones........... Chairman of the Board 68 1993
Gregory J. Liptak........ President and Director 58 1993
Jay B. Lewis............. Group Vice President/Finance, Chief Financial Officer and Director 40 1996
Elizabeth M. Steele...... Vice President and Secretary 46
Keith D. Thompson........ Chief Accounting Officer 31
Jeffrey C. Wayne......... President, Cable Programming Networks (1) 43
Gary Schonfeld........... Chief Executive Officer--Radio Advertising (1)(2) 46
Ron Hartenbaum........... Chief Executive Officer--Radio Network and Director (1)(2) 45 1998
Eric Hauenstein.......... President/General Manager--Radio Network (1) 50
Phil Barry............... Vice President of Programming--Radio Network (1) 45
Yrma G. Rico............. Director 49 1998
Fred A. Vierra........... Director 66 1998
</TABLE>
(1) Key employee; an officer of a subsidiary, but not of the Company itself.
(2) Pursuant to an agreement entered into in connection with the Acquisition,
Messrs. Hartenbaum and Schonfeld may nominate one member of the Board of
Directors. This right terminates upon the earlier of the ninth anniversary
of the consummation of the Acquisition and the date on which, among other
things, the direct or indirect ownership of Messrs. Hartenbaum and Schonfeld
in the Company's common stock falls below certain levels.
The principal occupations for at least the past five years of each of the
directors, executive officers and certain key employees of the Company are as
follows:
GLENN R. 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. He has been Chairman of the Board of the
Company since 1993. Mr. Jones will continue to devote a substantial amount of
his time to the Company's business. 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. Mr.
Jones is a member of the Board of Directors and Executive Committee for the
National Cable Television Association, the Board and Education Council of the
National Alliance of Business and the Board of Governors for the UCLA Center for
Communications Policy. He is also one of the founding members of the James
Madison National Council and has served on the Board of Governors for the
American Society for Training and Development.
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
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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, and currently serves as Chairman of the National
Cable Television Cooperative.
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, the parent 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/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 also serves as Chief Accounting Officer of several of
the Company's affiliates. Mr. Thompson has been associated with Jones
International since October 1994, serving as Senior Accountant from October 1994
to April 1995, as Accounting Manager from April 1995 to January 1996, as
Director of Accounting from January 1996 to July 1997, and Controller from July
1997 to 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 member of
both the American and Colorado Societies of Certified Public Accountants.
JEFFREY C. WAYNE has served as President and Chief Operating Officer, Cable
Network Operations for the Company and as Vice President/General Manager for
Great American Country since July 1997 and was elected President, Cable
Programming Networks and as President/General Manager for Great American Country
in January 1998. Mr. Wayne is a 21-year veteran of the cable television
industry. From 1995 to July 1997, Mr. Wayne was Vice President of Programming
for The Providence Journal's Broadcast Division. At The Providence Journal, he
was responsible for overseeing a portfolio of cable network programming ventures
including The Television Food Network and America's Health Network. At the
Providence Journal, Mr. Wayne served as acting President of The Television Food
Network; the network's subscriber base grew from 13 to over 20 million during
his tenure. From 1978 to 1995, Mr. Wayne held various marketing positions with
Colony Communications, Inc., a top 20 multiple system cable operator with over
800,000 subscribers, serving as Executive Director of Marketing and Ad Sales
from 1988 to 1993 and Vice President of Marketing and Ad Sales from 1994 to
1995. Mr. Wayne has a B.A. in Political Science from the University of Colorado,
Boulder.
GARY SCHONFELD is the co-founder of MediaAmerica and has served as its
President since its formation in 1987. Mr. Schonfeld became the Chief Executive
Officer--Radio Advertising upon the consummation of the Acquisition in July
1998. Mr. Schonfeld has over 20 years of experience in the sales arena,
including Vice-President Eastern Sales Region for Westwood One. Previously Mr.
Schonfeld served as an account executive with CBS Radio Networks and in various
positions with Fairchild Publications, Y&R Advertising and ABC Radio. Mr.
Schonfeld has a B.A. from the University of Vermont and an M.A. from the
University of Michigan.
RON HARTENBAUM is the co-founder of MediaAmerica, which was founded in 1987,
and has been its Chairman since its formation. Mr. Hartenbaum became the Chief
Executive Officer--Radio Network and a Director upon the consummation of the
Acquisition in July 1998. Mr. Hartenbaum has over 20 years of experience in
radio advertising
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sales. Before forming MediaAmerica, Mr. Hartenbaum was Vice-President and
Director of Advertising Sales for Westwood One for six years, growing sales from
$5 million to over $50 million in that period. Prior to joining Westwood One,
Mr. Hartenbaum was involved in advertising sales for ABC Radio and advertising
development at ad agencies Needham Harper Worldwide and Grey Advertising for
national advertisers including Procter & Gamble and General Mills. Mr.
Hartenbaum has a B.A. from Queens College and an MBA from New York University.
ERIC HAUENSTEIN has served as Vice President/General Manager--Radio Networks
since 1994 and was elected President/General Manager--Radio Networks in January
1998. 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.
PHIL BARRY, whose proper name is Phillip H. Baykian, has served as Vice
President of Programming--Radio Networks since 1991. Mr. Barry 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. Barry
attended Delta College at University Center.
YRMA G. RICO is General Manager of KCEC-TV, Channel 50 in Denver, Colorado, a
position she has held since 1992. She has 19 years of experience in the
television industry and has served as the National Sales Manager for KCEC-TV and
WNAC-TV, headquartered in Providence, Rhode Island.
FRED A. VIERRA is the Vice Chairman of the Board of Directors and a consultant
to Tele-Communications International, Inc. ("TINTA"), positions he has held
since January, 1998. From 1994 to January 1998, he served as TINTA's Vice
Chairman, President and Chief Executive Officer. From 1992 to 1994, he served as
an Executive Vice President of TCI. Mr. Vierra served as the President of United
Artists Entertainment Company ("UAE") from 1989 to 1991 and as the President of
United Cable Television Corporation from 1982 to 1989, when the company was
merged into UAE. Mr. Vierra is a member of the Board of Directors of Flextech
plc, Torneos y Compotencias S.A. and Formus Communications, Inc. Mr. Vierra has
previously served as a member of the Board of Directors of Turner Broadcasting,
the Discovery Channel, Princes Holdings Ltd., Australas Media Ltd. and Telewest
plc. Mr. Vierra has a B.S. in Business Administration from the University of
Tulsa.
COMPENSATION OF DIRECTORS
The Company pays its directors who are not officers of the Company for their
services as directors. Directors who are not officers of the Company or its
affiliates will receive $2,500 per quarter for services rendered as a director
and $500 for attending in person each meeting of the Board or one of its
committees. All directors will be reimbursed for their expenses in attending
Board and committee meetings.
EXECUTIVE COMPENSATION
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, 1996 and 1997 for the President of the Company and the other four most
highly compensated executive officers and key employees of the Company and its
subsidiaries whose total annual salary and bonus attributable to such entities
exceeded $100,000 (collectively, the "Named Executive Officers"). Mr. Jones was
President of the Company during 1995 and through October 1996 and has been
Chairman of the Board during all such periods. He did not receive any
compensation for services rendered to the Company during such periods.
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SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
-------------------
ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(1)
--------------------------- ---- ------ ----- ---------------
<S> <C> <C> <C> <C>
Gregory J. Liptak(2).............................................. 1997 $283,879 $ -- $22,417
President 1996 127,746 38,250 15,566
1995 156,134 46,750 21,843
Jay B. Lewis(3)................................................... 1997 150,007 -- 9,000
Group Vice President/Finance and 1996 44,287 -- 3,543
Chief Financial Officer 1995 -- -- --
Jeffrey C. Wayne(4)............................................... 1997 76,897 -- 37,215
President, Cable Programming Networks 1996 -- -- --
1995 -- -- --
Eric Hauenstein................................................... 1997 150,015 13,900 6,883
President/General Manager--Radio Network 1996 139,006 -- 8,340
1995 127,924 20,000 21,513
Phil Barry........................................................ 1997 90,024 8,000 2,993
Vice President of Programming--Radio Network 1996 80,010 5,800 1,547
1995 68,814 13,250 --
</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 and, with respect to Messrs. Hauenstein and Wayne, includes
$17,713 and $33,615, respectively, reimbursed to them for moving expenses in
1995 and 1997, respectively.
(2) 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 to the Company 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 serves as an executive
officer and director of certain of the Company's affiliates. Since the
beginning of 1997, Mr. Liptak has devoted all of his time to the business of
the Company and will continue to do so in the future.
(3) Mr. Lewis' total compensation for services rendered to the Company during
1996 represents an allocation to the Company of the total compensation paid
to Mr. Lewis by Jones International for 1996 based upon the time allocated
to the Company's business. For the year 1995, no portion of Mr. Lewis'
compensation was allocated to the Company, all of which was paid by Jones
International.
(4) Reflects compensation from July 1997 when Mr. Wayne joined the Company.
The Company has agreed to give Messrs. Wayne and Hauenstein each a $250,000
bonus if certain defined levels of distribution in the cable programming network
and the radio network, respectively, are reached within approximately three
years.
On July 10, 1998, the Company entered into employment agreements with Messrs.
Hartenbaum and Schonfeld. See "The Acquisition and Related Transactions" for a
description of the employment agreements.
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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 400,000 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 come 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 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.
An aggregate of options to acquire 275,000 shares of Class A Common Stock have
been granted under the Plan, including the following: Mr. Jones - 50,000
shares; Mr. Liptak - 50,000 shares; Mr. Lewis - 50,000 shares; Mr. Hauenstein -
20,000 shares; and Mr. Wayne - 20,000 shares.
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Certain Federal Income Tax Consequences. The following discussion, which is
based on the law as in effect on the date of this Prospectus , summarizes
certain federal income tax consequences of participation in the Plan. The
summary does not purport to cover federal employment tax or certain other
federal tax consequences that may be associated with the Plan, nor does it cover
state, local or non-U.S. taxes. 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.
In general, an optionee realizes no taxable income upon the grant or exercise
of an Incentive Option. 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. Gain
or loss recognized on sales of shares acquired upon the exercise of an Incentive
Option will be treated as capital gain or loss for which the Company is not
entitled to a deduction if the shares have been held for more than one year
after exercise and more than two years after the date of grant. Any such gain
will be long-term capital gain and will be subject to tax at a maximum rate of
20%. 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. 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.
An optionee generally recognizes no taxable income upon the receipt of a Non-
Qualified Option. Upon the exercise of a Non-Qualified Option, the optionee
normally recognizes ordinary income equal to the difference between the option
price and the fair market value of the stock on the date of exercise, and the
Company is entitled to a deduction in the same amount.
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.
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. In general, 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 have completed 500 hours of
service within a six consecutive-month period are eligible to participate in the
401(k) Plan on the next open enrollment following the date that the eligibility
requirements have 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. 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 1997, the Company
contributed approximately $83,000 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
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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 Rabbi 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 1997, the Company contributed
approximately $33,000 to the Deferred Compensation Plan on behalf of its key
employees.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 1997, the Company's Board, comprised of Messrs. Jones, Liptak and
Lewis, set the compensation of the Company's executive officers. 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 1997. As individuals, the Company's executive
officers and directors had no transactions with the Company in 1997. See
"Certain Relationships and Related Transactions" for a discussion of certain
transactions between the Company and its affiliates.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
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 it, no assurance can be given that the terms of these transactions
were generally as favorable to it as could have been obtained from third
parties. The transactions described below, other than the loans and advances,
are expected to continue and additional agreements and transactions with
affiliated parties may occur in the future, subject to the restrictions in the
Indenture.
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.
ADVANCES
Since its inception, the Company has received advances from Jones
International and related parties to fund its activities. These advances have no
maturity date and accrue interest at the published prime rate plus 2%
(approximately 11%, 10% and 10% in 1995, 1996 and 1997, respectively). The
Company has received advances from Jones International and related parties to
fund a portion of its cash needs, with cumulative advances of $1.8 million, $6.0
million, $9.8 million and $5.4 million as of December 31, 1995, 1996 and 1997
and June 30, 1998, respectively. The Company paid interest on these advances of
approximately $142,000, $243,000, $868,000 and $328,000 for the years ended
December 31, 1995, 1996 and 1997 and the six months ended June 30, 1998,
respectively. The largest total amount of outstanding advances from Jones
International and related parties in 1997 was approximately $10.3 million.
Outstanding borrowings of $16.3 million under Radio Holdings' credit facility
were used to repay a $6.6 million note payable to Jones Intercable and to repay
$9.7 million in advances from Jones International in March 1998. At June 30,
1998, outstanding advances from Jones International and related parties were
$5.4 million. Jones International is under no obligation to provide additional
financial assistance to the Company.
PURCHASE OF GALACTIC RADIO AND EARTH SEGMENT
Effective August 15, 1996, the Company purchased all of the common stock of
Galactic Radio from Global Group, a related party, 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 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 bore interest at
8.25% per annum and was payable quarterly. Interest expenses totaled
approximately $495,000 and $1,196,000 for the years ended December 31, 1996 and
1997, respectively. Effective September 30, 1997, the Company and Global Group
agreed to convert $6.0 million of the $16.0 million note to Global Group into
400,000 shares of the Company's Class B Common Stock at $15 per share. This note
was repaid in conjunction with a reorganization of the Company's parent in
December 1997, and the Company issued a new $10 million unsecured promissory
note to Global Group on December 31, 1997 (the "Global Group Note"). The Global
Group Note accrued interest at 8.25% per annum, compounded annually. Effective
upon the closing of the offering of the Old Notes in July 1998, the Global Group
Note was converted into 666,667 shares of Class A Common Stock valued at $15 per
share. The Company has paid the accrued interest of approximately $413,000 on
the Global Group Note. Interest expense on the Jones Global Group Note totaled
approximately $413,000 for the six months ended June 30, 1998.
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 Class A Common Stock valued at $12 per share.
In connection with this transaction, the Company assumed Earth Segment's
obligations under an approximately $6.6 million promissory note payable to Jones
Intercable. Approximately $670,000, $608,000, $627,000 and $156,000 of interest
was paid on the note for the years ended December 31, 1995, 1996, and 1997 and
the six months ended June 30, 1998, respectively. This note was paid in full in
March 1998 with borrowings under Radio Holdings' credit facility.
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PURCHASE OF MINORITY INTERESTS IN GREAT AMERICAN COUNTRY AND THE PRODUCT
INFORMATION NETWORK
Pursuant to an exchange agreement dated November 6, 1996 (as amended on April
1, 1997), Mr. Jones exchanged 1,196 shares of Class A and Class B Common Stock
of Jones Infomercial Networks, Inc. and 1,900 shares of Class A and Class B
Common Stock of Great American Country, Inc. for 333,333 shares of Class A
Common Stock of the Company.
TAX SHARING AGREEMENT
Prior to April 2, 1997, the Company joined 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) were 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). As a result of certain stock issuances on April 1, 1997
described above, less than 80% of the Company's outstanding common stock was
owned by Jones International and, therefore, the Company is no longer included
in the Jones International tax allocation agreement.
The tax allocation agreement with Jones International gave Jones International
the option to either make a payment of the tax benefits due to the subsidiary
members of the tax sharing group or 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. Jones International could defer such payments for a period not to
exceed five years from the date the tax benefits were incurred and would accrue
interest at the time the deferred amounts originate. For the year ended December
31, 1997, Jones International elected to defer a tax benefit of approximately
$1,342,000 due to the Company and its subsidiaries. For the six months ended
June 30, 1998, the Company incurred a tax provision of approximately $268,000 to
adjust estimated tax provisions to actual tax provisions for the year ended
December 31, 1997.
In 1995, 1996 and 1997, the Company recognized income tax benefits as a result
of the tax sharing arrangement of approximately $498,000, $387,000 and
$1,342,000, respectively.
SATELLITE DELIVERY AND PRODUCTION SUPPORT SERVICES
The Company has agreements to provide uplinking, playback, trafficking and
related services to Jones Education, a related party, 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 $1.9 million, $2.2
million, $2.2 million and $1.3 million from Jones Education for these services
for the years ended December 31, 1995, 1996 and 1997 and the six months ended
June 30, 1998, respectively. In June 1998, the Company and an affiliate of Jones
Education entered into an agreement pursuant to which the Company is providing,
beginning July 1, 1998, additional uplinking, playback, trafficking and related
services in connection with the lease of an additional channel on one of the
Company's satellite transponders for a monthly fee of $30,000 and an amount
representing a proportionate share of expenses.
SATELLITE TRANSPONDER AGREEMENTS
The Company has leased to Jones Education one channel on a non-preemptible
satellite transponder on a domestic communications satellite that the Company
historically leased from a third party, which lease was prepaid with a
portion of the proceeds of the offering of the Old Notes. The Company has the
right to terminate the lease to Jones Education at any time upon 30-days'
written notice. The monthly payments under such lease 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 $1.2 million, $0.9 million, $0.9 million and $0.5 million for the
years ended December 31, 1995, 1996 and 1997 and the six months ended June 30,
1998, respectively. In June 1998, the Company and an affiliate, Knowledge TV,
Inc., entered into an agreement pursuant to which such party leased one
additional channel on the transponder from the Company from July 1, 1998 for a
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seven-year term with an option, exercisable by the related party on six months'
advance notice, to terminate the lease on July 1, 2001, at a monthly lease
rental of approximately $59,000.
The Company subleases from Satellite Holdings, a related party, an audio
channel on a non-preemptible satellite transponder on the Galaxy V
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 lease payments of approximately $696,000 for each of the years ended
December 31, 1995, 1996 and 1997, respectively. The Company paid Satellite
Holdings a fee of $348,000 for the six months ended June 30, 1998.
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,
$241,000, $216,000 and $97,000 for the years ended December 31, 1995, 1996 and
1997 and the six months ended June 30, 1998, respectively. Effective July 1,
1998, these services for Jones Education are being provided by the PIN Venture,
which will receive all future commissions and will pay for the personnel who
perform such services.
An affiliate of the Company began providing affiliate sales services to the
Company in late 1997. This affiliate charged the Company approximately $201,000
for the year ended December 31, 1997 and approximately $444,000 for the six
months ended June 30, 1998.
AFFILIATE FEES
Great American Country is licensed 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 $719,000, $853,000 and
$468,000 for the years ended December 31, 1996 and 1997 and the six months ended
June 30, 1998, respectively. 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 for each of the years ended December 31, 1995, 1996 and 1997 and
$360,000 for the six months ended June 30, 1998.
The Product Information Network is distributed to Jones Intercable and its
affiliated partnerships and to Cox and Adelphia, both partners in the PIN
Venture. The affiliation agreement with Jones Intercable expires on February 1,
2005. Prior to January 1, 1997, under the terms of the affiliation agreements
with these MSOs, the Company made incentive payments of approximately 50% of its
net advertising revenues to the cable systems that carry its programming. For
the year ended December 31, 1997 and the six months ended June 30, 1998, the PIN
Venture made incentive payments of approximately 60% and 65%, respectively, of
its net advertising revenues to these systems. For the eleven months ended
December 31, 1995, the years ended December 31, 1996 and 1997 and the six months
ended June 30, 1998, Jones Intercable and its affiliated partnerships received
incentive payments totaling approximately $0.9 million, $1.2 million, $1.6
million and $0.9 million, respectively.
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. The Company paid service fees to this subsidiary
of approximately $306,000, $385,000, $574,000 and $330,000 for the years ended
December 31, 1995, 1996 and 1997 and the six months ended June 30, 1998,
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
$14,000, $32,000, $88,000 and $74,000 for the years ended December 31, 1995,
1996 and 1997 and the six months ended June 30, 1998, respectively.
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ADMINISTRATIVE SERVICES
The Company reimburses Jones International and its affiliates for certain
administrative services provided by these companies, such as legal, accounting,
purchasing and human resources services. Jones International and its affiliates
charge the Company for these services based upon an allocation of its personnel
expense associated with providing these services. These allocated expenses
totaled approximately $163,000, $861,000, $540,000 and $513,000, for the years
ended December 31, 1995, 1996 and 1997 and the six months ended June 30, 1998,
respectively. A significant portion of the administrative expenses for 1996 were
non-recurring in nature or were paid directly by the Company in 1997 as a result
of organizational changes which were effected in early 1997.
An affiliate of the Company charged the Company approximately $110,000 for
the six months ended June 30, 1998 for the allocated costs of its airplane which
was used by the Company in connection with the Notes offering. No services were
provided in the years ended December 31, 1995, 1996 or 1997.
TRANSFER OF SATELLITE TRANSPONDER LEASES
In April 1997, the Company acquired the satellite transponder leases and
related subleases held by Space Segment, an affiliate, in exchange for 416,667
shares of Class A Common Stock valued at $12 per share. These various agreements
were then transferred to a wholly-owned subsidiary, Space Holdings. In January
1998, the Company transferred the shares of Space Holdings to Space Segment for
a nominal amount, and the Company was relieved of the obligations related to the
activities of Space Holdings. Upon the closing of the offering of the Old Notes,
the parties rescinded the transfer of the shares of Space Holdings to Space
Segment. The Company has prepaid the capital lease obligations for such
transponders with the proceeds from such offering and now owns the transponders.
CONFLICTS OF INTEREST OF MANAGEMENT
Messrs. Jones, Liptak, Lewis, Wayne and Thompson and Ms. Steele, who are
officers and/or directors of the Company, are also officers and/or directors of
certain affiliated entities and, from time to time, the Company may enter into
transactions with these entities. Consequently, such officers and/or 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.
Under the Colorado Business Corporation Act, as amended (the "Colorado Act"),
no conflicting interest transaction shall be void or voidable or be enjoined,
set aside or give rise to an award of damages or other sanctions 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 director's 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--Transactions with and Reliance on Related Parties; Conflicts of
Interest." Transactions with affiliates will be subject to the restrictions in
the Indenture. See "Description of Notes--Certain Covenants--Limitation on
Affiliate Transactions."
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PRINCIPAL SHAREHOLDERS
The following tables set forth certain information as of August 1, 1998 with
respect to the beneficial ownership of the Class A Common Stock and Class B
Common Stock of the Company by the Company's executive officers, directors,
holders of more than 5% of its Class A Common Stock or Class B Common Stock and
its executive officers and directors as a group. Except as otherwise indicated,
each person named in the tables 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 PERCENT OF VOTE
-------------------------- ---------------------------
NUMBER PERCENT NUMBER PERCENT OF ALL CLASSES OF
BENEFICIAL OWNER OF SHARES OF SHARES OF SHARES OF SHARES COMMON STOCK(1)
---------------- ----------- ----------- ----------- ----------- -------------------
<S> <C> <C> <C> <C> <C>
Glenn R. Jones (2)......................... 3,385,120 78.9% 1,785,120 100.0% 95.9%
MediaAmerica (3)........................... 541,570 12.6% -- -- 2.4%
Adelphia (4)............................... 262,500 6.1% -- -- 1.2%
Ron Hartenbaum (3)......................... 270,785 6.3% -- -- 1.2%
TCA........................................ 101,124 2.4% -- -- 0.5%
All executive officers and directors as a
group (8 persons)....................... 3,655,905 95.2% 1,785,120 100.0% 97.1%
</TABLE>
(1) Holders of Class A Common Stock are entitled to one vote per share and are
entitled to elect 25% of the Board of Directors, and holders of Class B
Common Stock are entitled to ten votes per share and to elect the remaining
75% of the Company's Board of Directors. The holders of the Class B Common
Stock have the right to convert their shares of Class B Common Stock into
shares of Class A Common Stock on a share for share basis at any time at
their option.
(2) 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 81% of the outstanding common stock of
Jones Space Segment and 80% of the outstanding common stock of Global Group.
He is therefore deemed to be the beneficial owner of 1,594,500 shares of the
Class A Common Stock and 1,122,000 shares of the Class B Common Stock owned
by Jones International, 416,667 shares of the Class A Common Stock owned by
Space Segment and 666,667 shares of Class A Common Stock and 400,000 shares
of the Class B Common Stock owned by Global Group. Glenn R. Jones', Jones
International's, Space Segment's and Global Group's address is 9697 East
Mineral Avenue, Englewood, Colorado 80112.
(3) The above table does not include any additional shares of Class A Common
Stock issuable based on the final working capital adjustment of
MediaAmerica, one-half of which would be beneficially owned by Mr.
Hartenbaum. The number of shares beneficially owned by MediaAmerica includes
the shares beneficially owned by Mr. Hartenbaum. Mr. Hartenbaum was elected
as a director of the Company upon the consummation of the Acquisition. The
address of MediaAmerica and Mr. Hartenbaum is 11 West 42nd Street, New York,
New York 10036.
(4) Adelphia's address is 5 West Third Street, Coudersport, Pennsylvania 16915.
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DESCRIPTION OF NOTES
GENERAL
For purposes of this description, the term "Notes" refers to the Old Notes and
the Exchange Notes collectively. The Old Notes and the Exchange Notes are
considered collectively to be a single class under the Indenture. The Notes are
issued under an Indenture, dated as of July 10, 1998 (the "Indenture"), among
the Company and United States Trust Company of New York, as Trustee (the
"Trustee"), a copy of which has been filed as an exhibit to the Exchange Offer
Registration Statement. The following is a summary of certain provisions of the
Indenture and the Notes and does not purport to be complete and is subject to,
and is qualified in its entirety by reference to, all the provisions of the
Indenture (including the definitions of certain terms therein and those terms
made a part thereof by the Trust Indenture Act of 1939, as amended) and the
Notes. References herein to "interest" are deemed to include Additional
Interest, if any, payable as described under "Exchange Offer and Registration
Rights".
Principal of, premium, if any, and interest on the Notes will be payable, and
the Notes may be exchanged or transferred, at the office or agency of the
Company in the Borough of Manhattan, The City of New York (which initially shall
be the corporate trust office of the Trustee in New York, New York), except
that, at the option of the Company, payment of interest may be made by check
mailed to the address of the holders as such address appears in the Note
Register. The Trustee will act as Paying Agent and Registrar for the Notes. The
Notes may be presented for registration of transfer and exchange at the offices
of the Registrar, which initially will be the Trustee's corporate trust office.
The Company may change any Paying Agent and Registrar without notice to holders
of the Notes.
The Notes will be issued only in fully registered form, without coupons, in
denominations of $1,000 and any integral multiple of $1,000. No service charge
will be made for any registration of transfer or exchange of Notes, but the
Company may require payment of a sum sufficient to cover any transfer tax or
other similar governmental charge payable in connection therewith.
TERMS OF NOTES
The Notes are senior secured obligations of the Company, limited to $100
million aggregate principal amount from time to time outstanding, except as set
forth under the Indenture, and mature on July 1, 2005. Each Note bears interest
at the rate of 11 3/4% per annum from the date of issuance, or from the most
recent date to which interest has been paid or provided for, and will be payable
semiannually on January 1 and July 1 of each year (each an "Interest Payment
Date"), commencing on January 1, 1999, to holders of record at the close of
business on the June 15 or December 15 immediately preceding the Interest
Payment Date. Interest will be computed on the basis of a 360-day year comprised
of twelve 30-day months.
SECURITY
The Notes are secured by a first priority security interest in the Capital
Stock of Jones Programming, the Company's wholly-owned intermediate holding
company and of all direct Subsidiaries of Jones Programming. In addition, the
Notes are guaranteed by Subsidiary Guarantees issued by certain domestic
Restricted Subsidiaries of the Company. The Subsidiary Guarantees are not
secured.
REDEMPTION
Mandatory Redemption. The Company is not required to make mandatory
redemptions or sinking fund payments prior to the maturity of the Notes, but is
required to make an offer to repurchase the Notes in connection with a change of
control and, under certain circumstances, following certain asset sales. See
"Change of Control" and "--Certain Covenants--Limitation on Sales of Assets and
Subsidiary Stock".
Optional Redemption. Except as set forth below, the Notes are not redeemable
at the option of the Company prior to July 1, 2003. On and after such date, the
Notes are redeemable, at the Company's option, in whole or in
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part, at any time upon not less than 30 nor more than 60 days' prior notice
mailed by first-class mail to each holder's registered address, at the following
redemption prices (expressed in percentages of principal amount), if redeemed
during the 12-month period commencing on July 1 of the years set forth below,
plus accrued and unpaid interest to the redemption date (subject to the right of
holders of record on the relevant record date to receive interest due on the
relevant Interest Payment Date):
<TABLE>
<CAPTION>
REDEMPTION
PERIOD PRICE
------ ----------
<S> <C>
2003.......................................................... 105.875%
2004 and thereafter........................................... 100.000%
</TABLE>
Optional Redemption Upon Equity Offering. In addition, at any time on or
prior to July 1, 2001, the Company may, at its option, redeem up to 35% of the
originally issued aggregate principal amount of the Notes, with net cash
proceeds of one or more Equity Offerings by the Company, at a redemption price
equal to 111.75% of the principal amount thereof, plus accrued and unpaid
interest thereon, if any, to the date of redemption; provided, however, that
after any such redemption the aggregate principal amount of the Notes
outstanding must equal at least 65% of the aggregate principal amount of Notes
issued under the Indenture; and provided, further, that the Company may not so
redeem the Notes in connection with a Change of Control. In order to effect the
foregoing redemption with the proceeds of any Equity Offering, the Company shall
make such redemption not more than 90 days after the consummation of any such
Equity Offering.
Selection. In the case of any partial redemption, selection of the Notes for
redemption will be made by the Trustee on a pro rata basis, by lot or by such
other method as the Trustee in its sole discretion shall deem to be fair and
appropriate; provided, however, that if a partial redemption is made with
proceeds of an Equity Offering, selection of the Notes or portions thereof to be
redeemed shall be made by the Trustee only on a pro rata basis, unless such
method is otherwise prohibited. Notes may be redeemed in part in multiples of
$1,000 principal amount only. Notice of redemption will be sent, by first class
mail, postage prepaid, at least 30 days (unless a shorter period is acceptable
to the Trustee) but no more than 60 days prior to the date fixed for redemption
to each holder whose Notes are to be redeemed at the last address for such
holder then shown on the Note Register. If any Note is to be redeemed in part
only, the notice of redemption that relates to such Note shall state the portion
of the principal amount thereof to be redeemed. A new Note in principal amount
equal to the unredeemed portion thereof will be issued in the name of the holder
thereof upon cancellation of the original Note. On and after any redemption
date, interest will cease to accrue on the Notes or part thereof called for
redemption as long as the Company has deposited with the Paying Agent funds in
satisfaction of the redemption price pursuant to the Indenture.
RANKING
The Notes are senior secured obligations of the Company and rank pari passu in
right of payment with all existing and future Senior Indebtedness of the Company
and rank senior in right of payment to all existing and future Subordinated
Obligations of the Company. Claims of holders of the Notes are contractually
subordinated under the Subsidiary Guarantees to all claims of holders of Bank
Indebtedness and Capitalized Lease Obligations Incurred by Restricted
Subsidiaries of the Company and structurally subordinated to all claims of
holders of Indebtedness of Unrestricted Subsidiaries of the Company.
SUBSIDIARY GUARANTEES
Each Subsidiary Guarantor has unconditionally guaranteed, jointly and
severally, to each holder and the Trustee, the full and prompt payment of
principal, premium, if any, and interest on the Notes, and of all other
obligations of the Company under the Indenture. The Guarantees are senior
unsecured obligations of each Subsidiary Guarantor and rank pari passu in right
of payment with all existing and future Senior Indebtedness of each Subsidiary
Guarantor (other than Indebtedness of any Subsidiary Guarantor in respect of
Bank Indebtedness and Capitalized Lease Obligations permitted to be Incurred by
such Subsidiary Guarantor under the covenant described under "--Certain
Covenants--Limitation on Indebtedness", as to which the Subsidiary Guarantees
are
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expressly subordinated) and senior in right of payment to all existing and
future Subordinated Obligations of each Subsidiary Guarantor.
The obligations of each Subsidiary Guarantor are limited to the maximum amount
as will, after giving effect to all other contingent and fixed liabilities of
such Subsidiary Guarantor and after giving effect to any collections from or
payments made by or on behalf of any other Subsidiary Guarantor in respect of
the obligations of such other Subsidiary Guarantor under its Subsidiary
Guarantee or pursuant to its contribution obligations under the Indenture,
result in the obligations of such Subsidiary Guarantor under the Subsidiary
Guarantee not constituting a fraudulent conveyance or fraudulent transfer under
federal or state law. Each Subsidiary Guarantor that makes a payment or
distribution under a Subsidiary Guarantee shall be entitled to contribution from
each other Subsidiary Guarantor in pro rata amount based on the Adjusted Net
Assets of each Subsidiary Guarantor.
Except as set forth in the Indenture, each Subsidiary Guarantor may
consolidate with or merge into or sell its assets to the Company or another
Subsidiary Guarantor. Subject to the satisfaction of certain conditions, each
Subsidiary Guarantor may consolidate with or merge into or sell all or
substantially all its assets to a Person other than the Company or another
Subsidiary Guarantor (whether or not affiliated with the Subsidiary Guarantor).
Upon the sale or disposition of a Subsidiary Guarantor (or all or substantially
all of its assets) to a Person (whether or not an Affiliate of the Subsidiary
Guarantor) which is not a Subsidiary of the Company or the designation of a
Subsidiary Guarantor as an Unrestricted Subsidiary, which sale or disposition or
designation is otherwise in compliance with the Indenture (including the
covenants described under "Certain Covenants--Limitation on Sales of Assets and
Subsidiary Stock" and "--Limitation on Designations of Unrestricted
Subsidiaries"), such Subsidiary Guarantor shall be deemed released from all its
obligations under the Indenture and its Subsidiary Guarantee and such Subsidiary
Guarantee shall terminate; provided, however, that any such termination shall
occur only to the extent that all of its guarantees of, and all of its pledges
of assets or other security interests which secure, any other Indebtedness of
the Company or any other Restricted Subsidiary shall also terminate upon such
release, sale or transfer.
Subsequent to the Issue Date, separate financial information for the
Subsidiary Guarantors will not be provided except to the extent required by
Regulation S-X under the Securities Act.
CHANGE OF CONTROL
Upon the occurrence of a Change of Control, each holder has the right to
require the Company to repurchase all or any part of such holder's Notes at a
purchase price in cash equal to 101% of the principal amount thereof plus
accrued and unpaid interest, if any, to the date of purchase (subject to the
right of holders of record on the relevant record date to receive interest due
on the relevant Interest Payment Date).
Within 30 days following any Change of Control, unless the Company has mailed
a redemption notice with respect to all the outstanding Notes in connection with
such Change of Control, the Company shall mail a notice to each holder with a
copy to the Trustee stating: (i) that a Change of Control has occurred and that
such holder has the right to require the Company to purchase such holder's Notes
at a purchase price in cash equal to 101% of the principal amount thereof plus
accrued and unpaid interest, if any, to the date of purchase (subject to the
right of holders of record on a record date to receive interest on the relevant
Interest Payment Date); (ii) the repurchase date (which shall be no earlier than
30 days nor later than 60 days from the date such notice is mailed); and (iii)
the procedures determined by the Company, consistent with the Indenture, that a
holder must follow in order to have its Notes purchased.
The Company will comply, to the extent applicable, with the requirements of
Section 14(e) of the Exchange Act and any other securities laws or regulations
in connection with the repurchase of Notes pursuant to this covenant. To the
extent that the provisions of any securities laws or regulations conflict with
provisions of the Indenture, the Company will comply with the applicable
securities laws and regulations and shall not be deemed to have breached its
obligations described in the Indenture by virtue thereof.
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The definition of "Change of Control" includes, among other transactions, a
disposition of all or substantially all of the property and assets of the
Company and its Subsidiaries. With respect to the disposition of property or
assets, the phrase "all or substantially all" as used in the Indenture varies
according to the facts and circumstances of the subject transaction, has no
clearly established meaning under New York law (which is the choice of law under
the Indenture) and is subject to judicial interpretation. Accordingly, in
certain circumstances there may be a degree of uncertainty in ascertaining
whether a particular transaction would involve a disposition of "all or
substantially all" of the property or assets of a Person, and therefore it may
be unclear as to whether a Change of Control has occurred and whether the
Company is required to make an offer to repurchase the Notes as described above.
Future Senior Indebtedness of the Company and its Subsidiaries may contain
prohibitions of certain events that would constitute a Change of Control or
require such Senior Indebtedness to be repurchased upon a Change of Control.
Moreover, the exercise by the holders of their right to require the Company to
repurchase the Notes could cause a default under such Senior Indebtedness, even
if the Change of Control itself does not, due to the financial effect of such
repurchase of the Company. Finally, the Company's ability to pay cash to the
holders upon a repurchase may be limited by the Company's then existing
financial resources. There can be no assurance that sufficient funds will be
available when necessary to make any required repurchases.
The existence of a holder's right to require the Company to repurchase such
holder's Notes upon the occurrence of a Change of Control may deter a third
party from seeking to acquire the Company in a transaction that would constitute
a Change of Control.
CERTAIN COVENANTS
The Indenture contains certain covenants including, among others, the
following:
Limitation on Indebtedness
(a) The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, Incur any Indebtedness; provided, however, that the Company and
its Restricted Subsidiaries that are Subsidiary Guarantors may Incur
Indebtedness if (i) no Default or Event of Default shall have occurred and be
continuing at the time of such Incurrence or would occur as a consequence of
such Incurrence and (ii) on the date thereof the Consolidated Coverage Ratio (A)
with respect to Indebtedness pari passu with the Notes, would be greater than or
equal to 2.0:1 and (B) with respect to Subordinated Obligations, would be
greater than or equal to 1.50:1.
(b) Notwithstanding the foregoing paragraph (a), the Company and its
Restricted Subsidiaries may Incur the following Indebtedness:
(i) Indebtedness of the Company or any Restricted Subsidiary under Bank
Indebtedness and under standby letters of credit or reimbursement obligations
with respect thereto issued in the ordinary course of business and consistent
with industry practice, provided, however, that the principal amount of any
Indebtedness Incurred pursuant to this clause (i) shall not exceed $20 million
at any time outstanding;
(ii) Indebtedness represented by Capitalized Lease Obligations, mortgage
financings or purchase money obligations, in each case Incurred for the
purpose of financing all or any part of the purchase price or cost of
construction or improvement of property or equipment used in a Permitted
Business or Incurred to refinance any such purchase price or cost of
construction or improvement, in each case Incurred no later than 365 days
after the date of such acquisition or the date of completion of such
construction or improvement; provided, however, that the principal amount of
any Indebtedness Incurred pursuant to this clause (ii), together with
Indebtedness Incurred in connection with Sale/Leaseback Transactions in
accordance with the "Limitation on Sale/Leaseback Transactions" covenant,
shall not exceed $5 million at any time outstanding;
(iii) Indebtedness of the Company owing to and held by any Wholly-Owned
Subsidiary or Indebtedness of a Restricted Subsidiary owing to and held by the
Company or any Wholly-Owned Subsidiary; provided, however, that any subsequent
issuance or transfer of any Capital Stock or any other event which results in
any
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such Wholly-Owned Subsidiary ceasing to be a Wholly-Owned Subsidiary or any
subsequent transfer of any such Indebtedness (except to the Company or any
Wholly-Owned Subsidiary) shall be deemed, in each case, to constitute the
Incurrence of such Indebtedness by the issuer thereof;
(iv) Indebtedness represented by (w) the Notes, (x) Existing Indebtedness
and (y) any Refinancing Indebtedness Incurred in respect of any Indebtedness
described in this clause (iv) or Incurred pursuant to paragraph (a);
(v) (A) Indebtedness of a Person Incurred on or before and outstanding
on the date on which such Person becomes a Restricted Subsidiary of the
Company (other than Indebtedness Incurred in anticipation of, or to provide
all or any portion of the funds or credit support utilized to consummate the
transaction or series of related transactions pursuant to which such Person
became a Subsidiary or was otherwise acquired by the Company); provided,
however, that at the time such Person is acquired by the Company, the Company
would have been able to Incur an additional $1.00 of Senior Indebtedness
pursuant to paragraph (a) above after giving effect to the Incurrence of such
Indebtedness pursuant to this clause (v) and (B) Refinancing Indebtedness
Incurred by a Restricted Subsidiary in respect of Indebtedness Incurred by
such Restricted Subsidiary or another Restricted Subsidiary the Capital Stock
of which is owned, either directly or indirectly, by the Restricted Subsidiary
Incurring such Refinancing Indebtedness, pursuant to this clause (v);
(vi) Indebtedness (A) in respect of performance bonds, bankers'
acceptances and surety or appeal bonds provided by the Company or any of its
Restricted Subsidiaries to their customers in the ordinary course of their
business, (B) in respect of performance bonds or similar obligations of the
Company or any of its Restricted Subsidiaries for or in connection with
pledges, deposits or payments made or given in the ordinary course of business
in connection with or to secure statutory, regulatory or similar obligations,
including obligations under health, safety or environmental obligations, (C)
arising from Guarantees to suppliers, lessors, licensees, contractors,
franchises or customers of obligations (other than Indebtedness) Incurred in
the ordinary course of business and (D) under Currency Agreements and Interest
Rate Agreements; provided, however, that in the case of Currency Agreements
and Interest Rate Agreements, such Currency Agreements and Interest Rate
Agreements are entered into for bona fide hedging purposes of the Company or
its Restricted Subsidiaries (as determined in good faith by the Board of
Directors of the Company) and correspond in terms of notional amount,
duration, currencies and interest rates as applicable, to Indebtedness of the
Company or its Restricted Subsidiaries Incurred without violation of the
Indenture or to business transactions of the Company or its Restricted
Subsidiaries on customary terms entered into in the ordinary course of
business;
(vii) Indebtedness consisting of (A) Guarantees by the Company of
Indebtedness Incurred by a Wholly-Owned Subsidiary without violation of the
Indenture (so long as the Company could have Incurred such Indebtedness
directly without violation of the Indenture) and (B) Guarantees by a
Restricted Subsidiary of Senior Indebtedness Incurred by the Company without
violation of the Indenture (so long as such Restricted Subsidiary could have
Incurred such Indebtedness directly without violation of the Indenture);
(viii) Indebtedness arising from the honoring by a bank or other financial
institution of a check, draft or similar instrument issued by the Company or
its Restricted Subsidiaries drawn against insufficient funds in the ordinary
course of business in an amount not to exceed $500,000 at any time, provided
that such Indebtedness is extinguished within two business days of its
Incurrence; and
(ix) Indebtedness (other than Indebtedness permitted under clauses (i)
through (viii)) in a principal amount which, when taken together with the
principal amount of all other Indebtedness Incurred pursuant to this clause
(ix) and then outstanding, will not exceed $5 million (it being understood
that any Indebtedness Incurred under this clause (ix) shall cease to be deemed
Incurred or outstanding for purposes of this clause (ix) (but shall be deemed
to be Incurred for purposes of paragraph (a) or paragraph (b) (i) or (ii), as
the case may be) from and after the first date on which the Company or its
Restricted Subsidiaries could have Incurred such Indebtedness under the
foregoing paragraph (a) or, to the extent applicable, paragraph (b) (i) or
(ii) without reliance upon this clause (ix)).
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(c) Neither the Company nor any Restricted Subsidiary shall Incur any
Indebtedness under paragraph (b) above if the proceeds thereof are used,
directly or indirectly, to refinance any Subordinated Obligations of the Company
or any Restricted Subsidiary unless such Indebtedness shall be subordinated to
the Senior Indebtedness to at least the same extent as the Subordinated
Obligations being refinanced.
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(d) Notwithstanding paragraphs (a) and (b) above, neither the Company nor any
Restricted Subsidiary of the Company shall incur any liability, either direct or
contingent, in respect of Bank Indebtedness unless (i) in the case of the
Company, the Company is the borrower or primary obligor in respect of such Bank
Indebtedness or (ii) in the case of any Restricted Subsidiary, such Restricted
Subsidiary is either (a) the borrower or primary obligor in respect of such Bank
Indebtedness or (b) a Wholly Owned Subsidiary of such borrower or primary
obligor.
Limitation on Restricted Payments
(a) The Company shall not, and shall not permit any of its Restricted
Subsidiaries, directly or indirectly, to (i) declare or pay any dividend or make
any distribution on or in respect of its Capital Stock (including any payment in
connection with any merger or consolidation involving the Company or any of its
Restricted Subsidiaries) except (A) dividends or distributions payable in its
Capital Stock (other than Disqualified Stock) or in options, warrants or other
rights to purchase such Capital Stock, and (B) dividends or distributions
payable to the Company or any of its Restricted Subsidiaries by any of its
Subsidiaries (and if the Restricted Subsidiary paying the dividend or making the
distribution is not a Wholly-Owned Subsidiary, to its other holders of Capital
Stock on a pro rata basis), (ii) purchase, redeem, retire or otherwise acquire
for value any Capital Stock of the Company held by Persons other than a Wholly-
Owned Subsidiary of the Company (other than in exchange for Capital Stock of the
Company (other than Disqualified Stock)) or any Capital Stock of a Restricted
Subsidiary held by any Affiliate of the Company, other than a Wholly-Owned
Subsidiary (other than in exchange for Capital Stock of the Company or such
Subsidiary (other than Disqualified Stock)), (iii) purchase, repurchase, redeem,
defease or otherwise acquire or retire for value, prior to scheduled maturity,
scheduled repayment or scheduled sinking fund payment, any Subordinated
Obligations (other than the purchase, repurchase or other acquisition of
Subordinated Obligations purchased in anticipation of satisfying a sinking fund
obligation, principal installment or final maturity, in each case due within one
year of the date of purchase, repurchase or acquisition) or (iv) make any
Investment (other than a Permitted Investment) in any Person (any such dividend,
distribution, purchase, redemption, repurchase, defeasance, other acquisition,
retirement or Investment as described in preceding clauses (i) through (iv)
being referred to as a "Restricted Payment"); if at the time the Company or such
Restricted Subsidiary makes such Restricted Payment:
(1) a Default shall have occurred and be continuing (or would result
therefrom); or
(2) the Company is not able to Incur an additional $1.00 of Senior
Indebtedness pursuant to paragraph (a) under "--Limitation on Indebtedness";
or
(3) the aggregate amount of such Restricted Payment and all other
Restricted Payments declared or made subsequent to the Issue Date would exceed
the sum of (A) 50% of the Cumulative Available Cash Flow accrued during the
period (treated as one accounting period) from the first day of the fiscal
quarter beginning on or after the Issue Date to the end of the most recent
fiscal quarter ending prior to the date of such Restricted Payment as to which
financial results are available (but in no event ending more than 135 days
prior to the date of such Restricted Payment) (or, in case such Cumulative
Available Cash Flow shall be a deficit, minus 100% of such deficit); (B) the
aggregate net proceeds received by the Company from the issue or sale of its
Capital Stock (other than Disqualified Stock) to the extent not applied to
redeem Notes as described under "--Redemption--Optional Redemption Upon Equity
Offering" or other capital contributions subsequent to the Issue Date (other
than net proceeds received from an issuance or sale of such Capital Stock to
(x) a Subsidiary of the Company, (y) an employee stock ownership plan or
similar trust or (z) management employees of the Company or any Subsidiary of
the Company); provided, however, that the value of any non-cash net proceeds
shall be as determined by the Board of Directors in good faith, except that in
the event the value of any non-cash net proceeds shall be $2 million or more,
the value shall be as determined in writing by an independent investment
banking firm of nationally recognized standing; (C) the amount by which
Indebtedness of the Company is reduced on the Company's balance sheet upon the
conversion or exchange (other than by a Restricted Subsidiary of the Company)
subsequent to the Issue Date of any Indebtedness of the Company convertible or
exchangeable for Capital Stock of the Company (less the amount of any cash, or
other property, distributed by the Company upon such conversion or exchange);
and (D) the amount equal to the net reduction
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in Investments (other than Permitted Investments) made after the Issue Date by
the Company or any of its Restricted Subsidiaries in any Person resulting from
(i) repurchases or redemptions of such Investments by such Person (including
liquidating dividends thereon), proceeds realized upon the sale of such
Investment to an unaffiliated purchaser, repayments of loans or advances or
other transfers of assets by such Person to the Company or any Restricted
Subsidiary of the Company or (ii) the redesignation of Unrestricted
Subsidiaries as Restricted Subsidiaries or the qualification of non-wholly
owned Restricted Subsidiaries as Wholly Owned Subsidiaries (valued in each
case as provided in the definition of "Investment") not to exceed, in the case
of any Unrestricted Subsidiary or any non-wholly owned Subsidiary that
thereafter qualifies as a Wholly-Owned Subsidiary, the amount of Investments
previously included in the calculation of the amount of Restricted Payments;
provided, however, that no amount shall be included under this clause (D) to
the extent it is already included in Cumulative Available Cash Flow.
(b) The provisions of paragraph (a) shall not prohibit: (i) any purchase or
redemption of Capital Stock or Subordinated Obligations of the Company made by
exchange for, or out of the proceeds of the substantially concurrent sale of,
Capital Stock of the Company (other than Disqualified Stock and other than
Capital Stock issued or sold to a Subsidiary, an employee stock ownership plan
or similar trust or management employees of the Company or any Subsidiary of the
Company); provided, however, that (A) such purchase or redemption shall be
excluded in the calculation of the amount of Restricted Payments and (B) the Net
Cash Proceeds from such sale shall be excluded from clause (3) (B) of paragraph
(a); (ii) any purchase or redemption of Subordinated Obligations of the Company
made by exchange for, or out of the proceeds of the substantially concurrent
sale of, Subordinated Obligations of the Company in compliance with the
"Limitation on Indebtedness" covenant; provided, however, that such purchase or
redemption shall be excluded in the calculation of the amount of Restricted
Payments; (iii) any purchase or redemption of Subordinated Obligations from Net
Available Cash to the extent permitted under "--Limitation on Sales of Assets
and Subsidiary Stock" below; provided, however, that such purchase or redemption
shall be excluded in the calculation of the amount of Restricted Payments; (iv)
any purchase or redemption of Capital Stock pursuant to the terms of the MSO
Agreements in an amount not in excess of $2.5 million on a cumulative basis on
and after the Issue Date; provided that such purchase or redemption shall be
included in the calculation of Restricted Payments; and (v) dividends paid
within 60 days after the date of declaration if at such date of declaration such
dividend would have complied with this provision; provided, however, that such
dividend shall be included in the calculation of the amount of Restricted
Payments; and provided, further, in each case that no Default or Event of
Default shall have occurred or be continuing at the time of such payment or as a
result thereof.
(c) For purposes of determining compliance with the foregoing covenant,
Restricted Payments may be made with cash or non-cash assets, provided that any
Restricted Payment made other than in cash shall be valued at the fair market
value (determined, subject to the additional requirements of the immediately
succeeding proviso, in good faith by the Board of Directors) of the assets so
utilized in making such Restricted Payment, provided, further that (i) in the
case of any Restricted Payment made with Capital Stock or Indebtedness, such
Restricted Payment shall be deemed to be made in an amount equal to the greater
of the fair market value thereof and the liquidation preference (if any) or
principal amount of the Capital Stock or Indebtedness, as the case may be, so
utilized, and (ii) in the case of any Restricted Payment made with non-cash
assets in an aggregate amount in excess of $2 million, a written opinion as to
the fairness of the valuation thereof (as determined by the Company) for
purposes of determining compliance with the "Limitation on Restricted Payments"
covenant in the Indenture shall be issued by an independent investment banking
firm of national standing.
(d) Not later than the date of making any Restricted Payment, the Company
shall deliver to the Trustee an Officer's Certificate stating that such
Restricted Payment complies with the Indenture and setting forth in reasonable
detail the basis upon which the required calculations were computed, which
calculations may be based upon the Company's latest available quarterly
financial statements and a copy of any required investment banker's opinion.
(e) Insofar as the Company has made Investments in a Wholly Owned Subsidiary,
whether before, on, or after the Issue Date, and such Subsidiary thereafter
ceases to be a Wholly Owned Subsidiary, on the date such Subsidiary ceases to be
a Wholly Owned Subsidiary, the Company shall be deemed to make an Investment
that constitutes either a Restricted Payment or a Permitted Basket Investment
(to the extent eligible) in an amount equal to the sum of (i) fair market value
of the Capital Stock of such Subsidiary owned by the Company and the Restricted
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Subsidiaries plus (but without duplication) (ii) the aggregate amount of other
Investments of the Company and its other Restricted Subsidiaries in such
Subsidiary, in each case as of the date on which such Subsidiary ceases to be a
Wholly Owned Subsidiary.
Limitation on Liens
The Company will not, and will not permit any Restricted Subsidiary to,
directly or indirectly, create, incur, assume or suffer to exist any Liens,
except for Permitted Liens.
Limitation on Restrictions on Distributions from Restricted Subsidiaries
The Company shall not, and shall not permit any of its Restricted Subsidiaries
to, create or permit to exist or become effective any consensual encumbrance or
restriction on the ability of any such Restricted Subsidiary to (i) pay ordinary
dividends or make any other distributions on its Capital Stock or pay any
Indebtedness or other obligation owed to the Company, (ii) make any loans or
advances to the Company or (iii) transfer any of its property or assets to the
Company, except: (a) any encumbrance or restriction pursuant to an agreement in
effect at or entered into on the Issue Date; (b) any encumbrance or restriction
with respect to such a Restricted Subsidiary pursuant to an agreement relating
to any Indebtedness Incurred by such Restricted Subsidiary on or prior to the
date on which such Restricted Subsidiary was acquired by the Company and
outstanding on such date (other than Indebtedness Incurred in anticipation of,
or to provide all or any portion of the funds or credit support utilized to
consummate, the transaction or series of related transactions pursuant to which
such Restricted Subsidiary became a Restricted Subsidiary of the Company or was
acquired by the Company); (c) any encumbrance or restriction with respect to
such a Restricted Subsidiary pursuant to an agreement evidencing Indebtedness
Incurred without violation of the Indenture or effecting a refinancing of
Indebtedness issued pursuant to an agreement referred to in clause (b) or this
clause (c) or contained in any amendment to an agreement referred to in clauses
(a) or (b) or this clause (c); provided, however, that the encumbrances and
restrictions with respect to such Restricted Subsidiary contained in any of such
agreement, refinancing agreement or amendment, taken as a whole, are no less
favorable to the holders of the Notes in any material respect, as determined in
good faith by the Board of Directors of the Company, than encumbrances and
restrictions with respect to such Restricted Subsidiary contained in agreements
in effect at, or entered into on, the Issue Date; (d) in the case of clause
(iii), any encumbrance or restriction (A) that restricts in a customary manner
the subletting, assignment or transfer of any property or asset that is a lease,
license, conveyance or contract or similar property or asset, (B) by virtue of
any transfer of, agreement to transfer, option or right with respect to, or Lien
on, any property or assets of the Company or any Restricted Subsidiary not
otherwise prohibited by the Indenture, (C) that is included in a licensing
agreement to the extent such restrictions limit the transfer of the property
subject to such licensing agreement, or (D) arising or agreed to in the ordinary
course of business and that does not, individually or in the aggregate, detract
from the value of property or assets of the Company or any of its Subsidiaries
in any manner material to the Company or any such Restricted Subsidiary; (e) any
encumbrance or restriction applicable to a Restricted Subsidiary that Incurs
Bank Indebtedness without violation of the Indenture, provided, however, that
such encumbrances and restrictions are applicable only following the occurrence
and during the continuance, of a payment default under the terms of the
agreements governing, or the acceleration of all of, such Bank Indebtedness; (f)
in the case of clause (iii) above, restrictions contained in security
agreements, mortgages or similar documents securing Indebtedness of a Restricted
Subsidiary to the extent such restrictions restrict the transfer of the property
subject to such security agreements; (g) any restriction with respect to such a
Restricted Subsidiary imposed pursuant to an agreement entered into for the sale
or disposition of all or substantially all the Capital Stock or assets of such
Restricted Subsidiary pending the closing of such sale or disposition; and (h)
encumbrances or restrictions arising or existing by reason of applicable law.
Limitation on Sales of Assets and Subsidiary Stock
(a) The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, make any Asset Disposition unless (i) the Company or such
Restricted Subsidiary receives consideration at the time of such Asset
Disposition at least equal to the fair market value (as determined in good faith
by senior management of the Company or, if the fair market value of such assets
exceeds $500,000, by the Company's Board of Directors) (including as to the
value of all non-cash consideration), of the shares and assets subject to such
Asset Disposition,
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(ii) at least 80% of the consideration thereof received by the Company or such
Restricted Subsidiary is in the form of cash or Cash Equivalents, Additional
Assets or distribution agreements with radio stations or cable television
operators or other video distributors which would receive programming of the
Company or its Restricted Subsidiaries according to the Company's historical
practice and (iii) an amount equal to 100% of the Net Available Cash from such
Asset Disposition is applied by the Company (or such Restricted Subsidiary, as
the case may be): (A) first, to the extent the Company or any Restricted
Subsidiary elects (or is required by the terms of any Senior Indebtedness), (x)
to prepay, repay or purchase Senior Indebtedness of the Company or its
Restricted Subsidiaries or (y) to the investment in or acquisition of Additional
Assets within 180 days from the later of the date of such Asset Disposition or
the receipt of such Net Available Cash; (B) second, within 180 days from the
receipt of such Net Available Cash, to the extent of the balance of such Net
Available Cash after application in accordance with clause (A), to make an offer
to purchase Notes (C) third, within 180 days after the later of the application
of Net Available Cash in accordance with clauses (A) and (B) and the date that
is one year from the receipt of such Net Available Cash, to the extent of the
balance of such Net Available Cash after application in accordance with clauses
(A) and (B), to prepay, repay or repurchase Indebtedness (other than Preferred
Stock) of a Wholly-Owned Subsidiary (in each case other than Indebtedness owed
to the Company or another Wholly-Owned Subsidiary); and (D) fourth, to the
extent of the balance of such Net Available Cash after application in accordance
with clauses (A), (B) and (C), to (w) the investment in or acquisition of
Additional Assets, (x) the making of Temporary Cash Investments, (y) the
prepayment, repayment or purchase of Indebtedness of the Company (other than
Indebtedness owing to any Subsidiary of the Company) or Indebtedness of any
Subsidiary (other than Indebtedness owed to the Company or any of its Restricted
Subsidiaries) or (z) any other purpose otherwise permitted under the Indenture,
in each case within the later of 45 days after the application of Net Available
Cash in accordance with clauses (A), (B) and (C) or the date that is one year
from the receipt of such Net Available Cash; provided, however, that, in
connection with any prepayment, repayment or purchase of Indebtedness pursuant
to clause (A), (B), (C) or (D) above, the Company or such Restricted Subsidiary
shall retire such Indebtedness and shall cause the related loan commitment (if
any) to be permanently reduced in an amount equal to the principal amount so
prepaid, repaid or purchased; provided, however, that the foregoing shall not be
deemed to require any reduction in the commitment for Bank Indebtedness to less
than $20 million. Notwithstanding the foregoing provisions, the Company and its
Restricted Subsidiaries shall not be required to apply any Net Available Cash in
accordance herewith except to the extent that the aggregate Net Available Cash
from all Asset Dispositions which has not been applied in accordance with this
covenant at any time exceeds $5 million. The Company shall not be required to
make an offer for Notes pursuant to this covenant if the Net Available Cash
available therefor (after application of the proceeds as provided in clause (a)
(iii) (A)) is less than $5 million for any particular Asset Disposition (which
lesser amounts shall be carried forward for purposes of determining whether an
offer is required with respect to the Net Available Cash from any subsequent
Asset Disposition).
For the purposes of this covenant, the following will be deemed to be cash:
(x) the assumption by the transferee of Senior Indebtedness of the Company or
Senior Indebtedness of any Restricted Subsidiary of the Company and the release
of the Company or such Restricted Subsidiary from all liability on such Senior
Indebtedness or Senior Indebtedness in connection with such Asset Disposition
(in which case the Company shall, without further action, be deemed to have
applied such paid Senior Indebtedness in accordance with clause (a)(iii)(A)) and
(y) securities received by the Company or any Restricted Subsidiary of the
Company from the transferee that are promptly (and in any event within 60 days)
converted by the Company or such Restricted Subsidiary into cash.
(b) In the event of an Asset Disposition that requires the purchase of Notes
pursuant to clause (a)(iii)(B), the Company will be required to purchase Notes
tendered pursuant to an offer by the Company for the Notes at a purchase price
of 101% of their principal amount plus accrued and unpaid interest, if any, to
the purchase date in accordance with the procedures (including prorating in the
event of oversubscription) set forth in the Indenture. If the aggregate purchase
price of the Notes tendered pursuant to the offer is less than the Net Available
Cash allotted to the purchase of the Notes, the Company will apply the remaining
Net Available Cash in accordance with clauses (a)(iii)(C) or (D) above.
(c) The Company will comply, to the extent applicable, with the requirements
of Section 14(e) of the Exchange Act and any other securities laws or
regulations in connection with the repurchase of Notes pursuant to the
Indenture. To the extent that the provisions of any securities laws or
regulations conflict with provisions of this
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covenant, the Company will comply with the applicable securities laws and
regulations and will not be deemed to have breached its obligations under the
Indenture by virtue thereof.
Limitation on Affiliate Transactions
(a) The Company will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, enter into or conduct any transaction
or series of related transactions (including the purchase, sale, lease or
exchange of any property or the rendering of any service) with or for the
benefit of any Affiliate of the Company, other than a Wholly-Owned Subsidiary
(an "Affiliate Transaction") unless: (i) the terms of such Affiliate Transaction
are no less favorable to the Company or such Restricted Subsidiary, as the case
may be, than those that could be obtained at the time of such transaction in
arm's length dealings with a Person who is not such an Affiliate; (ii) in the
event such Affiliate Transaction involves an aggregate amount in excess of $1
million, the terms of such transaction have been approved by a majority of the
members of the Board of Directors of the Company and by a majority of the
Disinterested Directors, if any (and such majority or majorities, as the case
may be, determine that such Affiliate Transaction satisfies the criteria in (i)
above); (iii) in the event such Affiliate Transaction involves an aggregate
amount in excess of $2 million, the Company has received a written opinion from
an independent investment banking firm of nationally recognized standing that
such Affiliate Transaction is fair to the Company or such Restricted Subsidiary,
as the case may be, from a financial point of view; and (iv) such Affiliate
Transaction does not involve the acquisition of an Affiliate Business.
(b) The foregoing paragraph (a) shall not apply to (i) any Restricted Payment
permitted to be made pursuant to the covenant described under "--Limitation on
Restricted Payments," or to a Permitted Basket Investment, (ii) any issuance of
securities, or other payments, awards or grants in cash, securities or otherwise
pursuant to, or the funding of, employment arrangements, or any stock options
and stock ownership plans for the benefit of employees, officers and directors,
consultants and advisors approved by the Board of Directors of the Company,
(iii) loans or advances to employees in the ordinary course of business of the
Company or any of its Restricted Subsidiaries in aggregate amount outstanding
not to exceed $500,000 at any time, (iv) loans or advances to senior management
of the Company which loans and advances are secured by shares of Common Stock of
the Company owned by such senior management, in an aggregate amount outstanding
not to exceed $750,000, (v) any transaction between Wholly-Owned Subsidiaries,
(vi) indemnification agreements with, and the payment of fees and indemnities
to, directors, officers and employees of the Company and its Restricted
Subsidiaries, in each case in the ordinary course of business, (vii)
transactions pursuant to (x) agreements in existence on the Issue Date which are
(I) described in the Offering Memorandum or (II) otherwise, in the aggregate,
immaterial to the Company and its Restricted Subsidiaries taken as a whole,
including extensions of any such agreements which are approved by a majority of
Disinterested Directors and (y) arrangements in existence on the Issue Date
between Jones Intercable and the Company with respect to the allocation of
personnel and other related expenses from Jones Intercable to the Company in
accordance with the parties' historical practices; provided, however, that such
arrangements must be approved by a majority of the members of the Board of
Directors of the Company and by a majority of the Disinterested Directors, if
any, within 60 days of the Issue Date, (viii) any employment, non-competition or
confidentiality agreements entered into by the Company or any of its Restricted
Subsidiaries with its employees in the ordinary course of business, and (ix) the
issuance of Capital Stock of the Company (other than Disqualified Stock).
Limitation on Issuances of Capital Stock of Restricted Subsidiaries
The Company will not permit any of its Restricted Subsidiaries to issue any
Capital Stock to any Person (other than to the Company or a Wholly-Owned
Subsidiary of the Company) or permit any Person (other than the Company or a
Wholly-Owned Subsidiary of the Company) to own any Capital Stock of a Restricted
Subsidiary of the Company, if in either case as a result thereof such Restricted
Subsidiary would no longer be a Restricted Subsidiary of the Company; provided,
however, that this provision shall not prohibit (x) the Company or any of its
Restricted Subsidiaries from selling, leasing or otherwise disposing of all of
the Capital Stock of any Restricted Subsidiary or (y) the designation of a
Restricted Subsidiary as an Unrestricted Subsidiary in compliance with the
Indenture. The Company will not permit Holdco to issue any Capital Stock to any
Person (other than to the Company).
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Limitation on Sale/Leaseback Transactions
The Company will not, and will not permit any Restricted Subsidiary to,
directly or indirectly, enter into, Guarantee or otherwise become liable with
respect to any Sale/Leaseback Transaction with respect to any property or assets
unless (i) the Company or such Restricted Subsidiary, as the case may be, would
be entitled pursuant to the Indenture to Incur Indebtedness secured by a
Permitted Lien on such property or assets in an amount equal to the Attributable
Indebtedness with respect to such Sale/Leaseback Transaction, (ii) the Net Cash
Proceeds from such Sale/Leaseback Transaction are at least equal to the fair
market value of the property or assets subject to such Sale/Leaseback
Transaction (such fair market value determined, in the event such property or
assets have a fair market value in excess of $500,000, no more than 30 days
prior to the effective date of such Sale/Leaseback Transaction, by the Board of
Directors of the Company as evidenced by a resolution of such Board of
Directors), (iii) the Net Cash Proceeds of such Sale/Leaseback Transaction are
applied in accordance with the provisions described under "--Limitation on Sales
of Assets and Subsidiary Stock," and (iv) the Indebtedness Incurred in
connection with such Sale/Leaseback Transaction, together with Indebtedness
Incurred in accordance with clause (b)(ii) of the "Limitation on Indebtedness"
covenant, does not exceed $5 million at any time outstanding.
SEC Reports
The Company will file with the Trustee and provide to the holders of the
Notes, within 15 days after it files them with the Commission, copies of the
annual reports and of the information, documents and other reports (or copies of
such portions of any of the foregoing as the Commission may by rules and
regulations prescribe) which the Company files with the Commission pursuant to
Section 13 or 15(d) of the Exchange Act. In the event that the Company is not
required to file such reports with the Commission pursuant to the Exchange Act,
the Company will nevertheless deliver such Exchange Act information to the
holders of the Notes within 15 days after it would have been required to file it
with the Commission.
Conduct of Business
The Company will not, and will not permit its Restricted Subsidiaries to
directly or indirectly engage in any business other than a Permitted Business.
Limitation on Designations of Unrestricted Subsidiaries
The Company may designate any Subsidiary of the Company (other than a
Subsidiary of the Company which owns Capital Stock of a Restricted Subsidiary)
as an "Unrestricted Subsidiary" under the Indenture (a "Designation") only if:
(a) no Default shall have occurred and be continuing at the time of or
after giving effect to such Designation; and
(b) the Company would be permitted under the Indenture to make an
Investment constituting a Restricted Payment or a Permitted Basket Investment
at the time of Designation (assuming the effectiveness of such Designation) in
an amount (the "Designation Amount") equal to the sum of (i) fair market value
of the Capital Stock of such Subsidiary owned by the Company and the
Restricted Subsidiaries on such date plus (but without duplication) (ii) the
aggregate amount of other Investments of the Company and the Restricted
Subsidiaries in such Subsidiary on such date; and
(c) unless the Company could make a Permitted Basket Investment in the
amount described in paragraph (b) above, the Company would be permitted to
Incur an additional $1.00 of Senior Indebtedness pursuant to paragraph (a) of
the "--Limitation on Indebtedness" covenant at the time of Designation
(assuming the effectiveness of such Designation).
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In the event of any such Designation, the Company shall be deemed to have made
an Investment constituting a Restricted Payment pursuant to the covenant
described under "--Limitation on Restricted Payments" for all purposes of the
Indenture in the Designation Amount. The Indenture will further provide that the
Company shall not, and shall not permit any Restricted Subsidiary to, at any
time (x) provide direct or indirect credit support for or a guarantee of any
Indebtedness of any Unrestricted Subsidiary (including of any undertaking,
agreement or instrument evidencing such Indebtedness), (y) be directly or
indirectly liable for any Indebtedness of any Unrestricted Subsidiary or (z) be
directly or indirectly liable for any Indebtedness which provides that the
holder thereof may (upon notice, lapse of time or both) declare a default
thereon or cause the payment thereof to be accelerated or payable prior to its
final scheduled maturity upon the occurrence of a default with respect to any
Indebtedness of any Unrestricted Subsidiary (including any right to take
enforcement action against such Unrestricted Subsidiary), except, in the case of
clause (x) or (y), to the extent permitted under the covenant described under "-
- -Limitation on Restricted Payments" and, in the case of clause (z), pursuant to
a Guarantee of such Indebtedness of an Unrestricted Subsidiary to the extent
such Guarantee is permitted under the covenant described under "--Limitation on
Restricted Payments."
The Indenture will further provide that the Company may revoke any Designation
of a Subsidiary as an Unrestricted Subsidiary (a "Revocation"), whereupon such
Subsidiary shall then constitute a Restricted Subsidiary, if:
(a) no Default shall have occurred and be continuing at the time of and
after giving effect to such Revocation;
(b) all Liens and Indebtedness of such Unrestricted Subsidiary outstanding
immediately following such Revocation would, if incurred at such time, have
been permitted to be incurred for all purposes of the Indenture;
(c) such Unrestricted Subsidiary does not own or operate an Affiliate
Business.
All Designations and Revocations must be evidenced by Board Resolutions of the
Company delivered to the Trustee certifying compliance with the foregoing
provisions.
Merger and Consolidation
The Company shall not consolidate with or merge with or into, or convey,
transfer or lease all or substantially all of its assets (otherwise than
pursuant to one or more Asset Dispositions that comply with the covenant
described under "--Limitation on Sales of Assets and Subsidiary Stock") to, any
Person, unless: (i) the resulting, surviving or transferee Person (the
"Successor Company") shall be a corporation, partnership, trust or limited
liability company organized and existing under the laws of the United States of
America, any State thereof or the District of Columbia and the Successor Company
(if not the Company) shall expressly assume, by supplemental indenture, executed
and delivered to the Trustee, in form satisfactory to the Trustee, all the
obligations of the Company under the Notes and the Indenture; (ii) immediately
after giving effect to such transaction (and treating any Indebtedness that
becomes an obligation of the Successor Company or any Subsidiary of the
Successor Company as a result of such transaction as having been incurred by the
Successor Company or such Restricted Subsidiary at the time of such
transaction), no Default or Event of Default shall have occurred and be
continuing; (iii) immediately after giving effect to such transaction, the
Successor Company (A) would have a Consolidated Net Worth equal to or greater
than the Consolidated Net Worth of the Company immediately prior to such
transaction and (B) would be able to Incur at least an additional $1.00 of
Senior Indebtedness pursuant to paragraph (a) of the "--Limitation on
Indebtedness" covenant; and (iv) the Company shall have delivered to the Trustee
an Officers' Certificate and an Opinion of Counsel, each stating that such
consolidation, merger or transfer and such supplemental indenture (if any)
comply with the Indenture.
The Successor Company will succeed to, and be substituted for, and may
exercise every right and power of, the Company under the Indenture, but, in the
case of a lease of all or substantially all its assets, the Company will not be
released from the obligation to pay the principal of and interest on the Notes.
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Notwithstanding the foregoing clauses (ii) and (iii), any Restricted
Subsidiary of the Company may consolidate with or merge into the Company.
Separate Account
On the Issue Date, the Company deposited $10.0 million of the net proceeds of
the offering of the Old Notes into a separate account, which amount may only be
used by the Company (i) for acquisitions or (ii) to pay principal of or interest
on the Notes.
EVENTS OF DEFAULT
Each of the following constitutes an Event of Default under the Indenture: (i)
a default in any payment of interest on any Note when due, continued for 30
days, (ii) a default in the payment of principal of any Note when due at its
Stated Maturity, upon optional redemption, upon required repurchase, upon
declaration or otherwise, (iii) the failure by the Company to comply with its
obligations under the "Merger and Consolidation" covenant described under
"Certain Covenants" above, (iv) the failure by the Company to comply for 30 days
after notice with any of its obligations under the covenants described under
"Change of Control" above or under covenants described under "Certain Covenants"
above (in each case, other than a failure to purchase Notes which shall
constitute an Event of Default under clause (ii) above), other than "Merger and
Consolidation," (v) the failure by the Company or any Subsidiary Guarantor to
comply for 60 days after notice with its other agreements contained in the
Indenture, (vi) Indebtedness of the Company or any Restricted Subsidiary is not
paid within any applicable grace period after final maturity or is accelerated
by the holders thereof because of a default and the total amount of such
Indebtedness unpaid or accelerated exceeds $3 million and such default shall not
have been cured or such acceleration rescinded after a 10-day period (the "cross
acceleration default provision"), (vii) certain events of bankruptcy, insolvency
or reorganization of the Company or a Significant Subsidiary (the "bankruptcy
default provision"), (viii) any judgment or decree for the payment of money in
excess of $3 million (to the extent not covered by insurance) is rendered
against the Company or a Significant Subsidiary and such judgment or decree
shall remain undischarged or unstayed for a period of 60 days after such
judgment becomes final and non-appealable (the "judgment default provision") and
(ix) except as permitted by the Indenture, the cessation of effectiveness of any
Subsidiary Guarantee of a Significant Subsidiary or the disaffirmation by any
Subsidiary Guarantor that is a Significant Subsidiary of its obligations under
its Subsidiary Guarantee (the "guarantee default provision"). However, a default
under clause (iv) or (v) will not constitute an Event of Default until the
Trustee or the holders of 25% in principal amount of the outstanding Notes
notify the Company of the default and the Company does not cure such default
within the time specified in clause (iv) or (v) after receipt of such notice.
If an Event of Default occurs and is continuing, the Trustee or the holders of
at least 25% in aggregate principal amount of the outstanding Notes by notice to
the Company may declare the principal of and any accrued and unpaid interest, if
any, on all the Notes to be due and payable. Upon such a declaration, such
principal and accrued and unpaid interest shall be due and payable immediately.
If an Event of Default relating to certain events of bankruptcy, insolvency or
reorganization of the Company occurs, the principal of and accrued and unpaid
interest on all the Notes will become and be immediately due and payable without
any notice or other act on the part of the Trustee or any holders. Under certain
circumstances, the holders of a majority in principal amount of the outstanding
Notes may rescind any such acceleration with respect to the Notes and its
consequences.
Subject to the provisions of the Indenture relating to the duties of the
Trustee, if an Event of Default occurs and is continuing, the Trustee will be
under no obligation to exercise any of the rights or powers under the Indenture
at the request or direction of any of the holders unless such holders have
offered to the Trustee reasonable indemnity or security against any loss,
liability or expense. Except to enforce the right to receive payment of
principal, premium (if any) or interest when due, no holder may pursue any
remedy with respect to the Indenture or the Notes unless (i) such holder has
previously given the Trustee notice that an Event of Default is continuing, (ii)
holders of at least 25% in principal amount of the outstanding Notes have
requested the Trustee to pursue the remedy, (iii) such holders have offered the
Trustee reasonable security or indemnity against any loss, liability or expense,
(iv) the Trustee has not complied with such request within 60 days after the
receipt of the request and the offer of security or
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indemnity and (v) the holders of a majority in principal amount of the
outstanding Notes have not given the Trustee a direction that, in the opinion of
the Trustee, is inconsistent with such request within such 60-day period.
Subject to certain restrictions, the holders of a majority in principal amount
of the outstanding Notes are given the right to direct the time, method and
place of conducting any proceeding for any remedy available to the Trustee or of
exercising any trust or power conferred on the Trustee. The Trustee, however,
may refuse to follow any direction that conflicts with law or the Indenture or
that the Trustee determines is unduly prejudicial to the rights of any other
holder or that would involve the Trustee in personal liability. Prior to taking
any action under the Indenture, the Trustee shall be entitled to indemnification
satisfactory to it in its sole discretion against all losses and expenses caused
by taking or not taking such action.
The Indenture provides that if a Default occurs and is continuing and is known
to the Trustee, the Trustee must mail to each holder notice of the Default
within 90 days after it occurs. Except in the case of a Default in the payment
of any amount due on any Note, the Trustee may withhold notice if and so long as
its board of directors, a committee of its board of directors or a committee of
its Trust officers in good faith determines that withholding notice is in the
interests of the holders of the Notes. In addition, the Company is required to
deliver to the Trustee, within 90 days after the end of each fiscal year of the
Company, a certificate indicating whether the signers thereof know of any
Default that occurred during the previous year. The Company also is required to
deliver to the Trustee, within 30 days after the occurrence thereof, written
notice of any events which would constitute a Default.
AMENDMENTS AND WAIVERS
Subject to certain exceptions, the Indenture may be amended with the written
consent of the holders of a majority in aggregate principal amount of the Notes
then outstanding and any past default or compliance with any provisions may be
waived with the consent of the holders of a majority in principal amount of the
Notes then outstanding. However, without the consent of each holder of an
outstanding Note affected, no amendment may, among other things, (i) reduce the
amount of Notes whose holders must consent to an amendment, (ii) reduce the
stated rate of or extend the stated time for payment of interest on any Note,
(iii) reduce the principal of or extend the Stated Maturity of any Note, (iv)
reduce the premium payable upon the redemption or repurchase of any Note or
change the time at which any Note may be redeemed as described under "Optional
Redemption" above, (v) make any Note payable in money other than that stated in
the Note, (vi) impair the right of any holder to receive any payment on or with
respect to such holder's Notes on or after the due date therefor or to institute
suit for the enforcement of any payment on or with respect to such holder's
Notes or (vii) make any change in the amendment provisions which require each
holder's consent or in the waiver provisions.
Without the consent of any holder, the Company and the Trustee may amend the
Indenture (i) to cure any ambiguity, omission, defect or inconsistency, (ii) to
provide for the assumption by a successor corporation, partnership, trust or
limited liability company of the obligations of the Company under the Indenture,
(iii) to provide for uncertificated Notes in addition to or in place of
certificated Notes (provided that the uncertificated Notes are issued in
registered form for purposes of Section 163(f) of the Code, or in a manner such
that the uncertificated Notes are described in Section 163(f)(2)(B) of the
Code), (iv) to secure the Notes with additional collateral, (v) to add to the
covenants of the Company for the benefit of the holders or to surrender any
right or power conferred upon the Company, (vi) to make any other change that
does not adversely affect the rights of any holder or (vii) to comply with any
requirement of the Commission in connection with the qualification of the
Indenture under the Trust Indenture Act.
The consent of the holders is not necessary under the Indenture to approve the
particular form of any proposed amendment. It is sufficient if such consent
approves the substance of the proposed amendment.
After an amendment under the Indenture becomes effective, the Company is
required to mail to the holders a notice briefly describing such amendment.
However, the failure to give such notice to all the holders or any defect
therein, will not impair or affect the validity of the amendment.
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DEFEASANCE
Subject to the satisfaction of certain conditions, the Company at any time may
terminate all its obligations under (i) the Notes and the Indenture ("legal
defeasance"), except for certain obligations, including those respecting the
defeasance trust and obligations to register the transfer or exchange of the
Notes, to replace mutilated, destroyed, lost or stolen Notes and to maintain a
registrar and paying agent in respect of the Notes or (ii) the covenants
described under "Certain Covenants" (other than "Merger and Consolidation"), the
operation of the cross acceleration default provision, the bankruptcy default
provision with respect to Significant Subsidiaries, the judgment default
provision and the guarantee default provision described under "Events of
Default" above and the limitations contained in clauses (iii) and (iv) under
"Certain Covenants--Merger and Consolidation" above ("covenant defeasance").
The Company may exercise its legal defeasance option notwithstanding its prior
exercise of its covenant defeasance option. If the Company exercises its legal
defeasance option, payment of the Notes may not be accelerated because of an
Event of Default with respect thereto. If the Company exercises its covenant
defeasance option, payment of the Notes may not be accelerated because of an
Event of Default specified in clause (iv), (v), (vi), (vii) (with respect only
to Significant Subsidiaries), (viii) or (ix) under "Events of Default" above or
because of the failure of the Company to comply with clause (iii) or (iv) under
"Certain Covenants--Merger and Consolidation" above.
In order to exercise either defeasance option, the Company must irrevocably
deposit in trust (the "defeasance trust") with the Trustee money or U.S.
Government Obligations for the payment of principal, premium (if any) and
interest on the Notes to redemption or maturity, as the case may be, and must
comply with certain other conditions, including delivery to the Trustee of an
Opinion of Counsel to the effect that holders of the Notes will not recognize
income, gain or loss for Federal income tax purposes as a result of such deposit
and defeasance and will be subject to Federal income tax on the same amount and
in the same manner and at the same times as would have been the case if such
deposit and defeasance had not occurred (and, in the case of legal defeasance
only, such Opinion of Counsel must be based on a ruling of the Internal Revenue
Service or other change in applicable Federal income tax law).
TRANSFER AND EXCHANGE
Upon any transfer of a Note, the Registrar may require a holder of Notes,
among other things, to furnish appropriate endorsements and transfer documents,
and to pay any taxes and fees required by law or permitted by the Indenture.
Neither the Registrar nor the Company is required to register the transfer or
exchange of any Notes selected for redemption except the unredeemed portion of
any Note being redeemed in part nor is the Registrar or the Company required to
register the transfer or exchange of any Notes for a period of 15 days before a
selection of Notes to be redeemed. The registered holder of a Note may be
treated as the owner of it for all purposes.
CONCERNING THE TRUSTEE
United States Trust Company of New York is the Trustee under the Indenture and
the Registrar and Paying Agent with regard to the Notes.
The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of the Company, to obtain payment of claims in
certain cases, or to realize on certain property received in respect of any such
claim a security or otherwise. The Trustee is permitted to engage in other
transactions; however, if it acquires any conflicting interest (as defined in
the Indenture) it must eliminate such conflict or resign.
The holders of a majority in aggregate principal amount of the then
outstanding Notes issued under the Indenture have the right to direct the time,
method and place of conducting any proceeding for exercising any remedy
available to the Trustee. The Indenture provides that in case an Event of
Default shall occur (which shall not be cured) the Trustee will be required, in
the exercise of its power, to use the degree of care of a prudent person in the
conduct of his or her own affairs. Subject to such provisions, the Trustee will
be under no obligation to exercise
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any of its rights or powers under the Indenture at the request of any of the
holders of the Notes issued thereunder unless they shall have offered to the
Trustee security and indemnity satisfactory to it.
GOVERNING LAW
The Indenture provides that it and the Notes will be governed by, and
construed in accordance with, the laws of the State of New York without giving
effect to applicable principles of conflicts of law to the extent that the
application of the law of another jurisdiction would be required thereby.
CERTAIN DEFINITIONS
"Acquisition Agreement" means the Agreement, dated as of June 2, 1998, by and
among the Company, MediaAmerica, Ron Hartenbaum, Gary Schonfeld and Jones
Network Holdings, LLC.
"Additional Assets" means (i) any property or assets (other than Indebtedness
and Capital Stock) in a Permitted Business; (ii) the Capital Stock of a Person
that becomes a Restricted Subsidiary as a result of the acquisition of such
Capital Stock by the Company or a Restricted Subsidiary of the Company; (iii)
Capital Stock constituting a minority interest in any Person that at such time
is a Restricted Subsidiary of the Company; or (iv) Permitted Investments of the
type and in the amounts described in clause (viii) of the definition thereof;
provided, however, that, in the case of clauses (ii) and (iii), such Restricted
Subsidiary is primarily engaged in a Permitted Business.
"Adjusted Net Assets" of a Subsidiary Guarantor at any date shall mean the
lesser of (x) the amount by which the fair value of the property of such
Subsidiary Guarantor exceeds the total amount of liabilities, including, without
limitation, the probable liability of such Subsidiary Guarantor with respect to
its contingent liabilities (after giving effect to all other fixed and
contingent liabilities incurred or assumed on such date), but excluding
liabilities under the Subsidiary Guarantee of such Subsidiary Guarantor at such
date and (y) the amount by which the present fair salable value of the assets of
such Subsidiary Guarantor at such date exceeds the amount that will be required
to pay the probable liability of such Subsidiary Guarantor on its debts (after
giving effect to all other fixed and contingent liabilities incurred or assumed
on such date and after giving effect to any collection from any Subsidiary by
such Subsidiary Guarantor in respect of the obligations of such Subsidiary under
the Subsidiary Guarantee), excluding debt in respect of the Subsidiary
Guarantee, as they become absolute and matured.
"Affiliate" of any specified Person means any other Person, directly or
indirectly, controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any Person means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing.
"Affiliate Business" means all or any portion of a business (including related
assets) from an Affiliate (other than a Restricted Subsidiary and, in the case
of any Restricted Subsidiary, any other Restricted Subsidiary).
"Asset Disposition" means any sale, lease, transfer, issuance or other
disposition (or series of related sales, leases, transfers, issuances or
dispositions that are part of a common plan) of shares of Capital Stock of (or
any other equity interests in) a Restricted Subsidiary (other than directors'
qualifying shares) or of any other property or other assets (each referred to
for the purposes of this definition as a "disposition") by the Company or any of
its Restricted Subsidiaries (including any disposition by means of a merger,
consolidation or similar transaction) other than (i) a disposition by a
Restricted Subsidiary to the Company or by the Company or a Restricted
Subsidiary to a Wholly-Owned Subsidiary, (ii) a disposition of inventory in the
ordinary course of business, (iii) the licensing of radio and cable television
programming in the ordinary course of business, (iv) the disposition in the
ordinary course of business of airtime and advertising inventory, (v) a
disposition of obsolete or worn out equipment or equipment that is no longer
useful in the conduct of the business of the Company and its Restricted
Subsidiaries and that is disposed of in each case in the ordinary course of
business, (vi) dispositions of property for net proceeds which, when taken
collectively with the net proceeds of any other such dispositions under this
clause (vi) that were consummated since the beginning of the calendar year in
which such disposition is consummated, do not exceed $1 million, and (vii)
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transactions permitted under "Certain Covenants--Merger and Consolidation"
above. Notwithstanding anything to the contrary contained above, a Restricted
Payment made in compliance with the "Limitation on Restricted Payments" covenant
shall not constitute an Asset Disposition except for purposes of determinations
of the Consolidated Coverage Ratio.
"Attributable Indebtedness" in respect of a Sale/Leaseback Transaction means,
as at the time of determination, the present value (discounted at the interest
rate borne by the Notes, compounded annually) of the total obligations of the
lessee for rental payments during the remaining term of the lease included in
such Sale/Leaseback Transaction (including any period for which such lease has
been extended).
"Average Life" means, as of the date of determination, with respect to any
Indebtedness or Preferred Stock, the quotient obtained by dividing (i) the sum
of the product of the numbers of years (rounded upwards to the nearest month)
from the date of determination to the dates of each successive scheduled
principal payment of such Indebtedness or redemption or similar payment with
respect to Preferred Stock multiplied by the amount of such payment by (ii) the
sum of all such payments.
"Bank Indebtedness" means loans to the Company or a Restricted Subsidiary that
are made by, and reimbursement obligations in respect of letters of credit for
the account of the Company or a Restricted Subsidiary that are issued by, banks,
trust companies and other institutions, principally engaged in the business of
lending money to businesses, under a credit facility, loan agreement or similar
agreement.
"Capitalized Lease Obligations" means an obligation that is required to be
classified and accounted for as a capitalized lease for financial reporting
purposes in accordance with GAAP, and the amount of Indebtedness represented by
such obligation shall be the capitalized amount of such obligation determined in
accordance with GAAP, and the Stated Maturity thereof shall be the date of the
last payment of rent or any other amount due under such lease prior to the first
date such lease may be terminated without penalty.
"Capital Stock" of any Person means any and all shares, interests, rights to
purchase, warrants, options, participations or other equivalents of or interests
in (however designated) equity of such Person, including any Preferred Stock,
but excluding any debt securities convertible into such equity.
"Cash Equivalents" means (i) United States dollars, (ii) securities issued or
directly and fully guaranteed or insured by the United States government or any
agency or instrumentality thereof, (iii) certificates of deposit, time deposits
and eurodollar time deposits with maturities of one year or less from the date
of acquisition, bankers' acceptances with maturities not exceeding one year and
overnight bank deposits, in each case with any commercial bank having capital
and surplus in excess of $500 million, (iv) repurchase obligation for underlying
securities of the types described in clauses (ii) and (iii) entered into with
any financial institution meeting the qualifications specified in clause (iii)
above, (v) commercial paper rated A-1 or the equivalent thereof by Moody's or
S&P and in each case maturing within one year after the date of acquisition,
(vi) investment funds investing 95% of their assets in securities of the types
described in clauses (i)-(v) above, (vii) readily marketable direct obligations
issued by any state of the United States of America or any political subdivision
thereof having one of the two highest rating categories obtainable form either
Moody's or S&P and (viii) Indebtedness or Preferred Stock issued by Persons with
a rating of "A" or higher from S&P or "A2" or higher from Moody's.
"Change of Control" means (i) any sale, lease, exchange or other transfer (in
one transaction or a series of related transactions) of all or substantially all
the assets of the Company and its Subsidiaries (to a Person other than a Wholly
Owned Subsidiary); or (ii) the Company shall cease to hold directly all of the
outstanding Capital Stock of Holdco; or (iii) Mr. Glenn R. Jones and/or his
Permitted Transferees at any time cease to hold in the aggregate, either
directly or indirectly, Capital Stock having ordinary voting power to elect a
majority of directors of the Company.
"Common Stock" of any Person means Capital Stock of such Person that does not
rank prior, as to the payment of dividends or as to the distribution of assets
upon any voluntary or involuntary liquidation, dissolution or winding up of such
Person, to shares of Capital Stock of any other class of such Person.
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"Consolidated Adjusted Operating Cash Flow" means, with respect to any period
the Consolidated Net Income for such period increased by, to the extent deducted
in computing Consolidated Net Income, the sum of (i) depreciation and (ii)
amortization, determined on a consolidated basis in accordance with GAAP.
"Consolidated Cash Flow" for any period means the Consolidated Net Income for
such period, plus the following to the extent deducted in calculating such
Consolidated Net Income: (i) income tax expense, (ii) Consolidated Interest
Expense, (iii) depreciation expense, (iv) amortization expense, (v) exchange or
translation losses on foreign currencies, and (vi) all other non-cash items
reducing Consolidated Net Income (excluding any non-cash item to the extent it
represents an accrual of or reserve for cash disbursements for any subsequent
period prior to the Stated Maturity of the Notes) and less, to the extent added
in calculating Consolidated Net Income, (x) exchange or translation gains on
foreign currencies and (y) non-cash items (excluding such non-cash items to the
extent they represent an accrual for cash receipts reasonably expected to be
received prior to the Stated Maturity of the Notes), in each case for such
period. Notwithstanding the foregoing, the income tax expense, depreciation
expense and amortization expense of a Subsidiary of the Company shall be
included in Consolidated Cash Flow only to the extent (and in the same
proportion) that the net income of such Subsidiary was included in calculating
Consolidated Net Income.
"Consolidated Coverage Ratio" as of any date of determination means the ratio
of (i) the aggregate amount of Consolidated Cash Flow for the period of the most
recent four consecutive fiscal quarters ending prior to the date of such
determination and as to which financial statements are available to (ii)
Consolidated Interest Expense for such four fiscal quarters; provided, however,
that (1) if the Company or any of its Restricted Subsidiaries has Incurred any
Indebtedness since the beginning of such period and through the date of
determination of the Consolidated Coverage Ratio that remains outstanding or if
the transaction giving rise to the need to calculate Consolidated Coverage Ratio
is an Incurrence of Indebtedness, or both, Consolidated Cash Flow and
Consolidated Interest Expense for such period shall be calculated after giving
effect on a pro forma basis to (A) such Indebtedness as if such Indebtedness had
been Incurred on the first day of such period (provided that if such
Indebtedness is Incurred under a revolving credit facility (or similar
arrangement or under any predecessor revolving credit or similar arrangement)
only that portion of such Indebtedness that constitutes the projected weighted
average balance of such Indebtedness for the period beginning on the first day
of such four consecutive fiscal quarter period and ending on the date one year
subsequent to such date (as determined in good faith by the Board of Directors
of the Company and as adjusted to give effect to Indebtedness that has been
permanently repaid and the underlying commitment terminated and has not been
replaced) shall be deemed outstanding for purposes of this calculation), and (B)
the discharge of any other Indebtedness repaid, repurchased, defeased or
otherwise discharged with the proceeds of such new Indebtedness as if such
discharge had occurred on the first day of such period, (2) if since the
beginning of such period any Indebtedness of the Company or any of its
Restricted Subsidiaries has been repaid, repurchased, defeased or otherwise
discharged (other than Indebtedness under a revolving credit or similar
arrangement unless such revolving credit Indebtedness has been permanently
repaid and the underlying commitment terminated and has not been replaced),
Consolidated Interest Expense for such period shall be calculated after giving
pro forma effect thereto as if such Indebtedness had been repaid, repurchased,
defeased or otherwise discharged on the first day of such period, (3) if since
the beginning of such period the Company or any of its Restricted Subsidiaries
shall have made any Asset Disposition or if the transaction giving rise to the
need to calculate the Consolidated Coverage Ratio is an Asset Disposition,
Consolidated Cash Flow for such period shall be reduced by an amount equal to
the Consolidated Cash Flow (if positive) attributable to the assets which are
the subject of such Asset Disposition for such period or increased by an amount
equal to the Consolidated Cash Flow (if negative) attributable thereto for such
period, and Consolidated Interest Expense for such period shall be (i) reduced
by an amount equal to the Consolidated Interest Expense attributable to any
Indebtedness of the Company or any of its Restricted Subsidiaries repaid,
repurchased, defeased or otherwise discharged with respect to the Company and
its continuing Restricted Subsidiaries in connection with such Asset Disposition
for such period (or, if the Capital Stock of any Restricted Subsidiary of the
Company is sold, the Consolidated Interest Expense for such period directly
attributable to the Indebtedness of such Restricted Subsidiary to the extent the
Company and its continuing Restricted Subsidiaries are no longer liable for such
Indebtedness after such sale) and (ii) increased by interest income attributable
to the assets which are the subject of such Asset Disposition for such period,
(4) if since the beginning of such period the Company or any of its Restricted
Subsidiaries (by merger or otherwise) shall have made an Investment in any
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Restricted Subsidiary of the Company (or any Person which becomes a Restricted
Subsidiary of the Company as a result thereof) or an acquisition of assets which
constitutes all or substantially all of an operating unit or a business in
connection with a transaction causing a calculation to be made hereunder,
Consolidated Cash Flow and Consolidated Interest Expense for such period shall
be calculated after giving pro forma effect thereto (including the Incurrence of
any Indebtedness) as if such Investment or acquisition occurred on the first day
of such period and (5) if since the beginning of such period any Person (that
subsequently became a Restricted Subsidiary of the Company or was merged with or
into the Company or any Restricted Subsidiary of the Company since the beginning
of such period) shall have made any Asset Disposition, Investment or acquisition
of assets that would have required an adjustment pursuant to clause (3) or (4)
above if made by the Company or a Restricted Subsidiary of the Company during
such period, Consolidated Cash Flow and Consolidated Interest Expense for such
period shall be calculated after giving pro forma effect thereto as if such
Asset Disposition, Investment or acquisition occurred on the first day of such
period. For purposes of this definition, whenever pro forma effect is to be
given to an acquisition or disposition of assets, the amount of income or
earnings relating thereto and the amount of Consolidated Interest Expense
associated with any Indebtedness Incurred in connection therewith, the pro forma
calculations shall be determined in good faith by a responsible financial or
accounting officer of the Company. If any Indebtedness being Incurred bears a
floating rate of interest and is being given pro forma effect, the interest
expense on such Indebtedness shall be calculated as if the rate in effect on the
date of determination had been the applicable rate for the entire period (taking
into account any Interest Rate Agreement applicable to such Indebtedness if such
Interest Rate Agreement has a remaining term in excess of 12 months).
"Consolidated Interest Expense" means, for any period, the total interest
expense of the Company and its Restricted Subsidiaries determined in accordance
with GAAP, plus, to the extent not included in such interest expense (i)
interest expense attributable to Capitalized Lease Obligations, (ii)
amortization of debt discount, (iii) capitalized interest, (iv) non-cash
interest expense, (v) commissions, discounts and other fees and charges owed
with respect to letters of credit and bankers' acceptance financing, (vi)
interest actually paid by the Company or any such Restricted Subsidiary under
any Guarantee of Indebtedness or other obligation of any other Person, (vii) net
payments (whether positive or negative) pursuant to Interest Rate Agreements,
(viii) the cash contributions to any employee stock ownership plan or similar
trust to the extent such contributions are used by such plan or trust to pay
interest or fees to any Person (other than the Company) in connection with
Indebtedness Incurred by such plan or trust and (ix) cash and Disqualified Stock
dividends in respect of all Preferred Stock of Subsidiaries and Disqualified
Stock of the Company held by Persons other than the Company or a Wholly-Owned
Subsidiary and less (a) to the extent included in such interest expense, the
amortization of capitalized debt issuance costs and (b) interest income.
Notwithstanding the foregoing, the Consolidated Interest Expense with respect to
any Restricted Subsidiary of the Company, that was not a Wholly-Owned
Subsidiary, shall be included only to the extent (and in the same proportion)
that the net income of such Restricted Subsidiary was included in calculating
Consolidated Net Income.
"Consolidated Net Income" means, for any period, the consolidated net income
(loss) of the Company and its consolidated Subsidiaries determined in accordance
with GAAP; provided, however, that there shall not be included in such
Consolidated Net Income: (i) any net income (loss) of any Person acquired by the
Company or any of its Restricted Subsidiaries in a pooling of interests
transaction for any period prior to the date of such acquisition, (ii) any net
income of any Restricted Subsidiary of the Company if such Restricted Subsidiary
is subject to restrictions, directly or indirectly, on the payment of dividends
or the making of distributions by such Restricted Subsidiary, directly or
indirectly, to the Company (other than restrictions in effect on the Issue Date
with respect to a Restricted Subsidiary of the Company and other than
restrictions that are created or exist in compliance with the "Limitation on
Restrictions on Distributions from Restricted Subsidiaries" covenant), (iii) any
gain or loss realized upon the sale or other disposition of any assets of the
Company or its consolidated Restricted Subsidiaries (including pursuant to any
Sale/Leaseback Transaction) which are not sold or otherwise disposed of in the
ordinary course of business and any gain or loss realized upon the sale or other
disposition of any Capital Stock of any Person, (iv) any extraordinary gain or
loss, (v) the cumulative effect of a change in accounting principles, (vi) the
net income of any Person, other than a Restricted Subsidiary, except to the
extent of the lesser of (A) cash dividends or distributions actually paid to the
Company or any of its Restricted Subsidiaries by such Person and (B) the net
income of such Person (but in no event less than zero), (vii) the net loss of
any Person (other than a Subsidiary) in excess of the aggregate Investment of
the Company or any of its Restricted Subsidiaries in such Person and (viii) any
non-cash
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expenses attributable to grants or exercises of employee stock options.
Notwithstanding the foregoing, (A) Consolidated Net Income for any period shall
be reduced by the aggregate amount of dividends paid during such period pursuant
to clause (v) of paragraph (b) of the "Limitation on Restricted Payments"
covenant and (B) for the purpose of the covenant described under "Certain
Covenants--Limitation on Restricted Payments" only, there shall be excluded from
Consolidated Net Income, as such term is used in calculating Consolidated
Adjusted Operating Cash Flow, any dividends, repayments of loans or advances or
other transfers of assets from Unrestricted Subsidiaries to the Company or a
Restricted Subsidiary to the extent such dividends, repayments or transfers
increase the amount of Restricted Payments permitted under such covenant
pursuant to clause (a)(3)(D) thereof.
"Consolidated Net Worth" means the total of the amounts shown on the balance
sheet of the Company and its consolidated Restricted Subsidiaries, determined on
a consolidated basis in accordance with GAAP, as of the end of the most recent
fiscal quarter of the Company ending prior to the taking of any action for the
purpose of which the determination is being made and for which financial
statements are available (but in no event ending more than 135 days prior to the
taking of such action), as (i) the par or stated value of all outstanding
Capital Stock of the Company plus (ii) paid in capital or capital surplus
relating to such Capital Stock plus (iii) any retained earnings or earned
surplus less (A) any accumulated deficit and (B) any amounts attributable to
Disqualified Stock.
"Cumulative Available Cash Flow" means, as of any date of determination, the
positive cumulative Consolidated Adjusted Operating Cash Flow, or, if such
cumulative Consolidated Adjusted Operating Cash Flow for such period is
negative, the amount by which cumulative Consolidated Adjusted Operating Cash
Flow is less than zero.
"Currency Agreement" means in respect of a Person any foreign exchange
contract, currency swap agreement or other similar agreement as to which such
Person is a party or a beneficiary.
"Default" means any event which is, or after notice or passage of time or both
would be, an Event of Default.
"Disinterested Director" means a member of the Board of Directors of the
Company who is not otherwise affiliated with the Company and who is not
otherwise involved or interested in the transaction in question.
"Disqualified Stock" means any Capital Stock which, by its terms (or by the
terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event (other than an event which
would constitute a Change of Control), (i) matures (excluding any maturity as
the result of an optional redemption by the issuer thereof) or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or is redeemable
at the option of the holder thereof, in whole or in part, on or prior to the
Stated Maturity of the Notes, or (ii) is convertible into or exchangeable
(unless at the sole option of the issuer thereof) for (a) debt securities or (b)
any Capital Stock referred to in (i) above, in each case at any time prior to
the Stated Maturity of the Notes; provided, that Capital Stock issued pursuant
to the Acquisition Agreement and the MSO Agreements entered into by the Company
as of the Issue Date shall not be considered Disqualified Stock. Disqualified
Stock shall be deemed to be Incurred as Indebtedness in an amount equal to (i)
the greater of its maximum voluntary or involuntary liquidation preference or
repurchase price, if any, plus accrued and unpaid dividends or (ii) if
redeemable at fair market value or at some fixed premium over fair market value,
then the average closing price on the principal securities exchange or automated
quotation system on which such Disqualified Stock is listed or eligible for
trading on the five trading days immediately preceding the date on which it is
issued or, if not so listed or eligible, the value as of such date as determined
in writing by an independent investment banking firm of nationally recognized
standing plus, in either case, any applicable premium.
"Equity Offering" means an offering for cash by the Company of its common
stock, or options, warrants or rights with respect to its common stock.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, or any
successor statute or statutes thereto.
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"Existing Indebtedness" means Indebtedness of the Company or its Restricted
Subsidiaries in existence on the Issue Date, plus interest accrued thereon,
after application of the net proceeds of the sale of the Notes.
"fair market value" means, with respect to any asset or property, the price
which could be negotiated in an arms-length, free market transaction, for cash,
between a willing seller and a willing and able buyer, neither of whom is under
undue pressure or compulsion to complete the transaction. Except as otherwise
expressly provided, fair market value shall be determined by the Board of
Directors of the Company acting reasonably and in good faith and shall be
evidenced by a Board Resolution of the Board of Directors of the Company
delivered to the Trustee.
"GAAP" means generally accepted accounting principles in the United States of
America as in effect as of the date of the Indenture, including those set forth
in the opinions and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as approved by a significant segment of the
accounting profession. All ratios and computations based on GAAP contained in
the Indenture shall be computed in conformity with GAAP.
"Guarantee" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Indebtedness of any other Person and any
obligation, direct or indirect, contingent or otherwise, of such Person (i) to
purchase or pay (or advance or supply funds for the purchase or payment of) such
Indebtedness of such other Person (whether arising by virtue of partnership
arrangements, or by agreement to keep-well, to purchase assets, goods,
securities or services, to take-or-pay, or to maintain financial statement
conditions or otherwise) or (ii) entered into for purposes of assuring in any
other manner the obligee of such Indebtedness of the payment thereof or to
protect such obligee against loss in respect thereof (in whole or in part);
provided, however, that the term "Guarantee" shall not include endorsements for
collection or deposit in the ordinary course of business. The term "Guarantee"
used as a verb has a corresponding meaning.
"Incur" means issue, assume, guarantee, incur or otherwise become liable
for, and "Incurrence" has a corresponding meaning; provided, however, that (i)
any Indebtedness or Disqualified Stock of a Person existing at the time such
Person becomes a Restricted Subsidiary (whether by merger, consolidation,
acquisition or otherwise) shall be deemed to be Incurred at the time it becomes
a Restricted Subsidiary and (ii) neither the accrual of interest nor the
accretion of discount on Indebtedness shall be deemed to be an Incurrence of
additional Indebtedness.
"Indebtedness" means, with respect to any Person on any date of determination
(without duplication), (i) the principal of and premium (if any) in respect of
indebtedness of such Person for borrowed money, (ii) the principal of and
premium (if any) in respect of obligations of such Person evidenced by bonds,
debentures, notes or other similar instruments, (iii) all obligations of such
Person in respect of letters of credit or other similar instruments (including
reimbursement obligations with respect thereto) (other than obligations with
respect to letters of credit securing obligations (other than obligations
described in clauses (i), (ii) and (v) ) entered into in the ordinary course of
business of such Person to the extent that such letters of credit are not drawn
upon or, if and to the extent drawn upon, such drawing is reimbursed no later
than the third business day following receipt by such Person of a demand for
reimbursement following payment on the letter of credit), (iv) all obligations
of such Person to pay the deferred and unpaid purchase price of property or
services (except trade payables and accrued expenses Incurred in the ordinary
course of business), which purchase price is due more than six months after the
date of placing such property in service or taking delivery and title thereto or
the completion of such services, (v) all Capitalized Lease Obligations and all
Attributable Indebtedness of such Person, (vi) all Indebtedness of other Persons
secured by a Lien on any asset of such Person, whether or not such Indebtedness
is assumed by such Person, (vii) all Indebtedness of other Persons to the extent
Guaranteed by such Person, (viii) the amount of all obligations of such Person
with respect to the redemption, repayment or other repurchase of any
Disqualified Stock or, with respect to any Restricted Subsidiary of the Company,
any Preferred Stock of such Restricted Subsidiary to the extent such obligation
arises on or before the Stated Maturity of the Notes (but excluding, in each
case, accrued dividends) with the amount of Indebtedness represented by such
Disqualified Stock or Preferred Stock, as the case may be, being equal to the
greater of its voluntary or involuntary liquidation preference and its maximum
fixed repurchase price; provided that, for purposes hereof the "maximum fixed
repurchase price" of any Disqualified Stock or Preferred Stock, as the case may
be, which does not have a fixed repurchase price shall be calculated in
accordance with the
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terms of such Disqualified Stock or Preferred Stock, as the case may be, as if
such Disqualified Stock or Preferred Stock, as the case may be, were purchased
on any date on which Indebtedness shall be required to be determined pursuant to
the Indenture, and if such price is based on the fair market value of such
Disqualified Stock or Preferred Stock, as the case may be, such fair market
value shall be determined in good faith by the Board of Directors of the Company
and (ix) to the extent not otherwise included in this definition, obligations
under Currency Agreements and Interest Rate Agreements. Unless specifically set
forth above, the amount of Indebtedness of any Person at any date shall be the
outstanding principal amount of all unconditional obligations as described
above, as such amount would be reflected on a balance sheet prepared in
accordance with GAAP, and the maximum liability of such Person, upon the
occurrence of the contingency giving rise to the obligation, of any contingent
obligations described above at such date. Indebtedness shall not include any
obligation to purchase or redeem the Capital Stock of the Company pursuant to
the terms of the MSO Agreements as in effect on the Issue Date or the
Acquisition Agreement.
"Interest Rate Agreement" means with respect to any Person any interest rate
protection agreement, interest rate future agreement, interest rate option
agreement, interest rate swap agreement, interest rate cap agreement, interest
rate collar agreement, interest rate hedge agreement or other similar agreement
or arrangement as to which such Person is party or a beneficiary.
"Investment" in any Person means any direct or indirect advance, loan (other
than advances to customers in the ordinary course of business that are recorded
as accounts payable on the balance sheet of such Person) or other extension of
credit (including by way of Guarantee or similar arrangement, but excluding any
debt or extension of credit represented by a bank deposit other than a time
deposit) or capital contribution to (by means of any transfer of cash or other
property (excluding Capital Stock (other than Disqualified Stock) of the
Company) to others or any payment for property or services for the account or
use of others), or any purchase or acquisition of Capital Stock, Indebtedness or
other similar instruments issued by such Person. For purposes of the "Limitation
on Restricted Payments" covenant and determinations relating to Permitted Basket
Investments, (i) "Investment" shall include the portion (proportionate to the
Company's equity interest in a Restricted Subsidiary to be designated as an
Unrestricted Subsidiary or in a Wholly Owned Subsidiary that otherwise ceases to
qualify as such) of the fair market value of the net assets of such Subsidiary
of the Company at the time that such Restricted Subsidiary is designated an
Unrestricted Subsidiary or such Wholly Owned Subsidiary otherwise ceases to
qualify as such; provided, however, that upon a redesignation of an Unrestricted
Subsidiary as a Restricted Subsidiary or upon the qualification of a non-wholly
owned Restricted Subsidiary as a Wholly Owned Subsidiary, the Company shall be
deemed to continue to have a permanent "Investment" in an Unrestricted
Subsidiary or a non-wholly owned Restricted Subsidiary in an amount (if
positive) equal to (x) the Company's "Investment" in such Subsidiary at the time
of such redesignation or qualification less (y) the portion (proportionate to
the Company's equity interest in such Subsidiary) of the fair market value of
the net assets of such Subsidiary at the time that such Subsidiary is so
redesignated a Restricted Subsidiary or qualifies as a Wholly Owned Subsidiary;
and (ii) any property transferred to or from an Unrestricted Subsidiary or a
Restricted Subsidiary that is not a Wholly Owned Subsidiary shall be valued at
its fair market value at the time of such transfer, in each case as determined
in good faith by the Board of Directors and evidenced by a resolution of such
Board of Directors certified in an Officers' Certificate to the Trustee.
"Issue Date" means the date on which the Notes were originally issued. The
Issue Date is July 10, 1998.
"Jones Programming" means JPN, Inc., a Colorado corporation and a Wholly Owned
Subsidiary of the Company.
"Lien" means any mortgage, pledge, security interest, encumbrance, lien or
charge of any kind (including any conditional sale or other title retention
agreement or lease in the nature thereof).
"Moody's" means Moody's Investors Service, Inc.
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"MSO Agreements" means agreements with multiple system operators of cable
television systems providing for the issuance of Class A Common Stock of the
Company in exchange for specified service commitments, entered into in
accordance with the Company's historical practice.
"Net Available Cash" from an Asset Disposition means cash payments received
(including any cash payments received by way of deferred payment of principal
pursuant to a note or installment receivable or otherwise, but only as and when
received, but excluding any other consideration received in the form of
assumption by the acquiring Person of Indebtedness or other obligations relating
to the properties or assets subject to such Asset Disposition) therefrom in each
case net of (i) all legal, title and recording tax expenses, commissions and
other fees and expenses incurred, and all Federal, state, foreign and local
taxes required to be paid or accrued as a liability under GAAP, as a consequence
of such Asset Disposition, (ii) all payments made on any Indebtedness which is
secured by any assets subject to such Asset Disposition, in accordance with the
terms of any Lien upon such assets, or which must by its terms, or in order to
obtain a necessary consent to such Asset Disposition or by applicable law, be
repaid out of the proceeds from such Asset Disposition, (iii) all distributions
and other payments made to any Person owning a beneficial interest in assets
subject to sale or minority interest holders in Subsidiaries or joint ventures
as a result of such Asset Disposition, (iv) the deduction of appropriate amounts
to be provided by the seller as a reserve, in accordance with GAAP, against any
liabilities associated with the assets disposed of in such Asset Disposition,
provided however, that upon any reduction in such reserves (other than to the
extent resulting from payments of the respective reserved liabilities), Net
Available Cash shall be increased by the amount of such reduction to reserves,
and retained by the Company or any Restricted Subsidiary of the Company after
such Asset Disposition and (v) any portion of the purchase price from an Asset
Disposition placed in escrow (whether as a reserve for adjustment of the
purchase price, for satisfaction of indemnities in respect of such Asset
Disposition or otherwise in connection with such Asset Disposition) provided,
however, that upon the termination of such escrow, Net Available Cash shall be
increased by any portion of funds therein released to the Company or any
Restricted Subsidiary.
"Net Cash Proceeds," with respect to any issuance or sale of Capital Stock,
means the cash proceeds of such issuance or sale net of attorneys' fees,
accountants' fees, underwriters' or placement agents' fees and expenses,
discounts or commissions and brokerage, consultant and other fees actually
Incurred in connection with such issuance or sale and net of taxes paid or
payable as a result of such issuance or sale.
"Officer" means the Chairman of the Board, the Chief Executive Officer, the
Chief Financial Officer, or any Vice President, the Treasurer or the Secretary
of the Company.
"Officer's Certificate" shall mean a certificate signed by two Officers of the
Company, at least one of whom shall be the principal executive, financial or
accounting officer of the Company.
"Opinion of Counsel" means a written opinion, in form and substance acceptable
to the Trustee, from legal counsel, which may be internal counsel to the
Company, who is acceptable to the Trustee.
"Paying Agent" means United States Trust Company of New York, as paying agent
under the Indenture, or any successor thereto appointed pursuant to the
Indenture.
"Permitted Basket Investment" means an Investment by the Company or a
Restricted Subsidiary in a Restricted Subsidiary (other than a Wholly Owned
Subsidiary), an Unrestricted Subsidiary or any other Person engaged in a
Permitted Business, including without limitation a loan or advance to, or
Guarantee of Indebtedness of, a Restricted Subsidiary (other than a Wholly Owned
Subsidiary), an Unrestricted Subsidiary or any other Person engaged in a
Permitted Business; provided, however, that no such Investment may qualify as a
Permitted Basket Investment to the extent the amount thereof, when taken
together with all other such Investments that qualify as Permitted Basket
Investments, would exceed an aggregate amount outstanding at any time equal to
the sum of (i) $10 million plus (ii) to the extent not previously reinvested as
a Permitted Basket Investment, any interest payment or dividend or other
distribution from cumulative earnings realized on any Permitted Basket
Investments, or any release or other cancellation of any Guarantee constituting
a Permitted Basket Investment plus (iii) to the extent not previously reinvested
as a Permitted Basket Investment, any return of capital on a Permitted Basket
Investment (including any deemed return of capital resulting from the
designation or qualification of the recipient thereof as a Restricted
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Subsidiary (if such recipient was previously an Unrestricted Subsidiary) or as a
Wholly Owned Subsidiary (if such recipient was previously a non-wholly owned
Restricted Subsidiary)) less (iv) all losses realized on the sale or other
disposition of Permitted Basket Investments.
"Permitted Business" means any business which is the same as or related,
ancillary or complementary to any of the businesses of the Company and its
Restricted Subsidiaries on the date of the Indenture, as reasonably determined
by the Company's Board of Directors, including, without limitation, advertising
sales, services and representation; the acquisition, development, licensing,
distribution and sale, through existing or new media, of new programming,
networks, products and services related, ancillary or complementary to any of
the businesses of the Company and its Restricted Subsidiaries on the date of the
Indenture; and all aspects of satellite delivery and production support,
services and facilities; provided, that, an entity which is not an operating
entity and whose primary business is to hold or maintain intellectual property
or licenses shall not qualify as a "Permitted Business."
"Permitted Investment" means an Investment by the Company or any of its
Restricted Subsidiaries in (i) a Wholly-Owned Subsidiary of the Company;
provided, however, that the primary business of such Wholly-Owned Subsidiary is
a Permitted Business; (ii) another Person if as a result of such Investment such
other Person becomes a Wholly-Owned Subsidiary of the Company or is merged or
consolidated with or into, or transfers or conveys all or substantially all its
assets to, the Company or a Wholly-Owned Subsidiary of the Company; provided,
however, that in each case such Person's primary business is a Permitted
Business, (iii) Temporary Cash Investments; (iv) receivables owing to the
Company or any of its Restricted Subsidiaries, created or acquired in the
ordinary course of business and payable or dischargeable in accordance with
customary trade terms; (v) payroll, travel and similar advances to cover matters
that are expected at the time of such advances ultimately to be treated as
expenses for accounting purposes and that are made in the ordinary course of
business; (vi) loans and advances to employees made in the ordinary course of
business consistent with past practices of the Company or such Restricted
Subsidiary in an aggregate amount outstanding at any one time not to exceed
$500,000; (vii) loans or advances to senior management of the Company which
loans or advances are secured by shares of Common Stock of the Company owned by
such senior management in an aggregate amount outstanding not to exceed
$750,000; (viii) stock, obligations or securities received in settlement of
debts created in the ordinary course of business and owing to the Company or any
of its Restricted Subsidiaries or in satisfaction of judgments or claims; (ix) a
Permitted Basket Investment (x) Persons to the extent such Investment is
received by the Company or any Restricted Subsidiary as consideration for Asset
Dispositions effected in compliance with the covenant described under "--
Limitations on Sales of Assets and Subsidiary Stock"; (xi) prepayments and other
credits to suppliers made in the ordinary course of business consistent with the
past practices of the Company and its Restricted Subsidiaries; and (xii)
Investments in connection with pledges, deposits, payments or performance bonds
made or given in the ordinary course of business in connection with or to secure
statutory, regulatory or similar obligations, including obligations under
health, safety or environmental obligations.
"Permitted Liens" means: (i) Liens imposed by law, such as carriers',
warehousemen's and mechanics' Liens, in each case for sums not yet due from the
Company or any Restricted Subsidiary or being contested in good faith by
appropriate proceedings by the Company or any Restricted Subsidiary, as the case
may be, or other Liens arising out of judgments or awards against the Company or
any Restricted Subsidiary with respect to which the Company or such Restricted
Subsidiary, as the case may be, will then be prosecuting an appeal or other
proceedings for review; (ii) Liens for property taxes or other taxes,
assessments or governmental charges of the Company or any Restricted Subsidiary
not yet due or payable or subject to penalties for nonpayment or which are being
contested by the Company or such Restricted Subsidiary, as the case may be, in
good faith by appropriate proceedings; (iii) Liens in favor of issuers of
performance, surety and other bonds issued pursuant to clause (b)(vi) under "--
Certain Covenants--Limitation on Indebtedness"; (iv) survey exceptions,
encumbrances, easements or, reservations of, or rights of others for, licenses,
rights-of-way, sewers, electric lines, telegraph and telephone lines and other
similar purposes or zoning or other restrictions as to the use of real property
of the Company or any Restricted Subsidiary incidental to the ordinary course of
conduct of the business of the Company or such Restricted Subsidiary or as to
the ownership of properties of the Company or any Restricted Subsidiary, which,
in either case, were not incurred in connection with Indebtedness and which do
not in the aggregate materially adversely affect the value of said properties or
materially impair their use in the operation of the business of the Company or
any Restricted Subsidiary; (v) Liens outstanding immediately after the Issue
Date as set forth in a schedule to the Indenture; (vi)
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Liens on property or assets of any Person at the time such Person becomes a
Restricted Subsidiary of the Company; provided, however, that (A) if any such
Lien has been Incurred in anticipation of such transaction, such property or
assets subject to such Lien will have a fair market value at the date of the
acquisition thereof not in excess of the lesser of (1) the aggregate purchase
price paid or owed in connection with the acquisition of such Person and (2) the
fair market value of all property and assets of such Person and (B) any such
Lien will not extend to any other assets owned by the Company or any Restricted
Subsidiary; (vii) Liens on property or assets at the time the Company or any
Restricted Subsidiary acquires such assets, including any acquisition by means
of a merger or consolidation with or into the Company or such Restricted
Subsidiary; provided, however, that (A) if any such Lien is Incurred in
anticipation of such transaction, such property or assets subject to such Lien
will have a fair market value at the date of the acquisition thereof not in
excess of the lesser of (1) the aggregate purchase price paid or owed in
connection with the acquisition thereof and of any other property and assets
acquired simultaneously therewith and (2) the fair market value of all such
property and assets acquired by the Company or such Restricted Subsidiary and
(B) any such Lien will not extend to any other property or assets owned by the
Company or any Restricted Subsidiary; (viii) Liens securing Indebtedness or
other obligations of a Restricted Subsidiary owing to the Company or a Wholly
Owned Subsidiary; (ix) Liens to secure any extension, renewal, refinancing,
replacement or refunding (or successive extensions, renewals, refinancings,
replacements or refundings), in whole or in part, of any Indebtedness secured by
Liens referred to in any of clauses (v), (vi) and (vii); provided, however, that
any such Lien will be limited to all or part of the same property or assets that
secured the original Lien (plus improvements on such property) and the aggregate
principal amount of Indebtedness that is secured by such Lien will not be
increased to an amount greater than the sum of (A) the outstanding principal
amount, or, if greater, the committed amount, of the Indebtedness secured by
Liens described under clauses (v), (vi) and (vii) at the time the original Lien
became a Permitted Lien under the Indenture and (B) an amount necessary to pay
any premiums, fees and other expenses Incurred by the Company in connection with
such refinancing, refunding, extension, renewal or replacement; (x) Liens on
property or assets of the Company securing Interest Rate Agreements and Currency
Agreements so long as the related Indebtedness is permitted under "--Certain
Covenants--Limitation on Indebtedness", and is secured by a Lien on the same
property securing the relevant Interest Rate Agreement or Currency Agreement;
(xi) Liens on property or assets of the Company or any Restricted Subsidiary
securing Indebtedness (1) under purchase money obligations, mortgage financings
or Capital Lease Obligations permitted under the "--Limitation on Indebtedness"
covenant or (2) under Sale/Leaseback Transactions permitted under the "--
Limitation on Sale/Leaseback Transactions" or "--Limitation on Indebtedness"
covenants; provided, that (A) the amount of Indebtedness Incurred in any
specific case does not, at the time such Indebtedness is Incurred, exceed the
lesser of the cost or fair market value of the property or asset acquired or
constructed in connection with such purchase money obligations, mortgage
financing or Capital Lease Obligation or subject to such Sale/Leaseback
Transaction, as the case may be, (B) such Lien will attach to such property or
asset upon acquisition of such property or asset and or upon commencement of
such Sale/Leaseback Transaction, as the case may be, and (C) no property or
asset of the Company or any Restricted Subsidiary (other than the property or
asset acquired or contracted in connection with such purchase money obligations,
mortgage financing or Capital Lease Obligation or subject to such Sale/Leaseback
Transaction, as the case may be) is subject to any Lien securing such
Indebtedness; (xii) Liens granted to the Trustee securing the Company's
obligations under the Indenture; (xiii) Liens on assets of a Restricted
Subsidiary and/or the Company securing Bank Indebtedness permitted under clause
(b)(i) of the "--Limitations on Indebtedness" covenant and outstanding in an
aggregate principal amount not exceeding $20 million; provided, that such
Restricted Subsidiary and/or the Company, as the case may be, is permitted to
incur liability with respect to such Bank Indebtedness under paragraph (d) of
the "--Limitation on Indebtedness" covenant; (xiv) Liens on satellite
transponders and/or transponder capacity, transmitting facilities and/or
capacity, and related assets acquired with the proceeds of, and that secure the
repayment of, Replacement Satellite Indebtedness permitted under "--Limitations
on Indebtedness"; and (xv) Liens on assets of the Restricted Subsidiaries and/or
the Company securing any combination of additional Bank Indebtedness, additional
Capitalized Lease Obligations, additional Attributable Indebtedness in respect
of Sale/Leaseback Transactions and Indebtedness permitted under clause (b)(ix)
of the "--Limitation on Indebtedness" covenant; provided that, (A) at the time
such Lien is granted and after giving effect to the Indebtedness secured
thereby, (I) the Consolidated Coverage Ratio is greater than or equal to 2.5:1
and (II) the ratio of (x) all Indebtedness that is secured by Liens on any
assets of the Company and its Restricted Subsidiaries (other than Replacement
Satellite Indebtedness) to (y) an amount equal to the sum of $120 million plus
the maximum amount of Indebtedness of the Company and its Restricted
Subsidiaries (other than Replacement Satellite Indebtedness) that could be
Incurred under paragraph (a) of "--Limitation on Indebtedness" (for which
purpose all
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such Indebtedness not then outstanding shall be deemed to bear interest at a
rate equal to the weighted average interest rate on all outstanding
Indebtedness) does not exceed 1.0:6 and (B) in the case of additional Bank
Indebtedness, such Liens are on property or assets of a Person that is permitted
to incur liability with respect to such Bank Indebtedness under paragraph (d) of
the "--Limitation on Indebtedness" covenant.
"Permitted Transferee" means, with respect to a Person, (i) the spouse, parent
or lineal descendant of such Person, (ii) a trustee, guardian or custodian for,
or an executor, administrator or other legal representative of the estate of
such Person, (iii) the trustee of a trust for the benefit of such Person or its
Permitted Transferees and (iv) a corporation, partnership or other entity of
which such Person and its Permitted Transferees are the beneficial owners of,
and control the Capital Stock representing, a majority of the ordinary voting
power.
"Person" means any individual, corporation, partnership, limited liability
company, joint venture, association, joint-stock company, trust, unincorporated
organization, government or any agency or political subdivision hereof or any
other entity.
"Preferred Stock," as applied to the Capital Stock of any corporation, means
Capital Stock of any class or classes (however designated) which is preferred as
to the payment of dividends, or as to the distribution of assets upon any
voluntary or involuntary liquidation or dissolution of such corporation, over
shares of Capital Stock of any other class of such corporation.
"Refinancing Indebtedness" means Indebtedness that refunds, refinances,
replaces, renews, repays or extends (including pursuant to any defeasance or
discharge mechanism) (collectively, "refinances," and "refinanced" shall have a
correlative meaning) any Indebtedness existing on the date of the Indenture or
Incurred in compliance with the Indenture (including Indebtedness of the Company
that refinances Indebtedness of any Restricted Subsidiary and Indebtedness of
any Restricted Subsidiary that refinances Indebtedness of another Restricted
Subsidiary, the Capital Stock of which is owned, directly or indirectly, by the
Restricted Subsidiary that is Incurring the Refinancing Indebtedness) including
Indebtedness that refinances Refinancing Indebtedness; provided, however, that
(i) the Refinancing Indebtedness has a Stated Maturity no earlier than the
earlier of (A) the first anniversary of the Stated Maturity of the Notes and (B)
Stated Maturity of the Indebtedness being refinanced, (ii) the Refinancing
Indebtedness has an Average Life at the time such Refinancing Indebtedness is
Incurred that is equal to or greater than the lesser of (A) the Average Life of
the Notes and (B) the Average Life of the Indebtedness being refinanced and
(iii) the Refinancing Indebtedness is in an aggregate principal amount (or if
issued with original issue discount, an aggregate issue price) that is equal to
(or 101% of, in the case of a refinancing of the Notes in connection with a
Change of Control) or less than the sum of the aggregate principal amount (or if
issued with original issue discount, the accreted value) then outstanding of the
Indebtedness being refinanced.
"Registrar" means United States Trust Company of New York, as registrar under
the Indenture, or any successor thereto appointed pursuant to the Indenture.
"Replacement Satellite Indebtedness" means Indebtedness of the Company or a
Wholly Owned Subsidiary of the Company Incurred on or after January 1, 2002, to
finance the acquisition of satellite broadcasting capacity, including satellite
transponders and/or capacity, transmitting facilities and/or capacity, and
related assets, whether secured or unsecured, and whether Incurred as regular
Indebtedness or as a Capitalized Lease Obligation.
"Restricted Subsidiary" means any Subsidiary of the Company other an
Unrestricted Subsidiary.
"Sale/Leaseback Transaction" means an arrangement relating to property now
owned or hereafter acquired whereby the Company or a Restricted Subsidiary
transfers such property to a Person and the Company or a Subsidiary leases it
from such Person.
"Secured Indebtedness" means any Indebtedness of the Company secured by a
Lien.
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"Senior Indebtedness" means, whether outstanding on the Issue Date or
thereafter issued, all Indebtedness of the Company or its Restricted
Subsidiaries, including interest and fees thereon; provided, however, that
Senior Indebtedness will not include any Subordinated Obligation of the Company
or any Restricted Subsidiary.
"Significant Subsidiary" means any Restricted Subsidiary that would be a
"Significant Subsidiary" of the Company within the meaning of Rule 1-02 under
Regulation S-X promulgated by the SEC.
"S&P" means Standard and Poor's Ratings Group.
"Stated Maturity" means, with respect to any security, the date specified in
such security as the fixed date on which the payment of principal of such
security is due and payable, including pursuant to any mandatory redemption
provision.
"Subordinated Obligation" means any Indebtedness of the Company or a
Restricted Subsidiary (whether outstanding on the Issue Date or thereafter
Incurred) in respect of which, in the instrument creating or evidencing the same
or pursuant to which the same is outstanding, it is provided that the
obligations of the Company or such Restricted Subsidiary in respect of such
Indebtedness are subordinate or junior in right of payment to any other
Indebtedness of such Person of the type described in clause (i) or (ii) or (vii)
of the definition of "Indebtedness".
"Subsidiary" of any Person means any corporation, association or other
business entity of which such Person owns, directly or indirectly through one or
more Subsidiaries, a majority of the Capital Stock or other ownership interests
(including partnership and membership interests) and has ordinary voting power
to elect a majority of the directors, managers, trustees or other persons
performing similar functions or, in the case of a partnership, of which such
Person or any of its Subsidiaries is the general or managing general partner.
Notwithstanding the foregoing, Product Information Network Venture and
Superaudio shall be deemed to be Subsidiaries of the Company. Unless otherwise
specified herein, each reference to a Subsidiary shall refer to a Subsidiary of
the Company.
"Subsidiary Guarantee" means the Guarantee of the Notes by a Subsidiary
Guarantor.
"Subsidiary Guarantor" means each Restricted Subsidiary of the Company,
whether in existence on the Issue Date or created or acquired thereafter (other
than any foreign Subsidiary and other than any domestic Restricted Subsidiary
that is subject to a contractual limitation, existing on the Issue Date, on its
ability to issue a Subsidiary Guarantee which limitation has not, with the
exercise of such Restricted Subsidiary's best efforts, been satisfied or
waived).
"Temporary Cash Investments" means any of the following: (i) any Investment in
direct obligations of the United States of America or any agency thereof or
obligations Guaranteed by the United States of America or any agency thereof,
(ii) Investments in time deposit accounts, certificates of deposit and money
market deposits maturing within 180 days of the date of acquisition thereof
issued by a bank or trust company which is organized under the laws of the
United States of America, any state thereof or any foreign country recognized by
the United States of America having capital surplus and undivided profits
aggregating in excess of $250 million (or the foreign currency equivalent
thereof) and whose long-term debt, or whose parent holding company's long-term
debt, is rated "A" (or such similar equivalent rating) or higher by at least one
nationally recognized statistical rating organization (as defined in Rule 436
under the Securities Act), (iii) repurchase obligations with a term of not more
than 30 days for underlying securities of the types described in clause (i)
above entered into with a bank meeting the qualifications described in clause
(ii) above, (iv) Investments in commercial paper, maturing not more than 180
days after the date of acquisition, issued by a corporation (other than an
Affiliate of the Company) organized and in existence under the laws of the
United States of America or any foreign country recognized by the United States
of America with a rating at the time as of which any investment therein is made
of "P-1" (or higher) according to Moody's or "A-1" (or higher) according to S&P,
(v) Investments in securities with maturities of six months or less from the
date of acquisition issued or fully guaranteed by any state, commonwealth or
territory of the United States of America, or by any political subdivision or
taxing authority thereof, and rated at least "A" by S&P or "A" by Moody's and
(vi) Investments in mutual funds whose investment guidelines restrict such
funds' investments to those satisfying the provisions of clauses (i) through (v)
above.
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"Unrestricted Subsidiary" means (i) any Subsidiary of the Company that
acquires an Affiliate Business, (ii) any other Subsidiary of the Company that at
the time of determination shall be designated an Unrestricted Subsidiary by the
Board of Directors in the manner provided below, (iii) any Subsidiary of an
Unrestricted Subsidiary, (iv) Product Information Network Venture; (v)
Superaudio; and (vi) Capstar LLC. The Board of Directors may designate any
Subsidiary of the Company (including any newly acquired or newly formed
Subsidiary of the Company) to be an Unrestricted Subsidiary unless such
Subsidiary or any of its Subsidiaries owns any Capital Stock of the Company or
any Restricted Subsidiary of the Company that is not a Subsidiary of the
Subsidiary to be so designated; provided, however, that either (A) the
Subsidiary to be so designated has total consolidated assets of $10,000 or less
or (B) if such Subsidiary has consolidated assets greater than $10,000, then
such designation would be permitted under "Limitation on Restricted Payments."
The Board of Directors may designate any Unrestricted Subsidiary to be a
Restricted Subsidiary subject to the limitations contained in "Limitation on
Designations of Unrestricted Subsidiaries".
"U.S. Government Obligations" means direct obligations (or certificates
representing an ownership interest in such obligations) of the United States of
America (including any agency or instrumentality thereof) for the payment of
which the full faith and credit of the United States of America is pledged and
which are not callable or redeemable at the issuer's option.
"Wholly-Owned Subsidiary" means a Restricted Subsidiary of the Company, at
least 99% of the Capital Stock of which (other than directors' qualifying
shares) is owned by the Company or another Wholly-Owned Subsidiary.
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BOOK-ENTRY, DELIVERY AND FORM
Except as described in the next paragraph, each of the Old Notes initially
was, and the Exchange Notes will be represented by Global Notes. The Global Note
regarding the Old Notes has been, and the Global Note regarding the Exchange
Notes will be, deposited with, or on behalf of, DTC and registered in the name
of a nominee of DTC.
Old Notes (i) transferred to institutional "accredited investors," as defined
in Rule 501(a)(1), (2), (3) or (7) under the Securities Act, who are not QIBs or
to any other persons who are not QIBs or (ii) held by QIBs who elect to take
physical delivery of their certificates instead of holding their interest
through the Global Notes (and which are thus ineligible to trade through DTC)
(collectively referred to herein as the "Non-Global Purchasers") will be issued
in registered form (the "Certificated Notes"). Upon the transfer to a QIB of any
Certificated Note previously issued to a Non-Global Purchaser, such Certificated
Note will, unless the transferee requests otherwise or such Global Notes has
previously been exchanged in whole for Certificated Notes, be exchanged for an
interest in such Global Note.
Global Securities. Pursuant to procedures established by DTC (i) upon the
issuance of the Global Notes, DTC or its custodian will credit, on its internal
system, the principal amount of Notes of the individual beneficial interest
holders represented by such Global Notes to the respective accounts for persons
who have accounts with DTC and (ii) ownership of beneficial interests in the
Global Notes will be shown on, and the transfer of such ownership will be
effected only through, records maintained by DTC or its nominee (with respect to
interests of persons who have accounts with DTC ("participants")), including
Euroclear and Cedel, and the records of participants (with respect to interests
of persons other than participants). Such accounts initially will be designated
by or on behalf of the Initial Purchaser and ownership of beneficial interests
in the Global Notes will be limited to participants or persons who hold
interests through participants.
So long as DTC, or its nominee, is the registered owner or holder of the
Global Notes, DTC or such nominee, as the case may be, will be considered the
sole owner or holder of the Notes represented by the Global Notes for all
purposes under the Indenture. No beneficial owner of an interest in the Global
Notes will be able to transfer that interest except in accordance with DTC's
procedures, in addition to those provided for under the Indenture.
Payments on the Global Notes will be made to DTC or its nominee, as the case
may be, as the registered owner thereof. None of the Company, the Transfer
Agent, the Trustee or any Paying Agent will have any responsibility or liability
for any aspect of the records relating to or payments made on account of
beneficial ownership interest in the Global Notes or for maintaining,
supervising or reviewing any records relating to such beneficial ownership
interest.
The Company expects that DTC or its nominee, upon receipt of any payment in
respect of a Global Note, will credit participants' accounts with payments in
amounts proportionate to their respective beneficial interests in the Global
Note as shown on the records of DTC or its nominee. The Company also expects
that payments by participants to owners of beneficial interests in the Global
Note held through such participants will be governed by standing instructions
and customary practice, as is now the case with securities held for the accounts
of customers registered in the names of nominees for such customers. Such
payments will be the responsibility of such participants.
Transfers between participants in DTC will be effected in the ordinary way in
accordance with DTC rules and will be settled in clearinghouse funds. If a
holder requires physical delivery of a Certificated Note for any reason,
including to sell such Note to persons in states which require physical delivery
of Certificated Notes, or to pledge such securities, such holder must transfer
its interest in the Global Note, in accordance with the normal procedures of
DTC.
DTC has advised the Company that it will take any action permitted to be taken
by a holder of a Global Note (including the presentation of Notes for exchange
as described below) only at the direction of one or more participants to whose
account the DTC interests in the Global Note are credited and only in respect of
such portion of the Notes as to which such participant or participants has or
have given such direction. However, if there is an
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<PAGE>
Event of Default under the Indenture, DTC will exchange the Global Note for
Certificated Notes, which it will distribute to its participants.
DTC has advised the Company as follows: DTC is a limited purpose trust company
organized under the laws of the State of New York, a member of the Federal
Reserve System, a "clearing corporation" within the meaning of the Uniform
Commercial Code and a "clearing agency" registered pursuant to the provisions of
Section 17A of the Exchange Act. DTC was created to hold securities for its
participants and facilitate the clearance and settlement of securities
transactions between participants through electronic book-entry changes in
accounts of its participants, thereby eliminating the need for physical movement
of certificates. Participants include securities brokers and dealers, banks,
trust companies and clearing corporations and certain other organizations.
Indirect access to the DTC system is available to others such as banks, brokers,
dealers and trust companies that clear through or maintain a custodial
relationship with a participant, either directly or indirectly ("indirect
participants").
Although DTC has agreed to the foregoing procedures in order to facilitate
transfers of interests in the Global Notes among participants of DTC, it is
under no obligation to perform such procedures, and such procedures may be
discontinued at any time. None of the Company, the Initial Purchaser, the
Trustee or the Transfer Agent will have any responsibility for the performance
by DTC or its participants or indirect participants of their respective
obligations under the rules and procedures governing their operations.
Certificated Notes. If DTC is at any time unwilling or unable to continue
as a depositary for a Global Note and a successor depositary is not appointed by
the Company within 90 days, Certificated Notes will be issued in exchange for
such Global Note.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following summary describes certain United States Federal income tax
consequences that generally apply to a holder that exchanges Old Notes for
Exchange Notes in the Exchange Offer. This discussion is based on the Internal
Revenue Code of 1986, as amended (the "Code"), existing and proposed Treasury
Regulations, and judicial and administrative holdings, all of which could be
changed at any time, possibly on a retroactive basis. It relates only to
persons who hold their Old Notes and Exchange Notes as capital assets. It does
not discuss state, local or foreign tax aspects, or tax consequences to holders
that are subject to special rules, such as foreign persons, tax-exempt
organizations, insurance companies, banks, dealers in securities, or persons who
hold the Old Notes or the Exchange Notes as part of a "conversion" transaction,
"hedging" transaction, "integrated" transaction or "straddle" for U.S. Federal
income tax purposes. Tax consequences may vary depending on a holder's tax
situation. No rulings will be sought from the Internal Revenue Service ("IRS")
concerning the Exchange Offer.
The following discussion concerns U.S. Federal income tax consequences that
apply to a holder of Old Notes and Exchange Notes that is a U.S. person for
Federal income tax purposes, i.e., (i) a citizen or resident of the United
States, (ii) a corporation or partnership created or organized under the laws of
the United States or any State (including the District of Columbia) (including
any other partnership treated as a U.S. person under Treasury Regulations),
(iii) an estate or trust described in Section 7701(a)(3) of the Code, or (iv) a
person otherwise subject to United States Federal income tax on its worldwide
income (collectively, a "U.S. Holder").
THIS SECTION DOES NOT DEAL WITH ALL ASPECTS OF FEDERAL INCOME TAXATION THAT
MAY BE RELEVANT TO AN INVESTOR'S DECISION TO PARTICIPATE IN THE EXCHANGE OFFER.
EACH INVESTOR SHOULD CONSULT WITH ITS OWN TAX ADVISOR CONCERNING FEDERAL INCOME
TAX LAWS AND OTHER TAX LAWS APPLICABLE TO ITS PARTICULAR SITUATION BEFORE
DECIDING WHETHER TO EXCHANGE ITS OLD NOTES FOR EXCHANGE NOTES.
THE EXCHANGE OFFER
Under Treasury Regulations, the exchange of Old Notes for Exchange Notes
pursuant to the Exchange Offer should not constitute a significant modification
of the Old Notes and, accordingly, should be a "nonevent" for
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<PAGE>
Federal income tax purposes. Therefore, a U.S. Holder of Old Notes should not
recognize gain or loss in the exchange, and should continue to include interest
on the Exchange Notes in gross income in accordance with its method of
accounting for Federal income tax purposes. A U.S. Holder's holding period in
Exchange Notes received in the Exchange Offer will include the U.S. Holder's
holding period in the Old Notes exchanged.
TREATMENT OF INTEREST
- ---------------------
In general, interest on an Old Note or Exchange Note will be taxable to a U.S.
Holder as ordinary income when received or accrued, depending on the U.S.
Holder's method of accounting for tax purposes.
The Company will treat the Old Notes as being issued without original issue
discount ("OID"). Under Treasury Regulations, contingent payments under a debt
instrument are not taken into account in computing OID if there is a remote
likelihood that the payments will be made. If the Company failed to effect the
Exchange Offer on a timely basis, Additional Interest would be payable on the
Old Notes. Because there was only a remote possibility that this would occur,
the Company determined that the Old Notes were issued without OID. The IRS
could disagree with this determination. If the Old Notes were issued with OID,
U.S. Holders of the Old Notes or Exchange Notes could have to accrue taxable
interest income before the receipt or accrual of stated interest. Each U.S.
Holder should consult its own tax advisor concerning the possible accrual of OID
on the Old Notes.
SALE, EXCHANGE OR REDEMPTION OF PRINCIPAL; DISPOSITIONS
On the sale, redemption, retirement at maturity or other disposition of an Old
Note or an Exchange Note, a U.S. Holder generally will recognize capital gain or
loss equal to the difference between (i) the amount realized on the disposition
(except to the extent attributable to accrued but unpaid interest or market
discount, which will be taxable as ordinary income) and (ii) the U.S. Holder's
adjusted tax basis in the Old Note or the Exchange Note. Such capital gain
generally will be taxable at a reduced maximum rate for a U.S. Holder who is not
a corporation and who held the Old Notes or Exchange Notes for more than one
year. A U.S. Holder's adjusted basis in an Old Note or Exchange Note will
generally be its cost to the U.S. Holder plus the amount of interest previously
taken into account, but not yet received, by the U.S. Holder.
AMORTIZABLE BOND PREMIUM
If a U.S. Holder purchases an Old Note or an Exchange Note for a price that
exceeds its stated redemption price at maturity plus any accrued and unpaid
interest ("Bond Premium"), the U.S. Holder will not have to include OID, if any,
in income and may elect to amortize the Bond Premium. This election applies to
all Notes acquired by the U.S. Holder during the year of election or in a later
year.
MARKET DISCOUNT
A U.S. Holder, other than an initial holder, will be treated as holding an Old
Note or an Exchange Note at a market discount (a "Market Discount Note") if the
U.S. Holder purchased the Old Note or the Exchange Note for a price less than
its redemption price at maturity, subject to a de minimis rule. An initial
holder of an Old Note will be treated as holding a Market Discount Note if the
initial holder purchased the Old Note for less than its issue price.
In general, any partial payment of principal on, or gain recognized on the
maturity, redemption, or disposition of, a Market Discount Note will be ordinary
interest income to the extent of accrued market discount on the Market Discount
Note. Alternatively, a U.S. Holder of a Market Discount Note may elect to
include market discount in income over the life of each Market Discount Note.
Market discount accrues on a straight-line basis, unless the U.S. Holder
elects to accrue the discount on a constant yield-to-maturity basis. If this
election is not made, a U.S. Holder of a Market Discount Note generally must
defer interest deductions in the amount of the accrued market discount on the
Market Discount Note, until it matures or is sold. If the Market Discount Note
is disposed of in a nontaxable transaction (other than certain tax-
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<PAGE>
free exchanges), the U.S. Holder must report the accrued market discount as
ordinary income as if the Market Discount Note were sold at its fair market
value.
BACKUP WITHHOLDING
Under the Code, a U.S. Holder of an Old Note or Exchange Note may be subject
to "backup withholding" at a 31% rate on payments of interest or the gross
proceeds of sale. This withholding generally applies if the U.S. Holder (i)
fails to furnish its social security number or other taxpayer identification
number ("TIN") on request, (ii) furnishes an incorrect TIN, (iii) is notified by
the IRS that it has failed to report properly payments of interest and dividends
and the IRS has notified the Company that it is subject to backup withholding,
or (iv) fails, in certain situations, to provide a certified statement, signed
under penalty of perjury, that the TIN provided is correct and that the U.S.
Holder is not subject to backup withholding. Any amount withheld under the
backup withholding rules is allowed as a credit against the U.S. Holder's
Federal income tax liability, if the required information is furnished to the
IRS. Corporations and certain other entities are generally exempt from backup
withholding if they establish their exempt status.
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PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange Notes for its own account pursuant
to the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such Exchange Notes. This Prospectus, as it may
be amended or supplemented from time to time, may be used by a broker-dealer in
connection with resales of Exchange Notes received in exchange for Old Notes
where such Old Notes were acquired as a result of market-making activities or
other trading activities. The Company acknowledges and each holder, other than a
broker-dealer, must acknowledge that it is not engaged in, does not intend to
engage in, and has no arrangement or understanding with any person to
participate in a distribution of Exchange Notes. The Company has agreed if, at
the time of the completion of the Exchange Offer, information in the Letter of
Transmittal submitted by exchanging holders indicates that there are holders
that are Participating Broker-Dealers or otherwise subject to prospectus
delivery requirements, the Company will, for such period of time as is necessary
to comply with applicable law up to the date that is 180 days after consummation
of the Exchange Offer, make available a prospectus meeting the requirements of
the Securities Act to such persons, if any, for use in connection with any
resale of such Exchange Notes.
The Company will not receive any proceeds from any sale of Exchange Notes by
broker-dealers. Exchange Notes received by broker-dealers for their own account
pursuant to the Exchange Offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions, through
the writing of options on the Exchange Notes or a combination of such methods of
resale, at market prices prevailing at the time of resale, at prices related to
such prevailing market prices or negotiated prices. Any such resale may be made
directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such broker-
dealer and/or the purchasers of any such Exchange Notes. Any broker-dealer that
resells Exchange Notes that were received by it for its own account pursuant to
the Exchange Offer and any broker or dealer that participates in a distribution
of such Exchange Notes may be deemed to be an "underwriter" within the meaning
of the Securities Act and any profit on any such resale of Exchange Notes and
any commissions or concessions received by any such persons may be deemed to be
underwriting compensation under the Securities Act. The Letter of Transmittal
states that by acknowledging that it will deliver and by delivering a
prospectus, a broker-dealer will not be deemed to admit it is an "underwriter"
within the meaning of the Securities Act.
LEGAL MATTERS
The validity of the Exchange Notes offered hereby will be passed upon for the
Company by Davis, Graham & Stubbs LLP, Denver, Colorado.
INDEPENDENT AUDITORS
The Consolidated Financial Statements of the Company as of December 31, 1996
and 1997 and for each of the years in the three-year period ended December 31,
1997 included in this Prospectus have been audited by Arthur Andersen LLP,
independent auditors, and the financial statements of MediaAmerica, Inc. as of
December 31, 1996 and 1997, and for each of the years in the three-year period
ended December 31, 1997 included in this Prospectus have been audited by David
Berdon & Co. LLP, independent auditors.
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INDEX TO SELECTED UNAUDITED RECONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Jones International Networks, Ltd. and Subsidiaries Selected Unaudited Reconsolidated Financial
Data..................................................................................................... R-2
Jones International Networks, Ltd. and Subsidiaries Unaudited Reconsolidated Statement of
Operations for the Six Months Ended June 30, 1997........................................................ R-3
Jones International Networks, Ltd. and Subsidiaries Unaudited Reconsolidated Statement of
Operations for the Year Ended December 31, 1997.......................................................... R-4
Jones International Networks, Ltd. and Subsidiaries Unaudited Reconsolidated Statement of
Operations for the Year Ended December 31, 1996.......................................................... R-5
Jones International Networks, Ltd. and Subsidiaries Unaudited Reconsolidated Statement of
Operations for the Year Ended December 31, 1995.......................................................... R-6
Notes to Selected Unaudited Reconsolidated Financial Data................................................. R-7
</TABLE>
R-1
<PAGE>
SELECTED UNAUDITED RECONSOLIDATED FINANCIAL DATA
The following Selected Unaudited Reconsolidated Financial Data as of and for
the six months ended June 30, 1997 have been derived from unaudited financial
statements of the Company and the PIN Venture. The Selected Unaudited
Reconsolidated Statements of Operations for the years ended December 31, 1995,
1996 and 1997 are based on the audited financial statements for the Company and
the audited financial statements of the PIN Venture. The Selected Unaudited
Reconsolidated Financial Data adjust those financial statements on a pro forma
basis to reflect the Company's acquisition of an 8.35% interest in the PIN
Venture from Adelphia, which occurred on April 1, 1997, as if this transaction
had occurred at the beginning of the respective periods.
Prior to the organization of the PIN Venture in 1995, the Company wholly owned
the Product Information Network, and the Company's historical consolidated
financial statements reflected 100% of the Product Information Network's results
of operations. From the formation of the PIN Venture in February 1995 to the
acquisition by the Company of Adelphia's 8.35% interest on April 1, 1997 in
exchange for 262,500 shares of Class A Common Stock at a price of $12.00 per
share, 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 historical financial statements for periods prior to April 1, 1997 are
not comparable to those for 1997 and subsequent periods. As a result of the
acquisition of Adelphia's interest, the Company owns approximately 54% of the
PIN Venture and, effective April 1, 1997, consolidates the results of operations
of the PIN Venture for financial reporting purposes. The reconsolidated
financial statements assume the historical consolidation of the results of
operations of the PIN Venture on a pro forma basis to provide for comparison
consistent with the financial reporting treatment effective upon the purchase of
Adelphia's 8.35% interest.
R-2
<PAGE>
JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES
UNAUDITED RECONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMPANY PIN COMPANY
REPORTED VENTURE(A) ADJUSTMENTS RECONSOLIDATED
----------- ------------ ---------------- ---------------
INCOME STATEMENT DATA:
REVENUES:
<S> <C> <C> <C> <C>
Radio programming............................................... $ 5,090 $ -- $ -- $ 5,090
Television programming.......................................... 3,898 2,858 -- 6,756
Satellite delivery and production support....................... 3,918 -- (425)(b) 3,493
------- ------ ----- -------
Total revenues................................................ 12,906 2,858 (425) 15,339
------- ------ ----- -------
OPERATING EXPENSES:
Radio programming............................................... 2,804 -- -- 2,804
Television programming.......................................... 3,006 2,175 (221)(b) 4,960
Satellite delivery and production support....................... 2,605 -- (204)(b) 2,401
Selling and marketing........................................... 1,266 104 -- 1,370
General and administrative...................................... 1,863 203 76 (c) 2,142
------- ------ ----- -------
Total operating expenses...................................... 11,544 2,482 (349) 13,677
------- ------ ----- -------
OPERATING INCOME (LOSS)....................................... 1,362 376 (76) 1,662
------- ------ ----- -------
OTHER EXPENSE (INCOME):
Interest expense................................................ 2,867 12 (12)(d) 2,867
Interest income................................................. (22) (3) 12 (d) (13)
Write-off of deferred offerings costs(e)........................ 938 -- -- 938
Equity share of loss (income) of subsidiary(f).................. (287) -- 169 (f) (118)
------- ------ ----- -------
Total other expense........................................... 3,496 9 69 3,674
------- ------ ----- -------
Income (loss) before income taxes and minority
interests...................................................... (2,134) 367 (245) (2,012)
Income tax benefit.............................................. (356) -- -- (356)
------- ------ ----- -------
Income (loss) before minority interests......................... (1,778) 367 (245) (1656)
Minority interests in net income (loss) of consolidated
subsidiaries................................................... 418 -- 169 (f) 587
------- ------ ----- -------
NET INCOME (LOSS)............................................... $(2,196) $ 367 $(414) $(2,243)
======= ====== ===== =======
OTHER DATA:
EBITDA(g)....................................................... $ 3,788 $ 216 $ -- $ 4,004
Depreciation and amortization................................... 2,512 24 76 2,612
Capital expenditures............................................ 1.002 5 -- 1,007
Cash distributions from Superaudio(h)........................... -- -- -- --
EBITDA attributable to PIN Venture's minority
interests(i)................................................... 86 184 -- 270
</TABLE>
See notes to selected unaudited reconsolidated financial data.
R-3
<PAGE>
JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES
UNAUDITED RECONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMPANY PIN COMPANY
REPORTED VENTURE(A) ADJUSTMENTS RECONSOLIDATED
------------ ----------- ----------- ---------------
<S> <C> <C> <C> <C>
INCOME STATEMENT DATA:
REVENUES:
Radio programming......................................... $10,200 $ -- $ -- $10,200
Television programming.................................... 12,002 2,858 -- 14,860
Satellite delivery and production support................. 6,910 -- (425)(b) 6,485
------- ------ ----- -------
Total revenues........................................... 29,112 2,858 (425) 31,545
------- ------ ----- -------
OPERATING EXPENSES:
Radio programming......................................... 5,816 -- -- 5,816
Television programming.................................... 9,272 2,175 (221)(b) 11,226
Satellite delivery and production support................. 4,685 -- (204)(b) 4,481
Selling and marketing..................................... 2,918 104 -- 3,022
General and administrative................................ 4,168 203 76 (c) 4,447
------- ------ ----- -------
Total operating expenses................................. 26,859 2,482 (349) 28,992
------- ------ ----- -------
OPERATING INCOME (LOSS).................................. 2,253 376 (76) 2,553
------- ------ ----- -------
OTHER EXPENSE (INCOME):
Interest expense.......................................... 5,677 12 (12)(d) 5,677
Interest income........................................... (108) (3) 12 (d) (99)
Write-off of deferred offerings costs(e).................. 938 -- -- 938
Equity share of loss (income) of subsidiary(f)............ (396) -- 169 (f) (227)
Other expense (income), net............................... 74 -- -- 74
------- ------ ----- -------
Total other expense...................................... 6,185 9 169 6,363
------- ------ ----- -------
Income (loss) before income taxes and minority
interests................................................ (3,932) 367 (245) (3,810)
Income tax benefit........................................ (1,342) -- -- (1,342)
------- ------ ----- -------
Income (loss) before minority interests................... (2,590) 367 (245) (2,468)
Minority interests in net income of consolidated
subsidiaries............................................. 903 -- 169 (f) 1,072
------- ------ ----- -------
NET INCOME (LOSS)......................................... $(3,493) $ 367 $(414) $(3,540)
======= ====== ===== =======
OTHER DATA:
EBITDA(g)................................................. $ 6,661 $ 216 $ -- $ 6,877
Depreciation and amortization............................. 5,130 24 76 5,230
Capital expenditures...................................... 1,367 19 -- 1,386
Cash distributions from Superaudio(h)..................... 100 -- -- 100
EBITDA attributable to PIN Ventures minority
interests(i)............................................. 822 184 -- 1,006
</TABLE>
See notes to selected unaudited reconsolidated financial data.
R-4
<PAGE>
JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES
UNAUDITED RECONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMPANY PIN COMPANY
REPORTED VENTURE(A) ADJUSTMENTS RECONSOLIDATED
--------- ------------ ------------ ---------------
<S> <C> <C> <C> <C>
INCOME STATEMENT DATA:
REVENUES:
Radio programming.............................................. $ 6,978 $ -- $ -- $ 6,978
Television programming......................................... 1,153 8,038 -- 9,191
Satellite delivery and production support...................... 8,523 -- (1,579)(b) 6,944
------- ------ ------- -------
Total revenues................................................ 16,654 8,038 (1,579) 23,113
------- ------ ------- -------
OPERATING EXPENSES:
Radio programming.............................................. 4,163 -- -- 4,163
Television programming......................................... 1,157 5,923 (749)(b) 6,331
Satellite delivery and production support...................... 5,451 -- (830)(b) 4,621
Selling and marketing.......................................... 1,737 240 -- 1,977
General and administrative..................................... 3,270 751 307 (c) 4,328
------- ------ ------- -------
Total operating expenses...................................... 15,778 6,914 (1,272) 21,420
------- ------ ------- -------
OPERATING INCOME (LOSS)....................................... 876 1,124 (307) 1,693
------- ------ ------- -------
OTHER EXPENSE (INCOME):
Interest expense............................................... 4,500 30 (30)(d) 4,500
Interest income................................................ (72) (2) 30 (d) (44)
Equity share of loss (income) of subsidiary(f)................. (829) -- 503 (f) (326)
Other expense (income), net.................................... (12) 20 -- 8
------- ------ ------- -------
Total other expense........................................... 3,587 48 503 4,138
------- ------ ------- -------
Income (loss) before income taxes and minority interests....... (2,711) 1,076 (810) (2,445)
Income tax benefit............................................. (387) -- -- (387)
------- ------ ------- -------
Income (loss) before minority interests........................ (2,324) 1,076 (810) (2,058)
Minority interests in net income (loss) of consolidated
subsidiaries................................................. (9) -- 493 (f) 484
------- ------ ------- -------
NET INCOME (LOSS).............................................. $(2,315) $1,076 $(1,303) $(2,542)
======= ====== ======= =======
OTHER DATA:
EBITDA(g)...................................................... $ 5,652 $ 629 $ -- $ 6,281
Depreciation and amortization.................................. 4,476 42 307 4,825
Capital expenditures........................................... 2,969 341 -- 3,310
Cash distributions from Superaudio(h).......................... 300 -- -- 300
EBITDA attributable to PIN Venture's minority
interests(i)................................................. -- 537 -- 537
</TABLE>
See notes to selected unaudited reconsolidated financial data.
R-5
<PAGE>
JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES
UNAUDITED RECONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMPANY PIN COMPANY
REPORTED VENTURE(A) ADJUSTMENTS RECONSOLIDATED
----------- ----------- ----------- --------------
<S> <C> <C> <C> <C>
INCOME STATEMENT DATA:
REVENUES:
Radio programming.......................................... $ 5,121 $ -- $ -- $ 5,121
Television programming..................................... 340 4,110 -- 4,450
Satellite delivery and production support.................. 9,666 -- (2,745)(b) 6,921
------- ------ ------- -------
Total revenues............................................ 15,127 4,110 (2,745) 16,492
------- ------ ------- -------
OPERATING EXPENSES:
Radio programming.......................................... 3,068 -- -- 3,068
Television programming..................................... 366 3,719 (877)(b) 3,208
Satellite delivery and production support.................. 6,530 -- (1,868)(b) 4,662
Selling and marketing...................................... 1,374 114 -- 1,488
General and administrative................................. 2,322 662 284 (c) 3,268
------- ------ ------- -------
Total operating expenses.................................. 13,660 4,495 (2,461) 15,694
------- ------ ------- -------
OPERATING INCOME (LOSS)................................... 1,467 (385) (284) 798
------- ------ ------- -------
OTHER EXPENSE (INCOME):
Interest expense........................................... 4,070 33 (22)(d) 4,081
Interest income............................................ (64) -- 22 (d) (42)
Equity share of loss (income) of subsidiary(f)............. (11) -- (211)(f) (222)
Other expense (income), net................................ 16 (6) -- 10
------- ------ ------- -------
Total other expense (income).............................. 4,011 27 (211) 3,827
------- ------ ------- -------
Loss before income taxes and minority interests............ (2,544) (412) (73) (3,029)
Income tax benefit......................................... (498) -- -- (498)
------- ------ ------- -------
Net loss before minority interests......................... (2,046) (412) (73) (2,531)
Minority interests in net loss of consolidated
subsidiaries.............................................. -- -- (189)(f) (189)
------- ------ ------- -------
NET INCOME (LOSS).......................................... $(2,046) $ (412) $ 116 $(2,342)
======= ====== ======= =======
OTHER DATA:
EBITDA(g).................................................. $ 5,530 $ (196) $ -- $ 5,334
Depreciation and amortization.............................. 3,888 23 284 4,195
Capital expenditures....................................... 1,262 326 -- 1,588
Cash distributions from Superaudio(h)...................... 175 -- -- 175
EBITDA attributable to PIN Venture's minority
interests(i).............................................. -- (166) -- (166)
</TABLE>
See notes to selected unaudited reconsolidated financial data.
R-6
<PAGE>
NOTES TO SELECTED UNAUDITED RECONSOLIDATED FINANCIAL DATA
The Unaudited Reconsolidated Statements of Operations give effect to the
following unaudited reconsolidated adjustments:
(a) Reflects the operating results on a consolidated basis of the PIN Venture
as a result of the Company's acquiring a majority interest.
(b) Represents the (i) elimination of the satellite delivery and production
support revenues the Company charged to the PIN Venture and (ii)
reclassification of 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 consolidation of the PIN
Venture.
(c) Represents the amortization of goodwill pertaining to the PIN Venture.
(d) Represents the elimination of intercompany interest expense charged to the
PIN Venture.
(e) Represents the portion of deferred financing costs incurred during 1996 and
1997 in connection with a proposed initial public offering that was deemed
not transferable to other financing activities.
(f) Represents the Company's share of the net loss (income) of its
unconsolidated Superaudio joint venture, which is 50% owned by the Company
and is accounted for under the equity method. The adjustments represent the
elimination of the (i) Company's equity share of income (loss) of the PIN
Venture and (ii) minority interest in the PIN Venture on a reconsolidated
basis.
(g) EBITDA represents operating income (loss) plus depreciation and
amortization plus cash distributions from the Company's unconsolidated 50%-
owned Superaudio subsidiary minus the EBITDA attributable to the minority
interest in the Company's consolidated 54%-owned PIN Venture subsidiary.
Management believes that EBITDA is a measure commonly used by analysts and
investors to determine a company's ability to service and incur its debt.
EBITDA should not be considered in isolation from or as a substitute for
net income (loss), cash flows from operating activities or other
consolidated income or cash flow statement data prepared in accordance with
generally accepted accounting principles or as a measure of profitability
or liquidity.
(h) Represents cash distributions from the accumulated earnings of the
Company's unconsolidated Superaudio joint venture.
(i) Represents the EBITDA attributable to the minority interests in the
Company's consolidated 54%-owned PIN Venture subsidiary.
R-7
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Public Accountants................................................................. F-3
Consolidated Statements of Financial Position as of December 31, 1996 and 1997 and
June 30, 1998 (unaudited)............................................................................. F-4
Consolidated Statements of Operations for the Years Ended December 31, 1995, 1996 and 1997 and
for the Six Months Ended June 30, 1997 and 1998 (unaudited)........................................... F-6
Consolidated Statements of Changes in Shareholders' Deficit for the Years Ended December 31,
1995, 1996 and 1997 and for the Six Months Ended June 30, 1998 (unaudited)............................ F-7
Consolidated Statements of Cash Flows for the Years Ended December 31, 1995, 1996 and 1997 and
for the Six Months Ended June 30, 1997 and 1998 (unaudited)........................................... F-8
Notes to Consolidated Financial Statements............................................................... F-9
MEDIAAMERICA, INC. FINANCIAL STATEMENTS
Independent Auditors' Report............................................................................. F-24
Balance Sheets as of December 31, 1996 and 1997.......................................................... F-25
Statements of Income for the Years Ended December 31, 1995, 1996 and 1997................................ F-26
Statements of Shareholders' Equity for the Years Ended December 31, 1995, 1996 and 1997.................. F-27
Statements of Cash Flows for the Years Ended December 31, 1995, 1996 and 1997............................ F-28
Notes to Financial Statements............................................................................ F-29
Accountants' Review Report............................................................................... F-35
Balance Sheets as of June 30, 1997 and 1998 (unaudited).................................................. F-36
Statements of Operations for the Six Months Ended June 30, 1997 and 1998 (unaudited)..................... F-37
Statements of Shareholders' Equity for the Six Months Ended June 30, 1997 and 1998
(unaudited)........................................................................................... F-38
Statements of Cash Flows for the Six Months Ended June 30, 1997 and 1998 (unaudited)..................... F-39
Notes to Financial Statements (unaudited)................................................................ F-40
</TABLE>
F-1
<PAGE>
(THIS PAGE INTENTIONALLY LEFT BLANK)
F-2
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Jones International Networks, Ltd.:
We have audited the accompanying consolidated statements of financial
position of Jones International Networks, Ltd. (a Colorado corporation) and its
subsidiaries (collectively, the "Company") as of December 31, 1996 and 1997 and
the related consolidated statements of operations, changes in shareholders'
deficit and cash flows for the three years ended December 31, 1997. 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, 1996 and 1997, and the results of its operations and cash flows for the
three years ended December 31, 1997 in conformity with generally accepted
accounting principles.
Arthur Andersen LLP
Denver, Colorado
August 1, 1998.
F-3
<PAGE>
JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
---------------------------------- ----------------
1996 1997 1998
---------------- ---------------- ----------------
(UNAUDITED)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents.......................................... $ 3,892 $ 3,717,169 $ 2,444,772
Accounts receivable, net of allowance for doubtful accounts of
$286,562, $157,405 and $169,122, respectively.................. 851,866 1,454,763 2,798,820
Receivables from affiliates........................................ 803,162 -- 40,215
Prepaid expenses................................................... 537,072 54,870 158,405
Deferred commissions, current (Note 2)............................. 248,286 222,302 261,975
Other current assets............................................... 74,647 263,267 43,666
------------ ------------ ------------
Total current assets............................................ 2,518,925 5,712,371 5,747,853
------------ ------------ ------------
PROPERTY, PLANT AND EQUIPMENT (Note 2):
Land............................................................... 1,395,592 1,395,592 1,395,592
Building........................................................... 2,321,463 2,321,463 2,321,463
Leased satellite transponders (Note 15)............................ 35,010,454 35,010,454 35,010,454
Furniture, fixtures and equipment.................................. 9,090,374 10,457,665 10,735,179
Leasehold improvements............................................. 258,908 374,643 635,936
------------ ------------ ------------
Total property, plant and equipment............................. 48,076,791 49,559,817 50,098,624
Less accumulated depreciation and amortization..................... (15,978,974) (20,784,095) (23,178,762)
------------ ------------ ------------
Net property, plant and equipment............................... 32,097,817 28,775,722 26,919,862
------------ ------------ ------------
OTHER ASSETS:
Goodwill, net of accumulated amortization of $15,000, $171,795
and $288,153, respectively (Note 2)............................... 285,000 3,125,567 3,009,209
Other intangible assets, net of accumulated amortization of
$504,877, $733,428 and $873,287, respectively (Note 2)............ 1,283,303 1,063,888 1,081,661
Investment in affiliates........................................... 922,135 577,264 300,265
Income tax benefit receivable from Jones International, Ltd.
(Note 12)........................................................ -- 1,342,111 1,074,536
Capitalized loan fees (Note 15).................................... -- 50,000 568,583
Deferred commissions, long-term (Note 2)........................... 496,572 478,676 422,809
Deferred offering costs (Note 7)................................... 607,505 174,744 1,341,906
Other assets....................................................... 86,420 57,785 295,320
------------ ------------ ------------
Total other assets.............................................. 3,680,935 6,870,035 8,094,289
------------ ------------ ------------
Total assets.................................................... $ 38,297,677 $ 41,358,128 $ 40,762,004
============ ============ ============
</TABLE>
The accompanying notes to these consolidated financial statements
are an integral part of these consolidated financial statements.
F-4
<PAGE>
JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
LIABILITIES AND SHAREHOLDERS' DEFICIT
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
--------------------------------- --------------------
1996 1997 1998
--------------- ---------------- --------------------
(UNAUDITED)
<S> <C> <C> <C>
CURRENT LIABILITIES:
Accounts payable--trade......................................... $ 239,872 $ 1,438,602 $ 1,263,886
Accrued liabilities............................................. 686,131 1,300,516 1,954,538
Accounts payable--Jones International, Ltd. (Notes 2 and 6)..... 6,017,809 9,814,874 5,424,512
Interest payable................................................ 215,524 53,619 522,471
Deferred revenues (Note 2)...................................... 5,500 13,554 301,583
Capital lease obligations (Note 9).............................. 1,964,954 2,422,022 2,668,202
Other current liabilities....................................... 4,574 -- 8,003
------------ ------------ ------------
Total current liabilities................................ 9,134,364 15,043,187 12,143,195
------------ ------------ ------------
LONG-TERM LIABILITIES
Customer deposits and deferred revenues......................... 829,962 38,532 38,773
Capital lease obligation, net of current portion (Note 9)....... 28,757,208 26,335,186 24,922,805
Long-term debt--affiliated entities (Note 8).................... 22,554,500 16,554,500 10,000,000
Credit facility (Note 15)....................................... -- -- 16,704,500
------------ ------------ ------------
Total long-term liabilities.............................. 52,141,670 42,928,218 51,666,078
------------ ------------ ------------
MINORITY INTERESTS IN CONSOLIDATED
SUBSIDIARIES (Note 2)......................................... 290,949 1,593,168 822,049
------------ ------------ ------------
COMMITMENTS AND CONTINGENCIES (NOTE 14)
SHAREHOLDERS' DEFICIT:
Class A Common Stock, $.01 par value: 50,000,000 shares
authorized; 1,968,453, 2,980,953 and 2,980,953 shares issues
and outstanding, respectively.................................. 19,685 29,810 29,810
Class B Common Stock, $.01 par value: 1,785,120 shares
authorized; 1,385,120, 1,785,120 and 1,785,120 shares issued
and outstanding, respectively.................................. 13,851 17,851 17,851
Additional paid-in capital...................................... -- 9,143,375 9,143,375
Accumulated deficit............................................. (23,302,842) (27,397,481) (33,060,354)
------------ ------------ ------------
Total shareholders' deficit.............................. (23,269,306) (18,206,445) (23,869,318)
------------ ------------ ------------
Total liabilities and shareholders' deficit.............. $ 38,297,677 $ 41,358,128 $ 40,762,004
============ ============ ============
</TABLE>
The accompanying notes to these consolidated financial statements
are an integral part of these consolidated financial statements.
F-5
<PAGE>
JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
FOR THE YEARS ENDED DECEMBER 31, JUNE 30,
----------------------------------------------------------------------------
1995 1996 1997 1997 1998
------------ ------------ ------------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES:
Radio programming............................... $ 5,121,310 $ 6,978,303 $10,199,870 $ 5,089,673 $ 3,739,193
Television programming
Non-affiliated entities.................. 288,591 193,204 10,863,512 3,326,645 7,300,147
Affiliated entities (Note 6)............. 51,574 960,254 1,138,000 571,721 564,415
----------- ----------- ----------- ----------- -----------
Total television programming...... 340,165 1,153,458 12,001,512 3,898,366 7,864,562
Satellite delivery and production support
Non-affiliated entities.................. 3,129,844 3,120,000 2,600,000 1,560,000 --
Affiliated entities (Note 6)............. 6,535,742 5,402,680 4,309,818 2,358,395 2,128,118
----------- ----------- ----------- ----------- -----------
Total satellite delivery and
production support.............. 9,665,586 8,522,680 6,909,818 3,918,395 2,128,118
----------- ----------- ----------- ----------- -----------
Total revenues.................... 15,127,061 16,654,441 29,111,200 12,906,434 13,731,873
----------- ----------- ----------- ----------- -----------
OPERATING EXPENSES:
Radio programming............................... 3,067,745 4,162,634 5,816,250 2,803,601 3,489,844
Television programming
Non-affiliated entities.................. 256,266 1,156,922 5,726,418 1,832,527 3,848,027
Affiliated entities (Note 6)............. 109,333 -- 3,545,930 1,173,306 2,818,964
----------- ----------- ----------- ----------- -----------
Total television programming...... 365,599 1,156,922 9,272,348 3,005,833 6,666,991
Satellite delivery and production support....... 6,530,278 5,451,966 4,685,470 2,605,135 2,329,432
Selling and marketing........................... 1,374,368 1,737,566 2,916,648 1,266,538 1,747,231
General and administration...................... 2,321,780 3,269,623 4,168,005 1,862,734 2,092,697
----------- ----------- ----------- ----------- -----------
Total operating expenses.......... 13,659,770 15,778,711 26,858,721 11,543,841 16,326,195
----------- ----------- ----------- ----------- -----------
OPERATING INCOME (LOSS)............................. 1,467,291 875,730 2,252,479 1,362,593 (2,594,322)
----------- ----------- ----------- ----------- -----------
OTHER (INCOME) EXPENSE:
Interest expense (Note 6, 8 and 9).............. 4,069,837 4,499,898 5,676,896 2,867,025 2,640,260
Interest income................................. (63,792) (72,151) (107,843) (22,235) (99,025)
Write-off of deferred offering (Note 7)........ -- -- 938,000 938,000 ----
Equity in income of subsidiaries................ (10,886) (828,992) (396,155) (286,734) (73,001)
Other expense (income).......................... 16,276 (11,660) 73,972 -- 263,801
----------- ----------- ----------- ----------- -----------
Total other expense, net.......... 4,011,435 3,587,095 6,184,870 3,496,056 2,732,035
----------- ----------- ----------- ----------- -----------
LOSS BEFORE INCOME TAXES AND
MINORITY INTEREST.................................. (2,544,144) (2,711,365) (3,932,391) (2,133,463) (5,326,357)
Income tax provisions (benefit) (Note 12)....... (497,739) (386,912) (1,341,997) ( 355,548) 267,575
----------- ----------- ----------- ----------- -----------
LOSS BEFORE MINORITY INTERESTS...................... (2,046,405) (2,324,453) (2,590,394) (1,777,915) (5,593,932)
Minority interests in net income (loss) of
consolidated subsidiaries..................... -- (9,051) 902,781 417,852 68,941
----------- ----------- ----------- ----------- -----------
NET LOSS $(2,046,405) $(2,315,402) $(3,493,175) (2,195,767) (5,662,873)
=========== =========== =========== =========== ===========
BASIC AND DILUTED NET LOSS PER
COMMON SHARE $(0.50) $(0.56) $(0.79) $(0.50) $(1.19)
=========== =========== =========== =========== ===========
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING 4,103,573 4,103,573 4,400,448 4,366,073 4,766,073
=========== =========== =========== =========== ===========
</TABLE>
The accompanying notes to these consolidated financial statements
are an integral part of these consolidated financial statements.
F-6
<PAGE>
JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' DEFICIT
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
----------------------------------------
CLASS A CLASS B PAID-IN ACCUMULATED SHAREHOLDERS'
------------------- -------------------
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT DEFICIT
--------- -------- --------- -------- ---------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1994........... 1,385,120 $13,851 1,385,120 $13,851 $ -- $(16,329,557) $(16,301,855)
Advances to parent company
(Note 2).......................... -- -- -- -- -- (2,011,828) (2,011,828)
Net Loss............................. -- -- -- -- -- (2,046,405) (2,046,405)
--------- ------- --------- ------- ---------- ------------ ------------
Balance, December 31, 1995........... 1,385,120 13,851 1,385,120 13,851 -- (20,387,790) (20,360,088)
Issuance of common stock in
exchange for Earth Segment
(Note 1).......................... 583,333 5,834 -- -- -- (5,834) --
Advances to parent company
(Note 2).......................... -- -- -- -- -- (593,816) (593,816)
Net Loss............................. -- -- -- -- -- (2,315,402) (2,315,402)
--------- ------- --------- ------- ---------- ------------ ------------
Balance, December 31, 1996........... 1,968,453 19,685 1,385,120 13,851 -- (23,302,842) (23,269,306)
Issuance of common stock in
exchange for Jones Space
Segment, Inc. (Note 1)............ 416,667 4,167 -- -- -- (4,167) --
Advance to parent company
(Note 2).......................... -- -- -- -- -- (593,964) (593,964)
Issuance of common stock in
exchange for minority interests
of Glenn R. Jones (Note 1)........ 333,333 3,333 -- -- -- (3,333) --
Issuance of common stock for the
Product Information Network
acquisition (Note 1).............. 262,500 2,625 -- -- 3,147,375 -- 3,150,000
Conversion of the Jones Global
Group note (Note 8)............... -- -- 400,000 4,000 5,996,000 -- 6,000,000
Net Loss............................. -- -- -- -- -- (3,493,175) (3,493,175)
--------- ------- --------- ------- ---------- ------------ ------------
Balance, December 31, 1997........... 2,980,953 29,810 1,785,120 17,851 9,143,375 (27,397,481) (18,206,445)
Net Loss (unaudited)................. -- -- -- -- -- (5,662,873) (5,662,873)
--------- ------- --------- ------- ---------- ------------ ------------
Balance, June 30, 1998
(unaudited)....................... 2,980,953 $29,810 1,785,120 $17,851 $9,143,375 $(33,060,354) $(23,869,318)
========= ======= ========= ======= ========== ============ ============
</TABLE>
The accompanying notes to these consolidated financial statements
are an integral part of these consolidated financial statements.
F-7
<PAGE>
JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------------------
1995 1996 1997
------------- ------------- -------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss............................................................. $(2,046,405) $(2,315,402) $(3,493,175)
Adjustment to reconcile net loss to net cash provided (used in) by
operating activities:
Depreciation and amortization...................................... 3,888,151 4,476,027 5,167,892
Equity in income of subsidiaries................................... (10,886) (828,992) (396,155)
Distributions received............................................. 175,000 300,000 100,000
Write-off of deferred offering costs............................... -- -- 938,000
Minority interest in net loss...................................... -- (9,051) 902,781
Loss on sale of equipment.......................................... -- -- 81,209
Net change in assets and liabilities:
Decrease (increase) in receivables................................ 227,932 5,317 1,168,733
Decrease (increase) in receivables from affiliates................ (316,052) (361,809) (538,949)
Decrease (increase) in prepaid expenses and other current
assets.......................................................... (1,533) (495,717) 344,865
Decrease (increase) in deferred commissions....................... 49,377 (104,204) 43,880
Decrease (increase) in other assets............................... 4,462 (58,983) 78,635
Increase in accounts payable...................................... 8,054 223,393 1,192,730
Increase (decrease) in accounts payable to Jones International.... (1,943,222) 3,668,270 2,861,899
Increase (decrease) in interest payable........................... -- 215,524 (161,905)
Increase in deferred revenues..................................... -- 5,500 8,054
Increase (decrease) in accrued liabilities and other liabilities.. 355,049 52,872 112,355
Increase (decrease) in customer deposits.......................... (25,827) 3,352 (821,378)
----------- ----------- -----------
Net cash provided by (used in) operating activities............... 364,100 4,776,097 7,589,471
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment............................ (1,261,669) (2,969,379) (1,367,026)
Sale of property, plant and equipment................................ -- -- 255,671
Purchases of intangible assets....................................... (436,519) (1,001,667) (44,646)
Investment in joint venture.......................................... (174,826) -- --
----------- ----------- -----------
Net cash used in investing activities............................. (1,873,014) (3,971,046) (1,156,001)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in deferred offering costs.................................. -- (607,505) (505,239)
Increase in capitalized loan fees.................................... -- -- (50,000)
Repayment of borrowings.............................................. (10,642) (7,991) --
Repayment of capital lease obligations............................... (1,178,409) (1,533,031) (1,964,954)
Proceeds from borrowings............................................. 1,997,916 1,341,968 --
Distributions paid to minority interests............................. -- -- --
Acquisition of minority interests.................................... -- -- (200,000)
----------- ----------- -----------
Net cash provided by (used in) financing activities............... 808,865 (806,559) (2,720,193)
----------- ----------- -----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS...................... (700,049) (1,508) 3,713,277
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD........................ 705,449 5,400 3,892
----------- ----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD.............................. $ 5,400 $ 3,892 $ 3,717,169
=========== =========== ===========
SUPPLEMENTAL CASH FLOW DISCLOSURE:
Interest paid........................................................ $ 4,069,871 $ 4,499,898 $ 5,838,801
=========== =========== ===========
Income tax benefit (provision)....................................... $ 497,739 $ 386,912 $ 1,341,997
=========== =========== ===========
Deferred offering costs.............................................. $ -- $ -- $ --
=========== =========== ===========
Goodwill............................................................. $ -- $ 300,000 $ 3,036,923
=========== =========== ===========
<CAPTION>
FOR THE SIX MONTHS
ENDED JUNE 30,
----------------------------
1997 1998
------------ ------------
(UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss............................................................. $(2,195,767) $(5,662,873)
Adjustment to reconcile net loss to net cash provided (used in) by
operating activities:
Depreciation and amortization...................................... 2,512,381 2,650,885
Equity in income of subsidiaries................................... (286,734) (73,001)
Distributions received............................................. -- 350,000
Write-off of deferred offering costs............................... 938,000 --
Minority interest in net loss...................................... 417,852 68,941
Loss on sale of equipment.......................................... 36,579 --
Net change in assets and liabilities:
Decrease (increase) in receivables................................ (1,766,267) (1,344,057)
Decrease (increase) in receivables from affiliates................ 748,668 (40,215)
Decrease (increase) in prepaid expenses and other current
assets.......................................................... 289,289 116,066
Decrease (increase) in deferred commissions....................... 19,088 16,194
Decrease (increase) in other assets............................... (10,988) (237,535)
Increase in accounts payable...................................... 648,659 (174,716)
Increase (decrease) in accounts payable to Jones International.... 1,115,631 (4,122,787)
Increase (decrease) in interest payable........................... 655 468,852
Increase in deferred revenues..................................... -- 288,029
Increase (decrease) in accrued liabilities and other liabilities.. 134,181 (448,976)
Increase (decrease) in customer deposits.......................... (27,049) 241
----------- -----------
Net cash provided by (used in) operating activities............... 2,574,178 (8,144,952)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment............................ (1,001,533) (538,807)
Sale of property, plant and equipment................................ 261,975 --
Purchases of intangible assets....................................... (1,110) (157,632)
Investment in joint venture.......................................... --- --
----------- -----------
Net cash used in investing activities............................. (740,668) (696,439)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in deferred offering costs.................................. (494,696) (56,162)
Increase in capitalized loan fees.................................... (50,000) (518,583)
Repayment of borrowings.............................................. -- (6,554,500)
Repayment of capital lease obligations............................... (943,355) (1,166,201)
Proceeds from borrowings............................................. -- 16,704,500
Distributions paid to minority interests............................. -- (840,060)
Acquisition of minority interests.................................... -- --
----------- -----------
Net cash provided by (used in) financing activities............... (1,488,051) 7,568,994
----------- -----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS...................... 345,459 (1,272,397)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD........................ 3,892 3,717,169
----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD.............................. $ 349,351 $ 2,444,772
=========== ===========
SUPPLEMENTAL CASH FLOW DISCLOSURE:
Interest paid........................................................ $ 2,866,442 $ 2,171,408
=========== -----------
Income tax benefit (provision)....................................... $ 355,662 $ (267,575)
=========== ===========
Deferred offering costs.............................................. $ -- $ 1,111,000
=========== -----------
Goodwill............................................................. $ -- $ --
=========== ===========
</TABLE>
The accompanying notes to these consolidated financial statements
are an integral part of these consolidated financial statements.
F-8
<PAGE>
JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997 (AUDITED)
AND FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1998 (UNAUDITED)
(1) ORGANIZATION AND BUSINESS
Jones International Networks, Ltd. (which is now known as JPN, Inc., "Old
Company," effective May 1998) was incorporated in November 1993. The Old Company
was temporarily a wholly-owned subsidiary of Jones Network Holdings LLC
("Network Holdings"), a Colorado limited liability company. Old Company has
acquired certain subsidiaries from the parent of Network Holdings, Jones
International, Ltd. ("Jones International"). Mr. Glenn R. Jones, Chairman and
Chief Executive Officer, owns 100 percent of Jones International. The
accompanying financial statements have been prepared on the basis of
reorganization accounting of entities under common control (similar to pooling
of interests) as though Old Company had made the acquisitions of these Jones
International subsidiaries at their inception.
In May 1998, a new company named Jones International Networks, Ltd. ("New
Company") was formed as a wholly-owned subsidiary of Network Holdings and a
sister company of Old Company. Effective upon the closing in July 1998 of an
offering of 11 3/4% Senior Secured Notes by New Company (see Note 15) and the
acquisition by New Company of MediaAmerica, Inc. (see Note 15), New Company
acquired all of the shares of Old Company from Network Holdings, and the members
of Network Holdings exchanged their Class A Ownership Interests and Class B
Ownership Interests in Network Holdings for shares of Class A Common Stock and
Class B Common Stock, respectively, of New Company, and Network Holdings was
dissolved. Old Company is now a subsidiary of New Company. Old Company is
hereinafter referred to as the "Company." The results of operations and
financial condition of New Company will be substantially identical to the
financial statements of the Company.
The Company creates, develops, acquires and produces programming that it
distributes 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 and music programming to cable television system operators
and other video distributors, (iii) sells advertising time on its two television
networks and (iv) receives license fees for its country music television
network.
On April 1, 1997, the Company acquired Mr. Glenn R. Jones' 19% equity
interest in Jones Infomercial Networks, Inc. ("Infomercial Networks"), the
subsidiary through which the Company has invested in the PIN Venture, and Glenn
R. Jones' 19% equity interest in Great American Country, Inc. ("Great American
Country"), the subsidiary through which the Company operates Great American
Country, in exchange for 333,333 shares of the Company's Class A Common Stock.
As a result of these transactions, these subsidiaries are wholly owned by the
Company. Also on April 1, 1997, the Company acquired 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. These three transactions were accounted for as a
reorganization of entities under common control. The historical consolidated
financial statements have been restated to include these transactions for all
periods presented.
The Company has received advances and loans from Jones International and
related companies to fund its operating and investing activities in the past.
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.
F-9
<PAGE>
JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Ventures--The Company is a partner in two joint ventures, the PIN Venture
and Galactic/Tempo ("Superaudio"), and is a member in a third venture,
Jones/Owens Radio Programming, LLC ("JORP"). 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"). JORP is in the business of developing,
producing and distributing short-form and long-form syndicated radio programs.
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.
Profits, losses and distributions of these ventures have been and will be
allocated in accordance with the respective Common Stocks of the partners or
members. Distributions of assets have been and will be approved by the partners
or members for the respective venture prior to such distributions.
From February 1995 until March 31, 1997, the Company owned 50% or less of
the PIN Venture, the entity that owns and operates the Product Information
Network. Effective April 1, 1997, the Company acquired from Adelphia
Communications an 8.35% equity interest in the PIN Venture in exchange for
262,500 shares of the Company's Class A Common Stock. As a result of this
transaction, which was accounted for as a purchase, the Company now owns
approximately 54% of the PIN Venture and, effective April 1, 1997, consolidated
the results of operations of the PIN Venture for financial reporting purposes.
Interim Financial Information (unaudited)--The accompanying statements of
financial position as of June 30, 1998, the statements of operations and cash
flows for the six months ended June 30, 1997 and 1998, and the statement of
changes in shareholders' deficit for the six months ended June 30, 1998, are
unaudited. However, in the opinion of management, these statements include all
adjustments, consisting of normal recurring adjustments, necessary for the fair
presentation of results for these interim periods. The results of operations for
the six months ended June 30, 1998 are not necessarily indicative of results to
be expected for the entire year, or for any other interim period.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash and Cash Equivalents--The Company considers all highly liquid
investments with a maturity when purchased of three months or less to be cash
equivalents.
Fair Value of Financial Instruments--The fair value of the Company's
financial instruments is estimated based on the quoted market prices for similar
instruments.
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 statements 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.
Property, Plant and Equipment--Property and equipment are depreciated using
the straight-line method over the estimated useful lives of 3 to 15 years.
Depreciation of the building is provided using the straight-line method over an
estimated useful life of 40 years. Leasehold improvements are depreciated over
the lesser of five years or
F-10
<PAGE>
JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
the term of the lease. Satellite transponders are depreciated over the term of
the lease.
Goodwill--Goodwill consists primarily of the excess purchase price paid in
the PIN acquisition in 1997 as discussed in Note 5. Goodwill is amortized over
the estimated economic life of the partnership, which is approximately 18 years.
Other Intangible Assets--Intangible assets consist primarily of radio
programming licensing agreements obtained from a third party in October 1996.
Intangible assets are amortized over the lesser of 15 years or the term of the
affiliate agreements.
Long-Lived Assets--The Company reviews for the impairment of long-lived
assets and certain identifiable intangibles whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. No such impairment indicators have been identified by the Company.
Advances to Parent Company--Advances to parent company in the statements of
shareholders' deficit represent the net impact of the intercompany activity
between Space Segment and Jones International. Such amounts have been presented
as further reductions of accumulated deficit in connection with the
reorganization of these entities under common control.
Deferred Commissions--Sales commissions are amortized over the life of the
corresponding affiliate agreements from which the sales 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.
Deferred Offering Costs--Deferred offering costs consist primarily of
financial advisory, legal and accounting fees incurred in connection with
financing activities. These costs will be charged against the gross proceeds of
the financing activities or written off if and when the financing activities are
not consummated.
Customer Deposits and Deferred Revenues--Customer deposits consist of
unearned revenues associated with affiliate fees and refundable advance payments
received from radio stations. Deferred revenues consist of advance payments and
a security deposit paid by the sub-lessor on the leased transponders.
Income Taxes--Prior to April 2, 1997, the Company joined 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) were 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). As a result of the
issuance of additional shares of the Company's common stock (see Note 1), less
than 80% of the Company's outstanding common stock was beneficially (or
indirectly) owned by Jones International. Therefore, the Company is no longer
included in the Jones International tax allocation agreement.
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. Jones International may defer such payments for a
period not to exceed five years from the date the tax benefits were incurred and
will accrue interest at the time the deferred amounts originate. For the year
ended December 31, 1997, Jones International elected to defer a tax benefit of
approximately $1,342,000 due to the Company and its subsidiaries. For the six
months ended June 30, 1998, the Company incurred a tax provision of
approximately $268,000 to adjust estimated tax provisions to actual
F-11
<PAGE>
JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
tax provisions for the year ended December 31, 1997. This provision was offset
against the income tax receivable.
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 revenues consist of radio programming
revenues, television programming revenues and satellite delivery and production
support revenues.
Radio programming revenues include advertising and license fees. The
Company generates radio advertising revenues by selling airtime to advertisers
who advertise their products or services on the networks. The Company recognizes
advertising revenues upon airing of the advertisements. Any amounts received
from customers for radio advertisements that have not been aired during the
period are recorded as deferred revenues until such time as the advertisement is
aired. The Company delivers its programming to radio stations for distribution
to their listeners. Radio station license fees are earned monthly based on the
radio station's contractual agreement.
Television programming revenues include advertising and license fees. The
Company generates television advertising revenues by selling airtime to
advertisers who advertise their products or services on the networks. The
Company recognizes advertising revenues upon the airing of the advertisements.
Any amounts received from customers for television advertisements that have not
been aired during the period are recorded as deferred revenues 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
license 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 revenues include revenues from
satellite delivery, uplinking, trafficking, playback and other services. The
Company generates revenues by providing such services to affiliates and third
parties. The Company recognizes satellite delivery and production support
revenues upon completion of the services or upon contractual arrangements.
New Accounting Pronouncements--Net loss per common share in the
accompanying consolidated financial statements is based on the weighted average
number of common shares outstanding during the respective periods. In February
1997, the Financial Accounting Standards Board ("FASB") issued Statement of
Financial Accounting Standards 128 ("SFAS 128") entitled, "Earnings per Share."
SFAS 128 is effective for fiscal years ending after December 15, 1997; early
adoption is not permitted. SFAS 128 replaces primary and fully diluted earnings
per share with basic and diluted earnings per share, respectively. Under SFAS
128, diluted net income (loss) per share for the periods reported would be the
same as the basic earnings per share presented in the accompanying consolidated
financial statements.
In February 1997, the FASB issued SFAS No. 129, "Disclosure of Information
About Capital Structure," which is effective for financial statements for
periods ended after December 15, 1997. This statement establishes standards for
disclosing information about an entity's capital structure. The Company has
adopted this statement. The adoption of this statement did not have a material
impact on the financial statements.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income," which is effective for the year ending December 31, 1998. This
statement establishes standards for the reporting and display of
F-12
<PAGE>
JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
comprehensive income and its components in financial statements and thereby a
measure of all changes in equity of an enterprise that result from transactions
and other economic events other than transactions with owners.
In June 1997, the FASB issued SFAS No. 131, "Disclosure About Segments of
an Enterprise and Related Information," which is effective for the year ending
December 31, 1998. This statement changes the requirements under which publicly
held companies report disaggregated information.
The Company will adopt SFAS No. 130 and No. 131 on their respective dates.
Management of the Company does not expect that the adoption of these statements
will have a material impact on the financial statements.
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.
Reclassifications--Certain prior period amounts have been reclassified to
conform to the current year presentation.
Impact of the Year 2000 Issue (unaudited)--The Year 2000 issue is the
result of many computer programs being written such that they will malfunction
when reading a year of "00." This problem could cause system failure or
miscalculations causing disruptions of business processes.
The Company has initiated an assessment of its computer applications to
determine the extent of the problem. Based on this assessment, the Company has
determined that the majority of its computer applications supporting business
processes, including accounting and billing, are designed to handle the Year
2000 appropriately.
The Company is currently focusing its efforts on the impact of the Year
2000 issue on service delivery. The Company has established an internal team to
address this issue. The Company is identifying and testing all date-sensitive
equipment involved in delivering service to its customers. In addition, the
Company will assess its options regarding repair or replacement of affected
equipment during this testing. The Company currently has no definitive estimate
of the cost or the extent of the impact, if any, this problem will have on
service delivery; however, the Company does not believe that the impact will be
material. The Company anticipates completion of its testing in 1998, at which
time it will assess the financial impact on the Company.
(3) JONES NETWORK HOLDINGS LLC EXCHANGE
Effective December 31, 1997, all shareholders of the Company contributed
their shares of the Company to Network Holdings in exchange for the same number
of Class A or Class B Ownership Interests in Network Holdings. Network Holdings
was the sole shareholder of all of the Company's outstanding stock as of
December 31, 1997 (see Note 1). On July 10, 1998, the date of the closing of
the Company's 11 3/4% Senior Secured Notes offering, all of the shares of Old
Company were acquired by New Company from Network Holdings, which was then
dissolved.
(4) 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, Inc. ("Galactic Radio") from Jones Global Group, Inc.
("Global Group"), an affiliate of the Company, for $17,200,000.
F-13
<PAGE>
JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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
Superaudio (see Note 10). The purchase price was paid using $1,200,000 in cash
with the balance in the form of a $16,000,000 promissory note to Global Group.
The net assets of Galactic Radio as of the purchase date totaled
approximately $5.1 million. In accordance with generally accepted accounting
principles for a transfer of entities under common control, the amount of
purchase price paid in excess of Galactic Radio's net assets (approximately
$12.1 million) was charged to shareholders' investment at the beginning of the
periods presented.
Effective September 30, 1996, the Company acquired all of the common stock
of Jones Earth Segment, Inc. ("Earth Segment") from Mr. Glenn R. 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,
editing, duplication and uplinking services, primarily to affiliates. 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.
(5) ACQUISITION AND CONSOLIDATION OF PIN VENTURE
From February 1995 until March 31, 1997, the Company owned 50% or less of
the PIN Venture, the entity that owns and operates the PIN Network. Effective
April 1, 1997, the Company acquired from Adelphia Communications an 8.35% equity
interest in the PIN Venture in exchange for 262,500 shares of the Company's
Class A Common Stock which was valued at $12 per share for a total of
$3,150,000. As a result of this transaction, which was accounted for as a
purchase, the Company now owns approximately 54% of the PIN Venture and,
effective April 1, 1997, consolidated the results of operations of the PIN
Venture for financial reporting purposes.
The proportionate share (8.35%) of the net assets of the PIN Venture as of
the purchase date totaled approximately $113,000. In accordance with generally
accepted accounting principles for acquisition accounting, the amount of
purchase price paid by the Company in excess of the proportionate share of the
PIN Venture's net assets (approximately $3,037,000) was recorded as goodwill.
Goodwill is being amortized over the estimated life of the partnership, which is
approximately 18 years.
Certain condensed pro-forma financial information of the Company assuming
the PIN Venture was consolidated as of January 1, 1996 is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------
1996 1997
--------------- ---------------
<S> <C> <C>
Total assets $ 42,454,000 $ 41,358,000
Liabilities................................. 56,564,000 59,565,000
Shareholders' deficit....................... (14,110,000) (18,206,000)
Revenues.................................... 23,114,000 31,544,000
Operating expenses.......................... 21,420,000 28,914,000
Operating income............................ 1,694,000 2,630,000
Net loss.................................... (2,307,000) (3,493,000)
</TABLE>
F-14
<PAGE>
JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(6) TRANSACTIONS WITH AFFILIATED ENTITIES
The Company is a subsidiary of Jones International, a holding company with
ownership 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 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 Superaudio, are described below. See
Note 10 for transactions with affiliates related to Superaudio.
Television Programming Revenues--Prior to July 1, 1998, the Company earned
up to a three percent commission on the sale of airtime for informational
programming on Jones Education Company ("Jones Education") and its affiliates.
Prior to October 1, 1995, the Company did not provide this service to Jones
Education. For the year ended December 31, 1995, 1996 and 1997, the Company
received approximately $52,000, $241,000 and $216,000, respectively, for this
service. For the six months ended June 30, 1997 and 1998, the Company received
approximately $112,000 and $97,000, respectively, for this service. After July
1, 1998, PIN will perform such services and will receive all commissions, as
well as paying all related expenses.
Prior to the consolidation of the PIN Venture, which was effective April 1,
1997, the Company received from the PIN Venture approximately $35,000 for the
year ended December 31, 1996 and $8,000 for the three months ended March 31,
1997 for commissions on the sale of airtime for informational programming.
The Company distributes Great American Country to certain cable television
systems owned or managed by Jones Intercable. Great American Country, 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
approximately $719,000 and $853,000 for the years ended December 31, 1996 and
1997. Jones Intercable and its affiliated partnerships paid total license fees
to the Company of approximately $452,000 and $468,000 for the six months ended
June 30, 1997 and 1998, respectively.
Satellite Delivery and Production Support Revenues--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, 1995, 1996 and
1997, Earth Segment charged Jones Education and its affiliates approximately
$1,885,000, $2,248,000 and $2,193,000, respectively, for these services. For the
six months ended June 30, 1997 and 1998, Earth Segment charged Jones Education
and its affiliates approximately $1,072,000 and $1,335,000, respectively, for
these services.
Prior to the consolidation of the PIN Venture, Earth Segment charged the
PIN Venture approximately $522,000, $726,000 and $201,000 for the years ended
December 31, 1995 and 1996 and for the six months ended June 30, 1997,
respectively, for these services.
In addition, Jones Space Holdings ("Space Holdings"), a subsidiary of the
Company, subleased a non-preemptible satellite transponder to Jones Education
and its affiliates. Satellite transponder lease revenues of approximately
$1,213,000, $852,000 and $896,000, were received from Jones Education for the
years ended December 31, 1995, 1996, and 1997, respectively. Satellite
transponder lease revenues of approximately $448,000 and $468,000, were received
from Jones Education for the six months ended June 30, 1997 and 1998,
respectively.
F-15
<PAGE>
JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Prior to the consolidation of the PIN Venture, satellite transponder lease
revenues of approximately $1,112,000, $852,000, and $224,000 were received from
the PIN Venture, for the years ended December 31, 1995 and 1996 and for the six
months ended June 30, 1997, respectively.
Television Programming Expense--Infomercial Networks provided programming
to Jones Intercable and its managed partnerships prior to the formation of the
PIN Venture and, as required under the terms of the affiliate agreement, paid a
fee of approximately 33% of the net revenues generated to the affiliates which
aired the infomercial programming. For the year ended December 31, 1995,
Infomercial Networks paid cable system rebates to Jones Intercable and its
managed systems totaling approximately $109,000. Television programming expenses
decreased in 1996 due to the effects of the deconsolidation of the PIN Venture
for financial reporting purposes in February 1, 1995.
From February 1995 through March 31, 1997, the Company owned 50% or less of
the PIN Venture, the entity that owns and operates the Product Information
Network. Effective April 1, 1997, the Company acquired from Adelphia
Communications an 8.35% equity interest in the PIN Venture. As a result of this
transaction, which was accounted for as a purchase, the Company now owns
approximately 54% of the PIN Venture and, effective April 1, 1997 consolidated
the results of operations of the PIN Venture for financial reporting purposes.
During 1997, the PIN Venture paid approximately 60% 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, Cox Communications
and Adelphia Communications were approximately $3,546,000 for the nine months
ended December 31, 1997. Amounts paid by the PIN Venture to Jones Intercable and
its affiliated partnerships, Cox and Adelphia were approximately $1,173,000 for
the three months ended June 30, 1997 and $2,819,000 for the six months ended
June 30, 1998.
An affiliate of the Company began providing affiliate sales services to the
Company in late 1997. This affiliate charged the Company approximately $201,000
for the year ended December 31, 1997 and approximately $444,000 for the six
months ended June 30, 1998.
Satellite Delivery and Production Support Expense--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-preemptible 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. The Company agreed to pay Satellite
Holdings approximately $58,000 per month. This agreement will expire May 7,
2004. Satellite Holdings charged approximately $696,000 for each of the years
ended December 31, 1995, 1996 and 1997, for this service. The Company paid
Satellite Holdings fees of approximately $348,000 for the six months ended June
30, 1997 and 1998, 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. The Company was charged approximately $14,000,
$32,000 and $88,000, for the years ended December 31, 1995, 1996 and 1997,
respectively for rent and associated expenses. Affiliates of Jones International
charged the Company approximately $39,000 and $74,000, for the six months ended
June 30, 1997 and 1998, respectively for rent and associated expenses.
An affiliate of Jones International provides computer hardware and software
support services to the Company. This affiliate charged the Company
approximately $306,000, $385,000 and $574,000, for the years ended December 31,
1995, 1996 and 1997, respectively, for such services. This subsidiary charged
the Company
F-16
<PAGE>
JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
approximately $216,000 and $330,000, for the six months ended June 30, 1997 and
1998, respectively, for such services.
An affiliate of the Company charged the Company approximately $110,000 for
the six months ended June 30, 1998 for the allocated costs of its airplane which
was used by the Company in connection with the Notes offering. No services were
provided in the years ended December 31, 1995, 1996 or 1997.
The Company and its consolidated subsidiaries reimburse Jones International
and its affiliates 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 approximately $163,000, $861,000 and $540,000, for the years ended
December 31, 1995, 1996 and 1997, respectively, for these administrative
expenses. Jones International and its affiliates charged the Company
approximately $289,000 and $513,000, for the six months ended June 30, 1997 and
1998, 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 11, 10 and 10 percent per
annum in 1995, 1996 and 1997, respectively. Jones International's interest rate
is calculated using the published prime rate plus two percent. Jones
International charged the Company interest of approximately $142,000, $243,000
and $868,000, for the years ended December 31, 1995, 1996 and 1997,
respectively. Jones International charged the Company interest of approximately
$375,000 and $328,000, for the six months ended June 30, 1997 and 1998,
respectively. The Company anticipates it will repay these advances from
operating cash flow and/or available cash balances.
(7) DEFERRED OFFERING COSTS
The Company had incurred approximately $1,113,000 in deferred offering
costs through December 31, 1997 relating to a proposed initial public offering
and certain other financing undertaken by the Company during 1996 and 1997. Such
costs included amounts paid to financial advisors, legal counsel and independent
public accountants, and for regulatory and stock exchange registration fees and
other various costs. As a result of the Company's withdrawal of this proposed
offering in early 1997, certain deferred offering costs relating to the offering
that were deemed not transferable to other financing activities were expensed.
During 1997, the Company expensed $938,000 of such costs. The remaining deferred
offering costs of approximately $175,000 are included in other assets in the
accompanying consolidated statements of financial position at December 31, 1997
and are deemed to benefit the debt offering which closed in July, 1998 (see Note
15).
(8) NOTE PAYABLE
In December 1994, Earth Segment issued a promissory note which was acquired
by Jones Intercable. As of December 31, 1996 and 1997, the principal amount of
the note was $6,554,500, which approximates fair market value. The note was
secured by all of Earth Segment's present and future tangible and intangible
property and bore interest at one percent over the published prime rate (9.5% at
December 31, 1997). Interest expense, which was payable quarterly, totaled
approximately $670,000, $608,000 and $627,000 for the years ended December 31,
1995, 1996 and 1997, respectively. Interest expense totaled approximately
$311,000 and $156,000 for the six months ended June 30, 1997 and 1998,
respectively. This note and accrued interest were repaid on March 31, 1998 (see
Note 15).
F-17
<PAGE>
JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
In August 1996, the Company issued a $16 million promissory note to Global
Group that bore interest at 8.25 percent per annum and was payable quarterly.
Effective September 30, 1997, the Company and Global Group agreed to convert $6
million of the $16 million note payable to Global Group into 400,000 shares of
the Company's Class B Common Stock. This note was repaid in conjunction with the
exchange of Network Holdings' Ownership Interests with the Company's
shareholders as of December 31, 1997. Network Holdings issued a new $10
million promissory note to Global Group on December 31, 1997, which replaced the
note with the Company. Such new $10 million promissory note bore interest at
8.25 percent per annum. Interest on the promissory note accrues and compounds
annually. All outstanding principal and unpaid interest were due and payable in
full on December 31, 2005.
On July 10, 1998, the Company issued $100 million of 11 3/4% Senior Secured
Notes. Effective upon the closing of the Notes offering, the Global Group note
was transferred to the Company and was then converted into 666,667 shares of the
Company's Class A Common Stock valued at $15 per share (see Note 15).
(9) CAPITAL LEASES
The capital lease obligation was comprised of a satellite transponder lease
agreement which provides two non-preemptible satellite transponders, one on each
of two satellites launched in 1992. The agreement provides for full time usage
of two transponders for 12 years. A portion of these satellite transponders are
subleased to affiliated entities and third parties.
Future minimum payments under these capital leases, together with the
present value of the minimum lease payments, were as follows (see Note 15):
<TABLE>
<S> <C>
1998...................................................................................... $ 5,190,000
1999...................................................................................... 5,430,000
2000...................................................................................... 5,670,000
2001...................................................................................... 5,910,000
2002...................................................................................... 6,150,000
Thereafter.................................................................................... 12,165,000
-----------
Future minimum payments....................................................................... 40,515,000
Less: amounts representing interest........................................................... 11,758,000
-----------
Present value of minimum lease payments....................................................... $28,757,000
===========
</TABLE>
On July 24, 1998, the Company prepaid the entire capital lease obligation
using the proceeds from the Notes offering (see Note 15).
(10) JOINT VENTURE
The Company is a partner in the Superaudio joint venture. The term of this
joint venture is until May 2000. 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.
F-18
<PAGE>
JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
Certain condensed financial information for Superaudio is as follows:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
----------------------------------------- ------------------------
1995 1996 1997 1997 1998
------------ ------------- ------------ ------------ ----------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
Total assets ...................................... $1,156,000 $ 950,000 $1,216,000 $1,171,000 $647,000
Total liabilities ................................. 310,000 72,000 62,000 55,000 47,000
Partners' capital ................................. 846,000 878,000 1,154,000 1,116,000 600,000
Revenues .......................................... 1,898,000 2,379,000 2,132,000 1,141,000 948,000
Operating expenses ................................ 1,480,000 1,755,000 1,684,000 914,000 815,000
Operating income .................................. 418,000 624,000 448,000 227,000 133,000
Net income ........................................ 431,000 632,000 476,000 237,000 146,000
</TABLE>
Superaudio reimburses 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 programming,
advertising sales management, engineering, marketing, administrative,
accounting, information management, and legal services to Superaudio.
Allocations of personnel costs have been based primarily on actual time spent by
the Company and its affiliates' employees.
Significant transactions for Superaudio with affiliated entities are
described below:
Audio Programming Revenues--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 each of the years ended December
31, 1995, 1996 and 1997, Jones Intercable and its affiliates paid Superaudio
$720,000 for audio programming. For each of the six months ended June 30, 1997
and 1998, Jones Intercable and its affiliates paid Superaudio $360,000 for audio
programming.
Audio Programming Expense--The Company sells certain audio programming and
services to Superaudio. For the years ended December 31, 1995, 1996 and 1997,
the Company charged Superaudio approximately $55,000, $48,000 and $16,000,
respectively, for audio programming and services. For the six months ended June
30, 1997 and 1998, the Company charged Superaudio approximately $16,000 and
$156,000, respectively, for audio programming and services.
Satellite Delivery and Production Support Expense--The Company has a
satellite transponder lease agreement with Satellite Holdings and in turn
subleases the audio subcarriers on this satellite transponder to Superaudio. The
Company charged Superaudio $633,000 for each of the three years in the period
ended December 31, 1997 for this service. The Company charged Superaudio
approximately $316,000 for each of the six months ended June 30, 1997 and 1998,
for this service. For the six months ended June 30, 1997 and 1998, Earth Segment
charged Superaudio approximately $72,000 and $59,000, respectively, for
satellite delivery and production support services.
General and Administrative Expenses--An affiliate of Jones International
provides computer hardware and software support services to Superaudio. The
affiliate charged Superaudio approximately $41,000, $40,000 and $23,000 for the
years ended December 31, 1995, 1996 and 1997, respectively, for computer
services. The subsidiary charged Superaudio approximately $12,000 and $15,000
for the six months ended June 30, 1997 and 1998, respectively, for computer
services.
Superaudio reimburses Jones International for certain allocated
administrative expenses. These expenses
F-19
<PAGE>
JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
generally consist of salaries and related benefits. Allocations of personnel
costs are generally based on actual time spent by affiliated associates with
respect to Superaudio. Jones International and its affiliates charged Superaudio
approximately $6,000, $23,000 and $10,000 for the years ended December 31, 1995,
1996 and 1997, respectively, for these administrative expenses. Jones
International and its affiliates charged Superaudio approximately $6,000 and
$10,000 for the six months ended June 30, 1997 and 1998, respectively, for these
administrative expenses.
(11) COMMON STOCK
Voting Rights--Holders of Class A Common Stock are generally entitled to
one vote per share and are entitled to elect 25% of the Board of Directors, and
holders of Class B Common Stock are entitled to ten votes per share and to elect
the remaining 75% of the Directors. Both classes vote together as a single class
on all matters not requiring a class vote under Colorado law.
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 of 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 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 400,000 shares of the Company's Class A Common Stock. As
of December 31, 1997, the Company had not granted any options or SARs. As of
July 10, 1998, the Company had granted options for 275,000 shares of Class A
Common Stock at fair market value.
(12) INCOME TAXES
As described in Note 2, the Company 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 through the first
quarter of 1997. 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
recognized as a result of the tax sharing arrangement were approximately
$498,000, $387,000 and $1,342,000 for the years ended December 31, 1995, 1996
and 1997.
The difference between the statutory federal income tax rate and effective
rate is summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------------------
1995 1996 1997
---------------- ----------------- ----------------
<S> <C> <C> <C>
Computed "expected tax benefit" ................................... $ 602,000 $ 743,000 $ 1,692,000
State taxes, net of federal benefit ............................... 56,000 72,000 157,000
Other ............................................................. 10,000 20,000 28,000
--------- --------- -----------
668,000 835,000 1,877,000
Valuation allowance................................................. (668,000) (835,000) (1,877,000)
--------- --------- -----------
Tax benefit before impact of tax sharing agreement ................ -- -- --
Impact of tax sharing agreement (through April 2, 1997)............. 498,000 387,000 1,342,000
--------- --------- -----------
Total income tax benefit .......................................... $ 498,000 $ 387,000 $ 1,342,000
========= ========= ===========
</TABLE>
F-20
<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>
1996 1997
----------------- -----------------
<S> <C> <C>
DEFERRED TAX ASSETS:
Net operating loss carry forwards .......................................... $ 1,306,000 $ 1,654,000
Future deductible amounts associated with other assets and liabilities ..... 227,000 154,000
----------- -----------
1,533,000 1,808,000
DEFERRED TAX LIABILITIES:
Investments in property and equipment ...................................... (425,000) (706,000)
VALUATION ALLOWANCE ........................................................ (1,108,000) (1,102,000)
----------- -----------
Net deferred tax assets .................................................... $ -- $ --
=========== ===========
</TABLE>
At December 31, 1997, the Company had net tax operating loss carryforwards
("NOLs") of approximately $4.3 million which expire between 2006 and 2007.
Although management expects future results of operations to improve, it
recognizes 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.
(13) 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, 1995, 1996 and 1997, the Company contributed
approximately $51,000, $62,000 and $83,000, 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 compensation. The
contributed funds are deposited with an independent trustee and are invested in
a number of pre-selected investment funds. Both the key employees' and the
Company's contributions are subject to the claims of the Company's creditors.
Participants in the Deferred Compensation Plan 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 $25,000,
$23,000 and $33,000 for the years ended December 31, 1995, 1996 and 1997,
respectively.
F-21
<PAGE>
JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
(14) COMMITMENTS AND CONTINGENCIES
Operating Lease
The Company rents an office facility under a lease agreement. Future
minimum lease payments under this noncancelable operating lease at December 31,
1997, for each of the next five years and thereafter, are approximately as
follows:
<TABLE>
<CAPTION>
FISCAL FACILITIES
- ------ ----------
YEAR LEASE
- ---- -----
<S> <C>
1998 ............................................................................................... $158,000
1999 ............................................................................................... 162,000
2000 ............................................................................................... 162,000
2001 ............................................................................................... 162,000
2002 ............................................................................................... 148,000
Thereafter ......................................................................................... --
--------
$792,000
========
</TABLE>
GAC Equity Agreements
In the first quarter of 1998, Great American Country and the Company
entered into equity affiliate agreements with two multiple cable system
operators ("MSOs"). Pursuant to the terms of such agreements, the Company agreed
to issue shares of Class A Common Stock to the MSOs in return for the MSOs
providing Great American Country's programming to no less than 550,000 of their
subscribers by May 31, 1998, 500,000 subscribers by December 31, 1998 and
150,000 subscribers by December 31, 1999. The total number of shares of Class A
Common Stock to be issued is based on the number of subscribers provided by the
MSOs. If all the subscribers as described above receive Great American Country's
programming by the specified dates, the Company will be required to issue a
total of 175,000 shares of Common Stock on specified dates through February
2000. At August 1, 1998, 101,124 shares of Class A Common Stock had been issued
to one of the MSOs.
Also pursuant to the terms of one of these agreements, one of the MSOs was
granted a put option on the Common Stock issued, whereby, if as of December 31,
2001, the Company or its successor has not completed a public offering of its
securities, the MSO shall have the option within 60 days of such date to sell
its Class A Common Stock back to the Company. If the put election is made, the
Company or its successor would purchase the Class A Common Stock at a price
equal to all or a portion of the license fees that would have been paid during
the period between the date of the agreement and the exercise date of the put
option. The purchase price would be based on the total number of MSO subscribers
receiving the Great American Country service as of December 31, 1998. In the
event the MSO provides the full number of subscribers committed under the
agreement by December 31, 1998, the estimated purchase price of the Class A
Common Stock in the event the put option is exercised would be approximately
$1,176,000.
(15) CONDENSED CONSOLIDATING FINANCIAL INFORMATION FOR SUBSIDIARY GUARANTORS
In July 1998, the Company issued $100 million of Senior Secured Notes (the
"Notes"). The Notes are senior obligations of the Company. The Notes rank pari
passu in right of payment with all existing and future senior indebtedness of
the Company and rank senior to all existing and future subordinated obligations
of the Company. The Notes are secured by the capital stock of the Company's
subsidiary, JPN, Inc., and its direct subsidiaries. The Notes are fully and
unconditionally guaranteed, jointly and severally, on a senior unsecured basis
by the following wholly-owned subsidiaries of the Company: JPN, Inc., Jones
Space Holdings, Inc., Jones Earth Segment, Inc., Jones Infomercial Networks,
Inc., Jones Radio Holdings, Inc., Great American Country, Inc., Jones Galactic
Radio, Inc., Jones Infomercial Network Ventures, Inc., Jones Galactic Radio
Partners, Inc., Jones Radio Network, Inc., Jones Audio Services, Inc., Jones
Radio Network Ventures, Inc., MediaAmerica, Inc. and Jones MAI Radio, Inc. and
by its 90%-owned subsidiary, Jones/Owens Radio Programming LLC (collectively,
the "Subsidiary Guarantors"). The only existing subsidiaries of the Company that
did not guarantee the Notes are the following three entities: the Product
Information Network Venture, a general partnership in which the Company, through
a Subsidiary Guarantor, owns a 54% interest; Galactic Tempo, d/b/a Superaudio
("Superaudio"), a general partnership in which the Company, through a Subsidiary
Guarantor, owns a 50% interest (see Note 10) and Jones/Capstar Venture Radio
Programming LLC, a recently formed limited liability company in which the
Company, through a Subsidiary Guarantor, owns a 50% interest (collectively, the
"Non-Guarantor Subsidiaries").
The Company has not provided separate complete financial statements and
other disclosures of the respective Subsidiary Guarantor because management has
determined that such information is not material to investors. There are no
significant contractual restrictions on distributions from each of the
Subsidiary Guarantors to the Company.
Investments in subsidiaries are required to be accounted for by investors
on the equity method for purposes of the supplemental condensed consolidating
financial statement presentation. Under this method, investments are recorded at
cost and adjusted for the investor company's ownership share of the
subsidiaries' cumulative results of operations. In addition, investments
increase in the amount of contributions to subsidiaries and decrease in the
amount of distributions from subsidiaries. The elimination entries eliminate the
equity method investment in subsidiaries accounting and the equity in earnings
of subsidiaries, intercompany payables and receivables and other transactions
between subsidiaries including contributions and distributions. The Company has
not presented separate complete financial statements and other disclosures of
the respective Subsidiary guarantors because management has determined that such
information is not material to investors. There are no significant contractual
restrictions on distributions from each of the Subsidiary Guarantors to the
Company.
Sections 13 and 15(d) of the Securities Exchange Act of 1934 require
presentation of the following supplemental condensed consolidating financial
statements.
F-22
<PAGE>
JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
Presented below is condensed consolidating financial information for
the Company and its subsidiaries as of and for the years ended December 31,
1995, 1996 and 1997, and the six months ended June 30, 1997 and 1998.
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS - FOR THE YEAR ENDED
DECEMBER 31, 1995:
<TABLE>
<CAPTION>
NON-
THE SUBSIDIARY GUARANTOR ELIMINATION
COMPANY GUARANTORS SUBSIDIARIES ENTRIES REPORTED
---------- -------------- ------------- ------------ ------------
INCOME STATEMENT DATA: (IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
REVENUES:
Radio programming ............................. $ -- $ 5,121 $ -- $ -- $ 5,121
Television programming ........................ -- 340 4,111 (4,111) 340
Satellite delivery and production support ..... -- 9,666 -- -- 9,666
----- ------- ------ ------- -------
Total revenues ............................. -- 15,127 4,111 (4,111) 15,127
----- ------- ------ ------- -------
OPERATING EXPENSES:
Radio programming ............................. -- 3,068 -- -- 3,068
Television programming ........................ -- 366 3,719 (3,719) 366
Satellite delivery and production support ..... -- 6,530 -- -- 6,530
Selling and marketing ......................... -- 1,374 115 (115) 1,374
General and administrative .................... 304 2,018 662 (662) 2,322
----- ------- ------ ------- -------
Total operating expenses ................... 304 13,356 4,496 (4,496) 13,660
----- ------- ------ ------- -------
OPERATING INCOME ........................... (304) 1,771 (385) 385 1,467
----- ------- ------ ------- -------
OTHER EXPENSE (INCOME):
Interest expense .............................. 35 4,079 33 (77) 4,070
Interest income ............................... (17) (91) -- 44 (64)
Write-off of deferred offering costs ........... -- -- -- -- --
Equity share of loss (income) of subsidiaries .. 217 (11) -- (217) (11)
Other expense (income), net ................... -- 16 (6) 6 16
----- ------- ------ ------- -------
Total other expense ........................ 235 3,993 27 (244) 4,011
----- ------- ------ ------- -------
Income (loss) before income taxes and minority
interests .................................. (539) (2,222) (412) 629 (2,544)
Income tax provision (benefit) ................ (57) (441) -- -- (498)
----- ------- ------ ------- -------
Income (loss) before minority interests ....... (482) (1,781) (412) 629 (2,046)
Minority interests in net income of
consolidated subsidiaries ................... -- -- -- -- --
----- ------- ------ ------- -------
NET INCOME (LOSS) ............................. $(482) $(1,781) $ (412) $ 629 $(2,046)
===== ======= ====== ======= =======
</TABLE>
F-23
<PAGE>
JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS - FOR THE YEAR ENDED
DECEMBER 31, 1995:
<TABLE>
<CAPTION>
NON-
THE SUBSIDIARY GUARANTOR ELIMINATION
COMPANY GUARANTORS SUBSIDIARIES ENTRIES REPORTED
------- ---------- ------------ ------------ --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss............................................................ $ (482) $ (1,781) $ (412) $ 629 $ (2,046)
Adjustment to reconcile net loss to net cash provided by (used in)
operating activities:
Non-cash expenses (income)..................................... -- 3,877 18 (18) 3,877
Distributions received......................................... -- 175 -- -- 175
Net change in assets and liabilities........................... 484 (1,909) 262 (479) (1,642)
------- ---------- ---------- ---------- ---------
Net cash provided by (used in) operating activities........... 2 362 (132) 132 364
------- ---------- ---------- ---------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment........................... -- (1,262) (326) 326 (1,262)
Sale of property, plant and equipment............................... -- -- 124 (124) --
Purchases of intangible assets...................................... (2) (434) (436)
Investment in joint venture......................................... -- (175) -- -- (175)
------- ---------- ---------- ---------- ---------
Net cash used in investing activities.......................... (2) (1,871) (202) 202 (1,873)
------- ---------- ---------- ---------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of borrowings............................................. -- (11) -- -- (11)
Repayment of capital lease obligations.............................. -- (1,178) -- -- (1,178)
Proceeds from borrowings............................................ -- 1,998 -- -- 1,998
Distributions paid to minority interests............................ -- -- -- -- --
Contributed capital from general partners........................... -- -- 350 (350) --
------- ---------- ---------- ---------- ---------
Net cash provided by financing activities...................... -- 809 350 (350) 809
------- ---------- ---------- ---------- ---------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS..................... -- (700) 16 (16) (700)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD....................... -- 705 -- -- 705
------- ---------- ---------- ---------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD............................. $ -- $ 5 $ 16 $ (16) $ 5
======= ========== ========== ========= ========
</TABLE>
F-24
<PAGE>
JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
CONDENSED CONSOLIDATING STATEMENTS OF FINANCIAL POSITION - AS OF DECEMBER 31,
1996:
<TABLE>
<CAPTION>
NON-
THE SUBSIDIARY GUARANTOR ELIMINATION
COMPANY GUARANTORS SUBSIDIARIES ENTRIES REPORTED
--------- ----------- ------------ ------------ ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
ASSETS:
Cash and cash equivalents................ $ -- $ 4 $ 55 $ (55) $ 4
Accounts receivable...................... -- 852 1,778 (1,778) 852
Other current assets..................... -- 1,663 62 (62) 1,663
-------- -------- --------- --------- --------
Total current assets............ -- 2,519 1,895 (1,895) 2,519
-------- -------- --------- --------- --------
Property, plant and equipment............ -- 32,098 448 (448) 32,098
Goodwill................................. -- 285 -- -- 285
Intangible assets........................ 3 1,280 -- -- 1,283
Other long-term assets................... 4,210 1,505 3 (3,605) 2,113
-------- -------- --------- --------- --------
Total assets.................... $ 4,213 $ 37,687 $ 2,346 $ (5,948) $ 38,298
======== ======== ========= ========= ========
LIABILITIES AND
SHAREHOLDERS' INVESTMENT
(DEFICIT):
Accounts payable......................... $ 253 $ (13) $ 379 $ (379) $ 240
Accrued liabilities...................... 196 490 144 (144) 686
Other current liabilities................ 2,439 5,770 810 (810) 8,209
-------- -------- --------- --------- --------
Total current liabilities....... 2,888 6,247 1,333 (1,333) 9,135
-------- -------- --------- --------- --------
Note payable--affiliated entity.......... 16,000 6554 -- -- 22,554
Capital lease obligations................ 28757 -- -- 28,757
Other long-term liabilities.............. -- 830 -- -- 830
-------- -------- --------- --------- --------
Total long-term liabilities..... 16,000 36,141 -- -- 52,141
-------- -------- --------- --------- --------
Minority interests....................... -- 291 -- -- 291
Shareholders' investment (deficit):
Class A Common Stock.............. 6 14 -- -- 20
Class B Common Stock.............. -- 14 -- -- 14
General partners' contributions... -- -- 350 (350) --
Additional paid-in capital........ -- 9,342 -- (9,342) --
Retained earnings (accumulated
deficit)......................... (14,681) (14,362) 663 5,077 (23,303)
-------- -------- --------- --------- --------
Total shareholders'
investment (deficit)... (14,675) (4,992) 1,013 (4,615) (23,269)
-------- -------- --------- --------- --------
Total liabilities and shareholders'
investment (deficit).................... $ 4,213 $ 37,687 $ 2,346 $ (5,948) $ 38,298
======== ======== ========= ========= ========
</TABLE>
F-25
<PAGE>
JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS- FOR THE YEAR ENDED
DECEMBER 31, 1996:
<TABLE>
<CAPTION>
NON-
THE SUBSIDIARY GUARANTOR ELIMINATION
COMPANY GUARANTORS SUBSIDIARIES ENTRIES REPORTED
---------- -------------- ------------- ------------ --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
REVENUES:
Radio programming.............................. $ 477 $ 6,501 $ -- $ -- $ 6,978
Television programming......................... -- 1,153 8,038 (8,038) 1,153
Satellite delivery and production support...... -- 8,523 -- -- 8,523
------- ------- ------ ------- -------
Total revenues.............................. 477 16,177 8,038 (8,038) 16,654
------- ------- ------ ------- -------
OPERATING EXPENSES:
Radio programming.............................. 420 3,743 -- -- 4,163
Television programming......................... 1,157 5,922 (5,922) 1,157
Satellite delivery and production support...... -- 5,451 -- -- 5,451
Selling and marketing.......................... 100 1,637 240 (246) 1,737
General and administrative..................... 579 2,691 751 (751) 3,270
------- ------- ------ ------- -------
Total operating expenses.................... 1,099 14,679 6,913 (6,913) 15,778
------- ------- ------ ------- -------
OPERATING INCOME............................ (622) 1,498 1,125 (1,125) 876
------- ------- ------ ------- -------
OTHER EXPENSE (INCOME):
Interest expense............................... 744 3,940 30 (214) 4,500
Interest income................................ (177) (75) (2) 182 (72)
Write-off of deferred offering costs (l)....... -- -- -- -- --
Equity share of loss (income) of subsidiaries.. 1,200 (829) -- (1,200) (829)
Other expense (income), net.................... -- (12) 21 (21) (12)
------- ------- ------ ------- -------
Total other expense (income)................ 1,767 3,024 49 (1,253) 3,587
------- ------- ------ ------- -------
Income (loss) before income taxes and minority
interests................................... (2,389) (1,526) 1,076 128 (2,711)
Income tax provision (benefit)................. (377) (10) -- -- (387)
------- ------- ------ ------- -------
Income (loss) before minority interests........ (2,012) (1,516) 1,076 128 (2,324)
Minority interests in net income of
consolidated subsidiaries..................... -- (9) -- -- (9)
------- ------- ------ ------- -------
NET INCOME (LOSS).............................. $(2,012) $(1,507) $1,076 $ 128 $(2,315)
======= ======= ====== ======= =======
</TABLE>
F-26
<PAGE>
JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS - FOR THE YEAR ENDED
DECEMBER 31, 1996:
(IN THOUSANDS)
<TABLE>
<CAPTION>
NON-
THE SUBSIDIARY GUARANTOR ELIMINATION
COMPANY GUARANTORS SUBSIDIARIES ENTRIES REPORTED
--------- ----------- ------------- ---------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)................................................... $(2,012) $(1,507) $1,076 $ 128 $(2,315)
Adjustment to reconcile net loss to net cash provided by (used in)
operating activities:
Non-cash expenses (income)......................................... 2 4,841 63 (1,267) 3,639
Distributions received............................................. -- 300 -- -- 300
Net change in assets and liabilities............................... 2,618 535 (774) 774 3,153
------- ------- ------ ------- -------
Net cash provided by (used in) operating activities............... 608 4,169 365 (365) 4,777
------- ------- ------ ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment........................... -- (2,969) (341) 341 (2,969)
Sale of property, plant and equipment............................... -- -- 15 (15) --
Purchases of intangible assets...................................... -- (1,002) -- -- (1,002)
Investment in joint venture......................................... -- -- -- -- --
------- ------- ------ ------- -------
Net cash used in investing activities............................. -- (3,971) (326) 326 (3,971)
------- ------- ------ ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in deferred offering costs................................. (608) -- -- -- (608)
Increase in capitalized loan fees................................... -- -- -- -- --
Repayment of borrowings............................................. -- (8) -- -- (8)
Repayment of capital lease obligations.............................. -- (1,533) -- -- (1,533)
Proceeds from borrowings............................................ -- 1,342 -- -- 1,342
Distributions paid to minority interests............................ -- -- -- -- --
Acquisition of minority interests................................... -- -- -- -- --
------- ------- ------ ------- -------
Net cash used in financing activities............................. (608) (199) -- -- (807)
------- ------- ------ ------- -------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS..................... -- (1) 39 (39) (1)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD....................... -- 5 16 (16) 5
------- ------- ------ ------- -------
CASH AND CASH EQUIVALENTS, END OF PERIOD............................. $ -- $ 4 $ 55 $ (55) $ 4
======= ======= ====== ======= =======
</TABLE>
F-27
<PAGE>
JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
CONDENSED CONSOLIDATING STATEMENTS OF FINANCIAL POSITION - AS OF
DECEMBER 31, 1997:
(IN THOUSANDS)
<TABLE>
<CAPTION>
NON-
THE SUBSIDIARY GUARANTOR ELIMINATION
COMPANY GUARANTORS SUBSIDIARIES ENTRIES REPORTED
--------- ----------- ------------ ------------ ---------
<S> <C> <C> <C> <C> <C>
ASSETS:
Cash and cash equivalents ................. $ (25) $ 79 $3,663 $ -- $ 3,717
Accounts receivable ....................... -- 781 674 -- 1,455
Other current assets ...................... -- 540 -- -- 540
-------- -------- ------ ----- --------
Total current assets .................. (25) 1,400 4,337 -- 5,712
-------- -------- ------ ----- --------
Property, plant and equipment ............. 7 28,557 212 -- 28,776
Goodwill .................................. -- 3,126 -- -- 3,126
Intangible assets ......................... 53 1,006 5 -- 1,064
Other long-term assets .................... 1,683 2,871 -- (1,874) 2,680
-------- -------- ------ -------- --------
Total assets .......................... $ 1,718 $ 36,960 $4,554 $ (1,874) $ 41,358
======== ======== ====== ======== ========
LIABILITIES AND
SHAREHOLDERS' INVESTMENT
(DEFICIT):
Accounts payable .......................... $ 417 $ 132 $ 890 $ -- $ 1,439
Accrued liabilities ....................... 312 961 27 -- 1,300
Other current liabilities ................. 5,910 5,915 479 -- 12,304
-------- -------- ------ -------- --------
Total current liabilities ............. 6,639 7,008 1,396 -- 15,043
-------- -------- ------ -------- --------
Note payable--affiliated entity ........... 10,000 6,554 -- -- 16,554
Capital lease obligations ................. -- 26,335 -- -- 26,335
Other long-term liabilities ............... 3,289 39 -- (3,289) 39
-------- -------- ------ -------- --------
Total long-term liabilities ........... 13,289 32,928 -- (3,289) 42,928
-------- -------- ------ -------- --------
Minority interests ........................ -- 134 -- 1,459 1,593
Shareholders' investment (deficit):
Class A Common Stock .................... 30 1 -- (1) 30
Class B Common Stock .................... 18 1 -- (1) 18
General partners' contributions........... -- -- 350 (350) --
Additional paid-in capital .............. 9,143 12,840 -- (12,840) 9,143
Retained earnings (accumulated
deficit) ............................... (27,401) (15,952) 2,808 13,148 (27,397)
-------- -------- ------ -------- --------
Total shareholders'
investment (deficit) ..... (18,210) (3,110) 3,158 (44) (18,206)
-------- -------- ------ -------- --------
Total liabilities and shareholders'
investment (deficit) .................... $ 1,718 $ 36,960 $4,554 $ (1,874) $ 41,358
======== ======== ====== ======== ========
</TABLE>
F-28
<PAGE>
JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS - FOR THE YEAR
ENDED DECEMBER 31, 1997:
(IN THOUSANDS)
<TABLE>
<CAPTION>
NON-
THE SUBSIDIARY GUARANTOR ELIMINATION
COMPANY GUARANTORS SUBSIDIARIES ENTRIES REPORTED
---------- ------------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
REVENUES:
Radio programming ............................... $ -- $10,200 $ -- $ -- $10,200
Television programming .......................... 285 1,230 13,345 (2,858) 12,002
Satellite delivery and production support ....... -- 8,241 -- (1,331) 6,910
------- ------- ------- ------- -------
Total revenues ............................... 285 19,671 13,345 (4,189) 29,112
------- ------- ------- ------- -------
OPERATING EXPENSES:
Radio programming ............................... -- 5,816 -- -- 5,816
Television programming .......................... 148 2,585 10,045 (3,506) 9,272
Satellite delivery and production support ....... -- 4,685 -- -- 4,685
Selling and marketing ........................... 137 2,489 396 (104) 2,918
General and administrative ...................... 1,155 2,428 788 (203) 4,168
------- ------- ------- ------- -------
Total operating expenses ..................... 1,440 18,003 11,229 (3,813) 26,859
------- ------- ------- ------- -------
OPERATING INCOME (LOSS) ...................... (1,155) 1,668 2,116 (376) 2,253
------- ------- ------- ------- -------
OTHER EXPENSE (INCOME):
Interest expense ................................ 2,065 3,612 16 (16) 5,677
Interest income ................................. (6) (25) (83) 6 (108)
Write-off of deferred offering costs ............ 938 -- -- -- 938
Equity share of loss (income) of subsidiaries..... 663 (1,363) -- 304 (396)
Other expense (income), net ..................... -- 35 39 -- 74
------- ------- ------- ------- -------
Total other expense (income) ................. 3,660 2,259 (28) 294 6,185
------- ------- ------- ------- -------
Income (loss) before income taxes and minority
interests .................................... (4,815) (591) 2,144 (670) (3,932)
Income tax provision (benefit) .................. (1,376) (786) 0 820 (1,342)
------- ------- ------- ------- -------
Income (loss) before minority interests ......... (3,439) 195 2,144 (1,490) (2,590)
Minority interests in net income of
consolidated subsidiaries ..................... -- 37 -- 866 903
------- ------- ------- ------- -------
NET INCOME (LOSS) ............................... $(3,439) $ 158 $ 2,144 $(2,356) $(3,493)
======= ======= ======= ======= =======
</TABLE>
F-29
<PAGE>
JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS - FOR THE YEAR ENDED
DECEMBER 31, 1997:
(IN THOUSANDS)
<TABLE>
<CAPTION>
NON-
THE SUBSIDIARY GUARANTOR ELIMINATION
COMPANY GUARANTORS SUBSIDIARIES ENTRIES REPORTED
------- ---------- ------------ ----------- --------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)........................................... $(3,439) $ 158 $2,144 $(2,356) $(3,493)
Adjustment to reconcile net loss to net cash provided by
(used in) operating activities:
Non-cash expense (income).................................. 640 4,411 82 1,561 6,694
Distributions received..................................... -- 100 -- -- 100
Net change in assets and liabilities....................... 3,540 (1,329) 1,227 850 4,288
------- ------- ------ ----------- -------
Net cash provided by operating activities................. 741 3,340 3,453 55 7,589
------- ------- ------ ----------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment................... (8) (1,340) (19) -- (1,367)
Sale of property, plant and equipment....................... -- 82 174 -- 256
Purchases of intangible assets.............................. (3) (42) -- -- (45)
Investment in joint venture................................. -- -- -- -- --
------- ------- ------ ----------- -------
Net cash provided by (used in) investing activities....... (11) (1,300) 155 -- (1,156)
------- ------- ------ ----------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in deferred offering costs......................... (505) -- -- -- (505)
Increase in capitalized loan fees........................... (50) -- -- -- (50)
Repayment of borrowings..................................... -- -- -- -- --
Repayment of capital lease obligations...................... -- (1,965) -- -- (1,965)
Proceeds from borrowings.................................... -- -- -- -- --
Distributions paid to minority interests.................... -- -- -- -- --
Acquisition of minority interests........................... (200) -- -- -- (200)
------- ------- ------ ----------- -------
Net cash used in financing activities..................... (755) (1,965) -- -- (2,720)
------- ------- ------ ----------- -------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............. (25) 75 3,608 55 3,713
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD............... -- 4 55 (55) 4
------- ------- ------ ----------- -------
CASH AND CASH EQUIVALENTS, END OF PERIOD..................... $ (25) $ 79 $3,663 $ -- $ 3,717
======= ======= ====== =========== =======
</TABLE>
F-30
<PAGE>
JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS - FOR THE SIX MONTHS
ENDED JUNE 30, 1997:
(IN THOUSANDS)
<TABLE>
<CAPTION>
NON-
THE SUBSIDIARY GUARANTOR ELIMINATION
COMPANY GUARANTORS SUBSIDIARIES ENTRIES REPORTED
---------- ------------- ------------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
REVENUES:
Radio programming ................................ $ -- $ 5,090 $ -- $ -- $ 5,090
Television programming ........................... 132 603 6,021 (2,858) 3,898
Satellite delivery and production support ........ -- 4,336 -- (418) 3,918
------- ------- ------ ------- -------
Total revenues ................................ 132 10,029 6,021 (3,276) 12,906
------- ------- ------ ------- -------
OPERATING EXPENSES:
Radio programming ................................ -- 2,804 -- -- 2,804
Television programming ........................... 56 936 4,607 (2,593) 3,006
Satellite delivery and production support ........ -- 2,605 -- -- 2,605
Selling and marketing ............................ 66 1,062 242 (104) 1,266
General and administrative ....................... 578 1,107 381 (203) 1,863
------- ------- ------ ------- -------
Total operating expenses ...................... 700 8,514 5,230 (2,900) 11,544
------- ------- ------ ------- -------
OPERATING INCOME .............................. (568) 1,515 791 (376) 1,362
------- ------- ------ ------- -------
OTHER EXPENSE (INCOME):
Interest expense ................................. 1,035 1,820 16 (4) 2,867
Interest income .................................. -- (23) (3) 4 (22)
Write-off of deferred offering costs ............. 938 -- -- -- 938
Equity share of loss (income) of subsidiaries .... (92) (488) -- 293 (287)
Other expense (income), net ...................... -- (38) 38 -- --
------- ------- ------ ------- -------
Total other expense (income).................... 1,881 1,271 51 293 3,496
------- ------- ------ ------- -------
Income (loss) before income taxes and minority
interests ....................................... (2,449) 244 740 (669) (2,134)
Income tax provision (benefit) ................... (288) (68) -- -- (356)
------- ------- ------ ------- -------
Income (loss) before minority interests .......... (2,161) 312 740 (669) (1,778)
Minority interests in net income of
consolidated subsidiaries......................... -- 246 -- 172 418
------- ------- ------ ------- -------
NET INCOME (LOSS) ................................ $(2,161) $ 66 $ 740 $ (841) $(2,196)
======= ======= ====== ======= =======
</TABLE>
F-31
<PAGE>
JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS - FOR THE SIX MONTHS ENDED
JUNE 30, 1997:
(IN THOUSANDS)
<TABLE>
<CAPTION>
NON-
THE SUBSIDIARY GUARANTOR ELIMINATION
COMPANY GUARANTORS SUBSIDIARIES ENTRIES REPORTED
--------- ----------- ------------- ------------ ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)............................................. $(2,161) $ 66 $ 740 $(841) $(2,196)
Adjustment to reconcile net loss to net cash provided
(used in) by operating activities:
Non-cash Expense (income)..................................... (91) 3,548 (362) 523 3,618
Net change in assets and liabilities.......................... 2,755 (1,801) (175) 373 1,152
------- ------- ----- ----------- -------
Net cash provided by operating activities................... 503 1,813 203 55 2,574
------- ------- ----- ----------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment..................... (7) (876) (119) -- (1,002)
Sale of property, plant and equipment......................... -- -- 262 -- 262
Purchases of intangible assets................................ (4) 5 (2) -- (1)
Investment in joint venture................................... -- -- -- -- --
------- ------- ----- ----------- -------
Net cash provided by (used in) investing activities......... (11) (871) 141 -- (741)
------- ------- ----- ----------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in deferred offering costs........................... (495) -- -- -- (495)
Increase in capitalized loan fees............................. (50) -- -- -- (50)
Repayment of borrowings....................................... -- -- -- -- --
Repayment of capital lease obligations........................ -- (943) -- -- (943)
Proceeds from borrowings...................................... -- -- -- -- --
Distributions paid to minority interests...................... -- -- -- -- --
Acquisition of minority interests............................. -- -- -- -- --
------- ------- ----- ----------- -------
Net cash used in financing activities....................... (545) (943) -- -- (1,488)
------- ------- ----- ----------- -------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............... (53) (1) 335 55 345
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD................. -- 4 55 (55) 4
------- ------- ----- ----------- -------
CASH AND CASH EQUIVALENTS, END OF PERIOD....................... $ (53) $ 3 $ 399 $ -- $ 349
======= ======= ===== =========== =======
</TABLE>
F-32
<PAGE>
JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
CONDENSED CONSOLIDATING STATEMENTS OF FINANCIAL POSITION - AS OF JUNE 30, 1998:
(IN THOUSANDS)
<TABLE>
<CAPTION>
NON-
THE SUBSIDIARY GUARANTOR ELIMINATION
COMPANY GUARANTORS SUBSIDIARIES ENTRIES REPORTED
------- ---------- ------------ ----------- --------
(UNAUDTITED)
<S> <C> <C> <C> <C> <C>
ASSETS:
Cash and cash equivalents .................. $ 162 $ 20 $ 2,263 -- $ 2,445
Accounts receivable ........................ 2 2,088 709 -- 2,799
Other current assets ....................... -- 351 116 37 504
-------- -------- ------- -------- --------
Total current assets .............. 164 2,459 3,088 37 5,748
-------- -------- ------- -------- --------
Property, plant and equipment .............. 8 26,603 309 -- 26,920
Goodwill ................................... -- 3,009 -- -- 3,009
Intangible assets .......................... 3 1,075 4 -- 1,082
Other long-term assets ..................... 1,748 3,067 -- (812) 4,003
-------- -------- ------- -------- --------
Total assets ...................... $ 1,923 $ 36,213 $ 3,401 $ (775) $ 40,762
======== ======== ======= ======== ========
LIABILITIES AND
SHAREHOLDERS' INVESTMENT
(DEFICIT):
Accounts payable ........................... $ 348 $ 193 $ 723 $ -- $ 1,264
Accrued liabilities ........................ 725 1,255 33 (59) 1,954
Other current liabilities .................. -- 7,790 1,134 -- 8,924
-------- -------- ------- -------- --------
Total current liabilities ......... 1,073 9,238 1,890 (59) 12,142
-------- -------- ------- -------- --------
Note payable--affiliated entity ............ 10,000 -- -- -- 10,000
Credit facility ............................ -- 16,705 -- -- 16,705
Capital lease obligations .................. -- 24,923 -- -- 24,923
Other long-term liabilities ................ 13,481 (19,829) 50 6,337 39
-------- -------- ------- -------- --------
Total long-term liabilities ....... 23,481 21,799 50 6,337 51,667
-------- -------- ------- -------- --------
Minority interests ......................... -- (716) -- 1,538 822
-------- -------- ------- -------- --------
Shareholders' investment (deficit):
Class A Common Stock ................ 30 1 (1) 30
Class B Common Stock ................ 18 1 -- (1) 18
General Partners' contributions....... -- -- 350 (350)
Additional paid-in capital .......... 9,143 12,840 -- (12,840) 9,143
Retained earnings (accumulated
deficit) ........................... (31,822) (6,950) 1,111 4,601 (33,060)
-------- -------- ------- -------- --------
Total shareholders'
investment (deficit)..... (22,631) 5,892 1,461 (8,591) (23,869)
-------- -------- ------- -------- --------
Total liabilities and shareholders'
investment (deficit) ...................... $ 1,923 $ 36,213 $ 3,401 $ (775) $ 40,762
======== ======== ======= ======== ========
</TABLE>
F-33
<PAGE>
JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS - FOR THE SIX MONTHS ENDED
JUNE 30, 1998:
(IN THOUSANDS)
<TABLE>
<CAPTION>
NON-
THE SUBSIDIARY GUARANTOR ELIMINATION
COMPANY GUARANTORS SUBSIDIARIES ENTRIES REPORTED
---------- ------------ -------------- ------------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
REVENUES:
Radio programming ............................. $ -- $ 3,739 $ -- $ -- $ 3,739
Television programming ........................ 174 996 6,695 -- 7,865
Satellite delivery and production support ..... -- 3,038 -- (910) 2,128
------- ------- ------ ------- -------
Total revenues ............................. 174 7,773 6,695 (910) 13,732
------- ------- ------ ------- -------
OPERATING EXPENSES:
Radio programming ............................. -- 3,490 -- -- 3,490
Television programming ........................ 81 1,268 6,228 (910) 6,667
Satellite delivery and production support ..... -- 2,330 -- -- 2,330
Selling and marketing ......................... 49 1,528 170 -- 1,747
General and administrative .................... 833 1,045 214 -- 2,092
------- ------- ------ ------- -------
Total operating expenses ................... 963 9,661 6,612 (910) 16,326
------- ------- ------ ------- -------
OPERATING INCOME (EXPENSE)................... (789) (1,888) 83 -- (2,594)
------- ------- ------ ------- -------
OTHER EXPENSE (INCOME):
Interest expense .............................. 740 1,900 -- -- 2,640
Interest income ............................... (6) (3) (90) -- (99)
Write-off of deferred offering costs ......... -- 0 -- -- --
Equity share of loss (income) of subsidiaries... 2,898 (73) -- (2,898) (73)
Other expense (income), net ................... -- 261 3 -- 264
------- ------- ------ ------- -------
Total other expense (income) ................ 3,632 2,085 (87) (2.898) 2,732
------- ------- ------ ------- -------
Income (loss) before income taxes and minority
interests .................................. (4,421) (3,973) 170 2,898 (5,326)
Income tax provision ........................... 92 176 -- -- 268
------- ------- ------ ------- -------
Income (loss) before minority interests ....... (4,513) (4,149) 170 2,898 (5,594)
Minority interests in net income of
consolidated subsidiaries...................... -- -- -- 69 69
------- ------- ------ ------- -------
NET INCOME (LOSS) ............................. $(4,513) $(4,149) $ 170 $ 2,829 $(5,663)
======= ======= ====== ======= =======
</TABLE>
F-34
<PAGE>
CONDENSED CONSOLIDATING CASH FLOWS - FOR THE SIX MONTHS ENDED JUNE 30, 1998:
(IN THOUSANDS)
<TABLE>
<CAPTION>
NON-
THE SUBSIDIARY GUARANTOR ELIMINATION
COMPANY GUARANTORS SUBSIDIARIES ENTRIES REPORTED
--------- ----------- ------------- ------------ ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.......................................................... $(4,513) $(4,149) $ 170 $ 2,829 $(5,663)
Adjustment to reconcile net loss to net cash provided by (used in)
operating activities:
Non-cash expenses (income)....................................... 2,900 2,953 (27) (2,829) 2,997
Distributions received........................................... -- 350 -- -- 350
Net Change in assets and liabilities............................. 1,418 (7,576) 330 -- (5,828)
------- ------- ------- ------- -------
Net cash provided by (used in) operating activities............. (195) (8,422) 473 -- (8,144)
------- ------- ------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment......................... (3) (467) (69) -- (539)
Purchases of intangible assets.................................... -- (154) (4) -- (158)
Dividend from joint venture....................................... 960 -- -- (960) --
------- ------- ------- ------- -------
Net cash provided by (used in) investing activities............. 957 (621) (73) (960) (697)
------- ------- ------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in deferred offering costs............................... (56) -- -- -- (56)
Increase in capitalized loan fees................................. (519) -- -- -- (519)
Repayment of borrowings........................................... -- (6,555) -- -- (6,555)
Repayment of capital lease obligations............................ -- (1,166) -- -- (1,166)
Proceeds from borrowings.......................................... -- 16,705 -- -- 16,705
Distributions paid to minority interests.......................... -- -- (1,800) 960 (840)
------- ------- ------- ------- -------
Net cash provided by (used in) financing activities............. (575) 8,984 (1,800) 960 7,569
------- ------- ------- ------- -------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS................... 187 (59) (1,400) -- (1,272)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD..................... (25) 79 3,663 -- 3,717
------- ------- ------- ------- -------
CASH AND CASH EQUIVALENTS, END OF PERIOD........................... $ 162 $ 20 $ 2,263 $ -- $ 2,445
======= ======= ======= ======= =======
</TABLE>
(16) SUBSEQUENT EVENTS
On March 31, 1998, Jones Radio Holdings, Inc. ("Radio Holdings") entered
into a $30 million revolving credit facility with a commercial bank with a five-
year term. Borrowings under the credit agreement bore interest at a maximum of
LIBOR plus 2.875% (7.9% at June 30, 1998), subject to reduction should the
leverage ratio of Jones Holdings improve. The credit facility was secured by the
assets of Jones Holdings, a subsidiary of the Company. The amount of available
borrowings under the credit facility was based on certain ratios of debt to
operating cash flow as defined in the credit agreement. On March 31, 1998, the
Company borrowed approximately $16.7 million under the credit facility. The
Company used these funds to repay an approximately $6.6 million note payable to
Jones Intercable (see Note 8), $9.7 million to repay advances from Jones
International and approximately $0.4 million for fees related to the credit
facility. These fees are included in capitalized loan fees on the accompanying
statements of financial position and are being amortized over the life of the
revolving credit facility. In July 1998, the Company repaid the credit facility
using the proceeds from the Notes offering and all capitalized debt offering
costs related to the credit facility were written off.
On July 10, 1998, the Company acquired substantially all assets and assumed
certain liabilities of MediaAmerica, Inc. ("MediaAmerica") for $32.7 million
plus a Working Capital Adjustment as defined. MediaAmerica provides radio
advertising sales representation services and also owns syndicated radio
F-35
<PAGE>
JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
programming. MediaAmerica received $26.7 million in cash and $6.0 million in
shares of Class A Common Stock of the Company valued at $15 per share.
MediaAmerica also received 141,970 shares of Class A Common Stock as an
estimated working capital adjustment. In addition, MediaAmerica may receive up
to $5 million in shares of Class A Common Stock, with the excess, if any, to be
paid in cash if certain multiples of "EBITDA" (earnings before interest, taxes,
depreciation and amortization) for the twelve-month period following the closing
are achieved. The acquisition was accounted for by the purchase method of
accounting, under which the purchase price of Media America was allocated to the
tangible and intangible assets and liabilities of Media America.
MediaAmerica has the right to cause the Company to purchase the shares of
the Company owned by MediaAmerica at any time after three years from closing,
July 10, 1998. The price would be the fair market value thereof, as determined
by agreement or by independent investment banking firm. The Company has a
correlative right to require that MediaAmerica sell such shares to the Company
at fair market value. Such rights terminate upon an initial public equity
offering by the Company. Before MediaAmerica can require the Company to buy its
shares, the Company must have unrestricted cash (as defined) available to make
the purchase. This condition lapses after seven and one quarter years from the
date of closing. If the company has exercised its purchase right and there is a
change of control involving a higher price within six months thereafter, the
Company must pay the prior owners certain additional consideration.
In July 1998, the Company issued $100 million of 11 3/4% Senior Secured
Notes (the "Notes"). The Company used the proceeds from the Notes offering (i)
to finance the cash consideration of the MediaAmerica transaction, (ii) to
prepay the capital lease obligation relating to the satellite transponders,
(iii) to repay the Radio Holdings credit facility and (iv) for general corporate
purposes, including the payment of fees and expenses.
The Company has financed its ownership of two analog satellite transponders
through a capital lease that was prepaid with a portion of the proceeds of the
Notes offering. The channel capacity on one satellite transponder has been
digitally compressed to seven channels, four of which are currently leased,
respectively, to Product Information Network, Great American Country and two
related parties. The other three channels were recently leased to a third party.
The other satellite transponder is an analog channel which the Company recently
leased to a third party.
F-36
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Shareholders and
Board of Directors
MediaAmerica, Inc.
New York, New York
We have audited the accompanying balance sheets of MediaAmerica, Inc. as of
December 31, 1996 and 1997 and the related statements of income, shareholders'
equity and cash flows for each of the three years in the period ended December
31, 1997. 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 MediaAmerica, Inc. as of
December 31, 1996 and 1997, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1997 in conformity
with generally accepted accounting principles.
DAVID BERDON & CO. LLP
Certified Public Accountants
New York, New York
January 23, 1998
F-37
<PAGE>
MEDIAAMERICA, INC.
BALANCE SHEETS
DECEMBER 31, 1996 AND 1997
<TABLE>
<CAPTION>
ASSETS 1996 1997
------ ------------ --------------
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents .......................................................... $ 713,455 $ 301,246
Cash held in trust ................................................................. 56,581 99,417
Accounts receivable (less, allowance for doubtful accounts of $48,000 in 1996 and
$53,000 in 1997) ................................................................ 10,323,844 12,664,152
Prepaid expenses ................................................................... 108,963 94,781
Loans receivable--related parties .................................................. 202,120 501,418
Other current assets ............................................................... 464,900 150,267
Investment in U.S. Treasury Note ................................................... -- 214,340
----------- -----------
TOTAL CURRENT ASSETS .......................................................... 11,869,863 14,025,621
----------- -----------
PROPERTY AND EQUIPMENT--AT COST (Less, accumulated depreciation and
amortization) ...................................................................... 916,348 855,587
----------- -----------
OTHER ASSETS:
Investment in U.S. Treasury Note ................................................... 209,099 --
Investment in partnership .......................................................... 33,000 33,000
Security deposits .................................................................. 5,854 6,254
Intangible assets (less, accumulated amortization) ................................. 24,708 2,301,882
----------- -----------
TOTAL OTHER ASSETS .................................................................. 272,661 2,341,136
----------- -----------
$13,058,872 $17,222,344
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------------------------------------------------------
CURRENT LIABILITIES:
Note payable--bank ................................................................. $ 3,000,000 $ 4,500,000
Producers' fees payable ............................................................ 4,244,012 5,754,010
Accounts payable ................................................................... 389,689 398,843
Accrued expenses and other current liabilities ..................................... 513,697 774,535
Deferred revenue ................................................................... 64,160 27,321
Deferred income taxes payable ...................................................... 335,900 345,900
----------- -----------
TOTAL CURRENT LIABILITIES ........................................................... 8,547,458 11,800,609
----------- -----------
LONG-TERM LIABILITIES:
Deferred rent expense .............................................................. 470,776 464,673
Deferred compensation payable ...................................................... 93,781 272,217
----------- -----------
TOTAL LONG-TERM LIABILITIES ......................................................... 564,557 736,890
----------- -----------
TOTAL LIABILITIES ................................................................ 9,112,015 12,537,499
----------- -----------
COMMITMENTS AND CONTINGENCIES (Notes 6, 7, 8, 9, 11, 12 and 13)
SHAREHOLDERS' EQUITY:
Common stock--no par value:
Authorized--1,000 shares; issued and outstanding--100 shares ...................... 50,000 50,000
Additional paid-in capital ......................................................... 292,887 292,887
Shareholders' undistributed earnings ............................................... 3,603,970 4,341,958
----------- -----------
TOTAL SHAREHOLDERS' EQUITY .......................................................... 3,946,857 4,684,845
----------- -----------
$13,058,872 $17,222,344
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-38
<PAGE>
MEDIAAMERICA, INC.
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
<TABLE>
<CAPTION>
1995 1996 1997
---------------- ---------------- --------------
REVENUES:
<S> <C> <C> <C>
Gross advertising revenues--representation ......................... $ 62,814,076 $ 74,075,660 $ 76,292,976
Gross advertising revenues--programming ............................ 917,578 1,139,795 1,837,730
Promotion and other revenues ....................................... 272,644 181,288 1,065,556
------------ ------------ ------------
TOTAL REVENUES ................................................. 64,004,298 75,396,743 79,196,262
Advertising agency commissions ..................................... (9,663,555) (11,310,383) (11,745,087)
Producer fees ...................................................... (44,097,447) (51,483,562) (52,313,532)
------------ ------------ ------------
TOTAL NET REVENUES ............................................. 10,243,296 12,602,798 15,137,643
------------ ------------ ------------
OPERATING EXPENSES:
Radio programming expenses ......................................... 662,816 817,272 1,295,914
Selling and marketing expenses ..................................... 3,515,406 3,909,277 4,593,431
General and administrative expenses ................................ 2,639,201 3,642,410 4,368,596
Officers' salaries ................................................. 2,730,000 3,811,040 3,450,000
------------ ------------ ------------
TOTAL OPERATING EXPENSES ....................................... 9,547,423 12,179,999 13,707,941
------------ ------------ ------------
INCOME FROM OPERATIONS .............................................. 695,873 422,799 1,429,702
OTHER INCOME (EXPENSES):
Loss on investment in and advances to affiliate .................... (325,000) (181,649) --
Interest income .................................................... 157,799 189,240 227,381
Interest expense ................................................... (30,307) (22,698) (14,681)
------------ ------------ ------------
INCOME BEFORE INCOME TAXES .......................................... 498,365 407,692 1,642,402
Provision for state and local income taxes ......................... 125,333 127,147 154,414
------------ ------------ ------------
NET INCOME .......................................................... $ 373,032 $ 280,545 $ 1,487,988
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
F-39
<PAGE>
MEDIAAMERICA, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
<TABLE>
<CAPTION>
ADDITIONAL SHAREHOLDERS'
---------- --------------
COMMON PAID-IN UNDISTRIBUTED
---------- ---------- --------------
TOTAL STOCK CAPITAL EARNINGS
------------ --------- ---------- --------------
<S> <C> <C> <C> <C>
BALANCE--JANUARY 1, 1995......................................... $3,293,280 $50,000 $292,887 $2,950,393
Net income for the year.......................................... 373,032 -- -- 373,032
---------- ------- -------- ----------
BALANCE--DECEMBER 31, 1995....................................... 3,666,312 50,000 292,887 3,323,425
Net income for the year.......................................... 280,545 -- -- 280,545
---------- ------- -------- ----------
BALANCE--DECEMBER 31, 1996....................................... 3,946,857 50,000 292,887 3,603,970
Net income for the year.......................................... 1,487,988 -- -- 1,487,988
Distributions to shareholders.................................... (750,000) -- -- (750,000)
---------- ------- -------- ----------
BALANCE--DECEMBER 31, 1997....................................... $4,684,845 $50,000 $292,887 $4,341,958
========== ======= ======== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-40
<PAGE>
MEDIAAMERICA, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
<TABLE>
<CAPTION>
1995 1996 1997
------------ ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net income.............................................................................. $ 373,032 $ 280,545 $ 1,487,988
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization.......................................................... 128,093 236,146 296,603
Amortization of covenant not to compete................................................ -- -- 6,250
Bad debt (recovery) expense............................................................ 26,696 (67,777) (24,064)
Amortized discount of marketable securities............................................ (4,397) (2,473) (5,241)
Deferred revenue....................................................................... 202,816 (290,298) (36,839)
Deferred taxes......................................................................... 58,000 26,900 10,000
Deferred rent expense.................................................................. 444,383 26,393 (6,103)
Deferred compensation.................................................................. 56,581 37,200 178,436
Loss on investment in and advances to affiliate........................................ -- 181,649 --
Write-down of investment in and advances to affiliate to net realizable value.......... 325,000 -- --
Changes in assets and liabilities:
Decrease (increase) in:
Accounts receivable................................................................... (3,550,760) 269,694 (1,893,585)
Prepaid expenses...................................................................... (1,416) (5,669) 14,182
Due from related parties.............................................................. (80,029) 80,029 (7,805)
Other assets.......................................................................... (77,330) (271,851) 314,233
Increase (decrease) in:
Producers' fee payable................................................................ 2,075,296 (697,248) 1,087,340
Accounts payable...................................................................... 73,814 192,682 (15,846)
Accrued expenses and other current liabilities........................................ 166,284 48,097 147,004
----------- ----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES................................................ 216,063 44,019 1,552,553
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of radio programs........................................................... -- -- (2,165,256)
Payments of covenant-not-to-compete agreement........................................... -- -- (50,000)
Capital expenditures.................................................................... (572,504) (355,032) (165,177)
(Increase) decrease in loans to related parties......................................... (362,825) 637,113 (291,493)
Decrease (increase) in investment and advances to affiliate............................. (310,830) 81,610 --
Increase in cash held in trust.......................................................... -- (56,581) (42,836)
Investment in U.S. Treasury Note........................................................ (202,229) -- --
----------- ----------- -----------
NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES...................................... (1,448,388) 307,110 (2,714,762)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of note payable--bank......................................................... (1,500,000) (3,500,000) (3,000,000)
Proceeds from note payable--bank........................................................ 3,500,000 3,000,000 4,500,000
Distributions to shareholders........................................................... -- -- (750,000)
----------- ----------- -----------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES...................................... 2,000,000 (500,000) 750,000
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS..................................... 767,675 (148,871) (412,209)
CASH AND CASH EQUIVALENTS--BEGINNING OF YEAR............................................. 94,651 862,326 713,455
----------- ----------- -----------
CASH AND CASH EQUIVALENTS--END OF YEAR................................................... $ 862,326 $ 713,455 $ 301,246
=========== =========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for interest.................................................. $ 25,856 $ 22,695 $ 23,936
=========== =========== ===========
Cash paid during the year for income taxes.............................................. $ 53,646 $ 107,080 $ 151,083
=========== =========== ===========
</TABLE>
For purposes of the statements of cash flows, the Company considers highly
liquid debt instruments purchased with a maturity of three months or less to be
cash equivalents.
The accompanying notes are an integral part of these statements.
F-41
<PAGE>
MEDIAAMERICA, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Nature of Business
MediaAmerica, Inc. (the "Company") sells advertising time on nationally
syndicated radio programs.
The Company had an agreement, which was terminated for consideration, to
sell advertising time and other services for one producer of radio
programs, which resulted in net broadcast revenues of approximately
$3,362,000, $3,216,000 and $3,584,000 in 1995, 1996 and 1997, respectively.
The termination agreement provides for the Company to continue certain
sales efforts through the year ended December 31, 1998.
(b) Revenue Recognition
The Company recognizes revenues from advertising at the time the
advertising is aired.
(c) Depreciation
Equipment, software and furniture are depreciated by the straight-line
method over estimated useful lives ranging from 5 to 10 years. Leasehold
improvements are amortized over the life of the lease.
(d) Investment in Partnership
The Company has an interest (less than 20%) in a limited partnership
which is being accounted for under the cost method.
(e) Investment in Affiliate
In 1996, the Company sold its 45% interest in a corporation. Since the
Company could not exercise significant influence in the corporation's
operating or financial policies, this investment was accounted for using
the cost method.
(f) Intangible Assets
In 1997, the Company acquired various radio programs, consisting of
related program libraries, trade names, and contracts with radio stations
that broadcast the programs. The programs are being amortized over a period
of ten years.
In connection with the acquisition of the radio programs, the seller of
certain programs entered into a covenant not to compete with the Company.
The cost of the covenant is being amortized over the term of the covenant
using the straight-line method. In addition, in July 1997, the Company
entered into a second covenant not to compete which requires monthly
payments of $8,333 over a period of 48 months.
Start-up costs incurred primarily to open offices in Detroit and Chicago
are being amortized on a straight-line basis over a period of five years.
Goodwill is being amortized on a straight-line basis over a period of 15
years.
(g) Research and Development Costs
Research and Development expenditures are expensed as incurred.
F-42
<PAGE>
MEDIAAMERICA, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(h) Income Taxes
The Company has elected "S" corporation status under the applicable
provisions of the Internal Revenue Code and certain state statutes. The
shareholders' respective shares in the net income of the Company will be
reportable on their individual tax returns. Accordingly, the financial
statements reflect no provision or liability for Federal and certain state
income taxes. The Company is liable for state and local taxes in certain
jurisdictions.
The Company files its tax returns on the cash basis of accounting.
Deferred state and local income taxes are provided for temporary
differences resulting primarily from the cash basis method of accounting
used for income tax purposes.
(i) 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 December 31, 1996 and
1997, and the reported amounts of revenues and expenses for each of the
three years in the period ended December 31, 1997. Actual results could
differ from those estimates.
NOTE 2--INVESTMENT IN UNITED STATES TREASURY NOTE
The Company's investment in United States Treasury Note is classified as
held-to-maturity and, accordingly, is recorded at its amortized cost. The
investment bears interest at the rate of 5.125% per annum and matures on June
30, 1998. The fair market value of the investment was approximately $217,000 and
$220,000 at December 31, 1996 and 1997, respectively.
NOTE 3--PROPERTY AND EQUIPMENT
Property and equipment consists of the following as of December 31:
<TABLE>
<CAPTION>
1996 1997
------------ ------------
<S> <C> <C>
Equipment........................................................................... $ 114,301 $ 114,301
Computer equipment and software..................................................... 786,565 895,864
Furniture and fixtures.............................................................. 207,320 215,370
Leasehold improvements.............................................................. 71,222 81,844
Other............................................................................... 53,112 90,316
---------- ----------
1,232,520 1,397,695
Less: accumulated depreciation and amortization..................................... 316,172 542,108
---------- ----------
$ 916,348 $ 855,587
========== ==========
</TABLE>
F-43
<PAGE>
MEDIAAMERICA, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 4--INTANGIBLE ASSETS
Intangible assets consist of the following as of December 31:
<TABLE>
<CAPTION>
1996 1997
------------ -----------
<S> <C> <C>
Radio programs........................................................................ -- $2,304,091
Covenant not to compete............................................................... -- 50,000
Goodwill.............................................................................. 23,099 23,099
Start-up costs........................................................................ 119,599 119,599
-------- ----------
142,698 2,496,789
Less: accumulated amortization........................................................ 117,990 194,907
-------- ----------
$ 24,708 $2,301,882
======== ==========
</TABLE>
NOTE 5--PROVISION FOR STATE AND LOCAL INCOME TAXES
Provision for state and local income taxes consists of the following:
<TABLE>
<CAPTION>
1995 1996 1997
---------- ---------- ----------
<S> <C> <C> <C>
Current...................................................................... $ 67,333 $100,247 $144,414
Deferred..................................................................... 58,000 26,900 10,000
-------- -------- --------
$125,333 $127,147 $154,414
======== ======== ========
</TABLE>
NOTE 6--LINE OF CREDIT
The Company has a $5,000,000 revolving line of credit with a bank, which
bears interest at the prime rate (8.5% at December 31, 1997). The balance
outstanding at December 31, 1996 and 1997 was $3,000,000 and $4,500,000,
respectively. The debt is secured by the assets of the Company and is guaranteed
by the shareholders and an affiliate of the Company, and also restricts (1) the
amount of distributions and compensation that can be paid to shareholders and
(2) the amount of loans to related parties.
NOTE 7--COMMITMENTS AND CONTINGENCIES
(a) Lease Commitments
The Company leases office space under several operating leases. The total
amount of the base rent payments is being charged to expense on the
straight-line method over the terms of the leases. The Company has recorded
a deferred credit to reflect the excess of the rent expense over the cash
payments since the inception of the leases. The leases provide for the
minimum rentals plus operating expenses and real estate tax escalations.
The total future minimum rental payments required for noncancelable
operating leases are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
- -----------
DECEMBER 31, AMOUNT
- ------------ -----------
<S> <C>
1998............................................................................................. $ 509,000
1999............................................................................................. 473,000
2000............................................................................................. 525,000
2001............................................................................................. 531,000
2002............................................................................................. 531,000
Thereafter....................................................................................... 1,552,000
----------
$4,121,000
==========
</TABLE>
F-44
<PAGE>
MEDIAAMERICA, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
One of the leases is secured by a $75,000 letter of credit.
Rent expense amounted to approximately $401,000, $383,000 and $444,000
in 1995, 1996 and 1997, respectively (net of amounts allocated to related
entities).
(b) Consulting Agreement
On July 14, 1997, the Company entered into a consulting agreement that
requires monthly payments of $4,167 over a period of 24 months.
(c) Program Acquisition Contingency
As part of the purchase price of certain radio programs acquired on
November 17, 1997, the Company has agreed to pay (i) 10% of the net
revenues of the acquired radio programs, payable for each of the eight
calendar quarters following the date of acquisition, and (ii) 5% of the net
revenues of the acquired radio programs, payable for the next two calendar
quarters succeeding those described above.
NOTE 8--EMPLOYEE BENEFIT PLAN
The Company maintains a 401(k) tax deferred savings plan. This plan covers
all full-time employees who meet certain eligibility requirements. The plan
allows employees to defer up to 15% of their compensation, limited to the amount
allowed for income tax purposes. The Company, at its discretion, may contribute
an amount equal to a percentage of the amount the employees contribute. The
Company can also make an additional contribution to the plan. The Company's
expense under this plan was $400, $17,000 and $65,000 in 1995, 1996 and 1997,
respectively.
NOTE 9--SHAREHOLDERS' AGREEMENT
The Company is obligated to repurchase the stock of its shareholders upon
the occurrence of certain events at the predetermined price, as set forth in the
shareholders' agreement. In the case of death, a portion of the purchase price
is funded by life insurance policies on the lives of the shareholders.
NOTE 10--RELATED PARTY TRANSACTIONS
(a) Loans to related parties consist of loans to shareholders and affiliates.
The loans are due on demand and bear interest at the Applicable Federal
Rate. The Company earned interest of approximately $51,700, $32,300 and
$32,600 on these loans in 1995, 1996 and 1997, respectively.
(b) The Company incurred costs for various services performed by affiliates
amounting to approximately $285,400, $170,500 and $203,400 in 1995, 1996
and 1997, respectively.
(c) The Company charged affiliates for allocated rent and certain office
services of approximately $324,000, $217,600 and $215,300 in 1995, 1996 and
1997, respectively.
(d) The Company recognized revenues for various services performed for an
affiliate amounting to $111,900 in 1997.
F-45
<PAGE>
MEDIAAMERICA, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 11--DEFERRED COMPENSATION PLANS
The Company has established two deferred compensation plans for the benefit
of certain employees. Under the terms of the first plan, an annual award is to
be made to an employee based on the "net profits" (as defined), which will be
paid into a trust. 60% of the balance of the trust becomes vested on January 1,
1998, and an additional 20% each January 1 thereafter until January 1, 2000.
Distributions from the trust are to be made at the earlier of January 1, 2005,
or upon the occurrence of certain events as set forth in the plan.
Under the terms of the second plan, an annual award is to be made to an
employee based on the "net profits" (as defined), which will be paid into a
trust. 25% of the balance of the trust becomes vested on December 23, 1998, and
an additional 25% each December 23, thereafter, until December 23, 2001.
Distributions from the trust are to be made at the earlier of December 23, 2007,
or upon the occurrence of certain events as set forth in the plan.
The Company has also established an Equity Appreciation Plan ("EAP") for the
benefit of certain employees. Under the terms of the EAP, a total of one
thousand units are available for distribution. One of such units is equivalent
to one share of common stock. On an annual basis, the fair market value (as
defined) of one unit is to be calculated and each participant is to be credited
an amount based on the number of units awarded to that participant. Payment of
benefits shall be made upon the occurrence of certain events, as set forth in
the EAP. As of December 31, 1997, 3 units have been awarded.
NOTE 12--LITIGATION
As of December 31, 1997, the Company is a defendant in a lawsuit for an
unspecified amount in connection with one of its sales representation agreements
which expired in 1996. In response to the claims asserted in the lawsuit, the
Company has filed affirmative defenses and counterclaims against the plaintiff.
Arbitration hearings commenced in May 1997 and were completed in December 1997.
Posthearing memoranda will be submitted by February 20, 1998. The arbitrators'
decision is likely to be issued by April 1998. No determination can be made as
to the possible outcome of this lawsuit. Management is of the opinion, however,
that this lawsuit will not have a material adverse effect on the Company's
financial position.
NOTE 13--CONCENTRATION OF CREDIT RISK
As of December 31, 1997, the Company had a significant concentration of
cash on deposit with one financial institution.
F-46
<PAGE>
ACCOUNTANTS' REVIEW REPORT
To the Shareholders and
Board of Directors
MediaAmerica, Inc.
New York, New York
We have reviewed the accompanying balance sheets of MediaAmerica, Inc. as
of June 30, 1997 and 1998, and the related statements of income, shareholders'
equity and cash flows for the six months then ended. These financial statements
are the responsibility of the Company's management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted
in accordance with generally accepted auditing standards, the objective of which
is the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion..
Based on our reviews, we are not aware of any material modifications that
should be made to the accompanying financial statements for them to be in
conformity with generally accepted accounting principles.
DAVID BERDON & CO. LLP
Certified Public Accountants
New York, New York
July 24, 1998
F-47
<PAGE>
MEDIAAMERICA, INC.
BALANCE SHEETS
JUNE 30, 1997 AND 1998
<TABLE>
<CAPTION>
ASSETS 1997 1998
------ -------------- --------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents...................................................... $ 2,753,778 $ 809,473
Cash held in trust............................................................. 97,102 172,042
Accounts receivable (less, allowance for doubtful accounts of $89,000 in
1997 and $64,000 in 1998).................................................... 12,018,837 7,150,102
Prepaid expenses............................................................... 114,604 112,449
Loans receivable--related parties.............................................. 456,512 547,018
Other current assets........................................................... 526,689 596,186
Investment in U.S. Treasury Note............................................... 211,669 --
----------- -----------
TOTAL CURRENT ASSETS....................................................... 16,179,191 9,387,270
----------- -----------
PROPERTY AND EQUIPMENT--AT COST (Less, Accumulated Depreciation
and Amortization)............................................................... 897,489 840,420
----------- -----------
OTHER ASSETS:
Investment in partnership...................................................... 33,000 33,000
Security deposits.............................................................. 5,854 7,810
Intangible assets (less, accumulated amortization)............................. 16,908 2,202,335
----------- -----------
TOTAL OTHER ASSETS......................................................... 55,762 2,243,145
----------- -----------
$17,132,442 $12,470,835
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Producers' fees payable........................................................ $10,062,614 $ 5,504,350
Accounts payable............................................................... 253,869 246,628
Accrued expenses and other current liabilities................................. 1,117,098 721,547
Deferred revenue............................................................... 297,995 99,004
Deferred income taxes payable.................................................. 377,000 47,900
----------- -----------
TOTAL CURRENT LIABILITIES.................................................. 12,108,576 6,619,429
----------- -----------
LONG-TERM LIABILITIES:
Deferred rent expense.......................................................... 430,109 423,388
Deferred compensation payable.................................................. 117,402 250,842
----------- -----------
TOTAL LONG-TERM LIABILITIES.................................................. 547,511 674,230
----------- -----------
TOTAL LIABILITIES......................................................... 12,656,087 7,293,659
----------- -----------
COMMITMENTS AND CONTINGENCIES (Notes 6, 7, 8, 9, 11, 12 and 13)
SHAREHOLDERS' EQUITY:
Common stock--no par value:
Authorized--1,000 shares; issued and outstanding--100 shares................. 50,000 50,000
Additional paid-in capital..................................................... 292,887 292,887
Shareholders' undistributed earnings........................................... 4,133,468 4,834,289
----------- -----------
TOTAL SHAREHOLDERS' EQUITY................................................. 4,476,355 5,177,176
----------- -----------
$17,132,442 $12,470,835
=========== ===========
</TABLE>
See accountants' review report.
The accompanying notes are an integral part of these statements.
F-48
<PAGE>
MEDIAAMERICA, INC.
STATEMENTS OF INCOME
FOR SIX MONTHS ENDED JUNE 30, 1997 AND 1998
<TABLE>
<CAPTION>
1997 1998
------------ ------------
<S> <C> <C>
REVENUES:
Gross advertising revenues--representation................... $ 38,284,478 $ 22,529,891
Gross advertising revenues--programming...................... 443,442 1,174,623
Promotion and other revenues................................. 367,786 907,529
------------ ------------
TOTAL REVENUES............................................. 39,095,706 24,612,043
Advertising agency commissions............................... (5,865,170) (3,560,043)
Producer fees................................................ (26,479,958) (15,063,803)
------------ ------------
TOTAL NET REVENUES......................................... 6,750,578 5,988,197
------------ ------------
OPERATING EXPENSES:
Radio programming expenses................................... 323,458 1,154,362
Selling and marketing expenses............................... 2,080,928 1,874,356
General and administrative expenses.......................... 2,156,532 2,040,244
Officers' salaries........................................... 1,650,000 350,000
------------ ------------
TOTAL OPERATING EXPENSES................................... 6,210,918 5,418,962
------------ ------------
INCOME FROM OPERATIONS.......................................... 539,660 569,235
OTHER INCOME (EXPENSES):
Litigation settlement........................................ -- (68,500)
Interest income.............................................. 83,251 58,679
Interest expense............................................. (10,313) (24,083)
------------ ------------
INCOME BEFORE INCOME TAXES...................................... 612,598 535,331
Provision for state and local income taxes...................... 83,100 43,000
------------ ------------
NET INCOME...................................................... $ 529,498 $ 492,331
============ ============
</TABLE>
See accountants' review report.
The accompanying notes are an integral part of these statements.
F-49
<PAGE>
MEDIAAMERICA, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1998
<TABLE>
<CAPTION>
ADDITIONAL SHAREHOLDERS'
---------- -------------
COMMON PAID-IN UNDISTRIBUTED
------ ------- -------------
TOTAL STOCK CAPITAL EARNINGS
---------- ----- ------- --------
<S> <C> <C> <C> <C>
BALANCE--JANUARY 1, 1997............................................... $3,946,857 $50,000 $292,887 $3,603,970
Net income for the six months ended June 30, 1997...................... 529,498 -- -- 529,498
---------- ------- -------- ----------
BALANCE--JUNE 30, 1997................................................. $4,476,355 $50,000 $292,887 $4,133,468
========== ======= ======== ==========
BALANCE--JANUARY 1, 1998............................................... $4,684,845 $50,000 $292,887 $4,341,958
Net income for the six months ended June 30, 1998...................... 492,331 -- -- 492,331
---------- ------- -------- ----------
BALANCE--JUNE 30, 1998................................................. $5,177,176 $50,000 $292,887 $4,834,289
========== ======= ======== ==========
</TABLE>
See accountants' review report.
The accompanying notes are an integral part of these statements.
F-50
<PAGE>
MEDIAAMERICA, INC.
STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1998
<TABLE>
<CAPTION>
1997 1998
----------- ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income....................................................................... $ 529,498 $ 492,331
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization................................................ 116,900 252,813
Bad debt expense............................................................. 15,000 15,000
Amortized discount of marketable securities.................................. (2,570) (5,660)
Deferred revenue............................................................. 233,835 71,683
Deferred taxes............................................................... 41,100 (298,000)
Deferred rent expense........................................................ (40,667) (41,285)
Deferred compensation........................................................ 23,621 (21,375)
Changes in assets and liabilities:
Decrease (increase) in:
Accounts receivable........................................................ (1,754,993) 5,454,045
Prepaid expenses........................................................... (5,641) (17,668)
Due from related parties................................................... (56,982) (45,442)
Other assets............................................................... (61,789) (447,475)
Increase (decrease) in:
Producers' fee payable..................................................... 5,863,602 (204,660)
Accounts payable........................................................... (135,820) (127,215)
Accrued expenses and other current liabilities............................. 603,401 10,852
----------- ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES........................................... 5,368,495 5,087,944
----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of radio programs.................................................... -- (121,001)
Capital expenditures............................................................. (90,241) (105,933)
(Increase) in loans to related parties........................................... (197,410) (158)
Decrease in U.S. treasury note................................................... -- 220,000
(Increase) in cash held in trust................................................. (40,521) (72,625)
----------- ------------
NET CASH (USED IN) INVESTING ACTIVITIES............................................. (328,172) (79,717)
----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of note payable--bank.................................................. (3,000,000) (4,500,000)
----------- ------------
NET CASH (USED IN) FINANCING ACTIVITIES............................................. (3,000,000) (4,500,000)
----------- ------------
NET INCREASE IN CASH AND CASH EQUIVALENTS........................................... 2,040,323 508,227
CASH AND CASH EQUIVALENTS--BEGINNING OF YEAR........................................ 713,455 301,246
----------- ------------
CASH AND CASH EQUIVALENTS--END OF YEAR.............................................. $ 2,753,778 $ 809,473
=========== ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest..................................................................... $ 10,313 $ 26,208
=========== ==============
Income taxes................................................................. $ 89,377 $ 73,106
=========== ==============
</TABLE>
For purposes of the statements of cash flows, the Company considers
highly liquid debt instruments purchased with a maturity of three months or less
to be cash equivalents.
See accountants' review report.
The accompanying notes are an integral part of these statements.
F-51
<PAGE>
MEDIAAMERICA, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Nature of Business
MediaAmerica, Inc. (the "Company") sells advertising time on
nationally syndicated radio programs.
The Company had an agreement, which was terminated for
consideration, to sell advertising time and other services for one
producer of radio programs, which resulted in net broadcast revenues
of approximately $1,735,000 and $858,000 for the six months ended June
30, 1997 and 1998, respectively. The termination agreement provides
for the Company to continue certain sales efforts through the year
ended December 31, 1998.
(b) Revenue Recognition
The Company recognizes revenues from advertising at the time the
advertising is aired.
(c) Depreciation
Equipment, software and furniture are depreciated by the
straight-line method over estimated useful lives ranging from 5 to 10
years. Leasehold improvements are amortized over the life of the
lease.
(d) Investment in Partnership
The Company has an interest (less than 20%) in a limited
partnership which is being accounted for under the cost method.
(e) Intangible Assets
In 1997, the Company acquired various radio programs, consisting
of related program libraries, trade names, and contracts with radio
stations that broadcast the programs. The programs are being amortized
over a period of ten years.
In connection with the acquisition of the radio programs, the
seller of certain programs entered into a covenant not to compete with
the Company. The cost of the covenant is being amortized over the term
of the covenant using the straight-line method. In addition, in July
1997, the Company entered into a second covenant not to compete which
requires monthly payments of $8,333 over a period of 48 months.
Start-up costs incurred primarily to open offices in Detroit and
Chicago are being amortized on a straight-line basis over a period of
five years.
Goodwill is being amortized on a straight-line basis over a period of
15 years.
(f) Research and Development Costs
Research and Development expenditures are expensed as incurred.
F-52
<PAGE>
MEDIAAMERICA, INC.
NOTES TO FINANCIAL STATEMENTS --(CONTINUED)
(g) Income Taxes
The Company has elected "S" corporation status under the
applicable provisions of the Internal Revenue Code and certain state
statutes. The shareholders' respective shares in the net income of the
Company will be reportable on their individual tax returns.
Accordingly, the financial statements reflect no provision or
liability for Federal and certain state income taxes. The Company is
liable for state and local taxes in certain jurisdictions.
The Company files its tax returns on the cash basis of
accounting. Deferred state and local income taxes are provided for
temporary differences resulting primarily from the cash basis method
of accounting used for income tax purposes.
(h) 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
June 30, 1997 and 1998, and the reported amounts of revenues and
expenses for the periods then ended. Actual results could differ from
those estimates.
NOTE 2--INVESTMENT IN UNITED STATES TREASURY NOTE
The Company's investment in United States Treasury Note is classified as
held-to-maturity and, accordingly, is recorded at its amortized cost. The
investment bears interest at the rate of 5.125% per annum and matured on June
30, 1998. The market value of the investment was $217,000 at June 30, 1997.
NOTE 3--PROPERTY AND EQUIPMENT
Property and equipment consists of the following as of June 30:
<TABLE>
<CAPTION>
1997 1998
----------- -----------
<S> <C> <C>
Equipment ................................................... $ 114,301 $ 118,669
Computer equipment and software ............................. 868,894 931,813
Furniture and fixtures ...................................... 211,050 216,663
Leasehold improvements ...................................... 74,409 98,584
Other ....................................................... 54,107 137,898
---------- ----------
1,322,761 1,503,627
Less, accumulated depreciation and amortization ............. 425,272 663,207
---------- ----------
$ 897,489 $ 840,420
========== ==========
</TABLE>
F-53
<PAGE>
MEDIAAMERICA, INC.
NOTES TO FINANCIAL STATEMENTS --(CONTINUED)
NOTE 4--INTANGIBLE ASSETS
Intangible assets consist of the following as of June 30:
<TABLE>
<CAPTION>
1997 1998
------------ -----------
<S> <C> <C>
Radio programs ......................................................................... $ -- $2,336,257
Covenant not to compete ................................................................ -- 50,000
Goodwill ............................................................................... 23,099 23,099
Start-up costs ......................................................................... 119,599 119,599
-------- ----------
142,698 2,528,955
Less, accumulated amortization ......................................................... 125,790 326,620
-------- ----------
$ 16,908 $2,202,335
======== ==========
</TABLE>
NOTE 5--PROVISION FOR STATE AND LOCAL INCOME TAXES
Provision for state and local income taxes consists of the following:
<TABLE>
<CAPTION>
1997 1998
---- ----
<S> <C> <C>
Current.......................................................... $42,000 $ 341,000
Deferred......................................................... 41,100 (298,000)
------- ---------
$83,100 $ 43,000
======= =========
</TABLE>
NOTE 6--LINE OF CREDIT
The Company has a $5,000,000 revolving line of credit with a bank. The
Company did not utilize any of the available line of credit at June 30, 1997 and
1998, respectively.
NOTE 7--COMMITMENTS AND CONTINGENCIES
(a) Lease Commitments
The Company leases office space under several operating leases.
The total amount of the base rent payments is being charged to expense
on the straight-line method over the terms of the leases. The Company
has recorded a deferred credit to reflect the excess of the rent
expense over the cash payments since the inception of the leases. The
leases provide for the minimum rentals plus operating expenses and
real estate tax escalations. The total future minimum rental payments
required for noncancelable operating leases are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
- -----------
JUNE 30, AMOUNT
- ------- -----------
<S> <C>
1999 ........................................................... $ 488,000
2000 ........................................................... 497,000
2001 ........................................................... 531,000
2002 ........................................................... 531,000
2003 ........................................................... 520,000
Thereafter ..................................................... 1,297,000
----------
$3,864,000
==========
</TABLE>
F-54
<PAGE>
MEDIAAMERICA, INC.
NOTES TO FINANCIAL STATEMENTS --(CONTINUED)
One of the leases is secured by a $75,000 letter of credit.
Rent expense amounted to approximately $223,000 and $238,000 for
the six months ended June 30, 1997 and 1998, respectively (net of
amounts allocated to related entities).
(b) Consulting Agreement
On July 14, 1997, the Company entered into a consulting agreement
that requires monthly payments of $4,167 over a period of 24 months.
(c) Program Acquisition Contingency
As part of the purchase price of certain radio programs acquired
on November 17, 1997, the Company has agreed to pay (i) 10% of the net
revenues of the acquired radio programs, payable for each of the eight
calendar quarters following the date of acquisition, and (ii) 5% of
the net revenues of the acquired radio programs, payable for the next
two calendar quarters succeeding those described above.
NOTE 8--EMPLOYEE BENEFIT PLAN
The Company maintains a 401(k) tax deferred savings plan. This plan covers
all full-time employees who meet certain eligibility requirements. The plan
allows employees to defer up to 15% of their compensation, limited to the amount
allowed for income tax purposes. The Company, at its discretion, may contribute
an amount equal to a percentage of the amount the employees contribute. The
Company can also make an additional contribution to the plan. The Company's
expense under this plan was $22,200 and $25,500 for the six months ended June
30, 1997 and 1998, respectively.
NOTE 9--SHAREHOLDERS' AGREEMENT
The Company is obligated to repurchase the stock of its shareholders upon
the occurrence of certain events at the predetermined price, as set forth in the
shareholders' agreement. In the case of death, a portion of the purchase price
is funded by life insurance policies on the lives of the shareholders.
NOTE 10--RELATED PARTY TRANSACTIONS
(a) Loans to related parties consist of loans to shareholders and
affiliates. The loans are due on demand and bear interest at the
Applicable Federal Rate. The Company earned interest of approximately
$12,700 and $17,000 on these loans for the six months ended June 30,
1997 and 1998, respectively.
(b) The Company incurred costs for various services performed by
affiliates amounting to approximately $50,900 and $34,300 for the six
months ended June 30, 1997 and 1998, respectively.
(c) The Company charged affiliates for allocated rent and certain office
services of approximately $114,100 and $91,200 for the six months
ended June 30, 1997 and 1998, respectively.
F-55
<PAGE>
MEDIAAMERICA, INC.
NOTES TO FINANCIAL STATEMENTS --(CONTINUED)
NOTE 11--DEFERRED COMPENSATION PLANS
The Company has established two deferred compensation plans for the benefit
of certain employees. Under the terms of the first plan, an annual award is to
be made to an employee based on the "net profits" (as defined), which will be
paid into a trust. 60% of the balance of the trust becomes vested on January 1,
1998, and an additional 20% each January 1 thereafter until January 1, 2000.
Distributions from the trust are to be made at the earlier of January 1, 2005,
or upon the occurrence of certain events as set forth in the plan.
Under the terms of the second plan, an annual award is to be made to an
employee based on the "net profits" (as defined), which will be paid into a
trust. 25% of the balance of the trust becomes vested on December 23, 1998, and
an additional 25% each December 23, thereafter, until December 23, 2001.
Distributions from the trust are to be made at the earlier of December 23, 2007,
or upon the occurrence of certain events as set forth in the plan.
The Company has also established an Equity Appreciation Plan ("EAP") for
the benefit of certain employees. Under the terms of the EAP, a total of one
thousand units are available for distribution. One of such units is equivalent
to one share of common stock. On an annual basis, the fair market value (as
defined) of one unit is to be calculated and each participant is to be credited
an amount based on the number of units awarded to that participant. Payment of
benefits shall be made upon the occurrence of certain events, as set forth in
the EAP. As of June 30, 1998, 3 units have been awarded.
NOTE 12--LITIGATION
As of June 30, 1998, the Company is a defendant in a lawsuit in connection
with one of its sales representation agreements which expired in 1996. On July
10, 1998, the Company paid $68,500 to settle the lawsuit.
NOTE 13--CONCENTRATION OF CREDIT RISK
As of June 30, 1998, the Company had a significant concentration of cash on
deposit with one financial institution.
NOTE 14--SUBSEQUENT EVENT
On July 10, 1998, the Company sold substantially all its assets, subject to
certain liabilities, for $32.7 million, plus approximately $2 million for a
working capital adjustment, as defined. The Company received $26.7 million in
cash and approximately $8 million in shares of Class A Common Stock of the
buyer, valued at $15 per share. In addition, the Company may receive up to $5
million in additional shares of Class A Common Stock, with the excess, if any,
to be paid in cash if certain multiples of "EBITDA" (earnings before interest,
taxes, depreciation and amortization) for the twelve-month period following the
closing are achieved.
The Company has the right to cause the buyer to purchase the shares of the
buyer owned by the Company at any time, for three years for closing. The price
would be the fair market value thereof, as determined by agreement or by
independent investment banking firm. The buyer has a correlative right to
require the Company sell such shares to the buyer at fair market value. Such
rights terminate upon an initial public offering by the buyer. Before the
Company can exercise its rights to have the buyer purchase its shares, the buyer
must have available cash to make the repurchase. This condition lapses after
seven and one-quarter years from the date of closing. If the buyer
F-56
<PAGE>
MEDIAAMERICA, INC.
NOTES TO FINANCIAL STATEMENTS --(CONTINUED)
has exercised its purchase right and there is a change of control involving a
higher price within six months thereafter, the buyer must also pay certain
additional consideration.
F-57
<PAGE>
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THE PROSPECTUS AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL
OR A SOLICITATION OF ANY OFFER TO BUY THE NOTES BY ANYONE IN ANY JURISDICTION IN
WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON
MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO
WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF
ANY TIME SUBSEQUENT TO THE DATE HEREOF.
---------------------
TABLE OF CONTENTS
Page
----
Forward-Looking Information........................
Prospectus Summary.................................
Risk Factors.......................................
The Exchange Offer.................................
Use of Proceeds....................................
Capitalization.....................................
Selected Unaudited Pro Forma Financial Data........
Selected Consolidated Financial Data...............
Management's Discussion and Analysis of Financial
Condition and Results of Operations..............
Business...........................................
The Acquisition and Related Transactions...........
Management.........................................
Certain Relationships and Related Transactions.....
Principal Shareholders.............................
Description of Notes...............................
Book-Entry, Delivery and Form......................
Certain Federal Income Tax Consequences............
Plan of Distribution...............................
Legal Matters......................................
Independent Auditors...............................
Index to Selected Unaudited Reconsolidated
Financial Data...................................
Index to Financial Statements......................
JONES INTERNATIONAL NETWORKS, LTD.
LOGO
-----------------------------------
OFFER TO EXCHANGE
11/3//4% SENIOR SECURED NOTES
DUE 2005
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 PM,
NEW YORK CITY TIME, ON ___________, 1998,
UNLESS EXTENDED.
Prospectus
Dated September ____, 1998
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
In accordance with the Colorado Business Corporation Act, as amended (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, 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.
ITEM 21. EXHIBITS
The following exhibits are filed as part of this Registration Statement.
Exhibit
Number Description of Exhibit
------ ----------------------
3.1 Articles of Incorporation of the Company.
3.2 Bylaws of the Company.
4.1 Indenture, dated July 10, 1998, between the Company and United
States Trust Company of New York (the "Indenture").
4.2 Form of Exchange Note is included as Exhibit A-3 to the
Indenture.
4.3 Exchange and Registration Rights Agreement, dated July 10, 1998,
between the Company and NatWest Capital Markets Limited.
4.4 Pledge Agreement, dated July 10, 1998, among the Company, United
States Trust Company of New York and others.
4.5 Form of Subsidiary Guaranty is included as part of the
Indenture.
II-1
<PAGE>
5.1* Opinion of Davis, Graham & Stubbs LLP as to the legality of the
securities being registered.
10.1 1998 Stock Option Plan.
10.2 Form of Basic Incentive Stock Option Agreement.
10.3 Form of Basic Non-Qualified Stock Option Agreement.
10.4 Purchase and Sale Agreement dated August 9, 1996, between Jones
Global Group, Inc. and Jones International Networks, Ltd. (n/k/a
JPN, Inc.).
10.5 Exchange Agreement dated September 30, 1996, among Glenn R.
Jones, Jones International, Ltd. and Jones International
Networks, Ltd. (n/k/a JPN, Inc.).
10.6 Agreement and its amendment, dated November 6, 1996 and April 1,
1997, respectively, between Glenn R. Jones and Jones
International Networks, Ltd. (n/k/a JPN, Inc.).
10.7+ Second Amended and Restated Partnership Agreement of Product
Information Network Venture dated April 1, 1997, among Jones
Infomercial Network Ventures, Inc., Cox Consumer Information
Network, Inc. and Adelphia Communications Corporation.
10.8 Affiliate Agreement dated January 1, 1996, among Great American
Country, Inc., Jones Programming Services, Inc. and Jones
Intercable, Inc.
10.9 Amended and Restated Affiliate Agreement dated August 1, 1994,
between Jones Infomercial Networks, Inc. and Jones Intercable,
Inc., together with an Assignment dated January 31, 1995,
between Jones Infomercial Networks, Inc. and Jones Infomercial
Network Ventures, Inc.
10.10+ Affiliate Agreement dated January 31, 1995, between Product
Information Network Venture and Cox Communications, Inc.
10.11+ Affiliate Agreement as Amended, dated October 1, 1995 as amended
effective April 1, 1997, between Product Information Network
Venture and Adelphia Communications Corporation.
10.12 Uplink Services Agreement dated January 1, 1995, among Jones
Earth Segment, Inc., Jones Infomercial Networks, Inc., Jones
Computer Network, Ltd., Mind Extension University, Inc. (n/k/a
Knowledge TV, Inc.) and Jones Galactic Radio, Inc., together
with a letter agreement dated June 10, 1998, between Jones Earth
Segment, Inc. and Knowledge TV, Inc.
10.13 Services Agreement dated January 1, 1995, among Jones Earth
Segment, Inc., Jones Infomercial Networks, Inc., Jones Computer
Network, Ltd. and Mind Extension University, Inc. (n/k/a
Knowledge TV, Inc.), together with a letter agreement dated June
10, 1998, between Jones Earth Segment, Inc. and Knowledge TV,
Inc.
10.14 Transponder Licenses Agreement dated January 1, 1995, among
Jones Space Segment, Inc., Jones Infomercial Networks, Inc. and
Jones Computer Network, Ltd., together with a letter agreement
dated June 10, 1998, between Jones Space Holdings, Inc. and
Knowledge TV, Inc.
10.15 Transponder Licenses Agreement dated January 1, 1995, among
Jones Satellite Holdings, Inc., Jones Galactic Radio, Inc. and
Mind Extension University, Inc. (n/k/a Knowledge TV, Inc.).
10.16+ C-3/C-4 Satellite Transponder Service Agreement dated July 28,
1989, between GE American Communications, Inc. and Jones Space
Segment, Inc.
10.17 Agreement dated June 2, 1998, among MediaAmerica, Inc., Ron
Hartenbaum, Gary Schonfeld, Jones Network Holdings LLC and the
Company.
10.18 Post-Closing Agreement dated July 10, 1998, with MediaAmerica,
Inc., Gary Schonfeld and Ron Hartenbaum.
10.19 Employment Agreement dated July 10, 1998, between Ron Hartenbaum
and the Company.
II-2
<PAGE>
10.20 Employment Agreement dated July 10, 1998, between Gary Schonfeld
and the Company.
10.21 Purchase Agreement dated July 2, 1998, between the Company and
NatWest Capital Markets Limited.
12* Statement re: Ratio of Earnings to Fixed Charges.
21 Subsidiaries.
23.1 Consent of Arthur Andersen LLP.
23.2 Consent of David Berdon & Co. LLP.
23.3* Consent of Davis, Graham & Stubbs LLP. (See Exhibit 5.1).
24 Power of Attorney (included on Signature Page).
25* Statement of Eligibility of United States Trust Company of New
York on Form T-1 with respect to the Senior Secured Notes.
27* Financial Data Schedule.
99* Form of Letter of Transmittal.
____________________
*To be filed by amendment.
+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.
ITEM 22. UNDERTAKINGS
The Registrant hereby undertakes:
Insofar as indemnification for liabilities arising under Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer, or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer, or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
II-3
<PAGE>
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized in the city of Denver, state of Colorado,
on August 19, 1998.
JONES INTERNATIONAL NETWORKS, LTD.
By: /s/ Gregory J. Liptak
---------------------
Gregory J. Liptak
President
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS that each person whose signature appears
below constitutes and appoints Gregory J. Liptak, Jay B. Lewis, Lorri Ellis and
Elizabeth M. Steele as such person's true and lawful attorney-in-fact and agent,
acting alone, with full powers of substitution and revocation, for such person
and in such person's name, place and stead, in any and all capacities, to sign
any and all amendments (including post-effective amendments) to this
registration statement and to file the same with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorney-in-fact and agent, acting alone, full power and
authority to do and perform such and every act and thing requisite and necessary
to be done, as fully to all intents and purposes as such person might or could
do in person, hereby ratifying and confirming all that said attorney-in-fact and
agent, acting alone, or his substitute or substitutes, may lawfully do or cause
to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURES TITLE DATE
- ------------------------- ------------------------------- ----------------
/s/ Glenn R. Jones Chairman of the Board of August 19, 1998
- ------------------
Glenn R. Jones Directors
/s/ Gregory J. Liptak President and Director August 19, 1998
- ---------------------
Gregory J. Liptak (Principal Executive Officer)
Group Vice President/Finance
/s/ Jay B. Lewis and Director August 19, 1998
- ----------------
Jay B. Lewis (Principal Financial Officer)
/s/ Keith D. Thompson Chief Accounting Officer August 19, 1998
- ---------------------
Keith D. Thompson (Principal Accounting Officer)
/s/ Ronald Hartenbaum Director August 18, 1998
- ---------------------
Ronald Hartenbaum
/s/ Yrma G. Rico Director August 18, 1998
- ----------------
Yrma G. Rico
________________________ Director
Fred A. Vierra
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, each of the co-
registrants listed in Attachment A hereto has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized in the city of Denver, state of Colorado, on August 19, 1998.
THE CO-REGISTRANTS LISTED
IN ATTACHMENT A HERETO
By: /s/ Gregory J. Liptak
---------------------
Gregory J. Liptak
President of each of said co-registrants
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS that each person whose signature appears
below constitutes and appoints Gregory J. Liptak, Jay B. Lewis, Lorri Ellis and
Elizabeth M. Steele as such person's true and lawful attorney-in-fact and agent,
acting alone, with full powers of substitution and revocation, for such person
and in such person's name, place and stead, in any and all capacities, to sign
any and all amendments (including post-effective amendments) to this
registration statement and to file the same with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorney-in-fact and agent, acting alone, full power and
authority to do and perform such and every act and thing requisite and necessary
to be done, as fully to all intents and purposes as such person might or could
do in person, hereby ratifying and confirming all that said attorney-in-fact and
agent, acting alone, or his substitute or substitutes, may lawfully do or cause
to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURES TITLE DATE
- ------------------------- ----------------------------- ----------------
/s/ Glenn R. Jones Chairman of the Board of August 19, 1998
- ------------------
Glenn R. Jones Directors
/s/ Gregory J. Liptak President and Director August 19, 1998
- ---------------------
Gregory J. Liptak (Principal Executive Officer)
of each co-registrant listed
on Attachment A
Vice President/Finance and
/s/ Jay B. Lewis Director August 19, 1998
- ----------------
Jay B. Lewis (Principal Financial Officer)
of each co-registrant listed
on Attachment A
/s/ Keith D. Thompson Chief Accounting Officer August 19, 1998
- ---------------------
Keith D. Thompson (Principal Accounting Officer)
of each co-registrant listed
on Attachment A
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the co-registrant
listed in Attachment B hereto has duly caused this registration statement to be
signed on its behalf by the undersigned, thereunto duly authorized in the city
of Denver, state of Colorado, on August 18, 1998.
THE CO-REGISTRANT LISTED
IN ATTACHMENT B HERETO
By: /s/ Ronald Hartenbaum
---------------------
Ronald Hartenbaum
President of said co-registrant
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS that each person whose signature appears
below constitutes and appoints Gregory J. Liptak, Jay B. Lewis, Lorri Ellis and
Elizabeth M. Steele as such person's true and lawful attorney-in-fact and agent,
acting alone, with full powers of substitution and revocation, for such person
and in such person's name, place and stead, in any and all capacities, to sign
any and all amendments (including post-effective amendments) to this
registration statement and to file the same with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorney-in-fact and agent, acting alone, full power and
authority to do and perform such and every act and thing requisite and necessary
to be done, as fully to all intents and purposes as such person might or could
do in person, hereby ratifying and confirming all that said attorney-in-fact and
agent, acting alone, or his substitute or substitutes, may lawfully do or cause
to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
- -------------------------- ----------------------------- ------------------------------
<S> <C> <C>
/s/ Gregory J. Liptak Chairman of the Board of August 19, 1998
- ---------------------
Gregory J. Liptak Directors
/s/ Ronald Hartenbaum President August 18, 1998
- ---------------------
Ronald Hartenbaum (Principal Executive Officer)
of the co-registrant listed
on Attachment B
/s/ Jay B. Lewis Vice President/Finance and Director August 19, 1998
- ----------------
Jay B. Lewis (Principal Financial Officer)
of the co-registrant listed
on Attachment B
/s/ Keith D. Thompson Chief Accounting Officer August 19, 1998
- ---------------------
Keith D. Thompson (Principal Accounting Officer)
of the co-registrant listed
on Attachment B
</TABLE>
II-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, each of the co-
registrants listed in Attachment C hereto has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized in the city of Denver, state of Colorado, on August 19, 1998.
THE CO-REGISTRANTS LISTED
IN ATTACHMENT C HERETO
By: /s/ Glenn R. Jones
------------------
Glenn R. Jones
Chief Executive Officer of each of said
co-registrants
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS that each person whose signature appears
below constitutes and appoints Gregory J. Liptak, Jay B. Lewis, Lorri Ellis and
Elizabeth M. Steele as such person's true and lawful attorney-in-fact and agent,
acting alone, with full powers of substitution and revocation, for such person
and in such person's name, place and stead, in any and all capacities, to sign
any and all amendments (including post-effective amendments) to this
registration statement and to file the same with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorney-in-fact and agent, acting alone, full power and
authority to do and perform such and every act and thing requisite and necessary
to be done, as fully to all intents and purposes as such person might or could
do in person, hereby ratifying and confirming all that said attorney-in-fact and
agent, acting alone, or his substitute or substitutes, may lawfully do or cause
to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
- ---------------------------- ---------------------------- -------------------------------
<S> <C> <C>
/s/ Glenn R. Jones Chairman of the Board of August 19, 1998
- ------------------
Glenn R. Jones Directors
(Principal Executive Officer)
of each co-registrant listed
on Attachment C
/s/ Jay B. Lewis Treasurer August 19, 1998
- ----------------
Jay B. Lewis (Principal Financial Officer)
of each co-registrant listed
on Attachment C
/s/ Keith D. Thompson Chief Accounting Officer August 19, 1998
- ---------------------
Keith D. Thompson (Principal Accounting Officer)
of each co-registrant listed
on Attachment C
/s/ Gregory J. Liptak Director August 19, 1998
- ---------------------
Gregory J. Liptak
</TABLE>
II-8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the co-registrant
listed in Attachment D hereto has duly caused this registration statement to be
signed on its behalf by the undersigned, thereunto duly authorized in the city
of Denver, state of Colorado, on August 19, 1998.
THE CO-REGISTRANT LISTED
IN ATTACHMENT D HERETO
By: /s/ Glenn R. Jones
------------------
Glenn R. Jones
President of said co-registrant
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS that each person whose signature appears
below constitutes and appoints Gregory J. Liptak, Jay B. Lewis, Lorri Ellis and
Elizabeth M. Steele as such person's true and lawful attorney-in-fact and agent,
acting alone, with full powers of substitution and revocation, for such person
and in such person's name, place and stead, in any and all capacities, to sign
any and all amendments (including post-effective amendments) to this
registration statement and to file the same with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorney-in-fact and agent, acting alone, full power and
authority to do and perform such and every act and thing requisite and necessary
to be done, as fully to all intents and purposes as such person might or could
do in person, hereby ratifying and confirming all that said attorney-in-fact and
agent, acting alone, or his substitute or substitutes, may lawfully do or cause
to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
- ---------------------------- ----------------------------- -------------------------------
<S> <C> <C>
/s/ Glenn R. Jones Chairman of the Board of August 19, 1998
- ------------------
Glenn R. Jones Directors and President
(Principal Executive Officer)
of the co-registrant listed
on Attachment D
/s/ Jay B. Lewis Treasurer August 19, 1998
- ----------------
Jay B. Lewis (Principal Financial Officer)
of the co-registrant listed
on Attachment D
/s/ Keith D. Thompson Chief Accounting Officer August 19, 1998
- ---------------------
Keith D. Thompson (Principal Accounting Officer)
of the co-registrant listed
on Attachment D
/s/ Elizabeth M. Steele Director August 19, 1998
- -----------------------
Elizabeth M. Steele
</TABLE>
II-9
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, each of the co-
registrants listed in Attachment E hereto has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized in the city of Denver, state of Colorado, on August 19, 1998.
THE CO-REGISTRANTS LISTED
IN ATTACHMENT E HERETO
By: /s/ Glenn R. Jones
------------------
Glenn R. Jones
Chief Executive Officer of each of said
co-registrants
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS that each person whose signature appears
below constitutes and appoints Gregory J. Liptak, Jay B. Lewis, Lorri Ellis and
Elizabeth M. Steele as such person's true and lawful attorney-in-fact and agent,
acting alone, with full powers of substitution and revocation, for such person
and in such person's name, place and stead, in any and all capacities, to sign
any and all amendments (including post-effective amendments) to this
registration statement and to file the same with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorney-in-fact and agent, acting alone, full power and
authority to do and perform such and every act and thing requisite and necessary
to be done, as fully to all intents and purposes as such person might or could
do in person, hereby ratifying and confirming all that said attorney-in-fact and
agent, acting alone, or his substitute or substitutes, may lawfully do or cause
to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
- --------------------------- ------------------------ -------------------------------
<S> <C> <C>
/s/ Glenn R. Jones Chairman of the Board of August 19, 1998
- ------------------
Glenn R. Jones Directors and Chief Executive
Officer
(Principal Executive Officer)
of each co-registrant listed
on Attachment E
/s/ Jay B. Lewis Treasurer August 19, 1998
- ----------------
Jay B. Lewis (Principal Financial Officer)
of each co-registrant listed
on Attachment E
/s/ Keith D. Thompson Chief Accounting Officer August 19, 1998
- ---------------------
Keith D. Thompson (Principal Accounting Officer)
of each co-registrant listed
on Attachment E
</TABLE>
II-10
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the co-registrant
listed in Attachment F hereto has duly caused this registration statement to be
signed on its behalf by the undersigned, thereunto duly authorized in the city
of Denver, state of Colorado, on August 19, 1998.
THE CO-REGISTRANT LISTED
IN ATTACHMENT F HERETO
By: /s/ Gregory J. Liptak
---------------------
Gregory J. Liptak
Manager of said co-registrant
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS that each person whose signature appears
below constitutes and appoints Gregory J. Liptak, Jay B. Lewis, Lorri Ellis and
Elizabeth M. Steele as such person's true and lawful attorney-in-fact and agent,
acting alone, with full powers of substitution and revocation, for such person
and in such person's name, place and stead, in any and all capacities, to sign
any and all amendments (including post-effective amendments) to this
registration statement and to file the same with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorney-in-fact and agent, acting alone, full power and
authority to do and perform such and every act and thing requisite and necessary
to be done, as fully to all intents and purposes as such person might or could
do in person, hereby ratifying and confirming all that said attorney-in-fact and
agent, acting alone, or his substitute or substitutes, may lawfully do or cause
to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
- --------------------------- ----------------------- --------------------------
<S> <C> <C>
/s/ Gregory J. Liptak Manager August 19, 1998
- ---------------------
Gregory J. Liptak (Principal Executive Officer)
of the co-registrant listed
on Attachment F
/s/ Jay B. Lewis Manager August 19, 1998
- ----------------
Jay B. Lewis (Principal Financial Officer)
of the co-registrant listed
on Attachment F
/s/ Keith D. Thompson Chief Accounting Officer August 19, 1998
- ---------------------
Keith D. Thompson (Principal Accounting Officer)
of the co-registrant listed
on Attachment F
/s/ Eric Hauenstein Manager August 18, 1998
- -------------------
Eric Hauenstein of the co-registrant listed
on Attachment F
___________________________ Manager
Gus Bailey of the co-registrant listed
on Attachment F
</TABLE>
II-11
<PAGE>
<TABLE>
<S> <C>
___________________________ Manager
Jim Owens of the co-registrant listed
on Attachment F
</TABLE>
II-12
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the co-registrant
listed in Attachment G hereto has duly caused this registration statement to be
signed on its behalf by the undersigned, thereunto duly authorized in the city
of Denver, state of Colorado, on August 19, 1998.
THE CO-REGISTRANT LISTED
IN ATTACHMENT G HERETO
By: /s/ Glenn R. Jones
------------------
Glenn R. Jones
President of said co-registrant
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS that each person whose signature appears
below constitutes and appoints Gregory J. Liptak, Jay B. Lewis, Lorri Ellis and
Elizabeth M. Steele as such person's true and lawful attorney-in-fact and agent,
acting alone, with full powers of substitution and revocation, for such person
and in such person's name, place and stead, in any and all capacities, to sign
any and all amendments (including post-effective amendments) to this
registration statement and to file the same with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorney-in-fact and agent, acting alone, full power and
authority to do and perform such and every act and thing requisite and necessary
to be done, as fully to all intents and purposes as such person might or could
do in person, hereby ratifying and confirming all that said attorney-in-fact and
agent, acting alone, or his substitute or substitutes, may lawfully do or cause
to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
- --------------------------- ---------------------------- -------------------------
<S> <C> <C>
/s/ Glenn R. Jones Chairman of the Board of Directors August 19, 1998
- ------------------
Glenn R. Jones and President (Principal Executive
Officer) of the co-registrant
listed on Attachment G
/s/ Jay B. Lewis Treasurer and Director August 19, 1998
- ----------------
Jay B. Lewis (Principal Financial Officer)
of the co-registrant listed
on Attachment G
/s/ Keith D. Thompson Chief Accounting Officer August 19, 1998
- ---------------------
Keith D. Thompson (Principal Accounting Officer)
of the co-registrant listed
on Attachment G
/s/ Gregory J. Liptak Group Vice President and August 19, 1998
- ---------------------
Gregory J. Liptak Director
</TABLE>
II-13
<PAGE>
<TABLE>
<S> <C> <C>
/s/ Ronald Hartenbaum Director August 18, 1998
- ---------------------
Ronald Hartenbaum
___________________________ Director
Jeffrey C. Wayne
___________________________ Director
Gary Schonfeld
</TABLE>
II-14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the co-registrant
listed in Attachment H hereto has duly caused this registration statement to be
signed on its behalf by the undersigned, thereunto duly authorized in the city
of Denver, state of Colorado, on August 19, 1998.
THE CO-REGISTRANT LISTED
IN ATTACHMENT H HERETO
By: /s/ Gary Schonfeld
------------------
Gary Schonfeld
Chief Executive Officer of said co-registrant
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS that each person whose signature appears
below constitutes and appoints Gregory J. Liptak, Jay B. Lewis, Lorri Ellis and
Elizabeth M. Steele as such person's true and lawful attorney-in-fact and agent,
acting alone, with full powers of substitution and revocation, for such person
and in such person's name, place and stead, in any and all capacities, to sign
any and all amendments (including post-effective amendments) to this
registration statement and to file the same with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorney-in-fact and agent, acting alone, full power and
authority to do and perform such and every act and thing requisite and necessary
to be done, as fully to all intents and purposes as such person might or could
do in person, hereby ratifying and confirming all that said attorney-in-fact and
agent, acting alone, or his substitute or substitutes, may lawfully do or cause
to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
- -------------------------- -------------------------- --------------------------
<S> <C> <C>
/s/ Ronald Hartenbaum Chairman of the Board of August 18, 1998
- ---------------------
Ronald Hartenbaum Directors
Chief Executive Officer, President
/s/ Gary Schonfeld and Director August 19, 1998
- ------------------
Gary Schonfeld (Principal Executive Officer)
of the co-registrant listed
on Attachment H
Vice President/Finance
/s/ Jay B. Lewis and Director August 19, 1998
- ----------------
Jay B. Lewis (Principal Financial Officer)
of the co-registrant listed
on Attachment H
/s/ Catherine Csukas Chief Accounting Officer August 18, 1998
- --------------------
Catherine Csukas (Principal Accounting Officer)
of the co-registrant listed
on Attachment H
</TABLE>
II-15
<PAGE>
<TABLE>
<S> <C> <C>
/s/ Gregory J. Liptak Director August 19, 1998
- ---------------------
Gregory J. Liptak
</TABLE>
II-16
<PAGE>
ATTACHMENT A
JPN, Inc.
Jones Radio Holdings, Inc.
Jones Space Holdings, Inc.
<PAGE>
ATTACHMENT B
Jones MAI Radio, Inc.
<PAGE>
ATTACHMENT C
Great American Country, Inc.
Jones Infomercial Networks, Inc.
Jones Audio Services, Inc.
Jones Infomercial Network Ventures, Inc.
<PAGE>
ATTACHMENT D
Jones Earth Segment, Inc.
<PAGE>
ATTACHMENT E
Jones Galactic Radio Partners, Inc.
Jones Radio Network, Inc.
Jones Radio Network Ventures, Inc.
<PAGE>
ATTACHMENT F
Jones/Owens Radio Programming LLC
<PAGE>
ATTACHMENT G
Jones Galactic Radio, Inc.
<PAGE>
ATTACHMENT H
MediaAmerica, Inc.
<PAGE>
EXHIBIT 3.1
ARTICLES OF INCORPORATION
OF
JONES INTERNATIONAL NETWORKS, LTD.
The undersigned, who is eighteen years of age or older, hereby establishes
a corporation, pursuant to the Colorado Business Corporation Act, as amended,
and adopts the following Articles of Incorporation:
ARTICLE I
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The name of the corporation is Jones International Networks, Ltd. (the
"Corporation").
ARTICLE II
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The nature of the business or purposes of the Corporation is to engage in
the transaction of all lawful business and to pursue any other lawful purpose or
purposes for which a corporation may be organized under the laws of the State of
Colorado. The Corporation shall have, enjoy and exercise all of the rights,
powers and privileges conferred upon corporations organized under the laws of
the State of Colorado, whether now or hereafter in effect, and whether or not
herein specifically mentioned. The foregoing enumeration of purposes and powers
shall not limit or restrict in any manner the exercise of other and further
rights and powers that may now or hereafter be allowed or permitted by law.
ARTICLE III
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The period of duration of the Corporation shall be perpetual.
ARTICLE IV
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The street address of the initial registered office of the Corporation
shall be 9697 E. Mineral Avenue, Englewood, Colorado 80112. The name of the
initial registered agent of the Corporation at such address shall be Elizabeth
M. Steele.
<PAGE>
ARTICLE V
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The address of the initial principal office of the Corporation shall be
9697 E. Mineral Avenue, Englewood, Colorado 80112.
ARTICLE VI
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6.1. Authorized Shares. The total number of shares of capital stock that
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the Corporation shall have authority to issue is 51,785,120 shares, consisting
of two classes of capital stock:
(a) 50,000,000 shares of Class A Common Stock, par value $.01 per
share (the "Class A Shares"); and
(b) 1,785,120 shares of Class B Common Stock, par value $.01 per share
(the "Class B Shares"; and, together with the Class A Shares, the "Common
Shares").
6.2. Designations, Preferences, etc. The designations, preferences,
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powers, qualifications, and special or relative rights or privileges of the
capital stock of the Corporation shall be as set forth in Article VII.
ARTICLE VII
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7.1. Identical Rights. Except as herein otherwise expressly provided in
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this Article VII, all Common Shares shall be identical and shall entitle the
holders thereof to the same rights and privileges.
7.2. Dividends.
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(a) When, as and if dividends are declared by the Corporation's Board
of Directors, whether payable in cash, in property or in securities of the
Corporation, the holders of Common Shares shall be entitled to share equally in
and to receive, in accordance with the number of Common Shares held by each such
holder, all such dividends. The Board of Directors of the Corporation may
declare either (i) a dividend payable solely in Class A Shares to holders of
both Class A Shares and Class B Shares, or (ii) a dividend payable solely in
Class B Shares to holders of both Class A Shares and Class B Shares.
(b) Dividends payable under this Paragraph 7.2 shall be paid to the
holders of record of the outstanding Common Shares as their name shall
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appear on the stock register of the Corporation on the record date fixed by the
Board of Directors in advance of declaration and payment of each dividend. Any
Common Shares issued as a dividend pursuant to this Paragraph 7.2 shall, when so
issued, be duly authorized, validly issued, fully paid and non-assessable, and
free of all liens and charges. The Corporation shall not issue fractions of
Common Shares on payment of such dividend but shall issue a whole number of
shares to such holder of Common Shares rounded up or down in the Corporation's
sole discretion to the nearest whole number, without compensation to the
stockholder whose fractional share has been rounded down or from any stockholder
whose fractional share has been rounded up.
(c) Notwithstanding anything contained herein to the contrary, no
dividends on Common Shares shall be declared by the Corporation's Board of
Directors or paid or set apart for payment by the Corporation at any time that
such declaration, payment or setting apart is prohibited by applicable law.
7.3. Stock Splits. Except as otherwise provided by Paragraph 7.2(a) above,
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the Corporation shall not in any manner subdivide (by any stock split,
reclassification, stock dividend, recapitalization, or otherwise) or combine the
outstanding shares of one class of Common Shares unless the outstanding shares
of all classes of Common Shares shall be proportionately subdivided or combined.
7.4. Voting Rights.
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(a) On all matters submitted to the shareholders not requiring a class
vote under applicable Colorado law, the holders of the Common Shares shall vote
as a single class, with each Class A Share entitled to one vote and each Class B
Share entitled to ten votes, except with respect to the election of the members
of the Board of Directors for which there shall be class voting as described in
subparagraph (b) below.
(b) With respect to the election of directors, the holders of the
Class A Shares, voting as a separate voting group, shall be entitled to elect
that number of directors which constitutes 25% of the total membership of the
Board of Directors; and if such 25% is not a whole number, then the holders of
the Class A Shares shall be entitled to elect the nearest higher whole number of
directors which constitutes 25% of such membership. The holders of the Class B
Shares, voting as a separate voting group, shall be entitled to elect the
remaining directors.
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(c) With respect to the removal of directors, the holders of the Class
A Shares, voting as a separate voting group, shall only be entitled to vote on
the removal, with or without cause, of any director elected by the holders of
the Class A Shares; and the holders of the Class B Shares, voting as a separate
voting group, shall only be entitled to vote on the removal, with or without
cause, of any director elected by the holders of the Class B Shares.
(d) Any vacancy occurring in the Board of Directors created by the
death, resignation or removal of any director, whether elected by the holders of
the Class A Shares or the Class B Shares, may be filled by the affirmative vote
of a majority of the remaining directors, though less than a quorum of the Board
of Directors, unless the remaining directors elect to call a special meeting of
the shareholders for the purpose of filling such vacancy. If permitted by the
bylaws of the Corporation, the Board of Directors may increase the number of
directors, and any vacancy so created may be filled by the Board of Directors;
provided that unless the conditions set forth in subparagraph (e) below exist in
respect of the next previous meeting of shareholders at which directors have
been elected, the number of directors may be so increased by the Board of
Directors only to the extent that 25% of the enlarged board shall consist of
directors elected by the holders of the Class A Shares or by persons appointed
to fill vacancies created by the death, resignation or removal of persons
elected by the holders of the Class A Shares. Any director elected by the Board
of Directors to fill a vacancy shall serve until the next annual meeting of
shareholders and until his successor is elected and has qualified.
(e) The Class A Shares shall not have the right to elect directors set
forth in subparagraph (b) above if, on the record date for any meeting of
shareholders at which directors are to be elected, the number of issued and
outstanding Class A Shares (exclusive of any such shares held as treasury stock)
is less than 10% of the aggregated number of issued and outstanding Class A
Shares and Class B Shares (exclusive of any such shares held as treasury stock).
In such event, all directors to be elected at such meeting shall be elected by
holders of Class A Shares and Class B Shares voting together as a single class,
provided that with respect to said election the holders of Class A Shares shall
have one vote for each share and the holders of Class B Shares shall have ten
votes for each share.
7.5. No Preemptive or Subscription Rights. No holder of Common Shares
------------------------------------
shall be entitled to preemptive or subscription rights.
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7.6 Conversion of Class B Shares. At any time, and from time-to-time, a
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holder of shares of Class B shall be entitled to convert Class B Shares to Class
A Shares on a share for share basis. As promptly as practicable after the
surrender of any Class B Shares for conversion and the receipt of a conversion
notice relating thereto, the Corporation shall deliver or cause to be delivered
at said office or agency, to or upon the written order of the holder of the
Class B Shares so surrendered, a certificate or certificates representing the
number of fully paid and nonassessable Class A Shares into which such Class B
Shares (or portions thereof) may be converted in accordance with the provisions
of this Section 7.6, registered in such name or names as are specified in the
conversion notice. In case any Class B Shares shall be surrendered for partial
conversion, the Corporation shall deliver or cause to be delivered a certificate
or certificates representing the unconverted portion of the surrendered Class B
Shares. Such conversion shall be deemed to have been effected at the close of
business on the date when such Class B Shares shall have been surrendered for
conversion together with the conversion notice, so that the rights of the holder
of such Class B Shares as such holder shall cease at such time and the person or
persons entitled to receive the Class A Shares upon conversion of such Class B
Shares shall be treated for all purposes as having becoming the record holder or
holders of such Class A Shares at such time; provided, however, that no such
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surrender on any date when the stock transfer books of the Corporation shall be
closed shall be effective to constitute the person or persons entitled to
receive the Class A Shares upon such conversion as the record holder or holders
of such Class A Shares on such date, but such surrender shall be effective to
constitute the person or persons entitled to receive such Class A Shares as the
record holder or holders thereof for all purposes at the opening of business on
the next succeeding business day on which such stock transfer books are open.
ARTICLE VIII
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The Corporation reserves the right to amend or repeal any provisions
contained in these Articles of Incorporation from time to time and at any time
in the manner now or hereafter prescribed in these Articles of Incorporation and
by the laws of the State of Colorado, and all rights herein conferred upon
shareholders are granted subject to such reservation.
ARTICLE IX
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Any action proposed to be taken by the shareholders which, but for this
Article IX, would require a greater vote under the Colorado Business Corporation
Act, as amended from time to time, may be taken by a majority of
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the votes to which the then outstanding shares, or any class or series thereof,
are entitled.
ARTICLE X
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10.1. The business and affairs of the Corporation shall be managed by
a board of directors, the members of which shall be elected at the annual
meeting of the shareholders, or at a special meeting called for that purpose.
10.2. The initial board of directors shall consist of the following
three members, who shall serve until the first annual meeting of shareholders
and until his successor shall be elected and qualified.
DIRECTOR ADDRESS
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Glenn R. Jones 9697 E. Mineral Avenue Englewood,
Colorado 80112
Gregory J. Liptak 9697 E. Mineral Avenue Englewood,
Colorado 80112
Jay B. Lewis 9697 E. Mineral Avenue Englewood,
Colorado 80112
10.3. The number of directors may be increased or decreased from time to
time in the manner provided in the bylaws of the Corporation, but no decrease
shall have the effect of shortening the term of any incumbent director .
ARTICLE XI
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Shareholders of the Corporation shall not have cumulative voting rights.
ARTICLE XII
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The following provisions are inserted for the management of the business
and for the conduct of the affairs of the Corporation, and the same are in
furtherance of and not in limitation or exclusion of the powers conferred by
law.
12.1. Conflicting Interest Transactions. As used in this paragraph,
---------------------------------
"conflicting interest transaction" means any of the following: (i) a loan or
other
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assistance by the Corporation to a director of the Corporation or to an entity
in which a director of the Corporation is a director or officer or has a
financial interest; (ii) a guaranty by the Corporation of an obligation of a
director of the Corporation or of an obligation of an entity in which a director
of the Corporation is a director or officer or has a financial interest; or
(iii) a contract or transaction between the Corporation and a director of the
Corporation or between the Corporation and an entity in which a director of the
Corporation is a director or officer or has a financial interest. No conflicting
interest transaction shall be void or voidable, be enjoined, be set aside, or
give rise to an award of damages or other sanctions 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 any
entity in which a director of the 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 the committee of
the board of directors which authorizes, approves or ratifies a conflicting
interest transaction, or solely because the director's vote is counted for such
purpose, so long as such transaction satisfies one or more of the conditions set
forth in Section 7-108-501(2) of the Colorado Business Corporation Act. Common
or interested directors may be counted in determining the presence of a quorum
at a meeting of the board of directors or of a committee which authorizes,
approves or ratifies the conflicting interest transaction.
12.2. Indemnification. The Corporation shall indemnify, to the maximum
---------------
extent permitted by law, any person who is or was a director, officer, agent,
fiduciary or employee of the Corporation against any claim, liability or expense
arising against or incurred by such person made party to a proceeding because he
or she is or was a director, officer, agent, fiduciary or employee of the
Corporation or because he or she is or was serving another entity as a director,
officer, partner, trustee, employee, fiduciary or agent at the Corporation's
request. The Corporation shall further have the authority to the maximum extent
permitted by law to purchase and maintain insurance providing such
indemnification.
12.3. Limitation of Director's Liability. No director of the
----------------------------------
Corporation shall have any personal liability for monetary damages to the
Corporation or its shareholders for breach of his or her fiduciary duty as a
director, except that this provision shall not eliminate or limit the personal
liability of a director to the Corporation or its shareholders for monetary
damages for: (i) any breach of the directors' duty of loyalty to the
Corporation or its shareholders; (ii) acts or omissions not in good faith or
which involve intentional misconduct or a
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<PAGE>
knowing violation of law; (iii) voting for or assenting to a distribution in
violation of Section 7-106-401 of the Colorado Business Corporation Act or the
articles of incorporation if it is established that the director did not perform
his or her duties in compliance with Section 7-108-401 of the Colorado Business
Corporation Act, provided that the personal liability of a director in this
circumstance shall be limited to the amount of the distribution which exceeds
what could have been distributed without violation of Section 7-106-401 of the
Colorado Business Corporation Act or the articles of incorporation; or (iv) any
transaction from which the director directly or indirectly derives an improper
personal benefit. If the Colorado Business Corporation Act hereafter is amended
to eliminate or limit further the liability of a director, then, in addition to
the elimination and limitation of liability provided by the preceding sentence,
the liability of each director shall be eliminated or limited to the fullest
extent permitted by the Colorado Business Corporation Act as so amended. Nothing
contained herein will be construed to deprive any director of his or her right
to all defenses ordinarily available to a director nor will anything herein be
construed to deprive any director of any right he or she may have for
contribution from any other director or other person.
12.4. Negation of Equitable Interests in Shares or Rights. Unless
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a person is recognized as a shareholder through procedures established by the
Corporation pursuant to Section 7-107-204 of the Colorado Business Corporation
Act or any similar law, the Corporation shall be entitled to treat the
registered holder of any shares of the Corporation as the owner thereof for all
purposes permitted by the Colorado Business Corporation Act, including without
limitation all rights deriving from such shares, and the Corporation shall not
be bound to recognize any equitable or other claim to, or interest in, such
shares or rights deriving from such shares on the part of any other persons,
including without limitation a purchaser, assignee or transferee of such shares,
unless and until such other person becomes the registered holder of such shares
or is recognized as such, whether or not the Corporation shall have either
actual or constructive notice of the claimed interest of such other person.
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<PAGE>
ARTICLE XIII
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The name and address of the incorporator are:
Elizabeth M. Steele 9697 E. Mineral Avenue Englewood, Colorado 80112
Executed this 28th day of May, 1998.
/s/ Elizabeth M. Steele
---------------------------
Elizabeth M. Steele
Incorporator
I hereby consent to my appointment as the initial registered agent for
Jones International Networks, Ltd.
/s/ Elizabeth M. Steele
---------------------------
Elizabeth M. Steele
<PAGE>
Exhibit 3.2
BYLAWS
OF
JONES INTERNATIONAL NETWORKS, LTD.
ARTICLE I. - Offices
---------------------
1.1 Principal Office: The principal office of the corporation shall be
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at 9697 E. Mineral Avenue, Englewood, Colorado 80112, but the board of
directors, in its discretion, may keep and maintain offices wherever the
business of the corporation may require.
1.2 Registered Office and Agent: The corporation shall have and
---------------------------
continuously maintain in the State of Colorado a registered office, which may be
the same as its principal office, and a registered agent whose business office
is identical with such registered office. The initial registered office and the
initial registered agent are specified in the articles of incorporation. The
corporation may change its registered office or change its registered agent, or
both, upon filing a statement as specified by law in the office of the Secretary
of State of the State of Colorado.
ARTICLE II. - Shareholders
--------------------------
2.1 Annual Meeting: The annual meeting of shareholders shall be held at
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the principal office of the corporation on the second Friday in July of each
year, or at such other place or date as the board of directors may determine.
If the election of directors is not held on the date fixed as provided herein
for any annual meeting of the shareholders, or any adjournment thereof, the
board of directors shall cause the election to be held at a special meeting of
the shareholders as soon thereafter as it may conveniently be held.
<PAGE>
2.2 Special Meetings: Unless otherwise prescribed by statute, special
----------------
meetings of the shareholders, for any purpose or purposes, may be called by the
board of directors, the chief executive officer or the president. The chief
executive officer or the president shall call a special meeting of the
shareholders if the corporation receives one or more written demands for the
meeting, stating the purpose or purposes for which it is to be held, signed and
dated by holders of shares representing at least ten percent of all the votes
entitled to be cast on any issue proposed to be considered at the meeting.
2.3 Place of Meeting: Any meeting of shareholders may be held at such
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time and place, within or outside of the State of Colorado, as may be fixed by
the board of directors of the corporation (or by the President in the absence of
action by the board of directors) or shall be specified in the notice of the
meeting or waiver of notice of the meeting. A waiver of notice signed by all
shareholders entitled to vote at a meeting may designate any place, either
within or outside Colorado, as the place of such meeting. If no designation is
made, or if a special meeting is called other than by the board, the place of
meeting shall be the principal office of the corporation.
2.4 Notices: Written notice stating the place, date and hour of the
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meeting and, in the case of a special meeting, the purpose or purposes for which
the meeting is called, shall be delivered not less than ten nor more than sixty
days before the date of the meeting, unless it is proposed that the authorized
shares be increased, in which case at least thirty days' notice shall be given.
Notice of an annual meeting need not include a description of the purpose or
purposes of the meeting, except that the purpose or purposes shall be stated
with respect to (i) an amendment to the articles of incorporation of the
corporation, (ii) a merger or share exchange in which the corporation is a party
and, with
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respect to a share exchange, in which the corporation's shares will be acquired,
(iii) a sale, lease, exchange or other disposition, other than in the usual and
regular course of business, of all or substantially all of the property of the
corporation or of another entity which this corporation controls, in each case
with or without the goodwill, (iv) a dissolution of the corporation, or (v) any
other purpose for which a statement of purpose is required by the Colorado
Business Corporation Act. Notice shall be given personally or by mail, private
carrier, telegraph, teletype, electronically transmitted facsimile or other form
of wire or wireless communication by or at the direction of the chief executive
officer, president, the secretary, or the officer or persons calling the
meeting, to each shareholder of record entitled to vote at such meeting. If
mailed, such notice shall be deemed to be given and effective when deposited in
the United States mail, addressed to the shareholder at his or her address as it
appears in the corporation's current record of shareholders, with postage
prepaid. If notice is given other than by mail, the notice is given and
effective on the date received by the shareholder.
2.5 Record Date: For the purpose of determining shareholders entitled
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to (i) notice of or to vote at any meeting of shareholders or any adjournment
thereof, (ii) receive distributions or share dividends, or (iii) demand a
special meeting, or to make a determination of shareholders for any other proper
purpose, the board of directors may fix a future date as the record date for any
such determination of shareholders. The record date may not be fixed more than
seventy days, and, in the case of a meeting of shareholders, not less than ten
days, before the date on which the particular action requiring such
determination of shareholders is to be taken, except when it is proposed that
the authorized shares be increased, in which case the record date shall be set
not less than thirty
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days before the date of such action. If no record date is fixed by the
directors, the record date shall be the date on which notice of the meeting is
mailed to shareholders, or the date on which the resolution of the board of
directors providing for a distribution is adopted, as the case may be. When a
determination of shareholders entitled to vote at any meeting of shareholders is
made as provided in this Section 2.4, such determination shall apply to any
adjournment thereof unless the board of directors fixes a new record date, which
it shall do if the meeting is adjourned to a date more than 120 days after the
date fixed for the original meeting.
Notwithstanding the above, the record date for determining the
shareholders entitled to take action without a meeting or entitled to be given
notice of action so taken shall be the date the writing upon which the action is
taken is first received by the corporation. The record date for determining
shareholders entitled to demand a special meeting shall be the date of the
earliest of any of the demands pursuant to which the meeting is called, or the
date that is sixty days before the date the first of such demands is received by
the corporation, whichever is later.
A shareholder may waive any notice required by these bylaws, whether
before or after the date or time stated in the notice as the date or time when
any action will occur or has occurred. The waiver shall be in writing and
signed by such shareholder. By attending a meeting either in person or by
proxy, a shareholder waives objection to lack of notice or defective notice,
unless the shareholder at the beginning of the meeting objects to holding the
meeting or transacting business at the meeting because of lack of notice or
defective notice. By attending the meeting, the shareholder also waives any
objection to consideration at the meeting of a particular matter not within the
purpose or
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purposes described in the meeting notice unless the shareholder objects to
considering the matter when it is presented.
2.6 Voting List: Before each meeting of shareholders, the secretary of
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the corporation shall prepare a complete list of the shareholders entitled to be
given notice of such meeting or any adjournment thereof. The list shall be
arranged by voting groups and within each voting group by class or series of
shares, shall be in alphabetical order within each class or series, and shall
show the address and number of shares of each class or series held by each
shareholder. For the period beginning the earlier of ten days before to the
meeting or two business days after notice of the meeting is given and continuing
through the meeting and any adjournment thereof, this list shall be kept on file
at the principal office of the corporation, or at a place (which shall be
identified in the notice) in the city where the meeting will be held. During
this period, such list shall be available for inspection on written demand by
any shareholder (including for the purpose of this Section 2.6 any holder of
voting trust certificates) or his agent or attorney during regular business
hours.
Any shareholder or his or her agent or attorney may copy the
shareholder list during regular business hours and during the period it is
available for inspection, provided (i) the shareholder has been a shareholder
for at least three months immediately preceding the demand or holds at least
five percent of all outstanding shares of any class of shares as of the date of
the demand, (ii) the demand is made in good faith and for a purpose reasonably
related to the demanding shareholder's interest as a shareholder, (iii) the
shareholder describes with reasonable particularity such purpose, (iv) the
shareholder list is directly connected with the described purpose, and (v) the
shareholder pays a reasonable charge covering the costs of labor and material
for such copy.
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2.7 Quorum: A majority of the votes entitled to be cast on a matter by
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a voting group shall constitute a quorum for that voting group for action on the
matter. Once a share is represented for any purpose at a meeting, including the
purpose of determining that a quorum exists, it is deemed present for quorum
purposes for the remainder of the meeting and for any adjournment of that
meeting, unless otherwise provided in the articles of incorporation or unless a
new record date is or shall be set for that adjourned meeting.
2.8 Voting: Each outstanding share of the corporation shall have such
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voting rights and such number of votes as are set forth in the articles of
incorporation of the corporation. A shareholder may vote either in person or by
proxy. Except as otherwise required by law or in the articles of incorporation
of the corporation, if a quorum exists, action on a matter other than the
election of directors is approved if the votes cast within the voting group
favoring the action exceed the votes cast within the voting group opposing the
action. At each election for directors, every shareholder entitled to vote at
such election shall have the right to vote in person or by proxy, all of the
shareholder's votes for as many persons as there are directors to be elected and
for whose election the shareholder has the right to vote, unless the articles of
incorporation provide otherwise.
2.9 Action by Shareholders Without a Meeting: Any action required or
----------------------------------------
permitted to be taken at a meeting of shareholders may be taken without a
meeting if a written consent (or counterparts thereof) that sets forth the
action so taken is signed by all of the shareholders entitled to vote with
respect to such action. Such consent shall have the same force and effect as a
unanimous vote of the shareholders and may be stated as such in any documents.
Action taken under this Section 2.9 is effective as of the date the last writing
necessary to
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effect the action is received by the corporation, unless all of the writings
specify a different effective date, in which case such specified date shall be
the effective date for such action.
2.10 Meetings by Telecommunication. Any or all of the shareholders may
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participate in an annual or special shareholders' meeting by, or the meeting may
be conducted through the use of, any means of communication by which all persons
participating in the meeting may hear each other during the meeting. A
shareholder participating in a meeting by this means is deemed to be present in
person at the meeting.
ARTICLE III. - Directors
------------------------
3.1 Authority of Board of Directors: All corporate powers shall be
-------------------------------
exercised by or under the authority of, and the business and affairs of the
corporation shall be managed under the direction of its board of directors,
except as otherwise provided by the Colorado Business Corporation Act or the
articles of incorporation of the corporation.
3.2 Number: The number of directors of this corporation shall be no
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fewer than one nor more than ten. The number of directors shall be fixed or
changed from time to time by resolution adopted by the majority of the entire
board of directors, but no decrease shall have the effect of shortening the term
of any incumbent director.
3.3 Qualifications: Directors shall be natural persons eighteen years
--------------
of age or older, but need not be residents of the State of Colorado or
shareholders of the corporation.
3.4 Election: The board of directors shall be elected at the annual
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meeting of shareholders or at a special meeting called for that purpose.
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3.5 Term: Subject to the provisions of these bylaws regarding the
----
removal and resignation of directors, each director shall be elected to hold
office until the annual meeting of shareholders next succeeding his election and
until his successor shall be elected and qualified. Directors may be removed in
the manner provided by the Colorado Business Corporation Act.
3.6 Vacancies: Any director may resign at any time by giving written
---------
notice to the corporation. Such resignation shall take effect at the time the
notice is received by the corporation unless the notice specifies a later
effective date. Unless otherwise specified in the notice of resignation, the
corporation's acceptance of such resignation shall not be necessary to make it
effective. Any vacancy on the board of directors may be filled by the
affirmative vote of a majority of the shareholders or the board of directors.
If the directors remaining in office constitute fewer than a quorum of the
board, the directors may fill the vacancy by the affirmative vote of a majority
of all the directors remaining in office. If elected by the directors, the
director shall hold office until the next annual shareholders' meeting at which
directors are elected. If elected by the shareholders, the director shall hold
office for the unexpired term of his predecessor in office; except that, if the
director's predecessor was elected by the directors to fill a vacancy, the
director elected by the shareholder shall hold office for the unexpired term of
the last predecessor elected by the shareholders.
3.7 Meetings and Voting: A regular meeting of the board of directors
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shall be held immediately after and at the same place as the annual meeting of
shareholders. No notice of this meeting of the board of directors need be
given. The board of directors, or any committee of the board of directors, may,
by resolution, establish a time and place for additional regular meetings which
may thereafter be held without further notice. Special meetings of the board of
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directors, or of any committee designated by the board of directors, may be
called by the chief executive officer, the president or any two members of the
board of directors or of such committee. Except as otherwise specifically
provided by the Colorado Business Corporation Act, the articles of incorporation
or these bylaws, the act of a majority of the directors present at any meeting
of the board of directors, or any meeting of any committee designated by the
board of directors at which a quorum is present when the act is taken shall be
the act of the board of directors or of such committee, as applicable.
3.8 Notices: Notice of any special meeting stating the date, hour and
-------
place of such meeting shall be given to each member of the board of directors,
or committee of the board of directors, by the chief executive officer, the
president, the secretary or the members of the board or of such committee
calling the meeting. The notice may be deposited in the United States mail at
least seven days before the meeting addressed to the director at the last
address he or she has furnished to the corporation for this purpose, and any
notice so mailed shall be sufficient and shall be deemed to have been given at
the time it was mailed. Notice may also be given at least two days before the
meeting in person, or by telephone, telegraph, telex, electronically transmitted
facsimile or other form of wire or wireless communication, and such notice shall
be sufficient and shall be deemed to have been given at the time when the
personal or telephone conversation occurs, or when the telegraph, telex,
electronically transmitted facsimile or other form of wire or wireless
communication is either personally delivered to the director or delivered to the
last address or facsimile number of the director furnished to the corporation by
him or her for this purpose.
-9-
<PAGE>
A director may waive notice of a meeting before or after the time and date
of the meeting by a writing signed by such director. Such waiver shall be
delivered to the corporation for filing with the corporate records. Further, a
director's attendance at or participation in a meeting waives any required
notice to him or her of the meeting unless at the beginning of the meeting, or
promptly upon his or her later arrival, the director objects to holding the
meeting or transacting business at the meeting because of lack of notice or
defective notice and does not thereafter vote for or assent to action taken at
the meeting. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the board of directors need be specified in the
notice or waiver of notice of such meeting.
3.9 Quorum: A majority of the number of directors in office immediately
------
before the meeting begins shall constitute a quorum for the transaction of
business at all meetings of the board of directors.
3.10 Committees: The board of directors, by resolution adopted by a
----------
majority of the entire board of directors, may designate from among its members
an executive committee and one or more other committees, and appoint one or more
members of the board of directors to serve on them. To the extent provided in
the resolution, each committee shall have all the authority of the board of
directors, except that no such committee shall have the authority to (i)
authorize distributions, (ii) approve or propose to shareholders actions or
proposals required by the Colorado Business Corporation Act to be approved by
shareholders, (iii) fill vacancies on the board of directors or any committee
thereof, (iv) approve a plan of merger not requiring shareholder approval, (v)
adopt, amend or repeal the bylaws, (vi) approve a plan of merger not requiring
shareholder approval, (vii) authorize or approve the reacquisition of shares
-10-
<PAGE>
unless pursuant to a formula or method prescribed by the board of directors, or
(viii) authorize or approve the issuance or sale of shares, or contract for the
sale of shares or determine the designations and relative rights, preferences
and limitations of a class or series of shares, except that the board of
directors may authorize a committee or officer to do so within limits
specifically prescribed by the board of directors. The committee shall then
have full power within the limits set by the board of directors to adopt any
final resolution setting forth all preferences, limitations and relative rights
of such class or series and to authorize an amendment of the articles of
incorporation stating the preferences, limitations and relative rights of a
class or series for filing with the Secretary of State under the Colorado
Business Corporation Act.
3.11 Telephonic Meetings: Members of the board of directors or any
-------------------
committee of the board of directors may participate in a regular or special
meeting of the board of directors or committee through the use of any means of
communications by which all persons participating in the meeting can hear each
other at the same time. A director participating in a meeting in the manner is
deemed to be present in person at the meeting.
3.12 Action by Directors Without a Meeting: Any action required or
-------------------------------------
permitted to be taken at a meeting of the directors or any committee designated
by the board of directors may be taken without a meeting if a written consent
(or counterparts thereof) that sets forth the action so taken is signed by all
of the directors or all of the other committee members entitled to vote with
respect to the action taken. Such consent shall have the same force and effect
as a unanimous vote of the directors or committee members and may be stated as
such in any document.
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<PAGE>
ARTICLE IV. - Officers
----------------------
4.1 General: The officers of the corporation shall be a chief executive
-------
officer, a president, one or more vice presidents, a secretary and a treasurer,
each of whom shall be a natural person eighteen years of age or older elected by
the board of directors. The board of directors, the chief executive officer or
the president may appoint such other officers, assistant officers, committees
and agents, including a chairman of the board, assistant secretaries or
assistant treasurers, as they may consider necessary. Any two or more offices
may be held by the same person.
4.2 Appointment and Term of Office. The officers of the corporation
------------------------------
shall be appointed by the board of directors at the regular meeting of the board
held after each annual meeting of the shareholders. If the appointment of
officers is not made at such meeting or if an officer or officers are to be
appointed by another officer or officers of the corporation, such appointments
shall be made as soon thereafter as conveniently may be. Each officer shall
hold office until the first of the following occurs: his or her successor shall
have been duly appointed and qualified, his or her death, his or her
resignation, or his or her removal.
4.3 Resignation and Removal. An officer may resign at any time by
-----------------------
giving written notice of resignation to the corporation. The resignation is
effective when the notice is received by the corporation unless the notice
specifies a later effective date.
Any officer or agent may be removed at any time with our without cause
by the board of directors, the chief executive officer or the president. Any
vacancy occurring in any other office of the corporation may be filled by a
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<PAGE>
person appointed by the chief executive officer or the president for the
unexpired portion of the term.
4.4 Chief Executive Officer: The chief executive officer shall be, by
-----------------------
virtue of holding such office, the chairman of the board of directors and shall
preside at all meetings of shareholders and of the board of directors; provided,
however, that the chief executive officer may serve as the chairman of the board
of directors only for so long as he or she is a director. The chief executive
officer shall have overall supervisory authority over all other officers of the
corporation and over the affairs of the corporation and shall see that all
orders and resolutions of the board of directors are carried out. He or she may
execute contracts, deeds and other instruments on behalf of the corporation as
is necessary and appropriate.
4.5 President: Subject to the direction and control of the board of
---------
directors and the chief executive officer, the president shall have general and
active management of the regular business of the corporation and shall see that
all orders and resolutions of the board of directors are carried out. He or she
may execute contracts, deeds and other instruments on behalf of the corporation
as is necessary and appropriate. He or she shall perform such additional
functions and duties as are appropriate and customary for the office of
president and as the board of directors or the chief executive officer may
prescribe from time to time. In case of the death, disability, or absence of
the chief executive officer, the president shall perform the duties and exercise
the powers of the chief executive officer.
4.6 Vice President: The vice president, or, if there shall be more than
--------------
one, the vice presidents in the order determined by the board of directors,
shall be the officer or officers next in seniority after the president. Each
vice
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<PAGE>
president shall also perform such duties and exercise such powers as are
appropriate and as are prescribed by the board of directors, chief executive
officer, or president. In case of the death, disability, or absence of the
president, vice president or, if there shall be more than one, the vice
presidents in the order determined by the board of directors, shall perform the
duties and exercise the powers of the president.
4.7 Secretary: The secretary shall give, or cause to be given, notice
---------
of all meetings of shareholders and special meetings of the board of directors,
keep the minutes of such meetings, have charge of the corporate seal and stock
records, be responsible for the maintenance of all corporate records and files
and the preparation and filing of reports to governmental agencies other than
tax returns, have authority to affix the corporate seal to any instrument
requiring it (and, when so affixed, it may be attested by his or her signature),
and perform such other functions and duties as are appropriate and customary for
the office of secretary and as the board of directors, the chief executive
officer or the president may prescribe from time to time.
4.8 Assistant Secretary: The assistant secretary, or, if there shall be
-------------------
more than one, the assistant secretaries in the order determined by the board of
directors, the chief executive officer or the president, shall, in case of the
death, disability, or absence of the secretary or in case such duties are
specifically delegated to him or her by the board of directors, chief executive
officer, president or secretary, perform the duties and exercise the powers of
the secretary and shall, under the supervision of the secretary, perform such
other duties and have such other powers as the board of directors, the chief
executive officer or the president may prescribe from time to time.
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<PAGE>
4.9 Treasurer: The treasurer shall have control of the funds and the
---------
care and custody of all stocks, bonds and other securities owned by the
corporation and shall be responsible for the preparation and filing of tax
returns. He or she shall receive all moneys paid to the corporation and shall
have authority to give receipts and vouchers, to sign and endorse checks and
warrants in its name and on its behalf, and give full discharge for the same.
He or she shall also have charge of disbursement of the funds of the
corporation, shall keep full and accurate records of the receipts and
disbursements, and shall deposit all moneys and other valuable effects in the
name and to the credit of the corporation in such depositories as shall be
designated by the board of directors. He or she shall perform such other duties
and have such other powers as are appropriate and customary for the office of
treasurer and as the board of directors, chief executive officer, or the
president may prescribe from time to time.
4.10 Assistant Treasurer: The assistant treasurer, or, if there shall
-------------------
be more than one, the assistant treasurers in the order determined by the board
of directors, the chief executive officer or the president, shall, in case of
the death, disability, or absence of the treasurer or in case such duties are
specifically delegated to him or her by the board of directors, chief executive
officer, president or treasurer, perform the duties and exercise the powers of
the treasurer, and shall, under the supervision of the treasurer, perform such
other duties and have such other powers as the board of directors, the chief
executive officer, or the president may prescribe from time to time.
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<PAGE>
ARTICLE V. - Stock
------------------
5.1 Certificates: Certificates representing shares of the capital stock
------------
of the corporation shall be in such form as may be approved by the board of
directors and shall be signed by the president or a vice president and by the
secretary or an assistant secretary of the corporation. Certificates shall be
consecutively numbered, and for each certificate, the name of the owner of the
shares represented by such certificate, the number of shares represented by such
certificate, and the day of issue of such certificate shall be entered on the
books of the corporation. Each certificate representing shares shall state upon
its face: (a) that the corporation is organized under the laws of the State of
Colorado, (b) the name of the person to whom issued, (c) the number and class of
shares and the designation of the series, if any, which the certificate
represents, and (d) the par value, if any, of each share represented by the
certificate; and each such certificate shall indicate, upon its face or reverse,
any restriction placed upon the transfer of the shares represented by the
certificate. If the corporation is authorized to issue different classes of
shares or different series within a class, the share certificate shall contain a
summary, on the front or the back, of the designations, preferences,
limitations, and relative rights applicable to each class, the variations in
preferences, limitations, and rights determined for each series, and the
authority of the board of directors to determine variations for future classes
or series. Alternatively, each certificate may state conspicuously on its front
or back that the corporation will furnish to the shareholder this information on
request in writing and without charge.
5.2 Facsimile Signatures: Any signature on the certificate may be a
--------------------
facsimile signature. In case any officer, transfer agent or registrar who has
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<PAGE>
signed, or whose facsimile signature or signatures have been placed upon, any
certificate shall cease to be such officer, transfer agent, or registrar,
whether because of death, resignation or otherwise, when the certificate is
issued by the corporation, the certificate is nevertheless valid.
5.3 Transfers of Stock: Transfers of shares shall be made on the books
------------------
of the corporation only upon presentation of the certificate or certificates
representing such shares properly endorsed by the person or persons appearing
upon the face of such certificate to be the owner or owners, or accompanied by a
proper transfer or assignment separate from the certificate, except as may be
expressly provided otherwise by the statutes of the State of Colorado or by
order of a court of competent jurisdiction. The officers or transfer agents of
the corporation may, in their discretion, require a signature guaranty before
making any transfer.
Except for the assertion of dissenters' rights to the extent provided
in Article 113 of the Colorado Business Corporation Act, the corporation shall
be entitled to treat the registered holder of any shares of the corporation as
the owner thereof for all purposes, and the corporation shall not be bound to
recognize any equitable or other claim to, or interest in, such shares or rights
deriving from such shares on the part of any person other than the registered
holder, including without limitation any purchase, assignee or transferee of
such shares or rights deriving from such shares, unless and until such other
person becomes the registered holder of such shares, whether or not the
corporation shall have either actual of constructive notice of the claimed
interest of such other person.
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ARTICLE VI. - Miscellaneous
---------------------------
6.1 Corporate Seal: The board of directors may adopt a seal which shall
--------------
be circular in form and shall bear the name of the corporation and the words
"SEAL" and "COLORADO", which, when adopted, shall constitute the corporate seal
of the corporation. The seal may be used by causing it or a facsimile thereof
to be impressed, affixed, rubber stamped with indelible ink, or manually
reproduced.
6.2 Fiscal Year: The board of directors may, by resolution, adopt a
-----------
fiscal year for the corporation.
6.3 Amendment of Bylaws: The board of directors shall have power, to
-------------------
the maximum extent permitted by the Colorado Business Corporation Act, to make,
amend and repeal the bylaws of the corporation at any regular or special meeting
of the board unless the shareholders, in making, amending or repealing a
particular bylaw, expressly provide that the directors may not amend or repeal
such bylaw. The shareholders also shall have the power to make, amend or repeal
the bylaws of the corporation at any annual meeting or at any special meeting
called for that purpose.
6.4 Conflicts. In the event of any irreconcilable conflict between
---------
these bylaws and either the corporation's articles of incorporation or
applicable law, the latter shall control.
6.5 Definitions. Except as otherwise specifically provided in these
------------
bylaws, all terms used in these bylaws shall have the same definition as in the
Colorado Business Corporation Act.
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<PAGE>
EXHIBIT 4.1
JONES INTERNATIONAL NETWORKS, LTD.
as Issuer,
and
UNITED STATES TRUST COMPANY OF NEW YORK
as Trustee
$100,000,000
11 3/4% SENIOR SECURED NOTES DUE 2005, SERIES A
11 3/4% SENIOR SECURED NOTES DUE 2005, SERIES B
_________________________________
____________________
INDENTURE
Dated as of July 10, 1998
____________________
<PAGE>
CROSS-REFERENCE TABLE *
<TABLE>
<CAPTION>
Trust Indenture
Act Section Indenture Section
<S> <C>
303.................................................... 1.03
310(a)(1).............................................. 7.10
(a)(2)................................................ 7.10
(a)(3)................................................ N.A.
(a)(4)................................................ N.A.
(a)(5)................................................ 7.10
(b)................................................... 7.10
(c)................................................... N.A.
311(a)................................................. 7.11
(b)................................................... 7.11
(c)................................................... N.A.
312(a)................................................. 2.05
(b)................................................... 12.03
(c)................................................... 12.03
313(a)................................................. 7.06
(b)(1)................................................ 7.06
(b)(2)................................................ 7.06
(c)................................................... 7.06
(d)................................................... 7.06
314(a)................................................. 4.03 and 4.04
(b)................................................... N.A.
(c)(1)................................................ 12.04 and 12.05
(c)(2)................................................ 12.04 and 12.05
(c)(3)................................................ N.A.
(d)................................................... N.A.
(e)................................................... 11.05
(f)................................................... N.A.
315(a)................................................. 7.01 and 7.02
(b)................................................... 7.05
(c)................................................... 7.01
(d)................................................... 6.05;7.01
(e)................................................... 6.11
316(a).................................................
(a)(1)(A)............................................. 6.05
(a)(1)(B)............................................. 6.04
(a)(2)................................................ N.A.
(b)................................................... 6.07
(c)................................................... 2.19
317(a)(1).............................................. 6.08
(a)(2)................................................ 6.09
(b)................................................... 2.04
318(a)................................................. 12.01
(b)................................................... N.A.
(c)................................................... 12.01
</TABLE>
______________________
* This Cross-Reference Table is not part of the Indenture.
N.A. means not applicable.
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TABLE OF CONTENTS
-----------------
ARTICLE 1 DEFINITIONS AND INCORPORATION
<TABLE>
<S> <C>
SECTION 1.01. DEFINITIONS............................... 1
SECTION 1.02. OTHER DEFINITIONS......................... 25
SECTION 1.03. INCORPORATION BY REFERENCE OF TRUST
INDENTURE ACT............................ 26
SECTION 1.04. RULES OF CONSTRUCTION..................... 26
ARTICLE 2 THE SECURITIES
SECTION 2.01. FORM AND DATING............................ 27
SECTION 2.02. EXECUTION AND AUTHENTICATION............... 28
SECTION 2.03. REGISTRAR AND PAYING AGENT................. 29
SECTION 2.04. PAYING AGENT TO HOLD MONEY IN TRUST........ 30
SECTION 2.05. SECURITYHOLDER LISTS....................... 30
SECTION 2.06. TRANSFER AND EXCHANGE...................... 30
SECTION 2.07. REPLACEMENT SECURITIES..................... 32
SECTION 2.08. OUTSTANDING SECURITIES..................... 33
SECTION 2.09. TREASURY SECURITIES........................ 33
SECTION 2.10. TEMPORARY SECURITIES....................... 34
SECTION 2.11. CANCELLATION............................... 34
SECTION 2.12. DEFAULTED INTEREST......................... 34
SECTION 2.13. CUSIP NUMBERS.............................. 35
SECTION 2.14. DEPOSIT OF MONEYS.......................... 35
SECTION 2.15. RESTRICTIVE LEGENDS........................ 35
SECTION 2.16. BOOK-ENTRY PROVISIONS FOR GLOBAL SECURITY.. 37
SECTION 2.17. SPECIAL TRANSFER PROVISIONS................ 37
SECTION 2.18. PERSONS DEEMED OWNERS...................... 42
SECTION 2.19. RECORD DATE................................ 42
ARTICLE 3 REDEMPTION
SECTION 3.01. NOTICES TO TRUSTEE......................... 43
SECTION 3.02. SELECTION OF SECURITIES TO BE REDEEMED..... 43
SECTION 3.03. NOTICE OF REDEMPTION....................... 44
SECTION 3.04. EFFECT OF NOTICE OF REDEMPTION............. 45
SECTION 3.05. DEPOSIT OF REDEMPTION PRICE................ 45
SECTION 3.06. SECURITIES REDEEMED IN PART................ 46
SECTION 3.07. OPTIONAL REDEMPTION........................ 46
</TABLE>
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<TABLE>
<S> <C>
SECTION 3.08. MANDATORY REDEMPTION...................................................... 47
SECTION 3.09. OFFER TO PURCHASE BY APPLICATION OF EXCESS PROCEEDS....................... 47
ARTICLE 4 COVENANTS
SECTION 4.01. PAYMENT OF SECURITIES..................................................... 49
SECTION 4.02. MAINTENANCE OF OFFICE OR AGENCY........................................... 49
SECTION 4.03. SEC REPORTS............................................................... 50
SECTION 4.04. COMPLIANCE CERTIFICATES................................................... 50
SECTION 4.05. TAXES..................................................................... 51
SECTION 4.06. STAY, EXTENSION AND USURY LAWS............................................ 52
SECTION 4.07. LIMITATION ON RESTRICTED PAYMENTS......................................... 52
SECTION 4.08. LIMITATION ON RESTRICTIONS ON DISTRIBUTIONS FROM RESTRICTED SUBSIDIARIES.. 55
SECTION 4.09. LIMITATION ON INDEBTEDNESS................................................ 57
SECTION 4.10. LIMITATION ON SALES OF ASSETS AND SUBSIDIARY STOCK........................ 60
SECTION 4.11. LIMITATION ON AFFILIATE TRANSACTIONS...................................... 62
SECTION 4.12. LIMITATION ON LIENS....................................................... 63
SECTION 4.13. CORPORATE EXISTENCE....................................................... 63
SECTION 4.14. CHANGE OF CONTROL......................................................... 63
SECTION 4.15. LIMITATION ON ISSUANCES OF CAPITAL STOCK OF RESTRICTED SUBSIDIARIES....... 65
SECTION 4.16. CONDUCT OF BUSINESS....................................................... 65
SECTION 4.18. LIMITATION ON DESIGNATIONS OF UNRESTRICTED SUBSIDIARIES................... 66
SECTION 4.19. FURTHER INSTRUMENTS AND ACTS.............................................. 67
SECTION 4.20. SUBSIDIARY GUARANTEES..................................................... 68
ARTICLE 5 SUCCESSORS
SECTION 5.01. LIMITATIONS ON MERGER, CONSOLIDATION OR SALE OF ASSETS.................... 69
SECTION 5.02. SUCCESSOR CORPORATION SUBSTITUTED......................................... 70
ARTICLE 6 DEFAULTS AND REMEDIES
SECTION 6.01. EVENTS OF DEFAULT......................................................... 70
SECTION 6.02. ACCELERATION.............................................................. 72
SECTION 6.03. OTHER REMEDIES............................................................ 73
SECTION 6.04. WAIVER OF PAST DEFAULTS................................................... 73
</TABLE>
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<TABLE>
<S> <C>
SECTION 6.05. CONTROL BY MAJORITY.................................... 73
SECTION 6.06. LIMITATION ON SUITS.................................... 74
SECTION 6.07. RIGHTS OF SECURITYHOLDERS TO RECEIVE PAYMENT........... 74
SECTION 6.08. COLLECTION SUIT BY TRUSTEE............................. 74
SECTION 6.09. TRUSTEE MAY FILE PROOFS OF CLAIM....................... 75
SECTION 6.10. PRIORITIES............................................. 75
SECTION 6.11. UNDERTAKING FOR COSTS.................................. 76
ARTICLE 7 TRUSTEE
SECTION 7.01. DUTIES OF TRUSTEE...................................... 76
SECTION 7.02. RIGHTS OF TRUSTEE...................................... 78
SECTION 7.03. INDIVIDUAL RIGHTS OF TRUSTEE........................... 79
SECTION 7.04. TRUSTEE'S DISCLAIMER................................... 79
SECTION 7.05. NOTICE OF DEFAULTS..................................... 79
SECTION 7.06. REPORTS BY TRUSTEE TO SECURITYHOLDERS.................. 79
SECTION 7.07. COMPENSATION AND INDEMNITY............................. 80
SECTION 7.08. REPLACEMENT OF TRUSTEE................................. 81
SECTION 7.09. SUCCESSOR TRUSTEE BY MERGER, ETC....................... 82
SECTION 7.10. ELIGIBILITY; DISQUALIFICATION.......................... 82
SECTION 7.11. PREFERENTIAL COLLECTION OF CLAIMS AGAINST THE COMPANY.. 83
ARTICLE 8 DISCHARGE OF INDENTURE
SECTION 8.01. DISCHARGE OF LIABILITY ON SECURITIES; DEFEASANCE....... 83
SECTION 8.02. CONDITIONS TO DEFEASANCE............................... 84
SECTION 8.03. APPLICATION OF TRUST MONEY............................. 86
SECTION 8.04. REPAYMENT TO THE COMPANY............................... 86
SECTION 8.05. INDEMNITY FOR GOVERNMENT OBLIGATIONS................... 86
SECTION 8.06. REINSTATEMENT.......................................... 87
ARTICLE 9 AMENDMENTS
SECTION 9.01. WITHOUT CONSENT OF SECURITYHOLDERS..................... 87
SECTION 9.02. WITH CONSENT OF SECURITYHOLDERS........................ 88
SECTION 9.03. COMPLIANCE WITH TRUST INDENTURE ACT.................... 90
SECTION 9.04. REVOCATION AND EFFECT OF CONSENTS...................... 90
SECTION 9.05. NOTATION ON OR EXCHANGE OF SECURITIES.................. 91
SECTION 9.06. TRUSTEE TO SIGN AMENDMENTS, ETC........................ 91
</TABLE>
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<TABLE>
<S> <C>
SECTION 9.07. SUBSIDIARY GUARANTORS' SIGNATURE NOT REQUIRED.................. 91
ARTICLE 10 SUBSIDIARY GUARANTEES
SECTION 10.01. SUBSIDIARY GUARANTEES......................................... 92
SECTION 10.02. EXECUTION AND DELIVERY OF SUBSIDIARY GUARANTEE AGREEMENT...... 93
SECTION 10.03. SUBSIDIARY GUARANTORS MAY CONSOLIDATE, ETC., ON CERTAIN TERMS.. 94
SECTION 10.04. EFFECT OF DEFEASANCE.......................................... 94
SECTION 10.05. LIMITATION ON SUBSIDIARY GUARANTOR LIABILITY.................. 94
SECTION 10.06. STAY, EXTENSION AND USURY LAWS................................ 95
ARTICLE 11 RESERVE ACCOUNT
SECTION 11.01. ESTABLISHMENT OF RESERVE ACCOUNT.............................. 95
SECTION 11.02. INVESTMENT OF FUNDS IN RESERVE ACCOUNT........................ 95
SECTION 11.03. PLEDGE AND GRANT OF SECURITY INTEREST......................... 96
SECTION 11.04. DISBURSEMENTS................................................. 96
ARTICLE 12 MISCELLANEOUS
SECTION 12.01. TRUST INDENTURE ACT CONTROLS.................................. 97
SECTION 12.02. NOTICES....................................................... 97
SECTION 12.03. COMMUNICATION BY SECURITYHOLDERS WITH OTHER................... 98
SECTION 12.04. CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT............ 98
SECTION 12.05. STATEMENTS REQUIRED IN CERTIFICATE OR OPINION................. 99
SECTION 12.06. RULES BY TRUSTEE AND AGENTS................................... 99
SECTION 12.07. LEGAL HOLIDAYS................................................ 100
SECTION 12.08. NO RECOURSE AGAINST OTHERS.................................... 100
SECTION 12.09. DUPLICATE ORIGINALS........................................... 100
SECTION 12.10. GOVERNING LAW................................................. 100
SECTION 12.11. NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS................. 100
SECTION 12.12. SUCCESSORS.................................................... 100
SECTION 12.13. SEVERABILITY.................................................. 101
SECTION 12.14. COUNTERPART ORIGINALS......................................... 101
SECTION 12.15. TABLE OF CONTENTS, HEADINGS, ETC............................... 101
</TABLE>
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<PAGE>
INDENTURE, dated as of July 10, 1998, among Jones International
Networks, Ltd., a Colorado corporation (the "Company"), and United States Trust
Company of New York, a banking corporation organized and existing under the laws
of the State of New York, in its capacity as trustee (the "Trustee") and the
other entities parties hereto.
The Company has duly authorized the creation of an issue of 113/4%
Senior Secured Notes due 2005, Series A (the "Initial Securities") and 113/4%
Senior Secured Notes due 2005, Series B (the "Exchange Securities") and, to
provide therefor, the Company has duly authorized the execution and delivery of
this Indenture. All things necessary to make the Securities (as defined), when
duly issued and executed by the Company, and authenticated and delivered
hereunder, the valid obligations of the Company, and to make this Indenture a
valid and binding agreement of the Company, have been done.
The Company and the Trustee agree as follows for the benefit of each
other and for the equal and ratable benefit of the Holders of the Securities:
ARTICLE 1
DEFINITIONS AND INCORPORATION
BY REFERENCE
SECTION 1.01. DEFINITIONS.
"Acquisition Agreement" shall mean the Agreement, dated as of June 2,
1998, by and among Media America, Inc., Ron Hartenbaum, Gary Schonfeld and Jones
Network Holdings, LLC.
"Additional Assets" means (i) any property or assets (other than
Indebtedness and Capital Stock) in a Permitted Business; (ii) the Capital Stock
of a Person that becomes a Restricted Subsidiary as a result of the acquisition
of such Capital Stock by the Company or a Restricted Subsidiary of the Company;
(iii) Capital Stock constituting a minority interest in any Person that at such
time is a Restricted Subsidiary of the Company; or (iv) Permitted Investments of
the type and in the amounts described in clause (viii) of the definition
thereof; provided, however, that, in the case of clauses (ii) and (iii), such
Restricted Subsidiary is primarily engaged in a Permitted Business.
"Adjusted Net Assets" of a Subsidiary Guarantor at any date shall mean
the lesser of (x) the amount by which (x) the fair value of the property of such
Subsidiary Guarantor exceeds the total amount of liabilities, including, without
limitation, the probable liability of such Subsidiary Guarantor with respect to
its contingent liabilities (after giving effect to all other fixed and
contingent liabilities incurred or assumed on such
<PAGE>
date), but excluding liabilities under the Subsidiary Guarantee of such
Subsidiary Guarantor at such date and (y) the amount by which the present fair
salable value of the assets of such Subsidiary Guarantor at such date exceeds
the amount that will be required to pay the probable liability of such
Subsidiary Guarantor on its debts (after giving effect to all other fixed and
contingent liabilities incurred or assumed on such date and after giving effect
to any collection from any Subsidiary by such Subsidiary Guarantor in respect of
the obligations of such Subsidiary under the Subsidiary Guarantee), excluding
debt in respect of the Subsidiary Guarantee, as they become absolute and
matured.
"Affiliate" of any specified Person means any other Person, directly
or indirectly, controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any Person means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing.
"Affiliate Business" means all or any portion of a business (including
related assets) from an Affiliate (other than a Restricted Subsidiary and, in
the case of any Restricted Subsidiary, any other Restricted Subsidiary).
"Agent" means any Registrar, Paying Agent or co-registrar.
"Agent Member" means a member of, or a participant in, the Depositary.
"Applicable Procedures" means, with respect to any transfer or
exchange of beneficial interests in a Global Note, the rules and procedures of
the Depositary, Euroclear and Cedel that are applicable to such transfer or
exchange.
"Asset Disposition" means any sale, lease, transfer, issuance or other
disposition (or series of related sales, leases, transfers, issuances or
dispositions that are part of a common plan) of shares of Capital Stock of (or
any other equity interests in) a Restricted Subsidiary (other than directors'
qualifying shares) or of any other property or other assets (each referred to
for the purposes of this definition as a "disposition") by the Company or any of
its Restricted Subsidiaries (including any disposition by means of a merger,
consolidation or similar transaction) other than (i) a disposition by a
Restricted Subsidiary to the Company or by the Company or a Restricted
Subsidiary to a Wholly-Owned Subsidiary, (ii) a disposition of inventory in the
ordinary course of business, (iii) the licensing of radio and cable television
programming in the ordinary course of business, (iv) the
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disposition in the ordinary course of business of airtime and advertising
inventory, (v) a disposition of obsolete or worn out equipment or equipment that
is no longer useful in the conduct of the business of the Company and its
Restricted Subsidiaries and that is disposed of in each case in the ordinary
course of business, (vi) dispositions of property for net proceeds which, when
taken collectively with the net proceeds of any other such dispositions under
this clause (vi) that were consummated since the beginning of the calendar year
in which such disposition is consummated, do not exceed $1 million, and (vii)
transactions permitted under Section 5.01 hereof. Notwithstanding anything to
the contrary contained above, a Restricted Payment made in compliance with
Section 4.07 shall not constitute an Asset Disposition except for purposes of
determinations of the Consolidated Coverage Ratio.
"Attributable Indebtedness" in respect of a Sale/Leaseback Transaction
means, as at the time of determination, the present value (discounted at the
interest rate borne by the Securities, compounded annually) of the total
obligations of the lessee for rental payments during the remaining term of the
lease included in such Sale/Leaseback Transaction (including any period for
which such lease has been extended).
"Average Life" means, as of the date of determination, with respect to
any Indebtedness or Preferred Stock, the quotient obtained by dividing (i) the
sum of the product of the numbers of years (rounded upwards to the nearest
month) from the date of determination to the dates of each successive scheduled
principal payment of such Indebtedness or redemption or similar payment with
respect to such Preferred Stock multiplied by the amount of such payment by (ii)
the sum of all such payments.
"Bank Indebtedness" means loans to the Company or a Restricted
Subsidiary that are made by, and reimbursement obligations in respect of letters
of credit for the account of the Company or a Restricted Subsidiary that are
issued by, banks, trust companies and other institutions, principally engaged in
the business of lending money to businesses, under a credit facility, loan
agreement or similar agreement.
"Bankruptcy Law" means Title 11 of the U.S. Code or any similar
Federal or state law for the relief of debtors.
"Board of Directors" means, with respect to any Person, the Board of
Directors of such Person or any committee of the Board of Directors of such
Person duly authorized, with respect to any particular matter, to exercise the
power of the Board of Directors of such Person.
"Board Resolution" means, with respect to any Person, a copy of a
resolution certified by the Secretary or an Assistant Secretary of such Person
to have been duly adopted by the Board
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of Directors of such Person and to be in full force and effect on the date of
such certification, and delivered to the Trustee.
"Business Day" means a day that is not a Legal Holiday.
"Capitalized Lease Obligations" means an obligation that is required
to be classified and accounted for as a capitalized lease for financial
reporting purposes in accordance with GAAP, and the amount of Indebtedness
represented by such obligation shall be the capitalized amount of such
obligation determined in accordance with GAAP, and the Stated Maturity thereof
shall be the date of the last payment of rent or any other amount due under such
lease prior to the first date such lease may be terminated without penalty.
"Capital Stock" of any Person means any and all shares, interests,
rights to purchase, warrants, options, participations or other equivalents of or
interests in (however designated) equity of such Person, including any Preferred
Stock, but excluding any debt securities convertible into such equity.
"Cash Equivalents" means (i) United States dollars, (ii) securities
issued or directly and fully guaranteed or insured by the United States
government or any agency or instrumentality thereof, (iii) certificates of
deposit, time deposits and eurodollar time deposits with maturities of one year
or less from the date of acquisition, bankers' acceptances with maturities not
exceeding one year and overnight bank deposits, in each case with any commercial
bank having capital and surplus in excess of $500 million, (iv) repurchase
obligations for underlying securities of the types described in clauses (ii) and
(iii) entered into with any financial institution meeting the qualifications
specified in clause (iii) above, (v) commercial paper rated A-1 or the
equivalent thereof by Moody's or S&P and in each case maturing within one year
after the date of acquisition, (vi) investment funds investing 95% of their
assets in securities of the types described in clauses (i)-(v) above, (vii)
readily marketable direct obligations issued by any state of the United States
of America or any political subdivision thereof having one of the two highest
rating categories obtainable from either Moody's or S&P and (viii) Indebtedness
or Preferred Stock issued by Persons with a rating of "A" or higher from S&P or
"A2" or higher from Moody's.
"Certificated Notes" means Securities that are in the form of the
Securities attached hereto as Exhibit A-1, but do not include the information
called for by footnotes 1 and 3 thereof.
"Change of Control" means (i) any sale, lease, exchange or other
transfer (in one transaction or a series of related transactions) of all or
substantially all the assets of the Company and its Subsidiaries (to a Person
other than a Wholly Owned Subsidiary); or (ii) the Company shall cease to hold
directly all of the outstanding Capital Stock of Holdco; or (iii)
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Mr. Glenn R. Jones and/or his Permitted Transferees at any time cease to hold in
the aggregate, either directly or indirectly, Capital Stock having ordinary
voting power to elect a majority of directors of the Company.
"Commission" means the U.S. Securities and Exchange Commission or its
successor.
"Common Stock" of any Person means Capital Stock of such Person that
does not rank prior, as to the payment of dividends or as to the distribution of
assets upon any voluntary or involuntary liquidation, dissolution or winding up
of such Person, to shares of Capital Stock of any other class of such Person.
"Company" means Jones International Networks, Ltd., a Colorado
corporation, until a successor replaces it in accordance with Article 5 hereof
and thereafter means the successor.
"Consolidated Adjusted Operating Cash Flow" means, with respect to any
period the Consolidated Net Income for such period increased by, to the extent
deducted in computing Consolidated Net Income, the sum of (i) depreciation and
(ii) amortization, determined on a consolidated basis in accordance with GAAP.
"Consolidated Cash Flow" for any period means the Consolidated Net
Income for such period, plus the following to the extent deducted in calculating
such Consolidated Net Income: (i) income tax expense, (ii) Consolidated Interest
Expense, (iii) depreciation expense, (iv) amortization expense, (v) exchange or
translation losses on foreign currencies, and (vi) all other non-cash items
reducing Consolidated Net Income (excluding any non-cash item to the extent it
represents an accrual of or reserve for cash disbursements for any subsequent
period prior to the Stated Maturity of the Securities) and less, to the extent
added in calculating Consolidated Net Income, (x) exchange or translation gains
on foreign currencies and (y) non-cash items (excluding such non-cash items to
the extent they represent an accrual for cash receipts reasonably expected to be
received prior to the Stated Maturity of the Securities), in each case for such
period. Notwithstanding the foregoing, the income tax expense, depreciation
expense and amortization expense of a Subsidiary of the Company shall be
included in Consolidated Cash Flow only to the extent (and in the same
proportion) that the net income of such Subsidiary was included in calculating
Consolidated Net Income.
"Consolidated Coverage Ratio" as of any date of determination means
the ratio of (i) the aggregate amount of Consolidated Cash Flow for the period
of the most recent four consecutive fiscal quarters ending prior to the date of
such determination and as to which financial statements are available to (ii)
Consolidated Interest Expense for such four fiscal quarters; provided, however,
that (1) if the Company or any of
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its Restricted Subsidiaries has Incurred any Indebtedness since the beginning of
such period and through the date of determination of the Consolidated Coverage
Ratio that remains outstanding or if the transaction giving rise to the need to
calculate Consolidated Coverage Ratio is an Incurrence of Indebtedness, or both,
Consolidated Cash Flow and Consolidated Interest Expense for such period shall
be calculated after giving effect on a pro forma basis to (A) such Indebtedness
as if such Indebtedness had been Incurred on the first day of such period
(provided that if such Indebtedness is Incurred under a revolving credit
facility (or similar arrangement or under any predecessor revolving credit or
similar arrangement) only that portion of such Indebtedness that constitutes the
projected weighted average balance of such Indebtedness for the period beginning
on the first day of such four consecutive fiscal quarter period and ending on
the date one year subsequent to such date (as determined in good faith by the
Board of Directors of the Company and as adjusted to give effect to Indebtedness
that has been permanently repaid and the underlying commitment terminated and
has not been replaced) shall be deemed outstanding for purposes of this
calculation), and (B) the discharge of any other Indebtedness repaid,
repurchased, defeased or otherwise discharged with the proceeds of such new
Indebtedness as if such discharge had occurred on the first day of such period,
(2) if since the beginning of such period any Indebtedness of the Company or any
of its Restricted Subsidiaries has been repaid, repurchased, defeased or
otherwise discharged (other than Indebtedness under a revolving credit or
similar arrangement unless such revolving credit Indebtedness has been
permanently repaid and the underlying commitment terminated and has not been
replaced), Consolidated Interest Expense for such period shall be calculated
after giving pro forma effect thereto as if such Indebtedness had been repaid,
repurchased, defeased or otherwise discharged on the first day of such period,
(3) if since the beginning of such period the Company or any of its Restricted
Subsidiaries shall have made any Asset Disposition or if the transaction giving
rise to the need to calculate the Consolidated Coverage Ratio is an Asset
Disposition, Consolidated Cash Flow for such period shall be reduced by an
amount equal to the Consolidated Cash Flow (if positive) attributable to the
assets which are the subject of such Asset Disposition for such period or
increased by an amount equal to the Consolidated Cash Flow (if negative)
attributable thereto for such period, and Consolidated Interest Expense for such
period shall be (i) reduced by an amount equal to the Consolidated Interest
Expense attributable to any Indebtedness of the Company or any of its Restricted
Subsidiaries repaid, repurchased, defeased or otherwise discharged with respect
to the Company and its continuing Restricted Subsidiaries in connection with
such Asset Disposition for such period (or, if the Capital Stock of any
Restricted Subsidiary of the Company is sold, the Consolidated Interest Expense
for such period directly attributable to the Indebtedness of such Restricted
Subsidiary to the extent the Company and its continuing Restricted Subsidiaries
are no longer liable for such
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Indebtedness after such sale) and (ii) increased by interest income attributable
to the assets which are the subject of such Asset Disposition for such period,
(4) if since the beginning of such period the Company or any of its Restricted
Subsidiaries (by merger or otherwise) shall have made an Investment in any
Restricted Subsidiary of the Company (or any Person which becomes a Restricted
Subsidiary of the Company as a result thereof) or an acquisition of assets which
constitutes all or substantially all of an operating unit or a business in
connection with a transaction causing a calculation to be made hereunder,
Consolidated Cash Flow and Consolidated Interest Expense for such period shall
be calculated after giving pro forma effect thereto (including the Incurrence of
any Indebtedness) as if such Investment or acquisition occurred on the first day
of such period and (5) if since the beginning of such period any Person (that
subsequently became a Restricted Subsidiary of the Company or was merged with or
into the Company or any Restricted Subsidiary of the Company since the beginning
of such period) shall have made any Asset Disposition, Investment or acquisition
of assets that would have required an adjustment pursuant to clause (3) or (4)
above if made by the Company or a Restricted Subsidiary of the Company during
such period, Consolidated Cash Flow and Consolidated Interest Expense for such
period shall be calculated after giving pro forma effect thereto as if such
Asset Disposition, Investment or acquisition occurred on the first day of such
period. For purposes of this definition, whenever pro forma effect is to be
given to an acquisition or disposition of assets, the amount of income or
earnings relating thereto and the amount of Consolidated Interest Expense
associated with any Indebtedness Incurred in connection therewith, the pro forma
calculations shall be determined in good faith by a responsible financial or
accounting officer of the Company. If any Indebtedness being Incurred bears a
floating rate of interest and is being given pro forma effect, the interest
expense on such Indebtedness shall be calculated as if the rate in effect on the
date of determination had been the applicable rate for the entire period (taking
into account any Interest Rate Agreement applicable to such Indebtedness if such
Interest Rate Agreement has a remaining term in excess of 12 months).
"Consolidated Interest Expense" means, for any period, the total
interest expense of the Company and its Restricted Subsidiaries determined in
accordance with GAAP, plus, to the extent not included in such interest expense
(i) interest expense attributable to Capitalized Lease Obligations, (ii)
amortization of debt discount, (iii) capitalized interest, (iv) non-cash
interest expense, (v) commissions, discounts and other fees and charges owed
with respect to letters of credit and bankers' acceptance financing, (vi)
interest actually paid by the Company or any such Restricted Subsidiary under
any Guarantee of Indebtedness or other obligation of any other Person, (vii) net
payments (whether positive or negative) pursuant to Interest Rate Agreements,
(viii) the cash contributions to any employee stock ownership plan or similar
trust to the extent such contributions
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are used by such plan or trust to pay interest or fees to any Person (other than
the Company) in connection with Indebtedness Incurred by such plan or trust and
(ix) cash and Disqualified Stock dividends in respect of all Preferred Stock of
Subsidiaries and Disqualified Stock of the Company held by Persons other than
the Company or a Wholly-Owned Subsidiary and less (a) to the extent included in
such interest expense, the amortization of capitalized debt issuance costs and
(b) interest income. Notwithstanding the foregoing, the Consolidated Interest
Expense with respect to any Restricted Subsidiary of the Company, that was not a
Wholly-Owned Subsidiary, shall be included only to the extent (and in the same
proportion) that the net income of such Restricted Subsidiary was included in
calculating Consolidated Net Income.
"Consolidated Net Income" means, for any period, the consolidated net
income (loss) of the Company and its consolidated Subsidiaries determined in
accordance with GAAP; provided, however, that there shall not be included in
such Consolidated Net Income: (i) any net income (loss) of any Person acquired
by the Company or any of its Restricted Subsidiaries in a pooling of interests
transaction for any period prior to the date of such acquisition, (ii) any net
income of any Restricted Subsidiary of the Company if such Restricted Subsidiary
is subject to restrictions, directly or indirectly, on the payment of dividends
or the making of distributions by such Restricted Subsidiary, directly or
indirectly, to the Company (other than restrictions in effect on the Issue Date
with respect to a Restricted Subsidiary of the Company and other than
restrictions that are created or exist in compliance with the "Limitation on
Restrictions on Distributions from Restricted Subsidiaries" covenant), (iii) any
gain or loss realized upon the sale or other disposition of any assets of the
Company or its consolidated Restricted Subsidiaries (including pursuant to any
Sale/Leaseback Transaction) which are not sold or otherwise disposed of in the
ordinary course of business and any gain or loss realized upon the sale or other
disposition of any Capital Stock of any Person, (iv) any extraordinary gain or
loss, (v) the cumulative effect of a change in accounting principles, (vi) the
net income of any Person, other than a Restricted Subsidiary, except to the
extent of the lesser of (A) cash dividends or distributions actually paid to the
Company or any of its Restricted Subsidiaries by such Person and (B) the net
income of such Person (but in no event less than zero), (vii) the net loss of
any Person (other than a Subsidiary) in excess of the aggregate Investment of
the Company or any of its Restricted Subsidiaries in such Person and (viii) any
non-cash expenses attributable to grants or exercises of employee stock options.
Notwithstanding the foregoing, (A) Consolidated Net Income for any period shall
be reduced by the aggregate amount of dividends paid during such period pursuant
to clause (v) of paragraph (b) of Section 4.07 and (B) for the purpose of
Section 4.07 only, there shall be excluded from Consolidated Net Income, as such
term is used in calculating Consolidated Adjusted Operating Cash Flow, any
dividends,
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repayments of loans or advances or other transfers of assets from Unrestricted
Subsidiaries to the Company or a Restricted Subsidiary to the extent such
dividends, repayments or transfers increase the amount of Restricted Payments
permitted under Section 4.07(a)(iii)(D) hereof.
"Consolidated Net Worth" means the total of the amounts shown on the
balance sheet of the Company and its consolidated Restricted Subsidiaries,
determined on a consolidated basis in accordance with GAAP, as of the end of the
most recent fiscal quarter of the Company ending prior to the taking of any
action for the purpose of which the determination is being made and for which
financial statements are available (but in no event ending more than 135 days
prior to the taking of such action), as (i) the par or stated value of all
outstanding Capital Stock of the Company plus (ii) paid in capital or capital
surplus relating to such Capital Stock plus (iii) any retained earnings or
earned surplus less (A) any accumulated deficit and (B) any amounts attributable
to Disqualified Stock.
"Corporate Trust Office of the Trustee" shall be at the address of the
Trustee specified in Section 12.02 or such other address as to which the Trustee
may give notice to the Company.
"Cumulative Available Cash Flow" means, as of any date of
determination, the positive cumulative Consolidated Adjusted Operating Cash
Flow, or, if such cumulative Consolidated Adjusted Operating Cash Flow for such
period is negative, the amount by which cumulative Consolidated Adjusted
Operating Cash Flow is less than zero.
"Currency Agreement" means in respect of a Person any foreign exchange
contract, currency swap agreement or other similar agreement as to which such
Person is a party or a beneficiary.
"Default" means any event which is, or after notice or passage of time
or both would be, an Event of Default.
"Depositary" means The Depositary Trust Company, its nominees and
successors.
"Disinterested Director" means a member of the Board of Directors of
the Company who is not otherwise affiliated with the Company and who is not
otherwise involved or interested in the transaction in question.
"Disqualified Stock" means any Capital Stock which, by its terms (or
by the terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event (other than an event which
would constitute a Change of Control), (i) matures (excluding any maturity as
the result of an optional redemption by the issuer thereof) or is mandatorily
redeemable, pursuant to a sinking fund
9
<PAGE>
obligation or otherwise, or is redeemable at the option of the holder thereof,
in whole or in part, on or prior to the Stated Maturity of the Securities, or
(ii) is convertible into or exchangeable (unless at the sole option of the
issuer thereof) for (a) debt securities or (b) any Capital Stock referred to in
(i) above, in each case at any time prior to the Stated Maturity of the
Securities; provided, that Capital Stock issued pursuant to the Acquisition
Agreement and the MSO Agreements entered into by the Company as of the Issue
Date shall not be considered Disqualified Stock. Disqualified Stock shall be
deemed to be Incurred as Indebtedness in an amount equal to (i) the greater of
its maximum voluntary or involuntary liquidation preference or repurchase price,
if any, plus accrued and unpaid dividends or (ii) if redeemable at fair market
value or at some fixed premium over fair market value, the then average closing
price on the principal securities exchange or automated quotation system on
which such Disqualified Stock is listed or eligible for trading on the five
trading days immediately preceding the date on which it is issued or, if not so
listed or eligible, the value as of such date as determined in writing by an
independent investment banking firm of nationally recognized standing plus, in
either case, any applicable premium.
"Equity Offering" means an offering for cash by the Company of its
common stock, or options, warrants or rights with respect to its common stock.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
or any successor statute or statutes thereto.
"Exchange Offer" means the registration by the Company under the
Securities Act pursuant to a registration statement of the offer by the Company
to each Securityholder of the Initial Securities to exchange all the Initial
Securities held by such Securityholder for the Exchange Securities in an
aggregate principal amount equal to the aggregate principal amount of the
Initial Securities held by such Securityholder, in accordance with the terms and
conditions of the Registration Rights Agreement.
"Exchange Securities" has the meaning set forth in the preamble to
this Indenture.
"Existing Indebtedness" means Indebtedness of the Company or its
Restricted Subsidiaries in existence on the Issue Date, plus interest accrued
thereon, after application of the net proceeds of the sale of the Securities as
described in the Offering Memorandum; provided, however, that the existing
Capital Lease Obligations relating to satellite transponders, in an amount not
in excess of $28.2 million, shall constitute "Existing Indebtedness" only for a
maximum period of 14 days following the Issue Date.
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"fair market value" means, with respect to any asset or property, the
price which could be negotiated in an arms-length, free market transaction, for
cash, between a willing seller and a willing and able buyer, neither of whom is
under undue pressure or compulsion to complete the transaction. Except as
otherwise expressly provided, fair market value shall be determined by the Board
of Directors of the Company acting reasonably and in good faith and shall be
evidenced by a Board Resolution of the Board of Directors of the Company
delivered to the Trustee.
"GAAP" means generally accepted accounting principles in the United
States of America as in effect as of the date hereof, including those set forth
in the opinions and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as approved by a significant segment of the
accounting profession. All ratios and computations based on GAAP contained
herein shall be computed in conformity with GAAP.
"Global Notes" means, individually and collectively, the Regulation S
Temporary Global Note, the Regulation S Permanent Global Note and the QIB
Restricted Note.
"Guarantee" means any obligation, contingent or otherwise, of any
Person directly or indirectly guaranteeing any Indebtedness of any other Person
and any obligation, direct or indirect, contingent or otherwise, of such Person
(i) to purchase or pay (or advance or supply funds for the purchase or payment
of) such Indebtedness of such other Person (whether arising by virtue of
partnership arrangements, or by agreement to keep-well, to purchase assets,
goods, securities or services, to take-or-pay, or to maintain financial
statement conditions or otherwise) or (ii) entered into for purposes of assuring
in any other manner the obligee of such Indebtedness of the payment thereof or
to protect such obligee against loss in respect thereof (in whole or in part);
provided, however, that the term "Guarantee" shall not include endorsements for
collection or deposit in the ordinary course of business. The term "Guarantee"
used as a verb has a corresponding meaning.
"Holdco" means JPN, Inc., a Colorado corporation and a Wholly-Owned
Subsidiary of the Company.
"Incur" means issue, assume, guarantee, incur or otherwise become
liable for, and "Incurrence" has a corresponding meaning; provided, however,
that (i) any Indebtedness or Disqualified Stock of a Person existing at the time
such Person becomes a Restricted Subsidiary (whether by merger, consolidation,
acquisition or otherwise) shall be deemed to be Incurred at the time it becomes
a Restricted Subsidiary and (ii) neither the accrual of interest nor the
accretion of discount on
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Indebtedness shall be deemed to be an Incurrence of additional Indebtedness.
"Indebtedness" means, with respect to any Person on any date of
determination (without duplication), (i) the principal of and premium (if any)
in respect of indebtedness of such Person for borrowed money, (ii) the principal
of and premium (if any) in respect of obligations of such Person evidenced by
bonds, debentures, notes or other similar instruments, (iii) all obligations of
such Person in respect of letters of credit or other similar instruments
(including reimbursement obligations with respect thereto) (other than
obligations with respect to letters of credit securing obligations (other than
obligations described in clauses (i), (ii) and (v) entered into in the ordinary
course of business of such Person to the extent that such letters of credit are
not drawn upon or, if and to the extent drawn upon, such drawing is reimbursed
no later than the third business day following receipt by such Person of a
demand for reimbursement following payment on the letter of credit), (iv) all
obligations of such Person to pay the deferred and unpaid purchase price of
property or services (except trade payables and accrued expenses Incurred in the
ordinary course of business), which purchase price is due more than six months
after the date of placing such property in service or taking delivery and title
thereto or the completion of such services, (v) all Capitalized Lease
Obligations and all Attributable Indebtedness of such Person, (vi) all
Indebtedness of other Persons secured by a Lien on any asset of such Person,
whether or not such Indebtedness is assumed by such Person, (vii) all
Indebtedness of other Persons to the extent Guaranteed by such Person, (viii)
the amount of all obligations of such Person with respect to the redemption,
repayment or other repurchase of any Disqualified Stock or, with respect to any
Restricted Subsidiary of the Company, any Preferred Stock of such Restricted
Subsidiary to the extent such obligation arises on or before the Stated Maturity
of the Securities (but excluding, in each case, accrued dividends) with the
amount of Indebtedness represented by such Disqualified Stock or Preferred
Stock, as the case may be, being equal to the greater of its voluntary or
involuntary liquidation preference and its maximum fixed repurchase price;
provided that, for purposes hereof the "maximum fixed repurchase price" of any
Disqualified Stock or Preferred Stock, as the case may be, which does not have a
fixed repurchase price shall be calculated in accordance with the terms of such
Disqualified Stock or Preferred Stock, as the case may be, as if such
Disqualified Stock or Preferred Stock, as the case may be, were purchased on any
date on which Indebtedness shall be required to be determined pursuant to the
Indenture, and if such price is based on the fair market value of such
Disqualified Stock or Preferred Stock, as the case may be, such fair market
value shall be determined in good faith by the Board of Directors of the Company
and (ix) to the extent not otherwise included in this definition, obligations
under Currency Agreements and Interest Rate Agreements. Unless specifically set
forth above, the amount of Indebtedness of any
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Person at any date shall be the outstanding principal amount of all
unconditional obligations as described above, as such amount would be reflected
on a balance sheet prepared in accordance with GAAP, and the maximum liability
of such Person, upon the occurrence of the contingency giving rise to the
obligation, of any contingent obligations described above at such date.
Indebtedness shall not include any obligation to purchase or redeem the Capital
Stock of the Company pursuant to the terms of the MSO Agreements as in effect on
the Issue Date or the Acquisition Agreement.
"Indenture" means this Indenture, as amended or supplemented from time
to time.
"Initial Purchaser" means NatWest Capital Markets Limited.
"Initial Securities" has the meaning set forth in the preamble to this
Indenture.
"Institutional Accredited Investor" means an institution that is an
"accredited investor" as that term is defined in Rule 501(a)(1), (2), (3) or (7)
under the Securities Act.
"interest" includes Additional Interest (as defined in the
Registration Rights Agreement), if any.
"Interest Payment Date" means the Stated Maturity of an installment of
interest on the Securities which shall be each January 1 and July 1 of each
year, commencing January 1, 1999.
"Interest Rate Agreement" means with respect to any Person any
interest rate protection agreement, interest rate future agreement, interest
rate option agreement, interest rate swap agreement, interest rate cap
agreement, interest rate collar agreement, interest rate hedge agreement or
other similar agreement or arrangement as to which such Person is party or a
beneficiary.
"Investment" in any Person means any direct or indirect advance, loan
(other than advances to customers in the ordinary course of business that are
recorded as accounts payable on the balance sheet of such Person) or other
extension of credit (including by way of Guarantee or similar arrangement, but
excluding any debt or extension of credit represented by a bank deposit other
than a time deposit) or capital contribution to (by means of any transfer of
cash or other property (excluding Capital Stock (other than Disqualified Stock)
of the Company) to others or any payment for property or services for the
account or use of others), or any purchase or acquisition of Capital Stock,
Indebtedness or other similar instruments issued by such Person. For purposes
of Section 4.07 and determinations relating to Permitted Basket Investments, (i)
"Investment" shall include the
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portion (proportionate to the Company's equity interest in a Restricted
Subsidiary to be designated as an Unrestricted Subsidiary or in a Wholly Owned
Subsidiary that otherwise ceases to qualify as such) of the fair market value of
the net assets of such Subsidiary of the Company at the time that such
Restricted Subsidiary is designated an Unrestricted Subsidiary or such Wholly
Owned Subsidiary otherwise ceases to qualify as such; provided, however, that
upon a redesignation of an Unrestricted Subsidiary as a Restricted Subsidiary or
upon the qualification of a non-wholly owned Restricted Subsidiary as a Wholly
Owned Subsidiary, the Company shall be deemed to continue to have a permanent
"Investment" in an Unrestricted Subsidiary or a non-wholly owned Restricted
Subsidiary in an amount (if positive) equal to (x) the Company's "Investment" in
such Subsidiary at the time of such redesignation or qualification less (y) the
portion (proportionate to the Company's equity interest in such Subsidiary) of
the fair market value of the net assets of such Subsidiary at the time that such
Subsidiary is so redesignated a Restricted Subsidiary or qualifies as a Wholly
Owned Subsidiary; and (ii) any property transferred to or from an Unrestricted
Subsidiary or a Restricted Subsidiary that is not a Wholly Owned Subsidiary
shall be valued at its fair market value at the time of such transfer, in each
case as determined in good faith by the Board of Directors and evidenced by a
resolution of such Board of Directors certified in an Officers' Certificate to
the Trustee.
"Issue Date" means the date on which the Securities are originally
issued.
"Lien" means any mortgage, pledge, security interest, encumbrance,
lien or charge of any kind (including any conditional sale or other title
retention agreement or lease in the nature thereof).
"Maturity Date" means July 1, 2005.
"Moody's" means Moody's Investors Service, Inc.
"MSO Agreements" means agreements with multiple system operators of
cable television systems providing for the issuance of Class A Common Stock of
the Company in exchange for specified service commitments, entered into in
accordance with the Company's historical practice.
"Net Available Cash" from an Asset Disposition means cash payments
received (including any cash payments received by way of deferred payment of
principal pursuant to a note or installment receivable or otherwise, but only as
and when received, but excluding any other consideration received in the form of
assumption by the acquiring Person of Indebtedness or other obligations relating
to the properties or assets subject to such Asset Disposition) therefrom in each
case net of (i) all legal, title and recording tax expenses, commissions and
other fees and expenses incurred, and all Federal, state, foreign and
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local taxes required to be paid or accrued as a liability under GAAP, as a
consequence of such Asset Disposition, (ii) all payments made on any
Indebtedness which is secured by any assets subject to such Asset Disposition,
in accordance with the terms of any Lien upon such assets, or which must by its
terms, or in order to obtain a necessary consent to such Asset Disposition or by
applicable law, be repaid out of the proceeds from such Asset Disposition, (iii)
all distributions and other payments made to any Person owning a beneficial
interest in assets subject to sale or minority interest holders in Subsidiaries
or joint ventures as a result of such Asset Disposition, (iv) the deduction of
appropriate amounts to be provided by the seller as a reserve, in accordance
with GAAP, against any liabilities associated with the assets disposed of in
such Asset Disposition; provided, however, that upon any reduction in such
reserves (other than to the extent resulting from payments of the respective
reserved liabilities), Net Available Cash shall be increased by the amount of
such reduction to reserves, and retained by the Company or any Restricted
Subsidiary of the Company after such Asset Disposition and (v) any portion of
the purchase price from an Asset Disposition placed in escrow (whether as a
reserve for adjustment of the purchase price, for satisfaction of indemnities in
respect of such Asset Disposition or otherwise in connection with such Asset
Disposition); provided, however, that upon the termination of such escrow, Net
Available Cash shall be increased by any portion of funds therein released to
the Company or any Restricted Subsidiary.
"Net Cash Proceeds" with respect to any issuance or sale of Capital
Stock, means the cash proceeds of such issuance or sale net of attorneys' fees,
accountants' fees, underwriters' or placement agents' fees and expenses,
discounts or commissions and brokerage, consultant and other fees actually
incurred in connection with such issuance or sale and net of taxes paid or
payable as a result of such issuance or sale.
"Obligations" means any principal, premium, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Offering Memorandum" means the Offering Memorandum dated July 2,
1998, pursuant to which the Initial Securities were offered, and any supplements
thereto.
"Officer" means the Chairman of the Board, the Chief Executive
Officer, the Chief Financial Officer, or any Vice President, the Treasurer or
the Secretary of the Company.
"Officer's Certificate" means a certificate signed by two Officers of
the Company, at least one of whom shall be the principal executive, financial or
accounting officer of the Company.
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"Opinion of Counsel" means a written opinion, in form and substance
acceptable to the Trustee, from legal counsel, which may be internal counsel to
the Company, who is acceptable to the Trustee.
"Paying Agent" means United States Trust Company of New York, as
paying agent hereunder, or any successor thereto appointed pursuant hereto.
"Permitted Basket Investment" means an Investment by the Company or a
Restricted Subsidiary in a Restricted Subsidiary (other than a Wholly Owned
Subsidiary), an Unrestricted Subsidiary or any other Person engaged in a
Permitted Business, including without limitation a loan or advance to, or
Guarantee of Indebtedness of, a Restricted Subsidiary (other than a Wholly Owned
Subsidiary), an Unrestricted Subsidiary or any other Person engaged in a
Permitted Business; provided, however, that no such Investment may qualify as a
Permitted Basket Investment to the extent the amount thereof, when taken
together with all other such Investments that qualify as Permitted Basket
Investments, would exceed an aggregate amount outstanding at any time equal to
the sum of (i) $10 million plus (ii) to the extent not previously reinvested as
a Permitted Basket Investment, any interest payment or dividend or other
distribution from cumulative earnings realized on any Permitted Basket
Investments, or any release or other cancellation of any Guarantee constituting
a Permitted Basket Investment plus (iii) to the extent not previously reinvested
as a Permitted Basket Investment, any return of capital on a Permitted Basket
Investment (including any deemed return of capital resulting from the
designation or qualification of the recipient thereof as a Restricted Subsidiary
(if such recipient was previously an Unrestricted Subsidiary) or as a Wholly
Owned Subsidiary (if such recipient was previously a non-wholly owned Restricted
Subsidiary)) less (iv) all losses realized on the sale or other disposition of
Permitted Basket Investments.
"Permitted Business" means any business which is the same as or
related, ancillary or complementary to any of the businesses of the Company and
its Restricted Subsidiaries on the date of the Indenture, as reasonably
determined by the Company's Board of Directors, including, without limitation,
advertising sales, services and new programming, networks, products and services
related, ancillary or complementary to any of the businesses of the Company and
its Restricted Subsidiaries on the date of the Indenture; and all aspects of
satellite delivery and production support, services and facilities; provided,
that, an entity which is not an operating entity and whose primary business is
to hold or maintain intellectual property or licenses shall not qualify as a
"Permitted Business."
"Permitted Investment" means an Investment by the Company or any of
its Restricted Subsidiaries in (i) a Wholly-Owned Subsidiary of the Company;
provided, however, that the
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primary business of such Wholly-Owned Subsidiary is a Permitted Business; (ii)
another Person if as a result of such Investment such other Person becomes a
Wholly-Owned Subsidiary of the Company or is merged or consolidated with or
into, or transfers or conveys all or substantially all its assets to, the
Company or a Wholly-Owned Subsidiary of the Company; provided, however, that in
each case such Person's primary business is a Permitted Business, (iii)
Temporary Cash Investments; (iv) receivables owing to the Company or any of its
Restricted Subsidiaries, created or acquired in the ordinary course of business
and payable or dischargeable in accordance with customary trade terms; (v)
payroll, travel and similar advances to cover matters that are expected at the
time of such advances ultimately to be treated as expenses for accounting
purposes and that are made in the ordinary course of business; (vi) loans and
advances to employees made in the ordinary course of business consistent with
past practices of the Company or such Restricted Subsidiary in an aggregate
amount outstanding at any one time not to exceed $500,000; (vii) loans or
advances to senior management of the Company which loans or advances are secured
by shares of Common Stock of the Company owned by such senior management in an
aggregate amount outstanding not to exceed $750,000; (viii) stock, obligations
or securities received in settlement of debts created in the ordinary course of
business and owing to the Company or any of its Restricted Subsidiaries or in
satisfaction of judgments or claims; (ix) a Permitted Basket Investment; (x)
Persons to the extent such Investment is received by the Company or any
Restricted Subsidiary as consideration for Asset Dispositions effected in
compliance with Section 4.10; (xi) prepayments and other credits to suppliers
made in the ordinary course of business consistent with the past practices of
the Company and its Restricted Subsidiaries; and (xii) Investments in connection
with pledges, deposits, payments or performance bonds made or given in the
ordinary course of business in connection with or to secure statutory,
regulatory or similar obligations, including obligations under health, safety or
environmental obligations.
"Permitted Liens" means: (i) Liens imposed by law, such as carriers',
warehousemen's and mechanics' Liens, in each case for sums not yet due from the
Company or any Restricted Subsidiary or being contested in good faith by
appropriate proceedings by the Company or any Restricted Subsidiary, as the case
may be, or other Liens arising out of judgments or awards against the Company or
any Restricted Subsidiary with respect to which the Company or such Restricted
Subsidiary, as the case may be, will then be prosecuting an appeal or other
proceedings for review; (ii) Liens for property taxes or other taxes,
assessments or governmental charges of the Company or any Restricted Subsidiary
not yet due or payable or subject to penalties for nonpayment or which are being
contested by the Company or such Restricted Subsidiary, as the case may be, in
good faith by appropriate proceedings; (iii) Liens in favor of issuers of
performance, surety and other bonds issued pursuant to clause
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(b)(vi) under Section 4.09; (iv) survey exceptions, encumbrances, easements or,
reservations of, or rights of others for, licenses, rights-of-way, sewers,
electric lines, telegraph and telephone lines and other similar purposes or
zoning or other restrictions as to the use of real property of the Company or
any Restricted Subsidiary incidental to the ordinary course of conduct of the
business of the Company or such Restricted Subsidiary or as to the ownership of
properties of the Company or any Restricted Subsidiary, which, in either case,
were not incurred in connection with Indebtedness and which do not in the
aggregate materially adversely affect the value of said properties or materially
impair their use in the operation of the business of the Company or any
Restricted Subsidiary; (v) Liens outstanding immediately after the Issue Date as
set forth on Schedule 1 hereto; (vi) Liens on property or assets of any Person
----------
at the time such Person becomes a Restricted Subsidiary of the Company;
provided, however, that (A) if any such Lien has been Incurred in anticipation
of such transaction, such property or assets subject to such Lien will have a
fair market value at the date of the acquisition thereof not in excess of the
lesser of (1) the aggregate purchase price paid or owed in connection with the
acquisition of such Person and (2) the fair market value of all property and
assets of such Person and (B) any such Lien will not extend to any other assets
owned by the Company or any Restricted Subsidiary; (vii) Liens on property or
assets at the time the Company or any Restricted Subsidiary acquires such
assets, including any acquisition by means of a merger or consolidation with or
into the Company or such Restricted Subsidiary; provided, however, that (A) if
any such Lien is Incurred in anticipation of such transaction, such property or
assets subject to such Lien will have a fair market value at the date of the
acquisition thereof not in excess of the lesser of (1) the aggregate purchase
price paid or owed in connection with the acquisition thereof and of any other
property and assets acquired simultaneously therewith and (2) the fair market
value of all such property and assets acquired by the Company or such Restricted
Subsidiary and (B) any such Lien will not extend to any other property or assets
owned by the Company or any Restricted Subsidiary; (viii) Liens securing
Indebtedness or other obligations of a Restricted Subsidiary owing to the
Company or a Wholly Owned Subsidiary; (ix) Liens to secure any extension,
renewal, refinancing, replacement or refunding (or successive extensions,
renewals, refinancings, replacements or refundings), in whole or in part, of any
Indebtedness secured by Liens referred to in any of clauses (v), (vi) and (vii);
provided, however, that any such Lien will be limited to all or part of the same
property or assets that secured the original Lien (plus improvements on such
property) and the aggregate principal amount of Indebtedness that is secured by
such Lien will not be increased to an amount greater than the sum of (A) the
outstanding principal amount, or, if greater, the committed amount, of the
Indebtedness secured by Liens described under clauses (v), (vi) and (vii) at the
time the original Lien became a Permitted Lien hereunder and (B) an amount
necessary to pay any premiums, fees and other expenses Incurred
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<PAGE>
by the Company in connection with such refinancing, refunding, extension,
renewal or replacement; (x) Liens on property or assets of the Company securing
Interest Rate Agreements and Currency Agreements so long as the related
Indebtedness is permitted under Section 4.09, and is secured by a Lien on the
same property securing the relevant Interest Rate Agreement or Currency
Agreement; (xi) Liens on property or assets of the Company or any Restricted
Subsidiary securing Indebtedness (1) under purchase money obligations, mortgage
financings or Capital Lease Obligations permitted under Section 4.09 or (2)
under Sale/Leaseback Transactions permitted under Section 4.17 or Section 4.09;
provided, that (A) the amount of Indebtedness Incurred in any specific case does
not, at the time such Indebtedness is Incurred, exceed the lesser of the cost or
fair market value of the property or asset acquired or constructed in connection
with such purchase money obligation, mortgage financing or Capital Lease
Obligation or subject to such Sale/Leaseback Transaction, as the case may be,
(B) such Lien will attach to such property or asset upon acquisition of such
property or asset and or upon commencement of such Sale/Leaseback Transaction,
as the case may be, and (C) no property or asset of the Company or any
Restricted Subsidiary (other than the property or asset acquired or contracted
in connection with such purchase money obligation, mortgage financing or Capital
Lease Obligation or subject to such Sale/Leaseback Transaction, as the case may
be) is subject to any Lien securing such Indebtedness; (xii) Liens granted to
the Trustee securing the Company's obligations under the Indenture; (xiii) Liens
on assets of a Restricted Subsidiary and/or the Company securing Bank
Indebtedness permitted under clause (b)(i) of Section 4.09 and outstanding in an
aggregate principal amount not exceeding $20 million; provided, that such
Restricted Subsidiary and/or the Company, as the case may be, is permitted to
incur liability with respect to such Bank Indebtedness under paragraph (d) of
Section 4.09; (xiv) Liens on satellite transponders and/or transponder capacity,
transmitting facilities and/or capacity, and related assets acquired with the
proceeds of, and that secure the repayment of, Replacement Satellite
Indebtedness permitted under Section 4.09; and (xv) Liens on assets of the
Restricted Subsidiaries and/or the Company securing any combination of
additional Bank Indebtedness, additional Capitalized Lease Obligations,
additional Attributable Indebtedness in respect of Sale/Leaseback Transactions
and Indebtedness permitted under clause (b)(ix) of Section 4.09; provided that,
(A) at the time such Lien is granted and after giving effect to the Indebtedness
secured thereby, (I) the Consolidated Coverage Ratio is greater than or equal to
2.5:1, and (II) the ratio of (x) all Indebtedness that is secured by Liens on
any assets of the Company and its Restricted Subsidiaries (other than
Replacement Satellite Indebtedness) to (y) an amount equal to the sum of $120
million plus the maximum amount of Indebtedness of the Company and its
Restricted Subsidiaries (other than Replacement Satellite Indebtedness) that
could be Incurred under paragraph (a) of Section 4.09 (for which purpose all
such Indebtedness not then outstanding shall be
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deemed to bear interest at a rate equal to the weighted average interest rate on
all outstanding Indebtedness) does not exceed 1.0:6 and (B) in the case of
additional Bank Indebtedness, such Liens are on property or assets of a Person
that is permitted to incur liability with respect to such Bank Indebtedness
under Section 4.09(d).
"Permitted Transferee" means, with respect to a Person, (i) the
spouse, parent or lineal descendant of such Person, (ii) a trustee, guardian or
custodian for, or an executor, administrator or other legal representative of
the estate of such Person, (iii) the trustee of a trust for the benefit of such
Person or its Permitted Transferees and (iv) a corporation, partnership or other
entity of which such Person and its Permitted Transferees are the beneficial
owners of, and control the Capital Stock representing, a majority of the
ordinary voting power.
"Person" means any individual, corporation, partnership, limited
liability company, joint venture, association, joint-stock company, trust,
unincorporated organization, government or any agency or political subdivision
hereof or any other entity.
"Preferred Stock," as applied to the Capital Stock of any corporation,
means Capital Stock of any class or classes (however designated) which is
preferred as to the payment of dividends, or as to the distribution of assets
upon any voluntary or involuntary liquidation or dissolution of such
corporation, over shares of Capital Stock of any other class of such
corporation.
"Private Placement Legend" has the meaning provided in Section 2.15.
"QIB Restricted Note" means a Security initially bearing CUSIP number
480208AA5 through which QIBs hold a beneficial interest in the permanent global
note that contains the paragraph referred to in footnote 1 and the additional
schedule referred to in footnote 3 to the form of the Security attached hereto
as Exhibit A-1, and that is deposited with and registered in the name of the
Depositary, or any replacement Security issued therefor.
"Qualified Institutional Buyer" or "QIB" shall have the meaning
specified in Rule 144A under the Securities Act.
"Record Date" means the record dates specified in the Securities,
whether or not a Legal Holiday.
"Refinancing Indebtedness" means Indebtedness that refunds,
refinances, replaces, renews, repays or extends (including pursuant to any
defeasance or discharge mechanism) (collectively, "refinances," and "refinanced"
shall have a
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correlative meaning) any Indebtedness existing on the date of the Indenture or
Incurred in compliance with the Indenture (including Indebtedness of the Company
that refinances Indebtedness of any Restricted Subsidiary and Indebtedness of
any Restricted Subsidiary that refinances Indebtedness of another Restricted
Subsidiary, the Capital Stock of which is owned, directly or indirectly, by the
Restricted Subsidiary that is Incurring the Refinancing Indebtedness) including
Indebtedness that refinances Refinancing Indebtedness; provided, however, that
(i) the Refinancing Indebtedness has a Stated Maturity no earlier than the
earlier of (A) the first anniversary of the Stated Maturity of the Securities
and (B) Stated Maturity of the Indebtedness being refinanced, (ii) the
Refinancing Indebtedness has an Average Life at the time such Refinancing
Indebtedness is Incurred that is equal to or greater than the lesser of (A) the
Average Life of the Securities and (B) the Average Life of the Indebtedness
being refinanced and (iii) the Refinancing Indebtedness is in an aggregate
principal amount (or if issued with original issue discount, an aggregate issue
price) that is equal to (or 101% of, in the case of a refinancing of the
Securities in connection with a Change of Control) or less than the sum of the
aggregate principal amount (or if issued with original issue discount, the
accreted value) then outstanding of the Indebtedness being refinanced.
"Registrar" means United States Trust Company of New York, as
registrar under the Indenture, or any successor thereto appointed pursuant to
the Indenture.
"Registration Rights Agreement" means the Registration Rights
Agreement dated July 10, 1998 between the Company and the Initial Purchaser for
the benefit of themselves and the Securityholders, as the same may be amended or
modified from time to time in accordance with the terms thereof.
"Regulation S" means Regulation S under the Securities Act, or any
successor regulation.
"Regulation S Global Note" means a Regulation S Temporary Global Note
or a Regulation S Permanent Global Note, as appropriate.
"Regulation S Permanent Global Note" means a permanent global note
that contains the paragraph referred to in footnote 1 and the additional
schedule referred to in footnote 3 to the form of the Security attached as
Exhibit A-1, and that is deposited with and registered in the name of the
Depositary, representing a series of Securities sold in reliance on Regulation
S.
"Regulation S Temporary Global Note" means a single temporary global
note in the form of the Security attached hereto as Exhibit A-2 that is
deposited with and registered in the name of the Depositary, representing a
series of Securities sold in reliance on Regulation S.
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"Replacement Satellite Indebtedness" means Indebtedness of the Company
or a Wholly Owned Subsidiary of the Company Incurred on or after January 1,
2002, to finance the acquisition of satellite broadcasting capacity, including
satellite transponders and/or capacity, transmitting facilities and/or capacity,
and related assets, whether secured or unsecured, and whether Incurred as
regular Indebtedness or as a Capitalized Lease Obligation.
"Reserve Account" shall have the meaning set forth in Section 11.01
hereof.
"Responsible Officer" when used with respect to the Trustee, means any
officer within the corporate trust department of the Trustee (or any successor
group of the Trustee) with direct responsibility for the administration of this
Indenture and also means, with respect to a particular corporate trust matter,
any other officer to whom such matter is referred because of his or her
knowledge of and familiarity with the particular subject.
"Restricted Payment" has the meaning provided in Section 4.07(a).
"Restricted Period" means the 40-day restricted period as defined in
Regulation S.
"Restricted Security" has the meaning assigned to such term in Rule
144(a)(3) under the Securities Act.
"Restricted Subsidiary" means any Subsidiary of the Company other than
an Unrestricted Subsidiary.
"S&P" and "Standard and Poor's" means Standard & Poor's Rating Group.
"Sale/Leaseback Transaction" means an arrangement relating to property
now owned or hereafter acquired whereby the Company or a Restricted Subsidiary
transfers such property to a Person and the Company or a Subsidiary leases it
from such Person.
"Secured Indebtedness" means any Indebtedness of the Company secured
by a Lien.
"Securities" means the Initial Securities and the Exchange Securities
treated as a single class of securities, as amended or supplemented from time to
time in accordance with the terms hereof, that are issued pursuant to this
Indenture.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations of the Commission promulgated thereunder, or any successor
statute or statutes thereto.
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"Securityholder" or "Holder" means a registered holder of one or more
Securities.
"Senior Indebtedness" means, whether outstanding on the Issue Date or
thereafter issued, all Indebtedness of the Company or its Restricted
Subsidiaries, including interest and fees thereon; provided, however, that
Senior Indebtedness will not include any Subordinated Obligation of the Company
or any Restricted Subsidiary.
"Significant Subsidiary" means any Restricted Subsidiary that would be
a "Significant Subsidiary" of the Company within the meaning of Rule 1-02 under
Regulation S-X promulgated by the Commission.
"Stated Maturity" means, with respect to any Security, the date
specified in such Security as the fixed date on which the payment of principal
of such Security is due and payable, including pursuant to any mandatory
redemption provision.
"Subordinated Obligation" means any Indebtedness of the Company or a
Restricted Subsidiary (whether outstanding on the Issue Date or thereafter
Incurred) in respect of which, in the instrument creating or evidencing the same
or pursuant to which the same is outstanding, it is provided that the
obligations of the Company or such Restricted Subsidiary in respect of such
Indebtedness are subordinate or junior in right of payment to any other
Indebtedness of such Person of the type described in clause (i) or (ii) or (vii)
of the definition of "Indebtedness".
"Subsidiary" of any Person means any corporation, association or other
business entity of which such Person owns, directly or indirectly through one or
more Subsidiaries, a majority of the Capital Stock or other ownership interests
(including partnership and membership interests) and has ordinary voting power
to elect a majority of the directors, managers, trustees or other persons
performing similar functions or, in the case of a partnership, of which such
Person or any of its Subsidiaries is the general or managing general partner.
Notwithstanding the foregoing, Product Information Network Venture and
Superaudio shall be deemed to be Subsidiaries of the Company. Unless otherwise
specified herein, each reference to a Subsidiary shall refer to a Subsidiary of
the Company.
"Subsidiary Guarantee" means the Guarantee of the Securities by a
Subsidiary Guarantor.
"Subsidiary Guarantor" means each Restricted Subsidiary of the
Company, whether in existence on the Issue Date or created or acquired
thereafter (other than any foreign Subsidiary and other than any domestic
Restricted Subsidiary that is subject to a contractual limitation, existing on
the Issue Date, on its ability to issue a Subsidiary Guarantee which limitation
has not,
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with the exercise of such Restricted Subsidiary's best efforts, been satisfied
or waived).
"Temporary Cash Investments" means any of the following: (i) any
Investment in direct obligations of the United States of America or any agency
thereof or obligations guaranteed by the United States of America or any agency
thereof, (ii) Investments in time deposit accounts, certificates of deposit and
money market deposits maturing within 180 days of the date of acquisition
thereof issued by a bank or trust company which is organized under the laws of
the United States of America, any state thereof or any foreign country
recognized by the United States of America having capital surplus and undivided
profits aggregating in excess of $250 million (or the foreign currency
equivalent thereof) and whose long-term debt, or whose parent holding company's
long-term debt, is rated "A" (or such similar equivalent rating) or higher by at
least one nationally recognized statistical rating organization (as defined in
Rule 436 under the Securities Act), (iii) repurchase obligations with a term of
not more than 30 days for underlying securities of the types described in clause
(i) above entered into with a bank meeting the qualifications described in
clause (ii) above, (iv) Investments in commercial paper, maturing not more than
180 days after the date of acquisition, issued by a corporation (other than an
Affiliate of the Company) organized and in existence under the laws of the
United States of America or any foreign country recognized by the United States
of America with a rating at the time as of which any investment therein is made
of "P-1" (or higher) according to Moody's or "A-1" (or higher) according to S&P,
(v) Investments in securities with maturities of six months or less from the
date of acquisition issued or fully guaranteed by any state, commonwealth or
territory of the United States of America, or by any political subdivision or
taxing authority thereof, and rated at least "A" by S&P or "A" by Moody's and
(vi) Investments in mutual funds whose investment guidelines restrict such
funds' investments to those satisfying the provisions of clauses (i) through (v)
above.
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C. (S)(S) 77aaa-
77bbbb) and the rules and regulations thereunder as in effect on the date on
which this Indenture is qualified under the TIA, except as provided in Section
9.03 hereof; provided, however, that, in the event the Trust Indenture Act of
1939 is amended after such date, "TIA" means, to the extent required by any such
amendment, the Trust Indenture Act of 1939 as so amended.
"Trustee" means U.S. Trust Company of New York, a banking corporation
organized and existing under the laws of the State of New York, until a
successor replaces it in accordance with Article 7 and thereafter means the
successor serving hereunder.
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"Unrestricted Subsidiary" means (i) any Subsidiary of the Company that
acquires an Affiliate Business, (ii) any other Subsidiary of the Company that at
the time of determination shall be designated an Unrestricted Subsidiary by the
Board of Directors in the manner provided below, (iii) any Subsidiary of an
Unrestricted Subsidiary, (iv) Product Information Network Venture; (v)
Superaudio; and (vi) Jones/Capstar Radio Programming LLC. The Board of Directors
may designate any Subsidiary of the Company (including any newly acquired or
newly formed Subsidiary of the Company) to be an Unrestricted Subsidiary unless
such Subsidiary or any of its Subsidiaries owns any Capital Stock of the Company
or any Restricted Subsidiary of the Company that is not a Subsidiary of the
Subsidiary to be so designated; provided, however, that either (A) the
Subsidiary to be so designated has total consolidated assets of $10,000 or less
or (B) if such Subsidiary has consolidated assets greater than $10,000, then
such designation would be permitted under Section 4.07. The Board of Directors
may designate any Unrestricted Subsidiary to be a Restricted Subsidiary subject
to the limitations contained in Section 4.18.
"U.S. Government Obligations" means direct obligations (or
certificates representing an ownership interest in such obligations) of the
United States of America (including any agency or instrumentality thereof) for
the payment of which the full faith and credit of the United States of America
is pledged and which are not callable or redeemable at the issuer's option.
"Wholly-Owned Subsidiary" means a Restricted Subsidiary of the
Company, at least 99% of the Capital Stock of which (other than directors'
qualifying shares) is owned by the Company or another Wholly-Owned Subsidiary.
SECTION 1.02. OTHER DEFINITIONS.
<TABLE>
<CAPTION>
Defined in
Term Section
<S> <C>
"actual knowledge"............................................ 7.02
"Affiliate Transaction"....................................... 4.11
"Agent Members"............................................... 2.16
"Asset Disposition Offer"..................................... 3.09
"Bankruptcy Law".............................................. 6.01
"covenant defeasance option".................................. 8.01
"Custodian"................................................... 6.01
"Declaration"................................................. 6.02
"Default Amount".............................................. 6.02
"Event of Default"............................................ 6.01
"Net Available Cash".......................................... 4.10
"judgment default provision".................................. 6.01
"legal defeasance option"..................................... 8.01
"Legal Holiday"............................................... 12.07
"Notice of Default"........................................... 6.01
"Offer Amount"................................................ 3.09
</TABLE>
25
<PAGE>
<TABLE>
<S> <C>
"Offer Period"................................................ 3.09
"Paying Agent"................................................ 2.03
"Registrar"................................................... 2.03
"Successor Company"........................................... 5.01
</TABLE>
SECTION 1.03. INCORPORATION BY REFERENCE OF TRUST INDENTURE ACT.
Whenever this Indenture refers to a provision of the TIA, the
provision is incorporated by reference in and made a part of this Indenture.
The following TIA terms used in this Indenture have the following
meanings:
"indenture securities" means the Securities and the Subsidiary
Guarantees;
"indenture security holder" means a Securityholder;
"indenture to be qualified" means this Indenture;
"indenture trustee" or "institutional trustee" means the Trustee;
"obligor" on the Securities means the Company, the Subsidiary
Guarantors and any successor obligor upon the Securities.
All other terms used in this Indenture that are defined by the TIA,
defined by TIA reference to another statute or defined by Commission rule under
the TIA have the meanings so assigned to them.
SECTION 1.04. RULES OF CONSTRUCTION.
Unless the context otherwise requires:
(i) a term has the meaning assigned to it;
(ii) an accounting term not otherwise defined has the meaning
assigned to it in accordance with GAAP;
(iii) "or" is not exclusive;
(iv) words in the singular include the plural, and in the plural
include the singular; and
(v) provisions apply to successive events and transactions.
ARTICLE 2
THE SECURITIES
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SECTION 2.01. FORM AND DATING.
The Initial Securities and the Trustee's certificate of authentication
thereon shall be substantially in the form of Exhibit A-1 and A-2 hereto. The
-------------------
Exchange Securities and the Trustee's certificate of authentication thereon
shall be substantially in the form of Exhibit A-3 hereto. The Securities may
-----------
have notations, legends or endorsements required by law, stock exchange rule or
Depositary rule or usage. The Company and the Trustee shall approve the form of
the Securities and any notation, legend or endorsement on them. Each Security
shall be dated the date of its authentication.
The terms and provisions contained in the forms of the Securities,
annexed hereto as Exhibits A-1, A-2 and A-3, shall constitute, and are hereby
-------------------------
expressly made, a part of this Indenture and, to the extent applicable, the
Company and the Trustee, by their execution and delivery of this Indenture,
expressly agree to such terms and provisions and to be bound thereby.
(a) Global Notes.
------------
Securities offered and sold to QIBs in reliance on Rule 144A shall be
evidenced by one or more QIB Restricted Notes, deposited with the Trustee, as
custodian for the Depositary and registered in the name of the Depositary or a
nominee of the Depositary, duly executed by the Company and authenticated by the
Trustee as hereinafter provided. The aggregate principal amount of the QIB
Restricted Notes may from time to time be increased or decreased by adjustments
made on the records of the Trustee, as custodian for the Depositary or its
nominee, as hereinafter provided.
Securities offered and sold in offshore transactions in reliance on
Regulation S shall be issued initially in the form of a Regulation S Temporary
Global Note, deposited with the Trustee, as custodian for the Depositary and
registered in the name of the Depositary or the nominee of the Depositary for
the accounts of designated agents holding on behalf of Euroclear or Cedel, duly
executed by the Company and authenticated by the Trustee as hereinafter
provided. The Restricted Period shall be terminated upon the receipt by the
Trustee of an Officers' Certificate from the Company which certificate shall be
delivered 40 days after the delivery of the authentication order of the
Regulation S Temporary Global Note. Following the termination of the Restricted
Period, beneficial interests in the Regulation S Temporary Global Note shall be
exchanged for beneficial interests in Regulation S Permanent Global Notes
pursuant to the Applicable Procedures. Simultaneously with the authentication
of Regulation S Permanent Global Notes, the Trustee shall cancel the Regulation
S Temporary Global Note. The aggregate principal amount of the Regulation S
Temporary Global Note and the Regulation S Permanent Global Notes may from time
to time be increased or decreased by
27
<PAGE>
adjustments made on the records of the Trustee and the Depositary or its
nominee, as the case may be, in connection with transfers of interest as
hereinafter provided.
Each Global Note shall represent such of the outstanding Securities as
shall be specified therein and each shall provide that it shall represent the
aggregate amount of outstanding Securities from time to time endorsed thereon
and that the aggregate amount of outstanding Securities represented thereby may
from time to time be reduced or increased, as appropriate, to reflect exchanges
and redemptions. Any endorsement of a Global Note to reflect the amount of any
increase or decrease in the amount of outstanding Securities represented thereby
shall be made by the Trustee or the custodian, at the direction of the Trustee,
in accordance with instructions given by the Holder thereof as required by
Section 2.17 hereof.
The provisions of the "Operating Procedures of the Euroclear System"
and "Terms and Conditions Governing Use of Euroclear" and the "Management
Regulations" and "Instructions to Participants" of Cedel shall be applicable to
interests in the Regulation S Temporary Global Note and the Regulation S
Permanent Global Note that are held by the Agent Members through Euroclear or
Cedel.
Except as set forth in Sections 2.06 and 2.17 hereof, the Global Notes
may be transferred, in whole and not in part, only to another nominee of the
Depositary or to a successor of the Depositary or its nominee.
(b) Certificated Securities.
-----------------------
Securities issued in certificated form shall be substantially in the
form of Exhibit A-1 attached hereto (but without including the text referred to
in footnotes 1 and 3 thereto).
SECTION 2.02. EXECUTION AND AUTHENTICATION.
(a) Two Officers of the Company (each of whom shall, in each case,
have been duly authorized by all requisite corporate actions) shall sign the
Securities for the Company by manual or facsimile signature. If an Officer
whose signature is on a Security no longer holds that office at the time the
Security is authenticated, the Security shall nevertheless be valid.
(b) A Security shall not be valid until authenticated by the manual
signature of the Trustee. The signature of the Trustee shall be conclusive
evidence that the Security has been authenticated under this Indenture.
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<PAGE>
(c) The Trustee shall authenticate (i) Initial Securities for original
issue in the aggregate principal amount not to exceed $100,000,000, and (ii)
Exchange Securities from time to time for issue only in exchange for a like
principal amount of Initial Securities, in each case upon receipt of a written
order of the Company signed by two Officers.
(d) The Trustee may appoint an authenticating agent acceptable to the
Company to authenticate Securities. Unless limited by the terms of such
appointment, an authenticating agent may authenticate Securities whenever the
Trustee may do so. Each reference in this Indenture to authentication by the
Trustee includes authentication by such agent. An authenticating agent has the
same rights as an Agent to deal with the Company or an Affiliate.
SECTION 2.03. REGISTRAR AND PAYING AGENT.
(a) The Company shall maintain an office or agency (which shall be
located in the Borough of Manhattan in the City of New York, State of New York)
where (i) Securities may be presented for registration of transfer or for
exchange ("Registrar"), (ii) Securities may be presented for payment ("Paying
Agent") and (iii) notices and demands to or upon the Company in respect of the
Securities and this Indenture may be served. The Registrar shall keep a
register of the Securities and of their transfer and exchange. The Company may
appoint one or more co-Registrars and one or more additional Paying Agents. The
term "Paying Agent" includes any additional Paying Agent. The Company may
change any Paying Agent, Registrar or co-Registrar without prior notice to any
Securityholder. The Company shall notify the Trustee and the Trustee shall
notify the Securityholders of the name and address of any Agent not a party to
this Indenture. The Company or any Subsidiary Guarantor may act as Paying
Agent, Registrar or co-Registrar. The Company shall enter into an appropriate
agency agreement with any Agent not a party to this Indenture, which shall
incorporate the provisions of the TIA and implement the provisions of this
Indenture that relate to such Agent. The Company shall notify the Trustee of
the name and address of any such Agent. If the Company fails to appoint or
maintain a Registrar or Paying Agent, or fails to give the foregoing notice, the
Trustee shall act as such, and shall be entitled to appropriate compensation in
accordance with Section 7.07 hereof.
(b) The Company initially appoints the Trustee as Registrar, Paying
Agent and agent for service of notices and demands in connection with the
Securities.
The Company initially appoints The Depository Trust Company to act as
Depositary with respect to the Global Notes.
SECTION 2.04. PAYING AGENT TO HOLD MONEY IN TRUST.
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<PAGE>
The Company, the Subsidiary Guarantors and any other obligors on the
Securities shall require each Paying Agent other than the Trustee to agree in
writing that the Paying Agent shall hold in trust for the benefit of the
Securityholders and the Trustee all money held by the Paying Agent for the
payment of principal of, premium, if any, and interest on the Securities, and
shall notify the Trustee of any Default by the Company, any of the Subsidiary
Guarantors or any other obligor on the Securities in making any such payment.
While any such Default continues, the Trustee may require a Paying Agent to pay
all money held by it to the Trustee. The Company, the Subsidiary Guarantors or
any other obligor on the Securities at any time may require a Paying Agent to
pay all money held by it to the Trustee. Upon payment over to the Trustee, the
Paying Agent (if other than the Company or a Subsidiary Guarantor) shall have no
further liability for the money delivered to the Trustee. If the Company, the
Subsidiary Guarantors or any other obligor on the Securities acts as Paying
Agent, it shall segregate and hold in a separate trust fund for the benefit of
the Securityholders all money held by it as Paying Agent.
SECTION 2.05. SECURITYHOLDER LISTS.
The Trustee shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses of
Securityholders and shall otherwise comply with TIA (S) 312(a). If the Trustee
is not the Registrar, the Company, the Subsidiary Guarantors or any other
obligor on the Securities shall furnish to the Trustee at least seven Business
Days before each Interest Payment Date and at such other times as the Trustee
may request in writing a list in such form and as of such date as the Trustee
may reasonably require of the names and addresses of Securityholders, including
the aggregate principal amount of the Securities held by each thereof, and the
Company, the Subsidiary Guarantors and each other obligor on the Securities
shall otherwise comply with TIA (S) 312(a).
SECTION 2.06. TRANSFER AND EXCHANGE.
(a) Where Securities are presented to the Registrar or a co-registrar
with a request to register the transfer thereof or exchange them for an equal
principal amount of Securities of other denominations, the Registrar shall
register the transfer or make the exchange if its requirements for such
transactions are met; provided, that any Security presented or surrendered for
registration of transfer or exchange shall be duly endorsed or accompanied by a
written instruction of transfer in form satisfactory to the Registrar and the
Trustee duly executed by the Securityholder thereof or his attorney duly
authorized in writing.
(b) To permit registrations of transfers and exchanges, the Company
shall execute and the Trustee shall
30
<PAGE>
authenticate Certificated Notes and Global Notes at the Registrar's request.
(c) No service charge shall be made to a Holder for any registration
of transfer or exchange, but the Company may require payment of a sum sufficient
to cover any transfer tax or similar governmental charge payable in connection
therewith (other than any such transfer taxes or similar governmental charge
payable upon exchange or transfer pursuant to Sections 2.10, 3.06 and 9.05
hereof).
(d) The Registrar shall not be required to register the transfer of
or exchange any Security selected for redemption in whole or in part, except the
unredeemed portion of any Security being redeemed in part.
(e) All Certificated Notes and Global Notes issued upon any
registration of transfer or exchange of Certificated Notes or Global Notes shall
be the valid obligations of the Company, evidencing the same debt, and entitled
to the same benefits under this Indenture, as the Certificated Notes or Global
Notes surrendered upon such registration of transfer or exchange.
(f) The Company shall not be required:
(i) to issue, to register the transfer of or to exchange any
Security during a period beginning at the opening of business 15 days
before the day of any selection of Securities for redemption under Section
3.02 hereof and ending at the close of business on the day of selection; or
(ii) to register the transfer of or to exchange any Security so
selected for redemption in whole or in part, except the unredeemed portion
of any Security being redeemed in part; or
(iii) to register the transfer of or to exchange a Security
between a Record Date and the next succeeding Interest Payment Date, or
between a special record date for payment of defaulted interest and the
related payment date.
(g) Prior to due presentment of the registration of a transfer of any
Security, the Trustee, any Agent and the Company may deem and treat the Person
in whose name any Security is registered as the absolute owner of such Security
for the purpose of all payments with respect to such Securities, and neither the
Trustee, any Agent nor the Company shall be affected by notice to the contrary.
(h) The Trustee shall authenticate Certificated Notes and Global
Notes in accordance with the provisions of Section 2.2 hereof.
31
<PAGE>
(i) Any Holder of the Global Notes shall, by acceptance of such
Global Notes, agree that transfers of beneficial interests in such Global Notes
may be effected only through a book entry system maintained by the Holder of
such Global Notes (or its agent), and that ownership of a beneficial interest in
the Global Notes shall be required to be reflected in a book entry.
(j) Upon the registration of the transfer, exchange or replacement of
Securities not bearing the Private Placement Legend, the Registrar shall deliver
Securities that do not bear the Private Placement Legend. Upon the registration
of the transfer, exchange or replacement of Securities bearing the Private
Placement Legend, the Registrar shall deliver only Securities that bear the
Private Placement Legend unless there is delivered to the Registrar an Opinion
of Counsel reasonably satisfactory to the Company and the Trustee to the effect
that neither such legend nor the related restrictions on transfer are required
in order to maintain compliance with the provisions of the Securities Act.
(k) By its acceptance of any Security bearing the Private Placement
Legend, each Holder of such a Security acknowledges the restrictions on transfer
of such Security set forth in this Indenture and in the Private Placement Legend
and agrees that it will transfer such Security only as provided in this
Indenture.
The Registrar shall retain for at least two years copies of all
letters, notices and other written communications received pursuant to Section
2.17. The Company shall have the right to inspect and make copies of all such
letters, notices or other written communications at any reasonable time upon the
giving of reasonable written notice to the Registrar.
SECTION 2.07. REPLACEMENT SECURITIES.
(a) If any mutilated Security is surrendered to the Trustee, or the
Company and the Trustee receives evidence to its satisfaction of the
destruction, loss or theft of any Security, the Company shall issue and the
Trustee, upon receipt by it of the written order of the Company signed by two
Officers of the Company, shall authenticate a replacement Security if the
Trustee's requirements for replacements of Securities are met. If required by
the Trustee or the Company, an indemnity bond must be supplied by the Holder
that is sufficient in the judgment of the Trustee and the Company to protect the
Company, the Subsidiary Guarantors, the Trustee, any Agent or any authenticating
agent from any loss which any of them may suffer if a Security is replaced. The
Company and the Trustee may charge a Securityholder for reasonable out-of-pocket
expenses in replacing a Security.
32
<PAGE>
(b) Every replacement Security is an obligation of the Company and
each of the Subsidiary Guarantors.
SECTION 2.08. OUTSTANDING SECURITIES.
(a) The Securities outstanding at any time are all the Securities
authenticated by the Trustee except for those canceled by the Trustee, those
delivered to the Trustee for cancellation and those described in this Section as
not outstanding.
(b) If a Security is replaced pursuant to Section 2.07 hereof, it
ceases to be outstanding unless the Trustee receives proof satisfactory to it
that the replaced Security is held by a protected purchaser.
(c) If the principal amount of any Security is considered paid under
Section 4.01 hereof, it ceases to be outstanding and interest on it ceases to
accrue.
(d) Subject to Section 2.09 hereof, a Security does not cease to be
outstanding because the Company or an Affiliate of the Company holds the
Security.
SECTION 2.09. TREASURY SECURITIES.
In determining whether the Holders of the required principal amount of
Securities have concurred in any direction, waiver or consent, Securities owned
by the Company, the Subsidiary Guarantors, or any of their respective Affiliates
shall be considered as though not outstanding, except that for purposes of
determining whether the Trustee shall be protected in relying on any such
direction, waiver or consent, only Securities which a Responsible Officer of the
Trustee has actual knowledge are so owned shall be so disregarded.
SECTION 2.10. TEMPORARY SECURITIES.
Until definitive Securities are ready for delivery, the Company may
prepare and the Trustee shall authenticate temporary Securities upon written
order of the Company signed by two Officers of the Company. Temporary
Securities shall be substantially in the form of definitive Securities but may
have variations that the Company and the Subsidiary Guarantors consider
appropriate for temporary Securities. Without unreasonable delay, the Company
shall prepare and the Trustee, upon receipt of the written order of the Company
signed by two Officers of the Company, shall authenticate definitive Securities
in exchange for temporary Securities. Until such exchange, temporary Securities
shall be entitled to the same rights, benefits and privileges as definitive
Securities.
SECTION 2.11. CANCELLATION.
33
<PAGE>
The Company at any time may deliver Securities to the Trustee for
cancellation. The Registrar and Paying Agent shall forward to the Trustee any
Securities surrendered to them for registration of transfer, exchange or
payment. The Trustee (or its Agent) shall cancel all Securities, if not already
canceled, surrendered for registration of transfer, exchange, payment,
replacement or cancellation and shall destroy canceled Securities (subject to
the record retention requirement of the Exchange Act), and deliver certification
of their destruction to the Company, unless by a written order, signed by two
Officers of the Company, the Company shall direct that canceled Securities be
returned to it. The Company may not issue new Securities to replace Securities
that it has redeemed or paid or that have been delivered to the Trustee for
cancellation. If the Company acquires any of the Securities, such acquisition
shall not operate as a redemption or satisfaction of the indebtedness
represented by such Securities unless or until the same are surrendered to the
Trustee (or its agent) for cancellation pursuant to this Section.
SECTION 2.12. DEFAULTED INTEREST.
If the Company defaults in a payment of interest on the Securities, it
shall pay the defaulted interest in any lawful manner plus, to the extent
lawful, interest payable on the defaulted interest, to the Persons who are
Securityholders on a subsequent special record date, which date shall be at the
earliest practicable date but in all events at least five Business Days prior to
the payment date, in each case at the rate provided in the Securities and in
Section 4.01 hereof. The Company shall, with the consent of the Trustee, fix or
cause to be fixed each such special record date and payment date. At least 15
days before the special record date, the Company (or, upon the written request
of the Company, the Trustee, in the name of and at the expense of the Company)
shall mail to Securityholders a notice that states the special record date, the
related payment date and the amount of such interest to be paid.
SECTION 2.13. CUSIP NUMBERS.
The Company in issuing the Securities may use one or more "CUSIP"
numbers, and if so, the Trustee shall use the CUSIP numbers in notices of
redemption or exchange as a convenience to Securityholders; provided that no
representation shall be deemed to be made by the Trustee as to the correctness
or accuracy of the CUSIP number printed in the notice or on the Securities, and
that reliance may be placed only on the other identification numbers printed on
the Securities. The Company shall promptly notify the Trustee of any change in
the CUSIP numbers.
SECTION 2.14. DEPOSIT OF MONEYS.
Prior to 11:00 a.m. New York City time on each Interest Payment Date
and Maturity Date, the Company shall have deposited
34
<PAGE>
with the Paying Agent in immediately available funds money sufficient, together
with any amounts to be disbursed pursuant to Section 11.04(a), to make cash
payments, if any, due on such Interest Payment Date or Maturity Date, as the
case may be, in a timely manner which permits the Paying Agent to remit payment
to the Securityholders on such Interest Payment Date or Maturity Date, as the
case may be.
SECTION 2.15. RESTRICTIVE LEGENDS.
Each Global Note and each Certificated Note that constitutes a
Restricted Security shall bear the following legend (the "Private Placement
Legend") unless otherwise agreed by the Company and the Securityholder thereof
or unless another legend is required as a result of changes in applicable
securities laws:
THIS NOTE OR ITS PREDECESSORS HAS NOT BEEN REGISTERED UNDER THE U.S.
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND ACCORDINGLY,
NEITHER THIS NOTE NOR A BENEFICIAL INTEREST HEREIN MAY BE OFFERED, SOLD OR
PLEDGED OR OTHERWISE TRANSFERRED WITHIN THE UNITED STATES OR TO, OR FOR THE
ACCOUNT OR BENEFIT OF, UNITED STATES PERSONS EXCEPT AS SET FORTH IN THE
FOLLOWING SENTENCE. BY ITS ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS
THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A
UNDER THE SECURITIES ACT) OR (B) IT IS NOT A U.S. PERSON, IS NOT ACQUIRING
THIS NOTE FOR THE ACCOUNT OR BENEFIT OF A U.S. PERSON AND IS ACQUIRING THIS
NOTE IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH REGULATION S UNDER THE
SECURITIES ACT, (2) AGREES THAT IT WILL NOT, WITHIN THE TIME PERIOD
REFERRED TO IN RULE 144(k) UNDER THE SECURITIES ACT AS IN EFFECT WITH
RESPECT TO SUCH TRANSFER, RESELL OR OTHERWISE TRANSFER THIS NOTE EXCEPT (A)
TO JONES INTERNATIONAL NETWORKS, LTD. OR ANY SUBSIDIARY THEREOF, (B) INSIDE
THE UNITED STATES TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH
RULE 144A UNDER THE SECURITIES ACT, (C) INSIDE THE UNITED STATES TO AN
INSTITUTIONAL ACCREDITED INVESTOR (AS DEFINED IN RULE 501 (a)(1),(2),(3) OR
(7) UNDER THE SECURITIES ACT) THAT, PRIOR TO SUCH TRANSFER, FURNISHES TO
THE TRUSTEE A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND
AGREEMENTS RELATING TO THE RESTRICTIONS ON TRANSFER OF THIS NOTE (THE FORM
OF WHICH LETTER CAN BE OBTAINED FROM THE TRUSTEE), AND IF SUCH TRANSFER IS
IN RESPECT OF AN AGGREGATE PRINCIPAL AMOUNT OF NOTES AT THE TIME OF
TRANSFER OF LESS THAN $250,000, AN OPINION OF COUNSEL ACCEPTABLE TO JONES
INTERNATIONAL NETWORKS, LTD. THAT SUCH TRANSFER IS IN COMPLIANCE WITH THE
SECURITIES ACT, (D) OUTSIDE THE UNITED STATES IN AN OFFSHORE TRANSACTION IN
COMPLIANCE WITH RULE 904 UNDER THE SECURITIES ACT, (E) PURSUANT TO THE
EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT
(IF AVAILABLE), (F) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OR (G) IN ACCORDANCE WITH ANOTHER EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT (BASED UPON AN OPINION OF
COUNSEL ACCEPTABLE
35
<PAGE>
TO JONES INTERNATIONAL NETWORKS, LTD.) AND, IN EACH CASE, IN ACCORDANCE
WITH APPLICABLE SECURITIES LAWS AND (3) AGREES THAT IT WILL DELIVER TO EACH
PERSON TO WHOM THIS NOTE IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE
EFFECT OF THIS LEGEND. AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION,"
"UNITED STATES" AND "U.S. PERSON" HAVE THE MEANINGS GIVEN TO THEM BY RULE
902 OF REGULATION S UNDER THE SECURITIES ACT. THE INDENTURE CONTAINS A
PROVISION REQUIRING THE TRUSTEE TO REFUSE TO REGISTER ANY TRANSFER OF THIS
NOTE IN VIOLATION OF THE FOREGOING RESTRICTIONS.
Each Global Note shall also bear the following legend on the face
thereof:
UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR NOTES IN
DEFINITIVE FORM, THIS NOTE MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE
DEPOSITARY TO A NOMINEE OF THE DEPOSITARY, OR BY ANY SUCH NOMINEE OF THE
DEPOSITARY TO ANY OTHER NOMINEE OF THE DEPOSITARY OR BY THE DEPOSITARY OR
ANY NOMINEE OF THE DEPOSITARY TO A SUCCESSOR DEPOSITARY OR A NOMINEE OF
SUCH SUCCESSOR DEPOSITARY. TRANSFERS OF THIS GLOBAL NOTE SHALL BE LIMITED
TO TRANSFERS IN WHOLE, BUT NOT IN PART, TO NOMINEES OF CEDE & CO. OR TO A
SUCCESSOR THEREOF OR SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF
THIS GLOBAL NOTE SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE
RESTRICTIONS SET FORTH IN THE INDENTURE.
UNLESS THIS NOTE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE ISSUER OR
ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY
CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER
NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY
PAYMENT HEREON IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR
OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL
INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST
HEREIN.
SECTION 2.16. BOOK-ENTRY PROVISIONS FOR GLOBAL SECURITY.
(a) The Global Notes initially shall (i) be registered in the name of
the Depositary or the nominee of such Depositary, (ii) be delivered to the
Trustee as custodian for such Depositary and (iii) bear legends as set forth in
Section 2.15. Members of, or participants in, the Depositary ("Agent Members")
shall have no rights under this Indenture with respect to any Global Notes held
on their behalf by the Depositary, or the Trustee as its custodian, or under the
Global Notes, and the Depositary may be treated by the Company, the Trustee and
any agent of the Company or the Trustee as the absolute owner of the Global
Notes for all purposes whatsoever. Notwithstanding the foregoing, nothing
36
<PAGE>
herein shall prevent the Company, the Trustee or any agent of the Company or the
Trustee from giving effect to any written certification, proxy or other
authorization furnished by the Depositary or impair, as between the Depositary
and its Agent Members, the operation of customary practices governing the
exercise of the rights of a Holder of any Note.
(b) The Holder of the Global Notes may grant proxies and otherwise
authorize any Person, including Agent Members and Persons that may hold
interests through Agent Members, to take any action which a Securityholder is
entitled to take under this Indenture or the Securities.
SECTION 2.17. SPECIAL TRANSFER PROVISIONS.
(a) Transfer and Exchange of Global Notes. The transfer and exchange
-------------------------------------
of Global Notes or beneficial interests therein shall be effected through the
Depositary, in accordance with this Indenture and the procedures of the
Depositary therefor, which shall include restrictions on transfer comparable to
those set forth herein to the extent required by the Securities Act. Beneficial
interests in a Global Notes may be transferred to Persons who take delivery
thereof in the form of a beneficial interest in the same Global Notes in
accordance with the transfer restrictions set forth in the legend in Section
2.15. Transfers of beneficial interests in the Global Notes to Persons required
to take delivery thereof in the form of an interest in another Global Notes
shall be permitted as follows:
(i) QIB Restricted Note to Regulation S Global Note. If, at any
-----------------------------------------------
time, an owner of a beneficial interest in a QIB Restricted Note deposited
with the Depositary (or the Trustee as custodian for the Depositary) wishes
to transfer its interest in such QIB Restricted Note to a Person who is
required or permitted to take delivery thereof in the form of an interest
in a Regulation S Global Note, such owner shall, subject to the Applicable
Procedures, exchange or cause the exchange of such interest for an
equivalent beneficial interest in a Regulation S Global Note as provided in
this Section 2.17(a)(i). Upon receipt by the Trustee of (1) instructions
given in accordance with the Applicable Procedures from an Agent Member
directing the Trustee to credit or cause to be credited a beneficial
interest in the Regulation S Global Note in an amount equal to the
beneficial interest in the QIB Restricted Note to be exchanged, (2) a
written order given in accordance with the Applicable Procedures containing
information regarding the participant account of the Depositary and, if
applicable, the Euroclear or Cedel account to be credited with such
increase, (3) a certificate in the form of Exhibit B-1 hereto given by the
-----------
owner of such beneficial interest stating that the transfer of such
interest has been made in compliance with the transfer restrictions
applicable to the Global Notes and pursuant to and in accordance with Rule
903
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or Rule 904 of Regulation S, and (4) if such transfer is in respect of an
aggregate principal amount of Securities at the time of transfer of less
than $250,000, an opinion of counsel acceptable to the Company that such
transfer is in compliance with the Securities Act, then the Trustee, as
Registrar, shall instruct the Depositary to reduce or cause to be reduced
the aggregate principal amount of the applicable QIB Restricted Note and to
increase or cause to be increased the aggregate principal amount of the
applicable Regulation S Global Note by the principal amount of the
beneficial interest in the QIB Restricted Note to be exchanged, to credit
or cause to be credited to the account of the Person specified in such
instructions a beneficial interest in the Regulation S Global Note equal to
the reduction in the aggregate principal amount of the QIB Restricted Note,
and to debit, or cause to be debited, from the account of the Person making
such exchange or transfer the beneficial interest in the QIB Restricted
Note that is being exchanged or transferred.
(ii) Regulation S Global Note to QIB Restricted Note. If, at any
-----------------------------------------------
time, an owner of a beneficial interest in a Regulation S Global Note
deposited with the Depositary or with the Trustee as custodian for the
Depositary wishes to transfer its interest in such Regulation S Global Note
to a Person who is required or permitted to take delivery thereof in the
form of an interest in a QIB Restricted Note, such owner shall, subject to
the Applicable Procedures, exchange or cause the exchange of such interest
for an equivalent beneficial interest in a QIB Restricted Note as provided
in this Section 2.17(a)(ii). Upon receipt by the Trustee of (1)
instructions from Euroclear or Cedel, if applicable, and the Depositary,
directing the Trustee, as Registrar, to credit or cause to be credited a
beneficial interest in the QIB Restricted Note equal to the beneficial
interest in the Regulation S Global Note to be exchanged, such instructions
to contain information regarding the participant account with the
Depositary to be credited with such increase, (2) a written order given in
accordance with the Applicable Procedures containing information regarding
the participant account of the Depositary and (3) a certificate in the form
of Exhibit B-2 attached hereto given by the owner of such beneficial
-----------
interest stating (A) if the transfer is pursuant to Rule 144A, that the
Person transferring such interest in a Regulation S Global Note reasonably
believes that the Person acquiring such interest in a QIB Restricted Note
is a QIB and is obtaining such beneficial interest in a transaction meeting
the requirements of Rule 144A and any applicable blue sky or securities
laws of any state of the United States, (B) that the transfer complies with
the requirements of Rule 144 under the Securities Act and any applicable
blue sky or securities laws of any state of the United States or (C) if the
transfer is pursuant to any other exemption from the registration
requirements of the
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Securities Act, that the transfer of such interest has been made in
compliance with the transfer restrictions applicable to the Global Notes
and pursuant to and in accordance with the requirements of the exemption
claimed, such certificate to be supported by an Opinion of Counsel from the
transferee or the transferor reasonably acceptable to the Company, then the
Trustee, as Registrar, shall instruct the Depositary to reduce or cause to
be reduced the aggregate principal amount of the applicable Regulation S
Global Note and to increase or cause to be increased the aggregate
principal amount of the applicable QIB Restricted Note by the principal
amount of the beneficial interest in the Regulation S Global Note to be
exchanged, and the Trustee, as Registrar, shall instruct the Depositary,
concurrently with such reduction, to credit or cause to be credited to the
account of the Person specified in such instructions a beneficial interest
in the applicable QIB Restricted Note equal to the reduction in the
aggregate principal amount of such Regulation S Global Note and to debit or
cause to be debited from the account of the Person making such transfer the
beneficial interest in the Regulation S Global Note that is being
transferred.
(b) Transfer and Exchange of Certificated Notes. When Certificated
-------------------------------------------
Notes are presented by a Holder to the Registrar with a request:
(i) to register the transfer of the Certificated Notes; or
(ii) to exchange such Certificated Notes for an equal principal
amount of Certificated Notes of other authorized denominations,
the Registrar shall register the transfer or make the exchange as
requested; provided, however, that the Certificated Notes presented or
surrendered for register of transfer or exchange:
(i) shall be duly endorsed or accompanied by a written
instruction of transfer in form satisfactory to the Registrar duly executed
by such Holder or by his attorney, duly authorized in writing; and
(ii) in the case of a Certificated Note that contains the legend
provided in Section 2.15, such request shall be accompanied by the
following additional information and documents, as applicable:
(x) if such Security is being delivered to the Registrar by
a Holder for registration in the name of such Holder, without
transfer, or such Security is being transferred to the Company, a
certification to
39
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that effect from such Holder (in substantially the form of Exhibit B-3
-----------
hereto);
(y) if such Security is being transferred to a QIB in
accordance with Rule 144A under the Securities Act or pursuant to an
exemption from registration in accordance with Rule 144 under the
Securities Act or pursuant to an effective registration statement
under the Securities Act, a certification to that effect from such
Holder (in substantially the form of Exhibit B-3 hereto) and an
------------
Opinion of Counsel from such Holder or the transferee reasonably
acceptable to the Company to the effect that such transfer is in
compliance with the Securities Act; or
(z) if such Security is being transferred in reliance on any
other exemption from the registration requirements of the Securities
Act, a certification to that effect from such Holder (in substantially
the form of Exhibit B-3 hereto) and an Opinion of Counsel from such
-----------
Holder or the transferee reasonably acceptable to the Company to the
effect that such transfer is in compliance with the Securities Act.
(c) Exchange of a Beneficial Interest in a QIB Restricted Note or
--------------------------------------- ------------------
Regulation S Permanent Global Note for a Certificated Note.
- ----------------------------------------------------------
(i) Any Person having a beneficial interest in a QIB Restricted
Note or a Regulation S Permanent Global Note may upon request, subject to
the Applicable Procedures, exchange such beneficial interest for a
Certificated Note registered in the name of such Person. Upon receipt by
the Trustee of written instructions or such other form of instructions as
is customary for the Depositary (or Euroclear or Cedel, if applicable),
from the Depositary or its nominee on behalf of any Person having a
beneficial interest in a QIB Restricted Note or Regulation S Permanent
Global Note, and a certification (which may be submitted by facsimile) to
the effect that such beneficial interest is being transferred to the same
Person designated by the Depositary as having the beneficial interest in
the portion of the QIB Restricted Note or Regulation S Permanent Global
Note being exchanged (in substantially the form of Exhibit B-4 hereto); in
-----------
which case the Trustee or the Note Custodian, at the direction of the
Trustee, shall, in accordance with the standing instructions and procedures
existing between the Depositary and the Note Custodian, cause the aggregate
principal amount of QIB Restricted Notes or Regulation S Permanent Global
Notes, as applicable, to be reduced accordingly and, following such
reduction, the Company shall execute and the Trustee shall authenticate and
deliver to the Person requesting such exchange a Certificated Note in the
appropriate principal amount.
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(ii) Subject to the provisions of Section 2.17(c)(i),
Certificated Notes issued in exchange for a beneficial interest in a QIB
Restricted Note or Regulation S Permanent Global Note, as applicable,
pursuant to this Section 2.17(c) shall be registered in such names and in
such authorized denominations as the Depositary, pursuant to instructions
from its direct or indirect participants or otherwise, shall instruct the
Trustee. The Trustee shall deliver such Certificated Notes to the Persons
in whose names such Securities are so registered. Following any such
issuance of Certificated Notes, the Trustee, as Registrar, shall instruct
the Depositary to reduce or cause to be reduced the aggregate principal
amount of the applicable Global Note to reflect the transfer.
(d) Restrictions on Transfer and Exchange of Global Notes.
-----------------------------------------------------
Notwithstanding any other provision of this Indenture (other than the provisions
set forth in this Section 2.17(d)), a Global Note may not be transferred as a
whole except by the Depositary to a nominee of the Depositary or by a nominee of
the Depositary to the Depositary or another nominee of the Depositary or by the
Depositary or any such nominee to a successor Depositary or a nominee of such
successor Depositary.
(e) Transfer and Exchange of a Certificated Note for a Beneficial
-------------------------------------------------------------
Interest in a Global Note. A Certificated Note may not be transferred or
- -------------------------
exchanged for a beneficial interest in a Global Note.
(f) Authentication of Certificated Notes in Absence of Depositary. If
-------------------------------------------------------------
at any time:
(i) the Depositary for the Securities notifies the Company that
the Depositary is unwilling or unable to continue as Depositary for the
Global Notes and a successor Depositary for the Global Notes is not
appointed by the Company within 90 days after delivery of such notice; or
(ii) the Company, at its sole discretion, notifies the Trustee in
writing that it elects to cause the issuance of Certificated Notes under
this Indenture, then the Company shall execute, and the Trustee shall, upon
receipt of an authentication order in accordance with Section 2.02 hereof,
authenticate and deliver, Certificated Notes registered in such names and
principal amounts as specified by the Depositary in an aggregate principal
amount equal to the principal amount of the Global Notes in exchange for
such Global Notes.
(g) Cancellation or Adjustment of Global Notes. At such time as all
------------------------------------------
beneficial interests in Global Notes have been exchanged for Certificated Notes,
redeemed, repurchased or canceled, all Global Notes shall be returned to or
retained and canceled by the Trustee in accordance with Section 2.11 hereof.
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At any time prior to such cancellation, if any beneficial interest in a Global
Note is exchanged for Certificated Notes, redeemed, repurchased or canceled, the
principal amount of Notes represented by such Global Notes shall be reduced
accordingly and an endorsement shall be made on such Global Notes by the Trustee
or the Note Custodian, at the direction of the Trustee, to reflect such
reduction.
SECTION 2.18. PERSONS DEEMED OWNERS.
Prior to due presentment of a Security for registration of transfer
and subject to Section 2.12, the Company, the Trustee, any Paying Agent, any
Registrar and any co-Registrar and agent of the foregoing may deem and treat the
Person in whose name any Security shall be registered upon the register of
Securities kept by the Registrar as the absolute owner of such Security (whether
or not such Security shall be overdue and notwithstanding any notation of the
ownership or other writing thereon made by anyone other than the Company, any
Registrar or any co-Registrar) for the purpose of receiving payments due on such
Security and for all other purposes; and none of the Company, the Trustee, any
Paying Agent, any Registrar or any co-Registrar or any Agent of the foregoing
shall be affected by any notice to the contrary.
SECTION 2.19. RECORD DATE.
The record date for purposes of determining the identity of
Securityholders entitled to vote or consent to any action by vote or consent
authorized or permitted under this Indenture shall be the later of (i) 30 days
prior to the first solicitation of such consent or (ii) the date of the most
recent list of Holders furnished to the Trustee, if applicable, pursuant to
Section 2.05 hereto.
ARTICLE 3
REDEMPTION
SECTION 3.01. NOTICES TO TRUSTEE.
(a) If the Company elects to redeem Securities pursuant to the
optional redemption provisions of Section 3.07 hereof, it shall furnish to the
Trustee, at least 30 days (unless a shorter period is acceptable to the Trustee)
but not more than 60 days before a redemption date, an Officers' Certificate
setting forth (i) the Section of this Indenture pursuant to which the redemption
shall occur, (ii) the redemption date, (iii) the principal amount of Securities
to be redeemed, (iv) the redemption price and accrued and unpaid interest and
(v) whether it requests the Trustee to give notice of such redemption.
(b) If the Company elects or is required to make an offer to purchase
Securities pursuant to the provisions of
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Sections 3.09, 4.10 or 4.14 hereof, it shall furnish to the Trustee at least 30
days but not more than 60 days before a repurchase date, an Officers'
Certificate setting forth (i) the Section of this Indenture pursuant to which
the repurchase shall occur, (ii) the repurchase date, (iii) the maximum
principal amount of Securities to be repurchased, (iv) the repurchase price and
accrued and unpaid interest, (v) whether it requests the Trustee to give notice
of such offer to repurchase and (vi) further setting forth a statement to the
effect that (a) the Company or one of its Subsidiaries has effected an Asset
Disposition and the conditions set forth in Section 4.10 have been satisfied or
(b) a Change of Control has occurred and the conditions set forth in Section
4.14 have been satisfied, as applicable.
SECTION 3.02. SELECTION OF SECURITIES TO BE REDEEMED.
(a) If less than all of the Securities are to be redeemed, the Trustee
shall select the Securities to be redeemed among the Securityholders on a pro
rata basis, by lot or by such other method as the Trustee in its sole discretion
shall deem fair and appropriate; provided, however, that if a partial redemption
is made with the proceeds of an Equity Offering, selection of the Securities or
portions thereof to be redeemed shall be made by the Trustee only on a pro rata
basis, unless such method is otherwise prohibited. In the event of partial
redemption by lot, the particular Securities to be redeemed shall be selected,
unless otherwise provided herein, not less than 30 nor more than 60 days prior
to the redemption date by the Trustee from the outstanding Securities not
previously called for redemption.
(b) The Trustee shall promptly notify the Company in writing of the
Securities selected for redemption and, in the case of any Security selected for
partial redemption, the principal amount thereof to be redeemed. Securities may
be redeemed in part in multiples of $1,000 principal amount only. Except as
provided in the preceding sentence, provisions of this Indenture that apply to
Securities called for redemption also apply to portions of Securities called for
redemption.
(c) In the event the Company elects or is required to make an offer to
repurchase Securities pursuant to Sections 3.09 hereof and the amount of the
Excess Proceeds from the Asset Disposition are not evenly divisible by $1,000,
the Trustee shall promptly refund to the Company any remaining Excess Proceeds.
SECTION 3.03. NOTICE OF REDEMPTION.
(a) At least 30 days (unless a shorter period is acceptable to the
Trustee) but not more than 60 days before a redemption date, the Company shall
mail or cause to be mailed a notice of redemption by first class mail, postage
prepaid to each
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Holder whose Securities are to be redeemed at the last address for such Holder
then shown on the registry books.
The notice shall identify the Securities to be redeemed and shall
state:
(i) the redemption date;
(ii) the redemption price;
(iii) if any Security is being redeemed in part, the portion of
the principal amount of such Security to be redeemed and that, after
the redemption date upon surrender of such Security, a new Security or
Securities in principal amount equal to the unredeemed portion shall
be issued;
(iv) the name and address of the Paying Agent;
(v) that Securities called for redemption must be surrendered
to the Paying Agent to collect the redemption price;
(vi) that, unless the Company defaults in making such
redemption payment, interest on Securities called for redemption
ceases to accrue on and after the redemption date;
(vii) the paragraph of the Securities and/or Section of this
Indenture pursuant to which the Securities called for redemption are
being redeemed; and
(viii) if fewer than all the Securities are to be redeemed, the
identification of the particular Securities (or portions thereof) to
be redeemed, as well as the aggregate principal amount of Securities
to be redeemed and the aggregate principal amount of Securities to be
outstanding after such partial redemption.
(b) At the Company's request, the Trustee shall give the notice of
redemption in the Company's name and at the Company's expense; provided,
however, that the Company shall have delivered to the Trustee at least 45 days
(unless a shorter period is acceptable to the Trustee) prior to the proposed
redemption date an Officers' Certificate requesting that the Trustee give such
notice and setting forth the information to be stated in such notice as provided
in the preceding paragraph.
SECTION 3.04. EFFECT OF NOTICE OF REDEMPTION.
Once notice of redemption is mailed in accordance with Section 3.03
hereof, Securities called for redemption become due
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and payable on the redemption date at the redemption price plus accrued and
unpaid interest, if any.
SECTION 3.05. DEPOSIT OF REDEMPTION PRICE.
(a) Prior to 11:00 a.m., New York City time, on the redemption date,
the Company shall deposit with the Paying Agent (other than the Company or any
of its Subsidiaries) money sufficient to pay the redemption price of and accrued
interest on all Securities to be redeemed on that date. The Paying Agent shall
promptly return to the Company any money deposited with the Paying Agent by the
Company in excess of the amounts necessary to pay the redemption price of, and
accrued interest on, all Securities to be redeemed.
(b) If the Company complies with the provisions of the preceding
paragraph, on and after the redemption date, interest ceases to accrue on the
Securities or the portions of Securities called for redemption whether or not
such Securities are presented for payment, and the only remaining right of the
Holders of such Securities shall be to receive payment of the redemption price
upon surrender to the Paying Agent of the Securities to be redeemed. If a
Security is redeemed on or after an Interest Record Date but on or prior to the
related Interest Payment Date, then any accrued and unpaid interest shall be
paid to the Person in whose name such Security was registered at the close of
business on such record date. If any Security called for redemption shall not
be so paid upon surrender for redemption because of the failure of the Company
to comply with paragraph (a) above, interest shall be paid on the unpaid
principal, from the redemption date until such principal is paid and, to the
extent lawful, on any interest not paid on such unpaid principal, in each case
at the rate provided in the Securities and in Section 4.01 hereof.
SECTION 3.06. SECURITIES REDEEMED IN PART.
Upon surrender of a Security that is redeemed in part, the Company
shall issue and upon the Company's written request, the Trustee shall
authenticate for the Securityholder at the expense of the Company a new Security
equal in principal amount to the unredeemed portion of the Security surrendered.
SECTION 3.07. OPTIONAL REDEMPTION.
(a) Except as provided in Section 3.07(b), the Company may redeem all
or any portion of the Securities at any time on or after July 1, 2003, at a
redemption price equal to a percentage of the principal amount thereof, as set
forth in the immediately succeeding sentence, plus accrued and unpaid interest
to the redemption date. The redemption price as a percentage of the principal
amount shall be as follows, if the Securities are redeemed during the 12-month
period commencing on July 1 of the years set forth below, plus in each case,
accrued and unpaid
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interest to the date of redemption (subject in the case of redemptions occurring
after a record date and on or prior to the succeeding interest payment date to
the right of holders of record on the relevant record date to receive interest
due on the relevant Interest Payment Date):
Period Redemption Price
------ ----------------
2003 105.875%
2004 and thereafter 100.000%
(b) At any time, or from time to time, on or prior to July 1, 2001,
the Company may, at its option, use the Net Cash Proceeds of one or more Equity
Offerings by the Company to redeem up to 35% of the originally issued aggregate
principal amount of the Securities at a redemption price equal to 111.75% of the
principal amount thereof, plus accrued and unpaid interest thereon, if any, to
the date of redemption; provided, however, that after any such redemption the
aggregate principal amount of the Securities outstanding must equal at least 65%
of the aggregate principal amount of Securities issued hereunder; and, provided,
further, that the Company may not so redeem the Securities in connection with a
Change of Control. In order to effect the foregoing redemption with the
proceeds of any Equity Offering, the Company shall make such redemption not more
than 90 days after the consummation of any such Equity Offering.
SECTION 3.08. MANDATORY REDEMPTION.
The Company is not required to make mandatory redemption or sinking
fund payments with respect to the Securities, but is required to make an offer
to repurchase the Securities in connection with a Change of Control as provided
under Section 4.14 and, under certain circumstances, following certain asset
sales as provided under Section 4.10.
SECTION 3.09. OFFER TO PURCHASE BY APPLICATION OF EXCESS PROCEEDS.
In the event that, pursuant to Section 4.10 hereof, the Company shall
commence an offer to all Securityholders to purchase Securities (an "Asset
Disposition Offer"), it shall follow the procedures specified below:
(a) The Asset Disposition Offer shall remain open for a period of 30
Business Days following its commencement and no longer, except to the extent
that a longer period is required by applicable law (the "Offer Period"). No
later than five Business Days after the termination of the Offer Period (the
"Purchase Date"), the Company shall purchase the principal amount of Securities
required to be purchased pursuant to Section 4.10 hereof (the "Offer Amount")
or, if less than the Offer Amount has been tendered, all Securities tendered in
response to the Asset Disposition Offer.
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(b) If the Purchase Date is on or after a Record Date and on or before
the related Interest Payment Date, any accrued interest shall be paid to the
Person in whose name a Security is registered at the close of business on such
Record Date, and no additional interest shall be payable to holders who tender
Securities pursuant to the Asset Disposition Offer.
(c) Upon the commencement of any Asset Disposition Offer, the Company
shall send or cause to be sent in accordance with Section 3.03, a notice to each
Securityholder. The notice shall contain all instructions and materials
necessary to enable such holders to tender Securities pursuant to the Asset
Disposition Offer. The notice, which shall govern the terms of the Asset
Disposition Offer, shall state:
(i) that the Asset Disposition Offer is being made pursuant to
this Section 3.09 and Section 4.10 hereof and the length of time the
Asset Disposition Offer shall remain open;
(ii) the Offer Amount, the purchase price and the Purchase Date;
(iii) that any Security not tendered or accepted for payment shall
continue to accrue interest;
(iv) that any Security accepted for payment pursuant to the Asset
Disposition Offer shall cease to accrue interest after the Purchase
Date;
(v) that Holders electing to have a Security purchased pursuant
to any Asset Disposition Offer shall be required to surrender the
Security, with the form entitled "Option of Securityholder to Elect
Purchase" on the reverse of the Security completed, to the Company, a
depositary, if appointed by the Company, or a Paying Agent at the
address specified in the notice at least three days before the
Purchase Date;
(vi) that Holders shall be entitled to withdraw their election if
the Company, depositary or Paying Agent, as the case may be, receives,
not later than the expiration of the Offer Period, a telegram, telex,
facsimile transmission or letter setting forth the name of the Holder,
the principal amount of the Security the Holder delivered for purchase
and a statement that such Holder is withdrawing his or her election to
have the Security purchased;
(vii) that, if the aggregate principal amount of Securities
surrendered by Holders exceeds the Offer Amount, the Company shall
select the Securities to be purchased on a pro rata basis (with such
adjustments as may be deemed appropriate by the Company so that only
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Securities in denominations of $1,000, or integral multiples thereof,
shall be purchased); and
(viii) that Holders whose Securities were purchased only in part
shall be issued new Securities equal in principal amount to the
unpurchased portion of the Securities surrendered.
(d) On or before the Purchase Date, the Company shall, to the extent
lawful, accept for payment, on a pro rata basis to the extent necessary, the
Offer Amount of Securities or portions thereof tendered pursuant to the Asset
Disposition Offer or, if less than the Offer Amount has been tendered, all
Securities or portions thereof tendered, and deliver to the Trustee an Officers'
Certificate stating that such Securities or portions thereof were accepted for
payment by the Company in accordance with the terms of this Section 3.09. The
Paying Agent shall promptly (but in any case not later than five days after the
Purchase Date) mail or deliver to each tendering Holder an amount equal to the
purchase price of the Security or Securities tendered by such Holder and
accepted by the Company for purchase, and the Company shall promptly issue a new
Security, and at the written request of the Company the Trustee shall
authenticate and mail or deliver such new Security to such Holder equal in
principal amount to any unpurchased portion of the Security surrendered. Any
Security not so accepted shall be promptly mailed or delivered by the Company to
the Holder thereof. The Company shall publicly announce the results of the
Asset Disposition Offer on the Purchase Date.
ARTICLE 4
COVENANTS
SECTION 4.01. PAYMENT OF SECURITIES.
(a) The Company shall pay the principal or repurchase price of,
premium, if any, and interest on the Securities on the dates and in the manner
provided in the Securities and in this Indenture. Principal or repurchase
price, premium, if any, and interest shall be considered paid on the date due if
the Paying Agent, if other than the Company or a Subsidiary, holds as of 11:00
a.m. New York City time on the due date money deposited by the Company in
immediately available funds and designated for and sufficient to pay all
principal or repurchase price, premium, if any, and interest then due. Such
Paying Agent shall return to the Company, no later than five business days
following the date of payment, any money (including accrued interest paid by the
Company) that exceeds such amount of principal or repurchase price, premium, if
any, and interest paid on the Securities. The Company shall pay all Additional
Interest, if any, in the amounts and in the manner set forth in the Registration
Rights Agreement.
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(b) The Company shall pay interest (including post-petition interest
in any proceeding under any Bankruptcy Law) on overdue principal at the rate
equal to 2% per annum in excess of the then applicable interest rate on the
Securities to the extent lawful; it shall pay interest (including post-petition
interest in any proceeding under any Bankruptcy Law) on overdue installments of
interest (without regard to any applicable grace period) at the same rate to the
extent lawful.
SECTION 4.02. MAINTENANCE OF OFFICE OR AGENCY.
(a) The Company shall maintain in the Borough of Manhattan, in the
City of New York, an office or agency (which may be an office of the Trustee or
an Affiliate of the Trustee, Registrar or co-Registrar) where Securities may be
surrendered for registration of transfer or exchange and where notices and
demands to or upon the Company in respect of the Securities and this Indenture
may be served. The Company shall give prior written notice to the Trustee of
the location, and any change in the location, of such office or agency. If at
any time the Company shall fail to maintain any such required office or agency
or shall fail to furnish the Trustee with the address thereof, such
presentations, surrenders, notices and demands may be made or served at the
Corporate Trust Office of the Trustee.
(b) The Company may also from time to time designate one or more other
offices or agencies where the Securities may be presented or surrendered for any
or all such purposes and may from time to time rescind such designations;
provided, however, that no such designation or rescission shall in any manner
relieve the Company of its obligation to maintain an office or agency in the
Borough of Manhattan, in the City of New York, for such purposes. The Company
shall give prior written notice to the Trustee of any such designation or
rescission and of any change in the location of any such other office or agency.
(c) The Company hereby designates the Corporate Trust Office of the
Trustee as one such office or agency of the Company in accordance with Section
2.03.
SECTION 4.03. SEC REPORTS.
The Company will file with the Trustee and provide to the holders of
the Securities, within 15 days after it files them with the Commission, copies
of the annual reports and of the information, documents and other reports (or
copies of such portions of any of the foregoing as the Commission may by rules
and regulations prescribe) which the Company files with the Commission pursuant
to Section 13 or 15(d) of the Exchange Act. In the event that the Company is
not required to file such reports with the Commission pursuant to the Exchange
Act, the Company will nevertheless deliver such Exchange Act information to the
holders of the Notes within 15 days after it would have been required to file it
with the Commission.
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SECTION 4.04. COMPLIANCE CERTIFICATES.
(a) The Company shall deliver to the Trustee, within 90 days after the
end of each fiscal year, an Officers' Certificate signed by its principal
executive officer, principal financial officer or principal accounting officer
stating that a review of the activities of the Company and its Subsidiaries, as
the case may be, during the preceding fiscal year has been made under the
supervision of the signing Officers with a view to determining whether each has
kept, observed, performed and fulfilled its obligations under this Indenture,
and further stating, as to each such Officer signing such certificate, that to
the best of his or her knowledge each has kept, observed, performed and
fulfilled each and every covenant contained in this Indenture and is not in
default in the performance or observance of any of the terms, provisions and
conditions of this Indenture (or, if a Default or Event of Default shall have
occurred, describing all such Defaults or Events of Default of which he or she
may have knowledge and what action each is taking or proposes to take with
respect thereto).
(b) So long as not contrary to the then current recommendations of the
American Institute of Certified Public Accountants, the year-end financial
statements delivered pursuant to Section 4.03 above shall be accompanied by a
written statement of (x) the Company's independent public accountants (who shall
be a firm of established national reputation) that in making the examination
necessary for certification of such financial statements nothing has come to
their attention which would lead them to believe that the Company has violated
any provisions of Article 4, 5 or 6 of this Indenture insofar as they relate to
accounting matters or, if any such violation has occurred, specifying the nature
and period of existence thereof, it being understood that such accountants shall
not be liable directly or indirectly to any Person for any failure to obtain
knowledge of any such violation and (y) to the extent required under the TIA or
otherwise, if any Restricted Subsidiary's financial statements are not prepared
on a consolidated basis with the Company's, such Restricted Subsidiary's
independent public accountants (who shall be a firm of established national
reputation) that in making the examination necessary for certification of the
financial statements nothing has come to their attention which would lead them
to believe that the Restricted Subsidiary is in Default under this Indenture or,
if any such Default has occurred, specifying the nature and period of existence
thereof, it being understood that such accountants shall not be liable directly
or indirectly to any Person for any failure to obtain knowledge of any such
violation.
(c) The Company shall, so long as any of the Securities are
outstanding, deliver to the Trustee, forthwith upon any Officer becoming aware
of any Default or Event of Default specifying such Default or Event of Default
and what
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action the Company is taking or proposes to take with respect thereto.
(d) The Company shall also comply with TIA (S) 314(a)(4).
SECTION 4.05. TAXES.
The Company will, and will cause its Restricted Subsidiaries to, pay
and discharge when due and pay all taxes, levies, imposts, duties or other
governmental charges ("Taxes") imposed on its income or profits or on any of its
properties except such Taxes which are being contested in good faith in
appropriate proceedings, and for which adequate reserves have been established
in accordance with GAAP.
SECTION 4.06. STAY, EXTENSION AND USURY LAWS.
The Company covenants (to the extent that it may lawfully do so) that
it shall not at any time insist upon, plead, or in any manner whatsoever claim
or take the benefit or advantage of, any stay, extension or usury law wherever
enacted, now or at any time hereafter in force, that may affect the covenants or
the performance of this Indenture (including, but not limited to, the payment of
any amounts due on the Securities); and the Company and each Subsidiary
Guarantor (to the extent that they may lawfully do so) hereby expressly waive
all benefit or advantage of any such law, and covenant that they shall not, by
resort to any such law, hinder, delay or impede the execution of any power
herein granted to the Trustee, but shall suffer and permit the execution of
every such power as though no such law has been enacted.
SECTION 4.07. LIMITATION ON RESTRICTED PAYMENTS.
(a) The Company shall not, and shall not permit any of its Restricted
Subsidiaries, directly or indirectly, to (i) declare or pay any dividend or make
any distribution on or in respect of its Capital Stock (including any payment in
connection with any merger or consolidation involving the Company or any of its
Restricted Subsidiaries) except (A) dividends or distributions payable in its
Capital Stock (other than Disqualified Stock) or in options, warrants or other
rights to purchase such Capital Stock, and (B) dividends or distributions
payable to the Company or any of its Restricted Subsidiaries by any of its
Subsidiaries (and if the Restricted Subsidiary paying the dividend or making the
distribution is not a Wholly-Owned Subsidiary, to its other holders of Capital
Stock on a pro rata basis), (ii) purchase, redeem, retire or otherwise acquire
for value any Capital Stock of the Company held by Persons other than a Wholly-
Owned Subsidiary of the Company (other than in exchange for Capital Stock of the
Company (other than Disqualified Stock)) or any Capital Stock of a Restricted
Subsidiary held by any Affiliate of the Company, other than a Wholly-Owned
Subsidiary
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(other than in exchange for Capital Stock of the Company or such Subsidiary
(other than Disqualified Stock)), (iii) purchase, repurchase, redeem, defease or
otherwise acquire or retire for value, prior to scheduled maturity, scheduled
repayment or scheduled sinking fund payment, any Subordinated Obligations (other
than the purchase, repurchase or other acquisition of Subordinated Obligations
purchased in anticipation of satisfying a sinking fund obligation, principal
installment or final maturity, in each case due within one year of the date of
purchase, repurchase or acquisition) or (iv) make any Investment (other than a
Permitted Investment) in any Person (any such dividend, distribution, purchase,
redemption, repurchase, defeasance, other acquisition, retirement or Investment
as described in preceding clauses (i) through (iv) being referred to as a
"Restricted Payment"); if at the time the Company or such Restricted Subsidiary
makes such Restricted Payment:
(i) a Default shall have occurred and be continuing (or would
result therefrom); or
(ii) the Company is not able to Incur an additional $1.00 of
Senior Indebtedness pursuant to paragraph (a) under Section 4.09.; or
(iii) the aggregate amount of such Restricted Payment and all
other Restricted Payments declared or made subsequent to the Issue Date
would exceed the sum of (A) 50% of the Cumulative Available Cash Flow
accrued during the period (treated as one accounting period) from the first
day of the fiscal quarter beginning on or after the Issue Date to the end
of the most recent fiscal quarter ending prior to the date of such
Restricted Payment as to which financial results are available (but in no
event ending more than 135 days prior to the date of such Restricted
Payment) (or, in case such Cumulative Available Cash Flow shall be a
deficit, minus 100% of such deficit); (B) the aggregate net proceeds
received by the Company from the issue or sale of its Capital Stock (other
than Disqualified Stock) to the extent not applied to redeem Securities as
described under Section 3.07 (b) or other capital contributions subsequent
to the Issue Date (other than net proceeds received from an issuance or
sale of such Capital Stock to (x) a Subsidiary of the Company, (y) an
employee stock ownership plan or similar trust or (z) management employees
of the Company or any Subsidiary of the Company); provided, however, that
the value of any non-cash net proceeds shall be as determined by the Board
of Directors in good faith, except that in the event the value of any non-
cash net proceeds shall be $2 million or more, the value shall be as
determined in writing by an independent investment banking firm of
nationally recognized standing; (C) the amount by which Indebtedness of the
Company is reduced on the Company's balance sheet upon the conversion or
exchange (other than by a Restricted Subsidiary of the Company) subsequent
to the Issue Date of
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any Indebtedness of the Company convertible or exchangeable for Capital
Stock of the Company (less the amount of any cash, or other property,
distributed by the Company upon such conversion or exchange); and (D) the
amount equal to the net reduction in Investments (other than Permitted
Investments) made after the Issue Date by the Company or any of its
Restricted Subsidiaries in any Person resulting from (i) repurchases or
redemptions of such Investments by such Person (including liquidating
dividends thereon), proceeds realized upon the sale of such Investment to
an unaffiliated purchaser, repayments of loans or advances or other
transfers of assets by such Person to the Company or any Restricted
Subsidiary of the Company or (ii) the redesignation of Unrestricted
Subsidiaries as Restricted Subsidiaries or the qualification of non-wholly
owned Restricted Subsidiaries as Wholly Owned Subsidiaries (valued in each
case as provided in the definition of "Investment") not to exceed, in the
case of any Unrestricted Subsidiary or any non-wholly owned Subsidiary that
thereafter qualifies as a Wholly- Owned Subsidiary, the amount of
Investments previously included in the calculation of the amount of
Restricted Payments; provided, however, that no amount shall be included
under this clause (D) to the extent it is already included in Cumulative
Available Cash Flow.
(b) The provisions of paragraph (a) shall not prohibit: (i) any
purchase or redemption of Capital Stock or Subordinated Obligations of the
Company made by exchange for, or out of the proceeds of the substantially
concurrent sale of, Capital Stock of the Company (other than Disqualified Stock
and other than Capital Stock issued or sold to a Subsidiary, an employee stock
ownership plan or similar trust or management employees of the Company or any
Subsidiary of the Company); provided, however, that (A) such purchase or
redemption shall be excluded in the calculation of the amount of Restricted
Payments and (B) the Net Cash Proceeds from such sale shall be excluded from
clause (3)(B) of paragraph (a); (ii) any purchase or redemption of Subordinated
Obligations of the Company made by exchange for, or out of the proceeds of the
substantially concurrent sale of, Subordinated Obligations of the Company in
compliance with Section 4.09; provided, however, that such purchase or
redemption shall be excluded in the calculation of the amount of Restricted
Payments; (iii) any purchase or redemption of Subordinated Obligations from Net
Available Cash to the extent permitted under Section 4.10; provided, however,
that such purchase or redemption shall be excluded in the calculation of the
amount of Restricted Payments; (iv) any purchase or redemption of Capital Stock
pursuant to the terms of the MSO Agreements in an amount not in excess of $2.5
million on a cumulative basis on and after the Issue Date; provided that such
purchase or redemption shall be included in the calculation of Restricted
Payments; and (v) dividends paid within 60 days after the date of declaration if
at such date of declaration such dividend would have complied with this
provision; provided,
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however, that such dividend shall be included in the calculation of the amount
of Restricted Payments; and provided, further, in each case that no Default or
Event of Default shall have occurred or be continuing at the time of such
payment or as a result thereof.
(c) For purposes of determining compliance with the foregoing
covenant, Restricted Payments may be made with cash or non-cash assets, provided
that any Restricted Payment made other than in cash shall be valued at the fair
market value (determined, subject to the additional requirements of the
immediately succeeding proviso, in good faith by the Board of Directors) of the
assets so utilized in making such Restricted Payment, provided, further that (i)
in the case of any Restricted Payment made with Capital Stock or Indebtedness,
such Restricted Payment shall be deemed to be made in an amount equal to the
greater of the fair market value thereof and the liquidation preference (if any)
or principal amount of the Capital Stock or Indebtedness, as the case may be, so
utilized, and (ii) in the case of any Restricted Payment made with non-cash
assets in an aggregate amount in excess of $2 million, a written opinion as to
the fairness of the valuation thereof (as determined by the Company) for
purposes of determining compliance with Section 4.09 shall be issued by an
independent investment banking firm of national standing.
(d) Not later than the date of making any Restricted Payment, the
Company shall deliver to the Trustee an Officer's Certificate stating that such
Restricted Payment complies with the Indenture and setting forth in reasonable
detail the basis upon which the required calculations were computed, which
calculations may be based upon the Company's latest available quarterly
financial statements and a copy of any required investment banker's opinion.
(e) Insofar as the Company has made Investments in a Wholly Owned
Subsidiary, whether before, on, or after the Issue Date, and such Subsidiary
thereafter ceases to be a Wholly Owned Subsidiary, on the date such Subsidiary
ceases to be a Wholly Owned Subsidiary, the Company shall be deemed to make an
Investment that constitutes either a Restricted Payment or a Permitted Basket
Investment (to the extent eligible) in an amount equal to the sum of (i) fair
market value of the Capital Stock of such Subsidiary owned by the Company and
the Restricted Subsidiaries plus (but without duplication) (ii) the aggregate
amount of other Investments of the Company and its other Restricted Subsidiaries
in such Subsidiary, in each case as of the date on which such Subsidiary ceases
to be a Wholly Owned Subsidiary.
SECTION 4.08. LIMITATION ON RESTRICTIONS ON DISTRIBUTIONS FROM RESTRICTED
SUBSIDIARIES.
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The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, create or permit to exist or become effective any consensual
encumbrance or restriction on the ability of any such Restricted Subsidiary to
(i) pay ordinary dividends or make any other distributions on its Capital Stock
or pay any Indebtedness or other obligation owed to the Company, (ii) make any
loans or advances to the Company or (iii) transfer any of its property or assets
to the Company, except: (a) any encumbrance or restriction pursuant to an
agreement in effect at or entered into on the Issue Date; (b) any encumbrance or
restriction with respect to such a Restricted Subsidiary pursuant to an
agreement relating to any Indebtedness Incurred by such Restricted Subsidiary on
or prior to the date on which such Restricted Subsidiary was acquired by the
Company and outstanding on such date (other than Indebtedness Incurred in
anticipation of, or to provide all or any portion of the funds or credit support
utilized to consummate, the transaction or series of related transactions
pursuant to which such Restricted Subsidiary became a Restricted Subsidiary of
the Company or was acquired by the Company); (c) any encumbrance or restriction
with respect to such a Restricted Subsidiary pursuant to an agreement evidencing
Indebtedness Incurred without violation of the Indenture or effecting a
refinancing of Indebtedness issued pursuant to an agreement referred to in
clause (b) or this clause (c) or contained in any amendment to an agreement
referred to in clauses (a) or (b) or this clause (c); provided, however, that
the encumbrances and restrictions with respect to such Restricted Subsidiary
contained in any of such agreement, refinancing agreement or amendment, taken as
a whole, are no less favorable to the holders of the Securities in any material
respect, as determined in good faith by the Board of Directors of the Company,
than encumbrances and restrictions with respect to such Restricted Subsidiary
contained in agreements in effect at, or entered into on, the Issue Date; (d) in
the case of clause (iii), any encumbrance or restriction (A) that restricts in a
customary manner the subletting, assignment or transfer of any property or asset
that is a lease, license, conveyance or contract or similar property or asset,
(B) by virtue of any transfer of, agreement to transfer, option or right with
respect to, or Lien on, any property or assets of the Company or any Restricted
Subsidiary not otherwise prohibited by the Indenture, (C) that is included in a
licensing agreement to the extent such restrictions limit the transfer of the
property subject to such licensing agreement, or (D) arising or agreed to in the
ordinary course of business and that does not, individually or in the aggregate,
detract from the value of property or assets of the Company or any of its
Subsidiaries in any manner material to the Company or any such Restricted
Subsidiary; (e) any encumbrance or restriction applicable to a Restricted
Subsidiary that Incurs Bank Indebtedness without violation of the Indenture,
provided, however, that such encumbrances and restrictions are applicable only
following the occurrence and during the continuance, of a payment default under
the terms of the agreements governing, or the acceleration of all of, such Bank
Indebtedness; (f) in the
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case of clause (iii) above, restrictions contained in security agreements,
mortgages or similar documents securing Indebtedness of a Restricted Subsidiary
to the extent such restrictions restrict the transfer of the property subject to
such security agreements; (g) any restriction with respect to such a Restricted
Subsidiary imposed pursuant to an agreement entered into for the sale or
disposition of all or substantially all the Capital Stock or assets of such
Restricted Subsidiary pending the closing of such sale or disposition; and (h)
encumbrances or restrictions arising or existing by reason of applicable law.
SECTION 4.09. LIMITATION ON INDEBTEDNESS.
(a) The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, Incur any Indebtedness; provided, however, that the Company and
its Restricted Subsidiaries that are Subsidiary Guarantors may Incur
Indebtedness if (i) no Default or Event of Default shall have occurred and be
continuing at the time of such Incurrence or would occur as a consequence of
such Incurrence and (ii) on the date thereof the Consolidated Coverage Ratio (A)
with respect to Indebtedness pari passu with the Securities, would be greater
than or equal to 2.0:1 and (B) with respect to Subordinated Obligations, would
be greater than or equal to 1.50:1.
(b) Notwithstanding the foregoing paragraph (a), the Company and its
Restricted Subsidiaries may Incur the following Indebtedness:
(i) Indebtedness of the Company or any Restricted Subsidiary
under Bank Indebtedness and under standby letters of credit or
reimbursement obligations with respect thereto issued in the ordinary
course of business and consistent with industry practice, provided,
however, that the principal amount of any Indebtedness Incurred pursuant to
this clause (i) shall not exceed $20 million at any time outstanding;
(ii) Indebtedness represented by Capitalized Lease Obligations,
mortgage financings or purchase money obligations, in each case Incurred
for the purpose of financing all or any part of the purchase price or cost
of construction or improvement of property or equipment used in a Permitted
Business or Incurred to refinance any such purchase price or cost of
construction or improvement, in each case Incurred no later than 365 days
after the date of such acquisition or the date of completion of such
construction or improvement; provided, however, that the principal amount
of any Indebtedness Incurred pursuant to this clause (ii), together with
Indebtedness Incurred in connection with Sale/Leaseback Transactions in
accordance with Section 4.17, shall not exceed $5 million at any time
outstanding;
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(iii) Indebtedness of the Company owing to and held by any
Wholly-Owned Subsidiary or Indebtedness of a Restricted Subsidiary owing to
and held by the Company or any Wholly-Owned Subsidiary; provided, however,
that any subsequent issuance or transfer of any Capital Stock or any other
event which results in any such Wholly-Owned Subsidiary ceasing to be a
Wholly-Owned Subsidiary or any subsequent transfer of any such Indebtedness
(except to the Company or any Wholly-Owned Subsidiary) shall be deemed, in
each case, to constitute the Incurrence of such Indebtedness by the issuer
thereof;
(iv) Indebtedness represented by (w) the Securities, (x)
Existing Indebtedness and (y) any Refinancing Indebtedness Incurred in
respect of any Indebtedness described in this clause (iv) or Incurred
pursuant to paragraph (a);
(v) (A) Indebtedness of a Person Incurred on or before and
outstanding on the date on which such Person becomes a Restricted
Subsidiary of the Company (other than Indebtedness Incurred in anticipation
of, or to provide all or any portion of the funds or credit support
utilized to consummate the transaction or series of related transactions
pursuant to which such Person became a Subsidiary or was otherwise acquired
by the Company); provided, however, that at the time such Person is
acquired by the Company, the Company would have been able to Incur an
additional $1.00 of Senior Indebtedness pursuant to paragraph (a) above
after giving effect to the Incurrence of such Indebtedness pursuant to this
clause (v) and (B) Refinancing Indebtedness Incurred by a Restricted
Subsidiary in respect of Indebtedness Incurred by such Restricted
Subsidiary or another Restricted Subsidiary the Capital Stock of which is
owned, either directly or indirectly, by the Restricted Subsidiary
Incurring such Refinancing Indebtedness, pursuant to this clause (v);
(vi) Indebtedness (A) in respect of performance bonds, bankers'
acceptances and surety or appeal bonds provided by the Company or any of
its Restricted Subsidiaries to their customers in the ordinary course of
their business, (B) in respect of performance bonds or similar obligations
of the Company or any of its Restricted Subsidiaries for or in connection
with pledges, deposits or payments made or given in the ordinary course of
business in connection with or to secure statutory, regulatory or similar
obligations, including obligations under health, safety or environmental
obligations, (C) arising from Guarantees to suppliers, lessors, licensees,
contractors, franchises or customers of obligations (other than
Indebtedness) Incurred in the ordinary course of business and (D) under
Currency Agreements and Interest Rate Agreements; provided, however, that
in the case of Currency
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Agreements and Interest Rate Agreements, such Currency Agreements and
Interest Rate Agreements are entered into for bona fide hedging purposes of
the Company or its Restricted Subsidiaries (as determined in good faith by
the Board of Directors of the Company) and correspond in terms of notional
amount, duration, currencies and interest rates as applicable, to
Indebtedness of the Company or its Restricted Subsidiaries Incurred without
violation of the Indenture or to business transactions of the Company or
its Restricted Subsidiaries on customary terms entered into in the ordinary
course of business;
(vii) Indebtedness consisting of (A) Guarantees by the Company
of Indebtedness Incurred by a Wholly-Owned Subsidiary without violation of
the Indenture (so long as the Company could have Incurred such Indebtedness
directly without violation of the Indenture) and (B) Guarantees by a
Restricted Subsidiary of Senior Indebtedness Incurred by the Company
without violation of the Indenture (so long as such Restricted Subsidiary
could have Incurred such Indebtedness directly without violation of the
Indenture);
(viii) Indebtedness arising from the honoring by a bank or other
financial institution of a check, draft or similar instrument issued by the
Company or its Restricted Subsidiaries drawn against insufficient funds in
the ordinary course of business in an amount not to exceed $500,000 at any
time, provided that such Indebtedness is extinguished within two business
days of its Incurrence; and
(ix) Indebtedness (other than Indebtedness permitted under
clauses (i) through (viii)) in a principal amount which, when taken
together with the principal amount of all other Indebtedness Incurred
pursuant to this clause (ix) and then outstanding, will not exceed $5
million (it being understood that any Indebtedness Incurred under this
clause (ix) shall cease to be deemed Incurred or outstanding for purposes
of this clause (ix) (but shall be deemed to be Incurred for purposes of
paragraph (a) or paragraph (b)(i) or (ii), as the case may be) from and
after the first date on which the Company or its Restricted Subsidiaries
could have Incurred such Indebtedness under the foregoing paragraph (a) or,
to the extent applicable, paragraph (b)(i) or (ii) without reliance upon
this clause (ix)).
(c) Neither the Company nor any Restricted Subsidiary shall Incur any
Indebtedness under paragraph (b) above if the proceeds thereof are used,
directly or indirectly, to refinance any Subordinated Obligations of the Company
or any Restricted Subsidiary unless such Indebtedness shall be subordinated to
the Senior Indebtedness to at least the same extent as the Subordinated
Obligations being refinanced.
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(d) Notwithstanding paragraphs (a) and (b) above, neither the Company
nor any Restricted Subsidiary of the Company shall incur any liability, either
direct or contingent, in respect of Bank Indebtedness unless (i) in the case of
the Company, the Company is the borrower or primary obligor in respect of such
Bank Indebtedness or (ii) in the case of any Restricted Subsidiary, such
Restricted Subsidiary is either (a) the borrower or primary obligor in respect
of such Bank Indebtedness or (b) a Wholly Owned Subsidiary of such borrower or
primary obligor.
SECTION 4.10. LIMITATION ON SALES OF ASSETS AND SUBSIDIARY STOCK.
(a) The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, make any Asset Disposition unless (i) the Company or such
Restricted Subsidiary receives consideration at the time of such Asset
Disposition at least equal to the fair market value (as determined in good faith
by senior management of the Company or, if the fair market value of such assets
exceeds $500,000, by the Company's Board of Directors) (including as to the
value of all non-cash consideration), of the shares and assets subject to such
Asset Disposition, (ii) at least 80% of the consideration thereof received by
the Company or such Restricted Subsidiary is in the form of cash or Cash
Equivalents, Additional Assets or distribution agreements with radio stations or
cable television operators or other video distributors which would receive
programming of the Company or its Restricted Subsidiaries according to the
Company's historical practice and (iii) an amount equal to 100% of the Net
Available Cash from such Asset Disposition is applied by the Company (or such
Restricted Subsidiary, as the case may be): (A) first, to the extent the
Company or any Restricted Subsidiary elects (or is required by the terms of any
Senior Indebtedness), (x) to prepay, repay or purchase Senior Indebtedness of
the Company or its Restricted Subsidiaries or (y) to the investment in or
acquisition of Additional Assets within 180 days from the later of the date of
such Asset Disposition or the receipt of such Net Available Cash; (B) second,
within 180 days from the receipt of such Net Available Cash, to the extent of
the balance of such Net Available Cash after application in accordance with
clause (A), to make an offer to purchase Securities (C) third, within 180 days
after the later of the application of Net Available Cash in accordance with
clauses (A) and (B) and the date that is one year from the receipt of such Net
Available Cash, to the extent of the balance of such Net Available Cash after
application in accordance with clauses (A) and (B), to prepay, repay or
repurchase Indebtedness (other than Preferred Stock) of a Wholly-Owned
Subsidiary (in each case other than Indebtedness owed to the Company or another
Wholly-Owned Subsidiary); and (D) fourth, to the extent of the balance of such
Net Available Cash after application in accordance with clauses (A), (B) and
(C), to (w) the investment in or acquisition of Additional Assets, (x) the
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making of Temporary Cash Investments, (y) the prepayment, repayment or purchase
of Indebtedness of the Company (other than Indebtedness owing to any Subsidiary
of the Company) or Indebtedness of any Subsidiary (other than Indebtedness owed
to the Company or any of its Restricted Subsidiaries) or (z) any other purpose
otherwise permitted under the Indenture, in each case within the later of 45
days after the application of Net Available Cash in accordance with clauses (A),
(B) and (C) or the date that is one year from the receipt of such Net Available
Cash; provided, however, that, in connection with any prepayment, repayment or
purchase of Indebtedness pursuant to clause (A), (B), (C) or (D) above, the
Company or such Restricted Subsidiary shall retire such Indebtedness and shall
cause the related loan commitment (if any) to be permanently reduced in an
amount equal to the principal amount so prepaid, repaid or purchased; provided,
however, that the foregoing shall not be deemed to require any reduction in the
commitment for Bank Indebtedness to less than $20 million. Notwithstanding the
foregoing provisions, the Company and its Restricted Subsidiaries shall not be
required to apply any Net Available Cash in accordance herewith except to the
extent that the aggregate Net Available Cash from all Asset Dispositions which
has not been applied in accordance with this covenant at any time exceeds $5
million. The Company shall not be required to make an offer for Securities
pursuant to this covenant if the Net Available Cash available therefor (after
application of the proceeds as provided in clause (a)(iii)(A)) is less than $5
million for any particular Asset Disposition (which lesser amounts shall be
carried forward for purposes of determining whether an offer is required with
respect to the Net Available Cash from any subsequent Asset Disposition).
For the purposes of this covenant, the following will be deemed to be
cash: (x) the assumption by the transferee of Senior Indebtedness of the Company
or Senior Indebtedness of any Restricted Subsidiary of the Company and the
release of the Company or such Restricted Subsidiary from all liability on such
Senior Indebtedness or Senior Indebtedness in connection with such Asset
Disposition (in which case the Company shall, without further action, be deemed
to have applied such paid Senior Indebtedness in accordance with clause
(a)(iii)(A)) and (y) securities received by the Company or any Restricted
Subsidiary of the Company from the transferee that are promptly (and in any
event within 60 days) converted by the Company or such Restricted Subsidiary
into cash.
(b) In the event of an Asset Disposition that requires the purchase of
Securities pursuant to clause (a)(iii)(B), the Company will be required to
purchase Securities tendered pursuant to an offer by the Company for the
Securities at a purchase price of 101% of their principal amount plus accrued
and unpaid interest, if any, to the purchase date in accordance with the
procedures (including prorating in the event of oversubscription) set forth in
herein. If the aggregate purchase price of the Securities tendered pursuant to
the offer is less than the Net
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Available Cash allotted to the purchase of the Securities, the Company will
apply the remaining Net Available Cash in accordance with clauses (a)(iii)(C) or
(D) above.
(c) The Company will comply, to the extent applicable, with the
requirements of Section 14(e) of the Exchange Act and any other securities laws
or regulations in connection with the repurchase of Securities pursuant to the
Indenture. To the extent that the provisions of any securities laws or
regulations conflict with provisions of this covenant, the Company will comply
with the applicable securities laws and regulations and will not be deemed to
have breached its obligations under the Indenture by virtue thereof.
SECTION 4.11. LIMITATION ON AFFILIATE TRANSACTIONS.
(a) The Company will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, enter into or conduct any transaction
or series of related transactions (including the purchase, sale, lease or
exchange of any property or the rendering of any service) with or for the
benefit of any Affiliate of the Company, other than a Wholly-Owned Subsidiary
(an "Affiliate Transaction") unless: (i) the terms of such Affiliate Transaction
are no less favorable to the Company or such Restricted Subsidiary, as the case
may be, than those that could be obtained at the time of such transaction in
arm's length dealings with a Person who is not such an Affiliate; (ii) in the
event such Affiliate Transaction involves an aggregate amount in excess of $1
million, the terms of such transaction have been approved by a majority of the
members of the Board of Directors of the Company and by a majority of the
Disinterested Directors, if any (and such majority or majorities, as the case
may be, determine that such Affiliate Transaction satisfies the criteria in (i)
above); (iii) in the event such Affiliate Transaction involves an aggregate
amount in excess of $2 million, the Company has received a written opinion from
an independent investment banking firm of nationally recognized standing that
such Affiliate Transaction is fair to the Company or such Restricted Subsidiary,
as the case may be, from a financial point of view; and (iv) such Affiliate
Transaction does not involve the acquisition of an Affiliate Business.
(b) The foregoing paragraph (a) shall not apply to (i) any Restricted
Payment permitted to be made pursuant to Section 4.07 or to any Permitted Basket
Investment, (ii) any issuance of securities, or other payments, awards or grants
in cash, securities or otherwise pursuant to, or the funding of, employment
arrangements, or any stock options and stock ownership plans for the benefit of
employees, officers and directors, consultants and advisors approved by the
Board of Directors of the Company, (iii) loans or advances to employees in the
ordinary course of business of the Company or any of its Restricted Subsidiaries
in aggregate amount outstanding not to exceed $500,000 at any time, (iv) loans
or advances to senior management
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of the Company which loans and advances are secured by shares of Common Stock of
the Company owned by such senior management, in an aggregate amount outstanding
not to exceed $750,000, (v) any transaction between Wholly-Owned Subsidiaries,
(vi) indemnification agreements with, and the payment of fees and indemnities
to, directors, officers and employees of the Company and its Restricted
Subsidiaries, in each case in the ordinary course of business, (vii)
transactions pursuant to (x) agreements in existence on the Issue Date which are
(I) described in the Offering Memorandum or (II) otherwise, in the aggregate,
immaterial to the Company and its Restricted Subsidiaries taken as a whole,
including extensions of any such agreements which are approved by a majority of
Disinterested Directors and (y) arrangements in existence on the Issue Date
between Jones Intercable, Inc. and the Company with respect to the allocation of
personnel and other related expenses from Jones Intercable, Inc. to the Company
in accordance with the parties' historical practices; provided, however, that
such arrangements must be approved by a majority of the members of the Board of
Directors of the Company and by a majority of the Desinterested Directors, if
any, within 60 days of the Issue Date, (viii) any employment, non-competition or
confidentiality agreements entered into by the Company or any of its Restricted
Subsidiaries with its employees in the ordinary course of business, and (ix) the
issuance of Capital Stock of the Company (other than Disqualified Stock).
SECTION 4.12. LIMITATION ON LIENS.
The Company will not, and will not permit any Restricted Subsidiary
to, directly or indirectly, create, incur, assume or suffer to exist any Liens,
except for Permitted Liens.
SECTION 4.13. CORPORATE EXISTENCE.
Subject to Article 5 hereof, the Company shall do or cause to be done
all things necessary to preserve and keep in full force and effect its corporate
existence, and, subject to Section 4.10 and Section 4.20(c) the corporate,
partnership or other existence of each Restricted Subsidiary, in accordance with
the respective organizational documents (as the same may be amended from time to
time) of each Restricted Subsidiary and the rights (charter and statutory),
licenses and franchises of the Company and its Restricted Subsidiaries;
provided, however, that the Company shall not be required to preserve any such
right, license or franchise, or the corporate, partnership or other existence of
any Restricted Subsidiary, if the Board of Directors of the Company shall
determine that the preservation thereof is no longer desirable in the conduct of
the business of the Company and its Restricted Subsidiaries, taken as a whole,
and that the loss thereof is not adverse in any material respect to the
Securityholders.
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SECTION 4.14. CHANGE OF CONTROL.
(a) Upon the occurrence of a Change of Control, each Securityholder
will have the right to require the Company to repurchase all or any part of such
Securityholder's Securities at a repurchase price in cash equal to 101% of the
principal amount thereof plus accrued and unpaid interest, if any, to the date
of purchase (the "Change of Control Payment") (subject in the case of
repurchases occurring after a record date and on or prior to the succeeding
interest payment date to the right of Securityholders of record on the relevant
record date to receive interest due on the relevant Interest Payment Date).
(b) Within 30 days following any Change of Control, unless the Company
has mailed a redemption notice with respect to all the outstanding Securities in
connection with such Change of Control, the Company shall mail a notice to each
Securityholder with a copy to the Trustee stating:
(i) that a Change of Control has occurred and that such
Securityholder has the right to require the Company to purchase such
Securityholder's Securities at a purchase price in cash equal to 101% of
the principal amount thereof plus accrued and unpaid interest, if any, to
the date of purchase (subject to the right of Securityholders of record on
a record date to receive interest on the relevant Interest Payment Date);
(ii) the repurchase date (which shall be no earlier than 30 days
nor later than 60 days from the date such notice is mailed) (the "Change of
Control Payment Date"); and
(iii) the procedures determined by the Company, consistent with
this Indenture, that a Securityholder must follow in order to have its
Securities purchased.
(c) Securityholders electing to have a Security repurchased must
surrender the Security, with the form entitled "Option of Securityholder to
Elect Purchase" on the reverse of the Security completed, to the Company at the
address specified in the notice at least 10 Business Days prior to the
repurchase date. Securityholders may withdraw their election if the Trustee or
the Company receives not later than three Business Days prior to the repurchase
date, a telegram, telex, facsimile transmission or letter setting forth the name
of the Securityholder, the principal amount of the Security which was delivered
for repurchase by the Securityholder and a statement that such Securityholder is
withdrawing his election to have such Security purchased.
(d) On the Change of Control Payment Date, the Company will, to the
extent lawful, (i) accept for payment all Securities or portions thereof
properly tendered pursuant to the Change of
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Control Offer, (ii) deposit with the Trustee an amount equal to the Change of
Control Payment in respect of all Securities or portions thereof so tendered and
(iii) deliver or cause to be delivered to the Trustee the Securities so accepted
together with an Officers' Certificate stating the aggregate principal amount of
Securities or portions thereof being repurchased by the Company. The Trustee
will promptly mail to each Securityholder so tendered the Change of Control
Payment for such Securities, and the Trustee will promptly authenticate and mail
(or cause to be transferred by book entry) to each Securityholder a new Security
equal in principal amount to any unpurchased portion of the Securities
surrendered, if any; provided that each such new Security will be in a principal
amount of $1,000 or an integral multiple thereof. Unless the Company defaults in
the payment for any Securities properly tendered pursuant to the Change of
Control Offer, any Securities accepted for payment pursuant to the Change of
Control Offer shall cease to accrue interest after the Change of Control Payment
Date.
(e) The Company will, to the extent applicable, comply with any tender
offer rules under the Exchange Act which may then be applicable, including Rule
14e-1, in connection with any offer required to be made by the Company to
repurchase the Securities as a result of a Change of Control. To the extent
that the provisions of any securities laws or regulations conflict with the
provisions of this Indenture relative to the Company's obligation to make an
offer to repurchase the Securities as a result of a Change of Control, the
Company will comply with the applicable securities laws and regulations and will
not be deemed to have breached its obligations under such provisions of the
Indenture by virtue thereof.
SECTION 4.15. LIMITATION ON ISSUANCES OF CAPITAL STOCK OF RESTRICTED
SUBSIDIARIES.
The Company will not permit any of its Restricted Subsidiaries to
issue any Capital Stock to any Person (other than to the Company or a Wholly-
Owned Subsidiary of the Company) or permit any Person (other than the Company or
a Wholly-Owned Subsidiary of the Company) to own any Capital Stock of a
Restricted Subsidiary of the Company, if in either case as a result thereof such
Restricted Subsidiary would no longer be a Restricted Subsidiary of the Company;
provided, however, that this provision shall not prohibit (x) the Company or any
of its Restricted Subsidiaries from selling or otherwise disposing of all of the
Capital Stock of any Restricted Subsidiary or (y) the designation of a
Restricted Subsidiary as an Unrestricted Subsidiary in compliance with the
Indenture. The Company will not permit Holdco to issue any Capital Stock to any
Person (other than to the Company).
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SECTION 4.16. CONDUCT OF BUSINESS.
The Company will not, and will not permit its Restricted Subsidiaries
to, engage directly or indirectly in any business other than a Permitted
Business.
SECTION 4.17. LIMITATION ON SALE/LEASEBACK TRANSACTIONS.
The Company will not, and will not permit any Restricted Subsidiary
to, directly or indirectly, enter into, Guarantee or otherwise become liable
with respect to any Sale/Leaseback Transaction with respect to any property or
assets unless (i) the Company or such Restricted Subsidiary, as the case may be,
would be entitled to Incur Indebtedness secured by a Permitted Lien on such
property or assets in an amount equal to the Attributable Indebtedness with
respect to such Sale/Leaseback Transaction pursuant to the provisions hereof,
(ii) the Net Cash Proceeds from such Sale/Leaseback Transaction are at least
equal to the fair market value of the property or assets subject to such
Sale/Leaseback Transaction (such fair market value determined, in the event such
property or assets have a fair market value in excess of $500,000, no more than
30 days prior to the effective date of such Sale/Leaseback Transaction, by the
Board of Directors of the Company as evidenced by a resolution of such Board of
Directors), (iii) the Net Cash Proceeds of such Sale/Leaseback Transaction are
applied in accordance with Section 4.10 and (iv) the Indebtedness Incurred in
connection with such Sale/Leaseback Transaction, together with Indebtedness
Incurred in accordance with clause (b)(ii) of Section 4.09, does not exceed $5
million at any time outstanding.
SECTION 4.18. LIMITATION ON DESIGNATIONS OF UNRESTRICTED SUBSIDIARIES.
The Company may designate any Subsidiary of the Company (other than a
Subsidiary of the Company which owns Capital Stock of a Restricted Subsidiary)
as an "Unrestricted Subsidiary" under the Indenture (a "Designation") only if:
(i) no Default shall have occurred and be continuing at the time of
or after giving effect to such Designation; and
(ii) the Company would be permitted under the Indenture to make an
Investment constituting a Restricted Payment or a Permitted Basket
Investment at the time of Designation (assuming the effectiveness of such
Designation) in an amount (the "Designation Amount") equal to the sum of
(i) fair market value of the Capital Stock of such Subsidiary owned by the
Company and the Restricted Subsidiaries on such date plus (but without
duplication) (ii) the aggregate amount of other Investments of the Company
and the Restricted Subsidiaries in such Subsidiary on such date; and
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(iii) unless the Company could make a Permitted Basket Investment in
the amount described in paragraph (b) above, the Company would be permitted
to Incur an additional $1.00 of Senior Indebtedness pursuant to paragraph
(a) of Section 4.09 at the time of Designation (assuming the effectiveness
of such Designation).
In the event of any such Designation, the Company shall be deemed to have made
an Investment constituting a Restricted Payment pursuant to Section 4.07 for all
purposes of the Indenture in the Designation Amount. The Company shall not, and
shall not permit any Restricted Subsidiary to, at any time (x) provide direct or
indirect credit support for or a guarantee of any Indebtedness of any
Unrestricted Subsidiary (including of any undertaking, agreement or instrument
evidencing such Indebtedness), (y) be directly or indirectly liable for any
Indebtedness of any Unrestricted Subsidiary or (z) be directly or indirectly
liable for any Indebtedness which provides that the holder thereof may (upon
notice, lapse of time or both) declare a default thereon or cause the payment
thereof to be accelerated or payable prior to its final scheduled maturity upon
the occurrence of a default with respect to any Indebtedness of any Unrestricted
Subsidiary (including any right to take enforcement action against such
Unrestricted Subsidiary), except, in the case of clause (x) or (y), to the
extent permitted under Section 4.07 and, in the case of clause (z), pursuant to
a Guarantee of such Indebtedness of an Unrestricted Subsidiary to the extent
such Guarantee is permitted under Section 4.07.
The Company may revoke any Designation of a Subsidiary as an
Unrestricted Subsidiary (a "Revocation"), whereupon such Subsidiary shall then
constitute a Restricted Subsidiary, if:
(i) no Default shall have occurred and be continuing at the time of
and after giving effect to such Revocation;
(ii) all Liens and Indebtedness of such Unrestricted Subsidiary
outstanding immediately following such Revocation would, if incurred at
such time, have been permitted to be incurred for all purposes of this
Indenture;
(iii) such Unrestricted Subsidiary does not own or operate an
Affiliate Business.
All Designations and Revocations must be evidenced by Board Resolutions of
the Company delivered to the Trustee certifying compliance with the foregoing
provisions.
SECTION 4.19. FURTHER INSTRUMENTS AND ACTS.
The Trustee shall not be bound to ascertain or inquire as to the
performance or observance of any covenants, conditions or agreements on the part
of the Company, except as otherwise set forth herein, but the Trustee may
require of the Company full
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information and advice as to the performance of the covenants, conditions and
agreements contained herein, and upon request of the Trustee, the Company will
execute and deliver such further instruments and do such further acts as may be
reasonably necessary or proper to carry out more effectively the purposes of
this Indenture.
SECTION 4.20. SUBSIDIARY GUARANTEES.
(a) The Company shall cause each Subsidiary Guarantor to deliver a
Subsidiary Guarantee by executing this Indenture on the Issue Date. In
addition, the Company shall cause each Restricted Subsidiary of the Company
created or acquired after the date hereof (other than any foreign Subsidiary and
other than any domestic Restricted Subsidiary that is subject to a contractual
limitation, existing on the Issue Date, to its ability to issue a Subsidiary
Guarantee which limitation has not, with the exercise of such Restricted
Subsidiary's best efforts, been satisfied or waived) not later than fifteen (15)
days after such creation or acquisition to execute the Subsidiary Guarantee
Agreement in the form set forth in Exhibit C hereto and deliver such Subsidiary
---------
Guarantee Agreement and an Opinion of Counsel in form acceptable to the Trustee
(as set forth in paragraph (b) below) to the Trustee.
(b) The Opinion of Counsel required by clause (a) above shall state
that the Subsidiary Guarantee Agreement and the Letter Agreement have been duly
authorized, executed and delivered by such Subsidiary, that the obligations of
such Subsidiary under such Subsidiary Guarantee Agreement and such Letter
Agreement are enforceable against such Subsidiary in accordance with their terms
and that delivery by such Subsidiary of each of the Subsidiary Guarantee
Agreement and the Letter Agreement will not (i) result in any violation of the
provisions of the charter or bylaws of such Subsidiary, (ii) to the best
knowledge of such counsel, conflict with or result in a breach or violation of
any of the terms or provisions of, or constitute a default under, any indenture,
mortgage, deed of trust, loan or credit agreement or other agreement or
instrument known to such counsel to which such Subsidiary is a party, or (iii)
to the best knowledge of such counsel, result in any violation of the provisions
of any federal or state statute, or any order, rule or regulation of any federal
or state court or governmental agency or body having jurisdiction over such
Subsidiary or any of its properties or assets.
(c) In the event of a sale or other disposition of a Subsidiary
Guarantor (or all or substantially all of its assets) to a Person (whether or
not an Affiliate of the Subsidiary Guarantor) pursuant to a merger,
consolidation, sale of all or substantially all its assets or otherwise, which
is not a Subsidiary of the Company or the designation of a Subsidiary Guarantor
as an Unrestricted Subsidiary, which sale or disposition or designation is
otherwise in compliance with this
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Indenture (including the provisions of Sections 4.10 and 4.18), such Subsidiary
Guarantor shall be deemed released from all its obligations under the Indenture
and its Subsidiary Guarantee and such Subsidiary Guarantee shall terminate;
provided, however, that any such termination shall occur only to the extent that
all of its guarantees of, and all of its pledges of assets or other security
interests which secure, any other Indebtedness of the Company or any other
Restricted Subsidiary shall also terminate upon such release, sale or transfer.
Upon delivery by the Company to the Trustee of an Officers' Certificate of the
Company and an Opinion of Counsel to the effect that such sale or other
disposition was made by the Company in accordance with the provisions of this
Indenture, including without limitation Sections 3.09, if applicable and 4.10
hereof, the Trustee shall execute any documents reasonably required in order to
evidence the release of any Subsidiary Guarantor from its obligations under
Article 10 hereof or pursuant to any Subsidiary Guarantee Agreement.
(d) Any Subsidiary Guarantor not released from its obligations under
its Subsidiary Guarantee shall remain liable for all amounts due on the
Securities and for the other obligations of any Subsidiary Guarantor under this
Indenture as provided in Article 10. The provisions of this Section 4.20 shall
not affect any of the Company's obligations under Section 4.01 hereof.
ARTICLE 5
SUCCESSORS
SECTION 5.01. LIMITATIONS ON MERGER, CONSOLIDATION OR SALE OF ASSETS.
The Company shall not consolidate with or merge with or into, or
convey, transfer or lease all or substantially all of its assets (otherwise than
pursuant to one or more Asset Dispositions that comply with Section 4.10) to any
Person, unless:
(i) the resulting, surviving or transferee Person (the "Successor
Company") shall be a corporation, partnership, trust, limited liability
company or other entity organized and existing under the laws of the United
States of America, any State thereof or the District of Columbia and the
Successor Company (if not the Company) shall expressly assume, by
supplemental indenture, executed and delivered to the Trustee, in form
satisfactory to the Trustee, all the obligations of the Company under the
Securities and this Indenture;
(ii) immediately after giving effect to such transaction (and treating
any Indebtedness that becomes an obligation of the Successor Company or any
Subsidiary of the
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Successor Company as a result of such transaction as having been Incurred
by the Successor Company or such Restricted Subsidiary at the time of such
transaction), no Default or Event of Default shall have occurred and be
continuing;
(iii) immediately after giving effect to such transaction, the
Successor Company (A) would have a Consolidated Net Worth equal to or
greater than the Consolidated Net Worth of the Company immediately prior to
such transaction and (B) would be able to Incur at least an additional
$1.00 of Indebtedness pursuant to paragraph (a) of Section 4.09;
(iv) the Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that such
consolidation, merger or transfer and such supplemental indenture (if any)
comply with this Indenture.
Notwithstanding clauses (ii) and (iii) of Section 5.01, any Restricted
Subsidiary of the Company may consolidate with or merge into the Company.
SECTION 5.02. SUCCESSOR CORPORATION SUBSTITUTED.
The Successor Company will succeed to, and be substituted for, and may
exercise every right and power of, the Company under this Indenture, but, in the
case of a lease of all or substantially all its assets, the Company will not be
released from the obligation to pay all amounts due on the principal of and
interest on the Securities.
ARTICLE 6
DEFAULTS AND REMEDIES
SECTION 6.01. EVENTS OF DEFAULT.
(a) An "Event of Default" occurs if:
(i) there is a default in any payment of interest on any
Security when due, continued for 30 days;
(ii) there is a default in the payment of principal of any
Security when due at its Stated Maturity, upon optional redemption, upon
required repurchase, upon declaration or otherwise;
(iii) there is a failure by the Company to comply with its
obligations under Section 5.01 hereof;
(iv) there is failure by the Company to comply for 30 days after
notice with any of its obligations under Article 4 hereof (in each case,
other than a failure to
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purchase Securities which shall constitute an Event of Default under clause
(ii) above);
(v) there is a failure by the Company or any Subsidiary
Guarantor to comply for 60 days after notice with its other agreements
contained in this Indenture;
(vi) Indebtedness of the Company or any Restricted Subsidiary
is not paid within any applicable grace period after final maturity or is
accelerated by the holders thereof because of a default and the total
amount of such Indebtedness unpaid or accelerated exceeds $3 million and
such default shall not have been cured or such acceleration rescinded after
a 10-day period;
(vii) any judgment or decree for the payment of money in excess
of $3 million (to the extent not covered by insurance) is rendered against
the Company or a Significant Subsidiary and such judgment or decree shall
remain undischarged or unstayed for a period of 60 days after such judgment
becomes final and non-appealable;
(viii) the Company or any of its Significant Subsidiaries
pursuant to or within the meaning of any Bankruptcy Law:
(1) commences a voluntary case,
(2) consents to the entry of an order for relief against it
in an involuntary case,
(3) consents to the appointment of a Custodian of it or for
all or substantially all of its property,
(4) makes a general assignment for the benefit of its
creditors,
(5) consents to or acquiesces in the institution of a
bankruptcy or an insolvency proceeding against it, or
(6) takes any corporate action to authorize or effect any
of the foregoing; or
(ix) a court of competent jurisdiction enters an order or decree
under any Bankruptcy Law that:
(1) is for relief against the Company or any of its
Significant Subsidiaries in an involuntary case,
(2) appoints a Custodian of the Company or any of its
Significant Subsidiaries or for all or
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substantially all of the property of the Company or any of its
Significant Subsidiaries, or
(3) orders the liquidation of the Company or any of its
Significant Subsidiaries,
and the order or decree remains unstayed and in effect for 60 consecutive
days; or
(x) any Subsidiary Guarantee by a Significant Subsidiary ceases
to be in full force and effect (except as contemplated by the terms of this
Indenture) or any Subsidiary Guarantor that is a Significant Subsidiary
denies or disaffirms its obligations under this Indenture or its Subsidiary
Guarantee and such Default continues for 10 days;
(b) The term "Custodian" means any receiver, trustee, assignee,
liquidator or similar official under any Bankruptcy Law.
(c) A Default under clause (iv) or (v) of Section 6.01(a) hereof does
not constitute an Event of Default until the Trustee or the holders of 25% in
principal amount of the then outstanding Securities notify the Company or such
Subsidiary Guarantor, as the case may be, of the Default and the Company or such
Subsidiary Guarantor, as the case may be, does not cure such Default within the
time specified in such clause (iv) or (v) after receipt of the notice. Nothing
in this Section 6.01(c) shall impose on the Trustee an obligation to monitor the
activities of the Company or any Subsidiary Guarantor to ascertain compliance
with Article 4 hereof.
SECTION 6.02. ACCELERATION.
If an Event of Default occurs and is continuing, the Trustee or the
Holders of not less than 25% in aggregate principal amount of the then
outstanding Securities by notice to the Company, may declare (a "Declaration")
the unpaid principal of, and any accrued and unpaid interest, if any, on all the
Securities to be due and payable (the "Default Amount"). Upon any such
Declaration, the Default Amount shall be due and payable immediately. If an
Event of Default specified in clause (viii) or (ix) of Section 6.01(a) occurs
with respect to the Company, the Default Amount shall ipso facto become and be
immediately due and payable without any Declaration or other act on the part of
the Trustee or any Securityholder. The Holders of a majority in aggregate
principal amount of the then outstanding Securities by written notice to the
Trustee and to the Company may rescind any Declaration if the rescission would
not conflict with any judgment or decree and if all Events of Default then
continuing (other than any Events of Default with respect to the nonpayment of
principal of or interest on any Security which has become due solely as a result
of such Declaration) have been cured, and may waive any Default other than a
Default with respect to a covenant
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or provision that cannot be modified or amended without the consent of each
Securityholder pursuant to Section 9.02 hereof.
SECTION 6.03. OTHER REMEDIES.
(a) If an Event of Default occurs and is continuing, the Trustee and
the Securityholders may pursue any available remedy to collect the payment of
principal, premium, if any, or interest on the Securities or to enforce the
performance of any provision of the Securities or this Indenture.
(b) The Trustee may maintain a proceeding even if it does not possess
any of the Securities or does not produce any of them in the proceeding. A
delay or omission by the Trustee or any Securityholder in exercising any right
or remedy accruing upon an Event of Default shall not impair the right or remedy
or constitute a waiver of or acquiescence in the Event of Default. All remedies
are cumulative to the extent permitted by law.
SECTION 6.04. WAIVER OF PAST DEFAULTS.
Securityholders of not less than a majority in aggregate principal
amount of the then outstanding Securities by notice to the Trustee may, on
behalf of all the Securityholders, waive an existing Default or Event of Default
and its consequences, except a continuing Default or Event of Default in the
payment of any amount due on any Security (other than principal, premium (if
any) or interest which has become due solely as a result of a Declaration) or a
Default or Event of Default that cannot be modified or amended without the
consent of the Holder of each outstanding Security affected. Upon any such
waiver, such Default shall cease to exist, and any Event of Default arising
therefrom shall be deemed to have been cured for every purpose of this
Indenture; but no such waiver shall extend to any subsequent or other Default or
impair any right consequent thereon.
SECTION 6.05. CONTROL BY MAJORITY.
Securityholders of a majority in principal amount of the Securities
then outstanding may direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee or exercising any remedy
available to the Trustee. However, the Trustee may refuse to follow any
direction that conflicts with law or this Indenture, that the Trustee determines
may be unduly prejudicial to the rights of other Securityholders or that may
involve the Trustee in personal liability. Prior to taking any action under
this Indenture, the Trustee shall be entitled to indemnification satisfactory to
it in its sole discretion against all losses and expenses caused by taking or
not taking such action.
SECTION 6.06. LIMITATION ON SUITS.
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(a) Except to enforce the right to receive payment of any amount when
due, no holder may pursue any remedy with respect to this Indenture or the
Securities unless:
(i) the Securityholder has previously given the Trustee written
notice that an Event of Default is continuing;
(ii) the Holders of at least 25% in principal amount of the then
outstanding Securities have requested to the Trustee to pursue the remedy;
(iii) such Securityholder or Securityholders have offered the
Trustee reasonable security or indemnity against any loss, liability or
expense;
(iv) the Trustee has not complied with such request within 60
days after receipt of the request and the offer of security or indemnity;
and
(v) the Holders of a majority in principal amount of the then
outstanding Securities have not given the Trustee a direction that, in the
opinion of such Trustee, is inconsistent with such request within such 60-
day period.
(b) A Securityholder may not use this Indenture to prejudice the
rights of another Securityholder or to obtain a preference or priority over
another Securityholder.
SECTION 6.07. RIGHTS OF SECURITYHOLDERS TO RECEIVE PAYMENT.
Notwithstanding any other provision of this Indenture, the right of
Securityholders to receive payment of all amounts on the Securities, on or after
the respective due dates expressed in the Securities, or to bring suit for the
enforcement of any such payment on or after such respective dates, shall not be
impaired or affected without the consent of each Securityholder.
SECTION 6.08. COLLECTION SUIT BY TRUSTEE.
If an Event of Default specified in Section 6.01(a)(i) or (ii) or an
acceleration pursuant to Section 6.02 occurs and is continuing, the Trustee is
authorized to recover judgment in its own name and as trustee of an express
trust against the Company or any Subsidiary Guarantor or any other obligor on
the Securities for the Default Amount and, to the extent lawful, interest
thereon and such further amount as shall be sufficient to cover the costs and
expenses of collection, including any advances made by the Trustee and the
reasonable compensation, expenses and disbursements of the Trustee, its agents
and counsel.
SECTION 6.09. TRUSTEE MAY FILE PROOFS OF CLAIM.
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The Trustee is authorized to file such proofs of claim and other
papers or documents as may be necessary or advisable in order to have the claims
of the Trustee (including any claim for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel) and the
Securityholders allowed in any judicial proceedings relative to the Company or
any Subsidiary Guarantor (or any other obligor on the Securities), their
respective creditors or property, and shall be entitled and empowered to
collect, receive and distribute any money or other property payable or
deliverable on any such claims, and any custodian in any such judicial
proceeding is hereby authorized by each Securityholder to make such payments to
the Trustee, and in the event that the Trustee shall consent to the making of
such payments directly to the Securityholders, to pay to the Trustee any amount
due to it for the reasonable compensation, expenses, disbursements and advances
of the Trustee, its agents and counsel, and any other amounts due the Trustee
under Section 7.07 hereof. To the extent that the payment of any such
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel, and any other amounts due the Trustee under Section 7.07 hereof out
of the estate in any such proceeding shall be denied for any reason, payment of
the same shall be secured by a Lien on, and shall be paid out of, any and all
distributions, dividends, money, securities and other properties which the
Securityholders may be entitled to receive in such proceeding, whether in
liquidation or under any plan of reorganization or arrangement or otherwise.
Nothing herein contained shall be deemed to authorize the Trustee to authorize
or consent to or accept or adopt on behalf of any Securityholder any plan of
reorganization, arrangement, adjustment or composition affecting the Securities
or the rights of any Securityholder thereof, or to authorize the Trustee to vote
in respect of the claim of any Securityholder in any such proceeding.
SECTION 6.10. PRIORITIES.
(a) If the Trustee collects any money pursuant to this Article, it
shall pay out the money in the following order:
(i) First: to the Trustee, its agents and attorneys for amounts
due under Section 7.07, including payment of all compensation, expenses and
liabilities incurred, and all advances made, by the Trustee and the costs
and expenses of collection;
(ii) Second: if the Securityholders are forced to proceed
against the Company directly without the Trustee, to the Securityholders
for their collection costs;
(iii) Third: to the Securityholders for all amounts due and
unpaid on the Securities, without preference or priority of any kind,
according to the amounts due and payable on the Securities; and
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(iv) Fourth: to the Company or, to the extent the Trustee
collects any amount from any Subsidiary Guarantor, to such Subsidiary
Guarantor, or to such party as a court of competent jurisdiction shall
direct.
(b) The Trustee may fix a record date and payment date for any
payment to Securityholders. At least 15 calendar days before such record date,
the Company shall mail to each Holder and the Trustee a notice that states the
record date, the payment date and the amount to be paid.
SECTION 6.11. UNDERTAKING FOR COSTS.
In any suit for the enforcement of any right or remedy under this
Indenture or in any suit against the Trustee for any action taken or omitted by
it as a Trustee, a court in its discretion may require the filing by any party
litigant in the suit of an undertaking to pay the costs of the suit, and the
court in its discretion may assess reasonable costs, including reasonable
attorneys' fees, against any party litigant in the suit, having due regard to
the merits and good faith of the claims or defenses made by the party litigant.
This Section does not apply to a suit by the Trustee, a suit by a Securityholder
pursuant to Section 6.07 hereof, or a suit by Holders of more than 10% in
aggregate principal amount of the then outstanding Securities.
ARTICLE 7
TRUSTEE
SECTION 7.01. DUTIES OF TRUSTEE.
(a) If an Event of Default has occurred and is continuing, the
Trustee shall exercise such of the rights and powers vested in it by this
Indenture, and use the same degree of care and skill in their exercise as a
prudent person would exercise or use under the circumstances and in the conduct
of his or her own affairs.
(b) Except during the continuance of an Event of Default:
(i) the Trustee undertakes to perform only those duties as are
specifically set forth in this Indenture and the duties of the Trustee
shall be determined solely by the express provisions of this Indenture, the
Trustee need perform only those duties that are specifically set forth in
this Indenture and no others, and no implied covenants or obligations shall
be read into this Indenture against the Trustee; and
(ii) the Trustee may conclusively rely, as to the truth of the
statements and the correctness of the opinions
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expressed therein, upon any certificates or opinions furnished to the
Trustee and conforming to the requirements of this Indenture, but in the
case of any such certificates or opinions which by any provision hereof are
specifically required to be furnished to the Trustee, the Trustee shall
examine the same to determine whether or not they conform to the
requirements of this Indenture.
(c) Notwithstanding anything to the contrary herein contained, the
Trustee may not be relieved from liability for its own negligent action or its
own willful misconduct, except that:
(i) this paragraph does not limit the effect of paragraph (b)
of this Section 7.01;
(ii) the Trustee shall not be liable for any error of judgment
made in good faith by a Responsible Officer, unless it is proved that the
Trustee was negligent in ascertaining the pertinent facts; and
(iii) the Trustee shall not be liable with respect to any action
it takes or omits to take in good faith in accordance with a direction
received by it pursuant to Section 6.05 hereof.
(d) Whether or not therein expressly so provided, every provision of
this Indenture that in any way relates to the Trustee is subject to paragraphs
(a), (b), and (c) of this Section 7.01.
(e) No provision of this Indenture shall require the Trustee to
expend or risk its own funds or otherwise incur any financial liability in the
performance of any of its duties hereunder or in the exercise of any of its
rights or powers if it shall have reasonable grounds for believing that
repayment of such funds or adequate indemnity against such risk or liability is
not reasonably assured to it.
(f) The Trustee shall not be liable for interest on any money
received by it except as the Trustee may agree in writing with the Company.
Assets held in trust by the Trustee need not be segregated from other funds
except to the extent required by law.
(g) Every provision of this Indenture relating to the conduct or
affecting the liability of or affording protection to the Trustee shall be
subject to the provisions of Section 7.01 and to the provisions of the TIA.
SECTION 7.02. RIGHTS OF TRUSTEE.
(a) The Trustee may conclusively rely upon any document believed by
it to be genuine and to have been signed or
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presented by the proper Person. The Trustee need not investigate any fact or
matter stated in the document.
(b) Before the Trustee acts or refrains from acting, it may require
an Officers' Certificate or an Opinion of Counsel or both. The Trustee shall not
be liable for any action it takes or omits to take in good faith reliance on
such Officers' Certificate or Opinion of Counsel. The Trustee may consult with
counsel and the written advice of such counsel or any Opinion of Counsel shall
be full and complete authorization and protection from liability in respect of
any action taken, suffered or omitted by it hereunder in good faith and in
reliance thereon.
(c) The Trustee may act through agents and shall not be responsible
for the misconduct or negligence of any agent appointed with due care.
(d) The Trustee shall not be liable for any action it takes or omits
to take in good faith which it believes to be authorized or within its rights or
powers conferred upon it by this Indenture.
(e) Unless otherwise specifically provided in this Indenture, any
demand, request, direction or notice from the Company shall be sufficient if
signed by an Officer of the Company.
(f) The permissive rights of the Trustee to do certain things
enumerated in this Indenture shall not be construed as a duty and the Trustee
shall not be answerable for other than its negligence or willful default with
respect to such permissive rights.
(g) Except for an Event of Default under 6.01(a)(i) or (ii) hereof,
the Trustee shall not be deemed to have notice of any Default or Event of
Default unless specifically notified in writing of such event by the Company or
the Securityholders of not less than 25% in aggregate principal amount of
Securities outstanding.
SECTION 7.03. INDIVIDUAL RIGHTS OF TRUSTEE.
The Trustee in its individual or any other capacity may become the
owner or pledgee of Securities and may otherwise deal with the Company, any
Subsidiary Guarantor or any Affiliate of the Company or any Subsidiary Guarantor
with the same rights it would have if it were not Trustee. Any Agent may do the
same with like rights. However, the Trustee is subject to Sections 7.10 and
7.11 hereof.
SECTION 7.04. TRUSTEE'S DISCLAIMER.
The Trustee shall not be responsible for and makes no representation
as to the validity or adequacy of this Indenture,
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the Securities or the Subsidiary Guarantees, it shall not be accountable for the
Company's use of the proceeds from the Securities or any money paid to the
Company or upon the Company's direction under any provision of this Indenture,
it shall not be responsible for the use or application of any money received by
any Paying Agent other than the Trustee, and it shall not be responsible for any
statement or recital herein or any statement in the Securities or the Subsidiary
Guarantees or any other document in connection with the sale of the Securities
or pursuant to this Indenture other than its certificate of authentication.
SECTION 7.05. NOTICE OF DEFAULTS.
If a Default or Event of Default occurs and is continuing and if it is
known to the Trustee, the Trustee shall mail to each Securityholder a notice of
the Default or Event of Default within 90 days after it occurs. Except in the
case of a Default or Event of Default in the payment of any amount due on any
Security, the Trustee may withhold the notice if and so long as its board of
directors, a committee of its board of directors or a committee of its Trust
officers in good faith determines that withholding the notice is in the interest
of the Securityholders. In addition, the Company is required to deliver to the
Trustee, within 90 days after the end of each fiscal year of the Company, a
certificate indicating whether the signers thereof know of any Default or Event
of Default that occurred during the previous year. The Company also is required
to deliver to the Trustee, within 30 days after the occurrence thereof, written
notice of any events which would constitute a Default.
SECTION 7.06. REPORTS BY TRUSTEE TO SECURITYHOLDERS.
(a) Within 60 days after each May 15 beginning with the May 15
following the date of this Indenture, and for so long as the Securities remain
outstanding, the Trustee shall mail to the Securityholders a brief report dated
as of such reporting date that complies with TIA (S) 313(a) (but if no event
described in TIA (S) 313(a) has occurred within the twelve months preceding the
reporting date, no report need be transmitted). The Trustee also shall comply
with TIA (S) 313(b)(2) and (c).
(b) A copy of each report at the time of its mailing to the
Securityholders shall be filed with the Commission and each stock exchange, if
any, on which the Securities are listed, in accordance with and to the extent
required by TIA (S) 313(d). The Company shall promptly notify the Trustee if
and when the Securities are listed on any stock exchange.
SECTION 7.07. COMPENSATION AND INDEMNITY.
(a) The Company and the each of the Subsidiary Guarantors, jointly
and severally, shall pay to the Trustee from
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time to time reasonable compensation for its acceptance of this Indenture and
services hereunder, including extraordinary services such as default
administration. The Trustee's compensation shall not be limited by any law on
compensation of a trustee of an express trust. The Company and each of the
Subsidiary Guarantors, jointly and severally, shall reimburse the Trustee upon
request for all reasonable disbursements, advances and expenses incurred or made
by it in addition to the compensation for its services. Such expenses shall
include the reasonable compensation, disbursements and expenses of the Trustee's
agents and counsel.
(b) The Company and each of the Subsidiary Guarantors, jointly and
severally, shall indemnify the Trustee against any and all losses, liabilities
or expenses incurred by it arising out of or in connection with the acceptance
or administration of its duties under this Indenture, including the costs and
expenses of enforcing this Indenture against the Company (including this Section
7.07) and defending itself against any claim (whether asserted by the Company,
any Holder or any other person) or liability in connection with the exercise or
performance of any of its powers or duties hereunder, except as set forth below
in subparagraph (d). The Trustee shall notify the Company and each of the
Subsidiary Guarantors promptly of any claim for which it may seek indemnity.
Failure by the Trustee to so notify the Company or any Subsidiary Guarantor
shall not relieve the Company or any of the Subsidiary Guarantors of their
Obligations hereunder. The Trustee may have separate counsel and the Company
and each of the Subsidiary Guarantors, jointly and severally, shall pay the
reasonable fees and expenses of such counsel. Neither the Company nor any
Subsidiary Guarantor need pay for any settlement made without its consent.
(c) The obligations of the Company and each of the Subsidiary
Guarantors under this Section 7.07 shall survive the resignation or removal of
the Trustee and the satisfaction and discharge or termination of this Indenture.
(d) Notwithstanding subparagraphs (a) or (b) above, neither the
Company nor any Subsidiary Guarantor need reimburse any expense or indemnify
against any loss or liability incurred by the Trustee through its own negligence
or willful misconduct.
(e) To secure the Company's and each of the Subsidiary Guarantor's
payment obligations in this Section, the Trustee shall have a Lien prior to the
Securities on all money or property held or collected by the Trustee, except
that held in trust to pay principal, premium, if any, and interest on particular
Securities. Such Lien shall survive the resignation or removal of the Trustee
and the satisfaction and discharge of this Indenture.
(f) When the Trustee incurs expenses or renders services after an
Event of Default specified in Section
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6.01(viii) or (ix) hereof occurs, the expenses and the compensation for such
services (including the fees and expenses of its agents and counsel) are
intended to constitute expenses of administration under any Bankruptcy Law.
SECTION 7.08. REPLACEMENT OF TRUSTEE.
(a) A resignation or removal of the Trustee and appointment of a
successor Trustee shall become effective only upon the successor Trustee's
acceptance of appointment as provided in this Section 7.08.
(b) The Trustee may resign at any time and be discharged from the
trust hereby created by so notifying the Company. The Securityholders of a
majority in principal amount of the then outstanding Securities may remove the
Trustee by so notifying the Trustee and the Company. The Company may remove the
Trustee if:
(i) the Trustee fails to comply with Section 7.10 hereof;
(ii) the Trustee is adjudged a bankrupt or an insolvent or an
order for relief is entered with respect to the Trustee under any
Bankruptcy Law;
(iii) a Custodian, receiver or other public officer takes charge
of the Trustee or its property; or
(iv) the Trustee becomes incapable of acting.
(c) If the Trustee resigns or is removed or if a vacancy exists in the
office of Trustee for any reason, the Company shall notify each Securityholder
of such event and promptly appoint a successor Trustee. Within one year after
the successor Trustee takes office, the Holders of a majority in principal
amount of the then outstanding Securities may appoint a successor Trustee to
replace the successor Trustee appointed by the Company.
(d) A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Thereupon, the
resignation or removal of the retiring Trustee shall become effective, and the
successor Trustee shall have all the rights, powers and duties of the Trustee
under this Indenture. The successor Trustee shall mail a notice of its
succession to each Securityholder. The retiring Trustee shall promptly transfer
all property held by it as Trustee to the successor Trustee, provided all sums
owing to the retiring Trustee hereunder have been paid and subject to the Lien
provided for in Section 7.07 hereof. Notwithstanding replacement of the Trustee
pursuant to this Section 7.08, the Company's and each of the Subsidiary
Guarantor's obligations under Section 7.07 hereof shall continue for the benefit
of the retiring Trustee.
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(e) If a successor Trustee does not take office within 60 days after
the retiring Trustee resigns or is removed, the retiring Trustee, the Company,
any of the Subsidiary Guarantors or the Securityholders of at least 10% in
principal amount of the then outstanding Securities may petition any court of
competent jurisdiction for the appointment of a successor Trustee.
(f) If the Trustee after written request by any Securityholder who has
been a Securityholder for at least six months fails to comply with Section 7.10,
such Securityholder may petition any court of competent jurisdiction for the
removal of the Trustee and the appointment of a successor Trustee.
SECTION 7.09. SUCCESSOR TRUSTEE BY MERGER, ETC.
If the Trustee consolidates with, merges or converts into, or
transfers all or substantially all of its corporate trust business to another
corporation, the resulting, surviving or transferee corporation without any
further act shall, if such resulting, surviving or transferee corporation is
otherwise eligible hereunder, be the successor Trustee.
SECTION 7.10. ELIGIBILITY; DISQUALIFICATION.
(a) There shall at all times be a Trustee hereunder which shall be a
corporation organized and doing business under the laws of the United States of
America or any State or Territory thereof or the District of Columbia authorized
under such laws to exercise corporate trustee power, shall be subject to
supervision or examination by Federal, State, Territorial, or District of
Columbia authority and shall have (or be a part of a holding company with) a
combined capital and surplus of at least $100 million as set forth in its most
recent published annual report of condition.
(b) This Indenture shall always have a Trustee who satisfies the
requirements of TIA (S) 310(a)(1), (2) and (5). The Trustee shall comply with
TIA (S) 310(b).
The provisions of TIA (S) 310 shall also apply to the Company and each of
the Subsidiary Guarantors, as obligor of the Securities.
SECTION 7.11. PREFERENTIAL COLLECTION OF CLAIMS AGAINST THE COMPANY.
The Trustee shall comply with TIA (S) 311(a), excluding any creditor
relationship listed in TIA (S) 311(b). A Trustee who has resigned or been
removed shall be subject to TIA (S) 311(a) to the extent indicated therein. The
provisions of TIA (S) 311 shall apply to the Company and each of the Subsidiary
Guarantors as obligor on the Securities.
ARTICLE 8
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DISCHARGE OF INDENTURE
SECTION 8.01. DISCHARGE OF LIABILITY ON SECURITIES; DEFEASANCE.
(a) When (i) the Company delivers to the Trustee all outstanding
Securities (other than Securities replaced pursuant to Section 2.07 hereof) for
cancellation or (ii) all outstanding Securities have become due and payable and
the Company irrevocably deposits with the Trustee funds sufficient to pay at
maturity all outstanding Securities, including interest thereon (other than
Securities replaced pursuant to Section 2.07 hereof), and if in either case the
Company pays all other sums payable hereunder by the Company, then this
Indenture shall, subject to Sections 8.01(e) and 8.06 hereof, cease to be of
further effect. The Trustee shall acknowledge satisfaction and discharge of
this Indenture on demand of the Company accompanied by an Officers' Certificate
and an Opinion of Counsel reasonably acceptable to the Trustee and at the cost
and expense of the Company.
(b) Subject to Sections 8.01(e), 8.02 and 8.06 hereof, the Company at
any time may terminate (i) all its obligations under the Securities and this
Indenture ("legal defeasance option") or (ii) all obligations under Article 4,
Section 5.01(iii) and (iv) and the operation of Sections 6.01(a)(vi),
6.01(a)(vii) as well as 6.01(a)(viii), 6.01(a)(ix) and 6.01(a)(x) hereof but
only with respect to Significant Subsidiaries) ("covenant defeasance option").
The Company may exercise its legal defeasance option notwithstanding its prior
exercise of its covenant defeasance option.
(c) If the Company exercises its legal defeasance option, payment of
the Securities may not be accelerated because of an Event of Default. If the
Company exercises its covenant defeasance option, payment of the Securities may
not be accelerated because of an Event of Default specified in Section
6.01(a)(iii) to the extent the non-compliance results from a violation of
Section 5.01(iii) or 5.01(iv), Section 6.01(a)(iv), 6.01(a)(v), 6.01(a)(vi),
6.01(a)(vii) or 6.01(a)(viii), 6.01(a)(ix) and 6.01(a)(x) (but only, in the case
of Sections 6.01(a)(viii), (ix) and (x)), with respect to Significant
Subsidiaries), or because of the failure of the Company to comply with Sections
5.01(iii) or 5.01(iv).
(d) Upon satisfaction of the conditions set forth herein and Section
8.02 and upon request of the Company, the Trustee shall acknowledge in writing
the discharge of those obligations that the Company terminates.
(e) Notwithstanding clauses (a) and (b) above, the Company's
obligations in Sections 2.03, 2.04, 2.05, 2.06, 2.07, 7.07, 7.08, 8.01(d), 8.04,
8.05 and 8.06 hereof shall survive until the Securities have been paid in full.
Thereafter, the Company's obligations in Sections 7.07, 8.04 and 8.05 hereof
shall survive.
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SECTION 8.02. CONDITIONS TO DEFEASANCE.
(a) The Company may exercise its legal defeasance option or its
covenant defeasance option only if:
(i) the Company irrevocably deposits in trust with the Trustee
money or U.S. Government Obligations in amounts (including interest, but
without consideration of any reinvestment of such interest) and maturities
sufficient, but in the case of the legal defeasance option only, not more
than such amounts (as certified by a nationally recognized firm of
independent public accountants), to pay and discharge at their Stated
Maturity (or such earlier redemption date as the Company shall have
specified to the Trustee) the principal of, premium, if any, and interest
on all outstanding Securities to maturity or redemption, as the case may
be, and to pay all of the sums payable by it hereunder; provided, that the
Trustee shall have been irrevocably instructed to apply such money or the
proceeds of such U.S. Government Obligations to the payment of said
principal, premium, if any, and interest with respect to the Securities;
(ii) in the case of the legal defeasance option only, 123 days
pass after the deposit is made and during the 123 day period no Default or
Event of Default specified in Section 6.01(viii) or (ix) hereof with
respect to the Company or a Significant Subsidiary occurs which is
continuing at the end of the period;
(iii) no Default or Event of Default has occurred and is
continuing on the date of such deposit and after giving effect thereto;
(iv) the deposit does not constitute a default under any other
agreement binding on the Company;
(v) the Company delivers to the Trustee an Opinion of Counsel
to the effect that the trust resulting from the deposit does not
constitute, or qualify as, an investment company under the Investment
Company Act of 1940, as amended;
(vi) in the case of the legal defeasance option, the Company
shall have delivered to the Trustee an Opinion of Counsel stating that (x)
the Company has received from, or there has been published by, the Internal
Revenue Service a ruling, or (y) since the date of this Indenture there has
been a change in the applicable Federal income tax law, in either case to
the effect that, and based thereon such Opinion of Counsel shall confirm
that, the Securityholders will not recognize income, gain or loss for U.S.
Federal income tax purposes as a result of such defeasance and will be
subject to U.S. Federal income tax on the same amounts,
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in the same manner and at the same times as would have been the case if
such defeasance had not occurred;
(vii) in the case of the covenant defeasance option, the Company
shall have delivered to the Trustee an Opinion of Counsel to the effect
that the Securityholders will not recognize income, gain or loss for
Federal income tax purposes as a result of such covenant defeasance and
will be subject to Federal income tax on the same amounts, in the same
manner and at the same times as would have been the case if such covenant
defeasance had not occurred; and
(viii) the Company delivers to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent to the defeasance and discharge of the Securities as contemplated
by this Article 8 have been complied with.
(b) In order to have money available on a payment date to pay
principal, premium, if any, or interest on the Securities, the U.S. Government
Obligations deposited pursuant to preceding clause (a) shall be payable as to
principal or interest at least one Business Day before such payment date in such
amounts as shall provide the necessary money. U.S. Government Obligations shall
not be callable at the issuer's option.
(c) Before or after a deposit, the Company may make arrangements
satisfactory to the Trustee for the redemption of Securities at a future date in
accordance with Article 3 hereof.
SECTION 8.03. APPLICATION OF TRUST MONEY.
The Trustee shall hold in trust money or U.S. Government Obligations
deposited with it pursuant to this Article 8. It shall apply the deposited
money and the money from U.S. Government Obligations through the Paying Agent
and in accordance with this Indenture to the payment of principal, premium, if
any, and interest on the Securities.
SECTION 8.04. REPAYMENT TO THE COMPANY.
(a) The Trustee and the Paying Agent shall promptly pay to the Company
upon written request any excess money or securities held by them at any time;
provided, however, that the Trustee shall not pay any such excess to the Company
unless the amount remaining on deposit with the Trustee, after giving effect to
such transfer are sufficient to pay principal, premium, if any, and interest on
the outstanding Securities, which amount shall be certified to the Trustee by
independent public accountants.
(b) The Trustee and the Paying Agent shall pay to the Company upon
written request any money held by them for the payment of principal, premium, if
any, or interest that remains
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unclaimed for two years after the date upon which such payment shall have become
due; provided, however, that the Company shall have either caused notice of such
payment to be mailed to each Securityholder entitled thereto no less than 30
days prior to such repayment or within such period shall have published such
notice in a financial newspaper of widespread circulation published in the City
of New York. After payment to the Company, Securityholders entitled to the money
must look to the Company and the Subsidiary Guarantors for payment as general
creditors unless an applicable abandoned property law designates another Person,
all liability of the Trustee and such Paying Agent with respect to such money
shall cease, and the Company and the Subsidiary Guarantors, jointly and
severally, shall pay and shall indemnify the Trustee against any cost or expense
arising from any claim for such money.
SECTION 8.05. INDEMNITY FOR GOVERNMENT OBLIGATIONS.
The Company and the Subsidiary Guarantors, jointly and severally,
shall pay and shall indemnify the Trustee against any tax, fee or other charge
imposed on or assessed against deposited U.S. Government Obligations or the
principal and interest received on such U.S. Government Obligations.
SECTION 8.06. REINSTATEMENT.
If the Trustee or Paying Agent is unable to apply any money or U.S.
Government Obligations in accordance with this Article 8 by reason of any legal
proceeding or by reason of any order or judgment of any court or governmental
authority enjoining, restraining or otherwise prohibiting such application, the
Company's and each of the Subsidiary Guarantor's Obligations under this
Indenture and the Securities and the Subsidiary Guarantees shall be revived and
reinstated as though no deposit had occurred pursuant to this Article 8 until
such time as the Trustee or Paying Agent is permitted to apply all such money or
U.S. Government Obligations in accordance with this Article 8; provided,
however, that if the Company or any Subsidiary Guarantor has made any payment of
principal of, premium, if any, or interest on any Securities because of the
reinstatement of its Obligations, the Company or any of the Subsidiary
Guarantors, as the case may be, shall be subrogated to the rights of the
Securityholders to receive such payment from the money or U.S. Government
Obligations held by the Trustee or Paying Agent.
ARTICLE 9
AMENDMENTS
SECTION 9.01. WITHOUT CONSENT OF SECURITYHOLDERS.
(a) Notwithstanding Section 9.02 of this Indenture, the Company, the
Subsidiary Guarantors and the Trustee may amend
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or supplement this Indenture or the Securities without the consent of any
Securityholder:
(i) to cure any ambiguity, omission, defect or inconsistency;
(ii) to comply with Article 5 hereof;
(iii) to provide for uncertificated Securities in addition to or
in place of certificated Securities (provided that the uncertificated
Securities are issued in registered form for purposes of Section 163(f) of
the Code, or in a manner such that the uncertificated Securities are
described in Section 163(f)(2)(B) of the Code);
(iv) to add further Guarantees with respect to the Securities;
or to secure the Securities with additional collateral;
(v) to add to the covenants of the Company for the benefit of
the Securityholders or to surrender any right or power conferred upon the
Company;
(vi) to comply with requirements of the Commission in order to
effect or maintain the qualification of this Indenture under the TIA;
(vii) to make any change that would provide additional rights or
benefits to the Holders of the Securities, as evidenced by an Opinion of
Counsel delivered to the Trustee or that does not adversely affect the
rights of any Securityholder in any respect; or
(viii) to evidence or provide for a replacement Trustee under
Section 7.08 hereof;
provided, that the Company has delivered to the Trustee an Opinion of Counsel
stating that any such amendment or supplement complies with the provisions of
this Section 9.01.
(b) Upon the request of the Company and the Subsidiary Guarantors
accompanied by Board Resolutions of their respective Boards of Directors
authorizing the execution of any such supplemental indenture, and upon receipt
by the Trustee of the documents described in Section 7.02 and Section 9.06
hereof, the Trustee shall join with the Company and the Subsidiary Guarantors in
the execution of any supplemental indenture authorized or permitted by the terms
of this Indenture and to make any further appropriate agreements and
stipulations which may be therein contained, but the Trustee shall not be
obligated to enter into such supplemental indenture which affects its own
rights, duties or immunities under this Indenture or otherwise.
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(c) After an amendment or supplement under this Section 9.01 becomes
effective, the Company shall mail to all Securityholders a notice briefly
describing such amendment or supplement. The failure to give such notice to all
Securityholders, or any defect therein, shall not impair or affect the validity
of an amendment or supplement under this Section.
SECTION 9.02. WITH CONSENT OF SECURITYHOLDERS.
(a) Except as provided below in this Section 9.02, the Company and the
Trustee may amend or supplement this Indenture or the Securities with the
written consent of the Securityholders of not less than a majority in aggregate
principal amount of the Securities then outstanding (including consents obtained
in connection with a purchase of, or tender offer or exchange offer for the
Securities) and, subject to Section 6.04 and 6.07, any existing Default or Event
of Default and its consequences or compliance with any provision of this
Indenture or the Securities may be waived with the consent of the Holders of a
majority in principal amount of the then outstanding Securities (including
consents obtained in connection with a purchase of, or tender offer or exchange
offer for the Securities). Furthermore, subject to Sections 6.04 and 6.07
hereof, the Holders of a majority in aggregate principal amount of the
Securities then outstanding (including consents obtained in connection with a
purchase of, or tender offer or exchange offer for the Securities) may waive
compliance in a particular instance by the Company with any provision of this
Indenture or the Securities. However, without the consent of each
Securityholder affected, an amendment, supplement or waiver under this Section
9.02 may not (with respect to any Securities held by a non-consenting Holder):
(i) reduce the principal amount of Securities whose Holders
must consent to an amendment, supplement or waiver;
(ii) reduce the stated rate of or extend the stated time for
payment of any interest on any Security;
(iii) reduce the principal of or extend the Stated Maturity of
any Security;
(iv) reduce the premium payable upon the redemption or
repurchase of any Security or change the time at which any Security may be
redeemed in accordance with Section 3.07;
(v) make any Security payable in money other than that stated
in the Security;
(vi) make any change in Section 6.04 or 6.07 hereof;
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(vii) impair the right of any Holder to receive payment of any
amount due on such Holder's Securities on or after the due dates therefor
or to institute suit for the enforcement of any payment on or with respect
to such Holder's Securities; or
(viii) make any change in the amendment provisions which require
each Securityholder's consent or in the waiver provisions.
(b) Upon the request of the Company and the Subsidiary Guarantors
accompanied by Board Resolutions of their respective Boards of Directors
authorizing the execution of any such supplemental indenture, and upon the
filing with the Trustee of evidence satisfactory to the Trustee of the consent
of the Securityholders as aforesaid, and upon receipt by the Trustee of the
documents described in Section 7.02 and Section 9.06 hereof, the Trustee shall
join with the Company and the Subsidiary Guarantors in the execution of such
supplemental indenture unless such supplemental indenture affects the Trustee's
own rights, duties or immunities under this Indenture or otherwise, in which
case the Trustee may in its discretion, but shall not be obligated to, enter
into such supplemental indenture.
(c) It shall not be necessary for the consent of the Securityholders
under this Section 9.02 to approve the particular form of any proposed
amendment, supplement or waiver, but it shall be sufficient if such consent
approves the substance thereof.
(d) After an amendment, supplement or waiver under this Section 9.02
becomes effective, the Company shall mail to all Securityholders a notice
briefly describing the amendment, supplement or waiver. Any failure of the
Company to mail such notice, or any defect therein, shall not, however, in any
way impair or affect the validity of any such amendment, supplement or waiver.
SECTION 9.03. COMPLIANCE WITH TRUST INDENTURE ACT.
Every amendment or supplement to this Indenture or the Securities
shall comply with the TIA as then in effect.
SECTION 9.04. REVOCATION AND EFFECT OF CONSENTS.
(a) Until an amendment, supplement or waiver becomes effective, a
consent to it by a Securityholder is a continuing consent by the Securityholder
and every subsequent Securityholder or portion of a Security that evidences the
same debt as the consenting Holder's Security, even if notation of the consent
is not made on any Security. However, any such Securityholder or subsequent
Securityholder may revoke the consent as to its Security if the Trustee receives
written notice of revocation before the date the waiver, supplement or amendment
becomes
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effective. An amendment, supplement or waiver becomes effective when approved by
the requisite Holders and executed by the Trustee (or, if otherwise provided in
such waiver, amendment or supplement, in accordance with its terms) and
thereafter binds every Securityholder, unless it makes a change described in any
clauses of Section 9.02(a), in which case, the amendment, supplement or waiver
shall bind only each Holder of a Security who has consented to it and every
subsequent Holder of a Security or portion of a Security that evidences the same
indebtedness as the consenting Holder's Security.
(b) The Company may fix a record date for determining which
Securityholders must consent to such amendment, supplement or waiver. If the
Company fixes a record date, the record date shall be fixed at (i) the later of
30 days prior to the first solicitation of such consent or the date of the most
recent list of Securityholders furnished to the Trustee prior to such
solicitation pursuant to Section 2.05 hereof, or (ii) such other date as the
Company shall designate. If a record date is fixed, then notwithstanding the
last sentence of the immediately preceding paragraph, those persons who were
Holders at such record date (or their duly designated proxies), and only those
persons, shall be entitled to consent to such amendment or waiver or revoke any
consent previously given, whether or not such persons continue to be Holders
after such record date. No consent shall be valid or effective for more than 90
days after such record date except to the extent that the requisite number of
consents to the amendment, supplement or waiver have been obtained within such
90-day period or as set forth in the preceding paragraph of this Section 9.04.
SECTION 9.05. NOTATION ON OR EXCHANGE OF SECURITIES.
(a) Securities authenticated and delivered after the execution of any
supplemental indenture may bear a notation in form approved by the Trustee as to
any matter provided for in such amendment, supplement or waiver on any Security
thereafter authenticated. The Company in exchange for all Securities may issue
and the Trustee shall authenticate new Securities that reflect the amendment,
supplement or waiver.
(b) Failure to make the appropriate notation or issue a new Security
shall not affect the validity and effect of such amendment, supplement or
waiver.
SECTION 9.06. TRUSTEE TO SIGN AMENDMENTS, ETC.
The Trustee shall sign any amendment, waiver or supplemental indenture
authorized pursuant to this Article 9 if the amendment, waiver or supplemental
indenture does not adversely affect the rights, duties, liabilities or
immunities of the Trustee. If it does, the Trustee may, but need not, sign it.
In signing or refusing to sign such amendment, waiver or supplemental indenture,
the Trustee shall be entitled to receive
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and, subject to Section 7.01, shall be fully protected in relying upon, in
addition to the documents required by Section 7.02, an Officers' Certificate and
an Opinion of Counsel as conclusive evidence that such amendment, waiver or
supplemental indenture is authorized or permitted by this Indenture, that it is
not inconsistent herewith, and that it will be valid and binding upon the
Company in accordance with its terms.
SECTION 9.07. SUBSIDIARY GUARANTORS' SIGNATURE NOT REQUIRED.
Notwithstanding anything to the contrary in Article 10 of this
Indenture, if any Subsidiary Guarantor shall have been released from its
Obligations under Article 10 of this Indenture or any Subsidiary Guarantee
Agreement entered into by such Subsidiary Guarantor, the signature of such
Subsidiary Guarantor shall not be required in connection with any amendment of
this Indenture.
ARTICLE 10
SUBSIDIARY GUARANTEES
SECTION 10.01. SUBSIDIARY GUARANTEES.
Subject to this Article 10, each of the Subsidiary Guarantors, jointly
and severally, hereby unconditionally guarantees to each Holder of a Security
authenticated and delivered by the Trustee and to the Trustee and its successors
and assigns, irrespective of the validity and enforceability of this Indenture,
the Securities or the obligations of the Company under this Indenture or the
Securities, that: (a) all amounts on the Securities shall be promptly paid in
full when due, whether at maturity, by acceleration, redemption, repurchase or
otherwise, and (to the extent permitted by law) interest on the overdue
principal, premium, if any, and interest on the Securities, if any, and all
other obligations of the Company to the Holders or the Trustee under this
Indenture or the Securities shall be promptly paid in full or performed, all in
accordance with the terms of this Indenture and the Securities; and (b) in case
of any extension of time of payment or renewal of any Securities or any of such
other obligations, the same shall be promptly paid in full when due or performed
in accordance with the terms of the extension or renewal, whether at stated
maturity, by acceleration or otherwise. Failing payment when due of any amount
so guaranteed for whatever reason, the Subsidiary Guarantors shall be obligated
to pay the same immediately whether or not such failure to pay has become an
Event of Default which could cause acceleration pursuant to Article 6 hereof.
Each Subsidiary Guarantor agrees that this is a guarantee of payment and not a
guarantee of collection.
The Subsidiary Guarantors hereby agree that their obligations
hereunder shall be unconditional, irrespective of the validity, regularity or
enforceability of the Securities or this
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Indenture, the absence of any action to enforce the same, any waiver or consent
by any Holder of the Securities with respect to any provisions hereof or
thereof, the recovery of any judgment against the Company, any action to enforce
the same or any other circumstance which might otherwise constitute a legal or
equitable discharge or defense of a guarantor. Each Subsidiary Guarantor hereby
waives diligence, presentment, demand for payment, filing of claims with a court
in the event of insolvency or bankruptcy of the Company, any right to require a
proceeding first against the Company, protest, notice and all demands whatsoever
and covenants that, subject to this Article 10, this Subsidiary Guarantee shall
not be discharged except by complete performance of the obligations contained in
the Securities and this Indenture.
If any Holder of Securities or the Trustee is required by any court or
otherwise to return to the Company or the Subsidiary Guarantors, or any
custodian, trustee, liquidator or other similar official acting in relation to
either the Company or the Subsidiary Guarantors, any amount paid by either to
the Trustee or such Holder, the Subsidiary Guarantees, to the extent theretofore
discharged, shall be reinstated in full force and effect.
Each Subsidiary Guarantor agrees that it shall not be entitled to any
right of subrogation in relation to the Holders of Securities in respect of any
Obligations guaranteed hereby until payment in full of all Obligations
guaranteed hereby. Each Subsidiary Guarantor further agrees that, as between
the Subsidiary Guarantors, on the one hand, and the Holders and the Trustee, on
the other hand, (x) the maturity of the Obligations guaranteed hereby may be
accelerated as provided in Article 6 hereof for the purposes of this Subsidiary
Guarantee, notwithstanding any stay, injunction or other prohibition preventing
such acceleration in respect of the Obligations guaranteed hereby and (y) in the
event of any declaration of acceleration of such Obligations as provided in
Article 6 hereof, such Obligations (whether or not due and payable) shall
forthwith become due and payable by the Subsidiary Guarantors for the purpose of
this Subsidiary Guarantee. The Subsidiary Guarantors shall have the right to
seek contribution from any non-paying Subsidiary Guarantor so long as the
exercise of such right does not impair the rights of the Holders under the
Subsidiary Guarantees.
SECTION 10.02. EXECUTION AND DELIVERY OF SUBSIDIARY GUARANTEE AGREEMENT.
If an Officer of the Subsidiary Guarantor whose signature is on this
Indenture or a Subsidiary Guarantee Agreement no longer holds that office at the
time the Trustee authenticates the related Security, the Subsidiary Guarantee
shall be valid.
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The delivery of any Security by the Trustee, shall constitute due
delivery of the Subsidiary Guarantee set forth in this Indenture or a Subsidiary
Guarantee Agreement on behalf of the Subsidiary Guarantors.
In the event that the Company creates or acquires any new
Subsidiaries, if required by Section 4.20 hereof, the Company and the Trustee
shall, and the Company shall cause such new Subsidiary to, execute a Subsidiary
Guarantee Agreement to this Indenture in accordance with Section 4.20 hereof and
this Article 6, to the extent applicable.
SECTION 10.03. SUBSIDIARY GUARANTORS MAY CONSOLIDATE, ETC., ON CERTAIN TERMS.
Except as set forth in Articles 4 and 5, nothing contained in this
Indenture or in any of the Securities shall prevent any consolidation or merger
of a Subsidiary Guarantor with or into the Company or another Subsidiary
Guarantor or shall prevent any sale or conveyance of the property of a
Subsidiary Guarantor as an entirety or substantially as an entirety to the
Company or another Subsidiary Guarantor.
SECTION 10.04. EFFECT OF DEFEASANCE.
All Subsidiary Guarantees, whether pursuant to this Indenture or a
Subsidiary Guarantee Agreement, shall be of no further force and effect upon the
occurrence of a legal defeasance or a covenant defeasance, subject to
reinstatement pursuant to Section 8.06 hereof under the circumstances described
therein.
SECTION 10.05. LIMITATION ON SUBSIDIARY GUARANTOR LIABILITY.
Each Subsidiary Guarantor, and by its acceptance of Securities, each
Holder, hereby confirms that it is the intention of all such parties that the
Subsidiary Guarantee of such Subsidiary Guarantor not constitute a fraudulent
transfer or conveyance for purposes of Bankruptcy Law, the Uniform Fraudulent
Conveyance Act, the Uniform Fraudulent Transfer Act or any similar federal or
state law to the extent applicable to any Subsidiary Guarantee. To effectuate
the foregoing intention, the Trustee, the Holders and the Subsidiary Guarantors
hereby irrevocably agree that the obligations of such Subsidiary Guarantor under
the Subsidiary Guarantee, Section 4.20 and this Article 10 shall be limited to
the maximum amount as will, after giving effect to all other contingent and
fixed liabilities of such Subsidiary Guarantor and after giving effect to any
collections from or payments made by or on behalf of any other Subsidiary
Guarantor in respect of the obligations of such other Subsidiary Guarantor under
Section 4.20 or this Article 10, result in the obligations of such Subsidiary
Guarantor under its Subsidiary Guarantee not constituting a fraudulent transfer
or conveyance under federal or state law. Each Subsidiary Guarantor
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that makes a payment or distribution under a Subsidiary Guarantee shall be
entitled to contribution from each other Subsidiary Guarantor in pro rata amount
based on the Adjusted Net Assets of each Subsidiary Guarantor.
SECTION 10.06. STAY, EXTENSION AND USURY LAWS.
Each Subsidiary Guarantor covenants (to the extent that it may
lawfully do so) that it shall not at any time insist upon, plead, or in any
manner whatsoever claim or take the benefit or advantage of, any stay, extension
or usury law wherever enacted, now or at any time hereafter in force, that may
affect the covenants or the performance of the Subsidiary Guarantee, and each
Subsidiary Guarantor (to the extent that it may lawfully do so) hereby expressly
waives all benefit or advantage of any such law, and covenants that it shall
not, by resort to any such law, hinder, delay or impede the execution of any
power herein granted to the Trustee, but shall suffer and permit the execution
of every such power as though such law has not been enacted.
ARTICLE 11
RESERVE ACCOUNT
SECTION 11.01. ESTABLISHMENT OF RESERVE ACCOUNT.
There is hereby established and there shall be maintained with the
Trustee, for the ratable benefit of the Holders of the Securities, a special
trust account entitled the "JONES INTERNATIONAL NETWORKS, LTD. RESERVE ACCOUNT"
(the "Reserve Account") for the purposes of (i) paying principal of or interest
in the Securities and (ii) acquiring subject to compliance with the other
provisions of this Indenture either Persons that become Subsidiaries or assets
which constitute all or substantially all of an operating unit or a business.
The Company has, concurrently with the execution of this Indenture, transferred
to the Trustee for deposit in the Reserve Account an aggregate of
U.S.$10,000,000 in cash. The Company shall solely be responsible for the
payment of any Federal, state, local or other taxes owed or owing in respect of
income or interest earned on the monies deposited in the Reserve Account, and
the Trustee will have no obligation or responsibility to pay any such taxes and
shall not apply any of the funds held in the Reserve Account towards the payment
thereof.
SECTION 11.02. INVESTMENT OF FUNDS IN RESERVE ACCOUNT.
The Trustee shall invest all monies in the Reserve Account, as
directed by the Company, in Cash Equivalents or U.S. Government Obligations.
Pending disbursement of funds from the Reserve Account as contemplated by
Section 11.04 below, the Trustee shall reinvest any interest or other payments
received in respect of such investments, as directed by the Company, in
additional Cash Equivalents or U.S. Government Obligations,
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provided that any monies so reinvested and the securities acquired thereby must
- --------
(i) be held as Reserve Collateral (as defined below) in the Reserve Account,
(ii) be subject to the security interest created by this Article 11, and (iii)
otherwise be subject to the terms hereof. The Trustee shall have no obligation
to select, or liability for its failure to so select, a form of Cash Equivalent
or U.S. Government Obligation for the investment of Reserve Account funds, based
on the rate of return provided by such Cash Equivalent or U.S. Government
Obligation.
SECTION 11.03. PLEDGE AND GRANT OF SECURITY INTEREST.
The Company hereby pledges to the Trustee for its benefit and for the
ratable benefit of the Holders of the Securities, and grants to the Trustee for
its benefit and for the ratable benefit of the Holders of the Securities, a
continuing security interest in and to (i) all of the Company's right, title and
interest in the Reserve Account and any cash or Cash Equivalents or U.S.
Government Obligations deposited therein and (ii) all products and proceeds of
any of the securities held at any time in the Reserve Account, including,
without limitation, all dividends, interest, principal payments, cash, options,
warrants, rights, instruments, subscriptions and other property or proceeds from
time to time received, receivable or otherwise distributed or distributable in
respect of or in exchange for any or all of the monies or securities held in the
Reserve Account (collectively "Reserve Collateral"). The Interest Reserve
Collateral secures the prompt and complete payment and performance when due
(whether at stated maturity, by acceleration or otherwise) of all obligations of
the Company under this Indenture and the Securities.
SECTION 11.04. DISBURSEMENTS.
(a) Not less than five (5) Business Days prior to the date on which
any principal of or interest on the Securities will become due the Company may,
in writing, direct the Trustee to transfer from the Reserve Account to the
Trustee in its capacity as Paying Agent funds necessary to provide for payment
in full or any portion of such amounts. Upon receipt of such written request,
the Trustee will take any action necessary to provide for the payment of such
amounts on the Securities directly to the Holders of the Security from proceeds
of the cash or Cash Equivalents or U.S. Government Obligations in the Reserve
Account.
(b) Not less than five (5) Business Days prior to the date on which
the Company or any Restricted Subsidiary shall acquire, merge or consolidate
with another entity or purchase assets as provided in Section 11.01, the Company
may, in writing, direct the Trustee to transfer from the Reserve Account funds
necessary to provide for payment of all or any portion of the purchase price of
such Subsidiary or assets. Upon receipt of a direction from the Company,
together with any other documentation
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reasonably satisfactory to the Trustee to substantiate such use of the Reserve
Account by the Company, the Trustee will take any action necessary to enable it
to pay the requested amount upon the order of the Company. Concurrently with any
release of funds pursuant to this Section 11.04(b), the Company will deliver to
the Trustee an Opinion of Counsel stating that such use of funds has been duly
authorized by all necessary corporate action, and does not contravene, or
constitute a default under, any provisions of applicable law or regulation or of
the organizational documents of the Company or of any agreement, judgment,
injunction, order, decree or other instrument binding upon the Company or result
in the creation or imposition of any Lien on any assets of the Company.
ARTICLE 12
MISCELLANEOUS
SECTION 12.01. TRUST INDENTURE ACT CONTROLS.
If any provision of this Indenture limits, qualifies or conflicts with
another provision which is required to be included in this Indenture by the TIA,
the required provision shall control. Until such time as this Indenture becomes
qualified under the TIA, the Company, the Subsidiary Guarantors and the Trustee
shall be deemed subject to and governed by the TIA as if the Indenture were so
qualified on the date hereof.
SECTION 12.02. NOTICES.
(a) Any notice or communication by the Company, any Subsidiary
Guarantor or the Trustee to the other is duly given if in writing and delivered
in person or mailed by first class mail (registered or certified, return receipt
requested), confirmed facsimile transmission or overnight air courier
guaranteeing next day delivery, to the other's address:
If to the Company or any of the Subsidiary Guarantors:
Jones International Networks, Ltd.
9697 East Mineral Avenue
P.O. Box 3309
Englewood, Colorado 80155-3309
Attention: Chief Financial Officer
If to the Trustee:
U.S. Trust Company of New York
c/o Patricia N. Glazier
Assistant Vice President
515 South Flower Street
Los Angeles, CA 90071-2291
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(b) The Company or the Trustee, by notice to the other, may designate
additional or different addresses for subsequent notices or communications.
(c) All notices and communications (other than those sent to
Securityholders) shall be deemed to have been duly given: at the time delivered
by hand, if personally delivered; five Business Days after being deposited in
the mail, postage prepaid, if mailed; when receipt acknowledged, if by facsimile
transmission; and the next Business Day after timely delivery to the courier, if
sent by overnight air courier guaranteeing next day delivery.
(d) Any notice or communication to a Securityholder shall be mailed
by first class mail, postage prepaid, to its address shown on the register kept
by the Registrar. Any notice or communication shall also be so mailed to any
Person described in TIA (S) 313(c), to the extent required by the TIA. Failure
to mail a notice or communication to a Securityholder or any defect in it shall
not affect its sufficiency with respect to other Securityholders.
(e) If a notice or communication is mailed to any Person in the
manner provided above within the time prescribed, it is duly given, whether or
not the addressee receives it.
(f) If the Company mails a notice or communication to
Securityholders, it shall mail a copy to the Trustee and each Agent at the same
time.
SECTION 12.03. COMMUNICATION BY SECURITYHOLDERS WITH OTHER SECURITYHOLDERS.
Securityholders may communicate pursuant to TIA (S) 312(b) with other
Securityholders with respect to their rights under this Indenture or the
Securities. The Company, the Subsidiary Guarantors, the Trustee, the Registrar
and anyone else shall have the protection of TIA (S) 312(c).
SECTION 12.04. CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT.
Upon any request or application by the Company and/or any of the
Subsidiary Guarantors to the Trustee to take any action under this Indenture,
the Company and/or any of the Subsidiary Guarantors, as the case may be, shall
furnish to the Trustee:
(i) an Officer's Certificate in form and substance reasonably
satisfactory to the Trustee (which shall include the statements set forth
in Section 12.05 hereof) stating that, in the opinion of the signers, all
conditions precedent and covenants, if any, provided for in this Indenture
relating to the proposed action have been
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satisfied (except with regard to an authentication order pursuant to
Section 2.02(c) hereof, which shall require a certificate of two Officers);
and
(ii) an Opinion of Counsel in form and substance reasonably
satisfactory to the Trustee (which shall include the statements set forth
in Section 12.05 hereof) stating that, in the opinion of such counsel, all
such conditions precedent and covenants have been satisfied.
SECTION 12.05. STATEMENTS REQUIRED IN CERTIFICATE OR OPINION.
Each certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture (other than a certificate
provided pursuant to TIA (S) 314(a)(4)) shall comply with the provisions of TIA
(S) 314(e), shall comply with the definition of the term "Officers' Certificate"
and shall include:
(i) a statement that the person making such certificate or opinion
has read such covenant or condition;
(ii) a brief statement as to the nature and scope of the examination
or investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(iii) a statement that, in the opinion of such person, he or she has
made such examination or investigation as is necessary to enable him to
express an informed opinion as to whether or not such or her covenant or
condition has been satisfied; and
(iv) a statement as to whether or not, in the opinion of such
person, such condition or covenant has been satisfied.
SECTION 12.06. RULES BY TRUSTEE AND AGENTS.
The Trustee may make reasonable rules for action by or at a meeting of
Securityholders. The Registrar or Paying Agent may make reasonable rules and
set reasonable requirements for its functions.
SECTION 12.07. LEGAL HOLIDAYS.
A "Legal Holiday" is a Saturday, a Sunday or a day on which banking
institutions in New York City, N.Y., or at a place of payment are authorized or
obligated by law, regulation or executive order to remain closed. If a payment
date is a Legal Holiday at a place of payment, payment may be made at that place
on the next succeeding day that is not a Legal Holiday, and no interest shall
accrue for the intervening period.
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SECTION 12.08. NO RECOURSE AGAINST OTHERS.
No past, present or future director, officer, employee, agent,
manager, stockholder or partner of the Company or any Subsidiary Guarantor or
their respective predecessors shall have any liability for any Obligations of
the Company under the Securities or this Indenture or for any claim based on, in
respect of, or by reason of such Obligations or their creation. Each
Securityholder by accepting a Security waives and releases all such liability.
This waiver and release are part of the consideration for issuance of the
Securities.
SECTION 12.09. DUPLICATE ORIGINALS.
The parties may sign any number of copies of this Indenture. One
signed copy is enough to prove this Indenture.
SECTION 12.10. GOVERNING LAW.
This Indenture and the Securities shall be governed by, and construed
in accordance with, the laws of the State of New York, but without giving effect
to applicable principles of conflicts of law to the extent that the application
of the laws of another jurisdiction would be required thereby.
SECTION 12.11. NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS.
This Indenture may not be used to interpret another indenture, loan or
debt agreement of any of the Subsidiary Guarantors, the Company or their
respective Subsidiaries. Any such indenture, loan or debt agreement may not be
used to interpret this Indenture.
SECTION 12.12. SUCCESSORS.
Except as provided herein, all agreements of the Company and the
Subsidiary Guarantors in this Indenture and the Securities shall bind its
successors. All agreements of the Trustee in this Indenture shall bind its
successor.
SECTION 12.13. SEVERABILITY.
In case any provision in this Indenture or in the Securities shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
SECTION 12.14. COUNTERPART ORIGINALS.
This Indenture may be executed in any number of counterparts, each of
which so executed shall be an original, but all of them together represent the
same agreement.
SECTION 12.15. TABLE OF CONTENTS, HEADINGS, ETC.
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The Table of Contents, Cross-Reference Table and Headings of the
Articles and Sections of this Indenture have been inserted for convenience of
reference only, are not to be considered a part of this Indenture and shall in
no way modify or restrict any of the terms or provisions hereof.
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IN WITNESS WHEREOF, the parties hereto have caused this Indenture to
be duly executed as of the date first written above.
SIGNATURES
JONES INTERNATIONAL NETWORKS, LTD.
By_________________________________
Name:
Title:
U.S. TRUST COMPANY OF NEW YORK,
as Trustee
By /s/ Patricia N. Glazier
---------------------------------
Name: Patricia N. Glazier
Title: Assistant Vice President
JPN, INC.
By_________________________________
Name:
Title:
JONES SPACE HOLDINGS, INC.
By_________________________________
Name:
Title:
JONES EARTH SEGMENT, INC.
By_________________________________
Name:
Title:
JONES INFOMERCIAL NETWORKS, INC.
By_________________________________
Name:
Title:
JONES RADIO HOLDINGS, INC.
By_________________________________
Name:
Title:
GREAT AMERICAN COUNTRY, INC.
By_________________________________
Name:
Title:
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to
be duly executed as of the date first written above.
SIGNATURES
JONES INTERNATIONAL NETWORKS, LTD.
By Gregory J. Liptak
----------------------------------
Name: Gregory J. Liptak
Title: President
U.S. TRUST COMPANY OF NEW YORK,
as Trustee
By_________________________________
Name:
Title:
JPN, INC.
By /s/ Gregory J. Liptak
---------------------------------
Name: Gregory J. Liptak
Title: President
JONES SPACE HOLDINGS, INC.
By /s/ Gregory J. Liptak
---------------------------------
Name: Gregory J. Liptak
Title: President
JONES EARTH SEGMENT, INC.
By /s/ Elizabeth M. Steele
---------------------------------
Name: Elizabeth M. Steele
Title: Vice President
JONES INFOMERCIAL NETWORKS, INC.
By /s/ Gregory J. Liptak
---------------------------------
Name: Gregory J. Liptak
Title: President
JONES RADIO HOLDINGS, INC.
By /s/ Gregory J. Liptak
---------------------------------
Name: Gregory J. Liptak
Title: President
GREAT AMERICAN COUNTRY, INC.
By /s/ Gregory J. Liptak
---------------------------------
Name: Gregory J. Liptak
Title: Vice President
99
<PAGE>
JONES GALACTIC RADIO, INC.
By /s/ Gregory J. Liptak
---------------------------------
Name: Gregory J. Liptak
Title: Group Vice President
JONES INFOMERCIAL NETWORK VENTURES, INC.
By /s/ Gregory J. Liptak
---------------------------------
Name: Gregory J. Liptak
Title: President
JONES GALACTIC RADIO PARTNERS, INC.
By /s/ Gregory J. Liptak
---------------------------------
Name: Gregory J. Liptak
Title: President
JONES RADIO NETWORK, INC.
By /s/ Elizabeth Steele
---------------------------------
Name: Elizabeth M. Steele
Title: Vice President
JONES AUDIO SERVICES, INC.
By /s/ Gregory J. Liptak
---------------------------------
Name: Gregory J. Liptak
Title: President
JONES RADIO NETWORK VENTURES, INC.
By /s/ Gregory J. Liptak
---------------------------------
Name: Gregory J. Liptak
Title: President
JONES/OWENS RADIO PROGRAMMING, LLC.
By /s/ Gregory J. Liptak
---------------------------------
Name: Gregory J. Liptak
Title: President
JONES MAI, INC.
By /s/ Gregory J. Liptak
---------------------------------
Name: Gregory J. Liptak
Title: President
JONES MAI RADIO, INC.
By /s/ Gregory J. Liptak
---------------------------------
Name: Gregory J. Liptak
Title: President
100
<PAGE>
EXHIBITS
--------
Exhibit A-1 Form of Note
Exhibit A-2 Form of Regulation S Temporary Global Notes
Exhibit A-3 Form of Exchange Senior Secured Note
Exhibit B-1 Form of Certificate For Registration of Transfer From Restricted
Global Note to Regulation S Global Note
Exhibit B-2 Form of Certificate For Registration of Transfer From Regulation S
Global Note to Restricted Global Note
Exhibit B-3 Form of Certificate For Exchange or Registration of Transfer of
Certificated Notes
Exhibit B-4 Form of Certificate For Exchange of Restricted Global Note or
Regulation S Permanent Global Note to Certificated Note
Exhibit C Subsidiary Guarantee Agreement.
SCHEDULE
--------
Schedule 1 Liens outstanding immediately after the Issue Date.
-i-
<PAGE>
EXHIBIT A-1
FORM OF NOTE
(Face of Note)
JONES INTERNATIONAL NETWORKS, LTD.
11 3/4% SENIOR SECURED NOTE DUE 2005, SERIES A
[UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR NOTES IN
DEFINITIVE FORM, THIS NOTE MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE
DEPOSITARY TO A NOMINEE OF THE DEPOSITARY, OR BY ANY SUCH NOMINEE OF THE
DEPOSITARY TO ANY OTHER NOMINEE OF THE DEPOSITARY OR BY THE DEPOSITARY OR
ANY NOMINEE OF THE DEPOSITARY TO A SUCCESSOR DEPOSITARY OR A NOMINEE OF
SUCH SUCCESSOR DEPOSITARY. TRANSFERS OF THIS GLOBAL NOTE SHALL BE LIMITED
TO TRANSFERS IN WHOLE, BUT NOT IN PART, TO NOMINEES OF CEDE & CO. OR TO A
SUCCESSOR THEREOF OR SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF
THIS GLOBAL NOTE SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE
RESTRICTIONS SET FORTH IN THE INDENTURE.
UNLESS THIS NOTE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE ISSUER OR
ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY
CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER
NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY
PAYMENT HEREON IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR
OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL
INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST
HEREIN.]/1/
[THIS NOTE AND ITS PREDECESSORS HAVE NOT BEEN REGISTERED UNDER THE U.S.
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND ACCORDINGLY,
NEITHER THIS NOTE NOR A BENEFICIAL INTEREST HEREIN MAY BE OFFERED, SOLD OR
PLEDGED OR OTHERWISE TRANSFERRED WITHIN THE UNITED STATES TO, OR FOR THE
ACCOUNT OR BENEFIT OF, UNITED STATES PERSONS EXCEPT AS SET FORTH IN THE
FOLLOWING SENTENCE. BY ITS ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS
THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A
UNDER THE SECURITIES ACT) OR (B) IT IS NOT A U.S. PERSON, IS NOT ACQUIRING
THIS NOTE FOR THE ACCOUNT OR BENEFIT OF A U.S. PERSON AND IS ACQUIRING THIS
NOTE IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH REGULATION S UNDER THE
SECURITIES ACT, (2) AGREES THAT IT WILL NOT, WITHIN THE TIME PERIOD
REFERRED TO IN RULE 144(k) UNDER THE SECURITIES ACT AS IN EFFECT WITH
RESPECT TO SUCH TRANSFER, RESELL OR OTHERWISE TRANSFER THIS NOTE EXCEPT (A)
TO JONES INTERNATIONAL NETWORKS, LTD. OR ANY SUBSIDIARY THEREOF, (B) INSIDE
THE UNITED STATES TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH
RULE 144A UNDER THE SECURITIES ACT, (C) INSIDE THE UNITED STATES TO AN
INSTITUTIONAL ACCREDITED INVESTOR (AS DEFINED IN RULE 501(a)(1),(2),(3) OR
______________
/1/ To be included only if the Security is issued in global form.
A-1-1
<PAGE>
(7) UNDER THE SECURITIES ACT) THAT, PRIOR TO SUCH TRANSFER, FURNISHES TO
THE TRUSTEE A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND
AGREEMENTS RELATING TO THE RESTRICTIONS ON TRANSFER OF THIS NOTE (THE FORM
OF WHICH LETTER CAN BE OBTAINED FROM THE TRUSTEE), AND IF SUCH TRANSFER IS
IN RESPECT OF AN AGGREGATE PRINCIPAL AMOUNT OF NOTES AT THE TIME OF
TRANSFER OF LESS THAN $250,000, AN OPINION OF COUNSEL ACCEPTABLE TO JONES
INTERNATIONAL NETWORKS, LTD. THAT SUCH TRANSFER IS IN COMPLIANCE WITH THE
SECURITIES ACT, (D) OUTSIDE THE UNITED STATES IN AN OFFSHORE TRANSACTION IN
COMPLIANCE WITH RULE 904 UNDER THE SECURITIES ACT, (E) PURSUANT TO THE
EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT
(IF AVAILABLE), (F) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OR (G) IN ACCORDANCE WITH ANOTHER EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT (BASED UPON AN OPINION OF
COUNSEL ACCEPTABLE TO JONES INTERNATIONAL NETWORKS, LTD.) AND, IN EACH
CASE, IN ACCORDANCE WITH APPLICABLE SECURITIES LAWS AND (3) AGREES THAT IT
WILL DELIVER TO EACH PERSON TO WHOM THIS NOTE IS TRANSFERRED A NOTICE
SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. AS USED HEREIN, THE TERMS
"OFFSHORE TRANSACTION," "UNITED STATES" AND "U.S. PERSON" HAVE THE MEANINGS
GIVEN TO THEM BY RULE 902 OF REGULATION S UNDER THE SECURITIES ACT. THE
INDENTURE CONTAINS A PROVISION REQUIRING THE TRUSTEE TO REFUSE TO REGISTER
ANY TRANSFER OF THIS NOTE IN VIOLATION OF THE FOREGOING RESTRICTIONS.
A HOLDER OF THIS NOTE SHALL HAVE ALL THE RIGHTS SET FORTH IN THE
REGISTRATION RIGHTS AGREEMENT.]/2/
___________________
/2/ To be included on the Initial Senior Secured Securities and omitted from
the Exchange Senior Secured Securities.
A-1-2
<PAGE>
JONES INTERNATIONAL NETWORKS, LTD.
11 3/4% SENIOR SECURED NOTE DUE 2005, SERIES A
No. 1 $100,000,000
Record Dates: June 15 and December 15 CUSIP No. 480208AA5
Interest Payment Dates: January 1 and July 1, Maturity Date: July 1, 2005
commencing January 1, 1999
JONES INTERNATIONAL NETWORKS, LTD., a Colorado corporation (the "Company," which
term includes any successor corporation under the indenture hereinafter referred
to), for value received promises to pay to or registered assigns, the principal
sum of $100,000,000 Dollars on July 1, 2005.
Reference is hereby made to the further provisions of this Note set forth
on the reverse hereof, which further provisions shall for all purposes have the
same effect as set forth at this place.
Unless the certificate of authentication hereon has been executed by the
Trustee referred to on the reverse hereof by manual signature, this Note shall
not be entitled to any benefits under the Indenture referred to on the reverse
hereof or be valid or obligatory for any purpose.
IN WITNESS WHEREOF, the Company has caused this Note to be duly executed
under its corporate seal.
Dated: July 10, 1998
JONES INTERNATIONAL NETWORKS, LTD.
By:_________________________
Name: Gregory J. Liptak
Title: President
By:_________________________
Name: Elizabeth M. Steele
Title: Secretary
A-1-3
<PAGE>
This is one of the Notes referred to in the
within-mentioned Indenture:
U.S. TRUST COMPANY OF NEW YORK,
as Trustee
By:______________________________
Name:
Title:
A-1-4
<PAGE>
(Back of Note)
11 3/4% SENIOR SECURED NOTES DUE 2005, SERIES A
Capitalized terms used herein shall have the meanings assigned to them in
the Indenture referred to below unless otherwise indicated.
1. Interest. Jones International Networks, Ltd., a Colorado
corporation (the "Company"), promises to pay interest on the principal amount of
this Security at the rate and in the manner specified below. The Company shall
pay, in cash, interest on the principal amount of this Security at the rate per
annum of 11 3/4%. The Company will pay interest semiannually in arrears on
January 1 and July 1 of each year (each an "Interest Payment Date"), commencing
January 1, 1999, or if any such day is not a Business Day on the next succeeding
Business Day. Interest will be computed on the basis of a 360-day year
consisting of twelve 30-day months. Interest shall accrue from the most recent
Interest Payment Date to which interest has been paid or, if no interest has
been paid, from the date of the original issuance of the Securities. To the
extent lawful, the Company shall pay interest on overdue principal at the rate
of 2% per annum in excess of the then applicable interest rate on the
Securities; it shall pay interest on overdue installments of interest (without
regard to any applicable grace periods) at the same rate to the extent lawful.
The rate of interest payable on this Security shall be subject to the assessment
of additional interest (the "Additional Interest") as follows:
(i) if the Exchange Offer Registration Statement (as defined below)
or Shelf Registration Statement (as defined below) is not filed within 45 days
following the Issue Date (the "Filing Date"), Additional Interest shall accrue
on the Securities over and above the stated interest at a rate of 0.50% per
annum for the first 30 days commencing on the 16th day after the Filing Date,
such Additional Interest rate increasing by an additional 0.50% per annum at the
beginning of each subsequent 30-day period;
(ii) if the Exchange Offer Registration Statement or Shelf
Registration Statement is not declared effective within 75 days following the
Filing Date, Additional Interest shall accrue on the Securities over and above
the stated interest at a rate of 0.50% per annum for the first 30 days
commencing on the 76th day after the Filing Date, such Additional Interest rate
increasing by an additional 0.50% per annum at the beginning of each subsequent
90-day period; or
(iii) if (A) the Company and the Subsidiary Guarantors have not
exchanged all Securities validly tendered in accordance with the terms of the
Exchange Offer on or prior to 135 days after the Filing Date or (B) the Exchange
Offer Registration Statement ceases to be effective at any time prior to the
time that the Exchange Offer is consummated or (C) if applicable, the Shelf
Registration Statement has been declared effective and such Shelf Registration
Statement ceases to be effective at any time prior to the second anniversary of
the Issue Date (unless all the Securities have been sold thereunder), then
Additional Interest shall accrue on the Securities over and above the stated
interest at a rate of 0.50% per annum for the first 90 days commencing on (x)
the 136th day after the Filing Date with respect to the Securities validly
tendered and not exchanged by the Company, in the case of (A) above, or (y) the
day the Exchange Offer Registration Statement ceases to be effective or usable
for its intended purpose in the case of (B) above, or (z) the day such Shelf
Registration Statement ceases to be effective in the case of (C) above, such
Additional Interest rate increasing by an additional 0.50% per annum at the
beginning of each subsequent 90-day period; provided, however, that the
Additional Interest rate on the Securities under clauses (i), (ii) and (iii)
above may not exceed in the aggregate 2.0% per annum; and provided further, that
(1) upon the filing of the Exchange Offer Registration Statement or Shelf
Registration Statement (in the case of clause (i) above), (2) upon the
effectiveness of the Exchange Offer Registration Statement or Shelf Registration
Statement (in the case of (ii) above), or (3) upon the exchange of Exchange
Securities for all Securities tendered (in the case of clause (iii)(A) above),
or upon the effectiveness of the Exchange Offer Registration Statement which had
ceased to remain effective (in the case of clause (iii)(B) above), or upon the
effectiveness of the Shelf Registration Statement which had ceased to remain
effective (in the case of clause (iii)(C) above), Additional Interest on the
Securities as a result of such clause (or the relevant subclause thereof), as
the case may be, shall cease to accrue.
A-1-5
<PAGE>
"Exchange Offer" shall mean the exchange offer by the Company of
Initial Securities for Exchange Securities pursuant to Section 2(a) of the
Registration Rights Agreement.
"Exchange Offer Registration Statement" shall mean an exchange offer
registration statement on Form S-4 (or, if applicable, on another appropriate
form) and all amendments and supplements to such registration statement, in each
case including the Offering Memorandum or prospectus contained therein, all
exhibits thereto and all material incorporated by reference therein.
"Record Date" shall have the meaning provided on the front of this
Security.
"Shelf Registration Statement" shall mean a "shelf" registration
statement of the Company and the Subsidiary Guarantors pursuant to the
provisions of the Registration Rights Agreement which covers all of the Initial
Securities on an appropriate form under Rule 415 under the Securities Act, or
any similar rule that may be adopted by the Commission, and all amendments and
supplements to such registration statement, including post-effective amendments,
in each case including the Offering Memorandum contained therein, all exhibits
thereto and all material incorporated by reference therein.
2. Method of Payment. The Company shall pay interest on the
Securities (except defaulted interest) to the Persons who are registered Holders
of Securities at the close of business on the Record Date immediately preceding
the Interest Payment Date, even if such Securities are canceled after such
Record Date and on or before such Interest Payment Date. Securityholders must
surrender Securities to a Paying Agent to collect principal payments. The
Company shall
A-1-6
<PAGE>
pay principal, premium, if any, and interest in monies of the
United States that at the time of payment is legal tender for payment of public
and private debts ("U.S. Legal Tender"). However, the Company may pay
principal, premium, if any, and interest by its check payable in such U.S. Legal
Tender. The Company may deliver any such interest payment to the Paying Agent
or to a Securityholder at the Securityholder's registered address.
3. Paying Agent and Registrar. Initially, the Trustee will act as
Paying Agent and Registrar. The Company may change any Paying Agent, Registrar
or co-registrar without prior notice to any Securityholder. The Company or any
Guarantor of the Company may act in any such capacity, except that none of the
Company, its Subsidiaries or their Affiliates shall act (i) as Paying Agent in
connection with any redemption, offer to purchase, discharge or defeasance, as
otherwise specified in the Indenture, and (ii) as Paying Agent or Registrar if a
Default or Event of Default has occurred and is continuing.
4. Indenture. The Company issued the Securities under an Indenture,
dated as of July 10, 1998 (the "Indenture"), between the Company and the
Trustee. The terms of the Securities include those stated in the Indenture and
those made part of the Indenture by reference to the TIA as in effect on the
date the Indenture is qualified. The Securities are subject to all such terms,
and Securityholders are referred to the Indenture and the TIA for a statement of
such terms. The terms of the Indenture shall govern any inconsistencies between
the Indenture and the Securities. The Securities are senior Obligations of the
Company limited to $100,000,000 in aggregate principal amount.
5.(a) Optional Redemption. Except as indicated in the next
succeeding paragraph, the Securities are not redeemable at the Company's option
prior to July 1, 2003. Thereafter, the Securities will be redeemable, at the
option of the Company, in whole or in part, at the redemption prices (expressed
as percentages of the principal amount of the Securities) set forth below, plus
accrued interest to the redemption date:
PERIOD REDEMPTION PRICE
------ ----------------
2003........................ 105.875%
2004 and thereafter 100.000%
(b) Optional Redemption Upon Equity Offerings. At any time, or from
time to time, on or prior to July 1, 2001, the Company may, at its option, use
the Net Cash Proceeds of one or more Equity Offerings by the Company at a
redemption price equal to 111.75% of the principal amount thereof, plus accrued
and unpaid interest thereon, if any, to the date of redemption; provided,
however, that after any such redemption, the aggregate principal amount of the
Securities outstanding must equal at least 65% of the aggregate principal amount
of the Securities issued under the Indenture; and provided further, that the
Company may not so redeem the Securities in connection with a Change of Control.
In order to effect the foregoing
A-1-7
<PAGE>
redemption with the proceeds of any Equity Offering, the Company shall make such
redemption not more than 90 days after the consummation of any such Equity
Offering.
6. Mandatory Redemption. The Securities are not subject to mandatory
redemption or sinking fund payments.
7. Repurchase at Option of Securityholder. (a) If there is a Change
of Control, each Holder of Securities will have the right to require the Company
to repurchase all or any part of such Holder's Securities at a repurchase price
equal to 101% of the principal amount thereof, plus accrued and unpaid interest,
if any, to the date of repurchase (subject to the right of Holders of record on
the relevant Record Date to receive interest due on the relevant Interest
Payment Date). Within 30 days following any Change of Control, the Company will
mail a notice to each Securityholder stating (i) that a Change of Control has
occurred and that such Securityholder has the right to require the Company to
repurchase all or any part of such Securityholder's Securities at a repurchase
price in cash equal to 101% of the principal amount thereof plus accrued and
unpaid interest, if any, to the date of repurchase (subject to the right of
Holders of record on the relevant Record Date to receive interest due on the
relevant Interest Payment Date); (ii) the circumstances and relevant facts
regarding such Change of Control (including information with respect to pro
forma historical income, cash flow and capitalization after giving effect to
such Change of Control); (iii) the repurchase date (which will be no earlier
then 30 days nor later than 60 days from the date such notice is mailed); and
(iv) the procedures, determined by the Company consistent with the Indenture,
that a Securityholder must follow in order to have its Securities repurchased.
Securityholders that are subject to an offer to repurchase may elect to have
such Securities repurchased by completing the form entitled "Option of
Securityholder to Elect Purchase" appearing below.
(b) If the Company or a Subsidiary consummates any Asset Disposition,
and the aggregate amount of Net Available Cash remaining from such an Asset
Disposition after any repayment of Senior Indebtedness or purchase of Additional
Assets exceeds $5 million, the Company shall be required to offer to purchase
the maximum principal amount of Securities, that is in an integral multiple of
$1,000, that may be purchased out of the Net Available Cash at 101% of the
principal amount thereof, plus accrued and unpaid interest, if any, to the date
fixed for the closing of such offer in accordance with the procedures set forth
in the Indenture (subject to the right of Holders of record on the relevant
Record Date to receive interest due on the relevant Interest Payment Date). If
the aggregate principal amount of Securities surrendered by Holders thereof
exceeds the amount of Net Available Cash, the Securities to be redeemed shall be
selected on a pro rata basis. Securityholders that are the subject of an offer
to purchase will receive an Asset Disposition Offer from the Company prior to
any related purchase date and may elect to have such Securities purchased by
completing the form entitled "Option of Securityholder to Elect Purchase"
appearing below.
8. Notice of Redemption. Notice of redemption shall be mailed at
least 30 (unless a shorter period is acceptable to the Trustee) but not more
than 60 days before the redemption date to each Holder whose Securities are to
be redeemed at its registered address. Securities may
A-1-8
<PAGE>
be redeemed in part but only in whole multiples of $1,000, unless all of the
Securities held by a Securityholder are to be redeemed. On and after the
redemption date, interest ceases to accrue on Securities or portions of them
called for redemption.
9. Registration Rights. Pursuant to the Registration Rights
Agreement, and subject to certain terms and conditions stated therein, the
Company will be obligated to consummate an Exchange Offer pursuant to which the
Holders of the Initial Securities shall have the right to exchange this Security
for Exchange Securities, which have been registered under the Securities Act, in
like principal amount and having terms identical in all material respects to the
Initial Securities.
10. Denominations, Transfer, Exchange. The Securities are in
registered form without coupons in denominations of $1,000 and integral
multiples of $1,000. The transfer of Securities may be registered and
Securities may be exchanged as provided in the Indenture. The Registrar and the
Trustee may require a Securityholder among other things, to furnish appropriate
endorsements and transfer documents and to pay any taxes and fees required by
law or permitted by the Indenture. The Registrar need not exchange or register
the transfer of any Security or portion of a Security selected for redemption.
Also, it need not exchange or register the transfer of any Securities during a
period beginning at the opening of business on a Business Day 15 days before the
day of any selection of Securities to be redeemed and ending at the close of
business on the day of selection or during the period between a Record Date and
the corresponding Interest Payment Date.
11. Persons Deemed Owners. Prior to due presentment to the Trustee
for registration of the transfer of this Security, the Trustee, any Agent and
the Company may deem and treat the Person in whose name this Security is
registered as its absolute owner for the purpose of receiving payment of
principal of and premium, if any, and interest on, this Security and for all
other purposes whatsoever, whether or not this Security is overdue, and neither
the Trustee, any Agent nor the Company shall be affected by notice to the
contrary. The registered Securityholder shall be treated as its owner for all
purposes.
12. Amendments and Waivers. Subject to certain exceptions provided
in the Indenture, the Indenture or the Securities may be amended with the
consent of the Holders of a majority in principal amount of the then outstanding
Securities, and any existing Default or Event of Default (except a payment
default) may be waived with the consent of the Holders of a majority in
principal amount of the then outstanding Securities. Without the consent of any
Securityholder, the Indenture or the Securities may be amended to, among other
things, cure any ambiguity, defect or inconsistency, to comply with the
requirements of the Commission in order to effect or maintain qualification of
the Indenture under the TIA or to make any change that does not adversely affect
the rights of any Securityholder.
13. Defaults and Remedies. If an Event of Default occurs and is
continuing, the Trustee or the Holders of at least 25% in principal amount of
the then outstanding Securities may declare the unpaid principal of, and any
accrued and unpaid interest on, all the Securities to be due and payable
immediately; provided, that in the case of an Event of Default arising from
certain events of bankruptcy or insolvency with respect to the Company or any
Significant Subsidiary, all outstanding Securities shall become due and payable
immediately without further action or notice. Securityholders may not enforce
the Indenture or the Securities
A-1-9
<PAGE>
except as provided in the Indenture. The Trustee may require indemnity
satisfactory to it before it enforces the Indenture or the Securities. Subject
to certain limitations, Holders of a majority in principal amount of the then
outstanding Securities may direct the Trustee in its exercise of any trust or
power. The Trustee may withhold from Securityholders notice of any continuing
default (except a default in payment of any amount due) if it determines that
withholding notice is in their interests. The Company must furnish an annual
compliance certificate to the Trustee.
14. Trustee Dealings with the Company. The Trustee under the
Indenture, in its individual or any other capacity may make loans to, accept
deposits from, and perform services for the Company, the Subsidiary Guarantors
or any Affiliate of the Company or the Subsidiary Guarantors, and may otherwise
deal with the Company, the Subsidiary Guarantors and their respective Affiliates
as if it were not Trustee.
15. Restrictive Covenants. The Indenture imposes certain limitations
on the ability of the Company and its Restricted Subsidiaries to, among other
things, incur additional Indebtedness, make payments in respect of its Capital
Stock or certain Indebtedness, enter into transactions with Affiliates, create
dividend or other payment restrictions affecting Subsidiaries, merge or
consolidate with any other Person, sell, assign, transfer, lease, convey or
otherwise dispose of all or substantially all of its assets or adopt a plan of
liquidation. Such limitations are subject to a number of important
qualifications and exceptions provided for in the Indenture. The Company must
annually report to the Trustee on compliance with such limitations.
16. Authentication. This Security shall not be valid until
authenticated by the manual signature of the Trustee or an authenticating agent.
17. Subsidiary Guarantees. Each Subsidiary Guarantor has jointly and
severally irrevocably and unconditionally guaranteed the payment of all amounts
(including interest on overdue principal and overdue interest, if lawful) due on
the Securities; provided, however, each Subsidiary Guarantor that makes a
payment or distribution under a Subsidiary Guarantee shall be entitled to a
contribution from each other Guarantor in a pro rata amount based on the
Adjusted Net Assets of each Subsidiary Guarantor.
18. Defeasance. Subject to certain conditions provided for in the
Indenture, the Company at any time may terminate some or all of its obligations
under the Securities and the Indenture if the Company deposits with the Trustee
money or U.S. Government Obligations for the payment of principal, premium (if
any) and interest on the Securities to redemption or maturity, as the case may
be.
19. Governing Law. The laws of the State of New York shall govern
this Security and the Indenture, without regard to principles of conflict of
laws.
20. Abbreviations. Customary abbreviations may be used in the name
of a Securityholder or an assignee, such as: TEN COM (= tenants in common), TEN
ENT (= tenants by the entireties), JT TEN (= joint tenants with right of
survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (=
Uniform Gifts to Minors Act).
A-1-10
<PAGE>
21. CUSIP Numbers. Pursuant to a recommendation promulgated by the
Committee on Uniform Security Identification Procedures, the Company has caused
CUSIP numbers to be printed on the Securities and has directed the Trustee to
use CUSIP numbers in notices of redemption as a convenience to Securityholders.
No representation is made as to the accuracy of such numbers either as printed
on the Securities or as contained in any notice of redemption and reliance may
be placed only on the other identification numbers placed thereon.
The Company will furnish to any Securityholder upon written request
and without charge a copy of the Indenture. Request may be made to:
Jones International Networks, Ltd.
9697 East Mineral Avenue
P.O. Box 3309
Englewood, Colorado 80155-3309
Attn: Chief Financial Officer
A-1-11
<PAGE>
ASSIGNMENT FORM
To assign this Note, fill in the form below:
(I) or (we) assign and transfer this Note to:
________________________________________________________________________________
(Insert assignee's soc. sec. or tax I.D. no.)
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(Print or type assignee's name, address and zip code)
and irrevocably appoint_________________________________________________________
agent to transfer this Note on the books of the Company. The agent may
substitute another to act for him.
Date:_________________
Your Signature:____________________________
(Sign exactly as your name appears on the
face of this Note)
Signature Guarantee:_____________________________________________________
(Participant in recognized signature guarantee
medallion program)
A-1-12
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you wish to elect to have all or any portion of this Note purchased by
the Company pursuant to Section 4.10 ("Asset Sale Offer") or Section 4.14
("Change of Control Offer") of the Indenture, check the applicable boxes:
[_] Asset Sale Offer: [_] Change of Control Offer:
in whole [_] in whole [_]
in part [_] in part [_]
Amount to be Amount to be
purchased: $___________ purchased: $___________
Dated:____________________ Signature: ___________________________
(Sign exactly as your name
appears on the other side of
this Note)
Signature
Guarantee:______________________________________________________________________
(Participant in recognized signature guarantee medallion program)
Social Security Number or
Taxpayer Identification Number:_________________________________________________
A-1-13
<PAGE>
SCHEDULE OF EXCHANGES FOR EXCHANGE NOTE
OR ANOTHER GLOBAL NOTE/3/
The following exchanges of a part of this Global Note for Certificated
Notes or another Global Note have been made:
<TABLE>
<CAPTION>
Principal Amount
Amount of decrease Amount of increase of this Global Signature of
in Principal in Principal Note following authorized officer
Amount of this Amount of this such decrease (or of Trustee or Note
Date of Exchange Global Note Global Note increase) Custodian
---------------- ---------------- ------------------ ------------------ --------------------
<S> <C> <C> <C> <C>
</TABLE>
____________________
/3/ This should be included only if the Security is issued in global form.
A-1-14
<PAGE>
EXHIBIT A-2
FORM OF REGULATION S TEMPORARY NOTE
(Face of Note)
JONES INTERNATIONAL NETWORKS, LTD.
11 3/4% SENIOR SECURED NOTE DUE 2005, SERIES A
UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR NOTES IN DEFINITIVE
FORM, THIS NOTE MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITARY TO A
NOMINEE OF THE DEPOSITARY, OR BY ANY SUCH NOMINEE OF THE DEPOSITARY TO ANY OTHER
NOMINEE OF THE DEPOSITARY OR BY THE DEPOSITARY OR ANY NOMINEE OF THE DEPOSITARY
TO A SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITARY. TRANSFERS
OF THIS GLOBAL NOTE SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT NOT IN PART, TO
NOMINEES OF CEDE & CO. OR TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR'S NOMINEE AND
TRANSFERS OF PORTIONS OF THIS GLOBAL NOTE SHALL BE LIMITED TO TRANSFERS MADE IN
ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN THE INDENTURE.
UNLESS THIS NOTE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY
TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE ISSUER OR ITS AGENT FOR
REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS
REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS IS REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT HEREON IS MADE TO CEDE & CO.
OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC),
ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY
PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN
INTEREST HEREIN.
THIS NOTE AND ITS PREDECESSORS HAVE NOT BEEN REGISTERED UNDER THE U.S.
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND ACCORDINGLY,
NEITHER THIS NOTE NOR A BENEFICIAL INTEREST HEREIN MAY BE OFFERED, SOLD OR
PLEDGED OR OTHERWISE TRANSFERRED WITHIN THE UNITED STATES TO, OR FOR THE
ACCOUNT OR BENEFIT OF, UNITED STATES PERSONS EXCEPT AS SET FORTH IN THE
FOLLOWING SENTENCE. BY ITS ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS THAT
(A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE
SECURITIES ACT) OR (B) IT IS NOT A U.S. PERSON, IS NOT ACQUIRING THIS NOTE FOR
THE ACCOUNT OR BENEFIT OF A U.S. PERSON AND IS ACQUIRING THIS NOTE IN AN
OFFSHORE TRANSACTION IN COMPLIANCE WITH REGULATION S UNDER THE SECURITIES ACT,
(2) AGREES THAT IT WILL NOT, WITHIN THE TIME PERIOD REFERRED TO IN RULE 144(k)
UNDER THE SECURITIES ACT AS IN EFFECT WITH RESPECT TO SUCH TRANSFER, RESELL OR
OTHERWISE TRANSFER THIS NOTE EXCEPT (A) TO JONES INTERNATIONAL NETWORKS, LTD. OR
ANY SUBSIDIARY THEREOF, (B) INSIDE THE UNITED STATES TO A QUALIFIED
INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT, (C)
INSIDE THE UNITED STATES TO AN INSTITUTIONAL ACCREDITED INVESTOR (AS DEFINED IN
RULE 501(a)(1),(2),(3) OR (7) UNDER THE SECURITIES ACT) THAT, PRIOR TO SUCH
TRANSFER, FURNISHES TO THE TRUSTEE A SIGNED LETTER CONTAINING CERTAIN
REPRESENTATIONS AND AGREEMENTS RELATING TO THE RESTRICTIONS ON TRANSFER OF THIS
NOTE (THE FORM OF WHICH LETTER CAN BE OBTAINED FROM THE TRUSTEE), AND IF SUCH
TRANSFER IS IN RESPECT OF AN AGGREGATE PRINCIPAL AMOUNT OF
A-2-1
<PAGE>
NOTES AT THE TIME OF TRANSFER OF LESS THAN $250,000, AN OPINION OF COUNSEL
ACCEPTABLE TO JONES INTERNATIONAL NETWORKS, LTD. THAT SUCH TRANSFER IS IN
COMPLIANCE WITH THE SECURITIES ACT, (D) OUTSIDE THE UNITED STATES IN AN OFFSHORE
TRANSACTION IN COMPLIANCE WITH RULE 904 UNDER THE SECURITIES ACT, (E) PURSUANT
TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT
(IF AVAILABLE), (F) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OR (G) IN ACCORDANCE WITH ANOTHER EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT (BASED UPON AN OPINION OF COUNSEL ACCEPTABLE
TO JONES INTERNATIONAL NETWORKS, LTD.) AND, IN EACH CASE, IN ACCORDANCE WITH
APPLICABLE SECURITIES LAWS AND (3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO
WHOM THIS NOTE IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS
LEGEND. AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION," "UNITED STATES" AND
"U.S. PERSON" HAVE THE MEANINGS GIVEN TO THEM BY RULE 902 OF REGULATION S UNDER
THE SECURITIES ACT. THE INDENTURE CONTAINS A PROVISION REQUIRING THE TRUSTEE TO
REFUSE TO REGISTER ANY TRANSFER OF THIS NOTE IN VIOLATION OF THE FOREGOING
RESTRICTIONS.
A HOLDER OF THIS NOTE SHALL HAVE ALL THE RIGHTS SET FORTH IN THE REGISTRATION
RIGHTS AGREEMENT.
THE RIGHTS ATTACHING TO THIS REGULATION S TEMPORARY GLOBAL NOTE, AND THE
CONDITIONS AND PROCEDURES GOVERNING ITS EXCHANGE FOR CERTIFICATED NOTES, ARE AS
SPECIFIED IN THE INDENTURE (AS DEFINED HEREIN).
THIS REGULATION S TEMPORARY GLOBAL NOTE IS EXCHANGEABLE IN WHOLE OR IN PART FOR
ONE OR MORE REGULATION S PERMANENT GLOBAL NOTES OR A QIB RESTRICTED NOTE ONLY
(i) AFTER THE TERMINATION OF THE RESTRICTED PERIOD (AS DEFINED IN REGULATION S)
AND (ii) UPON PRESENTATION OF CERTIFICATES REQUIRED BY ARTICLE 2 OF THE
INDENTURE. UPON EXCHANGE OF THIS REGULATION S TEMPORARY GLOBAL NOTE FOR ONE OR
MORE REGULATION S PERMANENT GLOBAL NOTES OR QIB RESTRICTED NOTES, THE TRUSTEE
SHALL CANCEL THIS REGULATION S TEMPORARY GLOBAL NOTE.
A-2-2
<PAGE>
JONES INTERNATIONAL NETWORKS, LTD.
11 3/4% SENIOR SECURED NOTE DUE 2005, SERIES A
No. __________ $_______________
Record Dates: June 15 and December 15 CUSIP No. _______________
Interest Payment Dates: January 1 and July 1, Maturity Date: July 1, 2005
commencing January 1, 1999
JONES INTERNATIONAL NETWORKS, LTD., a Colorado corporation (the "Company,"
which term includes any successor corporation under the indenture hereinafter
referred to), for value received promises to pay to ___________________________
or registered assigns, the principal sum of ________________ Dollars on July 1,
2005.
Reference is hereby made to the further provisions of this Note set forth
on the reverse hereof, which further provisions shall for all purposes have the
same effect as set forth at this place.
Unless the certificate of authentication hereon has been executed by the
Trustee referred to on the reverse hereof by manual signature, this Note shall
not be entitled to any benefits under the Indenture referred to on the reverse
hereof or be valid or obligatory for any purpose.
IN WITNESS WHEREOF, the Company has caused this Note to be duly executed
under its corporate seal.
[SEAL] Dated:
JONES INTERNATIONAL NETWORKS, LTD.
By:_________________________
Name:
Title:
By:_________________________
Name:
Title:
This is one of the Notes referred to in the within-mentioned Indenture:
U.S. TRUST COMPANY OF NEW YORK,
as Trustee
By:______________________________
Name:
Title:
A-2-3
<PAGE>
SCHEDULE OF EXCHANGES FOR GLOBAL NOTES
The following exchanges of a part of this Regulation S Temporary
Global Note for other Global Notes have been made:
<TABLE>
<CAPTION>
Principal Amount
Amount of decrease Amount of increase of this Global Signature of
in Principal in Principal Note following authorized officer
Amount of this Amount of this such decrease (or of Trustee or Note
Date of Exchange Global Note Global Note increase) Custodian
------------------ -------------------- ------------------- ------------------ -------------------
<S> <C> <C> <C> <C>
</TABLE>
A-2-4
<PAGE>
EXHIBIT A-3
FORM OF EXCHANGE SENIOR SECURED NOTE
(Face of New Note)
JONES INTERNATIONAL NETWORKS, LTD.
11 3/4% % SENIOR SECURED NOTE DUE 2005, SERIES B
[UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR NOTES IN DEFINITIVE
FORM, THIS NOTE MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITARY TO A
NOMINEE OF THE DEPOSITARY, OR BY ANY SUCH NOMINEE OF THE DEPOSITARY TO ANY OTHER
NOMINEE OF THE DEPOSITARY OR BY THE DEPOSITARY OR ANY NOMINEE OF THE DEPOSITARY
TO A SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITARY. TRANSFERS
OF THIS GLOBAL NOTE SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT NOT IN PART, TO
NOMINEES OF CEDE & CO. OR TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR'S NOMINEE AND
TRANSFERS OF PORTIONS OF THIS GLOBAL NOTE SHALL BE LIMITED TO TRANSFERS MADE IN
ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN THE INDENTURE.
UNLESS THIS NOTE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY
TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE ISSUER OR ITS AGENT FOR
REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS
REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS IS REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT HEREON IS MADE TO CEDE & CO.
OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC),
ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY
PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN
INTEREST HEREIN.]/4/
____________________
/4/ To be included only if the Security is issued in global form.
A-3-1
<PAGE>
JONES INTERNATIONAL NETWORKS, LTD.
11 3/4% SENIOR SECURED NOTE DUE 2005, SERIES B
No. __________ $_______________
Record Dates: June 15 and December 15 CUSIP No. _______________
Interest Payment Dates: January 1 and July 1, Maturity Date: July 1, 2005
commencing January 1, 1999
JONES INTERNATIONAL NETWORKS, LTD., a Colorado corporation (the "Company,"
which term includes any successor corporation under the indenture hereinafter
referred to), for value received promises to pay to __________________________
or registered assigns, the principal sum of ___________________ Dollars on July
1, 2005.
Reference is hereby made to the further provisions of this Note set forth
on the reverse hereof, which further provisions shall for all purposes have the
same effect as set forth at this place.
Unless the certificate of authentication hereon has been executed by the
Trustee referred to on the reverse hereof by manual signature, this Note shall
not be entitled to any benefits under the Indenture referred to on the reverse
hereof or be valid or obligatory for any purpose.
IN WITNESS WHEREOF, the Company has caused this Note to be duly executed
under its corporate seal.
[SEAL] JONES INTERNATIONAL NETWORKS, LTD.
By:_________________________
Name:
Dated: ____________ Title:
By:_________________________
Name:
Title:
This is one of the Notes referred to in the within-mentioned Indenture:
U.S. TRUST COMPANY OF NEW YORK,
as Trustee
By:______________________________
Name:
Title:
A-3-2
<PAGE>
(Back of Note)
11 3/4% SENIOR SECURED NOTES DUE 2005, SERIES B
Capitalized terms used herein shall have the meanings assigned to them in
the Indenture referred to below unless otherwise indicated.
1. Interest. Jones International Networks, Ltd., a Colorado
corporation (the "Company"), promises to pay interest on the principal amount of
this Security at the rate and in the manner specified below. The Company shall
pay, in cash, interest on the principal amount of this Security at the rate per
annum of 11 3/4%. The Company will pay interest semiannually in arrears on
January 1 and July 1 of each year (each an "Interest Payment Date"), commencing
January 1, 1999, or if any such day is not a Business Day on the next succeeding
Business Day. Interest will be computed on the basis of a 360-day year
consisting of twelve 30-day months. Interest shall accrue from the most recent
Interest Payment Date to which interest has been paid or, if no interest has
been paid, from the date of the original issuance of the Securities. To the
extent lawful, the Company shall pay interest on overdue principal at the rate
of 2% per annum in excess of the then applicable interest rate on the
Securities; it shall pay interest on overdue installments of interest (without
regard to any applicable grace periods) at the same rate to the extent lawful.
2. Method of Payment. The Company shall pay interest on the
Securities (except defaulted interest) to the Persons who are registered
Securityholders at the close of business on the Record Date immediately
preceding the Interest Payment Date, even if such Securities are canceled after
such Record Date and on or before such Interest Payment Date. Securityholders
must surrender Securities to a Paying Agent to collect principal payments. The
Company shall pay principal premium, if any, and interest in money of the United
States that at the time of payment is legal tender for payment of public and
private debts ("U.S. Legal Tender"). However, the Company may pay principal and
interest by its check payable in such U.S. Legal Tender. The Company may
deliver any such interest payment to the Paying Agent or to a Securityholder at
the Securityholder's registered address.
3. Paying Agent and Registrar. Initially, the Trustee will act as
Paying Agent and Registrar. The Company may change any Paying Agent, Registrar
or co-registrar without prior notice to any Securityholder. The Company, or any
Subsidiary Guarantor of the Company may act in any such capacity, except that
none of the Company, its Subsidiaries or their Affiliates shall act (i) as
Paying Agent in connection with any redemption, offer to purchase, discharge or
defeasance, as otherwise specified in the Indenture, and (ii) as Paying Agent or
Registrar if a Default or Event of Default has occurred and is continuing.
4. Indenture. The Company issued the Securities under an Indenture,
dated as of July 10, 1998 (the "Indenture"), between the Company and the
Trustee. The terms of the Securities include those stated in the Indenture and
those made part of the Indenture by reference to the TIA as in effect on the
date the Indenture is qualified. The Securities are subject to all such terms,
and Securityholders are referred to the Indenture and the TIA for a statement of
such terms. The terms of the Indenture shall govern any inconsistencies between
the Indenture and the Securities. The Securities are senior Obligations of the
Company limited to $100,000,000 in aggregate principal amount.
A-3-3
<PAGE>
5. (a) Optional Redemption. Except as indicated in the next
succeeding paragraph, the Securities are not redeemable at the Company's option
prior to July 1, 2003. Thereafter, the Securities will be redeemable, at the
option of the Company, in whole or in part, at the redemption prices (expressed
as percentages of the principal amount of the Securities) set forth below, plus
accrued interest to the redemption date:
PERIOD REDEMPTION PRICE
------ ----------------
2003.......................... 105.875%
2004 and thereafter 100.00%
(b) Optional Redemption Upon Equity Offerings. At any time, or from
time to time, on or prior to July 1, 2001, the Company may, at its option, use
the Net Cash Proceeds of one or more Equity Offerings by the Company at a
redemption price equal to 111.75% of the principal amount thereof, plus accrued
and unpaid interest thereon, if any, to the date of redemption; provided,
however, that after any such redemption, the aggregate principal amount of the
Securities outstanding must equal at least 65% of the aggregate principal amount
of Securities issued under the Indenture and provided further, that the Company
may not so redeem the Securities in connection with a Change of Control. In
order to effect the foregoing redemption with the proceeds of any Equity
Offering, the Company shall make such redemption not more than 90 days after the
consummation of any such Equity Offering.
6. Mandatory Redemption. The Securities are not subject to mandatory
redemption or sinking fund payments.
7. Repurchase at Option of Securityholder. (a) If there is a Change
of Control, each Holder of Securities will have the right to require the Company
to repurchase all or any part of such Holder's Securities at a repurchase price
equal to 101% of the principal amount thereof, plus accrued and unpaid interest,
if any, to the date of repurchase (subject to the right of Holders of record on
the relevant Record Date to receive interest due on the relevant Interest
Payment Date). Within 30 days following any Change of Control, the Company will
mail a notice to each Securityholder stating (i) that a Change of Control has
occurred and that such Securityholder has the right to require the Company to
repurchase all or any part of such Securityholder's Securities at a repurchase
price in cash equal to 101% of the principal amount thereof plus accrued and
unpaid interest, if any, to the date of repurchase (subject to the right of
Holders of record on the relevant Record Date to receive interest due on the
relevant Interest Payment Date); (ii) the circumstances and relevant facts
regarding such Change of Control (including information with respect to pro
forma historical income, cash flow and capitalization after giving effect to
such Change of Control; (iii) the repurchase date (which will be no earlier then
30 days nor later than 60 days from the date such notice is mailed); and (iv)
the procedures, determined by the Company consistent with the Indenture, that a
Securityholder must follow in order to have its
A-3-4
<PAGE>
Securities repurchased. Securityholders that are subject to an offer to
repurchase may elect to have such Securities repurchased by completing the form
entitled "Option of Securityholder to Elect Purchase" appearing below.
(b) If the Company or a Subsidiary consummates any Asset Disposition,
and the aggregate amount of Net Available Cash remaining from such an Asset
Disposition after any repayment of Senior indebtedness of purchase of Additional
Assets exceeds $5 million, the Company shall be required to offer to purchase
the maximum principal amount of Securities, that is in an integral multiple of
$1,000, that may be purchased out of the Net Available Cash, at an offer price
in cash in an amount equal to 101% of the outstanding principal amount thereof,
plus accrued and unpaid interest, if any, to the date fixed for the closing of
such offer in accordance with the procedures set forth in the Indenture (subject
to the right of Holders of record on the relevant Record Date to receive
interest due on the relevant Interest Payment Date). If the aggregate principal
amount of Securities surrendered by Holders thereof exceeds the amount of Net
Available Cash, the Securities to be redeemed shall be selected on a pro rata
basis. Securityholders that are the subject of an offer to purchase will
receive an Asset Disposition Offer from the Company prior to any related
purchase date and may elect to have such Securities purchased by completing the
form entitled "Option of Securityholder to Elect Purchase" appearing below.
8. Notice of Redemption. Notice of redemption shall be mailed at
least 30 days (unless a shorter period is acceptable to the Trustee) but not
more than 60 days before the redemption date to each Holder whose Securities are
to be redeemed at its registered address. Securities may be redeemed in part
but only in whole multiples of $1,000, unless all of the Securities held by a
Securityholder are to be redeemed. On and after the redemption date, interest
ceases to accrue on Securities or portions of them called for redemption.
9. Denominations, Transfer, Exchange. The Securities are in
registered form without coupons in denominations of $1,000 and integral
multiples of $1,000. The transfer of Securities may be registered and
Securities may be exchanged as provided in the Indenture. The Registrar and the
Trustee may require a Securityholder among other things, to furnish appropriate
endorsements and transfer documents and to pay any taxes and fees required by
law or permitted by the Indenture. The Registrar need not exchange or register
the transfer of any Security or portion of a Security selected for redemption.
Also, it need not exchange or register the transfer of any Securities during a
period beginning on the opening of business on a Business Day 15 days before the
day of any selection of Securities to be redeemed and ending on the close of
business on the day of selection or during the period between a Record Date and
the corresponding Interest Payment Date.
10. Persons Deemed Owners. Prior to due presentment to the Trustee
for registration of the transfer of this Security, the Trustee, any Agent and
the Company may deem and treat the Person in whose name this Security is
registered as its absolute owner for the purpose of receiving payment of
principal of and premium, if any, and interest on, this Security and for all
other purposes whatsoever, whether or not this Security is overdue, and neither
the Trustee, any Agent nor the Company shall be affected by notice to the
contrary. The registered Securityholder shall be treated as its owner for all
purposes.
A-3-5
<PAGE>
11. Amendments and Waivers. Subject to certain exceptions provided
in the Indenture, the Indenture or the Securities may be amended with the
consent of the Holders of a majority in principal amount of the then outstanding
Securities, and any existing default or Event of Default (except a payment
default) may be waived with the consent of the Holders of a majority in
principal amount of the then outstanding Securities. Without the consent of any
Securityholder, the Indenture or the Securities may be amended to, among other
things, cure any ambiguity, defect or inconsistency, to comply with the
requirements of the Commission in order to effect or maintain qualification of
the Indenture under the TIA Securityholders or to make any change that does not
adversely affect the rights of any Securityholder.
12. Defaults and Remedies. If an Event of Default occurs and is
continuing, the Trustee or the Holders of at least 25% in principal amount of
the then outstanding Securities may declare the unpaid principal of, and any
accrued and unpaid interest on, all the Securities to be due and payable
immediately; provided, that in the case of an Event of Default arising from
certain events of bankruptcy or insolvency with respect to the Company or any
Significant Subsidiary, all outstanding Securities shall become due and payable
immediately without further action or notice. Securityholders may not enforce
the Indenture or the Securities except as provided in the Indenture. The
Trustee may require indemnity satisfactory to it before it enforces the
Indenture or the Securities. Subject to certain limitations, Holders of a
majority in principal amount of the then outstanding Securities may direct the
Trustee in its exercise of any trust or power. The Trustee may withhold from
Securityholders notice of any continuing default (except a default in payment of
any amount) if it determines that withholding notice is in their interests. The
Company must furnish an annual compliance certificate to the Trustee.
13. Trustee Dealings with the Company. The Trustee under the
Indenture, in its individual or any other capacity may make loans to, accept
deposits from, and perform services for the Company, the Subsidiary Guarantor or
any Affiliate of the Company or the Subsidiary Guarantor, and may otherwise deal
with the Company, the Subsidiary Guarantors and their respective Affiliates as
if it were not Trustee.
14. Restrictive Covenants. The Indenture imposes certain limitations
on the ability of the Company and its Restricted Subsidiaries to, among other
things, incur additional Indebtedness, make payments in respect of its Capital
Stock or certain Indebtedness, enter into transactions with Affiliates, create
dividend or other payment restrictions affecting Subsidiaries, merge or
consolidate with any other Person, sell, assign, transfer, lease, convey or
otherwise dispose of all or substantially all of its assets or adopt a plan of
liquidation. Such limitations are subject to a number of important
qualifications and exceptions provided for in the Indenture. The Company must
annually report to the Trustee on compliance with such limitations.
15. Authentication. This Security shall not be valid until
authenticated by the manual signature of the Trustee or an authenticating agent.
16. Subsidiary Guarantees. Each Subsidiary Guarantor has jointly and
severally irrevocably and unconditionally guaranteed the payment of all amounts
(including interest on overdue principal and overdue interest, if lawful) due on
the Securities; provided, however, each Subsidiary Guarantor that makes a
payment or distribution under a Subsidiary Guarantee shall be entitled to a
contribution from each
A-3-6
<PAGE>
other Subsidiary Guarantor in a pro rata amount based on the Adjusted Net Assets
of each Subsidiary Guarantor.
17. Defeasance. Subject to certain conditions provided for in the
Indenture, the Company at any time may terminate some or all of its obligations
under the Securities and the Indenture if the Company deposits with the Trustee
money or U.S. Government Obligations for the payment of principal, premium (if
any) and interest on the Securities to redemption or maturity, as the case may
be.
18. Governing Law. The laws of the State of New York shall govern
this Security and the Indenture, without regard to principles of conflict of
laws.
19. Abbreviations. Customary abbreviations may be used in the name
of a Securityholder or an assignee, such as: TEN COM (= tenants in common), TEN
ENT (= tenants by the entireties), JT TEN (= joint tenants with right of
survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (=
Uniform Gifts to Minors Act).
20. CUSIP Numbers. Pursuant to a recommendation promulgated by the
Committee on Uniform Security Identification Procedures, the Company has caused
CUSIP numbers to be printed on the Securities and has directed the Trustee to
use CUSIP numbers in notices of redemption as a convenience to Securityholders.
No representation is made as to the accuracy of such numbers either as printed
on the Securities or as contained in any notice of redemption and reliance may
be placed only on the other identification numbers placed thereon.
The Company will furnish to any Securityholder upon written request
and without charge a copy of the Indenture. Request may be made to:
Jones International Networks, Ltd.
9697 East Mineral Avenue
P.O. Box 3309
Englewood, Colorado 80155-3309
Attn: Chief Financial Officer
A-3-7
<PAGE>
ASSIGNMENT FORM
To assign this Note, fill in the form below:
(I) or (we) assign and transfer this Note to:
_______________________________________________________________________________
(Insert assignee's soc. sec. or tax I.D. no.)
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
(Print or type assignee's name, address and zip code)
and irrevocably appoint___________________________________________ agent to
transfer this Note on the books of the Company. The agent may substitute
another to act for him.
Date:________________
Your Signature:___________________________
(Sign exactly as your name appears on the
face of this Note)
Signature Guarantee:_______________________________________________________
(Participant in recognized signature guarantee
medallion program)
A-3-8
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you wish to elect to have all or any portion of this Note purchased by the
Company pursuant to Section 4.10 or Section 4.14 of the Indenture, check the
applicable boxes:
[_] Asset Sale Offer: [_] Change of Control Offer:
in whole [_] in whole [_]
in part [_] in part [_]
Amount to be Amount to be
purchased: $_______ purchased: $_______
Dated: __________________ Signature: _______________________________
(Sign exactly as your name
appears on the other side of
this Note)
Signature
Guarantee:_____________________________________________________________________
(Participant in recognized signature guarantee medallion program)
Social Security Number or
Taxpayer Identification Number:________________________________________________
A-3-9
<PAGE>
SCHEDULE OF EXCHANGES FOR CERTIFICATED NOTE
OR ANOTHER GLOBAL NOTE/5/
The following exchanges of a part of this Global Note for Certificated
Notes or another Global Note have been made:
<TABLE>
<CAPTION>
Principal Amount
Amount of decrease Amount of increase of this Global Signature of
in Principal in Principal Note following authorized officer
Amount of this Amount of this such decrease (or of Trustee or Note
Date of Exchange Global Note Global Note increase) Custodian
- ------------------ ------------------ ------------------ ----------------- ------------------
<S> <C> <C> <C> <C>
</TABLE>
_______________________
/5/ This should be included only if the Security is issued in global form.
A-3-10
<PAGE>
EXHIBIT B-1
FORM OF CERTIFICATE FOR REGISTRATION OF TRANSFER
FROM RESTRICTED GLOBAL NOTE TO REGULATION S GLOBAL NOTE
(PURSUANT TO SECTION 2.17(A)(I) OF THE INDENTURE)
U.S. TRUST COMPANY OF NEW YORK
c/o Patricia N. Glazier
Assistant Vice President
515 South Flower Street
Los Angeles CA 90071-2291
Re: 11 3/4% Senior Secured Notes due 2005, Series A of Jones
International Networks, Ltd.
Reference is hereby made to the Indenture, dated as of July 10, 1998 (the
"Indenture"), among Jones International Networks, Ltd., as issuer (the
"Company"), JPN, Inc., Jones Space Holdings, Inc., Jones Earth Segment, Inc.,
Jones Infomercial Networks, Inc., Jones Radio Holdings, Inc., Great American
Country, Inc., Jones Galactic Radio, Inc., Jones Infomercial Network Ventures,
Inc., Jones Galactic Radio Partners, Inc., Jones Radio Network, Inc., Jones
Audio Services, Inc., Jones Radio Network Ventures, Inc., Jones/Owens Radio
Programming LLC, Jones MAI, Inc. and Jones MAI Radio, Inc., as Guarantors, and
U.S. Trust Company of New York, as trustee. Capitalized terms used but not
defined herein shall have the meanings given to them in the Indenture.
This letter relates to $________ principal amount of Notes which are
evidenced by one or more Restricted Global Notes (CUSIP No. ____________) and
held with the Depositary in the name of ________________ (the "Transferor"). The
Transferor has requested a transfer of such beneficial interest in the Notes to
a Person who will take delivery thereof in the form of an equal principal amount
of Notes evidenced by one or more Regulation S Global Notes (CUSIP No.
______________).
In connection with such request and in respect of such Notes, the
Transferor hereby certifies that such transfer has been effected in compliance
with the transfer restrictions applicable to the Global Notes and pursuant to
and in accordance with Rule 903 or Rule 904 under the United States Securities
Act of 1933, as amended (the "Securities Act"), and accordingly the Transferor
hereby further certifies that:
1. The offer of the Notes was not made to a person in the United
States;
2. At the time the buy order was originated, the transferee was
outside the United States or the Transferor and any person acting on its behalf
reasonably believed and believes that the transferee was outside the United
States;
B-1-1
<PAGE>
3. No directed selling efforts have been made in contravention of the
requirements of Rule 903(b) or 904(b) of Regulation S, as applicable;
4. The transaction is not part of a plan or scheme to evade the
registration requirements of the Securities Act; and
5. If the transaction is completed prior to the expiration of the
Restricted Period, the beneficial interest being transferred as described above
is to be held with the Depositary through Euroclear or Cedel Bank or both
(Common Code _________).
Upon giving effect to this request to exchange a beneficial interest in a
Restricted Global Note for a beneficial interest in a Regulation S Global Note,
the resulting beneficial interest shall be subject to the restrictions on
transfer applicable to Regulation S Global Notes pursuant to the Indenture and
the Securities Act and, if such transfer occurs prior to the end of the
Restricted Period associated with the initial offering of Notes, the additional
restrictions applicable to transfers of interest in the Regulation S Temporary
Global Note.
This certificate and the statements contained herein are made for your benefit
and the benefit of the Company and NatWest Capital Markets Limited, the initial
purchaser of such Notes being transferred. Terms used in this certificate and
not otherwise defined in the Indenture have the meanings set forth in Regulation
S under the Securities Act.
[Insert Name of Transferor]
By: ______________________
Name:
Title:
Dated: __________, _____
cc: Jones International Networks, Ltd.
NatWest Capital Markets Limited.
B-1-2
<PAGE>
EXHIBIT B-2
FORM OF CERTIFICATE FOR REGISTRATION OF TRANSFER
FROM REGULATION S GLOBAL NOTE TO RESTRICTED GLOBAL NOTE
(PURSUANT TO SECTION 2.17(A)(II) OF THE INDENTURE)
U.S. TRUST COMPANY OF NEW YORK
c/o Patricia N. Glazier
Assistant Vice President
515 South Flower Street
Los Angeles CA 90071-2291
Re: 11 3/4% Senior Secured Notes due 2005, Series A of Jones International
Networks, Ltd.
Reference is hereby made to the Indenture, dated as of July 10, 1998 (the
"Indenture"), among Jones International Networks, Ltd., as issuer (the
"Company"), JPN, Inc., Jones Space Holdings, Inc., Jones Earth Segment, Inc.,
Jones Infomercial Networks, Inc., Jones Radio Holdings, Inc., Great American
Country, Inc., Jones Galactic Radio, Inc., Jones Infomercial Network Ventures,
Inc., Jones Galactic Radio Partners, Inc., Jones Radio Network, Inc., Jones
Audio Services, Inc., Jones Radio Network Ventures, Inc., Jones/Owens Radio
Programming LLC, Jones MAI, Inc. and Jones MAI Radio, Inc., as Guarantors, and
U.S. Trust company of New York, as trustee. Capitalized terms used but not
defined herein shall have the meanings given to them in the Indenture.
This letter relates to $________ principal amount of Notes which are evidenced
by one or more Regulation S Global Notes (CUSIP No. ____________) and held with
the Depositary or through [Euroclear] [Cedel Bank] (Common Code _________) in
the name of __________ (the "Transferor"). The Transferor has requested a
transfer of such beneficial interest in the Notes to a Person who will take
delivery thereof in the form of an equal principal amount of Notes evidenced by
one or more Restricted Global Notes (CUSIP No. ______________), to be held with
the Depositary.
In connection with such request and in respect of such Notes, the Transferor
hereby certifies that:
[CHECK ONE]
[ ] such transfer is being effected pursuant to and in accordance with
Rule 144A under the United States Securities Act of 1933, as amended
(the "Securities Act"), and, accordingly, the Transferor hereby
further certifies that the Notes are being transferred to a Person
that the Transferor reasonably believes is purchasing the Notes for
its own account, or for one or more accounts with respect to which
such Person exercises sole investment discretion, and such Person and
each such account is a "qualified
B-2-1
<PAGE>
institutional buyer" within the meaning of Rule 144A in a transaction
meeting the requirements of Rule 144A; or
[ ] such transfer is being effected pursuant to and in accordance with
Rule 144 under the Securities Act; or such transfer is being effected
pursuant to an effective registration statement under the Securities
Act; or
[ ] such transfer is being effected pursuant to an exemption from the
registration requirements of the Securities Act other than Rule 144A
or Rule 144, and the Transferor hereby further certifies that the
Notes are being transferred in compliance with the transfer
restrictions applicable to the Global Notes and in accordance with the
requirements of the exemption claimed, which certification is
supported by an Opinion of Counsel, provided by the Transferor or the
transferee (a copy of which the Transferor has attached to this
certification) in form and substance reasonably acceptable to the
Company, to the effect that such transfer is in compliance with the
Securities Act;
and such Notes are being transferred in compliance with any applicable blue sky
securities laws of any state of the United States.
Upon giving effect to this request to exchange a beneficial interest in
Regulation S Global Notes for a beneficial interest in Restricted Global Notes,
the resulting beneficial interest shall be subject to the restrictions on
transfer applicable to Restricted Global Notes pursuant to the Indenture and the
Securities Act.
This certificate and the statements contained herein are made for your
benefit and the benefit of the Company and NatWest Capital Markets Limited, the
initial purchaser of such Notes being transferred.
[Insert Name of Transferor]
By: ______________________
Name:
Title:
B-2-2
<PAGE>
Dated: __________, _____
cc: Jones International Networks, Ltd.
NatWest Capital Markets Limited.
B-2-3
<PAGE>
EXHIBIT B-3
FORM OF CERTIFICATE FOR EXCHANGE OR REGISTRATION OF TRANSFER
OF EXCHANGE NOTES
(PURSUANT TO SECTION 2.17(B) OF THE INDENTURE)
U.S. TRUST COMPANY OF NEW YORK
c/o Patricia N. Glazier
Assistant Vice President
515 South Flower Street
Los Angeles CA 90071-2291
Re: 11 3/4% Senior Secured Notes due 2005, Series B of Jones International
Networks, Ltd.
Reference is hereby made to the Indenture, dated as of July 10, 1998 (the
"Indenture"), among Jones International Networks, Ltd., as issuer (the
"Company"), JPN, Inc., Jones Space Holdings, Inc., Jones Earth Segment, Inc.,
Jones Infomercial Networks, Inc., Jones Radio Holdings, Inc., Great American
Country, Inc., Jones Galactic Radio, Inc., Jones Infomercial Network Ventures,
Inc., Jones Galactic Radio Partners, Inc., Jones Radio Network, Inc., Jones
Audio Services, Inc., Jones Radio Network Ventures, Inc., Jones/Owens Radio
Programming LLC, Jones MAI, Inc. and Jones MAI Radio, Inc., as Guarantors, and
U.S. Trust Company of New York, as trustee. Capitalized terms used but not
defined herein shall have the meanings given to them in the Indenture.
This letter relates to $________ principal amount of Notes which are
evidenced by one or more Certificated Notes (CUSIP No. ____________) in the name
of ________________ (the "Transferor"). The Transferor has requested an exchange
or transfer of such Certificated Note(s) in the form of an equal principal
amount of Notes evidenced by one or more Certificated Notes (CUSIP No.
______________), to be delivered to the Transferor or, in the case of a transfer
of such Notes, to such Person as the Transferor instructs the Trustee.
In connection with such request and in respect of the Notes surrendered to
the Trustee herewith for exchange (the "Surrendered Notes"), the Holder of such
Surrendered Notes hereby certifies that:
[CHECK ONE]
[ ] the Surrendered Notes are being acquired for the Transferor's own
account, without transfer; or
[ ] the Surrendered Notes are being transferred to the Company; or
B-3-1
<PAGE>
[ ] the Surrendered Notes are being transferred pursuant to and in
accordance with Rule 144A under the United States Securities Act of
1933, as amended (the "Securities Act"), and, accordingly, the
Transferor hereby further certifies that the Surrendered Notes are
being transferred to a Person that the Transferor reasonably believes
is purchasing the Surrendered Notes for its own account, or for one or
more accounts with respect to which such Person exercises sole
investment discretion, and such Person and each such account is a
"qualified institutional buyer" within the meaning of Rule 144A, in
each case in a transaction meeting the requirements of Rule 144A; or
[ ] the Surrendered Notes are being transferred in a transaction permitted
by Rule 144 under the Securities Act; or
[ ] the Surrendered Notes are being transferred pursuant to an effective
registration statement under the Securities Act; or
[ ] such transfer is being effected pursuant to an exemption from the
registration requirements of the Securities Act other than Rule 144A
or Rule 144, and the Transferor hereby further certifies that the
Notes are being transferred in compliance with the transfer
restrictions applicable to the Notes and in accordance with the
requirements of the exemption claimed, which certification is
supported by an Opinion of Counsel, provided by the Transferor or the
transferee (a copy of which the Transferor has attached to this
certification) in form and substance reasonably acceptable to the
Company, to the effect that such transfer is in compliance with the
Securities Act;
and the Surrendered Notes are being transferred in compliance with any
applicable blue sky securities laws of any state of the United States.
This certificate and the statements contained herein are made for your
benefit and the benefit of the Company and NatWest Capital Markets Limited, the
initial purchaser of such Notes being transferred.
B-3-2
<PAGE>
[Insert Name of Transferor]
By: ______________________
Name:
Title:
Dated: __________, _____
cc: Jones International Networks, Ltd.
NatWest Capital Markets Limited.
B-3-3
<PAGE>
EXHIBIT B-4
FORM OF CERTIFICATE FOR EXCHANGE
OF RESTRICTED GLOBAL NOTE OR REGULATION S
PERMANENT GLOBAL NOTE TO CERTIFICATED NOTE
(PURSUANT TO SECTION 2.17(C) OF THE INDENTURE)
U.S. TRUST COMPANY OF NEW YORK
c/o Patricia N. Glazier
Assistant Vice President
515 South Flower Street
Los Angeles CA 90071-2291
Re: 11 3/4% Senior Secured Notes due 2005, Series B of Jones International
Networks, Ltd.
Reference is hereby made to the Indenture, dated as of July 10, 1998 (the
"Indenture"), among Jones International Networks, Ltd., as issuer (the
"Company"), JPN, Inc., Jones Space Holdings, Inc., Jones Earth Segment, Inc.,
Jones Infomercial Networks, Inc., Jones Radio Holdings, Inc., Great American
Country, Inc., Jones Galactic Radio, Inc., Jones Infomercial Network Ventures,
Inc., Jones Galactic Radio Partners, Inc., Jones Radio Network, Inc., Jones
Audio Services, Inc., Jones Radio Network Ventures, Inc., Jones/Owens Radio
Programming LLC, Jones MAI, Inc. and Jones MAI Radio, Inc., as Guarantors, and
U.S. Trust Company of New York, as trustee. Capitalized terms used but not
defined herein shall have the meanings given to them in the Indenture.
This letter relates to $________ principal amount of Notes which are
evidenced by a beneficial interest in one or more Restricted Global Notes or
Regulation S Permanent Global Notes (CUSIP Nos. ____________ and ______________)
in the name of ________________ (the "Transferor"). The Transferor has requested
an exchange of such beneficial interest in the form of an equal principal amount
of Notes evidenced by one or more Certificated Notes (CUSIP No. ______________),
to be delivered to the Transferor.
In connection with such request and in respect of the Notes surrendered to
the Trustee herewith for exchange (the "Surrendered Notes"), the Holder of such
Surrendered Notes hereby certifies that the Surrendered Notes are being
transferred to the beneficial owner of such Notes.
B-6-1
<PAGE>
SUBSIDIARY GUARANTEE AGREEMENT
For value received, the undersigned hereby unconditionally guarantees
to:
(i) United States Trust Company of New York, as Trustee (the
"Trustee") under that certain Trust Indenture, dated as of July 10, 1998
(the "Indenture"), by and between Jones International Networks Ltd. and the
Trustee; and
(ii) the Holders from time to time of the Securities issued under the
Indenture.
the payment in United States dollars of all amounts due on or in connection with
the Securities, in the amounts and at the times when due, and the payment or
performance of all other obligations of the Company under the Indenture and the
Securities, all in accordance with and subject to the terms and limitations of
Article 10 of the Indenture. This Subsidiary Guarantee Agreement is effective as
a Subsidiary Guarantee in accordance with Article 10 of the Indenture and its
terms are evidenced therein. The validity and enforceability of this Subsidiary
Guarantee Agreement and the Subsidiary Guarantee represented hereby shall not be
affected by the fact that it is not affixed to any particular Security.
Capitalized terms used but not defined herein shall have the meanings
ascribed to them in the Indenture.
The obligations of the undersigned to the Trustee and the Holders
pursuant to this Subsidiary Guarantee Agreement and the Indenture are expressly
set forth in Article 10 of the Indenture, and reference is hereby made to the
Indenture for the precise terms of the Subsidiary Guarantee and all of the other
provisions of the Indenture to which this Subsidiary Guarantee Agreement
relates.
THIS SUBSIDIARY GUARANTEE AGREEMENT WILL BE GOVERNED BY, AND CONSTRUED
IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, BUT WITHOUT GIVING EFFECT
TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT THE APPLICATION
OF THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY.
This Subsidiary Guarantee Agreement and the Subsidiary Guarantee
represented hereby are subject to release upon the terms set forth in the
Indenture.
The Subsidiary Guarantor acknowledges and agrees that this Subsidiary
Guarantee Agreement and the Subsidiary Guarantee represented hereby are subject
to the provisions of the TIA to the same extent that the Indenture is subject to
the TIA and that
<PAGE>
the Subsidiary Guarantor is an "obligor" on the Securities for purposes of the
TIA.
Date: July 10, 1998
By:
Name:
Title:
Accepted:
United States Trust Company
of New York, as Trustee
By:
Name:
Title:
<PAGE>
SCHEDULE 1
<TABLE>
<CAPTION>
Secured Party Filing Location Filing Date File Number
- ------------- --------------- ----------- -----------
<S> <C> <C> <C>
AT&T Credit Corporation City Register NY Court 04/13/95 95PN16404
</TABLE>
<PAGE>
EXHIBIT 4.3
================================================================================
EXCHANGE AND REGISTRATION RIGHTS AGREEMENT
Dated as of July 10, 1998
by and between
JONES INTERNATIONAL NETWORKS, LTD.
and
NATWEST CAPITAL MARKETS LIMITED
as the Initial Purchaser
$100,000,000
11 3/4% SENIOR SECURED NOTES DUE 2005
================================================================================
<PAGE>
EXCHANGE AND REGISTRATION RIGHTS AGREEMENT
------------------------------------------
This Exchange and Registration Rights Agreement (the "Agreement") is
dated as of July 10, 1998, by and between Jones International Networks, Ltd., a
Colorado corporation (the "Company"), and NatWest Capital Markets Limited (the
"Initial Purchaser").
This Agreement is entered into in connection with the Purchase
Agreement, dated July 10, 1998, between the Company and the Initial Purchaser
(the "Purchase Agreement"), which provides for the sale by the Company to the
Initial Purchaser of $100,000,000 aggregate principal amount of the Company's 11
3/4% Senior Secured Notes due 2005 (the "Notes"). In order to induce the
Initial Purchaser to enter into the Purchase Agreement, the Company has agreed
to provide the registration rights set forth in this Agreement for the benefit
of the Initial Purchaser and its direct and indirect transferees. The execution
and delivery of this Agreement is a condition to the obligations of the Initial
Purchaser to purchase the Notes under the Purchase Agreement.
The parties hereby agree as follows:
1. Definitions As used in this Agreement, the following terms shall
-----------
have the following meanings:
Additional Interest: Has the meaning provided in Section 4(a) hereof.
-------------------
Advice: Has the meaning provided in the last paragraph of Section 5
------
hereof.
Agreement: Has the meaning provided in the first introductory
---------
paragraph hereto.
Applicable Period: Has the meaning provided in Section 2(b) hereof.
-----------------
Closing Date: Has the meaning provided in the Purchase Agreement.
------------
Company: Has the meaning provided in the first introductory paragraph
-------
hereto.
Effectiveness Date: The 120th day after the Issue Date.
------------------
Effectiveness Period: Has the meaning provided in Section 3(a)
--------------------
hereof.
<PAGE>
Event Date: Has the meaning provided in Section 4(b) hereof.
----------
Exchange Act: The Securities Exchange Act of 1934, as amended, and
------------
the rules and regulations of the SEC promulgated thereunder.
Exchange Notes: Has the meaning provided in Section 2(a) hereof.
--------------
Exchange Offer: Has the meaning provided in Section 2(a) hereof.
--------------
Exchange Registration Statement: Has the meaning provided in Section
-------------------------------
2(a) hereof.
Filing Date: The 45th day after the Issue Date.
-----------
Holder: Any record holder of a Registrable Note or Registrable Notes.
------
Indemnified Person: Has the meaning provided in Section 7(c) hereof.
------------------
Indemnifying Person: Has the meaning provided in Section 7(c) hereof.
-------------------
Indenture: The Indenture, dated as of July 10, 1998 between the
---------
Company and United States Trust Company of New York, as trustee, pursuant to
which the Notes and the Exchange Notes are being issued, as amended or
supplemented from time to time in accordance with the terms thereof.
Ineligible Note: A Note held by a Holder that, pursuant to the
---------------
provisions of Section 2(c)(iv), is not eligible to participate in the Exchange
Offer.
Initial Purchaser: Has the meaning provided in the first introductory
-----------------
paragraph hereto.
Inspectors: Has the meaning provided in Section 5(n) hereof.
----------
Issue Date: The date on which the original Notes are sold to the
----------
Initial Purchaser pursuant to the Purchase Agreement.
NASD: Has the meaning provided in Section 5(r) hereof.
----
Notes: Has the meaning provided in the second introductory paragraph
-----
hereto.
Participant: Has the meaning provided in Section 7(a) hereof.
-----------
-2-
<PAGE>
Participating Broker-Dealer: Has the meaning provided in Section 2(b)
---------------------------
hereof.
Person: An individual, trustee, corporation, partnership, limited
------
liability company, joint stock company, trust, unincorporated association,
union, business association, firm or other legal entity.
Private Exchange: Has the meaning provided in Section 2(b) hereof.
----------------
Private Exchange Notes: Has the meaning provided in Section 2(b)
----------------------
hereof.
Prospectus: The prospectus included in any Registration Statement
----------
(including, without limitation, any prospectus subject to completion and a
prospectus that includes any information previously omitted from a prospectus
filed as part of an effective registration statement in reliance upon Rule 430A
promulgated under the Securities Act), as amended or supplemented by any
prospectus supplement, and all other amendments and supplements to the
Prospectus, with respect to the terms of the offering of any portion of the
Registrable Notes covered by such Registration Statement including post-
effective amendments, and all material incorporated by reference or deemed to be
incorporated by reference in such Prospectus.
Purchase Agreement: Has the meaning provided in the second
------------------
introductory paragraph hereto.
Records: Has the meaning provided in Section 5(n) hereof.
-------
Registrable Notes: Each Note upon original issuance of the Notes and
-----------------
at all times subsequent thereto, each Ineligible Note as to which Section
2(c)(iv) hereof is applicable upon original issuance and at all times subsequent
thereto and each Private Exchange Note upon original issuance thereof and at all
times subsequent thereto, until in the case of any such Note, Ineligible Note or
Private Exchange Note, as the case may be, the earliest to occur of (i) a
Registration Statement covering such Note (other than, with respect to any
Ineligible Note as to which Section 2(c)(iv) hereof is applicable, the Exchange
Registration Statement) or Private Exchange Note, as the case may be, has been
declared effective by the SEC and such Note, has been tendered for exchange, or
such Shelf Note has been disposed of, in accordance with such effective
Registration Statement, (ii) such Note, Ineligible Note or Private Exchange
Note, as the case may be, is, or may be, sold in compliance with Rule 144, or
(iii) such Note, Ineligible Note or Private Exchange Note, as the case may be,
ceases to be outstanding for purposes of the Indenture.
Registration Statement: Any registration statement of the Company,
----------------------
including, but not limited to, the Exchange
-3-
<PAGE>
Registration Statement, that covers any of the Registrable Notes pursuant to the
provisions of this Agreement, including the Prospectus, amendments and
supplements to such registration statement, including post-effective amendments,
all exhibits, and all material incorporated by reference or deemed to be
incorporated by reference in such registration statement.
Rule 144: Rule 144 promulgated under the Securities Act, as such Rule
--------
may be amended from time to time, or any similar rule (other than Rule 144A) or
regulation hereafter adopted by the SEC providing for offers and sales of
securities made in compliance therewith by holders that are not affiliates of an
issuer of such securities being free of the registration and prospectus delivery
requirements of the Securities Act.
Rule 144A: Rule 144A promulgated under the Securities Act, as such
---------
Rule may be amended from time to time, or any similar rule (other than Rule 144)
or regulation hereafter adopted by the SEC.
Rule 415: Rule 415 promulgated under the Securities Act, as such Rule
--------
may be amended from time to time, or any similar rule or regulation hereafter
adopted by the SEC.
SEC: The Securities and Exchange Commission.
---
Securities Act: The Securities Act of 1933, as amended, and the rules
--------------
and regulations of the SEC promulgated thereunder, as the same may be amended
from time to time.
Shelf Notes: The Registrable Notes, including Private Exchange Notes
-----------
and Ineligible Notes, included in a Shelf Registration Statement pursuant to the
provisions of Section 2(c).
Shelf Notice: Has the meaning provided in Section 2(c) hereof.
------------
Shelf Registration: Has the meaning provided in Section 3(a) hereof.
------------------
Shelf Registration Statement: shall mean a "shelf" registration
----------------------------
statement of the Company which covers the Shelf Notes on an appropriate form
under Rule 415 under the 1933 Act, or any similar rule that may be adopted by
the SEC, and all amendments and supplements to such registration statement,
including post-effective amendments, in each case including the Prospectus
contained therein, all exhibits thereto and all material incorporated by
reference therein.
Shelf Request: Has the meaning provided in Section 2(c).
-------------
-4-
<PAGE>
Subsidiary Guarantors: Has the meaning provided in the Indenture.
---------------------
TIA: The Trust Indenture Act of 1939, as amended, and as the same may
---
be amended from time to time.
Trustee(s): The trustee under the Indenture and, if existent, the
----------
trustee under any indenture governing the Exchange Notes and Private Exchange
Notes (if any).
Underwritten registration or underwritten offering: A registration in
--------------------------------------------------
which securities of the Company are sold to an underwriter for reoffering to the
public.
2. Exchange Offer
--------------
(a) The Company agrees to file with the SEC no later than the Filing
Date an offer to exchange (the "Exchange Offer") any and all of the Registrable
Notes (other than the Private Exchange Notes, if any) for a like aggregate
principal amount of debt securities of the Company which are identical in all
material respects to the Notes (the "Exchange Notes") (and which are entitled to
the benefits of the Indenture or a trust indenture which is identical in all
material respects to the Indenture (other than such changes to the Indenture or
any such identical trust indenture as are necessary to comply with any
requirements of the SEC to effect or maintain the qualification thereof under
the TIA) and which, in either case, has been qualified under the TIA), except
that the Exchange Notes (other than Private Exchange Notes, if any) shall have
been registered pursuant to an effective Registration Statement under the
Securities Act and shall contain no restrictive legend thereon. The Exchange
Offer shall be registered under the Securities Act on the appropriate form (the
"Exchange Registration Statement") and shall comply with all applicable tender
offer rules and regulations under the Exchange Act. The Company agrees to use
its best efforts to (x) cause the Exchange Registration Statement to be declared
effective under the Securities Act no later than the Effectiveness Date; (y)
keep the Exchange Offer open for at least 30 business days (or longer if
required by applicable law) after the date that notice of the Exchange Offer is
mailed to the Holders; and (z) consummate the Exchange Offer on or prior to the
180th day following the Issue Date. If after such Exchange Registration
Statement is declared effective by the SEC, the Exchange Offer or the issuance
of the Exchange Notes thereunder is interfered with by any stop order,
injunction or other order or requirement of the SEC or any other governmental
agency or court, such Exchange Registration Statement shall be deemed not to
have become effective for purposes of this Agreement until such stop order,
injunction or other order or requirement is no longer in effect. Each Holder
who participates in the Exchange Offer will be required to represent that any
Exchange Notes received by it are being acquired in the ordinary course of its
business, that at the time of the consummation of the Exchange
-5-
<PAGE>
Offer such Holder has no arrangement or understanding with any Person to
participate in the distribution of the Exchange Notes in violation of the
provisions of the Securities Act, and that such Holder is not an "affiliate" of
the Company or the Subsidiary Guarantors within the meaning of the Securities
Act. Upon consummation of the Exchange Offer in accordance with this Section 2,
the Company shall have no further obligation to register Registrable Notes
(other than Private Exchange Notes and Ineligible Notes) pursuant to Section 3
hereof. No securities other than the Exchange Notes shall be included in the
Exchange Registration Statement.
(b) The Company shall include within the Prospectus contained in the
Exchange Registration Statement a section entitled "Plan of Distribution,"
reasonably acceptable to the Initial Purchaser, which shall contain a summary
statement of the positions taken or policies made by the Staff of the SEC with
respect to the potential "underwriter" status of any broker-dealer that is the
beneficial owner (as defined in Rule 13d-3 under the Exchange Act) of Exchange
Notes received by such broker-dealer in the Exchange Offer (a "Participating
Broker-Dealer"), whether such positions or policies have been publicly
disseminated by the Staff of the SEC or such positions or policies which, in the
reasonable judgment of the Initial Purchaser, represent the prevailing views of
the Staff of the SEC. Such "Plan of Distribution" section shall also expressly
permit the use of the Prospectus by all Persons subject to the prospectus
delivery requirements of the Securities Act, including all Participating Broker-
Dealers, and include a statement describing the means by which Participating
Broker-Dealers may resell the Exchange Notes.
The Company shall use its best efforts to keep the Exchange
Registration Statement effective and to amend and supplement the Prospectus
contained therein, in order to permit such Prospectus to be lawfully delivered
by any Participating Broker-Dealer subject to the prospectus delivery
requirements of the Securities Act for such period of time as is necessary to
comply with applicable law in connection with any resale of the Exchange Notes;
provided, however, that such period shall not exceed 180 days after the
- -------- -------
consummation of the Exchange Offer (or such longer period if extended pursuant
to the last paragraph of Section 5 hereof) (the "Applicable Period").
If, prior to consummation of the Exchange Offer, the Initial Purchaser
holds any Notes acquired by it and having the status of an unsold allotment in
the initial distribution, the Company shall, upon the request of the Initial
Purchaser, simultaneously with the delivery of the Exchange Notes in the
Exchange Offer issue and deliver to the Initial Purchaser in exchange (the
"Private Exchange") for such Notes held by the Initial Purchaser a like
principal amount of debt securities of the Company that are identical in all
material respects to the Exchange Notes (the "Private Exchange Notes") (and
which are
-6-
<PAGE>
issued pursuant to the same Indenture as the Exchange Notes) except for the
placement of a restrictive legend on such Private Exchange Notes. The Private
Exchange Notes shall, if permissible, bear the same CUSIP number as the Exchange
Notes.
Interest on the Exchange Notes and the Private Exchange Notes will
accrue from the last interest payment date on which interest was paid on the
Notes surrendered in exchange therefor or, if no interest has been paid on the
Notes, from the Issue Date.
In connection with the Exchange Offer, the Company shall:
(1) mail to each Holder a copy of the Prospectus forming part of the
Exchange Registration Statement, together with an appropriate letter of
transmittal and related documents;
(2) utilize the services of a depositary for the Exchange Offer with
an address in the Borough of Manhattan, The City of New York;
(3) permit Holders to withdraw tendered Notes at any time prior to the
close of business, New York time, on the last business day on which the Exchange
Offer shall remain open; and
(4) otherwise comply in all material respects with all applicable
laws, rules and regulations.
As soon as practicable after the close of the Exchange Offer or the
Private Exchange, as the case may be, the Company shall:
(1) accept for exchange all Notes tendered and not validly withdrawn
pursuant to the Exchange Offer or the Private Exchange;
(2) deliver to the Trustee for cancellation all Notes so accepted for
exchange; and
(3) cause the Trustee to authenticate and deliver promptly to each
Holder Notes, Exchange Notes or Private Exchange Notes, as the case may be,
equal in principal amount to the Notes of such Holder so accepted for exchange.
The Exchange Notes and the Private Exchange Notes are to be issued
under (i) the Indenture or (ii) an indenture identical in all material respects
to the Indenture, which in either event shall provide that (1) the Exchange
Notes shall not be subject to the transfer restrictions set forth in the
Indenture and (2) the Private Exchange Notes shall be subject to the transfer
restrictions set forth in the Indenture. The Indenture or such indenture shall
provide that the Exchange Notes, the Private Exchange Notes and the Notes shall
vote and
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<PAGE>
consent together on all matters as to which they have the right to vote or
consent as one class and that none of the Exchange Notes, the Private Exchange
Notes or the Notes will have the right to vote or consent as a separate class on
any matter.
(c) If, (i) because of any change in law or in currently prevailing
interpretations of the Staff of the SEC, the Company is not permitted to effect
an Exchange Offer, (ii) the Exchange Offer is not consummated within 180 days
after the Issue Date, (iii) any holder of Private Exchange Notes so requests
within 60 days after the consummation of the Private Exchange, or (iv) any
Holder (other than the Initial Purchaser) who is not eligible to participate in
the Exchange Offer and so notifies the Company in writing of such ineligibility
and so notifies the Company in writing of such ineligibility and requests within
60 days of consummation of the Exchange Offer that its Notes be registered for
resale under the Securities Act (any request under clause (iii) or (iv) hereof,
a "Shelf Request"), then the Company shall promptly deliver written notice
thereof (the "Shelf Notice") to the Trustee and, in the case of clauses (i) and
(ii) above, all Holders, in the case of clause (iii) above, the Holders of the
Private Exchange Notes and, in the case of clause (iv) above, the Holders of
Ineligible Notes, that, in the case of (iii) or (iv) have submitted a Shelf
Request, and shall file a Shelf Registration pursuant to Section 3 hereof.
3. Shelf Registration If a Shelf Notice is delivered as
------------------
contemplated by Section 2(c) hereof, then:
(a) Obligation to Register. The Company shall, in the case of Section
----------------------
2(c)(i) or (ii) hereof, as promptly as reasonably practicable and, in the case
of Section 2(c)(iii) or (iv) hereof, within 45 days after a Shelf Request, file
with the SEC a Registration Statement for an offering to be made on a continuous
basis pursuant to Rule 415 covering, in the case of Section 2(c)(i) or (ii)
hereof, all of the Registrable Notes and, in the case of Section 2(c)(iii) or
(iv) hereof, the Notes have been the subject of a Shelf Request (the "Shelf
Registration"). If the Company shall not have yet filed an Exchange Registration
Statement, the Company shall use its best efforts to file with the SEC the Shelf
Registration on or prior to the Filing Date. The Shelf Registration shall be on
Form S-3 or another appropriate form permitting registration of such Registrable
Notes for resale by Holders in the manner or manners designated by them
(including, without limitation, one or more underwritten offerings).
The Company shall use its best efforts to cause the Shelf Registration
to be declared effective under the Securities Act by, in the case of Section
2(c)(iii) or (iv) hereof the 120th day after the Shelf Request or, in the case
of Section 2(c)(i) or (ii), as promptly as reasonably practicable, and to keep
the Shelf Registration continuously effective under the Securities Act until the
date which is two years from the Issue Date,
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<PAGE>
subject to suspension and extension pursuant to the last paragraph of Section 5
hereof, or such shorter period ending when all Registrable Notes covered by the
Shelf Registration have been sold in the manner set forth and as contemplated in
the Shelf Registration or all Notes included in the Shelf Registration and
remaining unsold thereunder have ceased to be Registrable Notes (the
"Effectiveness Period").
(b) Withdrawal of Stop Orders. If the Shelf Registration ceases to be
-------------------------
effective for any reason at any time during the Effectiveness Period (other than
because of the sale of all of the securities registered thereunder), the Company
shall use its best efforts to obtain the prompt withdrawal of any order
suspending the effectiveness thereof.
(c) Supplements and Amendments. The Company shall promptly supplement
--------------------------
and amend the Shelf Registration if required by the rules, regulations or
instructions applicable to the registration form used for such Shelf
Registration, if required by the Securities Act, or if reasonably requested for
such purpose by the Holders of a majority in aggregate principal amount of the
Registrable Notes covered by such Registration Statement or by any underwriter
of such Registrable Notes.
4. Additional Interest
-------------------
(a) The Company and the Initial Purchaser agree that the Holders of
affected Registrable Notes will suffer damages if the Company fails to fulfill
its obligations under Section 2 or Section 3 hereof and that it would not be
feasible to ascertain the extent of such damages with precision. Accordingly,
the Company agrees to pay, as liquidated damages and as the sole and exclusive
remedy therefor, additional interest on affected Notes ("Additional Interest")
under the circumstances and to the extent set forth below:
(i) if the Exchange Offer Registration Statement is not filed with
the SEC within 45 days following the Issue Date Additional Interest shall accrue
on the Notes to be exchanged pursuant to the Exchange Offer Registration
Statement over and above the stated interest at a rate of 0.50% per annum for
the first 30 days commencing on the 46th day after the Issue Date such
Additional Interest rate increasing by an additional 0.50% per annum at the
beginning of each subsequent 30-day period;
(ii) if the Shelf Registration Statement is not filed with the SEC
within 45 days following receipt by the Company of a Shelf Request, Additional
Interest shall accrue on the Shelf Notes that are the subject of a Shelf Request
over and above the stated interest at a rate of 0.50% per annum for the first 30
days commencing on the 46th day after the receipt by the Company of the Shelf
Request, such Additional Interest rate increasing by an additional 0.50% per
annum at the beginning of each subsequent 30-day period;
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<PAGE>
(iii) if the Exchange Offer Registration Statement is not declared
effective within 120 days following the Issue Date, Additional Interest shall
accrue on the Notes to be exchanged pursuant to the Exchange Offer Registration
Statement over and above the stated interest at a rate of 0.50% per annum for
the first 90 days commencing on the 121st day after the Issue Date, such
Additional Interest rate increasing by an additional 0.50% per annum at the
beginning of each subsequent 90-day period; or
(iv) if the Shelf Registration Statement is not declared effective
within 120 days following receipt by the Company of a Shelf Request, Additional
Interest shall accrue on the Shelf Notes that are included in the Shelf
Registration Statement over and above the stated interest at a rate of 0.50% per
annum for the first 90 days commencing on the 121st day after the receipt by the
Company of the Shelf Request, such Additional Interest rate increasing by an
additional 0.50% per annum at the beginning of each subsequent 90-day period; or
(v) if (A) the Company has not exchanged all Notes validly tendered
in accordance with the terms of the Exchange Offer on or prior to 180 days after
the Issue Date or (B) the Exchange Offer Registration Statement ceases to be
effective at any time prior to the time that the Exchange Offer is consummated,
then Additional Interest shall accrue over and above the stated interest at a
rate of 0.50% per annum for the first 90 days commencing on (x) the 181st day
after the Issue Date with respect to the Notes validly tendered and not
exchanged by the Company, in the case of (A) above, or (y) the day the Exchange
Offer Registration Statement ceases to be effective or usable for its intended
purpose with respect to the Notes to be exchanged pursuant to the Exchange Offer
Registration Statement in the case of (B) above, such Additional Interest rate
increasing by an additional 0.50% per annum at the beginning of each subsequent
90-day period;
(vi) if the Shelf Registration Statement has been declared effective
and such Shelf Registration Statement ceases to be effective at any time prior
to the end of the Effectiveness Period, then Additional Interest shall accrue on
the Shelf Notes remaining unsold that were included in the Shelf Registration
Statement over and above the stated interest at a rate of 0.50% per annum for
the first 90 days commencing on the day such Shelf Registration Statement ceases
to be effective, such Additional Interest rate increasing by an additional 0.50%
per annum at the beginning of each subsequent 90-day period;
provided, however, that the Additional Interest rate on the Notes
under clauses (i) through (vi) above may not exceed in the aggregate 2.0% per
annum; and provided further, that (1) upon the filing of the Exchange Offer
Registration Statement or Shelf Registration Statement (in the case of clauses
(i) or (ii) above), (2) upon the effectiveness of the Exchange Offer
Registration Statement or Shelf Registration Statement (in the
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<PAGE>
case of clauses (iii) or (iv) above), or (3) upon the exchange of Exchange Notes
for all Notes tendered (in the case of clause (v)(A) above), or upon the
effectiveness of the Exchange Offer Registration Statement which had ceased to
remain effective (in the case of clause (v)(B) above), or upon the effectiveness
of the Shelf Registration Statement which had ceased to remain effective (in the
case of clause (vi) above), Additional Interest on the applicable Notes or Shelf
Notes as a result of such clause (or the relevant subclause thereof), as the
case may be, shall cease to accrue.
(b) The Company shall notify the Trustee within one business day
after each and every date on which an event occurs in respect of which
Additional Interest is required to be paid (an "Event Date"). The Company shall
pay the Additional Interest due on the transfer restricted Notes by depositing
with the paying agent (which shall not be the Company for these purposes) for
the transfer restricted Notes, in trust, for the benefit of the holders thereof,
prior to 11:00 A.M. on the next interest payment date specified by the Indenture
(or such other indenture), sums sufficient to pay the Additional Interest then
due. Any amounts of Additional Interest due pursuant to subsection (a) of this
Section 4 will be payable to the Holders of affected Notes in cash semi-annually
on each interest payment date specified by the Indenture (or such other
indenture) to the record holders entitled to receive the interest payment to be
made on such date, commencing with the first such date occurring after any such
Additional Interest commences to accrue. The amount of Additional Interest will
be determined by multiplying the applicable Additional Interest rate by the
principal amount of the affected Registrable Notes of such Holders, multiplied
by a fraction, the numerator of which is the number of days such Additional
Interest rate was applicable during such period (determined on the basis of a
360-day year comprised of twelve 30-day months and, in the case of a partial
month, the actual number of days elapsed), and the denominator of which is 360.
5. Registration Procedures In connection with the filing of any
-----------------------
Registration Statement pursuant to Sections 2 or 3 hereof, the Company shall
effect such registration(s) to permit the sale of the securities covered thereby
in accordance with the intended method or methods of disposition thereof, and
pursuant thereto and in connection with any Registration Statement filed by the
Company hereunder, the Company shall:
(a) Prepare and file with the SEC prior to the Filing Date a
Registration Statement or Registration Statements as prescribed by Sections 2 or
3 hereof, and use its best efforts to cause each such Registration Statement to
become effective and remain effective as provided herein; provided, however,
-------- -------
that, if (1) such filing is pursuant to Section 3 hereof, or (2) a Prospectus
contained in an Exchange Registration Statement filed pursuant to Section 2
hereof is required to be delivered under the Securities Act by any Participating
Broker-Dealer who seeks
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<PAGE>
to sell Exchange Notes during the Applicable Period, before filing any
Registration Statement or Prospectus or any amendments or supplements thereto,
the Company shall, if requested in writing, furnish to and afford the Holders of
the Registrable Notes covered by such Registration Statement or each such
Participating Broker-Dealer, as the case may be, their counsel and the managing
underwriters, if any, a reasonable opportunity to review copies of all such
documents (including copies of any documents to be incorporated by reference
therein and all exhibits thereto) proposed to be filed (in each case at least
three business days prior to such filing). The Company shall not file any
Registration Statement or Prospectus or any amendments or supplements thereto in
respect of which the Holders must be afforded an opportunity to review prior to
the filing of such document under the immediately preceding sentence, if the
Holders of a majority in aggregate principal amount of the Registrable Notes
covered by such Registration Statement, or any such Participating Broker-Dealer,
as the case may be, their counsel, or managing underwriter, if any, shall object
thereto in a writing to the Company, which writing shall set forth a reasonable
basis for such objection. Following receipt of such writing, the Company shall
discuss the objection with the objecting party and shall attempt to address the
objection, but the final determination with respect to disclosure shall be made
by the Company in its reasonable good faith judgment, unless the objection
relates to information covered by Section 7(b) hereof, in which case the final
determination shall be made by the Participant (as defined in Section 7). If, as
a consequence of such discussions, any of the events or time periods specified
in Section 4(a) occur, Additional Interest shall not accrue with respect to any
affected Note pending resolution of the disclosure issue.
(b) Prepare and file with the SEC such amendments and post-effective
amendments to each Shelf Registration or Exchange Registration Statement, as the
case may be, as may be necessary to keep such Registration Statement
continuously effective for the Effectiveness Period or, if applicable, the
Applicable Period or until consummation of the Exchange Offer, as the case may
be; cause the related Prospectus to be supplemented by any Prospectus supplement
required by applicable law, and as so supplemented to be filed pursuant to Rule
424 (or any similar provisions then in force) promulgated under the Securities
Act; and comply with the provisions of the Securities Act and the Exchange Act
applicable to it with respect to the disposition of all securities covered by
such Registration Statement as so amended or in such Prospectus as so
supplemented and with respect to the subsequent resale of any securities being
sold by a Participating Broker-Dealer covered by any such Prospectus; the
Company shall be deemed not to have used its best efforts to keep a Registration
Statement effective during the Applicable Period if it voluntarily takes any
action that would result in selling Holders of the Registrable Notes covered
thereby or Participating Broker-Dealers seeking to sell Exchange Notes not being
able to sell
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<PAGE>
such Registrable Notes or such Exchange Notes during that period unless such
action is required by applicable law or unless the Company complies with this
Agreement, including without limitation, the provisions of Section 5(k) hereof
(taking into account the final proviso of Section 5(k) with respect to material
pending transactions, including without limitation, transactions initiated by
the Company) and the last paragraph of this Section 5.
(c) If (1) a Shelf Registration is filed pursuant to Section 3 hereof,
or (2) a Prospectus contained in an Exchange Registration Statement filed
pursuant to Section 2 hereof is required to be delivered under the Securities
Act by any Participating Broker-Dealer who seeks to sell Exchange Notes during
the Applicable Period, notify the selling Holders of Registrable Notes, or each
such Participating Broker-Dealer, as the case may be, their counsel and managing
underwriters, if any, promptly (but in any event within two business days), and
confirm such notice in writing, (i) when a Prospectus or any Prospectus
supplement or post-effective amendment has been filed, and, with respect to a
Registration Statement or any post-effective amendment, when the same has become
effective under the Securities Act (including in such notice a written statement
that any Holder may, upon request, obtain, at the sole expense of the Company,
one conformed copy of such Registration Statement or post-effective amendment
including financial statements and schedules, documents incorporated or deemed
to be incorporated by reference and exhibits, unless such documents are
available through EDGAR), (ii) of the issuance by the SEC of any stop order
suspending the effectiveness of a Registration Statement or of any order
preventing or suspending the use of any preliminary prospectus or the initiation
of any proceedings for that purpose, (iii) if at any time when a Prospectus is
required by the Securities Act to be delivered in connection with sales of the
Registrable Notes or resales of Exchange Notes by Participating Broker-Dealers,
that the representations and warranties of the Company contained in any
agreement (including any underwriting agreement), contemplated by Section 5(m)
hereof cease to be true and correct, (iv) of the receipt by the Company of any
notification with respect to the suspension of the qualification or exemption
from qualification of a Registration Statement or any of the Registrable Notes
or the Exchange Notes to be sold by any Participating Broker-Dealer for offer or
sale in any jurisdiction, or the initiation or threatening of any proceeding for
such purpose, (v) of the happening of any event (including a proposed material
transaction affecting the Company), the existence of any condition or any
information becoming known that makes any statement made in such Registration
Statement or related Prospectus or any document incorporated or deemed to be
incorporated therein by reference untrue in any material respect or that
requires the making of any changes in or amendments or supplements to such
Registration Statement, Prospectus or documents so that, in the case of the
Registration Statement, it will not contain any untrue statement of a material
fact or omit
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<PAGE>
to state any material fact required to be stated therein or necessary to make
the statements therein not misleading, and that in the case of the Prospectus,
it will not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading, and (vi) of the determination by the Company that a post-effective
amendment to a Registration Statement is required.
(d) Use its best efforts to prevent the issuance of any order
suspending the effectiveness of a Registration Statement or of any order
preventing or suspending the use of a Prospectus or suspending the qualification
(or exemption from qualification) of any of the Registrable Notes or the
Exchange Notes for sale in any jurisdiction, and, if any such order is issued,
to use its best efforts to obtain the withdrawal of any such order at the
earliest possible moment.
(e) If a Shelf Registration is filed pursuant to Section 3 hereof and
if requested by the managing underwriter or underwriters (if any), or the
Holders of a majority in aggregate principal amount of the Registrable Notes
being sold in connection with an underwritten offering, (i) promptly incorporate
in a prospectus supplement or post-effective amendment such information as the
managing underwriter or underwriters (if any), such Holders, or counsel for any
of them reasonably request in writing to be included therein, (ii) make all
required filings of such prospectus supplement or such post-effective amendment
as soon as practicable after the Company has received notification in writing of
the matters to be incorporated in such prospectus supplement or post-effective
amendment, and (iii) supplement or make amendments to such Registration
Statement. Notwithstanding the provisions of this Section 5(e), the Company
shall not be required to include information which it, in its reasonable good
faith judgment, would cause a violation of Section 5(c)(v) hereof or result in
liability under Section 7(a) hereof.
(f) If (1) a Shelf Registration is filed pursuant to Section 3
hereof, or (2) a Prospectus contained in an Exchange Registration Statement
filed pursuant to Section 2 hereof is required to be delivered under the
Securities Act by any Participating Broker-Dealer who seeks to sell Exchange
Notes during the Applicable Period, furnish to each selling Holder of
Registrable Notes and to each such Participating Broker-Dealer who so requests
in writing and to counsel and each managing underwriter, if any, at the sole
expense of the Company, one conformed copy of the Registration Statement or
Registration Statements and each post-effective amendment thereto, including
financial statements and schedules, and, if requested, all documents
incorporated or deemed to be incorporated therein by reference and all exhibits,
unless such documents are available through EDGAR.
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<PAGE>
(g) If (1) a Shelf Registration is filed pursuant to Section 3 hereof,
or (2) a Prospectus contained in an Exchange Registration Statement filed
pursuant to Section 2 hereof is required to be delivered under the Securities
Act by any Participating Broker-Dealer who seeks to sell Exchange Notes during
the Applicable Period, deliver to each selling Holder of Registrable Notes, or
each such Participating Broker-Dealer, as the case may be, their respective
counsel, and the underwriters, if any, at the sole expense of the Company, as
many copies of the Prospectus or Prospectuses (including each form of
preliminary prospectus) and each amendment or supplement thereto and any
documents incorporated by reference therein as such Persons may reasonably
request; and, subject to the last paragraph of this Section 5, the Company
hereby consents to the use of such Prospectus and each amendment or supplement
thereto by each of the selling Holders of Registrable Notes or each such
Participating Broker-Dealer, as the case may be, and the underwriters or agents,
if any, and dealers (if any), in connection with the offering and sale of the
Registrable Notes covered by, or the sale by Participating Broker-Dealers of the
Exchange Notes pursuant to, such Prospectus and any amendment or supplement
thereto.
(h) Prior to any public offering of Registrable Notes or any delivery
of a Prospectus contained in the Exchange Registration Statement by any
Participating Broker-Dealer who seeks to sell Exchange Notes during the
Applicable Period, to use its best efforts to register or qualify such
Registrable Notes (and to cooperate with selling Holders of Registrable Notes or
each such Participating Broker-Dealer, as the case may be, the managing
underwriter or underwriters, if any, and their respective counsel in connection
with the registration or qualification (or exemption from such registration or
qualification) of such Registrable Notes) for offer and sale under the
securities or Blue Sky laws of such jurisdictions within the United States as
any selling Holder, Participating Broker-Dealer, or the managing underwriter or
underwriters reasonably request in writing (the "Specified Jurisdictions");
provided, however, that where Exchange Notes held by Participating Broker-
- -------- -------
Dealers or Registrable Notes are offered other than through an underwritten
offering, the Company agrees to cause its counsel to perform Blue Sky
investigations and file registrations and qualifications required to be filed
pursuant to this Section 5(h); keep each such registration or qualification (or
exemption therefrom) effective during the period such Registration Statement is
required to be kept effective and do any and all other acts or things reasonably
necessary or advisable to enable the disposition in the Specified Jurisdictions
of the Exchange Notes held by Participating Broker-Dealers or the Registrable
Notes covered by the applicable Registration Statement; provided, however, that
-------- -------
the Company shall not be required to (A) qualify generally to do business in any
jurisdiction where it is not then so qualified, (B) take any action that would
subject it to general service of process in any
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<PAGE>
such jurisdiction where it is not then so subject or (C) subject itself to
taxation in excess of a nominal dollar amount in any such jurisdiction where it
is not then so subject.
(i) If a Shelf Registration is filed pursuant to Section 3 hereof,
cooperate with the selling Holders of Registrable Notes and the managing
underwriter or underwriters, if any, to facilitate the timely preparation and
delivery of certificates representing Registrable Notes to be sold, which
certificates shall not, unless required by law, bear any restrictive legends and
shall be in a form eligible for deposit with The Depository Trust Company; and
enable such Registrable Notes to be in such denominations and registered in such
names as the managing underwriter or underwriters, if any, or Holders may
reasonably request.
(j) Use its best efforts to cause the Registrable Notes covered by the
Registration Statement to be registered with or approved by such other
governmental agencies or authorities as may be necessary to enable the Holders
thereof or the underwriter or underwriters, if any, to dispose of such
Registrable Notes, except as may be required solely as a consequence of the
nature of a selling Holder's business, in which case the Company will cooperate
in all reasonable respects with the filing of such Registration Statement and
the granting of such approvals.
(k) If (1) a Shelf Registration is filed pursuant to Section 3 hereof,
or (2) a Prospectus contained in an Exchange Registration Statement filed
pursuant to Section 2 hereof is required to be delivered under the Securities
Act by any Participating Broker-Dealer who seeks to sell Exchange Notes during
the Applicable Period, upon the occurrence of any event contemplated by
paragraph 5(c)(v) or 5(c)(vi) hereof, as promptly as practicable prepare and
(subject to Section 5(a) hereof) file with the SEC, at the sole expense of the
Company, a supplement or post-effective amendment to the Registration Statement
or a supplement to the related Prospectus or any document incorporated or deemed
to be incorporated therein by reference, or file any other required document so
that, as thereafter delivered to the purchasers of the Registrable Notes being
sold thereunder or to the purchasers of the Exchange Notes to whom such
Prospectus will be delivered by a Participating Broker-Dealer, any such
Prospectus will not contain an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading; provided, that this Section 5(k) shall not be deemed to require
the Company to disclose any information that, in the good faith opinion of the
management of the Company, is not yet required to be disclosed or would not be
in the best interests of the Company to disclose, so long as the Company
complies with all applicable laws and government regulations and the last
paragraph of this Section 5.
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<PAGE>
(l) Prior to the effective date of the first Registration Statement
relating to the Registrable Notes, (i) provide the Trustee with certificates for
the Registrable Notes or Exchange Notes, as the case may be, in a form eligible
for deposit with The Depository Trust Company and (ii) provide a CUSIP number
for the Registrable Notes or Exchange Notes, as the case may be.
(m) Subject to the limitations of Section 3(a), in connection with any
underwritten offering of Registrable Notes pursuant to a Shelf Registration,
enter into an underwriting agreement as is customary in underwritten offerings
of debt securities similar to the Notes and take all such other actions as are
reasonably requested by the managing underwriter or underwriters in order to
facilitate the registration or the disposition of such Registrable Notes and, in
such connection, (i) make such representations and warranties to, and covenants
with, the underwriters with respect to the business of the Company and its
subsidiaries and the Registration Statement, Prospectus and documents, if any,
incorporated or deemed to be incorporated by reference therein, in each case, as
are customarily made by issuers to underwriters in underwritten offerings of
debt securities similar to the Notes, and confirm the same in writing if and
when requested; (ii) obtain the written opinion of counsel to the Company and
written updates thereof in form, scope and substance reasonably satisfactory to
the managing underwriter or underwriters, addressed to the underwriters covering
the matters customarily covered in opinions requested in underwritten offerings
of debt similar to the Notes and such other matters as may be reasonably
requested by the managing underwriter or underwriters; (iii) obtain "cold
comfort" letters and updates thereof in form, scope and substance reasonably
satisfactory to the managing underwriter or underwriters from the independent
certified public accountants of the Company (and, if necessary, any other
independent certified public accountants of any subsidiary of the Company or of
any business acquired by the Company or any of its direct or indirect
subsidiaries for which financial statements and financial data are, or are
required to be, included or incorporated by reference in the Registration
Statement), addressed to each of the underwriters, such letters to be in
customary form and covering matters of the type customarily covered in "cold
comfort" letters in connection with underwritten offerings of debt similar to
the Notes and such other matters as reasonably requested by the managing
underwriter or underwriters; and (iv) if an underwriting agreement is entered
into, the same shall contain customary indemnification provisions and procedures
substantially the same as those set forth in Section 7 hereof (or such other
provisions and procedures acceptable to the Company and Holders of a majority in
aggregate principal amount of Registrable Notes covered by such Registration
Statement and the managing underwriter or underwriters or agents) with respect
to all parties to be indemnified pursuant to said Section. The above
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<PAGE>
shall be done at each closing under such underwriting agreement, or as and to
the extent required thereunder.
(n) If (1) a Shelf Registration is filed pursuant to Section 3 hereof,
or (2) a Prospectus contained in an Exchange Registration Statement filed
pursuant to Section 2 hereof is required to be delivered under the Securities
Act by any Participating Broker-Dealer who seeks to sell Exchange Notes during
the Applicable Period, make available for inspection by any selling Holder of
such Registrable Notes being sold, or each such Participating Broker-Dealer, as
the case may be, any underwriter participating in any such disposition of
Registrable Notes, if any, and any attorney, accountant or other agent retained
by any such selling Holder or each such Participating Broker-Dealer, as the case
may be, or underwriter (collectively, the "Inspectors"), at the offices where
normally kept, during reasonable business hours, all financial and other
records, pertinent corporate documents and instruments of the Company and its
direct and indirect subsidiaries (collectively, the "Records") as shall be
reasonably necessary to enable them to exercise any applicable due diligence
responsibilities, and cause the officers, directors and employees of the Company
and its direct and indirect subsidiaries to make available for inspection all
information reasonably requested in writing by any such Inspector in connection
with such Registration Statement. Records which the Company determines, in good
faith, to be confidential and any Records which it notifies the Inspectors are
confidential shall not be disclosed by the Inspectors unless (i) the disclosure
of such Records is necessary to avoid or correct a misstatement or omission in
such Registration Statement, (ii) the release of such Records is ordered
pursuant to a subpoena or other order from a court of competent jurisdiction,
(iii) disclosure of such information is, in the opinion of counsel (a copy of
which shall be delivered to the Company) for any Inspector, necessary or
advisable in connection with any action, claim, suit or proceeding, directly or
indirectly, involving or potentially involving such Inspector and arising out
of, based upon, relating to, or involving this Agreement, or any transactions
contemplated hereby or arising hereunder, or (iv) the information in such
Records has been made generally available to the public. Each Inspector will be
required to agree in writing that information obtained by it as a result of such
inspections shall be kept confidential and shall not be used for any purpose
other than evaluation of the accuracy of information contained in any
Registration Statement filed on behalf of such Inspector, and in no event will
the information be used by it as the basis for any market transactions in the
securities of the Company or any of its affiliates unless and until such
information is generally available to the public. Each selling Holder of such
Registrable Notes and each such Participating Broker-Dealer will be required to
further agree that it will, upon learning that disclosure of such Records is
sought in a court of competent jurisdiction, give notice to the Company and
allow the Company to undertake appropriate action to prevent
-18-
<PAGE>
disclosure of the Records deemed confidential at the Company' sole expense.
(o) Provide an indenture trustee for the Registrable Notes or the
Exchange Notes, as the case may be, and cause the Indenture or the trust
indenture provided for in Section 2(a) hereof, as the case may be, to be
qualified under the TIA not later than the effective date of the Exchange Offer
or the first Registration Statement relating to the Registrable Notes; and in
connection therewith, cooperate with the trustee under any such indenture and
the Holders of the Registrable Notes, to effect such changes to such indenture
as may be required for such indenture to be so qualified in accordance with the
terms of the TIA; and execute, and use its best efforts to cause such trustee to
execute, all documents as may be required to effect such changes, and all other
forms and documents required to be filed with the SEC to enable such indenture
to be so qualified in a timely manner.
(p) Comply with all applicable rules and regulations of the SEC and
make generally available to its securityholders earnings statements satisfying
the provisions of Section 11(a) of the Securities Act and Rule 158 thereunder
(or any similar rule promulgated under the Securities Act) no later than 45 days
after the end of any 12-month period (or 90 days after the end of any 12-month
period if such period is a fiscal year) (i) commencing at the end of any fiscal
quarter in which Registrable Notes are sold to underwriters in a firm commitment
or best efforts underwritten offering and (ii) if not sold to underwriters in
such an offering, commencing on the first day of the first fiscal quarter of the
Company after the effective date of a Registration Statement, which statements
shall cover said 12-month periods.
(q) If an Exchange Offer or a Private Exchange is to be consummated,
upon delivery of the Registrable Notes by Holders to the Company (or to such
other Person as directed by the Company) in exchange for the Exchange Notes or
the Private Exchange Notes, as the case may be, the Company shall mark, or cause
to be marked, on such Registrable Notes that such Registrable Notes are being
canceled in exchange for the Exchange Notes or the Private Exchange Notes, as
the case may be; in no event shall such Registrable Notes be marked as paid or
otherwise satisfied.
(r) Cooperate with each seller of Registrable Notes covered by any
Registration Statement and each underwriter, if any, participating in the
disposition of such Registrable Notes and their respective counsel in connection
with any filings required to be made with the National Association of Securities
Dealers, Inc. (the "NASD").
(s) Use its best efforts to take all other steps necessary or
advisable to effect the registration of the
-19-
<PAGE>
Registrable Notes covered by a Registration Statement contemplated hereby.
The Company may require each seller of Registrable Notes as to which
any Shelf Registration Statement is being effected to furnish to the Company
such information regarding such seller and the distribution of such Registrable
Notes as the Company may, from time to time, reasonably request. The Company
may exclude from such Registration Statement the Registrable Notes of any seller
who unreasonably fails to furnish such information within a reasonable time
after receiving such request. Each seller as to which any Shelf Registration is
being effected agrees to furnish promptly to the Company all information
required to be disclosed in order to make the information previously furnished
to the Company by such seller not materially misleading.
Each Holder of Registrable Notes and each Participating Broker-Dealer
agrees by acquisition of such Registrable Notes or Exchange Notes to be sold by
such Participating Broker-Dealer, as the case may be, that, upon actual receipt
of any notice from the Company of the happening of any event of the kind
described in Section 5(c)(ii), 5(c)(iv), 5(c)(v), or 5(c)(vi) hereof, such
Holder will forthwith discontinue disposition of such Registrable Notes or
Exchange Notes, as the case may be, covered by such Registration Statement or
Prospectus to be sold by such Holder or Participating Broker-Dealer, as the case
may be, until such Holder's or Participating Broker-Dealer's receipt of the
copies of the supplemented or amended Prospectus contemplated by Section 5(k)
hereof, or until it is advised in writing (the "Advice") by the Company that the
use of the applicable Prospectus may be resumed, and has received copies of any
amendments or supplements thereto. In the event the Company shall give any such
notice, each of the Effectiveness Period and the Applicable Period shall be
extended by the number of days during such periods from and including the date
of the giving of such notice to and including the date when each seller of
Registrable Notes covered by such Registration Statement or Exchange Notes to be
sold by such Participating Broker-Dealer, as the case may be, shall have
received (x) the copies of the supplemented or amended Prospectus contemplated
by Section 5(k) hereof or (y) the Advice. If requested by the Company, each
Holder shall return such Registration Statement or Prospectus to the Company or
destroy all copies of such Registration Statement or Prospectus; and if so
requested by the Company, shall certify that all copies of the Registration
Statement or Prospectus were destroyed.
6. Registration Expenses
---------------------
(a) All fees and expenses incident to the performance of or
compliance with this Agreement by the Company shall be borne by the Company
whether or not the Exchange Offer or a Shelf Registration is filed or becomes
effective, including, without
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<PAGE>
limitation, (i) all registration and filing fees (including, without limitation,
(A) fees with respect to filings required to be made with the NASD in connection
with an underwritten offering and (B) fees and expenses of compliance with state
securities or Blue Sky laws (including, without limitation, reasonable fees and
disbursements of the Company's counsel in connection with Blue Sky
qualifications of the Registrable Notes or Exchange Notes and determination of
the eligibility of the Registrable Notes or Exchange Notes for investment under
the laws of such jurisdictions (x) where the holders of Registrable Notes are
located, in the case of the Exchange Notes, or (y) as provided in Section 5(h)
hereof, in the case of Registrable Notes or Exchange Notes to be sold by a
Participating Broker-Dealer during the Applicable Period)), (ii) printing
expenses, including, without limitation, expenses of printing certificates for
Registrable Notes or Exchange Notes in a form eligible for deposit with The
Depository Trust Company and of printing Prospectuses if the printing of
Prospectuses is requested by the managing underwriter or underwriters, if any,
by the Holders of a majority in aggregate principal amount of the Registrable
Notes included in any Registration Statement or sold by any Participating
Broker-Dealer, as the case may be, (iii) messenger, telephone and delivery
expenses, (iv) fees and disbursements of counsel for the Company, (v) fees and
disbursements of all independent certified public accountants referred to in
Section 5(m)(iii) hereof (including, without limitation, the expenses of any
special audit and "cold comfort" letters required by or incident to such
performance by or incident to such performance), (vi) rating agency fees, if
any, and any fees associated with making the Registrable Notes or Exchange Notes
eligible for trading through The Depository Trust Company, (vii) fees and
expenses of all other Persons retained by the Company, (viii) internal expenses
of the Company (including, without limitation, all salaries and expenses of
officers and employees of the Company performing legal or accounting duties),
(ix) the expense of any annual audit, (x) the fees and expenses incurred in
connection with the listing of the securities to be registered on any securities
exchange or any inter-dealer quotation system, if applicable, and (xi) the
expenses relating to printing, word processing and distributing all Registration
Statements, underwriting agreements, securities sales agreements, indentures and
any other documents necessary in order to comply with this Agreement.
(b) The Company shall reimburse the Holders of the Registrable Notes
being registered in a Shelf Registration for the reasonable fees and
disbursements of not more than one counsel chosen in writing by the Holders of a
majority in aggregate principal amount of the Registrable Notes to be included
in such Registration Statement. In addition, the Company shall reimburse the
Initial Purchaser for the reasonable fees and expenses of one counsel, in
connection with the Exchange Offer, not to exceed $15,000 which counsel shall be
Willkie Farr & Gallagher, and shall not be required to pay any other legal
expenses of the Initial Purchaser in connection therewith.
-21-
<PAGE>
7. Indemnification.
---------------
(a) The Company agrees to indemnify and hold harmless each Holder of
Registrable Notes offered pursuant to a Shelf Registration Statement or any
Person controlled by or under common control with such Holder and each
Participating Broker-Dealer selling Exchange Notes during the Applicable Period,
the directors, officers, agents, representatives and employees of each such
Person, and each other Person, if any, who controls any such Person within the
meaning of either Section 15 of the Securities Act or Section 20 of the Exchange
Act (each, a "Participant") from and against any and all losses, claims, damages
and liabilities (including, without limitation, the reasonable legal fees and
other expenses actually incurred in connection with any suit, action or
proceeding or any claim asserted) caused by, arising out of or based upon any
untrue statement or alleged untrue statement of a material fact contained in any
Registration Statement pursuant to which the offering of such Registrable Notes
or Exchange Notes, as the case may be, is registered (or any amendment thereto)
or related Prospectus (or any amendments or supplements thereto) or any related
preliminary prospectus, or caused by, arising out of or based upon any omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading; provided, however,
-------- -------
that the Company will not be required to indemnify a Participant if (i) such
losses, claims, damages or liabilities are caused by any untrue statement or
omission or alleged untrue statement or omission made in reliance upon and in
conformity with information furnished to the Company in writing by or on behalf
of such Participant expressly for use therein or (ii) if such Participant sold
to the person asserting the claim the Registrable Notes or Exchange Notes which
are the subject of such claim and such untrue statement or omission or alleged
untrue statement or omission was contained or made in any preliminary prospectus
and corrected in the Prospectus or any amendment or supplement thereto and the
Prospectus does not contain any other untrue statement or omission or alleged
untrue statement or omission of a material fact that was the subject matter of
the related proceeding and such Participant failed to deliver or provide a copy
of the Prospectus (as amended or supplemented) to such Person with or prior to
the confirmation of the sale of such Registrable Notes or Exchange Notes sold to
such Person if required by applicable laws, unless such failure to deliver or
provide a copy of the Prospectus (as amended or supplemented) was a result of
noncompliance by the Company with Section 5 of this Agreement.
(b) Each Participant agrees, severally and not jointly, to indemnify
and hold harmless the Company, its directors, officers, agents, representatives
and employees and each Person who controls the Company within the meaning of
Section 15 of the Securities Act or Section 20 of the Exchange
-22-
<PAGE>
Act to the same extent as the foregoing indemnity from the Company to each
Participant, but only (i) with reference to information furnished to the Company
in writing by or on behalf of such Participant expressly for use in any
Registration Statement or Prospectus, any amendment or supplement thereto, or
any preliminary prospectus or (ii) with respect to any untrue statement or
representation, or omission therefrom, made by such Participant in writing to
the Company.
(c) If any suit, action, proceeding (including any governmental or
regulatory investigation), claim or demand shall be brought or asserted against
any Person in respect of which indemnity may be sought pursuant to either of the
two preceding paragraphs, such Person (the "Indemnified Person") shall promptly
notify the Person against whom such indemnity may be sought (the "Indemnifying
Person") in writing, and the Indemnifying Person, shall have the right to retain
counsel reasonably satisfactory to the Indemnified Person to represent the
Indemnified Person and any others the Indemnifying Person may reasonably
designate in such proceeding and shall pay the reasonable fees and expenses
actually incurred by such counsel related to such proceeding; provided, however,
-------- -------
that the failure to so notify the Indemnifying Person shall not relieve it of
any obligation or liability which it may have hereunder or otherwise (unless and
only to the extent that such failure results in the loss or compromise of any
material rights or defenses by the Indemnifying Person). In any such
proceeding, any Indemnified Person shall have the right to retain its own
counsel, but the fees and expenses of such counsel shall be at the expense of
such Indemnified Person unless (i) the Indemnifying Person and the Indemnified
Person shall have mutually agreed in writing to the contrary, (ii) the
Indemnifying Person shall have failed within a reasonable period of time to
retain counsel reasonably satisfactory to the Indemnified Person or (iii) the
named parties in any such proceeding (including any impleaded parties) include
both the Indemnifying Person and the Indemnified Person and representation of
both parties by the same counsel would be inappropriate due to actual or
potential differing interests between them. It is understood that, unless there
exists a conflict among Indemnified Persons, the Indemnifying Person shall not,
in connection with any one such proceeding or separate but substantially similar
related proceeding arising out of the same general allegations, be liable for
the fees and expenses of more than one separate firm (in addition to any local
counsel) for all Indemnified Persons, and that all such reasonable fees and
expenses shall be reimbursed promptly as they are incurred. Any such separate
firm for the Participants and such control Persons of Participants shall be
designated in writing by Participants who sold a majority in interest of
Registrable Notes and Exchange Notes sold by all such Participants in the
Registration Statement, or particular offering or offerings thereunder, giving
rise to the claim for indemnification and any such separate firm for the
Company, its directors, officers, agents, representatives and employees and the
control Persons of the Company shall be designated in writing
-23-
<PAGE>
by the Company. The Indemnifying Person shall not be liable for any settlement
of any proceeding effected without its prior written consent, but if settled
with such consent or if there be a final non-appealable judgment for the
plaintiff for which the Indemnified Person is entitled to indemnification
pursuant to this Agreement, the Indemnifying Person agrees to indemnify and hold
harmless each Indemnified Person from and against any loss or liability by
reason of such settlement or judgment. No Indemnifying Person shall, without the
prior written consent of the Indemnified Person, effect any settlement or
compromise of any pending or threatened proceeding in respect of which any
Indemnified Person is or could have been a party, and indemnity could have been
sought hereunder by such Indemnified Person, unless such settlement (A) includes
an unconditional written release of such Indemnified Person, in form and
substance reasonably satisfactory to such Indemnified Person, from all liability
on claims that are the subject matter of such proceeding, (B) does not include
any statement as to an admission of fault, culpability or failure to act by or
on behalf of any Indemnified Person and (C) does not impose any non-monetary
relief applicable to the Indemnified Person.
(d) If the indemnification provided for in Sections 7(a) and 7(b)
hereof is for any reason unavailable to, or insufficient to hold harmless, an
Indemnified Person in respect of any losses, claims, damages or liabilities
referred to therein, then each Indemnifying Person under such paragraphs, in
lieu of indemnifying such Indemnified Person thereunder and in order to provide
for just and equitable contribution, shall contribute to the amount paid or
payable by such Indemnified Person as a result of such losses, claims, damages
or liabilities in such proportion as is appropriate to reflect (i) the relative
benefits received by the Indemnifying Person or Persons on the one hand and the
Indemnified Person or Persons on the other from the offering of the Notes or
(ii) if the allocation provided by the foregoing clause (i) is not permitted by
applicable law, not only such relative benefits but also the relative fault of
the Indemnifying Person or Persons on the one hand and the Indemnified Person or
Persons on the other in connection with the statements or omissions or alleged
statements or omissions that resulted in such losses, claims, damages or
liabilities (or actions in respect thereof). The relative fault of the parties
shall be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged omission
to state a material fact relates to information supplied by the Company on the
one hand or such Participant or such other Indemnified Person, as the case may
be, on the other, the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such statement or omission, and any other
equitable considerations appropriate in the circumstances.
(e) The parties agree that it would not be just and equitable if
contribution pursuant to this Section 7 were
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<PAGE>
determined by pro rata allocation (even if the Participants were treated as one
--- ----
entity for such purposes) or by any other method of allocation that does not
take account of the equitable considerations referred to in the immediately
preceding paragraph. The amount paid or payable by an Indemnified Person as a
result of the losses, claims, damages and liabilities referred to in the
immediately preceding paragraph shall be deemed to include, subject to the
limitations set forth above, any reasonable legal or other expenses actually
incurred by such Indemnified Person in connection with investigating or
defending any such action or claim. Notwithstanding the provisions of this
Section 7, in no event shall a Participant be required to contribute any amount
in excess of the amount by which proceeds received by such Participant from
sales of Registrable Notes or Exchange Notes, as the case may be, exceeds the
amount of any damages that such Participant has otherwise been required to pay
or has paid by reason of such untrue or alleged untrue statement or omission or
alleged omission. No Person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any Person who was not guilty of such fraudulent
misrepresentation.
(f) The indemnity and contribution agreements contained in this
Section 7 will be in addition to any liability which the Indemnifying Persons
may otherwise have to the Indemnified Persons referred to above.
8. Rules 144 and 144A. The Company covenants that it will file the
------------------
reports required to be filed by it under the Securities Act and the Exchange Act
and the rules and regulations adopted by the SEC thereunder in a timely manner
in accordance with the requirements of the Securities Act and the Exchange Act
and, if at any time the Company is not required to file such reports, it will,
upon the request of any Holder of Registrable Notes, make publicly available
annual reports and such information, documents and other reports of the type
specified in Sections 13 and 15(d) of the Exchange Act. The Company further
covenants for so long as any Registrable Notes remain outstanding, to make
available to any Holder or beneficial owner of Registrable Notes in connection
with any resale thereof pursuant to Rule 144A to any prospective purchaser of
such Registrable Notes from such Holder or beneficial owner the information
required by Rule 144A(d)(4) under the Securities Act.
9. Selection of Underwriter and Requirements of Underwritten
-------------------------------------------- ------------
Registrations. If any of the Registrable Notes covered by any Shelf
- -------------
Registration are to be sold in an underwritten offering, the investment banker
or investment bankers and manager or managers that will manage the offering will
be selected by the Holders of a majority in aggregate principal amount of such
Registrable Notes included in such offering and shall be reasonably acceptable
to the Company.
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<PAGE>
No Holder of Registrable Notes may participate in any underwritten
registration hereunder unless such Holder (a) agrees to sell such Holder's
Registrable Notes on the basis provided in any underwriting arrangements
approved by the Persons entitled hereunder to approve such arrangements and (b)
completes and executes all questionnaires, powers of attorney, indemnities,
underwriting agreements and other documents required under the terms of such
underwriting arrangements.
10. Miscellaneous.
-------------
(a) No Inconsistent Agreements. The Company has not entered, as of
--------------------------
the date hereof, and the Company shall not after the date of this Agreement,
enter into any agreement with respect to any of its securities that is in
conflict with the rights granted to the Holders of Registrable Notes in this
Agreement or otherwise conflicts with the provisions hereof. Other than as
provided in Schedule A attached hereto the Company has not entered and the
----------
Company will not enter into any agreement with respect to any of its securities
which will grant to any Person piggy-back registration rights with respect to a
Registration Statement.
(b) Adjustments Affecting Registrable Notes. The Company shall not,
---------------------------------------
directly or indirectly, take any action with respect to the Registrable Notes as
a class that would adversely affect the ability of the Holders of Registrable
Notes to include such Registrable Notes in a registration undertaken pursuant to
this Agreement.
(c) Amendments and Waivers. The provisions of this Agreement may not
----------------------
be amended, modified or supplemented, and waivers or consents to departures from
the provisions hereof may not be given, otherwise than with the prior written
consent of the Holders of not less than a majority in aggregate principal amount
of the then outstanding Registrable Notes. Notwithstanding the foregoing, a
waiver or consent to depart from the provisions hereof with respect to a matter
that relates exclusively to the rights of Holders of Registrable Notes whose
securities are being sold pursuant to a Registration Statement and that does not
directly or indirectly affect, impair, limit or compromise the rights of other
Holders of Registrable Notes may be given by Holders of at least a majority in
aggregate principal amount of the Registrable Notes being sold by such Holders
pursuant to such Registration Statement; provided, however, that the provisions
-------- -------
of this sentence may not be amended, modified or supplemented except in
accordance with the provisions of the immediately preceding sentence.
(d) Notices. All notices and other communications (including,
-------
without limitation, any notices or other communications to the Trustee) provided
for or permitted hereunder shall be made in writing by hand-delivery, registered
first-class mail, next-day air courier or facsimile:
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<PAGE>
1. if to a Holder of the Registrable Notes or any Participating
Broker-Dealer, at the most current address of such Holder or Participating
Broker-Dealer, as the case may be, set forth on the records of the registrar
under the Indenture or set forth in a notice to the Company, with a copy in like
manner to the Initial Purchaser as follows:
NatWest Capital Markets Limited
135 Bishopsgate
London, EC2M 3XT
United Kingdom
with a copy to:
Willkie Farr & Gallagher
787 Seventh Avenue
New York, New York 10019-6099
Facsimile No: (212) 728-8111
Attention: John S. D'Alimonte, Esq.
2. if to the Initial Purchaser, at the addresses specified in
Section 10(d)(1);
3. if to the Company, as follows:
Jones International Networks, Ltd.
9697 East Mineral Avenue
P.O. Box 3309
Englewood, Colorado 80155-3309
Attention: Gregory Liptak
with a copy to:
Davis, Graham & Stubbs LLP
370 Seventeenth Street
Suite 4700
Denver, Colorado 80202
Attention: Patricia Peterson, Esq.
All such notices and communications shall be deemed to have been duly
given: when delivered by hand, if personally delivered; five business days after
being deposited in the mail, postage prepaid, if mailed; one business day after
being timely delivered to a next-day air courier; and when receipt is
acknowledged by the addressee, if sent by facsimile.
Copies of all such notices, demands or other communications shall be
concurrently delivered by the Person giving the same to the Trustee at the
address and in the manner specified in such Indenture.
(e) Successors and Assigns. This Agreement shall inure to the benefit
----------------------
of and be binding upon the successors and assigns of each of the parties hereto;
provided, however, that
- -------- -------
-27-
<PAGE>
this Agreement shall not inure to the benefit of or be binding upon a successor
or assign of a Holder unless and to the extent such successor or assign holds
Registrable Notes.
(f) Counterparts. This Agreement may be executed in any number of
------------
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(g) Headings. The headings in this Agreement are for convenience of
--------
reference only and shall not limit or otherwise affect the meaning thereof.
(H) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
-------------
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO CONTRACTS
MADE AND PERFORMED WHOLLY WITHIN THE STATE OF NEW YORK, WITHOUT REGARD TO
PRINCIPLES OF CONFLICTS OF LAW. EACH OF THE PARTIES HERETO AGREES TO SUBMIT TO
THE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK IN ANY ACTION OR
PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT.
(i) Severability. If any term, provision, covenant or restriction of
------------
this Agreement is held by a court of competent jurisdiction to be invalid,
illegal, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions set forth herein shall remain in full force and
effect and shall in no way be affected, impaired or invalidated, and the parties
hereto shall use their best efforts to find and employ an alternative means to
achieve the same or substantially the same result as that contemplated by such
term, provision, covenant or restriction. It is hereby stipulated and declared
to be the intention of the parties that they would have executed the remaining
terms, provisions, covenants and restrictions without including any of such that
may be hereafter declared invalid, illegal, void or unenforceable.
(j) Notes Held by the Company or its Affiliates. Whenever the consent
-------------------------------------------
or approval of Holders of a specified percentage of Registerable Notes is
required hereunder, Registrable Notes held by the Company or its affiliates (as
such term is defined in Rule 405 under the Securities Act) shall not be counted
in determining whether such consent or approval was given by the Holders of such
required percentage.
(k) Third Party Beneficiaries. Holders of Registrable Notes and
-------------------------
Participating Broker-Dealers are intended third party beneficiaries of this
Agreement and this Agreement may be enforced by such Persons.
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<PAGE>
IN WITNESS WHEREOF, the parties have executed the Agreement as of the
date first written above.
Issuer:
JONES INTERNATIONAL NETWORKS, LTD.
By: /s/ Gregory J. Liptak
-------------------------
Name: Gregory J. Liptak
Title: President
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<PAGE>
SCHEDULE A
----------
Existing Piggy-Back Registration Rights
---------------------------------------
None.
<PAGE>
EXHIBIT 4.4
-----------
PLEDGE AGREEMENT
PLEDGE AGREEMENT, dated as of July 10, 1998, made by each pledgor
listed on the signature pages hereto (each individually a "Pledgor" and
collectively the "Pledgors"), in favor of United States Trust Company of New
York, in its capacity as collateral agent (in such capacity, the "Collateral
Agent") for the ratable benefit of the holders (the "Noteholders") of the 11
3/4% Senior Secured Notes due 2005 (the "Notes") issued by Jones International
Networks, Ltd., a Colorado corporation (the "Company") under the Indenture dated
as of July 10, 1998 between the Company and United States Trust Company of New
York, in its capacity as trustee (the "Indenture").
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, NatWest Capital Markets Limited (the "Initial Purchaser") and
the Company have entered into a Purchase Agreement, dated July 2, 1997 (the
"Purchase Agreement"), pursuant to which, among other things, the Initial
Purchaser has agreed to purchase the Notes from the Company; and
WHEREAS, the Pledgors are the legal and beneficial owners of the
shares of Pledged Stock (as hereinafter defined) issued by each of the companies
listed on Schedule I hereto (each an "Issuer" and together, the "Issuers"); and
WHEREAS, it is a condition precedent to the obligations of the Initial
Purchaser to purchase the Notes under the Purchase Agreement that the Pledgors
shall have executed and delivered this Pledge Agreement to the Collateral Agent;
NOW, THEREFORE, in consideration of the premises and to induce the
Initial Purchaser to enter into the Purchase Agreement and to purchase the
Notes, the Pledgors hereby agree with the Collateral Agent, as follows:
<PAGE>
1. Defined Terms. Unless otherwise defined herein, terms which are
--------------
defined in the Indenture and used herein are used as so defined, and the
meanings assigned to terms defined herein or in the Indenture shall be equally
applicable to both the singular and plural forms of such terms; and the
following terms shall have the following meanings:
"Collateral" means the Pledged Stock and all Proceeds.
-----------
"Obligations" means the unpaid principal of, any premium
------------
applicable to, and interest on the Notes (including, without limitation,
interest accruing after the maturity of the Notes and interest accruing after
the filing of any petition in bankruptcy, or the commencement of any insolvency,
reorganization or like proceeding, relating to any Pledgor, whether or not a
claim for post-filing or post-petition interest is allowed in such proceeding)
and all other obligations and liabilities of each Pledgor to the Noteholders,
whether direct or indirect, absolute or contingent, due or to become due, or now
existing or hereafter incurred, which may arise under, out of, or in connection
with, the Notes, the Indenture or this Pledge Agreement (in each such case as
the same may be amended, supplemented or modified from time to time) and any
other document made, delivered or given in connection therewith or herewith,
whether on account of principal, premium, interest, reimbursement obligations,
fees, indemnities, costs, expenses (including, without limitation, all fees and
disbursements of counsel) or otherwise.
"Pledge Agreement" means this Pledge Agreement, as further
-----------------
amended, supplemented or otherwise modified from time to time.
"Pledged Stock" means the shares of capital stock of each Issuer
--------------
listed on Schedule I hereto, together with all stock certificates, options or
rights of any nature whatsoever that may be issued or granted by such Issuer to
the Pledgor in respect of the Pledged Stock while this Pledge Agreement is in
effect.
"Proceeds" means all "proceeds" as such term is defined in
---------
Section 9-306(l) of the Uniform Commercial Code in effect in the State of New
York on the date hereof and, in any event, shall include, without limitation,
all dividends or other income from the Pledged Stock, collections thereon or
distributions with respect thereto.
"UCC" means the Uniform Commercial Code from time to time in
----
effect in the State of New York.
2. Pledge; Grant of Security Interest; Endorsement. Each Pledgor
------------------------------------------------
hereby delivers to the Collateral Agent all the Pledged Stock and hereby grants
to the Collateral Agent a first priority security interest in the Collateral, as
collateral security for the prompt and complete payment and performance when
2
<PAGE>
due (whether at the stated maturity, by acceleration or otherwise) of the
Obligations.
3. Perfection of Security. Each Pledgor authorizes the Collateral
-----------------------
Agent to file such financing statements and other documents and to do such acts,
matters and things as the Collateral Agent may consider appropriate to perfect
and continue the Collateral Agent's security interest in the Collateral, to
protect and preserve the Collateral Agent's security interest in the Collateral
and to realize upon the Collateral Agent's security interest in the Collateral.
4. Stock Powers. Concurrently with the delivery to the Collateral
-------------
Agent of each certificate representing one or more shares of Pledged Stock, each
Pledgor shall deliver an undated stock power covering such certificate, duly
executed in blank by such Pledgor with signature guaranteed.
5. Representations and Warranties. Each Pledgor represents and
-------------------------------
warrants that:
(a) the shares of Pledged Stock listed on Schedule I constitute (i)
all the issued and outstanding shares of all classes of the capital stock
of each Issuer that are owned by such Pledgor and (ii) the percentage
listed on Schedule I of the aggregate number of the issued and outstanding
shares of the identified class of capital stock of such Issuer owned by the
Pledgor;
(b) all the shares of the Pledged Stock have been duly and validly
issued and are fully paid and nonassessable;
(c) such Pledgor is the legal and beneficial owner of, and has good
and marketable title to, the Pledged Stock listed on Schedule I opposite
such Pledgor's name, free of any and all Liens or options in favor of, or
claims of, any other Person, except the Lien created by this Pledge
Agreement; and
(d) upon delivery to the Collateral Agent of the stock certificates
evidencing the Pledged Stock, the Lien granted pursuant to this Pledge
Agreement will constitute a valid, perfected first priority Lien on the
Pledged Stock, enforceable in accordance with its terms, except as
enforcability may be limited by applicable bankruptcy, insolvency,
reorganization or other similar laws affecting the enforcement of
creditors' rights generally and by general equitable principles.
6. Covenants. Each Pledgor covenants and agrees with the Collateral
----------
Agent that, from and after the date of this Pledge Agreement until the
Obligations are paid in full:
3
<PAGE>
(a) If any Pledgor shall, as a result of its ownership of the Pledged
Stock, become entitled to receive or shall receive any stock certificate or
any certificate or other instrument evidencing ownership of any partnership
interest (including, without limitation, any certificate representing a
stock dividend or a distribution in connection with any reclassification,
increase or reduction of capital or any certificate issued in connection
with any reorganization), option or rights, whether in addition to, in
substitution for, as a conversion of, or in exchange for any shares of the
Pledged Stock, or otherwise in respect thereof, such Pledgor shall accept
the same as the agent of the Collateral Agent, hold the same in trust for
the Collateral Agent and deliver the same forthwith to the Collateral Agent
in the exact form received, duly endorsed by such Pledgor to the Collateral
Agent, if required, together with an undated stock power covering such
certificate duly executed in blank by such Pledgor and with signature
guaranteed, to be held by the Collateral Agent, subject to the terms
hereof, as additional collateral security for the Obligations.
(b) Without the prior written consent of the Collateral Agent, each
Pledgor will not (i) permit any Issuer to issue any stock or other equity
securities of any nature or to issue any other securities convertible into
or granting the right to purchase or exchange for any stock or other equity
securities of any nature of such Issuer, (ii) sell, assign, transfer,
exchange, or otherwise dispose of, or grant any option with respect to, the
Collateral, or (iii) create, incur or permit to exist any Lien or option in
favor of, or any claim of any Person with respect to, any of the
Collateral, or any interest therein, except for the Lien provided for by
this Pledge Agreement. The Collateral Agent shall provide such consent if
the transaction enumerated in clause (i) or (ii) above is permitted by, and
effected in accordance with the terms of, the Indenture. Each Pledgor will
defend the right, title and interest of the Collateral Agent in and to the
Collateral against the claims and demands of all Persons whomsoever.
(c) At any time and from time to time, upon the written request of
the Collateral Agent, and at the sole expense of such Pledgor, such Pledgor
will promptly and duly execute and deliver such further instruments and
documents and take such further actions as the Collateral Agent may
reasonably request for the purposes of obtaining or preserving the full
benefits of this Pledge Agreement and of the rights and powers herein
granted. If any amount payable under or in connection with any of the
Collateral shall be or become evidenced by any promissory note, other
instrument or chattel paper, such note, instrument or chattel paper shall
be immediately delivered to the Collateral Agent, duly endorsed in a manner
satisfactory to the Collateral Agent, to be held as Collateral pursuant to
this Pledge Agreement.
4
<PAGE>
(d) Each Pledgor agrees to pay, and to save the Collateral Agent
harmless from, any and all liabilities with respect to, or resulting from
any delay in paying, any and all stamp, excise, sales or other taxes which
may be payable or determined to be payable with respect to any of the
Collateral or in connection with any of the transactions contemplated by
this Pledge Agreement.
7. Cash Dividends and Distributions; Voting Rights. Unless an Event
-----------------------------------------------
of Default shall have occurred and be continuing, the Pledgors shall have the
right (i) to receive and retain all cash dividends, including liquidating
dividends, in respect of the Pledged Stock and if the Collateral Agent receives
any such income or interest on other distribution of property (other than
securities) prior to the occurrence of an Event of Default, the Collateral Agent
shall pay the same promptly to the Pledgors and (ii) to exercise all voting and
corporate rights with respect to the Pledged Stock; provided, however, that no
-------- -------
vote shall be cast or corporate right exercised or other action taken which
results in any violation of any provision of the Indenture, the Notes or this
Pledge Agreement.
8. Rights of the Collateral Agent. (a) If an Event of Default shall
-------------------------------
occur and be continuing, (i) promptly upon receipt of notice thereof by any
Pledgor from the Collateral Agent and without any request therefor by the
Collateral Agent, such Pledgor shall deliver to the Collateral Agent any and all
cash dividends thereafter paid in respect of the Pledged Stock and the
Collateral Agent may make application thereof to the Obligations in the order
provided in Section 6.10 of the Indenture, (ii) all shares of the Pledged Stock
shall be registered in the name of the Collateral Agent or its nominee, and the
Collateral Agent or its nominee may thereafter exercise (A) all voting,
corporate and other rights, privileges or options pertaining to such shares of
the Pledged Stock as if it were the absolute owner thereof (including, without
limitation, the right to exchange at its discretion any and all of the Pledged
Stock upon the merger, consolidation, reorganization, recapitalization or other
fundamental change in the corporate structure of the Issuers, or upon the
exercise by any Pledgor or the Collateral Agent of any right, privilege or
option pertaining to such shares of Pledged Stock, and in connection therewith,
the right to deposit and deliver any and all of the Pledged Stock with any
committee, depositary, transfer agent, registrar or other designated agency upon
such terms and conditions as it may determine), all without liability except to
account for property actually received by it, but the Collateral Agent shall
have no duty to any Pledgor to exercise any such right, privilege or option and
shall not be responsible for any failure to do so or delay in so doing.
(b) The rights of the Collateral Agent hereunder shall not be
conditioned or contingent upon the pursuit by the Collateral Agent of any
right or remedy against any Pledgor or any of the Issuers against any other
Person which may be or
5
<PAGE>
become liable in respect of all or any part of the Obligations or against
any collateral security therefor, guarantee therefor or right of offset
with respect thereto. The Collateral Agent shall not be liable for any
failure to demand, collect or realize upon all or any part of the
Collateral or for any delay in doing so, nor shall the Collateral Agent be
under any obligation to sell or otherwise dispose of any Collateral upon
the request of any Pledgor or any other Person or to take any other action
whatsoever with regard to the Collateral or any part thereof.
9. Remedies. If an Event of Default shall occur and be continuing,
--------
the Collateral Agent may exercise, in addition to all other rights and remedies
granted in this Pledge Agreement and in any other instrument or agreement
securing, evidencing or relating to the Obligations, all rights and remedies of
a secured party under the UCC and under similar laws in effect in other relevant
jurisdictions. Without limiting the generality of the foregoing, the Collateral
Agent, without demand of performance or other demand, presentment, protest,
advertisement or notice of any kind (except any notice required by law referred
to below) to or upon any Pledgor, any Issuer or any other Person (all and each
of which demands, defenses, advertisements and notices are, to the extent
permitted by law, hereby waived), may in such circumstances forthwith collect,
receive, appropriate and realize upon the Collateral, or any part thereof,
and/or may forthwith sell, assign, give option or options to purchase or
otherwise dispose of and deliver the Collateral or any part thereof (or contract
to do any of the foregoing), in one or more parcels at a public or private sale
or sales, in the over-the-counter market, at any exchange, broker's board or
office of the Collateral Agent or elsewhere upon commercially reasonable terms
and conditions, for cash or on credit or for future delivery without assumption
of any credit risk. The Collateral Agent shall have the right upon any such
public sale or sales, and, to the extent permitted by law, upon any such private
sale or sales, to purchase the whole or any part of the Collateral so sold, free
of any right or equity of redemption in any Pledgor, which right or equity is,
to the extent permitted by law, hereby waived or released. The Collateral Agent
shall apply any Proceeds from time to time held by it and the net proceeds of
any such collection, recovery, receipt, appropriation, realization or sale,
after deducting all reasonable costs and expenses of every kind incurred in
respect thereof or incidental to the care or safekeeping of any of the
Collateral or in any way relating to the Collateral or the rights of the
Collateral Agent hereunder, including, without limitation, reasonable attorneys'
fees and disbursements of counsel to the Collateral Agent, to the payment in
whole or in part of the Obligations, in the order provided in Section 6.10 of
the Indenture, and as otherwise required by any provision of law, including
without limitation, Section 9-504(l)(c) of the UCC. Any amount and any
Collateral remaining after such application and after payment to the Collateral
Agent of all of the Obligations in full shall be paid or delivered to the
Pledgors, their successors or assigns. To the extent permitted by applicable
6
<PAGE>
law, the Pledgors waive all claims, damages and demands they may acquire against
the Collateral Agent arising out of the exercise, if in accordance with the
terms hereof, of any rights hereunder. If any notice of a proposed sale or other
disposition of Collateral shall be required by law, such notice shall be deemed
reasonable and proper if given at least 10 days before such sale or other
disposition. Each Pledgor shall remain liable under its Subsidiary Guarantee for
any deficiency if the proceeds of any sale or other disposition of Collateral
are insufficient to pay the Obligations and the fees and disbursements of any
attorneys employed by the Collateral Agent to collect such deficiency.
10. Limitation on Duties Regarding Collateral. The Collateral Agent's
------------------------------------------
sole duty with respect to the custody, safe-keeping and physical preservation of
the Collateral in its possession, under Section 9-207 of the UCC or otherwise,
shall be to deal with it in the same manner as the Collateral Agent deals with
similar securities and property for its own account and to otherwise perform its
obligations in accordance with the standards set forth in the UCC. Neither the
Collateral Agent nor any of its directors, officers, employees or agents shall
be liable for failure to demand, collect or realize upon any of the Collateral
or for any delay in doing so or shall be under any obligation to sell or
otherwise dispose of any Collateral upon the request of any Pledgor or
otherwise.
11. Powers Coupled with an Interest. All authorizations and agencies
--------------------------------
herein contained with respect to the Collateral are irrevocable and are powers
coupled with an interest.
12. Severability. Any provision of this Pledge Agreement which is
-------------
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
13. Paragraph Headings. The paragraph headings used in this Pledge
-------------------
Agreement are for convenience of reference only and are not to affect the
construction hereof or to be taken into consideration in the interpretation
hereof.
14. No Waiver; Cumulative Remedies. The Collateral Agent shall not by
------------------------------
any act (except by a written instrument pursuant to paragraph 16 hereof) be
deemed to have waived any right or remedy hereunder or to have acquiesced in any
Default or Event of Default or in any breach of any of the terms and conditions
hereof. No failure to exercise, nor any delay in exercising, on the part of the
Collateral Agent, any right, power or privilege hereunder shall operate as a
waiver thereof. No single or partial exercise of any right, power or privilege
hereunder shall preclude any other or further exercise thereof or the exercise
of any other right, power or privilege. A waiver by the Collateral Agent of any
right or
7
<PAGE>
remedy hereunder on any one occasion shall not be construed as a bar to any
right or remedy which the Collateral Agent would otherwise have on any future
occasion. The rights and remedies herein provided are cumulative, may be
exercised singly or concurrently and are not exclusive of any other rights or
remedies provided by law.
15. Waivers and Amendments; Successors and Assigns. None of the terms
-----------------------------------------------
or provisions of this Pledge Agreement may be amended, supplemented or otherwise
modified except by a written instrument executed by the Pledgors and the
Collateral Agent, provided that any provision of this Pledge Agreement may be
--------
waived by the Collateral Agent in a letter or agreement executed by the
Collateral Agent or by telecopy from the Collateral Agent. This Pledge Agreement
shall be binding upon the successors and assigns of each Pledgor and shall inure
to the benefit of the Collateral Agent and its respective successors and
assigns.
16. Termination of Security Interest; Release of Collateral. (a) Upon
--------------------------------------------------------
the repayment in full of all Obligations, the security interest granted in the
Collateral pursuant to this Pledge Agreement shall terminate and all rights
granted hereunder to the Collateral shall revert to the Pledgors.
(b) Upon the sale of all of the Pledged Stock of a Subsidiary to a
party that is not an Affiliate of the Company in accordance with the terms
of the Indenture, the security interest granted in the Collateral relating
to such Subsidiary pursuant to this Pledge Agreement shall terminate and
all rights granted hereunder to such Collateral shall revert to the
Pledgors.
(c) Upon any termination of the security interest granted in the
Collateral pursuant to this Agreement or pursuant to the terms of the
Indenture, the Collateral Agent will, at the expense of the Pledgors,
execute and deliver to each Pledgor such instruments or documents as such
Pledgor shall reasonably request to evidence the termination of the
Security Interest and deliver to such Pledgor all Collateral so released
then in its possession.
17. Notices. All notices or other communications provided for
--------
hereunder shall be in writing and sent by first class mail or nationwide
overnight delivery service (a) if to a Pledgor, addressed to it at its address
listed next to its name on the signature pages hereof, or at such other address
as such Pledgor shall have specified to the Collateral Agent in writing and (b)
if to the Collateral Agent, addressed to it at United States Trust Company of
New York.
18. Notices and Other Communications in Respect of Collateral. Each
----------------------------------------------------------
Pledgor shall deliver promptly to the Collateral Agent copies of all notices or
other communications received by such Pledgor in respect of the Collateral.
Until the occurrence of
8
<PAGE>
an Event of Default, the Collateral Agent shall deliver promptly to such Pledgor
all notices or other communications received by the Collateral Agent or its
nominee in respect of the Collateral. After the occurrence of an Event of
Default, such Pledgor waives all rights to receive any notices or communications
received by the Collateral Agent or its nominee in respect of the Collateral.
19. Irrevocable Authorization and Instruction to Issuer. Each Pledgor
----------------------------------------------------
hereby authorizes and instructs each Issuer to comply with any instruction
received by it from the Collateral Agent in writing that (a) states that an
Event of Default has occurred and (b) is otherwise in accordance with the terms
of this Pledge Agreement, without any or other further instructions from the
Pledgor, and the Pledgor agrees that each Issuer shall be fully protected in so
complying.
20. Integration. This Pledge Agreement and the Indenture represent
------------
the agreement of the Pledgors and the Collateral Agent with respect to the
subject matter hereof, and there are no promises, undertakings, representations
or warranties by the Collateral Agent relative to the subject matter hereof not
expressly set forth or referred to herein or in the other Transaction Documents.
21. GOVERNING LAW. THIS PLEDGE AGREEMENT AND THE RIGHTS AND
--------------
OBLIGATIONS OF THE PLEDGORS UNDER THIS PLEDGE AGREEMENT SHALL BE GOVERNED BY,
AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW
YORK, EXCEPT TO THE EXTENT THAT THE PERFECTION AND THE EFFECT OF PERFECTION OR
NON-PERFECTION OF THE SECURITY INTEREST CREATED HEREBY, IN RESPECT OF ANY
PARTICULAR COLLATERAL, ARE GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN THE
STATE OF NEW YORK.
22. Copy Received. Each Pledgor hereby acknowledges receipt of a copy
--------------
of this Pledge Agreement.
9
<PAGE>
SCHEDULE I
----------
Description of Pledged Stock
----------------------------
<TABLE>
<CAPTION>
Name of Class of Stock Number of
Pledgor Issuer Stock Certificate No. Shares Percentage
- ------- ------ ----- --------------- ------ ----------
<S> <C> <C> <C> <C> <C>
Jones International JPN, Inc. Class A A2 2,980,953 100%
Networks, Ltd. Class B B2 1,785,120 100%
JPN, Inc. Jones Radio
Holdings, Inc. Class A 1 10,000 100%
Class B 1 10,000 100%
Great American
Country, Inc. Class A A1 8,100 100%
A4 1,900 100%
Class B B1 8,100
B4 1,900
Jones Space
Holdings, Inc. Common 3 1,000 100%
Jones Infomercial
Networks, Ltd. Class A A1 5,100 100%
A4 1,196
Class B B1 5,100
B4 1,196
</TABLE>
S-1
<PAGE>
IN WITNESS WHEREOF, the undersigned has caused this Pledge Agreement
to be duly executed and delivered as of the date first above written.
Address:
- --------
JONES INTERNATIONAL NETWORKS, LTD.
By__________________________
Name:
Title:
JPN, INC.
By__________________________
Name:
Title:
Accepted and Agreed:
UNITED STATES TRUST COMPANY OF NEW YORK
as Collateral Agent
By /s/ Patricia N. Glazier
-------------------------------
Name: Patricia N. Glazier
Title: Assistant Vice President
<PAGE>
IN WITNESS WHEREOF, the undersigned has caused this Pledge Agreement to be
duly executed and delivered as of the date first above written.
Address:
- --------
JONES INTERNATIONAL NETWORKS, LTD.
By /s/ Gregory J. Liptak
----------------------------------
Name: Gregory J. Liptak
Title: President
JPN, INC.
By /s/ Gregory J. Liptak
----------------------------------
Name: Gregory J. Liptak
Title: President
Accepted and Agreed:
UNITED STATES TRUST COMPANY OF NEW YORK
as Collateral Agent
By_____________________________
Name:
Title:
10
<PAGE>
ACKNOWLEDGMENT AND CONSENT
--------------------------
The Issuer referred to in the foregoing Pledge Agreement hereby
acknowledges receipt of a copy thereof and agrees to be bound thereby and to
comply with the terms thereof, insofar as such terms are applicable to it. The
Issuer agrees to notify the Collateral Agent promptly in writing of the
occurrence of any of the events described in paragraph 6(a) of the Pledge
Agreement. The Issuer further agrees that the terms of paragraph 10(b) of the
Pledge Agreement shall apply to it, mutatis mutandis, with respect to all
actions that may be required of it under or pursuant to or arising out of
paragraph 10 of the Pledge Agreement.
JPN, INC.
By /s/ Gregory J. Liptak
----------------------------------
Name: Gregory J. Liptak
Title: President
JONES RADIO HOLDINGS, INC.
By /s/ Gregory J. Liptak
----------------------------------
Name: Gregory J. Liptak
Title: President
GREAT AMERICAN COUNTRY, INC.
By /s/ Gregory J. Liptak
----------------------------------
Name: Gregory J. Liptak
Title: President
JONES SPACE HOLDINGS, INC.
By /s/ Gregory J. Liptak
----------------------------------
Name: Gregory J. Liptak
Title: President
JONES INFOMERICAL NETWORKS, LTD.
By /s/ Gregory J. Liptak
----------------------------------
Name: Gregory J. Liptak
Title: President
11
<PAGE>
EXHIBIT 10.1
------------
JONES INTERNATIONAL NETWORKS, LTD.
1998 STOCK OPTION PLAN
I. PURPOSE
The 1998 Stock Option Plan (the "Plan") provides for the grant of Stock
Options and Stock Appreciation Rights to Employees and Consultants of Jones
International Networks, Ltd. (the "Company"), its parent and such of its
subsidiaries (as defined in Sections 424(e) and 424(f) of the Internal Revenue
Code of 1986, as amended (the "Code")) as the Board of Directors of the Company
(the "Board") shall from time to time designate ("Participating Subsidiaries"),
in order to advance the interests of the Company, its parent and its
Participating Subsidiaries through the motivation, attraction and retention of
their respective Employees and the provision of equity incentives to their
Consultants.
II. INCENTIVE STOCK OPTIONS AND NON-INCENTIVE STOCK OPTIONS
The Stock Options granted under the Plan may be either:
(a) Incentive Stock Options ("ISOs") which are intended to be
"Incentive Stock Options" as that term is defined in Section 422 of the Code; or
(b) Non-statutory Stock Options ("NSOs") which are intended to be
options that do not qualify as "Incentive Stock Options" under Section 422 of
the Code.
All Stock Options shall be ISOs unless the Option Agreement clearly designates
the Stock Options granted thereunder, or a specified portion thereof, as NSOs.
Subject to the other provisions of the Plan, a Participant may receive ISOs and
NSOs at the same time, provided that the ISOs and NSOs are clearly designated as
such.
Except as otherwise expressly provided herein, all of the provisions and
requirements of the Plan relating to Stock Options shall apply to ISOs and NSOs.
<PAGE>
III. ADMINISTRATION
3.1 Committee. Any transaction involving a grant of Stock Options and/or
---------
Stock Appreciation Rights shall be approved by the Board of Directors, or a
committee of the Board of Directors that is composed solely of two or more Non-
Employee Directors, as defined below (the "Committee"). The Committee or the
Board, as the case may be, shall have full authority to administer the Plan,
including authority to interpret and construe any provision of the Plan and any
Stock Option or Stock Appreciation Rights granted thereunder, and to adopt such
rules and regulations for administering the Plan as it may deem necessary in
order to comply with the requirements of the Code, in order that Stock Options
that are intended to be ISOs will be classified as incentive stock options under
the Code, or in order to conform to any regulation or to any change in any law
or regulation applicable thereto.
3.2 Actions of Committee. All actions taken and all interpretations and
--------------------
determinations made by the Board or the Committee, as the case may be, in good
faith (including determinations of Fair Market Value) shall be final and binding
upon all Participants, the Company and all other interested persons. No member
of the Committee shall be personally liable for any action, determination or
interpretation made in good faith with respect to the Plan, and all members of
the Committee shall, in addition to their rights as directors, be fully
protected by the Company with respect to any such action, determination or
interpretation.
3.3 References to the Committee. All references in the Plan to the
---------------------------
"Committee" shall be deemed to also refer to the Board of Directors whenever the
Board is discharging its powers and responsibilities hereunder.
IV. DEFINITIONS
4.1 Stock Option. A Stock Option is the right granted under the Plan to
------------
an Employee or Consultant to purchase, at such time or times and at such price
or prices ("Option Price") as are determined by the Committee, the number of
shares of Capital Stock determined by the Committee.
4.2 Stock Appreciation Right. A Stock Appreciation Right is the right to
------------------------
receive payment, in shares of Capital Stock, cash or a combination of shares
-2-
<PAGE>
of Capital Stock and cash, of the Redemption Value of a specified number of
shares of Capital Stock then purchasable under a Stock Option.
4.3 Redemption Value. The Redemption Value of shares of Capital Stock
----------------
purchasable under a Stock Option shall be the amount, if any, by which the Fair
Market Value of one share of Capital Stock on the date on which the Stock Option
is exercised exceeds the Option Price for such share.
4.4 Capital Stock. A share of Capital Stock means a share of authorized
-------------
but unissued Class A Common Stock, $.01 par value per share, of the Company.
4.5 Fair Market Value. If the Capital Stock is traded publicly, the Fair
-----------------
Market Value of a share of Capital Stock on any date shall be the average of the
closing bid and asked prices, as quoted by the National Association of
Securities Dealers through NASDAQ (its automated system for reporting quotes)
for the date in question or, if the Capital Stock is listed on the NASDAQ
National Market System or is listed on a national stock exchange, the officially
quoted closing price on NASDAQ or such exchange, as the case may be, on the date
in question. If the Capital Stock is not traded publicly, the Fair Market Value
of a share of Capital Stock on any date shall be determined, in good faith, by
the Committee after such consultation with outside legal, accounting and other
experts as the Committee may deem advisable, and the Committee shall maintain a
written record of its method of determining such value.
4.6 Employee. An Employee is an employee of the Company, its parent or
--------
any Participating Subsidiary.
4.7 Participant. A Participant is an Employee or Consultant to whom a
-----------
Stock Option or Stock Appreciation Right is granted.
4.8 Non-Employee Directors. A Non-Employee Director is a director who (a)
----------------------
is not currently an officer of the Company or a parent or subsidiary of the
Company, or otherwise currently employed by the Company or a parent or
subsidiary of the Company; (b) does not receive compensation, either directly or
indirectly, from the Company or a parent or subsidiary of the Company, for
services rendered as a consultant or in any capacity other than as a director,
except for an amount for which disclosure would not be required pursuant to Item
404(a) of Regulation S-K of the Securities and Exchange Commission ("Regulation
S-K"); does not possess an interest in any other transaction for which
disclosure would be required pursuant to Item 404(a) of Regulation S-K;
-3-
<PAGE>
and is not engaged in a business relationship for which disclosure would be
required pursuant to Item 404(b) of Regulation S-K.
4.9 Transaction. A Transaction is (a) any consolidation or merger of the
-----------
Company in which the Company is not the surviving corporation other than a
merger solely to effect a reincorporation or a merger of the Company as to which
shareholder approval is not required pursuant to the Colorado Business
Corporation Act, or (b) the adoption of any plan or proposal for the liquidation
or dissolution of the Company.
4.10 Consultant. A Consultant is an individual who performs consulting
----------
services for the Company, its parent or any Participating Subsidiary.
V. ELIGIBILITY AND PARTICIPATION
5.1 Grants of Stock Options and Stock Appreciation Rights may be made to
Employees and Consultants of the Company, its parent or any Participating
Subsidiary, including directors of the Company who are also Employees. The
Committee shall from time to time determine the Participants to whom Stock
Options shall be granted, the number of shares of Capital Stock subject to each
Stock Option to be granted to each such Participant, the Option Price of such
Stock Options and the terms and provisions of such Stock Options, all as
provided in the Plan. The Option Price of any ISO shall be not less than the
Fair Market Value of a share of Capital Stock on the date on which the Stock
Option is granted, but the Option Price of an NSO may be less than the Fair
Market Value on the date the NSO is granted if the Committee so determines. If
an ISO is granted to an Employee who then owns stock possessing more than 10%
of the total combined voting power of all classes of stock of the Company or any
parent or subsidiary corporation of the Company, the Option Price of such ISO
shall be at least 110% of the Fair Market Value of the Capital Stock subject to
the ISO at the time such ISO is granted, and such ISO shall not be exercisable
after five years after the date on which it was granted.
5.2 Except for the limitations set forth in Section 5.1, the terms and
provisions of Stock Options shall be as determined from time to time by the
Committee or Board, and each Stock Option issued may contain terms and
provisions different from other Stock Options granted to the same or other Stock
Option recipients. Each Stock Option shall be evidenced by a written agreement
("Option Agreement") containing such terms and provisions as the Committee may
determine, subject to the provisions of the Plan.
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<PAGE>
VI. Shares of Capital Stock Subject to the Plan
-------------------------------------------
6.1 Maximum Number. The maximum aggregate number of shares of Capital
--------------
Stock that may be made subject to Stock Options shall be 400,000. If any shares
of Capital Stock subject to Stock Options are not purchased or otherwise paid
for before such Stock Options expire, such shares may again be made subject to
Stock Options.
6.2 Capital Changes. In the event any changes are made to the shares of
---------------
Capital Stock (whether by reason of merger, consolidation, reorganization,
recapitalization, stock dividend in excess of ten percent (10%) at any single
time, stock split, combination of shares, exchange of shares, change in
corporate structure of otherwise), appropriate adjustments shall be made in: (i)
the number of shares of Capital Stock theretofore made subject to Stock Options,
and in the purchase price of said shares; and (ii) the aggregate number of
shares which may be made subject to Stock Options. If any of the foregoing
adjustments shall result in a fractional share, the fraction shall be
disregarded, and the Company shall have no obligation to make any cash or other
payment with respect to such a fractional share.
VII. EXERCISE OF STOCK OPTIONS
7.1 Time of Exercise. Subject to the provisions of the Plan, including
----------------
without limitation Section 7.5, the Committee, in its discretion, shall
determine the time when a Stock Option, or a portion of a Stock Option, shall
become exercisable, and the time when a Stock Option, or a portion of a Stock
Option, shall expire. Such time or times shall be set forth in the Option
Agreement evidencing such Stock Option. An ISO shall expire, to the extent not
exercised, no later than ten years after the date on which it was granted, and
an NSO shall expire, to the extent not exercised, no later than ten years after
the date on which it was granted. The Committee may accelerate the vesting of
any Participant's Stock Option by giving written notice to the Participant.
Upon receipt of such notice, the Participant and the Company shall amend the
Option Agreement to reflect the new vesting schedule. The acceleration of the
exercise period of a Stock Option shall not affect the expiration date of that
Stock Option.
7.2 Six Month Holding Period. The shares of Capital Stock issued upon the
------------------------
exercise of a Stock Option to an officer or director of the Company, or to a
person who is directly or indirectly the beneficial owner of more than ten
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<PAGE>
percent of the Company's Capital Stock, may not be sold or otherwise disposed of
within six months after the date of grant of the Stock Option.
7.3 Exchange of Outstanding Capital Stock. The Committee, in its sole
-------------------------------------
discretion, may permit a Participant to surrender to the Company shares of
Capital Stock previously acquired by the Participant as part or full payment for
the exercise of a Stock Option. Such surrendered shares shall be valued at
their Fair Market Value on the date of exercise.
7.4 Capital Stock Restriction Agreement. The Committee may provide that
-----------------------------------
shares of Capital Stock issuable upon the exercise of a Stock Option shall,
under certain conditions, be subject to restrictions whereby the Company has a
right of first refusal with respect to such shares or a right or obligation to
repurchase all or a portion of such shares, which restrictions may survive a
Participant's term of employment with the Company. The acceleration of time or
times at which a Stock Option becomes exercisable may be conditioned upon the
Participant's agreement to such restrictions.
7.5 Termination of Employment Before Exercise. If a Participant's
-----------------------------------------
employment or engagement with the Company, its parent or a Participating
Subsidiary shall terminate for any reason other than the Participant's voluntary
separation, retirement, death or disability, any Stock Option then held by the
Participant, to the extent then exercisable under the applicable Option
Agreement(s), shall remain exercisable after the termination of his employment
or engagement for a period of ten business days (so long as such period is not
more than ten years from the date of grant of the Stock Option). If the
Participant's employment or engagement is terminated because the Participant
dies or is disabled within the meaning of Section 22(e)(3) of the Code, any
Stock Option then held by the Participant, to the extent then exercisable under
the applicable Option Agreement(s), shall remain exercisable after the
termination of his employment for a period of twelve months (so long as such
period is not more than ten years from the date of grant of the Stock Option).
If the Participant's employment or engagement is terminated by reason of
voluntary separation or retirement, any Stock Option held by the Participant,
to the extent then exercisable under the applicable Option Agreement(s), shall
remain exercisable after the termination of his employment for a period of three
months (so long as such period is not more than ten years from the date of grant
of the Stock Option). If the Stock Option is not exercised during the
applicable period, it shall be deemed to have been forfeited and of no further
force or effect.
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<PAGE>
7.6 Disposition of Forfeited Stock Options. Any shares of Capital Stock
--------------------------------------
subject to Stock Options forfeited by a Participant shall not thereafter be
eligible for purchase by the Participant but may be made subject to Stock
Options granted to other Participants.
VIII. STOCK APPRECIATION RIGHTS
8.1 Grant of Stock Appreciation Rights. The Committee may, from time to
----------------------------------
time, grant Stock Appreciation Rights to a Participant with respect to not more
than the number of shares of Capital Stock which are, or may become, purchasable
under any Stock Option held by the Participant. The Committee may, in its sole
discretion, specify the terms and conditions of such rights, including without
limitation the time period or time periods during which such rights may be
exercised and the date or dates upon which such rights shall expire and become
void and unexercisable; provided, however, that in no event shall such rights
expire and become void and unexercisable later than the time when the related
Stock Option is exercised, expires or terminates. Each Participant to whom
Stock Appreciation Rights are granted shall be given written notice advising
him of the grant of such rights and specifying the terms and conditions of the
rights, which shall be subject to all the provisions of this Plan.
8.2 Exercise of Stock Appreciation Rights. Subject to Section 8.3, and
-------------------------------------
in lieu of purchasing shares of Capital Stock upon the exercise of a Stock
Option held by him, a Participant may elect to exercise the Stock Appreciation
Rights, if any, he has been granted and receive payment of the Redemption Value
of all, or any portion, of the number of shares of Capital Stock subject to such
Stock Option with respect to which he has been granted Stock Appreciation
Rights; provided, however, that the Stock Appreciation Rights may be exercised
only when the Fair Market Value of the Capital Stock subject to such Stock
Option exceeds the exercise price of the Stock Option. A Participant shall
exercise his Stock Appreciation Rights by delivering a written notice to the
Company, specifying the number of shares with respect to which he exercises
Stock Appreciation Rights and agreeing to surrender the right to purchase an
equivalent number of shares of Capital Stock subject to his Stock Option. If a
Participant exercises Stock Appreciation Rights, payment of his Stock
Appreciation Rights shall be made in accordance with Section 8.3 on or before
the 90th day after the date of exercise of the Stock Appreciation Rights.
8.3 Form of Payment. It a Participant elects to exercise Stock
---------------
Appreciation Rights as provided in Section 8.2, the Committee may, in its
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<PAGE>
absolute discretion, elect to pay any part or all of the Redemption Value of the
shares with respect to which the Participant has exercised Stock Appreciation
Rights in: (i) cash; (ii) shares of Capital Stock; or (iii) any combination of
cash and shares of Capital Stock. The election pursuant to this Section 8.3
shall be made by giving written notice to the Participant within said 90-day
period, which notice shall specify the portion which the Committee elects to pay
in cash, shares of Capital Stock or a combination thereof. In the event any
portion is to be paid in shares of Capital Stock, the number of shares to be
delivered shall be determined by dividing the amount which the Committee elects
to pay in shares of Capital Stock by the Fair Market Value of one share of
Capital Stock on the date of exercise of the Stock Appreciation Rights. Any
fractional share resulting from any such calculation shall be disregarded. Said
shares, together with any cash payable to the Participant, shall be delivered
within said 90-day period.
IX. NO CONTRACT OF EMPLOYMENT
Nothing in this Plan shall confer upon the Participant the right to be, or
to continue to be, in the employ of the Company, its parent or any Participating
Subsidiary, nor shall it interfere in any way with the right of the Company, its
parent or any such Participating Subsidiary, to discharge the Participant at any
time for any reason whatsoever, with or without cause. Nothing in this Article
IX shall affect any rights or obligations of the Company or any Participant
under any written contract of employment.
X. NO RIGHTS AS A SHAREHOLDER
A Participant shall have no rights as a shareholder with respect to any
shares of Capital Stock subject to a Stock Option. Except as provided in
Section 6.2, no adjustment shall be made in the number of shares of Capital
Stock issued to a Participant, or in any other rights of the Participant upon
exercise of a Stock Option by reason of any dividend, distribution or other
right granted to shareholders for which the record date is prior to the date of
exercise of the Participant's Stock Option.
XI. ASSIGNABILITY
No Stock Option or Stock Appreciation Right granted under this Plan, nor
any other rights acquired by a Participant under this Plan shall be assignable
or
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<PAGE>
transferable by a Participant, other than by will or the laws of descent and
distribution or, in the case of an NSO, pursuant to a qualified domestic
relations order as defined by the Code, Title I of the Employee Retirement
Income Security Act ("ERISA"), or the rules thereunder. Notwithstanding the
preceding sentence, the Committee may, in its sole discretion, permit the
assignment or transfer of an NSO by a Participant other than an officer or
director, and the exercise thereof by a person other than such Participant, on
such terms and conditions as the Committee in its sole discretion may determine.
Any such terms shall be determined at the time the NSO is granted, and shall be
set forth in the Option Agreement. In the event of his death, the Stock Option
or any Stock Appreciation Right may be exercised by the Personal Representative
of the Participant's estate or, if no Personal Representative has been
appointed, by the successor or successors in interest determined under the
Participant's will or under the applicable laws of descent and distribution.
XII. CERTAIN EVENTS AFFECTING THE COMPANY
If the Company or its shareholders enter into an agreement to dispose of
all, or substantially all, of the assets or outstanding shares of stock of the
Company by means of a sale or liquidation, or a merger or reorganization in
which the Company is not the surviving corporation, the Board shall have the
power and discretion to prescribe the terms and conditions for the exercise of,
or modification of, the Options and other rights granted hereunder. By way of
illustration, and not by way of limitation, the Board may provide for the
complete or partial acceleration of the dates of exercise of the Options or
other rights, or may provide that such Options or other rights will be exchanged
for or converted into options or rights to acquire securities of the surviving
or acquiring corporation, or may provide for a payment or distribution in
respect of outstanding Options or rights (or the portion thereof that is
currently exercisable) in cancellation thereof. The Board may provide that
Options or other rights granted hereunder must be exercised in connection with
the closing of such transaction, and that if not so exercised such Options or
rights will expire. Any such determinations by the Board may be made generally
with respect to all Participants, or may be made on a case-by-case basis with
respect to particular Participants. The provisions of this Article XII shall
not apply to any transaction undertaken for the purpose of reincorporating the
Company under the laws of another jurisdiction.
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<PAGE>
XIII. AMENDMENT
The Board may from time to time alter, amend, suspend or discontinue the
Plan, including, where applicable, any modifications or amendments as it shall
deem advisable in order that ISOs will be classified as incentive stock options
under the Code, or in order to conform to any regulation or to any change in any
law or regulation applicable thereto; provided, however, that no such action
shall adversely affect the rights and obligations with respect to Stock Options
at any time outstanding under the Plan; and provided further that no such action
shall, without the approval of the shareholders of the Company, (i) increase the
maximum number of shares of Capital Stock that may be made subject to Stock
Options (unless necessary to effect the adjustments required by Section 6.2),
(ii) materially increase the benefits accruing to Participants under the Plan,
or (iii) materially modify the requirements as to eligibility for participation
in the Plan.
XIV. REGISTRATION OF OPTIONED SHARES
The Stock Options shall not be exercisable unless the purchase of such
optioned shares is pursuant to an applicable effective registration statement
under the Securities Act of 1933, as amended (the "Act"), or unless, in the
opinion of counsel to the Company, the proposed purchase of such optioned shares
would be exempt from the registration requirements of the Act and from the
registration or qualification requirements of applicable state securities laws.
XV. WITHHOLDING TAXES
The Company, its parent or Participating Subsidiary may take such steps as
it may deem necessary or appropriate for the withholding of any taxes which the
Company, its parent or the Participating Subsidiary is required by any law or
regulation or any governmental authority, whether federal, state or local,
domestic or foreign, to withhold in connection with any Stock Option or Stock
Appreciation Right, including, but not limited to, the withholding of all or any
portion of any payment or the withholding of issuance of shares of Capital Stock
to be issued upon the exercise of any Stock Option or Stock Appreciation Right,
until the Participant reimburses the Company, its parent or Participating
Subsidiary for the amount the Company, its parent or Participating Subsidiary is
required to withhold with respect to such taxes, or cancelling any portion of
such
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<PAGE>
payment or issuance in an amount sufficient to reimburse itself for the amount
it is required to so withhold.
XVI. BROKERAGE ARRANGEMENTS
The Company, in its discretion, may enter into arrangements with one or
more banks, brokers or other financial institutions to facilitate the
disposition of shares acquired upon exercise of Stock Options or Stock
Appreciation Rights, including, without limitation, arrangements for the
simultaneous exercise of Stock Options or Stock Appreciation Rights, and sale of
the shares acquired upon such exercise.
XVII. NONEXCLUSIVITY OF THE PLAN
Neither the adoption of the Plan by the Board nor the submission of the
Plan to shareholders of the Company for approval shall be construed as creating
any limitations on the power or authority of the Board to adopt such other or
additional incentive or other compensation arrangements of whatever nature as
the Board may deem necessary or desirable or preclude or limit the continuation
of any other plan, practice or arrangement for the payment of compensation or
fringe benefits to employees generally, or to any class or group of employees,
which the Company, its parent or any Participating Subsidiary now has lawfully
put into effect, including, without limitation, any retirement, pension, savings
and stock purchase plan, insurance, death and disability benefits and executive
short-term incentive plans.
XVIII. RULE 16B-3 OF THE SECURITIES EXCHANGE ACT OF 1934
Notwithstanding anything in the Plan to the contrary, no action may be
taken with respect to the Plan which would cause the Plan to cease to be
qualified under Rule 16b-3 under the Exchange Act or any successor rule, without
the express acknowledgment of the Board of Directors that such disqualification
may occur.
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<PAGE>
IL. EFFECTIVE DATE
This Plan was adopted by the Board of Directors on May 29, 1998 and was
approved by the Company's sole shareholder on May 29,1998. No Stock Options
shall be granted subsequent to ten years after the effective date of the Plan.
Stock Options outstanding subsequent to ten years after the effective date of
the Plan shall continue to be governed by the provisions of the Plan.
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<PAGE>
EXHIBIT 10.2
OPTION AGREEMENT
JONES INTERNATIONAL NETWORKS, LTD.
1998 STOCK OPTION PLAN
(BASIC INCENTIVE STOCK OPTION FORM)
THIS AGREEMENT is made and entered into as of the ____ day of ________,
19__, by and between Jones International Networks, Ltd., a Colorado corporation
(the "Company"), and __________ ("Optionee").
WHEREAS, pursuant to the Jones International Networks, Ltd. 1998 Stock
Option Plan (the "Plan"), Employees and Consultants of the Company, its parent
and its Participating Subsidiaries may receive options to purchase shares of
Class A Common Stock of the Company; and
WHEREAS, the option granted herein conforms to the requirements of Section
422A of the United States Internal Revenue Code of 1986 (the "Code"), and said
options may be deemed "incentive stock options" within the definition of that
term in said Section 422A of the Code; and
WHEREAS, the Optionee has been selected to receive an option pursuant to
the Plan;
WHEREAS, the Optionee is desirous of obtaining the option on the terms and
conditions herein contained.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
herein contained and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
<PAGE>
1. Grant of Option. The Company hereby confirms and acknowledges that it
---------------
has granted to the Optionee, on ___________, 19__ an option to purchase ________
shares of Class A Common Stock of the Company (the "Option") upon the terms and
conditions herein set forth and subject to the terms and conditions of the Plan.
The Option is granted as a matter of separate agreement, and not in lieu of
salary or any other regular or irregular compensation for services.
2. Purchase Price. The purchase price of the shares that may be purchased
--------------
pursuant to the Option is $____ per share, which is, in the opinion of the
Company, not less than the fair market value (as defined in the Plan) of the
shares on the date the Option was granted as specified in Paragraph 1.
3. Term. The Option shall continue for ten (10) years after the date it
----
was granted as specified in Paragraph 1, unless sooner terminated or modified
under the provisions of this Agreement, and shall automatically expire at
midnight on the tenth anniversary of such date of grant.
4. Dates of Exercise. The Option may be exercised by the Optionee to
-----------------
purchase the total number of shares specified in Paragraph 1 at the dates and in
the percentages determined under the following schedule:
<TABLE>
<CAPTION>
Percentage of
Option Shares
Purchasable
Date of Exercise (Cumulative)
---------------- ------------
<S> <C>
First Anniversary of Date of Grant 25%
Second Anniversary of Date of Grant 25%
Third Anniversary of Date of Grant 25%
Fourth Anniversary of Date of Grant 25%
</TABLE>
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<PAGE>
The Optionee need not exercise any part of the Option when it becomes
exercisable, but may accrue the percentage increments described above and
exercise them in any later period, prior to expiration of the Option.
5. Termination of the Option. If the Optionee's employment or engagement
-------------------------
with the Company, its parent or a Participating Subsidiary (as defined in the
Plan) shall terminate for any reason other than the Optionee's voluntary
separation, retirement, death or disability, the Option, to the extent then
exercisable, shall remain exercisable after such termination for a period of ten
business days (so long as such period is not more than ten years from the date
of grant of the Option). If the Optionee's employment or engagement is
terminated because the Optionee dies or is disabled within the meaning of
Section 22(e)(3) of the Code, the Option, to the extent then exercisable, shall
remain exercisable after such termination for a period of twelve months (so long
as such period is not more than ten years from the date of grant of the Option).
If the Optionee's employment or engagement is terminated by reason of voluntary
separation or retirement, the Option, to the extent then exercisable, shall
remain exercisable after such termination for a period of three months (so long
as such period is not more than ten years from the date of grant of the Option).
If the Option is not exercised during the applicable period, it shall terminate
and shall be of no further force or effect.
6. No Transfer. The Option may not be exercised by anyone other than the
-----------
Optionee during his or her lifetime. In the event of his or her death, the
Option may be exercised by the Personal Representative of the Optionee's estate
or, if no Personal Representative has been appointed, by the successor or
successors in interest determined under the Optionee's will or under the
applicable laws of descent and distribution, the Option may not be transferred,
assigned, encumbered or alienated in any way by the Optionee, and any attempt
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<PAGE>
to do so shall render the Option and any unexercised portion thereof, at the
discretion of the Company, null and void and unenforceable by the Optionee.
7. Capital Changes. In the event any changes are made to the shares of
---------------
the Class A Common Stock (whether by reason of merger, consolidation,
reorganization, recapitalization, stock dividend in excess of ten percent (10%)
at any single time, stock split, combination of shares, exchange of shares,
change in corporate structure of otherwise), appropriate adjustments shall be
made in the number of shares of Class A Common Stock subject to the Option
and/or in the purchase price of said shares. If any of the foregoing
adjustments shall result in a fractional share, the fraction shall be
disregarded, and the Company shall have no obligation to make any cash or other
payment with respect to such a fractional share.
8. Notice of Exercise. The Option may be exercised in whole or in part
------------------
by delivering to the Company a completed Option Exercise Form, in the form
attached hereto, together with payment in full for the shares being purchased
upon such exercise.
9. Certificates to be Delivered. The Company will, upon receipt of said
----------------------------
notice and payment, issue or cause to be issued to the Optionee (or to his
Personal Representative or other person entitled thereto) a stock certificate
for the number of shares purchased thereby. No fractional shares shall be
issuable upon the exercise of all or any part of the Option.
10. Compliance with Securities Laws. The Option shall not be exercisable
-------------------------------
unless the purchase of such optioned shares is pursuant to an applicable
effective registration statement under the Securities Act of 1933, as amended
(the "Act"), or unless, in the opinion of counsel to the Company, the proposed
purchase of such optioned shares would be exempt from the
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<PAGE>
registration requirements of the Act and from the registration or qualification
requirements of applicable state securities laws.
11. No Employment Rights. In consideration of the granting by the Company
--------------------
of the Option, the Optionee hereby affirms that he or she has a present
intention to remain in the employ and service of the Company, its parent or any
Participating Subsidiary for the period that this Option continues. This
affirmation, however, shall confer no right on the Optionee to continue in the
employ of the Company, its parent or any Participating Subsidiary, nor interfere
in anyway with the right of the Company, its parent or any Participating
Subsidiary to discharge the Optionee at any time for any reason whatsoever, with
or without cause.
12. Obligations of the Optionee. As a condition of the grant of options
---------------------------
to the Optionee made hereby, the Optionee agrees as follows:
(a)* During his or her employment by the Company, its parent or any
Participating Subsidiary, the Optionee shall devote his or her exclusive
business services to the Company, its parent or any Participating Subsidiary and
he or she shall not accept any position, employment, gratuity, compensation or
the like from any person or entity which is engaged in any aspect of the
business activities conducted or engaged in by the Company.
(b) The Optionee shall not, during his or her employment by the
Company, its parent or any Participating Subsidiary, or at any time thereafter,
directly or indirectly, use, divulge, furnish or make accessible to any one
other than the Company, its parent or any Participating Subsidiary, their
directors and officers (otherwise than in the regular course of the business of
the Company), any knowledge or information with respect to (i) confidential
information
___________________
* (a) is applicable to employees only.
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<PAGE>
concerning, for example (but not by way of limitation), the business, business
methods and practices, market data, projections, plans, budgets, financial
information of all kinds and descriptions, system data, operations data,
employment data, secret processes, plans, formulae, data (including cost data),
drawings, specifications, methods, technology, "know-how", or material relating
to the business, products or activities of the Company and its affiliates
("Confidential Information"), or (ii) any customer usages and requirements or
any customer lists of the Company. The Optionee shall not, upon leaving the
Company, its parent or any Participating Subsidiary, without the prior written
consent of the Company, take with him or her any Confidential Information.
(c) Any inventions, processes, discoveries, "know-how" and
improvements (regardless of whether the inventions, processes, discoveries,
"know how" and improvements are patentable and whether or not they are made,
conceived or reduced to practice during working hours or with the Company's
facilities or otherwise), and any and all patent rights, letters patent,
copyrights, trademarks, trade names, and applications therefor in the United
States and all other countries, and any and all rights and interests in, to and
under the same, conceived, reduced to practice, acquired or possessed by the
Optionee (either solely or jointly with others) during his or her employment or
engagement by the Company, its parent or any Participating Subsidiary, relating
in any way to the Confidential Information, shall become the absolute property
of the Company and shall at all times and for all purposes be regarded as
acquired and held by the Optionee in a fiduciary capacity for the sole benefit
of the Company, and the Optionee agrees that, upon request, he or she will
promptly make all disclosures, execute all instruments and papers, and perform
all acts necessary or desired by the Company to vest and confirm in the Company
all rights that may be
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<PAGE>
necessary or desirable to enable the Company to secure and enjoy the full
benefit and advantages thereof.
(d) For the period of Optionee's employment or engagement, and for
one (1) year thereafter, Optionee shall not hire or solicit any person who is
then an employee of the Company for employment by Optionee or any other party.
(e) In the event that any provision of this Paragraph 12 shall be
determined by a court with jurisdiction in respect thereof to be against public
policy or otherwise unenforceable, the remaining provisions of this Paragraph 12
shall continue in full force and effect. The Company and Optionee consent that
any provisions of this Paragraph 12 which shall be determined by a court with
jurisdiction in respect thereof to be overly broad shall be given the maximum
permitted meaning and enforced accordingly.
(f) The Optionee agrees that the remedy at law for any breach by him
or her of any of the provisions of this Paragraph 12 will be inadequate, and
that the Company shall be entitled to injunctive relief for any such breach.
(g) The provisions of this Paragraph 12 shall survive the termination
of this Agreement.
13. No Rights as Shareholder. The Optionee shall have no rights as a
------------------------
shareholder with respect to the shares of Class A Common Stock subject to the
Option until the Option is exercised in accordance with the terms of this
Agreement.
14. Incorporation by Reference. The terms and conditions contained in the
--------------------------
Plan, and as it may be amended from time to time hereafter, are incorporated
into and made a part of this Agreement by reference, as if the same were set
forth herein in full, and all provisions of the Option are made subject to any
and
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<PAGE>
all terms of the Plan. It is understood and agreed that the Plan does not
require the sequential exercise of options granted thereunder.
15. General.
-------
(a) This Agreement shall be governed by and construed and enforced in
accordance with the laws of the State of Colorado.
(b) The section headings contained herein are for reference purposes
only and shall not in any way affect the meaning or interpretation of this
Agreement.
(c) This Agreement sets forth the entire agreement and understanding
of the parties in respect of the subject matter hereof and supersedes all prior
agreements, arrangements and understandings relating to the subject matter
hereof.
(d) All the terms and conditions of this Agreement shall be binding
upon, shall inure to the benefit of, and shall be enforceable by, the parties
hereto and their respective heirs, legal representatives, permitted successors
and permitted assigns.
(e) The terms and conditions of the Agreement are considered
confidential by the Company and will not be disclosed by the Optionee to any
third party without the prior written consent of the Company.
(f) This Agreement may be amended, modified, superseded or cancelled,
and any of the terms hereof may be waived, only by a written instrument executed
by each party hereto or, in the case of a waiver, by the party waiving
compliance. The failure of any party at any time or times to require performance
of any provisions hereof shall in no manner affect the rights at a later time to
enforce the same. No waiver by any party of the breach of any term contained in
this Agreement, whether by conduct or otherwise, in any one
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<PAGE>
or more instances, shall be deemed to be or construed as a further or continuing
waiver of any such breach or of the breach of any other term of this Agreement.
IN WITNESS WHEREOF, the parties have hereunto affixed their signatures in
acknowledgment and acceptance of the above terms and conditions on the date
first above written.
JONES INTERNATIONAL
NETWORKS, LTD.
By:_______________________
Gregory J. Liptak
President
OPTIONEE
__________________________
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<PAGE>
JONES INTERNATIONAL NETWORKS, LTD.
OPTION EXERCISE FORM
The undersigned ("Optionee"), who is the holder of an option (the "Option")
to purchase shares of the Class A Common Stock of Jones International Networks,
Ltd., which Option was granted pursuant to the Jones International Networks,
Ltd. 1998 Stock Option Plan, hereby exercises the Option, in whole or in part,
as detailed in the Option Exercise Information section at the end hereof.
The Optionee hereby acknowledges having recently read in full the Option
Agreement between the Optionee and Jones International Networks, Ltd. relating
to the Option. The Optionee expressly states that he or she understands, or has
had the opportunity to obtain explanation of, all of the terms contained in such
Option Agreement and restates all affirmations and representations made by him
or her in such Option Agreement as though set forth herein in full. The Optionee
also acknowledges receipt of a current prospectus for the Class A Common Stock
to be issued pursuant to this Option exercise.
____________________________
Optionee's Signature
PLEASE PRINT:
_________________________________
Full name of Optionee
_________________________________
Street Address
_________________________________
City, State, Zip Code
_________________________________
Social Security Number
<PAGE>
OPTION EXERCISE INFORMATION:
(All references to "Shares" are references to shares of the Class A Common
Stock, $.01 par value, of Jones International Networks, Ltd.)
A. Date Option granted:
B. Number of Shares originally
purchasable pursuant to the Option
C. Number of Shares purchased by
Optionee pursuant to previous
Option exercises: _______________
D. Number of Shares purchased by
Optionee pursuant to this Option
exercise _______________
E. Purchase price per Share (Option
exercise price):
F. Total price for Shares being
purchased pursuant to this Option
exercise (multiply D x E, above) _______________
PAYMENT OF THE FULL AMOUNT SHOWN IN "F" ABOVE MUST ACCOMPANY THIS FORM.
<PAGE>
EXHIBIT 10.3
OPTION AGREEMENT
JONES INTERNATIONAL NETWORKS, LTD.
1998 STOCK OPTION PLAN
(BASIC NON-QUALIFIED STOCK OPTION FORM)
THIS AGREEMENT is made and entered into as of the ____ day of ________,
19__, by and between Jones International Networks, Ltd., a Colorado corporation
(the "Company"), and ______________ ("Optionee").
WHEREAS, pursuant to the Jones International Networks, Ltd. 1998 Stock
Option Plan (the "Plan"), Employees and Consultants of the Company, its parent
and its Participating Subsidiaries may receive options to purchase shares of
Class A Common Stock of the Company; and
WHEREAS, the options granted herein are non-statutory stock options which
are options that do not qualify as "incentive stock options" within the
definition of that term in Section 422A of the United States Internal Revenue
Code of 1986 (the "Code"); and
WHEREAS, the Optionee has been selected to receive an option pursuant to
the Plan; and
WHEREAS, the Optionee is desirous of obtaining the option on the terms and
conditions herein contained.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
herein contained and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
<PAGE>
1. Grant of Option. The Company hereby confirms and acknowledges that it
---------------
has granted to the Optionee, on _____________, 19__, an option to purchase
_______ shares of Class A Common Stock of the Company (the "Option") upon the
terms and conditions herein set forth and subject to the terms and conditions of
the Plan. The Option is granted as a matter of separate agreement, and not in
lieu of salary or any other regular or irregular compensation for services.
2. Purchase Price. The purchase price of the shares that may be purchased
--------------
pursuant to the Option is $_____ per share.
3. Term. The Option shall continue for ten (10) years after the date it
----
was granted as specified in Paragraph 1, unless sooner terminated or modified
under the provisions of this Agreement, and shall automatically expire at
midnight on the tenth anniversary of such date of grant.
4. Dates of Exercise. The Option may be exercised by the Optionee to
-----------------
purchase the total number of shares specified in Paragraph 1 at the dates and in
the percentages determined under the following schedule:
<TABLE>
<CAPTION>
Percentage of
Option Shares
Purchasable
Date of Exercise (Cumulative)
---------------- ----------
<S> <C>
First Anniversary of Date of Grant 25%
Second Anniversary of Date of Grant 25%
Third Anniversary of Date of Grant 25%
Fourth Anniversary of Date of Grant 25%
</TABLE>
The Optionee need not exercise any part of the Option when it becomes
exercisable, but may accrue the percentage increments described above and
exercise them in any later period, prior to expiration of the Option.
-2-
<PAGE>
5. Termination of the Option. If the Optionee's employment or engagement
-------------------------
with the Company, its parent or a Participating Subsidiary (as defined in the
Plan) shall terminate for any reason other than the Optionee's voluntary
separation, retirement, death or disability, the Option, to the extent then
exercisable, shall remain exercisable after such termination for a period of ten
business days (so long as such period is not more than ten years from the date
of grant of the Option). If the Optionee's employment or engagement is
terminated because the Optionee dies or is disabled within the meaning of
Section 22(e)(3) of the Code, the Option, to the extent then exercisable, shall
remain exercisable after such termination for a period of twelve months (so long
as such period is not more than ten years from the date of grant of the Option).
If the Optionee's employment or engagement is terminated by reason of voluntary
separation or retirement, the Option, to the extent then exercisable, shall
remain exercisable after such termination for a period of three months (so long
as such period is not more than ten years from the date of grant of the Option).
If the Option is not exercised during the applicable period, it shall terminate
and shall be of no further force or effect.
6. No Transfer. The Option may not be exercised by anyone other than the
-----------
Optionee during his or her lifetime. In the event of his or her death, the
Option may be exercised by the Personal Representative of the Optionee's estate
or, if no Personal Representative has been appointed, by the successor or
successors in interest determined under the Optionee's will or under the
applicable laws of descent and distribution, the Option may not be transferred,
assigned, encumbered or alienated in any way by the Optionee, and any attempt to
do so shall render the Option and any unexercised portion thereof, at the
discretion of the Company, null and void and unenforceable by the Optionee.
-3-
<PAGE>
7. Capital Changes. In the event any changes are made to the shares of
---------------
the Class A Common Stock (whether by reason of merger, consolidation,
reorganization, recapitalization, stock dividend in excess of ten percent (10%)
at any single time, stock split, combination of shares, exchange of shares,
change in corporate structure of otherwise), appropriate adjustments shall be
made in the number of shares of Class A Common Stock subject to the Option
and/or in the purchase price of said shares. If any of the foregoing adjustments
shall result in a fractional share, the fraction shall be disregarded, and the
Company shall have no obligation to make any cash or other payment with respect
to such a fractional share.
8. Notice of Exercise. The Option may be exercised in whole or in part
------------------
by delivering to the Company a completed Option Exercise Form, in the form
attached hereto, together with payment in full for the shares being purchased
upon such exercise.
9. Certificates to be Delivered. The Company will, upon receipt of said
----------------------------
notice and payment, issue or cause to be issued to the Optionee (or to his
Personal Representative or other person entitled thereto) a stock certificate
for the number of shares purchased thereby. No fractional shares shall be
issuable upon the exercise of all or any part of the Option.
10. Compliance with Securities Laws. The Option shall not be exercisable
-------------------------------
unless the purchase of such optioned shares is pursuant to an applicable
effective registration statement under the Securities Act of 1933, as amended
(the "Act"), or unless, in the opinion of counsel to the Company, the proposed
purchase of such optioned shares would be exempt from the registration
requirements of the Act and from the registration or qualification requirements
of applicable state securities laws.
-4-
<PAGE>
11. No Employment Rights. In consideration of the granting by the Company
--------------------
of the Option, the Optionee hereby affirms that he or she has a present
intention to remain in the employ and service of the Company, its parent or any
Participating Subsidiary for the period that this Option continues. This
affirmation, however, shall confer no right on the Optionee to continue in the
employ of the Company, its parent or any Participating Subsidiary, nor interfere
in anyway with the right of the Company, its parent or any Participating
Subsidiary to discharge the Optionee at any time for any reason whatsoever, with
or without cause.
12. Obligations of the Optionee. As a condition of the grant of options
---------------------------
to the Optionee made hereby, the Optionee agrees as follows:
(a)* During his or her employment by the Company, its parent or any
Participating Subsidiary, the Optionee shall devote his or her exclusive
business services to the Company, its parent or any Participating Subsidiary and
he or she shall not accept any position, employment, gratuity, compensation or
the like from any person or entity which is engaged in any aspect of the
business activities conducted or engaged in by the Company.
(b) The Optionee shall not, during his or her employment by the
Company, its parent or any Participating Subsidiary, or at any time thereafter,
directly or indirectly, use, divulge, furnish or make accessible to any one
other than the Company, its parent or any Participating Subsidiary, their
directors and officers (otherwise than in the regular course of the business of
the Company), any knowledge or information with respect to (i) confidential
*(a) is applicable to employees only.
-5-
<PAGE>
information concerning, for example (but not by way of limitation), the
business, business methods and practices, market data, projections, plans,
budgets, financial information of all kinds and descriptions, system data,
operations data, employment data, secret processes, plans, formulae, data
(including cost data), drawings, specifications, methods, technology, "know-
how", or material relating to the business, products or activities of the
Company and its affiliates ("Confidential Information"), or (ii) any customer
usages and requirements or any customer lists of the Company. The Optionee shall
not, upon leaving the Company, its parent or any Participating Subsidiary,
without the prior written consent of the Company, take with him or her any
Confidential Information.
(c) Any inventions, processes, discoveries, "know-how" and
improvements (regardless of whether the inventions, processes, discoveries,
"know how" and improvements are patentable and whether or not they are made,
conceived or reduced to practice during working hours or with the Company's
facilities or otherwise), and any and all patent rights, letters patent,
copyrights, trademarks, trade names, and applications therefor in the United
States and all other countries, and any and all rights and interests in, to and
under the same, conceived, reduced to practice, acquired or possessed by the
Optionee (either solely or jointly with others) during his or her employment or
engagement by the Company, its parent or any Participating Subsidiary, relating
in any way to the Confidential Information, shall become the absolute property
of the Company and shall at all times and for all purposes be regarded as
acquired and held by the Optionee in a fiduciary capacity for the sole benefit
of the Company, and the Optionee agrees that, upon request, he or she will
promptly make all disclosures, execute all instruments and papers, and perform
all acts necessary or desired by the Company to vest and confirm in the Company
all rights that may be
-6-
<PAGE>
necessary or desirable to enable the Company to secure and enjoy the full
benefit and advantages thereof.
(d) For the period of Optionee's employment or engagement, and for one
(1) year thereafter, Optionee shall not hire or solicit any person who is then
an employee of the Company for employment by Optionee or any other party.
(e) In the event that any provision of this Paragraph 12 shall be
determined by a court with jurisdiction in respect thereof to be against public
policy or otherwise unenforceable, the remaining provisions of this Paragraph 12
shall continue in full force and effect. The Company and Optionee consent that
any provisions of this Paragraph 12 which shall be determined by a court with
jurisdiction in respect thereof to be overly broad shall be given the maximum
permitted meaning and enforced accordingly.
(f) The Optionee agrees that the remedy at law for any breach by him
or her of any of the provisions of this Paragraph 12 will be inadequate, and
that the Company shall be entitled to injunctive relief for any such breach.
(g) The provisions of this Paragraph 12 shall survive the termination
of this Agreement.
13. No Rights as Shareholder. The Optionee shall have no rights as a
------------------------
shareholder with respect to the shares of Class A Common Stock subject to the
Option until the Option is exercised in accordance with the terms of this
Agreement.
14. Incorporation by Reference. The terms and conditions contained in the
--------------------------
Plan, and as it may be amended from time to time hereafter, are incorporated
into and made a part of this Agreement by reference, as if the same were set
forth herein in full, and all provisions of the Option are made subject to any
and
-7-
<PAGE>
all terms of the Plan. It is understood and agreed that the Plan does not
require the sequential exercise of options granted thereunder.
15. Withholding Taxes. The Company, its parent or any Participating
-----------------
Subsidiary may take such steps as it may deem necessary or appropriate for the
withholding of any taxes which the Company, its parent or the Participating
Subsidiary is required by any law or regulation or any governmental authority,
whether federal, state or local, domestic or foreign, to withhold in connection
with any Option, including, but not limited to, the withholding of all or any
portion of any payment or the withholding of issuance of shares of Class A
Common Stock to be issued upon the exercise of any Option, until the Optionee
reimburses the Company, its parent or Participating Subsidiary for the amount
the Company, its parent or Participating Subsidiary is required to withhold
with respect to such taxes, or cancelling any portion of such payment or
issuance in an amount sufficient to reimburse itself for the amount it is
required to so withhold.
16. General.
-------
(a) This Agreement shall be governed by and construed and enforced in
accordance with the laws of the State of Colorado.
(b) The section headings contained herein are for reference purposes
only and shall not in any way affect the meaning or interpretation of this
Agreement.
(c) This Agreement sets forth the entire agreement and understanding
of the parties in respect of the subject matter hereof and supersedes all prior
agreements, arrangements and understandings relating to the subject matter
hereof.
(d) All the terms and conditions of this Agreement shall be binding
upon, shall inure to the benefit of, and shall be enforceable by, the
-8-
<PAGE>
parties hereto and their respective heirs, legal representatives, permitted
successors and permitted assigns.
(e) The terms and conditions of the Agreement are considered
confidential by the Company and will not be disclosed by the Optionee to any
third party without the prior written consent of the Company.
(f) This Agreement may be amended, modified, superseded or cancelled,
and any of the terms hereof may be waived, only by a written instrument executed
by each party hereto or, in the case of a waiver, by the party waiving
compliance. The failure of any party at any time or times to require performance
of any provisions hereof shall in no manner affect the rights at a later time to
enforce the same. No waiver by any party of the breach of any term contained in
this Agreement, whether by conduct or otherwise, in any one or more instances,
shall be deemed to be or construed as a further or continuing waiver of any such
breach or of the breach of any other term of this Agreement.
IN WITNESS WHEREOF, the parties have hereunto affixed their signatures in
acknowledgment and acceptance of the above terms and conditions on the date
first above written.
JONES INTERNATIONAL
NETWORKS, LTD.
By: _________________________
Gregory J. Liptak
President
OPTIONEE
______________________________
-9-
<PAGE>
JONES INTERNATIONAL NETWORKS, LTD.
OPTION EXERCISE FORM
The undersigned ("Optionee"), who is the holder of an option (the "Option")
to purchase shares of the Class A Common Stock of Jones International Networks,
Ltd., which Option was granted pursuant to the Jones International Networks,
Ltd. 1998 Stock Option Plan, hereby exercises the Option, in whole or in part,
as detailed in the Option Exercise Information section at the end hereof.
The Optionee hereby acknowledges having recently read in full the Option
Agreement between the Optionee and Jones International Networks, Ltd. relating
to the Option. The Optionee expressly states that he or she understands, or has
had the opportunity to obtain explanation of, all of the terms contained in such
Option Agreement and restates all affirmations and representations made by him
or her in such Option Agreement as though set forth herein in full. The Optionee
also acknowledges receipt of a current prospectus for the Class A Common Stock
to be issued pursuant to this Option exercise.
____________________________
Optionee's Signature
PLEASE PRINT:
______________________________
Full name of Optionee
______________________________
Street Address
______________________________
City, State, Zip Code
______________________________
Social Security Number
<PAGE>
OPTION EXERCISE INFORMATION:
(All references to "Shares" are references to shares of the Class A Common
Stock, $.01 par value, of Jones International Networks, Ltd.)
A. Date Option granted: _______________
B. Number of Shares originally
purchasable pursuant to the Option:
_______________
C. Number of Shares purchased by
Optionee pursuant to previous
Option exercises: _______________
D. Number of Shares purchased by
Optionee pursuant to this Option
exercise: _______________
E. Purchase price per Share (Option
exercise price): _______________
F. Total price for Shares being
purchased pursuant to this Option
exercise (multiply D x E, above):
_______________
PAYMENT OF THE FULL AMOUNT SHOWN IN "F" ABOVE MUST ACCOMPANY THIS FORM.
<PAGE>
Exhibit 10.4
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>
PROMISSORY NOTE
Englewood, Colorado $16,000,000.00
August 15, 1996
FOR VALUE RECEIVED, the undersigned, JONES INTERNATIONAL NETWORKS, LTD., a
Colorado corporation ("Maker"), hereby promises to pay to the order of JONES
GLOBAL GROUP, INC., a Colorado corporation ("Holder"), at 9697 E. Mineral
Avenue, Englewood, Colorado, or at such other address as the holder hereof shall
designate in writing, the principal sum of Sixteen Million Dollars
($16,000,000.00), together with interest on the unpaid principal balance at a
per annum rate equal to eight and one quarter percent (8.25%) from the date
hereof until all amounts hereunder are paid in full.
Interest on the outstanding principal balance of this Promissory Note shall
be payable in quarterly installments commencing on November 15, 1996 and
continuing on each third month thereafter until the promissory note is paid in
full. Principal payments under this Promissory Note shall be made as follows:
(a) commencing on May 15, 2000 and each third month thereafter until the
principal payment is increased as provided below, Buyer shall make principal
payments in the amount of Two Hundred Thousand Dollars ($200,000.00); (b)
commencing on May 15, 2001, and each third month thereafter until the principal
payment is increased as provided below, Buyer shall make principal payments in
the amount of Three Hundred Thousand Dollars ($300,000.00); and (c) commencing
on May 15, 2002, and each third month thereafter until the Promissory Note is
paid in full, Buyer shall make principal payments in the amount of Four Hundred
Thousand Dollars ($400,000.00). All outstanding principal and interest unpaid
under this Promissory Note shall be immediately due and payable in full on
December 31, 2003.
This Promissory Note may be prepaid in whole or, from time to time, in part
at the option of Maker. All payments shall be applied first to the payment of
accrued interest and, after all such interest has been paid, any remainder shall
be applied to the reduction of the principal balance.
If Maker shall fail to pay any payment due hereunder on or before the date
which is five days after the date such payment is due hereunder (a "Late
Payment"), such Late Payment shall bear interest at the rate of 18% per annum.
<PAGE>
In addition, in the event that Maker shall fail to make any payment when due
hereunder, the entire amount of this Promissory Note shall, at the option of the
holder hereof, become immediately due and payable. If this Promissory Note is
placed in the hands of an attorney for collection, by suit or otherwise, then
all costs of collection and litigation, including court costs and reasonable
attorneys' fees, shall be added hereto and collectible as a part of the
principal hereof.
Maker hereby waives demand for payment, presentment for payment, notice of
nonpayment or dishonor, protest and notice of protest, and agrees to any
extension of time of payment and partial payments before, at, or after maturity.
No renewal or extension of this Promissory Note, no delay in the enforcement
hereof, and no delay or omission in exercising any right or power hereunder,
shall affect the liability of Maker. No delay or omission by Holder 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.
Payment of all amounts due under this Promissory Note is secured by a
security interest granted to Holder pursuant to the terms of that certain
Security Agreement dated as of date hereof between Holder and Jones Satellite
Networks, Inc., a wholly owned subsidiary of Maker. This Promissory Note is
issued under and shall be governed by and construed in accordance with the laws
of the State of Colorado.
IN WITNESS WHEREOF, the undersigned has executed this Promissory Note as of
the date set forth above.
MAKER
JONES INTERNATIONAL NETWORKS,
LTD., a Colorado corporation
By: /s/ Gregory J. Liptak
--------------------------
Gregory J. Liptak
Assistant Vice President
24730
<PAGE>
EXHIBIT 10.5
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 10.6
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>
AMENDMENT TO AGREEMENT
(19% Interests)
This Amendment to Agreement ("Amendment") is made this 1st day of April,
1997, by and between GLENN R. JONES ("Jones") and JONES INTERNATIONAL NETWORKS,
LTD., a Colorado corporation ("Buyer").
RECITALS
A. Jones and Buyer have entered into that certain Agreement dated
November 6, 1996, for the sale of 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, owned by Jones (the "Agreement"). Defined terms used
herein shall have the same meaning as set forth in the Agreement except as
expressly provided for herein.
B. The transactions described in the Agreement were subject to the
consummation of Buyer's initial public offering of shares of Class A Common
Stock under the Securities Act of 1933 (the "Offering"). The Offering did not
close, but Jones and Buyer still desire to carry out and effectuate the
foregoing transactions and to close the same as of the date of this Amendment.
NOW, THEREFORE, in accordance with the foregoing and the terms and
provisions hereof, the parties agree to amend the Agreement as follows:
1. Paragraph C of the Recitals shall hereby be deleted in its entirety.
2. The proviso in Paragraph 2 regarding the Offering shall hereby be
deleted in its entirety.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Amendment as of the day
and year 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
2
<PAGE>
EXHIBIT 10.7
------------
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 10.7
------------
SECOND
AMENDED AND RESTATED
PARTNERSHIP AGREEMENT
OF
PRODUCT INFORMATION NETWORK VENTURE
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<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>
<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>
<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>
SECOND
------
AMENDED AND RESTATED
--------------------
PARTNERSHIP AGREEMENT
---------------------
THIS SECOND AMENDED AND RESTATED PARTNERSHIP AGREEMENT (this
"Agreement") is effective as of the 1st day of April, 1997, 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, as of October 1, 1995, Adelphia became a general partner and
this Agreement was amended accordingly; and
WHEREAS, the parties desire to amend further the agreement for such
general partnership and to reflect the transfer of a portion of the interest of
Adelphia and to restate the terms and conditions of 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
<PAGE>
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 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
2
<PAGE>
days prior to the expiration of any successive five-year term, that the
Partnership will dissolve at the end of such term.
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 as of the date of this Second Amended and Restated Agreement are as set
forth on Exhibit A hereto (which Exhibit is hereby incorporated herein by
reference).
2.2 Concerning Adelphia.
-------------------
a.(i) Adelphia's sole contribution to the Partnership to date
has been the Affiliation Agreement which is Exhibit G hereto. Such Affiliation
Agreement (the "Adelphia Agreement") shall be for a period of ten (10) years
from October 1, 1995. 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:
As of October 1, 1996, Adelphia had provided approximately *** full-time
subscribers to the Network and received, as of such date, an Ownership
Interest of ***%. Of such Ownership Interest, ***% has been transferred to
JINI (the "Transferred Interest."). Adelphia may also provide additional
subscribers pursuant to the Adelphia Agreement. For all full-time
subscribers provided to the Network during the period October 2, 1996 and
ending April 1, 1998, Adelphia shall receive *** percent Ownership Interest
in the Partnership for each *** full-time subscribers provided over and
above the subscribers which were provided as of 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 after October 1,
1996. On April 1, 1998 any fractional amount of Ownership Interest due
Adelphia, as calculated above, which is
3
<PAGE>
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. The Ownership Interest of Adelphia, as provided in the
preceding paragraph, shall not be subject to dilution prior to April 2, 1998 as
the result of the admission to the Partnership of one or more partners who
provide cable television subscribers to the Network as the means of acquiring an
Ownership Interest in the Partnership. Accordingly, if the Partnership admits an
additional partner or partners during such period on such basis, the percentage
Ownership Interest of such partner necessary to prevent any dilution to the then
percentage Ownership Interest of Adelphia shall be derived solely and equally
from the interests of JINI and Cox. In determining whether such partner has
provided cable television subscribers to the Network in exchange for its
Ownership Interest, the fact that such partner also contributes an incidental
amount of cash or other property to the Partnership shall not be considered.
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c. The Transferred Interest is now part of the Ownership
Interest of JINI and shall not be treated for any purpose under this Agreement
or part of the Ownership Interest of Adelphia.
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 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
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the provision of Infomercials in the areas of the Covered Systems in connection
with the operation of an infomerical 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
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
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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
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
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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
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
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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
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
9
<PAGE>
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
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.
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<PAGE>
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.
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
11
<PAGE>
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 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,
12
<PAGE>
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
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
13
<PAGE>
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.
-----------------------
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.
14
<PAGE>
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 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.
15
<PAGE>
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
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
16
<PAGE>
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 present
members of the Executive Committee are set forth on Exhibit B hereto. A Partner
may remove, at any time, its representative(s) and, 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.
17
<PAGE>
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 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.
18
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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.
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.
19
<PAGE>
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, 1998 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.
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.
20
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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%, 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%. Adelphia shall not be entitled to vote with respect to the actions set
forth in Section 6.5a if, commencing on April 2, 1998, its Ownership Interest is
less than 5%, until such time as its Ownership Interest is at least 5%.
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
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
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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
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.
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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 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 Amended
Agreement, extend the Adelphia Agreement on the terms and
conditions of Exhibit G hereto through the period ending
October 1, 2005.
(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
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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,
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
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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, 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
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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.
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
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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.
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, 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)
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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 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
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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,
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,
29
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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;
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
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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 1.4 of this
Agreement; or
i. an election by the non-affected Partner as set forth in
Section 8.3d.
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;
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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;
---- -----
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
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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.
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
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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:
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
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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;
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
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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 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
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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 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,
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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 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.
38
<PAGE>
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 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.
39
<PAGE>
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,
"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
40
<PAGE>
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 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
41
<PAGE>
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 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.
42
<PAGE>
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 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
43
<PAGE>
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
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
44
<PAGE>
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
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.
45
<PAGE>
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.
JONES INFOMERCIAL NETWORK VENTURES, INC.
By: /s/Jay B. Lewis
--------------------------
Title: Vice President
COX CONSUMER INFORMATION NETWORK, INC.
By: /s/Patrick Esser
--------------------------
Title: V.P Advertising Sales
-----------------------
ADELPHIA COMMUNICATIONS CORPORATION
By: /s/Jeffrey L. Abbas
--------------------------
Title: Sr. Dir of Programming
-----------------------
46
<PAGE>
EXHIBIT A TO PARTNERSHIP AGREEMENT
OWNERSHIP EFFECTIVE APRIL 1, 1997
<TABLE>
<CAPTION>
JINI Cox Adelphia Total
---- --- -------- -----
<S> <C> <C> <C> <C>
Ownership Interests 54.17434% 45.82434% .00133% 100%
</TABLE>
<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>
Exhibit 10.8
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.
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>
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 $.10/Service Subscriber/Month
December 31, 1997 through December 30, 1999 $.11/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:
<TABLE>
<CAPTION>
250,000 500,000 1,000,000 1,500,000
--------------------------------------
Base
Year Rate 10% 20% 25% 30%
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
December 1, 1995 through December 30, 1997 $.10 $.090 $.080 $.075 $.070
December 31, 1997 through December 30, 1999 $.11 $.099 $.088 $.083 $.077
December 31, 1999 through December 30, 2001 $.12 $.108 $.096 $.090 $.084
December 31, 2001 through December 30, 2003 $.13 $.117 $.104 $.098 $.091
December 31, 2003 through December 30, 2005 $.14 $.126 $.112 $.105 $.098
December 31, 2005 through December 30, 2007 $.15 $.135 $.120 $.113 $.105
December 31, 2007 through December 30, 2009 $.16 $.144 $.128 $.120 $.112
December 31, 2009 through December 30, 2011 $.17 $.153 $.136 $.128 $.119
</TABLE>
<PAGE>
Exhibit 10.9
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>
ASSIGNMENT
----------
WHEREAS, JONES INFOMERCIAL NETWORKS, INC., a Colorado corporation
("Assignor"), having a principal place of business at 9697 E. Mineral Avenue,
Englewood, Colorado 80112, entered into an Amended and Restated Affiliate
Agreement dated as of August 1, 1994 (the "Agreement") with Jones Intercable,
Inc., a Colorado corporation; and
WHEREAS, Assignor desires to assign its entire right, title and
interest in and to the Agreement to Jones Infomercial Network Ventures, Inc., a
Colorado corporation ("Assignee"), having a principal place of business at 9697
East Mineral Avenue, Englewood, Colorado 80112.
NOW, THEREFORE, in consideration of the foregoing Assignor hereby
assigns, transfers, and sets over to Assignee, Assignor's entire right, title
and interest in and to the Agreement, and Assignee hereby assumes and agrees to
be bound by all terms and obligations of the Agreement.
IN WITNESS WHEREOF, this Assignment has been duly executed on behalf
of Assignor this 31st day of January, 1995.
JONES INFOMERCIAL NETWORKS, INC.
By: /s/ Gregory J. Liptak
---------------------
Gregory J. Liptak
President
JONES INFOMERCIAL NETWORK
VENTURES, INC.
By: /s/ Elizabeth M. Steele
-----------------------
Elizabeth M. Steele
Vice President
<PAGE>
STATE OF COLORADO )
) ss.
COUNTY OF ARAPAHOE )
The foregoing instrument was acknowledged before me this 31st day of
January, 1995, by Gregory J. Liptak, the President of Jones infomercial
Networks, Inc., a Colorado corporation, for and on behalf of said corporation.
/s/ Sara J. Lair
----------------
Notary Public
My commission expires: August 11, 1997 [STAMP APPEARS HERE]
STATE OF COLORADO )
)ss.
COUNTY OF ARAPAHOE )
The foregoing instrument was acknowledged before me this 31st day of
January, 1995, by Elizabeth M. Steele, the Vice President of Jones Infomercial
Network Ventures, Inc., a Colorado Corporation, for and on behalf of said
corporation.
/s/ Sara J. Lair
----------------
Notary Public
My commission expires: August 11, 1997 [STAMP APPEARS HERE]
-2-
<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
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 10.11
-------------
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 10.11
-------------
PRODUCT INFORMATION NETWORK VENTURE
AFFILIATE AGREEMENT
(AS AMENDED)
THIS AGREEMENT is made as of the 1st day of October, 1995, as amended
effective April 1, 1997 by and between PRODUCT INFORMATION NETWORK VENTURE, a
Colorado general partnership ("PIN"), and ADELPHIA COMMUNICATIONS CORPORATION
and its affiliates ("Affiliate"), whose address is 5 West 3rd Street,
Coudersport, Pennsylvania 16915
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 Network" programming service (the "Service") within the
operating area (as hereinafter defined) of any cable or satellite master
antenna television system(s) owned, managed or controlled by Affiliate
including any member of a co-operative venture between Affiliate and any
operator(s) as listed on the attached Schedule 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 Schedule I.
----------
Affiliate shall not delete any System from Schedule 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 commercially reasonable efforts to cause the party to which Affiliate
has transferred such Systems to assume Affiliate's obligations
<PAGE>
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 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 October 1, 1995, and
terminate ten (10) years thereafter. This Agreement shall automatically
renew for an additional one (1) year period 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 the 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.
-2-
<PAGE>
4. RATES AND PAYMENTS
------------------
(a) On or before the thirtieth (30th) 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 Schedule I, and calculated in
----------
accordance with Schedule 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. This Agreement may be terminated by Affiliate in the event PIN
fails to pay Affiliate the rebate for a period of 90 days and such breach
is not cured within 30 days after written notice from Affiliate.
(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 mutually
agreed upon by PIN and Adelphia, specifying for each System that such
system is carrying the Service on a 24-hour basis, the number of
subscribers in such system and the channel location.
(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, but not necessarily the amount.
5. DELIVERY AND DISTRIBUTION
-------------------------
(a) During the term of this Agreement, each of the Systems shall 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 Service is carried. Affiliate agrees to deliver the Service twenty-
four hours per day.
-3-
<PAGE>
Affiliate may at any time suspend the carriage of some or all hours of
carriage of the Service on any System(s) if, and only if, all of the
following conditions apply:
i. Such suspension is done in order to carry a substitute
programming service in satisfaction of regulatory obligations (e.g., to
comply with must-carry, leased access, franchise requirements, etc.), and
Affiliate's designation of the Service for this purpose shall not on an
MSO-wide basis be discriminatory with respect to other programming
services;
ii. In the absence of such a suspension, the System(s) would not have
adequate capacity to carry the substitute programming service;
iii. Such a suspension will end no later than upon the completion of
the rebuild of such System(s) or such date as adequate channel capacity
otherwise becomes available for carriage of both the Service and such
substitute programming; and
iv. Affiliate will use its best efforts to end such suspension and
restore carriage as it existed prior to the suspension as soon as possible.
If the Service is suspended, Affiliate agrees Service will be the first
programming service added to the System as channel capacity becomes
available. In addition, if the System carried another infomercial service
or services similar to the Service, the Affiliate must reasonably apportion
the suspension of all such services.
(b) PIN will initially transmit the Service by means of domestic
communications satellite GE American Communications C-3, Transponder 20.
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 Schedule I of this Agreement within thirty (30) days
----------
of receiving notice from PIN of the
-4-
<PAGE>
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 Schedule 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.
(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 Schedule 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) Subject to applicable federal, state and local law (including the
franchises, if any, pursuant to which the Systems are operated), at PIN's
-5-
<PAGE>
request, Affiliate shall provide PIN with all available data regarding the
marketing and promotion of the Service by Affiliate and 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 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), with a copy to the Legal Department and, if to Affiliate, at its
address set forth herein, Attn: Director of Programming with a copy to
General Counsel. The date of such 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.
-6-
<PAGE>
However, if Affiliate creates its own infomercials which are aired as part
of the Service, all rights, names, logos, marks, copyright notices or
designations used in the infomercial shall remain the property of
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 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 an expired franchise
agreement if authorized by proper local authorities to continue to provide
cable television services, or licenses or other permits duly authorized by
proper local authorities, if required, 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 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
-7-
<PAGE>
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 or affiliates, its auditors and its attorneys;
provided, however, that such parent company or affiliates, 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.
(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
-8-
<PAGE>
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 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 agreements, oral or
written between the parties hereto. This Agreement may not be modified
except in a 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 may not be an adequate remedy at law for certain breaches by
Affiliate of this Agreement, and PIN may suffer irreparable harm as a
result of such a breach. Therefore, if such 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 seek injunctive relief
against Affiliate.
(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.
-9-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have entered into this Agreement as
of the date first set forth above.
PRODUCT INFORMATION ADELPHIA COMMUNICATIONS
NETWORK VENTURE CORPORATION
By: Jones Infomercial Network By: /s/ Jeffrey L. Abbas
---------------------
Ventures, Inc., General Name: Jeffrey L. Abbas
Partner Title: Sr. Dir. of Programming
By: /s/ Jay B. Lewis
------------------
Name: Jay B. Lewis
Title: Vice President
-10-
<PAGE>
SCHEDULE I
----------
At April 1, 1997
SYSTEM FULL-TIME SUBSCRIBERS
***
<PAGE>
***
<PAGE>
SCHEDULE 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 60%*
* Such rebate percentage may be increased from time-to-time to reflect the
rebate percentage being generally made available by PIN to cable systems which
are owned by, or affiliated with, Cox Consumer Information Networks, Inc.;
Adelphia Communications Corporation or Jones Infomercial Network Venture, Inc.
<PAGE>
Exhibit 10.12
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>
Jones Earth Segment, Inc.
9697 E. Mineral Avenue
Englewood, CO 80112
June 10, 1998
Knowledge TV, Inc.
9697 E. Mineral Avenue
Englewood, CO 80112
Re: Uplink Services Agreement
Gentlemen,
1. This will constitute the agreement, effective July 1, 1998, pursuant
to which Knowledge TV, Inc. ("KTV") will be treated as a party (and as one of
the "Networks") to that Uplink Services Agreement dated as of the first day of
January, 1995 (the "USA"). A copy of the USA is attached hereto as Exhibit A.
2. All of the terms of the USA shall be applicable to this Agreement. It
is also understood that KTV will license one compressed digital channel on the
GE American C-3 Satellite Transponder No. 20.
3. KTV agrees to be bound by the USA and to make payments of all those
amounts applicable to it, as set forth in Section 3 of the USA.
4. Notwithstanding any other provision of this Agreement, KTV can
terminate this Agreement on the third anniversary thereof by giving notice at
least six (6) months prior to such third anniversary.
Very truly yours,
JONES EARTH SEGMENT, INC.
By /s/ Elizabeth M. Steele
------------------------
Vice President
Accepted and Agreed to:
Knowledge TV, Inc.
By /s/ Glenn R. Jones
-------------------
President
<PAGE>
EXHIBIT 10.13
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>
Jones Earth Segment, Inc.
9697 E. Mineral Avenue
Englewood, CO 80112
June 10, 1998
Knowledge TV, Inc.
9697 E. Mineral Avenue
Englewood, CO 80112
Re: Services Agreement
Gentlemen,
1. This will constitute the agreement, effective July 1, 1998, pursuant
to which Knowledge TV, Inc. ("KTV") will be treated as a party (and as one of
the "Networks") to that Services Agreement dated as of the first day of January,
1995 (the "SA"). A copy of the SA is attached hereto as Exhibit A.
2. All of the terms of the SA shall be applicable to this Agreement. It
is also understood that KTV will license one compressed digital channel on the
GE American C-3 Satellite Transponder No. 20.
3. KTV agrees to be bound by the SA and to make payments of the various
amounts applicable to it, as set forth in Section 3 of the SA.
4. Notwithstanding any other provision of this Agreement, KTV can
terminate this Agreement on the third anniversary thereof by giving notice at
least six (6) months prior to such third anniversary.
Very truly yours,
JONES EARTH SEGMENT, INC.
By /s/ Elizabeth M. Steele
------------------------
Vice President
Accepted and Agreed to:
Knowledge TV, Inc.
By /s/ Glenn R. Jones
-------------------
President
<PAGE>
Exhibit 10.14
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>
Jones Space Holdings, Inc.
9697 E. Mineral Avenue
Englewood, CO 80112
June 10, 1998
Knowledge TV, Inc.
9697 E. Mineral Avenue
Englewood, CO 80112
Re: Transponder License Agreement
Gentlemen,
1. This will constitute the agreement, effective July 1, 1998, pursuant
to which Knowledge TV, Inc. ("KTV") will be treated as a party (and as one of
the "Networks") to that Transponder License Agreement dated as of the first day
of January, 1995 (the "TPA"). A copy of the TPA is attached hereto as Exhibit
A. Jones Space Holdings, Inc. is the successor to Jones Space Segment, Inc.
under the TPA.
2. All of the terms of the TPA shall be applicable to this Agreement,
except that the monthly rental rate shall not be increased if either Great
American Country or Product Information Network ceases to lease a portion of the
transponder. It is also understood that KTV will license one compressed digital
channel on the GE American C-3 Satellite Transponder No. 20.
3. KTV agrees to be bound by the TPA and to make payments of the monthly
amounts applicable to it, as set forth on Schedule A to the TPA.
4. Notwithstanding any other provision of this Agreement, KTV can
terminate this Agreement on the third anniversary thereof by giving notice at
least six (6) months prior to such third anniversary.
Very truly yours,
JONES SPACE HOLDINGS, INC.
By /s/ Elizabeth M. Steele
------------------------
Vice President
Accepted and Agreed to:
Knowledge TV, Inc.
By /s/ Glenn R. Jones
-------------------
President
<PAGE>
EXHIBIT 10.15
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
----------------------
-2-
<PAGE>
JONES SATELLITE HOLDINGS, INC.
SCHEDULE A
Monthly Amount Due From
-----------------------
Calender Annual Monthly
Year Amount Amount JGR MEU
---- ------ ------ --- ---
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
-3-
<PAGE>
Exhibit 10.16
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 10.16
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 the transmission of a primary feed of Jones's or Jones's
affiliates' principal cable programming services. 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 transmission of video
<PAGE>
- 16 -
programming and associated audio, 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 C-4 for audio-only programming. 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 adhere to no less restrictive conditions on
the use of C-3 or C-4 transponders 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 use all reasonable
<PAGE>
- 18 -
efforts to restore the Transponder Failure by utilizing any available
Replacement Transponder on the same Satellite as the Failed Transponder on a
first-needed, first-served basis. If no Replacement Transponder is available, GE
Americom shall restore the Transponder Failure by using an unassigned or
Preemptible Transponder on that Satellite, if available. If none of these
options are available, Jones shall be offered Restored Satellite 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 be subordinate to and
shall not diminish in any way the protection provided to Jones. The protection
Satellite shall be used on a first-needed, first-served 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, service under this Agreement shall
continue as to the affected Transponder(s) at Jones's election (1) on a
Transponder-Protected basis, provided that the applicable rate for service on
the affected Transponder(s) under Article 3.A. shall be reduced by *** per
Transponder per month, or (2) on an Unprotected basis, provided that the
applicable rate for service on the affected Transponder under Article 3.A. shall
be reduced by *** per Transponder per month. The reduced rate shall remain
<PAGE>
- 20 -
in effect until such time as protection is available on a Protection Satellite,
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 no liability for damages or losses arising out of its failure or inability
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 direct damages or losses, such as the cost of
obtaining alternate satellite capacity, with respect to its performance
hereunder, when such damages or losses are due to GE Americom's willful
misconduct. Otherwise, GE Americom's entire liability 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 limited to a refund or waiver of the applicable
charges for service under Article 3. 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 indirect, incidental, consequential, special or other similar
damages, whether in contract or tort, including but not limited to damages
resulting from loss of actual or anticipated revenues or profits, or loss of
business, customers or good will.
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 10.17
-------------
AGREEMENT
OF
MEDIAAMERICA, INC.,
RON HARTENBAUM,
GARY SCHONFELD,
JONES NETWORK HOLDINGS, LLC
AND
JONES INTERNATIONAL NETWORKS, LTD.
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<S> <C>
1. Transfer of MAI Assets to New Company........................................... 2
Assumption of Certain Obligations and Liabilities.................................. 2
Excluded Assets and Liabilities.................................................... 3
Transfers to New Company by Jones.................................................. 4
Exchange Consideration............................................................. 4
The Working Capital Adjustment..................................................... 5
The Earnout........................................................................ 7
Exchange Allocation................................................................ 9
Certain Taxes...................................................................... 10
2. Representation, Warranties, and Covenants of MAI and the Shareholders........... 10
Due Organization; Capitalization: Articles and By-laws; Other Names; Authority..... 10
Subsidiaries or Affiliates......................................................... 11
Financial Statements............................................................... 11
Title to Properties; Liens; Condition of Properties................................ 12
Accounts Receivable and Receivable From Affiliate.................................. 13
Governmental Authority; Compliance With Law........................................ 14
Taxes.............................................................................. 14
Contracts and Agreements........................................................... 15
Labor, Benefit, Employment Agreements, ERISA and Employees......................... 16
Litigation and Disputed Items...................................................... 17
Options............................................................................ 18
No Violation of Other Instruments.................................................. 18
Brokerage Commissions.............................................................. 18
Governmental Approvals............................................................. 18
Transactions with Affiliates....................................................... 19
Intellectual Property.............................................................. 19
Libraries and Programs............................................................. 19
Regarding the Assets............................................................... 20
Correctness of Representations and Warranties...................................... 20
Operations from Date of Latest MAI Financial Statements to Date of this Agreement.. 20
3. Representations, Warranties and Covenants of Jones and New Company.............. 21
Due Organization; Capitalization; Articles and By-laws; Authority.................. 22
Brokerage Commissions.............................................................. 22
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
Financial Statements............................................................... 22
No Violation of Other Instruments.................................................. 24
Governmental Approvals............................................................. 24
Validity of Shares to be Issued.................................................... 25
Articles and Bylaws................................................................ 25
Governmental Authority; Compliance With Law........................................ 25
Litigation and Disputed Items...................................................... 25
Options............................................................................ 26
Correctness of Representations and Warranties...................................... 26
4. Covenants and Agreements of MAI................................................. 26
Access............................................................................. 26
Satisfaction of Conditions......................................................... 27
Payment of Bank Loans.............................................................. 27
Operations Prior to the Closing.................................................... 27
Name Change Filing................................................................. 30
Bulk Sales Law Compliance.......................................................... 31
Investment Representations......................................................... 31
Authorization to Collect Accounts Receivable....................................... 31
Updated Schedules.................................................................. 31
5. Covenants and Agreements of the Shareholders.................................... 32
Concerning MAI..................................................................... 32
Exclusivity........................................................................ 32
6. Covenants and Agreements of Jones and New Company............................... 33
Satisfaction of Conditions......................................................... 33
Access............................................................................. 33
Employment Offers.................................................................. 33
Consultation With MAI.............................................................. 34
Substituted Letter of Credit....................................................... 34
Consents........................................................................... 34
7. The High Yield Offering......................................................... 34
Nature of the Offering............................................................. 34
Reimbursement of Certain Expenses.................................................. 35
Availability of Underwriters....................................................... 35
8. Conditions to Obligations of MAI and the Shareholders........................... 35
Accuracy of Representations, Warranties and Covenants.............................. 35
Absence of Litigation.............................................................. 36
Validity of Transactions........................................................... 36
</TABLE>
iii
<PAGE>
<TABLE>
<S> <C>
No Material Adverse Change, Officers' Certificate.................................. 36
Opinion of Counsel................................................................. 36
Completion of the High Yield Offering.............................................. 38
Hart-Scott-Rodino Waiting Period................................................... 38
9. Conditions to Obligations of Jones and New Company.............................. 38
Accuracy of Representations, Warranties and Covenants.............................. 38
Absence of Litigation.............................................................. 39
Validity of Transactions........................................................... 39
No Material Adverse Change, Officers' Certificate.................................. 39
Opinion of Counsel................................................................. 39
Completion of the High Yield Offering.............................................. 41
Hart-Scott-Rodino Waiting Period................................................... 41
Consents........................................................................... 41
10. The Closing.................................................................... 41
11. Survival of Representations and Warranties..................................... 42
12. Expenses....................................................................... 42
13. Termination.................................................................... 43
14. Indemnification................................................................ 44
By MAI............................................................................. 44
By Jones and New Company........................................................... 46
15. Confidential Information....................................................... 48
Exceptions......................................................................... 48
Prohibition of Disclosure.......................................................... 49
Use of Confidential Information................................................... 49
Return of Confidential Information................................................. 50
Injunctive Relief.................................................................. 50
16. Notices........................................................................ 50
17. Miscellaneous.................................................................. 51
Counterparts....................................................................... 51
Entire Agreement, No Waiver........................................................ 51
Headings........................................................................... 52
Schedules and Exhibits as Part of Agreement........................................ 52
Use of the Plural, etc............................................................. 52
Assignment......................................................................... 52
</TABLE>
iv
<PAGE>
<TABLE>
<S> <C>
Governing Law...................................................................... 52
Publicity.......................................................................... 53
Further Assurances................................................................. 53
No Third Party Beneficiaries....................................................... 53
Extension of Representation Agreement.............................................. 53
</TABLE>
v
<PAGE>
EXHIBIT:
A. Example of the Working Capital Adjustment
B.-1 Example of the Earnout
B.-2 Selling, General and Administrative Expense Allocation
C. (No Exhibit)
D. New Company Articles of Incorporation
E. Pro Forma Capitalization
F. Employment Agreement
G. Post-Closing Agreement
H. Registration Rights Agreement
I. Section 351 Plan
J. Budgeted Commission Revenue Schedule
K. Extension and Amendments of Representation Agreements
vi
<PAGE>
AGREEMENT
---------
This Agreement, dated as of June 2, 1998 (the "Agreement"), is by and among
MEDIAAMERICA, INC., a New York corporation ("MAI"), Ron Hartenbaum and Gary
Schonfeld (individually a "Shareholder" and together the "Shareholders"), JONES
NETWORK HOLDINGS, LLC, a Colorado limited liability company ("Jones") and JONES
INTERNATIONAL NETWORKS,LTD. ("New Company"), a newly organized Colorado
corporation and a wholly-owned subsidiary of Jones.
R E C I T A L S
---------------
(a) MAI is in the business of creating, producing, selling, buying,
representing and distributing radio programming and networks.
(b) MAI and Jones desire to combine their business enterprises through the
contribution of specified assets and liabilities to New Company.
(c) Jones presently holds all of the outstanding stock of the Colorado
corporation known as JPN, Inc., and is the obligor of a promissory note payable
to Jones Global Group, Inc. ("Global Group"). Jones has formed New Company and
intends to have New Company acquire the JIN shares and assume Jones' obligations
under the promissory note payable to Global Group to New Company, all in
connection with the other transactions contemplated by this Agreement.
(d) Jones and New Company desire to have New Company acquire certain assets
and assume certain liabilities of MAI and MAI and the Shareholders desire to
have MAI transfer such assets and liabilities to New Company, all on the terms
and conditions hereinafter set forth. As part of such transaction, certain of
the parties are to enter into one or more related agreements which are set forth
as exhibits to this Agreement.
(e) The parties intend that the transfers by Jones and MAI to New Company
described in this Agreement shall together qualify as an exchange under the
provisions of Section 351 ("Section 351") of the Internal Revenue Code of 1986,
as amended (the "Code").
Now, therefore, in consideration of the premises and the covenants and
agreements hereinafter set forth, the parties hereto covenant and agree as
follows:
<PAGE>
1. Transfer of MAI Assets to New Company.
-------------------------------------
(a) Upon the terms and subject to the conditions set forth in this
Agreement, at the Closing (as defined in Section 10) MAI agrees to transfer and
deliver to New Company and New Company agrees to acquire and accept from MAI all
of the assets and properties of MAI, whether real, personal, tangible or
intangible as the same may exist on the date hereof, and all additions thereto
on and after the date hereof through and including the Closing Date (as defined
in Section 10) but less (i) any permitted dispositions thereof between the date
of this Agreement and the Closing Date, and (ii) the "Excluded Assets" as
defined in Section 1(c). Such assets and properties to be transferred and
delivered are referred to hereinafter as the "Assets," which shall include
without limitation the following:
(i) All cash, cash equivalents, accounts receivable, prepaid
expenses, loans receivable, investments of all kinds and descriptions,
security deposits and government securities;
(ii) All contracts, contract rights, programming agreements, radio
affiliate agreements, agreements to provide services to third parties and
all other agreements and arrangements, whether similar or dissimilar;
(iii) All customer, advertiser and radio station affiliate lists;
(iv) All furniture, fixtures, leasehold improvements, computer
hardware and computer software;
(v) All interests in and to any real property, including any
leasehold interests;
(vi) All Intellectual Property Rights (as defined in Section 2(p)
and goodwill;
(vii) All files, data, books and records related to or with respect
to the Assets; and
(viii) All rights in and to the names "MediaAmerica" and
"MediaAmerica, Inc." and any derivations from or variations thereof.
(b) Assumption of Certain Obligations and Liabilities. On the terms and
-------------------------------------------------
subject to the conditions set forth in this Agreement at the Closing, New
Company shall assume and agree to pay, discharge and perform when due all of the
liabilities and obligations of MAI to be performed after the Closing which are
(i) disclosed or included in the Latest MAI Financial Statements (as defined
below), (ii) incurred in the ordinary course of business since March 31, 1998,
(iii) listed in a Schedule (unless excluded as an Excluded Liability) and (iv)
contracts or liabilities not required to be scheduled because they fall below
the threshold
2
<PAGE>
disclosure level prescribed for the relevant Schedule (collectively, the
"Liabilities"), except that (x) no unknown or contingent liabilities of MAI
shall be assumed by New Company and such liabilities shall remain the
obligations of MAI and (y) liabilities and obligations which are specifically
hereinafter excluded from assumption by the terms of this Agreement shall remain
the obligations of MAI. It is understood and agreed that after the Closing, MAI
shall remain in existence for at least two (2) years, and that certain of its
obligations and liabilities are not to be assumed or assigned pursuant to this
Agreement.
(c) Excluded Assets and Liabilities. The following sets forth those
-------------------------------
assets and liabilities which will not be transferred to, or assumed by, New
Company and shall remain with MAI.
Excluded Assets:
----------------
(i) Any and all contracts, plans, contributions, funds or trusts
arising out of or related to any pension plan, deferred compensation plan,
profit sharing plan, 401(k) plan, or other employee benefit plan or
arrangement.
(ii) Any loans receivable from Promotion Development Group ("PDG"),
and from the Shareholders.
(iii) Any income tax refund of any kind, nature or description.
(iv) Minute books and stock ledger books.
(v) Any payment, refund, recovery, receivable or insurance proceeds
related to Excluded Liabilities or Excluded Assets
(vi) Any litigation settlement proceeds or litigation expense
reimbursements.
(vii) Any insurance policies.
Excluded Liabilities:
---------------------
(i) Any liability or obligation whatsoever, whether fixed or
contingent, that arises out of, or relates in any way to, any pension plan,
profit sharing plan, 401(k) plan or other employee benefit plan, including
any deferred compensation or health care arrangement.
3
<PAGE>
(ii) Any undisclosed or contingent liability of any kind, nature or
description.
(iii) Any income tax liability or income tax-related liability of any
kind, nature or description.
(iv) Any liability or responsibility to provide any COBRA coverage
or notices under Part 6 of Title I of ERISA.
(v) Any liability with respect to any litigation, whether or not
disclosed, except as set forth in the sentence following clause (vi).
(vi) Liabilities and expenses arising in connection with the New
York sales tax audit, including reserves related thereto.
Notwithstanding the foregoing, the parties hereto agree that if litigation
against MAI or New Company is brought by or against a third party (other than
PDG) with which MAI has an agreement and such litigation arises out of the
treatment of such agreement (either as transferred to New Company or subject to
the Management Agreement) pursuant to the terms of this Agreement, the expenses
and costs of such litigation, and any damages related thereto (and recoveries
therefrom), shall be shared equally by MAI on the one hand and New Company on
the other.
(d) Transfers to New Company by Jones. At or before the Closing, Jones
---------------------------------
will transfer or will cause to be transferred to New Company its only assets,
consisting of 2,980,953 shares of Class A Common Stock and 1,785,120 shares of
Class B Common Stock of JPN, Inc., and will also cause New Company to assume its
obligation under the promissory note in the amount of $10 million plus any
accrued interest, payable to Jones Global Group, Inc. Upon such transfers,
Jones will receive 2,980,953 shares of Class A Common Stock of New Company and
1,785,120 shares of Class B Common Stock of New Company, all of which shares
shall then be distributed to the interest owners of Jones. Exhibit E hereto
sets forth, on a pro forma basis, the capitalization and debt of New Company,
assuming (i) the Closing has occurred, (ii) completion of the High Yield
Offering (as defined in Section 7 of this Agreement), and (iii) the completion
of the transfers to New Company set forth in this Section 1(d).
(e) Exchange Consideration. The exchange consideration payable to MAI for
----------------------
the transferred Assets (the "Exchange Consideration") shall be $32.7 million
plus or minus the "Working Capital Adjustment" (as hereinafter defined). In
addition, New Company shall also pay to MAI the Earnout (as defined below) ,if
any, as set forth in Section 1(g) of this Agreement. The Exchange
Consideration to be paid at the Closing shall be as follows:
4
<PAGE>
(i) $26.7 million in cash.
(ii) $6 million (plus or minus the Estimated Working Capital
Adjustment, as hereinafter defined) in shares of Class A Common Stock in
New Company at an agreed value of $15.00 per share.
(f) The Working Capital Adjustment.
------------------------------
(i) The "Working Capital Adjustment" means the amount, determined
in accordance with generally accepted accounting principles and the historical
accounting principles and methodologies applied in the preparation of the MAI
Financial Statements, as defined below (the "Historical GAAP Accounting
Principles"), which is equal to the difference between the sum of the current
Assets of MAI to be transferred pursuant to this Agreement and the sum of the
current Liabilities of MAI to be assumed pursuant to this Agreement, all as of
the Closing Date, provided that deferred rent shall not be included as a current
Liability for purposes of the Working Capital Adjustment. For the purpose of
calculating the Working Capital Adjustment, but not the Estimated Working
Capital Adjustment, (x) the net accounts receivable amount (accounts receivable
less the allowance for doubtful accounts) determined using Historical GAAP
Accounting Principles will be adjusted to reflect the amount of accounts
receivable estimated to be collectible based upon actual collection results and
other facts and circumstances existing at the time that the Working Capital
Adjustment is calculated and (y) in the event the Closing occurs other than on
the last day of a broadcast month, revenues and expenses shall be allocated to
the portion of the month prior to the Closing, as agreed to by the parties in
good faith.
(ii) Not less than five (5) days prior to the Closing Date, MAI
shall, in good faith, prepare in accordance with the Historical GAAP Accounting
Principles and deliver to Jones a balance sheet projected as of the opening of
business on the Closing Date (the "Estimated Closing Date Balance Sheet"), and a
calculation of the Working Capital Adjustment ("Estimated Working Capital
Adjustment") based on such Estimated Closing Date Balance Sheet.
(iii) Not more than sixty (60) days after the Closing Date, MAI shall
prepare in accordance with the Historical GAAP Accounting Principles and deliver
to Jones a balance sheet as of the opening of business on the Closing Date (the
"Closing Date Balance Sheet"), which shall be true and correct as of the Closing
Date, and a calculation of the Working Capital Adjustment based on such Closing
Date Balance Sheet. If the Working Capital Adjustment is greater than the
Estimated Working Capital Adjustment, New Company shall pay the
5
<PAGE>
difference to MAI, and if the Working Capital Adjustment is less than the
Estimated Working Capital Adjustment, MAI shall pay the difference to New
Company. All payments pursuant to this Section 1(f)(iii) shall be made in shares
of Class A Common Stock of New Company, valued at $15.00 per share. Subject to
the provisions of Section 1(f)(iv), payment of such adjustment amounts on the
basis of the Working Capital Adjustment shall be made prior to the close of
business on the second business day following the date that the Closing Date
Balance Sheet shall become final and binding pursuant to Section 1(f)(iii);
(iv) Jones agrees that the Closing Date Balance Sheet delivered by
MAI to New Company pursuant to Section 1(f)(iii) and the computation of the
Working Capital Adjustment annexed thereto shall be conclusive and binding upon
the parties unless New Company, within twenty (20) days after the delivery to
New Company of such Closing Date Balance Sheet, notifies MAI in writing that New
Company disputes any of the amounts set forth therein, specifying the nature of
the dispute and the basis therefor, and any amount due MAI or New Company, as
the case may be, shall nonetheless be promptly paid to the extent such amount is
not in dispute. The parties shall in good faith attempt to resolve any dispute,
in which event the Closing Date Balance Sheet and the computation of the Working
Capital Adjustment, as amended to the extent necessary to reflect the resolution
of the dispute, shall be conclusive and binding upon the parties. If any such
dispute cannot be resolved by the parties within ten (10) days after the date of
the notice of the dispute, it shall be referred to an arbitrator ("Arbitrator")
who shall be a mutually satisfactory independent public accounting firm of
national stature that has not been employed by either party for the two years
preceding the Closing Date. If the parties cannot agree to a mutually
satisfactory independent public accounting firm of national stature, such
accounting firm shall be appointed as Arbitrator by the President of the
American Arbitration Association, upon the application of either party. The
determination of the Arbitrator shall be conclusive and binding on each party.
The fees of any arbitration (including the fees of the Arbitrator) pursuant to
this clause shall be borne equally by New Company and MAI (or the Shareholders).
(v) Each party hereby acknowledges and agrees that access to
employees and representatives of the other party may be required in order that
MAI may prepare the Closing Date Balance Sheet and Jones may review the Closing
Date Balance Sheet. Each party shall make such persons available to the other
party and its representatives and shall give the other party and its
representatives all necessary access to the Books and Records (as defined
herein),
6
<PAGE>
without charge to the other party, as may reasonably be requested by the other
party, in order to assist in the preparation and review of the Closing Date
Balance Sheet.
(vi) An example of the Working Capital Adjustment, using the
unaudited March 31, 1998 balance sheet of MAI, is set forth on Exhibit A hereto.
Such example is for illustrative purposes only and shall not constitute the
actual calculation of the Working Capital Adjustment determined at the Closing
Date.
(g) The Earnout. The Exchange Consideration shall be adjusted up in the
-----------
event the amount of the Earnout is greater than zero. The Earnout shall be
calculated for the twelve accounting months period which commences on the first
day of the first accounting month following the Closing (the "Earnout Period")
with respect to the EBITDA (meaning net income before interest income and
expense, taxes, depreciation and amortization; generated by the "MAI Business"
(as hereinafter defined) as follows:
The "Earnout" shall mean an amount equal to (i) (a) EBITDA in excess
of $4.24 million from all shows other than (A) the Dr. Dean Edell
Show, Dr. Dean Edell's Medical Minutes, The Rush Morning Update, and
The Rush Limbaugh Show (collectively, the "Excluded Shows") or (B) any
termination fees associated with the Excluded Shows multiplied by
(b) nine (9), plus (ii) EBITDA in excess of $0.26 million from the
Excluded Shows and any termination fees associated with the Excluded
Shows which are not reflected in EBITDA for the Excluded Shows.
(i) The term "MAI Business" shall mean (w) all advertising
representation agreements of the nature of those to be acquired from MAI by New
Company, whether in existence at the Closing or entered into during the Earnout
Period, (x) the radio programming agreements included in the Assets, (y) radio
programming agreements principally attributable to the efforts of a Shareholder
which are entered into during the Earnout Period as agreed to by MAI and New
Company on a case-by-case basis and (z) promotion and sponsorship agreements
(whether or not related to radio). MAI Business shall not include any radio
programming which is purchased after the Closing.
(ii) For the purposes of the Earnout calculation, (a) net income,
interest income and expense, taxes, depreciation and amortization related to the
MAI Business will be for the Earnout Period, and the related statements of
financial position, income and cash flows, shall each be prepared in accordance
with the
7
<PAGE>
Historical GAAP Accounting Principles (the "Earnout Financial Statements"), (b)
selling, general and administrative expenses shall be allocated as set forth on
Exhibit B-2; and (c) the calculation of the Earnout shall be made as if the
representation agreement, in effect as of the date hereof, between Jones and
MAI, were in effect, whether or not such agreement is in effect during the
Earnout Period;
(iii) As promptly as practicable, but in any event not later than two (2)
months after the end of the Earnout Period, New Company shall prepare and
deliver to MAI (a) the Earnout Financial Statements, together with a certificate
of the Chief Financial Officer of New Company certifying that the Earnout
Financial Statements have been prepared in accordance with the Historical GAAP
Accounting Principles, and (b) the computation of the Earnout, in accordance
with Section 1(g)(ii). As promptly as practicable after the Earnout Financial
Statements are delivered, but in no event later than three (3) months after the
end of the Earnout Period, subject to the provisions of Section 1(g)(iv) and
except to the extent amounts payable under the Earnout are in dispute, all
required payments under this Section 1(g) shall be made on the basis of the
Earnout Financial Statements. In the event New Company is required to make a
payment under this Section 1(g) on the basis of the Earnout Financial
Statements, up to and including $5 million of such payment shall be made in
shares of Class A Common Stock of New Company, valued at $15.00 per share. Any
amount of such required payment in excess of $5 million shall be paid by New
Company in cash.
(iv) MAI agrees that the Earnout Financial Statements and the computation
of the Earnout annexed thereto shall be conclusive and binding upon the parties
unless MAI, within twenty (20) days after the delivery to MAI of the Earnout
Financial Statements, notifies New Company in writing that MAI disputes any of
the amounts set forth therein, specifying the nature of the dispute and the
basis therefore, and any amount due MAI shall nonetheless be promptly paid to
the extent such amount is not in dispute. The parties shall in good faith
attempt to resolve any dispute, in which event the Earnout Financial Statements
and the computation of the Earnout, as amended to the extent necessary to
reflect the resolution of the dispute, shall be conclusive and binding upon the
parties for purposes of calculation of the Earnout. If any such dispute cannot
be resolved by the parties within ten (10) days after the date of the notice of
the dispute, it shall be referred to an arbitrator ("Arbitrator") who shall be a
mutually satisfactory independent public accounting firm of national stature
that has not been employed by either party for the two years preceding the
Closing Date. If the parties cannot agree to a mutually satisfactory
independent public accounting firm of national stature, such accounting firm
shall be appointed as Arbitrator by the President of
8
<PAGE>
the American Arbitration Association upon application of either party. The
determination of the Arbitrator shall be conclusive and binding on each party.
The fees of any arbitration (including the fees of the Arbitrator) pursuant to
this clause shall be borne equally by New Company and MAI (or the Shareholders);
(v) New Company hereby acknowledges and agrees that access to employees
and representatives of New Company may be required in order that MAI may
evaluate the Earnout Financial Statements. New Company shall make such persons
available to MAI and its representatives and shall give MAI and its
representatives all necessary access to the Books and Records, without charge to
MAI, as may reasonably be requested by MAI, in order to evaluate the Earnout
Financial Statements.
(vi) An example of the Earnout using illustrative EBITDA projections for
the period ending June 30, 1999 as the basis for the calculations is set forth
on Exhibit B-1 hereto. Such example is for illustrative purposes only and shall
not constitute the actual calculation of the Earnout.
(vii) The parties agree the MAI Business shall be conducted, and shall be
permitted to be conducted, during the Earnout Period in the ordinary course,
consistent with past operations and with the goal of creating long-term value
(which may include entering into short-term arrangements or agreements), and the
parties further agree that during the Earnout Period the MAI Business shall not
be conducted or prevented from being conducted with the intention of distorting
a fair calculation of the Earnout.
(h) Exchange Consideration Allocation. The parties agree that the Assets
---------------------------------
which are reflected on the Closing Date Balance Sheet shall be allocated that
portion of the Exchange Consideration (exclusive of the Earnout) as is equal to
the adjusted tax basis of such Assets, except that accounts receivable shall be
valued at their book values as set forth in the Closing Date Balance Sheet,
unless an Arbitrator is chosen pursuant to Section 1(f)(iv), in which event the
book values of the accounts receivable as determined by the Arbitrator shall
control. Any remaining amount of the Exchange Consideration (including the
Earnout) shall be allocated entirely to goodwill. The parties agree that the
amounts allocated to the Assets in this Section 1(h) equal the fair market
values of the respective Assets. The same percentage of cash and stock shall be
allocated to each Asset. The parties shall agree to the allocation of the
Exchange Consideration (exclusive of the Earnout) as soon as practicable, but in
no event later than 120 days after the Closing (or, if an Arbitrator is
determining the Working Capital Adjustment, 30 days after the determination by
the Arbitrator).
9
<PAGE>
The parties agree to report for federal income tax purposes consistently with
the allocations set forth in this Section 1(h), and to compute MAI's recognized
gain for federal income tax purposes in accordance with the principles of Rev.
Rul. 68-55, 1968-1 C.B 140.
(i) Certain Taxes. Any sales, use, transfer or documentary taxes imposed
-------------
in connection with the sale and delivery of the Assets under this Agreement
shall be borne and paid equally by MAI and New Company.
2. Representation, Warranties, and Covenants of MAI and the Shareholders.
---------------------------------------------------------------------
MAI and the Shareholders jointly and severally hereby represent, warrant
and covenant to and with Jones and New Company as follows:
(a) Due Organization; Capitalization: Articles and By-laws; Other Names;
--------------------------------------------------------------------
Authority.
- ---------
(i) MAI is a corporation duly organized, validly existing and in
good standing under the laws of the State of New York. MAI has full
corporate power and authority to own, lease and operate its properties and
conduct its business as presently being conducted. MAI is duly qualified to
do business as a foreign corporation and is in good standing in each
jurisdiction in which such qualification is necessary under applicable law
as a result of the conduct of its business or the ownership of its
properties except where the failure to be so qualified would not have a
material adverse effect on its business or financial condition. MAI has not
used any other name, in connection with its business or otherwise, other
than as set forth on Schedule 2(a) hereto.
(ii) The authorized capital stock of MAI consists of 1,000 shares of
Common Stock, no par value, of which 100 shares are issued, and outstanding
and held of record and beneficially by the Shareholders. All of such
issued shares of its capital stock are fully paid and non-assessable and
have been issued in compliance with applicable securities laws.
(iii) The copy of MAI's certificate of incorporation and any
amendments thereto, certified by the Secretary of State of New York, and
the copy of its bylaws and amendments thereto, certified by its Secretary,
as heretofore delivered or made available to Jones, are complete and
accurate (in each case as amended to date). MAI's stock ledger books
accurately reflect the names of the record holders of its shares of capital
10
<PAGE>
stock and the number of shares of its capital stock held by each record
holder. True and correct copies of such stock ledger books have been
furnished or made available to Jones.
(iv) The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly
authorized by the board of directors and the shareholders of MAI and no
other corporate or other proceedings on the part of MAI are necessary to
authorize the Agreement and the transactions contemplated hereby. This
Agreement and the agreements set forth in Exhibits F-1, F-2, G, H and I to
this Agreement (the "Ancillary Agreements") constitute (or, when executed
and delivered, will constitute) the valid and binding agreements of MAI
and/or the Shareholders, as the case may be, enforceable against MAI and/or
the Shareholders, as the case may be, in accordance with their respective
terms, except as such enforcement may be limited by bankruptcy and other
laws affecting the enforceability of creditors' rights generally or laws
governing the availability of specific performance or other equitable
remedies.
(b) Subsidiaries or Affiliates. MAI has no subsidiaries. Except as set
--------------------------
forth under Schedule 2(b) hereto, MAI owns no shares of stock or other
securities in any other corporation, nor is MAI a partner, venturer, participant
or associate in any partnership, venture or other business with any other person
or firm.
(c) Financial Statements.
--------------------
(i) Schedule 2(c)(i) consists of the financial statements of MAI
for the three (3) years ended December 31, 1997 (audited) and for the
quarters ended March 31, 1997 and March 31, 1998 (unaudited) (the "MAI
Financial Statements").
(ii) The MAI Financial Statements (A) are true, correct, complete
and accurate in all material respects and present fairly the financial
position and results of operations of MAI, as at the dates and for the
periods indicated, in accordance with generally accepted accounting
principles consistently applied, except, with respect to the financial
statements for the quarter ended March 31, 1997 and for the quarter ended
March 31, 1998 (the "Latest MAI Financial Statements"), for the absence of
footnotes thereto and subject to normal year-end adjustments; (B) reflect
all known claims against MAI and all of MAI's known debts and liabilities,
fixed or contingent, and of a type required to be disclosed in financial
11
<PAGE>
statements under generally accepted accounting principles, as of the
respective dates thereof; and (C) have been prepared, in all material
respects, in compliance with Regulation S-X of the United States Securities
and Exchange Commission ("SEC"), or to the extent they are not in such
compliance, the MAI Financial Statements for such periods which are used
for purposes of the High Yield Offering and the Exchange Offer (as set
forth in Section 7) will be in such compliance except to the extent that
changes may be required by the SEC in connection with the review of any
filings to be made with the SEC which include the MAI Financial Statements.
(iii) MAI is not subject to any indebtedness or liability,
contingent or otherwise, except (x) as disclosed or adequately and
specifically reserved for in the MAI Financial Statements as at and for the
periods ended December 31, 1997, or March 31, 1998, (y) as set forth on
Schedule 2(c)(iii), (z) indebtedness or liabilities incurred in the
ordinary course of business since December 31, 1997 or (zz) as set forth on
any other Schedule showing contracts, indebtedness or liabilities, and,
except as may be disclosed in the Latest MAI Financial Statements since
December 31, 1997 (A) there has been no material adverse change in the
business, assets, liabilities (actual or contingent), earnings, prospects
or financial or other condition taken as a whole, other than any such
material adverse change or effect resulting from general economic changes
or industry-wide changes (a "Material Adverse Effect") as to MAI, (B) MAI
has paid no dividends or made any distribution on account of its capital
stock, (C) there has been no change in its capitalization, (D) MAI has not
disposed of any material amount of assets, and (E) MAI has conducted its
business only in the ordinary course and consistent with the manner in
which its business was conducted prior to that date.
(d) Title to Properties; Liens; Condition of Properties.
---------------------------------------------------
(i) Other than as set forth in Schedule 2(d)(i), MAI has good title
to all its tangible assets, free and clear of any mortgages, deeds of
trust, security interests, conditional sales agreements, liens, claims,
restrictions, preferential rights of purchase or other burdens,
("Encumbrances") other than Permitted Encumbrances.
"Permitted Encumbrances" shall mean (a) Encumbrances as set forth in
Schedule 2(d)(i), (b) liens for property and ad valorem taxes or
governmental charges or claims not yet due and payable and (c) other
12
<PAGE>
Encumbrances less than $20,000 in the aggregate. Other than as set forth
in Schedule 2(d)(i), no presently effective financing statement under the
Uniform Commercial Code which names MAI as debtor is on file in any
jurisdiction and MAI has not signed any presently effective security
agreement authorizing any secured party thereunder to file any such
financing statement. At the time of Closing, all bank liens encumbering
the Assets, including those set forth in Schedule 2(d)(i), shall have been
released.
(ii) Schedule 2(d)(ii) sets forth all leases pursuant to which real
property is leased by MAI, true and complete copies of which have been
delivered to Jones.
(iii) The furniture, fixtures, furnishings, machinery, computer
hardware, computer software, equipment, spare parts, supplies, appliances,
vehicles and other tangible personal property owned by MAI ("Fixtures and
Equipment") are in a state of good repair sufficient for the conduct of
normal operations. The assets and properties (including leased property)
of MAI are adequate to enable it to conduct its business as now being
conducted. Other than as set forth on Schedule 2(d)(iii), MAI is not aware
of any major capital expenditure that will be required within one year from
the date of this Agreement that is not consistent with past practice.
Schedule 2(d)(iii) sets forth a list of each item of Fixtures and Equipment
that has a cost of at least $10,000 .
(iv) The intangible assets of MAI reflect the ownership of network
programming contracts and related agreements with radio stations. True and
correct copies of all such contracts and related agreements have been
delivered or made available to Jones. Schedule 2(d)(iv) sets forth a list
of all radio stations that have executed radio program affiliation
agreements with MAI or have entered into oral radio programming affiliation
arrangements with MAI.
(e) Accounts Receivable and Receivable From Affiliate. The accounts
-------------------------------------------------
receivable reflected on the Latest MAI Financial Statements and those acquired
since such date as reflected in the books and records of MAI, subject to any
reserve for bad debts reflected on the Latest MAI Financial Statements,
constitute all of the material receivables owned by MAI.
13
<PAGE>
(f) Governmental Authority; Compliance With Law. MAI possesses all
-------------------------------------------
material permits, licenses and/or franchises from governmental agencies having
jurisdiction over it that are required for it to operate and to continue to
operate its business as it is currently being operated (the "Permits"). All of
the Permits are in full force and effect and shall remain so as of the Closing.
MAI has not received any notice from any governmental authority which would have
a Material Adverse Effect and MAI has complied in all material respects with all
statutes, regulations, rules and other orders of all governmental departments or
agencies (including, without limitation, those statutes, regulations, rules and
orders dealing with environmental matters and/or hazardous materials), the
failure to comply with which would have a Material Adverse Effect. Schedule
2(f) describes all of the Permits held by MAI.
(g) Taxes. Except as set forth on Schedule 2(g), MAI has filed returns and
-----
reports of Taxes (as hereinafter defined) required to be filed by it ("Tax
Returns") for each of its fiscal years through its last fiscal year ended
December 31, 1997 and has paid in full all Taxes to the extent such filing and
payments are required prior to the date of this Agreement. True and correct
copies of all Tax Returns, including all schedules thereto, filed since January
1, 1992 have been provided or made available to Jones. Except as set forth on
Schedule 2(g), there are no outstanding claimed deficiencies or assessments for
Taxes, or to the best knowledge of MAI or the Shareholders, claimed deficiencies
that are pending or threatened. Except as set forth on Schedule 2(g), there are
no agreements, consents or waivers extending the time for the assessment of any
Tax or Tax deficiency against it. The Latest MAI Financial Statements include
adequate reserves with respect to Taxes accrued but not yet payable prior to the
date of such Financial Statements. Except as disclosed on Schedule 2(g), none
of the Tax Returns of MAI have been audited by the United States Internal
Revenue Service or any state or local agency for any fiscal year and MAI has not
been notified in writing that any audit of a Tax Return is pending and, to the
knowledge of MAI, MAI has not been notified orally that any tax audit is
pending. MAI is, and since its inception has been, a validly electing and
existing "S corporation" under Subchapter S of the Internal Revenue Code. There
is no outstanding claim by any taxing authority that such election made by MAI
is invalid or that in any other way challenges the status of MAI as a validly
electing and existing S corporation. None of the Assets are subject to Tax
liens, except for Taxes not yet due and payable. Except as set forth on
Schedule 2(g), MAI has never been a member of a group of corporations filing
consolidated or combined returns. Except as set forth on Schedule 2(g), MAI is
not liable for the Taxes of any other person under Treasury Regulation (S)
1.1502-6 or any other similar regulation or statute. Except as set forth on
Schedule 2(g), MAI is not a party to a tax sharing agreement. As
14
<PAGE>
used in this Agreement, the term "Taxes" shall mean all federal, state, county,
local, foreign and other taxes and governmental assessments, including without
limitation income taxes, estimated taxes, withholding taxes, transfer taxes,
excise taxes, sales taxes, real and personal property taxes, ad valorem taxes,
payroll-related taxes, employment taxes, franchise taxes and import duties,
together with any related liabilities for penalties, fines or additions to tax.
To MAI's knowledge, no Tax deficiency has been asserted against any other person
for Taxes for which MAI could be held liable, and to MAI's knowledge, no such
deficiency has been threatened or is pending.
(h) Contracts and Agreements.
------------------------
(i) Schedule 2(h)(i), which will be delivered no later than ten (10)
days after the execution of this Agreement, lists every material contract
or agreement , written or oral, (including but not limited to, joint
ventures and partnerships) to which MAI is a party or is subject or by
which MAI or any of its properties is bound, and which pursuant to its
terms has not expired, terminated or been fully performed by the parties
thereto (each, a "Material Contract"), excepting those which (A) are
described on, and cross-referenced to, another Schedule hereto, or (B) were
made in the ordinary course of business and can be canceled upon 30 days'
notice or less without incurring any material penalty or material liability
for such cancellation , or (C) do not individually involve annual payments
in excess of $10,000 in any one instance or $100,000 in the aggregate, or
(D) radio program affiliation agreements executed with radio stations , or
(E) sales orders. A true and complete copy of each agreement listed on
Schedule 2(h)(i) has been or will be delivered or made available to Jones,
including every programming or similar agreement with a radio station
affiliate, whether or not material.
(ii) Each of the agreements and contracts listed on or made a part of
Schedule 2(h)(i) is a valid and binding obligation of the parties thereto
in accordance with its respective terms, except as the enforceability
thereof may be subject to, or limited by, (A) applicable bankruptcy,
insolvency, moratorium, reorganization, or similar laws in effect which
affect the enforcement of creditors' rights generally or (B) general
principles of equity, whether considered in a proceeding at law or in
equity; and there are no material liabilities, or, to the knowledge of MAI,
no liabilities, arising from any default by MAI heretofore in any of such
agreements or contracts except as set forth on Schedule 2(h)(i). Except as
set forth on Schedule 2(h)(i), MAI is not aware of any material default by
any other
15
<PAGE>
party to any of the agreements or contracts required to be listed
on Schedule 2(h)(i) or any other Schedule or of any assertion by any other
person of any default under any of such agreements or contracts.
(iii) With respect to radio program affiliation agreements executed
with radio stations, and oral radio programming affiliation arrangements, a
list of radio stations which have, as of the date hereof, executed such
agreements or entered into and are performing such arrangements, and, to
the knowledge of MAI as of the date of this Agreement, have not terminated
such contracts, has been delivered or made available to Jones.
(i) Labor, Benefit, Employment Agreements, ERISA and Employees.
----------------------------------------------------------
(i) Except as set forth on Schedule 2(i)(i), there are no
collective bargaining agreements or other labor agreements to which MAI is
a party, nor are there any pension plans or other employment, profit
sharing, 401(k), deferred compensation, bonus, stock option, stock
purchase, retainer, consultant, retirement, welfare, group medical,
disability or health insurance or incentive plans or contracts or life
insurance or other "fringe benefits" for employees. A true and complete
copy of each item listed on Schedule 2(i)(i) has been delivered or made
available to Jones. Jones shall not assume or hereby or otherwise become
obligated to pay any debt, obligation or liability arising from MAI's
employee benefit plans, or any other employment arrangement, whether for a
group of employees or a single employee, it is understood and agreed that
any obligation whether past, present or future under any such plan or
arrangement shall not be the responsibility of Jones, New Company or any
affiliate thereof.
(ii) There are no employment agreements, written or oral, now in
effect with any of the officers, directors or individual employees of MAI
except as indicated following such person's name on Schedule 2(i)(ii), true
and complete copies of each of which have been delivered or made available
to Jones. Schedule 2(i)(ii) contains a true and complete list of all
persons employed at or in connection with the operation of MAI, a list of
each such employee's current annual salary and a description of all
compensation arrangements (including bonus arrangements) and employee
benefit plans or arrangements applicable to such employees. MAI has no
16
<PAGE>
knowledge that any employee identified on such Schedule currently plans to
terminate employment, whether by reason of the transactions contemplated by
this Agreement or otherwise.
(iii) MAI has complied in all material respects with all laws
relating to the employment of labor, including, without limitation, those
laws relating to safety, health, wages, hours, unemployment insurance and
workers' compensation and has complied with all laws relating to equal
employment opportunity matters, except to the extent any non-compliance
would not have or cause a Material Adverse Effect.
(j) Litigation and Disputed Items.
-----------------------------
(i) Except as set forth in Schedule 2(j)(i), no action or proceeding
against MAI or any of its directors, officers, employees, fiduciaries or
agents is pending, or , to the knowledge of MAI, contemplated or threatened
before any court or governmental body or authority, that has an amount in
issue in excess of $20,000 individually or which would in the aggregate
exceed $75,000 or that in any manner could materially adversely affect the
business, property or prospects of MAI nor is MAI subject to any existing
judgment, order or decree of any court or federal, state or local
government (or agency thereof) affecting the operation of its business or
its assets, or which would prevent, hamper or make illegal the transactions
contemplated by this Agreement. It is understood and agreed that, except
as set forth in the last paragraph of Section 1(c) hereof, New Company and
Jones shall assume no responsibility or obligation whatsoever for any
litigation and related claims against MAI arising out of acts or omissions
occurring, or events or circumstances related to the ownership or operation
of MAI, prior to the Closing Date, nor shall New Company and Jones have any
responsibility or obligation for any costs or expenses related to any such
litigation or claims. Except as set forth in the last paragraph of Section
1(c) hereof, any such litigation, whether or not disclosed to Jones, in
----
which MAI is a party shall not become the responsibility or obligation of
Jones or New Company and the litigation shall remain with and be the sole
responsibility of MAI.
(ii) MAI is not engaged in any legal action to recover claims for
moneys due or damages sustained or to enforce any right, except as set
forth on Schedule 2(j)(ii).
17
<PAGE>
(k) Options. MAI has not granted any options, warrants or rights to
-------
acquire its stock or other securities, nor is it a party to any agreement
requiring it to issue any options, warrants, rights or other securities of MAI
or requiring MAI or its shareholders, or any of them, to sell any options,
warrants, rights or other securities of it. MAI has no securities outstanding
that are convertible into shares of any class of capital stock of MAI.
(l) No Violation of Other Instruments. Neither the execution and delivery
---------------------------------
of this Agreement nor the consummation of the transactions contemplated hereby
will (i) result in a breach of MAI's certificate of incorporation or bylaws, or
of the terms of any evidence of indebtedness or agreement to which it is a party
or by which it is bound (except for the need to obtain the consents of third
parties to transfer certain representation agreements, the procedure for which
is set forth in Section 9(h), and other agreements, copies of which have been or
will be provided to Jones and New Company); (ii) cause a default under any
mortgage or deed of trust or other lien, charge or encumbrance to which any of
its Fixtures and Equipment or leased real property is subject; (iii) conflict
with, or permit any party to declare a default under or cancel or modify any
contract to which it is a party, of which it is a beneficiary or by which it or
any of its property is bound (except for the need to obtain the consents to
transfer described in (i) above); (iv) accelerate or constitute an event
entitling the holder of any of its indebtedness to accelerate the maturity of
any of its indebtedness; or (v) result in a material violation of any judgment,
order, writ, injunction or decree of any court, commission, bureau or agency to
which it is a party or by which it is bound. Schedule 2(l) sets forth certain
material agreements of MAI (other than representation agreements) which require
the consent of a third party to the transfer of such agreement .
(m) Brokerage Commissions. Neither MAI nor the Shareholders has agreed to
---------------------
pay to any person any finder's or brokerage fee or commission in connection with
this Agreement or the transactions contemplated thereby; provided that the
Shareholders may pay a fee to T M Capital Corp.
(n) Governmental Approvals. Except (i) as set forth on Schedule 2(n) or
----------------------
(ii) pursuant to the Hart-Scott Rodino Antitrust Improvement Act of 1976, as
amended, and the rules and regulations thereunder (the "HSR Act"), no
authorization, consent, approval, license, exemption of or filing or
registration with any court or governmental department, commission, board,
bureau, agency or instrumentality, is required to be made or obtained by MAI or
the Shareholders for the execution and delivery by MAI and the Shareholders of
this Agreement and the consummation of the transactions contemplated hereby.
18
<PAGE>
(o) Transactions with Affiliates. Except as set forth in Schedule 2(o),
----------------------------
there are no loans, leases, agreements or other transactions (other than
dividends or distributions to any stockholders of MAI in his capacity as such)
between MAI and any officer or director or employee of MAI or any holder of any
class of capital stock of MAI or any member of any such officer's, director's,
employee's or stockholder's immediate family or any corporation or other entity
controlled by any such officer, director, employee or stockholder or a member of
any such officer's, director's, employee's or stockholder's immediate family. A
true and complete copy of each agreement or transaction listed in Schedule 2(o)
has been fully disclosed on such Schedule, or if the transaction is in a
document, such document has been delivered to Jones. Any such agreement or
transaction with PDG shall not be assumed by New Company without its express
written consent, specifically referring to the agreement or transaction in
question.
(p) Intellectual Property. Except as set forth on Schedule 2(p)(i), MAI
---------------------
owns or has valid and enforceable licenses or other valid and enforceable rights
to use all material copyrights, trademarks, trade names, service marks, computer
software, licenses, jingles, privileges, and other similar intangible property
rights and interests applied for, issued to or owned by it, or under which it is
licensed or franchised, which are used in the present conduct of its businesses
and operations ("Intellectual Property Rights"). Such ownership and licenses
will not cease to be valid and in full force and effect in any material respect
by reason of execution and delivery of this Agreement and consummation of the
transactions contemplated hereby. Schedule 2(p)(ii), to be delivered no later
than ten (10) days after the date of this Agreement, sets forth a list of (x)
all Intellectual Property Rights which are registered or for which applications
for registration have been made and (y) the names of programs and "Combo"
programming packages for which filing or registrations with federal, state or
local government agencies have not been made but to which MAI in good faith
believes it has valid and enforceable rights and (z) computer software, whether
developed or licensed from third parties. MAI has no knowledge of any
threatened or pending proceeding or litigation affecting or with respect to any
Intellectual Property Rights. MAI has received no notice alleging infringement
of the rights of any third party to Intellectual Property Rights or unlawful use
of such property. Except as set forth on Schedule 2(p), MAI has the right to
use the Intellectual Property Rights and has not granted any licenses or other
rights and has no obligation to grant licenses or other rights with respect
thereto to any party.
(q) Libraries and Programs. MAI has good title to all of its radio
----------------------
programs, radio services and libraries, provided that in the event MAI has less
19
<PAGE>
than the entire interest in any such program, radio service or library, Schedule
2(q) sets forth the other party or parties in interest and their respective
ownership interests, and MAI's representation herein shall apply only to extent
of its ownership interest. Schedule 2(q) sets forth the name of each such
program, service and library, and indicates the extent to which any third party
has any rights or Encumbrances with respect to such libraries or programs (other
than Permitted Encumbrances) and any other rights of any third parties with
respect to any such library or program, or any revenue therefrom.
(r) Regarding the Assets. The Assets and the Excluded Assets constitute
--------------
all of the property and assets that are used by MAI in the conduct of its
business and operations.
(s) Correctness of Representations and Warranties. No representation or
---------------------------------------------
warranty made by MAI or the Shareholders in this Agreement or in any of the
Exhibits to this Agreement contains any untrue statement of a material fact or
omits to state a material fact necessary to make such representation or warranty
not misleading. All of the facts recited with respect to MAI in any of the
Schedules attached hereto shall be deemed to be representations as to fact and
shall be as if recited in this Agreement. All the representations and
warranties herein contained shall survive any investigation made by or on behalf
of Jones and New Company.
(t) Operations from Date of Latest MAI Financial Statements to Date of this
-----------------------------------------------------------------------
Agreement. Except as set forth in Schedule 2(t), since the date of the Latest
- ---------
MAI Financial Statements, to the date of this Agreement, MAI has not:
(i) Declared or paid any dividend; redeemed any shares of its
capital stock or granted any option or other type of right to acquire any
shares of its capital stock;
(ii) Incurred any indebtedness for borrowed money or assumed,
guaranteed, endorsed or otherwise as an accommodation, became responsible
for obligations of any other individual, corporation or other entity or
organization in any one instance in excess of $20,000 or $50,000 in the
aggregate;
(iii) Other than in the ordinary course of business, sold, leased,
transferred, released, abandoned or otherwise disposed of, or entered into
any contract or license for the sale, lease or other disposition of or
granted
20
<PAGE>
any preferential right to purchase, lease or otherwise acquire, any of its
properties, rights or other assets or any interest therein or canceled,
released or assigned, any indebtedness owed to it or any claim, license or
permit held by it or released, abandoned or terminated any lease, contract,
agreement, instrument or right relating to title to or ownership of any of
its properties, rights or other assets or any interest therein;
(iv) Except for the Permitted Encumbrances, mortgaged, pledged,
hypothecated, subjected to lien or other encumbrance, or granted any
security interest in any of the Assets or any interest therein;
(v) Except in the ordinary course of business, purchased, leased
or otherwise acquired, or entered into any contract for the purchase, lease
or other acquisition of, machinery, equipment, material, products,
supplies, or other personal property or rights or services at a cost of
more than $20,000 in any one instance or more than $50,000 in the
aggregate;
(vi) Purchased, leased or otherwise acquired, or entered into any
contract for the purchase, lease or other acquisition of, any interest in
real property;
(vii) Made any investment, either by purchase of stock or other
securities, the purchase of partnership interest, contributions to capital,
transfer, merger, consolidation or otherwise, or by the purchase of any
business or any other entities.
(viii) Made any loans or advances to any individual, entity or
organization of more than $20,000 in any one instance or more than $50,000
in the aggregate unless such loan or advance was tied to a producer fee
payable to the borrower in an amount equal to, or greater than, the loan or
advance.
(ix) Entered into or engaged in any transaction with any of the
persons set forth in Schedule 2(i)(ii).
3. Representations, Warranties and Covenants of Jones and New Company.
------------------------------------------------------------------
Jones and New Company hereby jointly and severally represent, warrant and
covenant to and with MAI and the Shareholders as follows:
21
<PAGE>
(a) Due Organization; Capitalization; Articles and By-laws; Authority.
-----------------------------------------------------------------
(i) Each of Jones and New Company is duly organized, validly existing
and in good standing under the laws of Colorado. Each of Jones and New
Company has full power and authority to own, lease and operate its
properties and conduct business as presently being conducted. Each of
Jones and New Company is duly qualified to do business as a foreign entity
and is in good standing in all jurisdictions except where the failure to be
so qualified would have a material adverse effect on their business or
financial condition.
(ii) The execution and delivery of this Agreement and the consummation
of the transactions contemplated hereby have been duly authorized by the
board of managers of Jones and the board of directors of New Company, and
no other proceedings are necessary to authorize this Agreement and the
transactions contemplated hereby. This Agreement and the Ancillary
Agreements constitute (or, when executed and delivered, will constitute)
the valid and binding agreements of Jones and/or New Company, as the case
may be, enforceable in each case in accordance with their respective terms,
except as such enforcement may be limited by bankruptcy and other laws
affecting the enforceability of creditors' rights generally or laws
governing the availability of specific performance or other equitable
remedies.
(b) Brokerage Commissions. Neither Jones nor New Company has agreed to pay
---------------------
to any person any fee or commission in the nature of a finder's, broker's or
originator's fee or commission in connection with this Agreement or the
transactions contemplated thereby.
(c) Financial Statements.
--------------------
(i) Jones and New Company have heretofore delivered to MAI their
respective financial statements. For Jones, such financial statements
consist of balance sheets as of December 31, 1996 and 1997 (audited) and
statements of operations for the three years ended December 31, 1997
(audited) and a balance sheet and statement of operations for the quarters
ended March 31, 1997 and March 31, 1998 (unaudited). For New Company, such
financial statements consist of an unaudited balance sheet as of May 29,
1998. The Jones financial statements and the New Company financial
statements are hereinafter referred to as the "Jones Entities Financial
Statements".
22
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(ii) The Jones Entities Financial Statements (A) are true, correct,
complete, and accurate in all material respects and present fairly the
financial position and results of operations of the Jones Entities, as at
the dates and for the periods indicated, in accordance with generally
accepted accounting principles consistently applied; (B) reflect all known
claims against the Jones Entities and all of the Jones Entities known debts
and liabilities, fixed or contingent, and of a type required to be
disclosed in financial statements under generally accepted accounting
principles, as of the respective dates thereof; and (C) have either been
prepared, in all material respects, in compliance with Regulation S-X of
the SEC or to the extent they are not in such compliance, the Jones
Entities Financial Statements for such periods which are used for purposes
of the High Yield Offering and Exchange Offer (as set forth in Section 7)
will be in such compliance.
(iii) Neither Jones nor New Company has, nor is it subject to, any
material indebtedness or liability, contingent or otherwise, except as
disclosed or adequately and specifically reserved for in the Jones Entities
Financial Statements as at and for the period ended March 31, 1998 (the
"Latest Jones Entities Financial Statements") or indebtedness or
liabilities incurred in the ordinary course of business. Since the date of
the Latest Jones Entities Financial Statements (A) there has been no
Material Adverse Effect as to Jones or New Company, (B) neither Jones nor
New Company has paid any dividends nor made any distribution on account of
its capital stock or equity interest, (C) there has been no change in the
capitalization of Jones and New Company, (D) neither Jones nor New Company
has disposed of any material amount of assets, and (E) Jones and New
Company have conducted their respective businesses only in the ordinary
course and consistent with the manner in which such businesses were
conducted prior to that date.
(d) At the date of this Agreement, the authorized capitalization of New
Company consists of 50,000,000 shares of Class A Common Stock $.01 par value and
1,785,120 shares of Class B Stock $.01 par value, of which one share and zero
shares, respectively, are issued and outstanding. All of the outstanding shares
of New Company's Class A Common Stock and Class B Common Stock are fully paid
and non-assessable and were not issued in violation of, or subject to, any
preemptive rights. The respective rights and preferences of the two classes of
stock are set forth in the Articles of Incorporation of New Company, attached
hereto as Exhibit D. Prior to the Closing, there will be no additional
23
<PAGE>
shares or options of any class either authorized or issued and no options to
acquire shares of any class of stock of New Company will be outstanding as of
the Closing; provided (i) that Jones and/or New Company may issue equity
interests to operators of cable television systems in connection with
programming or other agreements with an affiliate of Jones (Schedule 3(d)
contains a brief description of the terms of such issuances) and (ii) New
Company will issue shares of its Class A Common Stock and Class B Common Stock
as part of the transfer of assets and liabilities to New Company described in
Section 2(d) of this Agreement and may also grant stock options to its
associates consistent with the terms of its stock option plan. Following the
Closing, (x) 2,980,953 shares of Class A Common Stock will be issued and
outstanding and held of record and beneficially owned by the persons set forth
on Schedule 3(d)(ii), and (y) 1,785,120 shares of Class B Common Stock will be
issued and outstanding and held of record and beneficially owned by the persons
set forth on Schedule 3(d)(ii). All such issued shares of Class A Common Stock
and Class B Common Stock will be fully paid and non-assessable and will not have
been issued in violation of, or subject to, any preemptive rights.
(e) No Violation of Other Instruments. Neither the execution and delivery
---------------------------------
of this Agreement nor the performance of the transactions contemplated thereby
will (i) result in a breach of the articles of incorporation or bylaws of Jones
or the organizational documents of New Company, or of the terms of any evidence
of indebtedness or agreement to which either of them is a party or by which
either of them is bound; (ii) result in a default under any mortgage or deed of
trust or other lien, charge or encumbrance to which the property of either of
them is subject; (iii) conflict with or permit any party to declare a default
under or cancel or modify any contract to which either of them is a party, of
which either of them is a beneficiary or by which either of them or any of their
respective properties is bound; (iv) accelerate or constitute an event entitling
the holder of any indebtedness of either of them to accelerate the maturity of
any indebtedness of either of them; or (v) result in a material violation of any
judgment, order, writ, injunction or decree of any court, commission, bureau or
agency to which either of them is a party or by which either of them is bound.
Notwithstanding the foregoing, it is understood and agreed that the credit
facility of Jones may require modification or may be terminated in order to
accommodate the transactions contemplated by this Agreement.
(f) Governmental Approvals. Except pursuant to the HSR Act, no
----------------------
authorization, consent, approval, license, exemption of or filing or
registration with any court or governmental department, commission, board,
bureau, agency or instrumentality, domestic or foreign, is or will be necessary
for the execution
24
<PAGE>
and delivery by Jones and New Company of this Agreement and the consummation of
the transactions contemplated hereby.
(g) Validity of Shares to be Issued. The shares of Class A Common Stock
-------------------------------
$.01 par value of New Company to be issued to MAI pursuant to this Agreement
have been duly authorized and when issued in accordance with this Agreement will
be duly and validly issued shares of New Company, fully paid and non-assessable,
subject to no Encumbrances (other than as set forth in the Ancillary
Agreements).
(h) Articles and Bylaws. The copy of New Company's Articles of
-------------------
Incorporation, certified by its Secretary, and the copy of its bylaws, certified
by its Secretary, as heretofore delivered or made available to MAI, are complete
and accurate (in each case as amended to date). New Company's stock ledger
books accurately reflect the names of the record holders of its shares of
capital stock and the number of shares of its capital stock held by each record
holder. True and correct copies of such stock ledger books have been made
available to MAI.
(i) Governmental Authority; Compliance With Law. Jones and New Company
-------------------------------------------
possess all material permits, licenses and/or franchises from governmental
agencies having jurisdiction over them that are required for them to operate and
to continue to operate their business as it is currently being operated (the
"Jones Permits"). All of the Jones Permits are in full force and effect and
shall remain so as of the Closing. Neither Jones nor New Company has received
any notice from any governmental authority which would have a Material Adverse
Effect and New Company has complied in all material respects with all statutes,
regulations, rules and other orders of all governmental departments or agencies
(including, without limitation, those statutes, regulations, rules and orders
dealing with environmental matters and/or hazardous materials), the failure to
comply with which would have a Material Adverse Effect.
(j) Litigation and Disputed Items. Except as disclosed to MAI, no action
-----------------------------
or proceeding against New Company or Jones or any of its directors, officers,
employees, fiduciaries or agents is pending, or, to the knowledge of New Company
or Jones, contemplated or threatened before any court or governmental body or
authority, that has an amount in issue in excess of $20,000 individually or
which would in the aggregate exceed $75,000 or that in any manner could
materially adversely affect the business, property or prospects of New Company,
nor is New Company subject to any existing judgment, order or decree of any
court or federal, state or local government (or agency thereof) affecting the
25
<PAGE>
operation of its business or its assets, or which would prevent, hamper or make
illegal the transactions contemplated by this Agreement.
(k) Options. Except as contemplated by, or referred to in, this Agreement
-------
or any Schedule or Exhibit hereto, New Company has not granted any options,
warrants or rights to acquire its stock or other securities, nor is it a party
to any agreement requiring it to issue any options, warrants, rights or other
securities of New Company or requiring New Company or its shareholders, or any
of them, to sell any options, warrants, rights or other securities of it.
Except for its shares of Class B Common Stock which are convertible into shares
of Class A Common Stock, New Company has no securities outstanding that are
convertible into shares of any class of capital stock of New Company. After the
Closing, the Global Group note referred to in Recital C is convertible into
shares of Class A Common Stock at $15 per share.
(l) Correctness of Representations and Warranties. No representation or
---------------------------------------------
warranty made by Jones or New Company in this Agreement contains any untrue
statement of a material fact or omits to state a material fact necessary to make
such representation or warranty not misleading. All representations and
warranties of Jones and New Company herein contained shall survive any
investigation made by or on behalf of MAI.
4. Covenants and Agreements of MAI.
-------------------------------
MAI covenants and agrees that, from and after the date of this Agreement
and through (i) the termination of this Agreement or (ii) the Closing, whichever
shall first occur:
(a) Access. It will, upon reasonable notice, permit Jones and its
------
authorized representatives to have access to its premises and to inspect the
Books and Records of MAI during regular business hours and will make available
to Jones such financial and operating data and other information with respect to
the business and properties of MAI as Jones reasonably shall request, including
all working papers pertaining to examinations made by its auditors and
accountants. Notwithstanding the foregoing, MAI shall not be obligated to
provide Jones with any information (i) that would violate any law, rule or
regulation or term of any Material Contract or (ii) if the provision thereof
would adversely affect the ability of MAI or the Shareholders to assert
attorney-client, attorney work product or other similar legal privilege. Any
disclosure whatsoever during such investigation by Jones and its authorized
representatives (who may be required to enter into a confidentiality agreement
or agreements directly with MAI) shall not constitute an
26
<PAGE>
enlargement of, or additional, representations or warranties of MAI or the
Shareholders beyond those specifically set forth in this Agreement.
(b) Satisfaction of Conditions. MAI will use its reasonable best efforts
--------------------------
to cause the satisfaction of the conditions precedent contained in this
Agreement and to bring about the transactions contemplated by this Agreement as
soon as practicable. Notwithstanding the foregoing, nothing contained herein
shall require MAI to enter into any agreement or arrangement for the High Yield
Offering on terms that are not reasonably satisfactory to it.
(c) Payment of Bank Loans. Prior to Closing, MAI shall pay in full all
---------------------
indebtedness owed by it to any bank or financial institution ("Bank Loans") and
MAI shall obtain a complete release of any and all liens on the Assets.
(d) Operations Prior to the Closing.
-------------------------------
Prior to the Closing, except in accordance with prior approval of
Jones, which approval shall not be unreasonably withheld:
(i) MAI will carry on its business in the same manner as was
conducted immediately prior to the date of this Agreement and will not make
any purchase or sale or enter into any transaction or execute any agreement
or incur any obligation or liability or introduce any method of management
or operation in respect of any such business or properties, except in the
ordinary course of business as heretofore conducted (and in every case,
only in accordance with and subject to the other restrictions of this
Agreement).
(ii) MAI will use its reasonable best efforts to maintain and
preserve intact its business organization and relationship with employees,
advertisers, advertising agencies, suppliers and customers and others
having business relations with it.
(iii) MAI will not declare or pay any dividends in respect of its
capital stock or purchase or redeem any shares of any of its capital stock
or make, or permit any of its Subsidiaries to make, any loans or
distributions or capital contributions of any kind to any persons other
than MAI, including, without limitation, to its shareholders or
Subsidiaries.
(iv) MAI will not, without the written consent of Jones, which
consent will not be unreasonably withheld, discharge or satisfy any
material
27
<PAGE>
lien or encumbrance, or pay or perform any material obligation or liability
other than (A) current liabilities, (B) tax liabilities or current
assessments, as set forth on the Latest MAI Financial Statements, or
current liabilities, tax liabilities or current assessments incurred since
the date of the Latest MAI Financial Statements in the ordinary course of
business, (C) income tax liabilities, (D) the repayment of Bank Loans prior
to or at the Closing in accordance with the provisions hereof, and (E) any
such discharge, satisfaction, payment or performance in the ordinary course
of business consistent with past practice, and (F) of liens, encumbrances,
obligations or Liabilities disclosed on the Schedules.
(v) Except as specifically contemplated hereby or unless the prior
written approval to do so has been received by MAI from Jones, which
approval will not be unreasonably withheld, MAI will not:
(A) Make any change in its articles or certificate of
incorporation or bylaws;
(B) Issue or sell, or issue or grant any options, warrants, calls
or other rights to purchase or subscribe to, any of its unissued or
treasury stock or any other equity or debt securities or make any
change in its capital structure;
(C) Other than in the ordinary course of business, enter into (i)
any contract which commits it for a fixed term (unless such term is
terminable by it without penalty on not more than 30 days' notice), or
(ii) any agreement with any labor union or other bargaining agent or
unit:
(D) Prepay any obligations, except in the ordinary course of
business;
(E) Incur any indebtedness for borrowed money or assume,
guarantee, endorse or otherwise as an accommodation become responsible
for obligations of any other individual, corporation or other entity
or organization (except for endorsement for collection or deposit of
negotiable instruments received in the ordinary course of business);
(F) Other than in the ordinary course of business, sell, lease,
transfer, release, abandon or otherwise dispose of, or enter
28
<PAGE>
into any contract or license for the sale, lease or other disposition
of or grant any preferential right to purchase, lease or otherwise
acquire, any of its properties, rights or other assets or any interest
therein or cancel, release or assign any indebtedness owed to it or
any claim, license or permit held by it or release, abandon or
terminate any lease, contract, agreement, instrument or right relating
to title to or ownership of any of its properties, rights or other
assets or any interest therein;
(G) Mortgage, pledge, hypothecate, subject to lien or other
encumbrance, (other than the Permitted Encumbrances) or grant any
security interest in any of its properties, rights or other assets or
any interest therein;
(H) Purchase, lease or otherwise, acquire, or enter into any
contract for the purchase, lease or other acquisition of, machinery,
equipment, material, products, supplies, other personal property or
rights or services, except in the ordinary course of business;
(I) Purchase, lease or otherwise acquire, or enter into any
contract for the purchase, lease or other acquisition of, any interest
in real property;
(J) Make any investment either by the purchase of stock or other
securities, the purchase of partnership interests, contributions to
capital, transfer, merger, consolidation or otherwise, or by the
purchase of any real property or business of, any other individual or
entity;
(K) Increase (except providing on an employee's employment
anniversary date a salary raise not to exceed six percent) in any
manner the compensation of any of its officers, managers, employees or
consultants; enter into or adopt, or make or commit itself or make any
contribution to, any pension plan, retirement plan, bonus plan, profit
sharing plan, stock purchase plan, insurance plan or other employee
benefit plan or agreement, except for the matching payment and any
additional payments agreed to by Jones and New Company under MAI's
401(k) plan and deferred compensation plan, consistent with past
practice and amounts contributed; enter into or commit itself to any
employment
29
<PAGE>
agreement, management agreement or consulting agreement with or for
the benefit of any person;
(L) Except as permitted by (K) above, agree to any changes to the
compensation arrangements outlined on Schedule 2(i)(ii) hereto;
(M) Make any loans or advances (except in the case of normal
business travel and expense advances) to any individual, entity or
organization unless such loan is less than $20,000 in any one instance
or $50,000 in the aggregate and is tied to a producer fee payable to
the borrower in an amount equal to, or greater than, the loan or
advance;
(N) Take or permit any action within its control inconsistent
with the consummation of the transactions contemplated hereby;
(O) Merge or consolidate with any other entity or agree to do so,
or to conduct any discussions or negotiations with respect thereto;
(P) Except with respect to transactions with Promotion
Development Group on terms, conditions and amounts consistent with
past practice, enter into any transaction, including, without
limitation, any loans or extensions of credit, with any officer or
director of MAI , or any member of their respective immediate families
or any corporation or other entity directly or indirectly controlled
by one or more of such officers or directors or members of their
immediate families.
(e) Name Change Filing. At least three (3) days prior to the Closing, MAI
------------------
and the Shareholders will deliver to Jones a duly executed and acknowledged
certificate of amendment to MAI's certificate of incorporation or other
appropriate document which is required to change MAI's corporate name to a new
name bearing no resemblance to its present name so as to make MAI's name
available to New Company under the terms of this Agreement. New Company is
hereby authorized to file such certificate or other document in order to
effectuate such change of name at or after the Closing as New Company shall
elect.
30
<PAGE>
(f) Bulk Sales Law Compliance. New Company hereby waives compliance by MAI
-------------------------
with the provisions of the Bulk Sales Law of any state (if applicable), and MAI
warrants and agrees to pay and discharge when due all claims of creditors which
could be asserted against New Company by reason of such non-compliance to the
extent that such liabilities are not specifically assumed by New Company under
this Agreement.
(g) Investment Representations. The shares of Class A Common Stock of New
--------------------------
Company to be issued under this Agreement have not been registered under the
Securities Act of 1933, as amended, or under any state securities laws.
Accordingly, MAI understands and agrees that it is acquiring such shares for
investment and it may not sell, transfer, or convey any interest in or to such
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. Any certificates representing
the shares shall bear a legend to the foregoing effect and the transfer records
of New Company shall be noted to the same effect. MAI represents that it is an
"accredited investor" within the meaning of the Securities Act of 1933 and the
rules and regulations thereunder. MAI further represents that it has received a
Memorandum describing in detail the business, assets and financial condition of
Jones and New Company and that it had the opportunity to ask questions of, and
to obtain information from, representatives of Jones regarding the business,
assets and financial condition of Jones and New Company.
(h) Authorization to Collect Accounts Receivable. Subject to the Closing,
--------------------------------------------
MAI agrees that, following the Closing (i) New Company shall have the right and
authority to collect for its own account all receivables and other items
included in the Assets and (ii) it will endorse with the name of MAI any checks
received on account of any such receivables or other items. MAI agrees that it
will promptly transfer and deliver to New Company any cash or other property
which MAI may receive after the Closing in respect of such receivables or other
items.
(i) Updated Schedules. Not less than five days prior to Closing, MAI will
-----------------
deliver to Jones and New Company revised copies of the Schedules which shall
have been updated to show any changes occurring between the date of this
Agreement and two (2) days prior to the date of such delivery and any
corrections to the Schedules in the form originally attached to this Agreement,
which would have been required to have been disclosed on such Schedules in
accordance with the provisions of this Agreement if the matters being so
disclosed had been known on the date of this Agreement; provided, however, that
for purposes of the
31
<PAGE>
representations, warranties and covenants in this Agreement of MAI and the
Shareholders, including the indemnification provisions set forth in Section 14,
all references to the Schedules will mean the version of the Schedules attached
to this Agreement on the date of signing (except for Schedule 2(h)). The
occurrence of the Closing shall not constitute the waiver by Jones and New
Company of their rights to assert that an item on any updated Schedule or the
Schedules delivered subsequent to execution of this Agreement is an Excluded
Asset or Excluded Liability.
5. Covenants and Agreements of the Shareholders.
--------------------------------------------
(a) Concerning MAI. The Shareholders agree to use their reasonable best
--------------
efforts to cause MAI to perform in all respects its covenants, agreements, and
obligations under this Agreement. The Shareholders further agree to vote (by
consent or otherwise) all shares of MAI as to which they have voting control
and/or beneficial ownership in favor of this Agreement and the transactions
contemplated thereby. Notwithstanding the foregoing, nothing contained herein
shall require either of the Shareholders to enter into any agreement or
arrangement for the High Yield Offering on terms that are not reasonably
satisfactory to such Shareholder.
(b) Exclusivity. Prior to 11:59 P.M., Denver time on the Closing Date,
-----------
(the "Exclusivity Period"), the Shareholders shall not, directly or indirectly,
through any employee, legal or financial advisor or other agent or otherwise,
solicit, initiate or encourage submission of, proposals or offers from any
person relating to any acquisition or purchase of all or a portion of the assets
of, or any equity interest in, MAI or any business combination with MAI or in
any shares of MAI held by the Shareholders or participate in any negotiations
regarding, or furnish to any other person any information with respect to, or
otherwise cooperate in any way with, or assist or participate in, facilitate or
encourage, any effort or attempt by any other person to do or seek any of the
foregoing. The Shareholders shall immediately cease and cause to be terminated
any existing discussions or negotiations with any parties conducted heretofore
with respect to any of the foregoing. The Shareholders shall promptly notify
Jones if any such proposal or offer, or any inquiry or contact with any person
with respect thereto, is made and shall, in any such notice to Jones indicate in
reasonable detail the nature of the offeror and the terms and conditions of any
proposal or offer, or any such inquiry or contact.
32
<PAGE>
6. Covenants and Agreements of Jones and New Company.
-------------------------------------------------
(a) Satisfaction of Conditions. Jones and New Company will use their
--------------------------
reasonable best efforts to cause the satisfaction of the conditions precedent
contained in this Agreement and to bring about the transactions contemplated by
this Agreement as soon as practicable. Notwithstanding the foregoing, nothing
contained herein shall require Jones or New Company or their affiliates to enter
into any agreement or arrangement for the High Yield Offering on terms that are
not reasonably satisfactory to them, it being agreed that the terms set forth in
the term sheet of April 21, 1998 provided to Jones in respect of the High Yield
Offering (the "Terms Sheet") are acceptable to Jones and New Company.
(b) Access. Jones and New Company will, upon reasonable notice, permit
------
MAI and its authorized representatives to have access to their premises and
books and records of Jones and New Company during regular business hours and
will make available to MAI such financial and operating data and other
information with respect to the business and properties of Jones and New Company
as MAI reasonably shall request, including all working papers pertaining to
examinations made by its auditors and accountants. Notwithstanding the
foregoing, Jones and New Company shall not be obligated to provide MAI with any
information (i) that would violate any law, rule or regulation or term of any
material contract of either of them or (ii) if the provision thereof would
adversely affect the ability of Jones or New Company to assert attorney-client,
attorney work product or other similar legal privilege. Any disclosure
whatsoever during such investigation by MAI and its authorized representatives
(who may be required to enter into a confidentiality agreement or agreements
with Jones and New Company directly) shall not constitute an enlargement of, or
additional, representations or warranties of Jones or New Company beyond those
specifically set forth in this Agreement.
(c) Employment Offers. Upon and subject to the Closing, New Company will
-----------------
make offers of employment to employees of MAI (except the Shareholders, who are
to have written employment agreements and except as the parties may agree) (the
"Employees"), the names of whom are set forth on Schedule 6(c) on the same cash
salary basis as now exists for such persons, but with the benefits package
available to other Jones employees; provided that the period of prior service
with MAI shall be taken into account in determining the period of vacation an
Employee shall receive and with respect to the Company's 401(k) plan, if such
plan can reasonably be amended to allow such prior service credit.
33
<PAGE>
(d) Consultation With MAI. Jones and New Company agree to notify MAI of
---------------------
any transaction which is out of the ordinary course of business that it proposes
to enter into between the date of this Agreement and the Closing Date and Jones
and New Company shall consult with MAI with respect to such transaction, but
such consultation shall be for information purposes only.
(e) Substituted Letter of Credit. Promptly after the Closing, New Company
----------------------------
shall arrange for a substituted letter of credit to replace the MAI letter of
credit which is security for the performance of the lease on MAI's New York City
office.
(f) Consents. MAI shall use its best efforts (without the requirement,
--------
directly or indirectly, of payment to any of the other parties to the
agreements, unless MAI and New Company mutually agree to such payment) to obtain
consents with respect to MAI's advertising representation agreements. In
addition, MAI and New Company shall in good faith enter into an agreement at
Closing in form and substance satisfactory to the parties (the "Management
Agreement") for the purpose of setting forth how MAI shall service the accounts
represented by the representation agreements as to which consent to transfer has
not been received and the procedures for prompt collection and remittal of the
net revenues from such accounts to New Company.
With respect to obtaining consents for the transfer of all other agreements
of MAI which require such consents (other than advertising representation
agreements), MAI shall use its best efforts (without the requirement, directly
or indirectly, of payment to any of the other parties to the agreements, unless
MAI and New Company mutually agree to such payment) both before and after
Closing, to obtain consents to transfer all such agreements, and MAI shall
notify New Company no less frequently than monthly as to the status of obtaining
such consents. All such other agreements for which consents to transfer have
not been obtained shall be administered pursuant to the provisions of the
Management Agreement.
7. The High Yield Offering.
-----------------------
(a) Nature of the Offering. Jones and New Company intend that New Company
----------------------
will make either a private offering or an offering under Rule 144A under the
Securities Act of 1933, as amended, of debt securities in an amount intended to
provide at least seventy million dollars of net proceeds (the "High Yield
Offering"). The terms of the High Yield Offering will require New Company to
thereafter make an exchange offer to the purchasers of the high yield
34
<PAGE>
securities, which offer is to be registered under the Securities Act of 1933
(the "Exchange Offer"). The terms and conditions of the High Yield Offering
(other than those set forth in the Terms Sheet) must be acceptable to Jones and
New Company in their reasonable discretion, it being understood and agreed that
any features, including without limitation, an offering, amount, an interest
rate or an equity feature not set forth in the Term Sheet , shall not be
required to be accepted by Jones and New Company. Subject to the foregoing and
subject to Sections 4(b), 5(a) and 6(a), the parties to this Agreement agree to
use all reasonable efforts (including the provision of information for inclusion
in offering documents and related material and assistance in the due diligence
process) to complete and close the High Yield Offering by July 31, 1998, it
being understood and agreed that part of the proceeds from the High Yield
Offering will be used to make the payment of the cash portion of the Exchange
Consideration. It is also understood and agreed that the debtor with respect to
the High Yield Offering will be the same entity that issues the non-cash portion
of the Exchange Consideration.
(b) Reimbursement of Certain Expenses. If the High Yield Offering has not
---------------------------------
been completed and closed by July 31, 1998 (unless such date has been mutually
extended by the parties), Jones will reimburse MAI for the reasonable out-of-
pocket expenses of MAI for audit and legal costs attributable to the High Yield
Offering which would not otherwise have been incurred (but not with respect to
any other transaction contemplated by this Agreement).
(c) Availability of Underwriters. Jones agrees to use its best efforts to
----------------------------
make the underwriters of the High Yield Offering reasonably available upon
notice by the Shareholder for discussions with the Shareholders regarding the
High Yield Offering. Such availability may be by telephone.
8. Conditions to Obligations of MAI and the Shareholders.
-----------------------------------------------------
The obligations of MAI and the Shareholders to consummate the transactions
contemplated hereby are subject to the satisfaction on or prior to the Closing
of all of the following conditions precedent, compliance with which or the
occurrence of which may be waived in whole or in part by MAI and the
Shareholders in writing.
(a) Accuracy of Representations, Warranties and Covenants.
-----------------------------------------------------
(i) Except for any representations and warranties regarding the Jones
Entities Financial Statements which are made as of a specific date, in
which case such representations or warranties shall be true and correct as
35
<PAGE>
of such date, all representations and warranties of Jones and New Company
contained in this Agreement shall be true and correct on and as of the
Closing Date, with the same effect as though the same had been made on and
as of the Closing Date, except for any changes which would not individually
or in the aggregate have a Material Adverse Effect .
(ii) Jones and New Company shall have performed and satisfied, in
all material respects, all agreements, covenants, and conditions required
by the Agreements to be performed or satisfied by them on or prior to the
Closing Date.
(iii) There shall have been delivered to MAI and the Shareholders on
the Closing Date certificates dated as of the Closing Date from officers of
Jones and New Company certifying that Jones and New Company, respectively,
have complied with their obligations under this Section.
(b) Absence of Litigation. On the Closing Date, there shall not be pending
---------------------
or threatened litigation in any court, or any proceeding by any governmental
commission, board or agency, with a view to seeking or in which it is sought to
restrain or prohibit consummation of this Agreement or in which it is sought to
obtain divestiture, rescission or damages in connection with this Agreement,
and, to the knowledge of any of the parties hereto, no investigation by any
governmental agency shall be pending or threatened which might eventuate in any
such suit, action or other proceeding.
(c) Validity of Transactions. The form and substance of certificates and
------------------------
other documents to be delivered to MAI and the Shareholders hereunder shall be
reasonably satisfactory in all material respects to MAI and the Shareholders.
(d) No Material Adverse Effect, Officers' Certificate. During the period
-------------------------------------------------
from the date of the Latest Jones Entities Financial Statements to the Closing
Date, there shall not have been any Material Adverse Effect with respect to
Jones or New Company. MAI shall have received a certificate dated the Closing
Date, signed by the President and Chief Financial Officer of Jones and New
Company, certifying to the foregoing effect.
(e) Opinion of Counsel.
------------------
(i) Jones and New Company shall have furnished MAI and the
Shareholders with an opinion of Elizabeth M. Steele, Esq., their General
Counsel, dated as of the Closing Date and addressed to MAI and
36
<PAGE>
the Shareholders, concerning the matters set forth below. In preparation of
such opinion, counsel may (A) rely without investigation upon
representations and warranties of Jones and New Company contained in this
Agreement as to matters of fact that do not involve conclusions of law and
upon certificates of appropriate officers thereof and certificates of
governmental authorities as to certain matters of fact and (B) may have
such other qualifications and exemptions which are normal or appropriate
for opinions of the type described herein. The opinion shall be
substantially to the effect that:
(A) Each of Jones and New Company is organized and validly
existing and in good standing under the laws of Colorado and each of
Jones and New Company has all requisite powers under the laws of
Colorado to own its assets and conduct its business as it is presently
being conducted.
(B) At the time of the Closing Date, the consummation of the
transactions contemplated by this Agreement will not result in a
breach of organizational documents of Jones or the articles of
incorporation or bylaws of New Company.
(C) The execution and delivery by each of Jones and New Company
of this Agreement and each Ancillary Agreement to which it is a party
and the consummation of the transactions contemplated hereby have been
duly and validly authorized by all necessary action on the part of
Jones and New Company; they each have requisite power and authority to
execute and deliver this Agreement and to perform their respective
obligations thereunder, and this Agreement is enforceable against them
in accordance with their respective terms, subject to or limited by,
(A) applicable bankruptcy, insolvency, moratorium, reorganization,
fraudulent conveyance or similar laws in effect which affect the
enforcement of creditors' rights generally or (B) general principles
of equity, whether considered in a proceeding at law or in equity.
(D) New Company has an authorized capital as set forth in this
Agreement. All of the outstanding shares of New Company's Class A
Common Stock and Class B Common Stock are fully paid and non-
assessable, and were not issued in violation of or subject to any
preemptive rights. Upon issuance pursuant to the term of this
Agreement, the shares of Class A Common Stock $.01 par value of
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<PAGE>
New Company to be issued to MAI under this Agreement will be duly and
validly issued shares of New Company, fully paid and non-assessable,
and will not have been issued in violation of, or subject to, any
preemptive rights.
(E) No consent, approval, authorization or order of any court or
governmental agency of the United States or the State of Colorado,
which has not been obtained, is required to be obtained by Jones or
New Company for the consummation at Closing by Jones or New Company of
the transactions contemplated by this Agreement other than filings
required in connection with or in compliance with the provisions of
the HSR Act and other filings that have been made or obtained.
(f) Completion of the High Yield Offering. The High Yield Offering shall
-------------------------------------
have been completed and closed or shall be completed and closed
contemporaneously with the Closing.
(g) Hart-Scott-Rodino Waiting Period. All applicable waiting periods (and
--------------------------------
any extensions thereof) under the HSR Act shall have expired or otherwise been
terminated.
9. Conditions to Obligations of Jones and New Company.
--------------------------------------------------
The obligations of Jones and New Company to consummate the Closing under
this Agreement are subject to the satisfaction on or prior to the Closing of all
of the following conditions precedent, compliance with which or the occurrence
of which may be waived in whole or in part by Jones and New Company in writing:
(a) Accuracy of Representations, Warranties and Covenants.
-----------------------------------------------------
(i) Except for any representations and warranties regarding the MAI
Financial Statements which are made as of a specific date, in which case
such representations or warranties shall be true and correct as of such
date, all representations and warranties of MAI and the Shareholders
contained in this Agreement shall be true and correct on and as of the
Closing Date, with the same effect as though the same had been made on and
as of the Closing Date, except for any changes which would not,
individually or in the aggregate, have a Material Adverse Effect, and the
38
<PAGE>
Schedules provided by MAI and the Shareholders shall likewise be true and
correct in every material respect on and as of the Closing Date.
(ii) MAI and the Shareholders shall have performed and satisfied, in
all material respects, all agreements, covenants and conditions required by
this Agreement to be performed or satisfied by them on or prior to the
Closing Date.
(iii) There shall have been delivered to Jones on the Closing Date
(A) a certificate of the Chairman, the President and the Controller of MAI
dated as of the Closing Date certifying that MAI has complied with its
obligations under this Section and (B) a certificate of the Shareholders
dated the Closing Date certifying that the Shareholders have complied with
their obligations under this Section.
(b) Absence of Litigation. On the Closing Date, there shall not be pending
---------------------
or threatened litigation in any court, or any proceeding by any governmental
commission, board or agency, with a view to seeking or in which it is sought to
restrain or prohibit consummation of this Agreement or in which it is sought to
obtain divestiture, rescission or damages in connection with this Agreement,
and, to the knowledge of any of the parties hereto, no investigation by any
governmental agency shall be pending or threatened which might eventuate in any
such suit, action or other proceeding.
(c) Validity of Transactions. The form and substance of certificates and
------------------------
other documents to be delivered to Jones and New Company hereunder shall be
reasonably satisfactory in all material respects to Jones and New Company.
(d) No Material Adverse Change, Officers' Certificate. During the period
-------------------------------------------------
from the date of the Latest MAI Financial Statements to the Closing Date, there
shall not have been any Material Adverse Effect and there shall not have
occurred any material destruction, loss or damage to the Assets, whether or not
insured. Jones and New Company shall have received a certificate dated the
Closing Date, signed by the Chairman, President and Controller of MAI,
certifying to the foregoing effect.
(e) Opinion of Counsel.
------------------
(i) MAI shall have furnished Jones with an opinion of Fried, Frank,
Harris Shriver and Jacobson, its counsel, dated as of the Closing Date and
addressed to Jones and New Company, concerning the matters set
39
<PAGE>
forth below. In preparation of such opinion, counsel may (A) rely without
investigation upon representations and warranties of MAI and of the
Shareholders contained in this Agreement as to matters of fact that do not
involve conclusions of law and upon certificates of appropriate officers of
MAI and certificates of governmental authorities as to certain matters of
fact, (B) assume for the purposes of such opinion that this Agreement and
each of the Ancillary Agreements are governed by the laws of the State of
New York and (C) have such other qualifications and exemptions which are
normal or appropriate for opinions of the type described herein. The
opinion shall be substantially to the effect that:
(A) MAI is a corporation organized and validly existing and in
good standing under the laws of the State of New York and has all
requisite corporate powers under the laws of the State of New York to
own the Assets and conduct its business as it is presently being
conducted.
(B) At the time of the Closing Date, the consummation of the
transactions contemplated by this Agreement will not result in a
breach of the certificate of incorporation or bylaws of MAI.
(C) The execution and delivery by each of MAI and the
Shareholders of this Agreement and each Ancillary Agreement to which
it is a party and the consummation of the transactions contemplated
hereby and thereby have been duly and validly authorized by all
necessary action on the part of MAI and the Shareholders,
respectively. Each of MAI and the Shareholders has requisite power and
authority to execute and deliver each of this Agreement and each of
the Ancillary Agreements to which it is a party and to perform its
obligations thereunder, and this Agreement and each of the Ancillary
Agreements to which it is a party are enforceable against MAI and the
Shareholders in accordance with its terms, subject to, or limited by,
(A) applicable bankruptcy, insolvency, moratorium, reorganization,
fraudulent conveyance or similar laws in effect which affect the
enforcement of creditors' rights generally or (B) general principles
of equity, whether considered in a proceeding at law or in equity.
(D) No consent, approval, authorization or order of any court or
governmental agency of the United States of America or the State of
New York, which has not been obtained, is required to be
40
<PAGE>
obtained by MAI or the Shareholders for the consummation at Closing by
MAI or the Shareholders of the transactions contemplated by this
Agreement other than filings required in connection with or in
compliance with the provisions of the HSR Act and other filings that
have been made or obtained.
(f) Completion of the High Yield Offering. The High Yield Offering shall
-------------------------------------
have been completed and closed or shall be completed and closed
contemporaneously with the Closing.
(g) Hart-Scott-Rodino Waiting Period. All applicable waiting periods (and
--------------------------------
any extensions thereof) under the HSR Act shall have expired or otherwise been
terminated.
(h) Consents. It shall be a condition of Closing that MAI obtain consents
--------
(in form and substance satisfactory to Jones and New Company) from those parties
to advertising representation agreements with MAI (other than (x) Radio-Active
Media, Inc. (formerly known as EFM Programming, Inc.), (y) Innerview and (z)
Jones affiliates) constituting 1998 budgeted commission revenue of $4.509
million (the "Required Consents"). Exhibit J sets forth the 1998 budgeted
commission revenues for the representation agreements described or provided for
therein. If MAI enters into any new representation agreements prior to Closing,
the parties will agree in good faith on the 1998 budgeted commission revenue
amount with respect to those representation agreements. Except for obtaining a
UCC termination statement and lien release from Chemical Bank, no other consents
shall be a condition of Closing.
10. The Closing.
-----------
The Closing hereunder shall be held at 9:00 a.m. local time approximately
contemporaneously with the closing of the High Yield Offering, but not later
than July 31, 1998 (unless the parties agree to an extension of such date) at
the offices of Jones, 9697 East Mineral Avenue, Englewood, Colorado 80112, or at
such other time, date and place as the parties shall agree (the date of such
Closing being herein called the "Closing Date"). At the Closing, the parties
shall deliver the following:
(a) MAI shall deliver such suitable transfer documents as Jones or New
Company may require pursuant to which the Assets are conveyed to New Company.
41
<PAGE>
(b) New Company shall deliver (i) one or more documents whereby it agrees
to assume the Liabilities after the Closing, (ii) the cash portion of the
purchase price for the Assets by wire transfer to an account designated in
writing by MAI, and (iii) a certificate for the shares of Class A Common Stock
to be delivered to MAI at Closing.
(c) The parties thereto shall deliver the Employment Agreements between New
Company and each of the Principals in the form set forth as Exhibits F-1 and F-2
hereto.
(d) The Shareholders, MAI and the various Jones entities shall deliver the
Post-Closing Agreement in the form set forth as Exhibit G hereto.
(e) New Company and MAI shall deliver the Registration Rights Agreement in
the form set forth as Exhibit H hereto.
(f) The various closing documents contemplated by Sections 8(e) and 9(e) of
this Agreement.
(g) Each of Jones, MAI and New Company shall execute and deliver a Section
351 Plan in the form of Exhibit I hereto and New Company and Jones shall deliver
the items to be transferred, as contemplated by the Section 351 Plan.
11. Survival of Representations and Warranties.
------------------------------------------
All representations, warranties and covenants in the Agreements or in any
closing certificate delivered pursuant to the provisions of this Agreement shall
be continuing and shall survive the Closing for a period of two (2) years,
except for any representations, warranties and covenants set forth in Sections
1(h) or 2(g) or regarding environmental matters, which shall survive until the
end of the applicable statutes of limitation, and the Section 351 Plan shall
survive in accordance with its terms; and except that the obligations under
Section 15 shall survive for a period of three (3) years from Closing or
termination.
12. Expenses.
--------
Costs and expenses relating to the transactions contemplated by this
Agreement shall be borne and paid by each of Jones and New Company, on the one
hand, and MAI and the Shareholders, on the other hand, incurring such costs and
expenses or on whose behalf such expenses are incurred except as otherwise
provided in this Agreement.
42
<PAGE>
13. Termination.
-----------
(a) This Agreement may be terminated and the transactions contemplated by
this Agreement may be abandoned at any time prior to the Closing:
(i) By the mutual written consent of MAI, the Shareholders and
Jones;
(ii) By MAI and the Shareholders in the event that any condition to
their obligations set forth in Section 8 has not been fulfilled at or prior to
the Closing, provided that, if there shall have been a material breach by Jones
or New Company of any of their representations, warranties, covenants or
agreements contained herein and such breach results in a failure to satisfy a
condition to their obligations set forth in Section 8, and such breach can be
remedied with diligent effort in period set forth in this sentence, this
Agreement cannot be terminated for a period, not to exceed three (3) days if a
longer cure period affects the timing of the pricing of the High Yield Offering
or fifteen (15) days otherwise, as may be necessary to remedy such breach after
notice of such breach to Jones and New Company.
(iii) By Jones and New Company in the event that any condition to
their obligations set forth in Section 9 has not been fulfilled at or prior to
the Closing, provided that, if there shall have been a material breach by either
of MAI or the Shareholders of any of its representations, warranties, covenants
or agreements contained herein and such breach results in a failure to satisfy a
condition to their obligations set forth in Section 9, and such breach can be
remedied with diligent effort in the period set forth in this sentence, this
Agreement cannot be terminated for a period, not to exceed three (3) days if a
longer cure period affects the timing of the pricing of the High Yield Offering
or fifteen (15) days otherwise, as may be necessary to remedy such breach after
notice of such breach to MAI or the Shareholders, as the case may be.
(iv) By the Shareholders and MAI or by Jones and New Company, if the
High Yield Offering has not been completed and closed by July 31, 1998, unless
all parties have agreed to a later date.
(b) The right to terminate this Agreement shall be exercised by written
notice from the terminating party to the other party or parties, which notice
shall specify in reasonable detail the basis upon which the Agreement is being
43
<PAGE>
terminated. The termination of this Agreement will in no way limit any
obligation or liability of any party based on or arising from a breach or
default by such party with respect to any of its representations, warranties,
covenants or agreements contained in this Agreement at or before the date of
termination.
(c) The parties agree to give prompt notice of the discovery of a breach or
potential breach of this Agreement by any party, including the party giving such
notice.
14. Indemnification.
---------------
(a) By MAI and the Shareholders.
---------------------------
(1) MAI and the Shareholders, jointly and severally, will indemnify,
defend and hold harmless Jones and New Company and their respective
officers, directors, shareholders, owners, employees, agents,
successors and assigns (each, a "Jones Party" and collectively, the
"Jones Parties") from and against all losses, damages, liabilities,
deficiencies or obligations, including, without limitation, all
claims, actions, suits, proceedings, demands, judgments, assessments,
fines, interest, penalties, costs and expenses (including settlement
costs and reasonable legal, accounting, experts and other fees, costs
and expenses) incident or relating to or resulting from the foregoing
(collectively, "Losses") resulting from or arising out of (i) any
breach of any representation or warranty made by MAI or the
Shareholders in this Agreement, (ii) any breach of any covenant,
agreement or obligation of MAI or the Shareholders contained in this
Agreement, (iii) any act or omission of MAI with respect to, or any
event or circumstance related to, the ownership or operation of the
assets or the conduct of the business of MAI, which act, omission,
event or circumstance occurred or existed prior to or at the Closing
Date, without regard to whether a claim with respect to such matter is
first asserted before or after the Closing Date, including any matters
disclosed in the Schedules hereto, except to the extent the claim is
in respect of a Liability, or (iv) any liability or obligation of MAI
which was not expressly assumed under this Agreement by New Company;
provided, however, that all representations and warranties concerning
any current Assets or Liabilities which the parties specifically
resolve in connection with the finalization of the Closing Date
Balance Sheet, whether as a result of a decision of the Arbitrator or
an agreement
44
<PAGE>
among the parties, shall not be the basis for an indemnity claim under
this Agreement. Any recovery to the Jones Parties for indemnification
shall be limited as follows: (w) no Jones Party shall be entitled to
any recovery unless a claim for indemnification is made in accordance
with Section 14(c) and within the time period of survival set forth in
Section 11; (x) no Jones Party shall be entitled to recover any amount
for indemnification claims under this Section 14(a) unless and until
the amount which the Jones Parties are entitled to recover in respect
of such claims exceeds, in the aggregate, $75,000 (the "Deductible"),
in which event (subject to Clause (y) below) the entire amount which
the Jones Parties are entitled to recover in respect of such claims
less the Deductible shall be payable; (y) the maximum amount
recoverable by the Jones Parties shall in the aggregate be equal to
the sum of $7 million in cash plus the value of all shares of Class A
Common Stock received by MAI pursuant to Sections 1(e)(ii), 1(f) and
1(g) of this Agreement; and (z) Losses shall be offset by any net
insurance recovery obtained by New Company for the related portion of
the Losses. A net insurance recovery (as used in this Agreement) means
after the costs of collection and the allocable portion of the premium
related to such coverage. MAI and the Shareholders shall pay any
indemnification claim under this Section 14(a) and, at Shareholders'
option, payment may be made through the transfer to the Jones Parties
of shares of Class A Common Stock or in cash. For purposes of this
Section 14, if New Company's Class A Common Stock is not registered
under Section 12(g) of the Securities Exchange Act of 1934, as amended
(the "1934 Act") at the time of payment of a claim hereunder, the
Class A Common Stock shall be deemed to have a value of $15 per share.
If the Class A Common Stock of New Company is registered under the
1934 Act at the time of payment of a claim hereunder, the Class A
Common Stock shall be valued based on the average closing price of the
Class A Common Stock in the over-the-counter market, or on the
principal market or securities exchange on which the shares are then
listed for trading, for the 10 trading days preceding the payment of
the claim.
(2) All shares of New Company which are issued to MAI pursuant to
this Agreement (whether at Closing or pursuant to the Working Capital
Adjustment or the Earnout) shall be retained in, and owned by, MAI for
a period of two (2) years from the Closing Date; except that MAI may
sell the shares of New Company during
45
<PAGE>
such period in a public offering or other public market transaction if
the proceeds of such sale, less the portions of the proceeds required
to pay all tax obligations arising as a result of such sale, remain
the property of MAI. Notwithstanding the preceding sentence, the
period during which MAI shall be required to retain shares or proceeds
shall be extended by notice from New Company that it has a claim under
this Section 14, in which case MAI shall retain a sufficient number of
shares of New Company Class A Common Stock or cash sufficient to
provide for payment in full of the amount claimed, or such lesser
amount equal to the full amount of shares or cash in MAI at the
conclusion of the two-year period, until any such claim is resolved.
During such period, MAI shall not engage in active operations other
than those undertaken pursuant to the Management Agreement. MAI and
the Shareholders agree not to take any action which would directly or
indirectly transfer record or beneficial ownership interest in the
shares of MAI owned by them at the Closing Date nor will the
Shareholders or MAI grant any lien or encumbrance on the shares of New
Company owned by MAI or the shares of MAI owned by the Shareholders,
for the entire period set forth in this Section. MAI and the
Shareholders also agree to take whatever action may be necessary or
appropriate to carry out their obligations under this Section.
(b) By Jones and New Company. Jones and New Company will jointly and
------------------------
severally indemnify, defend and hold harmless MAI and the Shareholders and the
MAI officers, directors, shareholders, employees, agents, successors and assigns
from and against all losses, damages, liabilities, deficiencies or obligations,
including, without limitation, all claims, actions, suits, proceedings, demands,
judgments, assessments, fines, interest, penalties, costs and expenses
(including settlement costs and reasonable legal, accounting, experts and other
fees, costs and expenses) incident or relating to or resulting from the
foregoing (collectively, "Losses") result from or arising out of (i) any breach
of any representation or warranty made by Jones in this Agreement (ii) any
breach of any covenant, agreement or obligation of Jones or New Company
contained in this Agreement, (iii) any act or omission of Jones or New Company
with respect to, or any event or circumstance related to, the ownership or
operation of the Assets and assumption of the Liabilities as provided for herein
subsequent to the Closing Date or (iv) an untrue statement of a material fact,
or omission to state a material fact, in the private placement memorandum used
in the High Yield Offering, except to the extent that Losses arise out of
information concerning MAI specifically approved in writing by MAI or the
Shareholders provided to
46
<PAGE>
New Company for use in the High Yield Offering. Any recovery from the Jones
Parties for indemnification shall be limited as follows: (w) no Jones Party
shall be liable for any recovery unless a claim for indemnification is made in
accordance with Section 14(c) and within the time period of survival set forth
in Section 11; (x) no Jones Party shall be liable for any amount for
indemnification claims under this Section 14(b) unless and until the amount in
respect of such claims exceeds, in the aggregate, $75,000 (the "Jones
Deductible"), in which event (subject to Clause (y) below) the entire amount
which MAI is entitled to recover in respect of such claims less the Jones
Deductible shall be payable; (y) the maximum amount recoverable from the Jones
Parties shall in the aggregate be equal to $7.0 million; and (z) Losses shall be
offset by any net insurance recovery obtained by MAI or the Shareholders for the
related portion of the Losses. A net insurance recovery means after the costs of
collection and the allocable portion of the premiums related to such recovery.
Jones shall pay any amount owed in respect of an indemnification claim under
this Section 14(b)(i) 60% through the issuance to MAI of shares of Class A
Common Stock and (ii) 40% in cash. For purposes of this Section 14, if New
Company's Class A Common Stock is not registered under Section 12(g) of the 1934
Act at the time of payment of a claim hereunder, the Class A Common Stock shall
be deemed to have a value of $15 per share. If the Class A Common Stock of New
Company is registered under the 1934 Act at the time of payment of a claim
hereunder, the Class A Common Stock shall be valued based on the average closing
price of the Class A Common Stock in the over-the-counter market, or on the
principal market or securities exchange on which the shares are then listed for
trading, for the 10 trading days preceding the payment of the claim.
(c) (i) In the event that any party shall incur or suffer any losses in
respect of which indemnification may be sought by such party pursuant to the
provisions of this Section 14, the party seeking to be indemnified hereunder
(the "Indemnitee") shall assert a claim for indemnification by written notice (a
"Notice") to the party from whom indemnification is sought (the "Indemnitor")
stating the nature and basis of claim, and if such claim is with respect to a
third-party claim, accompanied by a copy of the written notice of the third-
party claimant. In the case of Losses arising by reason of any third-party
claim, the Notice shall be given within thirty (30) days of the filing or other
written assertion of any such claim against the Indemnitee. The Indemnitor
shall have the option, and shall notify the Indemnitee in writing within thirty
(30) days after the date of the Notice of its election either (A) to participate
(at its own expense) in the defense of such claim (in which case the defense of
such claim shall be controlled by the Indemnitee) or (B) to take charge of and
control the defense of such claim (at its own expense). If the Indemnitor fails
to notify the Indemnitee
47
<PAGE>
of its election within the applicable response period (as determined in the
immediately preceding sentence), then the Indemnitor shall be deemed to have
elected not to assume the defense of such claim, in which case the Indemnitee
may assume the defense of such claim (provided that the Indemnitee shall not
settle such claim without the prior written consent of the Indemnitor, which
consent shall not be unreasonably withheld). The Indemnitor's failure to respond
shall not relieve the Indemnitor of its indemnification obligations under this
Section 14. If the Indemnitor elects to assume the defense of any claim in
accordance with this Section 14(c), then the Indemnitee shall be entitled to
participate (at its own expense) in such defense. If the Indemnitor elects not
to assume the defense of any claim, the Indemnitor may nonetheless participate
(at its own expense) in the defense thereof.
(ii) The Indemnitee shall provide to the Indemnitor on request all
information and documentation reasonably necessary to support and verify any
Losses which the Indemnitee believes gives rise to a claim for indemnification
hereunder and shall give the Indemnitor reasonable access to all books, records
and personnel in the possession or under the control of the Indemnitee which
would have a bearing on such claim.
(d) In no event shall any party to this Agreement be liable for
consequential damages by reason of a breach of any representation, warranty or
covenant made by such party in this Agreement or any Ancillary Agreement. All
claims arising in respect to this Agreement (but not the agreements attached as
Exhibits hereto) shall be made under the provisions of, and subject to the
limitations set forth in, this Section 14, except for claims arising based on
fraud or under applicable securities laws.
15. Confidential Information.
------------------------
As used in this Section, "Owner" refers to the party disclosing
information, "Recipient" refers to the party to whom a disclosure is made, and
an "affiliate" of a party shall mean any person or entity controlling,
controlled by or under common control with such party. For purposes of this
Agreement, "Confidential Information" shall mean all information, in whatever
form or format, regarding an Owner, any of its affiliates, or any of their
respective businesses and operations, that is disclosed to a Recipient prior to
the Closing.
(a) Exceptions. Notwithstanding the foregoing, information shall not be
----------
considered "Confidential Information" for purposes of this Agreement if: (i)
the Recipient or its affiliates already possesses the information without
obligation of
48
<PAGE>
confidentiality at the time of disclosure by the Owner; (ii) the information is
or becomes part of the public domain other than as a result of unauthorized
disclosure by the Recipient or its affiliates; (iii) the information has been or
is made available to the Recipient or its affiliates by a third party which, to
the Recipient's or its affiliates' knowledge, is not under an obligation of
confidentiality to the Owner or its affiliates; (iv) the information is
independently developed by the Recipient or its affiliates; or (v) the
information is required to be disclosed by the Recipient or its affiliates
pursuant to a judicial or governmental request, requirement or order (provided
that the Recipient uses reasonable efforts to provide the Owner with sufficient
notice so as to permit the Owner to contest such request, requirement or order)
or is required to be disclosed in connection with a securities offering or
filing by the Recipient or its affiliates.
(b) Prohibition of Disclosure. A Recipient shall not distribute or
-------------------------
disclose any Confidential Information to any person or entity, except employees
of the Recipient or its affiliates with a need to know in connection with this
Agreement. In fulfilling its obligations under this Agreement, a Recipient
shall treat Confidential Information with no less than the degree of care that
the Recipient exercises in the protection of its own proprietary information.
At a minimum, a Recipient and its affiliates shall maintain in force with each
of their employees to whom any Confidential Information may be disclosed, such
confidentiality agreements or company policies as will permit the Recipient to
perform its obligations under this Agreement.
(c) Use of Confidential Information. Neither party shall use any
--------------------------------
Confidential Information of which it is a Recipient in any manner other than in
furtherance of the transactions contemplated by this Agreement. Notwithstanding
the foregoing, the parties acknowledge and understand that their respective
employees, during the course of performing employment services, may further
develop their general knowledge, skills and experience as it relates to the
businesses in which they work. The subsequent use by such employees of such
general knowledge, skills and experience in the ordinary course of business with
their respective employers and such employers' affiliates shall not constitute a
breach of this Agreement. Furthermore, receipt of Confidential Information
shall not create any obligation in any way limiting or restricting the re-
assignment of employees within the respective organizations of the parties;
provided, however, that upon the re-assignment of any employee, such employee
shall not be allowed to keep or have access to any Confidential Information,
unless (and only to the extent that) it is necessary to the furtherance of the
transactions contemplated by this Agreement.
49
<PAGE>
(d) Return of Confidential Information. In the event that there is no
----------------------------------
Closing under this Agreement, upon an Owner's request, a Recipient promptly
shall deliver to the Owner each and every document, magnetic tape, and every
other tangible record of any of the Confidential Information (including any
analyses, work sheets and similar materials prepared by Recipient which are
based on or derived from Confidential Information) in the possession of the
Recipient or, in lieu thereof, at the option of the Owner, shall issue to the
Owner a certificate of destruction evidencing that Recipient has destroyed all
such documents, tapes and records.
(e) Injunctive Relief. There will not be an adequate remedy at law for a
-----------------
breach by a Recipient of this Section 15, and the Owner may suffer irreparable
harm as a result of such a breach. Therefore, if a breach or threatened breach
by a Recipient of this Section occurs, in addition to any other rights and
remedies it may have, the Owner shall be entitled to seek injunctive relief
restraining the Recipient from doing any act in violation of this Section. The
Recipient shall pay all costs (including attorneys fees and expenses) incurred
by the Owner in enforcing its rights under this Section if the Recipient is
found by a court of competent jurisdiction to have violated this Section.
16. Notices.
-------
All notices, requests, demands, and other communications required or
permitted to be given under this Agreement shall be in writing and shall be
deemed to have been duly given if (i) mailed, registered or certified mail,
return receipt requested, postage prepaid, (ii) delivered by hand, (iii) sent by
facsimile transmission, or (iv) delivered by courier, to the following
addresses, or at such other address as a party may designate by notice given in
accordance with this Section:
(a) If to Jones or Jones International Networks, Ltd.
New Company, to: 9697 E. Mineral Avenue
Englewood, CO 80112
Attn: Gregory Liptak
With copy to: General Counsel
9697 E. Mineral Avenue
Englewood, CO 80112
Phone: (303) 792-3111
Fax: (303) 799-1644
50
<PAGE>
(b) If to MAI to: MediaAmerica, Inc.
11 West 42nd Street
New York, NY 10036
Phone: (212) 302-1100
With copy to: Fried, Frank, Harris, Shriver & Jacobson
One New York Plaza
New York, NY 10004-1980
Phone: (212) 859-8000
Fax: (212) 859-8582
Attn: Paul Reinstein
(c) If to the Shareholders: Ron Hartenbaum
Gary Schonfeld
11 West 42nd Street
New York, NY 10036
With copy to: Fried, Frank, Harris, Shriver & Jacobson
One New York Plaza
New York, NY 10004-1980
Phone: (212) 859-8000
Fax: (212) 859-8582
Attn: Paul Reinstein
Notices delivered personally or by courier shall be deemed to have been
given upon delivery to the intended recipient. Notices transmitted by facsimile
transmission shall be deemed to have been given when confirmation of
transmission is received. Notices delivered by registered or certified mail
shall be deemed to have been given on the delivery date set forth on the receipt
of registered or certified mail, or three business days after deposit in the
mail, whichever is earlier.
17. Miscellaneous.
-------------
(a) Counterparts. This Agreement may be executed in multiple counterparts,
------------
each of which shall be deemed an original but all of which together shall
constitute one and the same agreement.
(b) Entire Agreement, No Waiver. This Agreement and the documents and
---------------------------
instruments referred to herein constitute the entire agreements among the
parties hereto pertaining to the subject matter hereof and supersedes all prior
and
51
<PAGE>
contemporaneous agreements and understandings of the parties, and there are no
warranties, representations or other agreements among the parties in connection
with the subject matter hereof except as specifically set forth herein; provided
that the forms of agreements attached hereto as Exhibits shall be superseded by
the copies of such agreements executed and delivered by the respective parties
thereto, the execution and delivery of such agreements by the parties thereto to
be conclusive evidence of such parties' approval of any change or modification
therein. No supplement, modification or waiver or termination of this Agreement
shall be binding unless duly executed in writing by the parties hereto, except
that any of the terms or provisions of this Agreement may be waived in writing
at any time by the party against whom it is asserted and delivered by that party
to each of the other parties. No waiver of any of the provisions of this
Agreement shall be deemed or shall constitute a waiver of any other provisions
thereof (whether or not similar), nor shall such waiver constitute a continuing
waiver.
(c) Headings. The title or headings of the various sections and paragraphs
--------
hereof are intended solely for convenience of reference and are not intended and
shall not be deemed for any purpose whatsoever to modify or explain or place any
construction upon any of the provisions of this Agreement.
(d) Schedules and Exhibits as Part of Agreement. The Schedules and
-------------------------------------------
Exhibits to this Agreement constitute a part of this Agreement. Such Schedules
are referred to herein individually as a "Schedule" and collectively as
"Schedules." All statements contained in (i) any Schedule or (ii) any
certificate or other instrument delivered by or on behalf of the parties hereto
at the Closing, are an integral part of this Agreement and shall be deemed
representations and warranties hereunder.
(e) Use of the Plural, etc. Throughout this Agreement, wherever the
----------------------
context so requires the singular shall include the plural, and the masculine
gender shall include the feminine and neuter genders, and vice versa.
(f) Assignment. No party may assign this Agreement or any interest herein
----------
without the prior written consent of all other parties.All of the terms and
provisions of this Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their respective transferees, successors, and
assigns.
(g) Governing Law. The parties agree that this Agreement has been executed
-------------
and delivered in the State of Colorado and shall be construed, enforced and
governed by the laws thereof, without giving effect to the principles of
conflicts of law of such State.
52
<PAGE>
(h) Publicity. Any communications and notices to third parties and all
---------
other publicity concerning the transactions contemplated by the Agreements shall
be planned and coordinated between Jones and MAI. None of the parties hereto
shall disseminate or make public or cause to be disseminated or made public any
information regarding the transactions contemplated thereunder without the prior
written approval of Jones and MAI, which approval shall not be unreasonably
withheld, subject however to the disclosure obligations of any party and its
affiliates under applicable securities laws or as otherwise required pursuant to
court order, subpoena or other process of law.
(i) Further Assurances. From time to time after the Closing, MAI shall, if
------------------
reasonably requested by New Company, make, execute and deliver to New Company
such additional assignments, bills of sale, deeds and other instruments of
transfer, as may be necessary or proper to transfer all of MAI's right, title,
and interest in and to the Assets.
(j) No Third Party Beneficiaries. This Agreement shall not confer any
----------------------------
rights, claims or remedies upon anyone not a party to this Agreement or the
permitted successors and assigns of such a party.
(k) Extension of Representation Agreement. Simultaneously with the
-------------------------------------
execution of this Agreement, the relevant parties have extended the three MAI
representation agreements dated January 1, 1997, January 1, 1997 and December 1,
1995 respectively, on the same terms, to December 31, 1999, pursuant to, and on
the terms set forth in Exhibit K.
(EXECUTION PAGE FOLLOWS)
53
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be signed by
their respective officers thereunto duly authorized and this Agreement has been
signed and delivered by the Shareholders, all effective as of the date first
above written.
MEDIAAMERICA, INC.
By:/s/ Gary Schonfeld
------------------
President
THE SHAREHOLDERS:
/s/ Ron Hartenbaum /s/ Gary Schonfeld
- ------------------ ------------------
Ron Hartenbaum Gary Schonfeld
JONES NETWORK HOLDINGS, LLC
By:/s/ Gregory J. Liptak
---------------------
President
JONES INTERNATIONAL
NETWORKS, LTD.
By/s/ Gregory J. Liptak
---------------------
President
54
<PAGE>
EXHIBIT 10.18
Post-Closing Agreement
----------------------
This Post-Closing Agreement ("Agreement") is made and entered into this
10th day of July, 1998 (the "Effective Date") by and between MEDIAAMERICA, INC.
("MAI"), RON HARTENBAUM ("Hartenbaum"), GARY SCHONFELD ("Schonfeld";
collectively with Hartenbaum, the "Shareholders"), JONES INTERNATIONAL NETWORKS,
LTD. ("New Company") and JONES INTERNATIONAL, LTD. ("International").
R e c i t a l s
---------------
a. The parties hereto, except for International, are also certain of the
parties to an agreement dated June 2, 1998 (the "Exchange Agreement") pursuant
to which certain assets and liabilities of MAI are to be or have been
transferred to New Company for a consideration consisting in part of shares of
Class A Common Stock $.01 par value of New Company. By this Agreement the
parties desire to set forth their agreement concerning a number of matters which
arise after the closing of the Exchange Agreement and which are related to New
Company and the disposition of such shares of Class A Common Stock.
b. Hartenbaum and Schonfeld own all of the outstanding capital stock of
MAI and, contemporaneously with the execution and delivery of this Agreement,
they will enter into employment agreements with New Company.
c. International is the principal shareholder of New Company.
Now, therefore, the parties agree as follows:
1. The Initial Public Offering. For purposes of this Agreement, the term
---------------------------
"IPO" means a completed, underwritten initial public offering of shares of Class
A Common Stock $.01 par value of New Company pursuant to an effective
registration statement filed pursuant to the Securities Act of 1933, as amended.
The Company agrees that the Class A Common Stock will be the class of stock
offered in New Company's initial public equity offering.
2. The Shares. As a result of the consummation of the transactions
----------
contemplated by the Exchange Agreement, MAI owns of record and beneficially
400,000 shares (subject to the Working Capital Adjustment (as defined in the
Exchange Agreement)) of Class A Common Stock $.01 par value of New Company, and
may earn additional such shares pursuant to the Exchange Agreement pursuant to
the Earnout (as defined in the Exchange Agreement).
<PAGE>
Such shares of Class A Common Stock $.01 par value of New Company held by MAI
from time to time are hereinafter referred to as the "Shares". The Shares may be
distributed by MAI to Hartenbaum and Schonfeld and, in such event, the rights
and obligations of MAI under this Agreement with respect to the Shares shall,
where appropriate, apply to Hartenbaum and Schonfeld as the successors in
interest to MAI of the Shares.
3. Put and Call Rights.
-------------------
(a) The Put. Commencing on the date which is three (3) years from and
-------
after the Closing Date (as such term is defined in the Exchange Agreement) and
following the Determination (as defined below) as set forth in Section 3(c), MAI
shall have the right (the "Put") to cause New Company to purchase, and, New
Company shall purchase, all or part of the Shares upon written notice (the "Put
Notice") to New Company, which shall specify the number of Shares proposed to be
sold, which shall not be less than 50,000 shares (unless the number of shares
owned is less than 50,000, in which event the number specified must be all
shares owned). The purchase price for such Shares shall be an amount equal to
the fair market value thereof (as determined pursuant to Section 3(c) below) on
the date that notice is given of the exercise of the Put, or the Intention
Notice, whichever is first delivered.
(b) The Call. Commencing on the date which is three (3) years from
--------
and after the Closing Date and following the Determination as set forth in
Section 3(c), New Company shall have the right (the "Call") to cause MAI to
sell, and MAI shall sell, to New Company all or a part of the Shares upon
written notice (the "Call Notice") to MAI, which shall specify the number of
Shares proposed to be purchased, but not less than 50,000 (unless the number of
Shares owned by MAI is less than 50,000, in which event the number specified
must be all Shares owned by MAI). The purchase price for such Shares shall be
an amount equal to the fair market value thereof (as determined pursuant to
Section 3(c)) on the date that notice is given of the exercise of the Call.
(c) Determination of Fair Market Value. Unless there has been a
----------------------------------
Determination within the prior three (3) months, in which case such
Determination shall be the fair market value for the purposes of such Put Notice
or Call Notice, as the case may be, if MAI or New Company gives written notice
to the other party of an intention to exercise the Put or Call, as the case may
be (which intention shall be non-binding on either party) (the "Intention
Notice") for a period of 30 days following receipt of the Intention Notice the
parties shall make a good faith effort to agree on the fair market value of the
-2-
<PAGE>
Shares. Failing agreement at the conclusion of such period, at the request of
the party which gave the Intention Notice the fair market value of the Shares
(the "Determination") shall be determined by an appraisal made by a major
investment banking firm with expertise in the valuation of media assets and/or
media companies and which has no material interest or affiliation with New
Company or any party to this Agreement. Such investment banking firm shall be
selected by agreement between MAI and New Company. In the absence of such an
agreement, the choice of an investment banking firm shall be made by lot (by
MAI) from the names of the firms (which should be deemed to include any
successors thereto should any of such firms merge or be acquired) which are set
forth on Exhibit A hereto, if such firm at such time does not have, or has not
had for a period of two (2) years prior thereto, a business relationship with
New Company, or any of its affiliates, or any party to this Agreement. The
Determination shall be made without any discount for the minority interest
involved or for any illiquidity of the Shares and shall assume the existence of
a willing buyer. The Determination shall be valid for a period of three (3)
months after the receipt thereof and shall be the Determination in connection
with any exercise of a Put or Call within such period. The Determination by
such firm shall be conclusive and binding upon the parties. "Determination"
means any determination of fair market value (whether by agreement or appraisal)
pursuant to this Section 3(c). No party may request a Determination within
twelve (12) months after a prior request for a Determination.
(d) Cooperation. The parties agree to cooperate with the investment
-----------
banking firm making the appraisal and shall make their representatives available
at all reasonable times to assist in such appraisal. Such cooperation shall
include the provision of relevant records and other information.
(e) Conditions Regarding Availability of Cash and Legal Requirements.
----------------------------------------------------------------
New Company shall not be required to purchase any of the Shares following
exercise of the Put unless New Company has "Unrestricted Cash" available to it;
provided, however, that following the date which is seven (7) years and three
- -------- -------
(3) months after the Closing Date, the Shareholders' right to Put shall no
longer be subject to the provisions of this Section 3(e). "Unrestricted Cash"
shall mean cash or cash equivalents of New Company and cash which can be made
available through the use of its borrowing capacity under one or more agreements
with lenders in existence at the time of the Put Notice that is not (i)
restricted by the terms of one or more agreements with lenders (including the
holders of New Company's high yield notes) in existence at the time of the Put
Notice. New Company agrees that the covenant in the high yield notes being
offered concurrently herewith restricting the payment of
-3-
<PAGE>
dividends or redemption of stock shall be materially consistent with the terms
set forth within the caption "Restricted Payments" in the Term Sheet for such
notes dated April 21, 1998. In the event that New Company has insufficient
Unrestricted Cash to fund the purchase of the number of Shares MAI has proposed
to sell in either an Intention Notice or Put Notice, New Company shall promptly
notify MAI in writing of its inability to fund the purchase of the proposed
number of the Shares. Such written notification shall also specify the number of
Shares for which New Company has Unrestricted Cash to purchase Shares. In such
event, (i) MAI may, in its sole discretion, exercise its right to Put such
number of Shares for which New Company has sufficient Unrestricted Cash to
purchase Shares, or (ii) if a Put Notice has been delivered, (A) MAI may either
withdraw such Put Notice, or (B) MAI may require New Company to purchase
pursuant to such Put Notice the number of Shares for which New Company has
sufficient Unrestricted Cash to purchase Shares. New Company agrees that in the
event it has insufficient Unrestricted Cash to purchase all the Shares proposed
to be sold in the Intention Notice, it will promptly notify MAI as soon as it
has sufficient Unrestricted Cash to purchase the remaining Shares.
Notwithstanding any other provision of this Agreement, New Company shall not be
required to purchase any Shares in violation of any lawful restriction
applicable to share repurchases under the Colorado Business Corporation Act.
(f) Effect of the IPO. At such time as New Company notifies MAI in
-----------------
writing ("IPO Notice") that it is commencing preparation for the IPO, rights to
exercise the Put and the Call shall be suspended for a period of one hundred
twenty (120) days ("Suspension Period") after delivery of the IPO Notice. The
Suspension Period may be extended for an additional sixty (60) days upon notice
from the Company, accompanied by a writing from the proposed managing
underwriter stating that the offering is proceeding and reasonably is expected
to be completed within the Suspension Period, as extended. Immediately upon
the earlier to occur of (i) written notification by New Company that preparation
for such IPO has terminated, which notification shall be given promptly, or (ii)
the expiration of the Suspension Period, all rights and procedures related to
the Put and Call set forth in this Agreement shall be reinstated. New Company
may not initiate a new Suspension Period for a period of twelve (12) months
after the end of another Suspension Period (regardless of whether such
Suspension Period was extended). Both the Put and the Call shall be
extinguished and be of no further force and effect upon the consummation of the
IPO.
(g) Closing Matters. The Put or the Call, as the case may be, shall
---------------
be closed and the consideration for the Shares paid no later than thirty (30)
-4-
<PAGE>
days after the delivery of the Put Notice or Call Notice, as the case may be.
Closing shall take place at the offices of New Company, or such other time or
place as the parties mutually agree at which time the certificates representing
the Shares shall be delivered by appropriate endorsement and transfer
documentation free and clear of any and all liens, claims and encumbrances to
New Company (or its designee) in exchange for cash in the amount determined by
the appraisal. Payment shall be made by wire transfer or by certified or bank
cashier's check.
(h) Fees and Expenses of Investment Banking Firm. The fees and
--------------------------------------------
expenses of any investment banking firm which conducts the appraisal of the fair
market value of the Shares for any purpose of this Agreement shall be borne
equally by New Company and MAI.
(i) Top-Up Rights. In the event that within six (6) months after the
-------------
closing of a Call (but not the Put), (i) (A) a Change of Control (as defined in
Section 4(a) below) occurs, or any agreement which would have the effect of
resulting in a Change of Control is entered into, or (B) New Company (or any of
its subsidiaries) Transfers (as defined in Section 4(b) below), or enters into
an agreement to Transfer, all or substantially all of the assets or business of
New Company (a "Substantially All Sale"), and (ii) the Class A shareholders of
New Company receive, (or deemed to have been received pursuant to Section 3(j))
in connection with any such transaction, with respect to any of their shares a
per share amount (such amount, in the case of a Substantially All Sale, to be
equal to the proceeds to be received by the Class A shareholders of New Company
as a result of such Substantially All Sale and any subsequent related
transaction, including, without limitation, any liquidation or special dividend)
higher than that paid for Shares purchased pursuant to the Call (the difference
between the amount per share received (or deemed to have been received pursuant
to Section 3(j)) in connection with the Change of Control or the Substantially
All Sale and such amount paid for Shares is referred to as the "Per Share
Difference"), then the amount of the Per Share Difference, multiplied by the
number of Shares which were sold in the Call, shall be paid by New Company to
MAI within thirty (30) days after the closing of such transaction.
(j) In the event of a Change of Control pursuant to which less than
all of the Class A Common Stock is transferred to the acquirer (including any
persons acting together as a group with the acquirer), for purposes of Section
3(i), the Class A shareholders of New Company shall be deemed to have received,
in connection with any such transaction, with respect to any of their shares, a
per share amount equal to the Determined Price (as defined below). The
"Determined Price" shall mean the value, determined by the parties, or an
-5-
<PAGE>
investment banking firm selected as set forth herein, of each share of Class A
Common Stock of New Company in the context of a sale of all shares of Common
Stock of New Company to a willing buyer in a Change of Control Transaction. If
a transaction described in this Section 3(j) occurs, the parties shall meet and
attempt to agree in good faith on the Determined Price. If, within 20 days
after the consummation of such transaction, the parties are unable to agree as
to the Determined Price, the Determined Price shall be determined by the
investment banking firm, if any, which delivered an appraisal pursuant to
Section 3(c). If there has been no appraisal, an investment banking firm shall
be selected (in the manner prescribed by Section 3(c)) to determine the
Determined Price. Any determination of the Determined Price shall be completed
within sixty (60) days after consummation of the Change of Control transaction
to which such determination relates. Payment of the Per Share Difference shall
be made by wire transfer or by certified or bank cashier's check within five (5)
days of the determination of the Determined Price.
(k) Notwithstanding Section 8 hereof, the provisions set forth in
Section 3(i) and Section 3(j) shall survive for six (6) months following the
closing of the Call.
4. Tag-Along Rights Regarding a Change of Control.
----------------------------------------------
In the event that, prior to the completion of the IPO, there shall be a
"Change of Control" (as hereinafter defined) of New Company, then MAI shall have
the "tag-along" rights set forth in this Section.
(a) Change of Control. For purposes of this Agreement, a "Change of
-----------------
Control" of New Company shall occur at such time as International and/or its
affiliates (including without limitation, New Company") have sold or otherwise
transferred (whether by means of a sale of stock, merger or otherwise) in one or
more related transactions (a "Transfer") to one person (or to a group of persons
acting together for the purpose of the transaction) the beneficial interest in
that number of shares of Class A Common Stock and/or Class B Common Stock of New
Company which would allow the transferee to thereafter have the ability to elect
a majority of the members of the Board of Directors of New Company.
(b) No later than twenty (20) days before the occurrence of a Change
of Control, International shall give written notice ("Tag-Along Notice") thereof
to MAI, setting forth (i) all material terms and conditions of the Change of
Control including the identity of the buyer, which identity shall be provided at
-6-
<PAGE>
least fifteen (15) days before the Change of Control transaction is to close and
(ii) the number and class of shares of Common Stock of New Company proposed to
be Transferred. Within ten (10) days after receipt of the Tag-Along Notice, MAI
shall notify International whether it desires that the Shares be part of such
transaction. If MAI gives notice that it desires to include the Shares as part
of such transaction, International shall then, at its option (a) cause the
Shares to be included in the transaction or (b) otherwise provide for the
purchase of the Shares by such party as it designates. The price to be paid for
the Shares pursuant to the previous sentence shall be at MAI's option, either
(1) the price paid for the shares of Class A Common Stock transferred by
International or (2) the Determined Price (as defined in Section 3(j)) as
determined by the parties hereto, or, if within twenty (20) days after the
Change of Control the parties are unable to agree on such price, by an
investment firm selected in the manner prescribed by Section 3(c). Any
determination of the Determined Price shall be completed within sixty (60) days
after receipt of the Tag-Along Notice. Payment for the Shares shall be made by
wire transfer or by certified or bank cashier's check simultaneously with the
consummation of the Change of Control transaction, or if the determination of
the Determined Price is to be made hereunder, within five (5) days after such
determination.
5. Boards of Directors Seats.
-------------------------
(a) Hartenbaum shall have the right to designate one person and
Schonfeld shall have the right to designate one person to serve on the Board of
Directors of Galactic Radio, Inc. (a subsidiary of New Company which owns all of
the shares of Jones Radio Network, Inc.) and, to the extent that Galactic Radio
is not the holding company directly or indirectly owning or controlling the
subsidiary of New Company which holds all or part of the Assets (as defined in
the Exchange Agreement) of MAI ("New MAI"), such right to designate shall apply
also to New MAI.. In addition, Hartenbaum and Schonfeld shall have the right,
collectively, to designate one person to serve on the Board of Directors of New
Company. Should the Board of Directors of New Company be increased to more than
eight (8) members, then, in lieu of the previous sentence, Hartenbaum shall have
the right to designate one person and Schonfeld shall have the right to
designate one person to the Board of Directors of New Company for so long as the
size of such Board remains at more than eight (8) members. International agrees
to vote sufficient of its shares of Class A Common Stock or its shares of Class
B Common Stock of New Company (which such class to be so voted shall be in
International's sole discretion) in favor of the designee or designees, as the
case may be, of Hartenbaum and Schonfeld to the Board of Directors of New
Company and to cause its subsidiaries to vote their shares of Class A Common
-7-
<PAGE>
Stock or Class B Common Stock of New Company accordingly, so as to cause, to the
best of its ability, the election of such person or persons. In addition, New
Company agrees to vote its shares and to cause its subsidiaries to vote their
shares of Galactic Radio, Inc. and New MAI, as applicable, in favor of the
designees of Hartenbaum and Schonfeld to the Board of Directors of Galactic
Radio, Inc. and New MAI, as applicable.
(b) Notwithstanding any other provision of this Section 5, or
otherwise, neither Hartenbaum nor Schonfeld, as the case may be, shall have the
right to nominate anyone to the Board of Directors of Galactic Radio, Inc.
pursuant to this Section 5 if he is no longer an employee of New Company. In
addition, without the written consent of New Company, the only person Hartenbaum
can nominate is himself and the only person Schonfeld can nominate is himself
and, collectively, to the extent required by this provision, they can only
designate either Hartenbaum or Schonfeld. It is also agreed that no person
designated by the Shareholders can be removed by other than the Shareholders,
except for "Cause", as defined in the Employment Agreements between New Company
and each of Hartenbaum and Schonfeld. So long as the Shareholders have the
right to designate persons for board seats under this Section 5, then such
designees shall have the right (but not the obligation) to be a member of each
operating committee of New Company, Galactic Radio and New MAI, as applicable.
An operating committee shall mean any committee charged with carrying out the
responsibilities of the board of directors as to operating matters or with
carrying out the responsibilities of a board itself between regularly scheduled
meetings of the board. An operating committee shall not include any audit
committee, compensation committee, stock option or similar committee, but a
Shareholder may become a member of any such committee by invitation of the board
involved.
(c) New Company shall reimburse the directors designated by the
Shareholders for travel and out-of-pocket expenses incurred as a result of
attending meetings of the Board of Directors of Galactic Radio, Inc., New MAI or
New Company or committees thereof.
(d) In the event that Galactic Radio is no longer the entity owned by
New Company which has the principal ownership and oversight of the radio
programming operations of New Company, then the rights of the Shareholders under
this Section 5 regarding Galactic Radio shall instead be fully applicable to the
entity owned by New Company which then possesses such ownership and oversight.
-8-
<PAGE>
6. Concerning the Class A Common Stock of New Company.
--------------------------------------------------
International agrees that, as the principal shareholder of New Company at the
date of this Agreement, it will take no action to amend New Company's Articles
of Incorporation to affect in a manner materially adverse to the Class A Common
Stock as a class the relative rights and preferences of New Company's Class A
Common Stock and Class B Common Stock as reflected in Exhibit D hereto; provided
that a change in the number of authorized shares of Class A Common Stock or
Class B Common Stock shall not be considered an amendment having such effect.
International agrees not to transfer any of its shares of New Company to any
affiliated company, affiliated entity or affiliated person for the purpose of
avoiding the obligations imposed by this Section 6. Any such affiliated company,
affiliated entity or affiliated person to which shares of New Company are
transferred shall agree to the provisions of this Section 6 to the same extent
as applicable to International.
7. Consideration for Shares, Arms-Length Transaction.
-------------------------------------------------
(a) New Company agrees it will not offer or issue any shares of any
class of its stock, or grant any right to receive any of such shares, at a
purchase price or exercise price, as the case may be, which is below the fair
market value of the shares involved (as determined by the Board of Directors of
New Company), except in transactions with the owners of cable television systems
or other distribution systems who receive such shares in connection with
programming agreements with affiliates of New Company, or in connection with
stock-related employee benefit plans. New Company also agrees that from and
after the date of this Agreement, its transactions with affiliated parties shall
be on substantially the same terms and conditions as could have been obtained
from an unaffiliated third party (provided that New Company need not submit the
matter for bids or proposals) , it being understood and agreed that all
transactions to date with New Company or any of its subsidiaries or affiliates
and International or any of its subsidiaries or affiliates shall be deemed to
have been on such basis , and any non-material amendments to, or extensions of
any such agreements shall likewise to be deemed to have been on such basis.
During the term of this Agreement, International agrees (itself and on
behalf of its affiliates, excluding Jones Intercable, Inc.) to refer to New
Company any opportunity to acquire or develop any radio programming or
advertising representation services for radio-related advertising. The
opportunity so referred shall be exclusive to New Company for a period of thirty
(30) days, after which New Company shall notify International that it either
will make such acquisition or do such development or that it has elected not to
do so.
-9-
<PAGE>
8. Term.
----
(a) The term of this Agreement shall commence on the date first set
forth above.
(b) Except as otherwise specifically provided in Section 8(b)(iv) ,
Section 5, 6 and 7 hereof shall terminate upon the earliest to occur of the
following:
(i) When MAI, Hartenbaum and Schonfeld collectively own less
than ten percent (10%) of the total number of outstanding shares of all classes
of stock of New Company and Hartenbaum and Schonfeld are no longer employees of
New Company; or
(ii) When MAI, Hartenbaum and Schonfeld collectively own less
than five percent (5%) of the total number of outstanding shares of all classes
of stock of New Company regardless of whether Hartenbaum and Schonfeld are
employees of New Company; or
(iii) The ninth anniversary of the Effective Date; or
(iv) Closing of the IPO, as set forth under Section 1 of this
Agreement, except with respect to Section 5 of this Agreement.
(c) The provisions of Sections 3 and 4 of this Agreement shall survive
until the earlier to occur of (i) the ninth anniversary of the Effective Date;
or (ii) Closing of the IPO, as set forth in Section 1 of this Agreement.
(d) For so long as any of the provisions of this Agreement enumerated
above ("Sections 3-7") have not been terminated, the remaining provisions hereof
not so terminated shall survive until all of Sections 3-7 have terminated as
herein provided.
-10-
<PAGE>
9. Notices.
-------
All notices, requests, demands, and other communications required or
permitted to be given under this Agreement shall be in writing and shall be
deemed to have been duly given if (i) mailed, registered or certified mail,
return receipt requested, postage prepaid, (ii) delivered by hand, (iii) sent by
facsimile transmission, or (iv) delivered by courier, to the following
addresses, or at such other address as a party may designate by notice given in
accordance with this Section:
(a) If to New Company: Jones International
Networks, Ltd.
9697 E. Mineral Avenue
Englewood, CO 80112
Attn: Gregory Liptak
(b) If to International: Jones International, Ltd.
9697 E. Mineral Avenue
Englewood, CO 80112
Attn: Glenn R. Jones
(c) If to MAI: MediaAmerica, Inc.
11 West 42nd Street
New York, NY 10036
Attn: President
With copy to: Fried, Frank, Harris,
Shriver & Jacobson
One New York Plaza
New York, NY 10004
Phone: (212) 859-8156
Fax: (212) 859-8586
Attn: Paul Reinstein
(d) If to Hartenbaum Ron Hartenbaum
and/or Schonfeld: Gary Schonfeld
11 West 42nd Street
New York, NY 10036
-11-
<PAGE>
With copy to: Fried, Frank, Harris,
Shriver & Jacobson
One New York Plaza
New York, NY 10004
Phone: (212) 859-8156
Fax: (212) 859-8586
Attn: Paul Reinstein
Notices delivered personally or by courier shall be effective upon delivery
to the intended recipient. Notices transmitted by facsimile transmission shall
be deemed to have been given when confirmation of transmission is received.
Notices delivered by registered or certified mail shall be deemed to have been
given on the delivery date set forth on the receipt of registered or certified
mail, or three (3) business days after deposit in the mail, whichever is
earlier.
10. Miscellaneous.
-------------
(a) Counterparts. This Agreement may be executed in multiple
------------
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same agreement.
(b) Entire Agreement, No Waiver. This Agreement and the documents and
---------------------------
instruments referred to herein constitute the entire agreements between the
parties hereto pertaining to the subject matter hereof and supersede all prior
and contemporaneous agreements and understandings of the parties, and there are
no warranties, representations or other agreements among the parties in
connection with the subject matter hereof except as specifically set forth
herein. No supplement, modification or waiver or termination of this Agreement
shall be binding unless executed in writing by the parties hereto, except that
any of the terms or provisions of this Agreement may be waived in writing at any
time by the party against whom it is asserted and delivered by that party to
each of the other parties. No waiver of any of the provisions of this Agreement
shall be deemed or shall constitute a waiver of any other provisions thereof
(whether or not similar), nor shall such waiver constitute a continuing waiver.
(c) Headings. The title or headings of the various sections and
--------
paragraphs hereof are intended solely for convenience of reference and are not
intended and shall not be deemed for any purpose whatsoever to modify or explain
or place any construction upon any of the provisions of this Agreement.
-12-
<PAGE>
(d) Use of the Plural, etc. Throughout this Agreement, wherever the
----------------------
context so requires the singular shall include the plural, and the masculine
gender shall include the feminine and neuter genders, and vice versa.
(e) Assignment. No party may assign this Agreement or any interest
----------
herein without the prior written consent of all other parties. All of the terms
and provisions of this Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their respective permitted transferees,
successors, and assigns.
(f) Governing Law. The parties agree that this Agreement has been
-------------
executed and delivered in the State of Colorado and shall be construed, enforced
and governed by the laws thereof, without giving effect to the principles of
conflicts of law of such State.
(g) No Third Party Beneficiaries. This Agreement shall not confer any
----------------------------
rights, claims or remedies upon anyone not a party to this Agreement or the
permitted successors and assigns of such a party.
In Witness Whereof, the parties have executed this Agreement as of the date
first above written.
MEDIAAMERICA, INC.
By /s/ Ronald Hartenbaum
----------------------
Director
RON HARTENBAUM
By /s/ Ronald Hartenbaum
----------------------
GARY SCHONFELD
By /s/ Gary Schonfeld
-------------------
(EXECUTION PAGE CONTINUES)
-13-
<PAGE>
JONES INTERNATIONAL NETWORKS, LTD.
By /s/ Gregory J. Liptak
---------------------
JONES INTERNATIONAL, LTD.
By /s/ Steven W. Gampp
--------------------
-14-
<PAGE>
EXHIBIT A
Lehman Brothers Inc.
NationsBanc Montgomery Securities, Inc.
BancAmerica Robertson Stephens
Donaldson, Lufkin & Jenrette
Salomon Smith Barney
Toronto Dominion Securities
Furman Selz
BT Alex Brown
The Strategis Group
CS First Boston
Bear, Stearns
Chase Securities
Credit Lyonnais Securities
SBC Warburg Dillon Read Inc.
Schroder & Co.
<PAGE>
EXHIBIT 10.19
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is entered into as of the 10th
day of July, 1998 ("Effective Date"), by and between Ron Hartenbaum ("Employee")
and Jones International Networks, Ltd., a Colorado corporation ("Company").
Whereas, Employee has many years of experience in the advertising
representation business; and
Whereas, that Agreement dated as of June 2, 1998 between the Employee,
the Company and other parties (the "Exchange Agreement"), provides that an
employment agreement between Employee and the Company is a condition of closing
of the Exchange Agreement; and
Whereas, the Company desires to employ Employee as an executive, as
further set forth below, on the terms and conditions and subject to the rights
of termination hereinafter set forth, and Employee desires to accept such
employment on such terms and conditions.
Now, therefore, in consideration of the mutual agreements hereinafter
set forth, Employee and the Company do hereby agree as follows:
1. Employment. The Company does hereby employ Employee and Employee
----------
does hereby accept and agree to such employment on the terms and conditions
hereinafter set forth. During the Term (as defined in Section 2 hereof), the
Employee shall serve as Chief Executive Officer of Jones Radio Network, Inc., a
subsidiary of the Company, with the duties, responsibilities and authority
customarily associated with such position. Employee shall report directly to
Mr. Greg Liptak and shall generally carry out the duties of a Chief Executive
Officer consistent with the Bylaws of the Company. Employee shall
<PAGE>
perform such other duties and shall have such other responsibilities and
authority, consistent with his position, as may be agreed upon. The Employee
shall devote his full business time and best efforts to the performance of his
duties hereunder consistent with the current level of activity with his former
employer, MediaAmerica, Inc., a New York corporation ("MAI"); provided, however,
that Employee shall, to the extent such activities do not interfere with the
performance by Employee of his duties hereunder, be permitted to manage his
personal, financial and legal affairs. Employee shall exercise due diligence and
care in the performance of his duties to the Company under this Agreement.
2. Term of Agreement. Subject to the provisions of Section 6 of
-----------------
this Agreement, Employee shall be employed by the Company for a period (the
"Term") commencing on the Effective Date and ending, subject to earlier
termination as provided under Section 5 hereof, on the third anniversary of the
Effective Date; provided, however, that on the third anniversary of the
-------- -------
Effective Date and on each anniversary of the Effective Date thereafter, the
Term shall automatically be extended for an additional year unless not less than
ninety (90) days prior thereto either party has given written notice to the
other that such party does not wish to extend the Term. As used herein, a year
in the term of this Agreement shall be measured from the applicable anniversary
of the Effective Date.
3. Salary. The Company shall pay Employee, during each year in the
------
Term of this Agreement, a salary (the "Base Salary") of $300,000, payable in
equal semi-monthly installments, which may be increased (but not decreased),
consistent with its compensation policy for personnel at the level of Employee.
4. Benefit Programs. Employee shall be entitled to participate in
----------------
any benefit programs adopted from time to time by the Company for the
-2-
<PAGE>
benefit of its key employees or its employees generally, and Employee shall be
entitled to receive such other fringe benefits and office and administrative
services as are normally provided by the Company for the benefit of its key
employees or to its employees generally. In addition, the Company shall pay for
(i) a leased automobile for Employee (which automobile and lease terms and
conditions shall be equivalent to that provided to Employee by MAI, immediately
prior to the Closing Date (as defined in the Exchange Agreement) and all
reasonable business-related expenses related thereto, including, without
limitation, mileage expenses and the same business parking space as that
maintained for Employee by MAI immediately prior to the Closing Date; and (ii)
telecommunications and computing capabilities for Employee equal to that
provided to Employee by MAI immediately prior to the Closing Date, including,
without limitation, a cellular telephone, a pager, a home facsimile machine and
dedicated telephone line and a lap-top computer.
(a) Participation in Plans. Employee shall be entitled to participate
----------------------
in any employee benefit plans relating to pension, thrift, profit sharing,
401(k), life insurance, medical and dental coverage, disability, or other
retirement or employee benefits made generally available to other employees of
similar status within the Company or to its employees generally, subject to any
restrictions (including waiting periods) specified in such plans; provided,
--------
however, that Employee shall receive benefits under such plans at a level
- -------
commensurate with his position in the Company.
(b) Vacation. Employee shall be entitled to four (4) weeks of paid
--------
vacation per calendar year, with such vacation to be scheduled and taken in
accordance with the Company's standard vacation policies.
(c) Stock Options and Bonuses. Beginning the first day following the
-------------------------
Earnout Period (as defined in the Exchange Agreement), the
-3-
<PAGE>
Employee shall be eligible to receive an option or options to purchase such
number of shares of Class A Common Stock $.01 par value of the Company ("Common
Stock"), and Employee shall be eligible for bonuses on a basis which shall be
consistent with that of other senior level executives of at least the level in
the Company as the Employee. Any such grants shall be made only if the Company
is then a public company. If no options have been granted to Employee by the
first day following the Earnout Period, then commencing on such date, Employee
shall be eligible for a bonus in lieu of such options.
(d) Business Expenses. The Company shall reimburse Employee for any
-----------------
and all necessary, customary and usual expenses, properly receipted in
accordance with Company policies, incurred by Employee on behalf of the Company,
including air travel accommodations which shall be one class above coach on the
applicable air carrier.
(e) New York City Office. During the Term, the Company shall provide
--------------------
as Employee's principal place of business the leased premises of the Company's
"MediaAmerica" operations in New York City, where Employee shall be entitled to
an executive office. It is the Company's intention (but not obligation) to have
such operations conducted at the same offices out of which MAI operated
immediately prior to the Closing Date and to have Employee occupy the same
executive office as that maintained for Employee immediately prior to such
Closing Date. In the event the Company moves its "MediaAmerica" operations
outside of mid-town Manhattan, the Company and Employee shall mutually agree on
the location of the new offices.
5. Termination of Employment. Employee's employment by the Company
-------------------------
and the Term shall terminate as follows:
(a) Death. Upon the death of the Employee.
-----
-4-
<PAGE>
(b) Disability. If, as a result of Employee's incapacity due to
----------
physical or mental illness, Employee shall have been absent from the performance
of his duties with the Company for five (5) consecutive months or an aggregate
of eight (8) months in any consecutive twenty-four (24) month period, and within
thirty (30) days after written notice is provided to him by the Company, he
shall not have returned to the performance of his duties, Employee's employment
under this Agreement may be terminated either by the Company or by Employee for
"Disability." Any question as to the existence of a Disability shall be
determined in writing by a qualified independent physician mutually acceptable
to Employee and the Company. If they cannot agree as to a qualified independent
physician, each shall appoint such a physician and those two physicians shall
select a third who shall make such determination. The determination of
Disability made by any such physician shall be final and conclusive for all
purposes of this Agreement.
(c) Termination by the Company for Cause. the Company may terminate
------------------------------------
Employee's employment under this Agreement for "Cause." For purposes of this
Agreement, "Cause" shall mean (i) Employee's conviction or plea of guilty for
any acts or activity which is a felony under the law where the conviction
occurred or where the plea was made. or (ii) Employee's failure to comply with
the terms of this Agreement or Employee's continued failure to perform his
duties hereunder (other than as a result of a Disability) which continues for a
period of not less than thirty (30) days following Employee's receipt of a
demand for substantial performance by the Company in writing that specifically
identifies the manner in which the Company believes Employee has not complied
with the terms of this Agreement or has not performed his duties hereunder or
(iii) a material misrepresentation knowingly made by Employee or MediaAmerica,
Inc. under the Exchange
-5-
<PAGE>
Agreement or a knowing material breach of a covenant or agreement by Employee or
MediaAmerica, Inc. of the Exchange Agreement.
(d) Termination by Employee for Good Reason. Employee may terminate
---------------------------------------
his employment under this Agreement for "Good Reason." For purposes of this
Agreement, "Good Reason," shall mean, without Employee's express prior written
consent, the occurrence of any one or more of the following circumstances,
unless such circumstances are corrected within thirty (30) days following the
Company's receipt from Employee of a written notice stating that he intends to
terminate his employment for one or more of the reasons set forth in this
Section 5(d) and specifying the particulars in detail (other than a termination
as a result of an event described in clause (v) of this Section 5(d)); (i) the
assignment to Employee of duties materially inconsistent with Employee's
authorities, duties, responsibilities and status (including offices, titles, and
reporting requirements) as contemplated in Section 2 hereof, or a material
diminution in the nature or status of Employee's authorities, duties or
responsibilities from those in effect on the Effective Date; (ii) a reduction in
the Base Salary below the applicable levels set forth in Section 3 hereof; (iii)
a relocation of Employee's principal place of business to a location outside
mid-town Manhattan without the Employee's consent; (iv) the failure of the
Company to maintain and to continue Employee's participation in the Company's
benefit plans in accordance with the provisions of Section 4 hereof; (v) a
Change in Control (as defined in Exhibit A attached hereto), and (vi) a material
misrepresentation knowingly made by the Company under the Exchange Agreement or
a knowing material breach of a covenant or agreement by the Company in the
Exchange Agreement.
(e) Other Termination. Employee's employment by the Company may be
-----------------
terminated by the Company other than for Cause at any time
-6-
<PAGE>
after the Earnout Period (as defined in the Exchange Agreement) or by Employee
other than for Good Reason at any time, in either case on not less than thirty
(30) days prior written notice to the other party.
(f) If Employee's employment shall be terminated during the Term (i)
by death, (ii) by Disability, (iii) by the Company other than for Cause or (iv)
by the Employee for Good Reason, Employee shall be entitled to the following
benefits:
(i) Payment of Salary. From the date of termination of Employee's
-----------------
employment ("Termination Date"), the Company shall continue to pay the salary of
Employee for a period of six (6) months in the case of death or Disability and
for a period of twelve (12) months in the case of termination by the Company
other than for Cause, or by the Employee for Good Reason (such six or twelve
month period being referred to herein as the "Applicable Period"), but no
payment shall be made for any portion of the Applicable Period which is (a)
after three (3) years from the Effective Date (except in the case of death or
Disability), or (b) if the Term is automatically extended under Section 2, after
the remaining period of the Term; provided, however, that Employee may elect
within 10 days after termination to receive payments under this Section 5(f)(i)
for the entire Applicable Period, in which event the two-year term of the post-
termination Covenant Not to Compete shall commence at the completion of the
Applicable Period, and for purposes of Section 8 only, the word "Term" as used
therein, shall be deemed to include the entire Applicable Period.
(ii) Continuation of Fringe Benefits. The Company shall continue to
-------------------------------
provide Employee and/or his eligible dependents and beneficiaries with all
Fringe Benefits set forth in Section 4(a) throughout the period during which
payments are made pursuant to Section 5(f)(i).
-7-
<PAGE>
(iii) Equity Awards and Other Benefits. During the period that
--------------------------------
payments are being made pursuant to Section 5(f)(i), Employee shall continue to
vest in options to purchase shares of Class A Common Stock previously granted to
Employee and, to the extent applicable and allowable under the terms of any
plans, programs or arrangements, all other rights under such other benefit
plans, programs or arrangements in which Employee shall be a participant as of
the date of termination.
6. Effect of Termination.
---------------------
(a) In the event that Employee's employment by the Company shall
be terminated for any reason: (A) the Company shall pay to Employee any Base
Salary accrued hereunder on or prior to the date of termination but not
theretofore paid to Employee; and (B) Employee shall be entitled, in accordance
with the terms and conditions of the applicable plan, program or arrangement, to
all benefits (including, without limitation, any benefits vested under any
options to purchase shares of Common Stock or other equity awards granted to
Employee or any bonus awards to Employee in lieu thereof) accrued under any
benefit plan, program or arrangement in which Employee shall have previously
been a participant or in which Employee shall be a participant as of the date of
termination (the "Accrued Benefits").
7. Confidentiality. Employee acknowledges that he may receive
---------------
confidential information regarding the Company. Employee agrees that during the
Term and for a period of three (3) years following the termination of Employee's
employment hereunder, he shall keep such information confidential, unless (i)
such information is generally available to the public, (ii) such information was
available to Employee from other sources or (iii) such information is required
to be disclosed pursuant to law, regulation, court order, subpoena or other
similar requirements.
-8-
<PAGE>
8. Covenant Not To Compete.
--------------------------
(a) Employee covenants and agrees with Company that for the Term
and for a period of two (2) years thereafter (the "Covenant Period"), Employee
shall not, directly or indirectly, own more than a five percent (5%) interest
in, control, manage, operate, join, participate in the ownership, management,
operation or control of, or be connected in any manner with, or have any other
type of direct or indirect financial or other interest in or business
relationship with (as a stockholder, director, officer, employee, agent,
consultant or otherwise) any person or entity which is engaged in a "Competitive
Activity" (as defined below). In addition, during the Covenant Period, Employee
shall not engage, directly or indirectly, as an employee, consultant, agent,
independent contractor or otherwise in any Competitive Activity. For purposes of
this Section 8(a), the term "Competitive Activity" shall mean (i) network radio
programming (whether as a program developer, provider or distributor), (ii) the
advertising representation for network radio businesses, or (iii) any other
business which in any manner competes with Company, its successors or assigns,
in any other business in which Company is engaged at the date of the termination
of Employee's employment by the Company and in which Employee was directly
involved as an employee (but not as a director) of the Company. Notwithstanding
anything contained in this Section 8, Employee may be an employee, consultant,
agent, independent contractor or otherwise act by or on behalf of any person or
entity which is engaged in a Competitive Activity so long as Employee is not
engaged in, and does not engage in, a Competitive Activity for such person or
entity.
(b) The Employee agrees with the Company for the Covenant Period
that Employee (i) will not directly or indirectly hire or solicit for hiring any
employee of the Company or its affiliates or (ii) will not directly
-9-
<PAGE>
or indirectly contact, hire or solicit the Company's providers of radio
programming or any party which has a production agreement with the Company or
its affiliates.
(c) Employee further agrees that services of Employee are specialized
and unique and therefore that the remedy at law for a breach of this Covenant
Not To Compete will be inadequate and that Company shall be entitled to specific
performance and/or injunctive relief for such a breach, which relief shall be
cumulative to other remedies and relief ordinarily available under the
circumstances and shall not be construed as an exclusive remedy or relief.
Employee agrees to reimburse Company, upon demand, for any damages suffered or
incurred by Company as a result of any breach by Employee of this Covenant Not
To Compete and for any costs or expenses incurred by Company in successfully
enforcing its rights and remedies hereunder, including court costs, witness fees
and expenses and attorneys' fees and expenses. The Company, upon demand, shall
reimburse Employee for out-of-pocket costs incurred by him in the successful
defense of a claim by the Company for breach of this Section 8 (including court
costs, witness fees and attorneys' fees and expenses).
(d) Should any provision of this Covenant Not To Compete be held
invalid or unenforceable by a court of competent jurisdiction, such covenant or
provision shall be valid and enforceable to the fullest extent permitted under
applicable law. Employee agrees that any suit, action or proceeding arising
under or relating to this Covenant Not To Compete may be brought in the state or
federal courts in the State of Colorado and hereby irrevocably consents and
submits to the jurisdiction of the state and federal courts in Denver, Colorado
for the purpose of any such suit, action or proceeding. No failure or delay by
Company in exercising any of its rights or
-10-
<PAGE>
remedies hereunder, and no course of dealing between Employee and Company, shall
operate as a waiver of any such right or remedy. No waiver of any default on any
one occasion shall constitute a waiver of any subsequent or other default, nor
shall any waiver, amendment or modification of this Covenant Not To Compete be
binding upon Company unless in writing executed by Company.
(e) Employee acknowledges that the Company competes on a
nationwide basis and that the geographical scope of the covenants contained
herein is reasonable and necessary for the protection of the Company's business.
(f) Employee acknowledges that he is among the Company's
executive and management personnel as defined in C.R.S. 8-2-113(2)(d ).
9. Indemnification. During the Term and thereafter, the Company
---------------
shall indemnify Employee to the fullest extent permitted by law against any
judgments, fines, amounts paid in settlement and reasonable expenses (including
attorneys' fees), and advance amounts necessary to pay the foregoing at the
earliest time and to the fullest extent permitted by law, in connection with any
claim, action or proceeding (whether civil or criminal) against employee as a
result of Employee serving as an officer of director of the Company or in any
capacity at the request of the Company, in or with regard to any other entity,
employee benefit plan or enterprise (other than arising out of the Employee's
act of willful misconduct, misappropriation of funds, fraud or breach of this
Agreement). This indemnification shall be in addition to, and not in lieu of,
any other indemnification Employee shall be entitled to pursuant to the
Company's Certificate of Incorporation or By-laws or otherwise. Following
Employee's termination of employment, the Company shall continue to cover
Employee under the Company's directors and officers insurance, if any, for the
period during which Employee may be subject to potential liability for any
claim, action
-11-
<PAGE>
or proceeding (whether civil or criminal) as a result of his service as an
officer or director of the Company or in any capacity at the request of the
Company, in or with regard to any other entity, employee benefit plan or
enterprise on the same terms such coverage was provided during the Term, at the
highest level then maintained for any then or former officer or director.
10. Notices. All notices and other communications under this
-------
Agreement shall be in writing and shall be given in person, by facsimile or
first class mail, certified or registered with return receipt requested, and
shall be deemed to have been duly given upon receipt by the respective persons
named below:
If to Company: Jones International Networks, Ltd.
9697 E. Mineral Avenue
Englewood, Colorado 80112
Attn: President
Phone: (303) 792-3111
Fax: (303) 799-1644
If to Employee: Ron Hartenbaum
31 Hemlock Ridge Road
Weston, Connecticut 06883
With a copy to: Fried, Frank, Harris, Shriver & Jacobson
One New York Plaza
New York, New York 10004
Fax: (212) 859-8586
Attn: Paul M. Reinstein, Esq.
Either party may change such party's address for notices by notice duly given
pursuant hereto.
11. Assignment; Successors. This Agreement is personal in its nature
----------------------
and neither of the parties hereto shall, without the consent of the other,
-12-
<PAGE>
assign or transfer this Agreement or any rights or obligations hereunder;
provided that, in the event of the merger, consolidation, transfer, or sale of
all or substantially all of the assets of the Company with or to any other
individual or entity, this Agreement shall subject to the provisions hereof, be
binding upon and inure to the benefit of such successor and such successor shall
discharge and perform all the promises, covenants, duties, and obligations of
the Company hereunder.
12. Governing Law. This Agreement shall be governed by and construed
-------------
under and in accordance with the laws of the State of Colorado, without giving
effect to its conflicts of law principles.
13. Entire Agreement; Headings. This Agreement embodies the entire
--------------------------
agreement of the parties respecting the matters within its scope and may be
modified only by a writing executed by each party hereto. Section headings in
this Agreement are included herein for convenience of reference only and shall
not constitute a part of this Agreement for any other purpose.
14. Waiver; Modification. Failure to insist upon strict compliance
--------------------
with any of the terms, covenants, or conditions hereof shall not be deemed a
waiver of such term, covenant, or condition, nor shall any waiver or
relinquishment of, or failure to insist upon strict compliance within any right
or power hereunder at any one or more time be deemed a waiver or relinquishment
of such right or power at any other time or times. This Agreement shall not be
modified in any respect except by a writing executed by each party hereto.
15. Severability. In the event that a court of competent
------------
jurisdiction determines that any portion of this Agreement is in violation of
any statute or public policy, only the portions of this Agreement that violate
such statute or public policy shall be stricken. All portions of this Agreement
that do not violate any statute or public policy shall continue in full force
and effect.
-13-
<PAGE>
16. Counterparts. This Agreement may be executed in several
------------
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed by its duly authorized officer, and Employee has hereunto signed this
Agreement, as of the date first above written.
THE COMPANY:
JONES INTERNATIONAL NETWORKS, LTD.
By: /s/ Gregory J. Liptak
----------------------------
President
EMPLOYEE:
/s/ Ron Hartenbaum
-------------------------------
Ron Hartenbaum
-14-
<PAGE>
EXHIBIT A
---------
A "Change of Control" means the occurrence of any of the following:
(a) A Change of Control as defined in the Post-Closing Agreement,
dated as of July 10, 1998, by and between MAI, Gary Schonfeld/Ron Hartenbaum,
the Company and JONES INTERNATIONAL, LTD.
(b) The consummation of:
(i) A complete liquidation or dissolution of the Company;
(ii) The sale or other disposition of all or substantially all
of the assets of the Company to any Person (other than a transfer to a
Subsidiary or the distribution to the Company's shareholders of the stock of a
Subsidiary or any other assets).
<PAGE>
EXHIBIT 10.20
-------------
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT ("Agreement") is entered into as of the 10th
day of July, 1998 ("Effective Date"), by and between Gary Schonfeld ("Employee")
and Jones International Networks, Ltd., a Colorado corporation ("Company").
Whereas, Employee has many years of experience in the advertising
representation business; and
Whereas, that Agreement dated as of June 2, 1998 between the Employee,
the Company and other parties (the "Exchange Agreement"), provides that an
employment agreement between Employee and the Company is a condition of closing
of the Exchange Agreement; and
Whereas, the Company desires to employ Employee as an executive, as
further set forth below, on the terms and conditions and subject to the rights
of termination hereinafter set forth, and Employee desires to accept such
employment on such terms and conditions.
Now, therefore, in consideration of the mutual agreements hereinafter
set forth, Employee and the Company do hereby agree as follows:
1. Employment. The Company does hereby employ Employee and Employee
----------
does hereby accept and agree to such employment on the terms and conditions
hereinafter set forth. During the Term (as defined in Section 2 hereof), the
Employee shall serve as Chief Executive Officer of MediaAmerica, Inc., a
subsidiary of the Company, with the duties, responsibilities and authority
customarily associated with such position. Employee shall report directly to
Mr. Greg Liptak and shall generally carry out the duties of a Chief Executive
Officer consistent with the Bylaws of the Company. Employee shall perform such
other
<PAGE>
duties and shall have such other responsibilities and authority, consistent with
his position, as may be agreed upon. The Employee shall devote his full business
time and best efforts to the performance of his duties hereunder consistent with
the current level of activity with his former employer, MediaAmerica, Inc., a
New York corporation ("MAI"); provided, however, that Employee shall, to the
extent such activities do not interfere with the performance by Employee of his
duties hereunder, be permitted to manage his personal, financial and legal
affairs. Employee shall exercise due diligence and care in the performance of
his duties to the Company under this Agreement.
2. Term of Agreement. Subject to the provisions of Section 6 of
-----------------
this Agreement, Employee shall be employed by the Company for a period (the
"Term") commencing on the Effective Date and ending, subject to earlier
termination as provided under Section 5 hereof, on the third anniversary of the
Effective Date; provided, however, that on the third anniversary of the
-------- -------
Effective Date and on each anniversary of the Effective Date thereafter, the
Term shall automatically be extended for an additional year unless not less than
ninety (90) days prior thereto either party has given written notice to the
other that such party does not wish to extend the Term. As used herein, a year
in the term of this Agreement shall be measured from the applicable anniversary
of the Effective Date.
3. Salary. The Company shall pay Employee, during each year in the
------
Term of this Agreement, a salary (the "Base Salary") of $300,000, payable in
equal semi-monthly installments, which may be increased (but not decreased),
consistent with its compensation policy for personnel at the level of Employee.
4. Benefit Programs. Employee shall be entitled to participate in
----------------
any benefit programs adopted from time to time by the Company for the
-2-
<PAGE>
benefit of its key employees or its employees generally, and Employee shall be
entitled to receive such other fringe benefits and office and administrative
services as are normally provided by the Company for the benefit of its key
employees or to its employees generally. In addition, the Company shall pay for
(i) a leased automobile for Employee (which automobile and lease terms and
conditions shall be equivalent to that provided to Employee by MAI, immediately
prior to the Closing Date (as defined in the Exchange Agreement) and all
reasonable business-related expenses related thereto, including, without
limitation, mileage expenses and the same business parking space as that
maintained for Employee by MAI immediately prior to the Closing Date; and (ii)
telecommunications and computing capabilities for Employee equal to that
provided to Employee by MAI immediately prior to the Closing Date, including,
without limitation, a cellular telephone, a pager, a home facsimile machine and
dedicated telephone line and a lap-top computer.
(a) Participation in Plans. Employee shall be entitled to participate
----------------------
in any employee benefit plans relating to pension, thrift, profit sharing,
401(k), life insurance, medical and dental coverage, disability, or other
retirement or employee benefits made generally available to other employees of
similar status within the Company or to its employees generally, subject to any
restrictions (including waiting periods) specified in such plans; provided,
--------
however, that Employee shall receive benefits under such plans at a level
- -------
commensurate with his position in the Company.
(b) Vacation. Employee shall be entitled to four (4) weeks of paid
--------
vacation per calendar year, with such vacation to be scheduled and taken in
accordance with the Company's standard vacation policies.
(c) Stock Options and Bonuses. Beginning the first day following the
-------------------------
Earnout Period (as defined in the Exchange Agreement), the
-3-
<PAGE>
Employee shall be eligible to receive an option or options to purchase such
number of shares of Class A Common Stock $.01 par value of the Company ("Common
Stock"), and Employee shall be eligible for bonuses on a basis which shall be
consistent with that of other senior level executives of at least the level in
the Company as the Employee. Any such grants shall be made only if the Company
is then a public company. If no options have been granted to Employee by the
first day following the Earnout Period, then commencing on such date, Employee
shall be eligible for a bonus in lieu of such options.
(d) Business Expenses. The Company shall reimburse Employee for any
-----------------
and all necessary, customary and usual expenses, properly receipted in
accordance with Company policies, incurred by Employee on behalf of the Company,
including air travel accommodations which shall be one class above coach on the
applicable air carrier.
(e) New York City Office. During the Term, the Company shall provide
--------------------
as Employee's principal place of business the leased premises of the Company's
"MediaAmerica" operations in New York City, where Employee shall be entitled to
an executive office. It is the Company's intention (but not obligation) to have
such operations conducted at the same offices out of which MAI operated
immediately prior to the Closing Date and to have Employee occupy the same
executive office as that maintained for Employee immediately prior to such
Closing Date. In the event the Company moves its "MediaAmerica" operations
outside of mid-town Manhattan, the Company and Employee shall mutually agree on
the location of the new offices.
5. Termination of Employment. Employee's employment by the Company
-------------------------
and the Term shall terminate as follows:
(a) Death. Upon the death of the Employee.
-----
-4-
<PAGE>
(b) Disability. If, as a result of Employee's incapacity due to
----------
physical or mental illness, Employee shall have been absent from the performance
of his duties with the Company for five (5) consecutive months or an aggregate
of eight (8) months in any consecutive twenty-four (24) month period, and within
thirty (30) days after written notice is provided to him by the Company, he
shall not have returned to the performance of his duties, Employee's employment
under this Agreement may be terminated either by the Company or by Employee for
"Disability." Any question as to the existence of a Disability shall be
determined in writing by a qualified independent physician mutually acceptable
to Employee and the Company. If they cannot agree as to a qualified independent
physician, each shall appoint such a physician and those two physicians shall
select a third who shall make such determination. The determination of
Disability made by any such physician shall be final and conclusive for all
purposes of this Agreement.
(c) Termination by the Company for Cause. the Company may terminate
------------------------------------
Employee's employment under this Agreement for "Cause." For purposes of this
Agreement, "Cause" shall mean (i) Employee's conviction or plea of guilty for
any acts or activity which is a felony under the law where the conviction
occurred or where the plea was made. or (ii) Employee's failure to comply with
the terms of this Agreement or Employee's continued failure to perform his
duties hereunder (other than as a result of a Disability) which continues for a
period of not less than thirty (30) days following Employee's receipt of a
demand for substantial performance by the Company in writing that specifically
identifies the manner in which the Company believes Employee has not complied
with the terms of this Agreement or has not performed his duties hereunder or
(iii) a material misrepresentation knowingly made by Employee or MediaAmerica,
Inc. under the Exchange
-5-
<PAGE>
Agreement or a knowing material breach of a covenant or agreement by Employee or
MediaAmerica, Inc. of the Exchange Agreement.
(d) Termination by Employee for Good Reason. Employee may terminate
---------------------------------------
his employment under this Agreement for "Good Reason." For purposes of this
Agreement, "Good Reason," shall mean, without Employee's express prior written
consent, the occurrence of any one or more of the following circumstances,
unless such circumstances are corrected within thirty (30) days following the
Company's receipt from Employee of a written notice stating that he intends to
terminate his employment for one or more of the reasons set forth in this
Section 5(d) and specifying the particulars in detail (other than a termination
as a result of an event described in clause (v) of this Section 5(d)); (i) the
assignment to Employee of duties materially inconsistent with Employee's
authorities, duties, responsibilities and status (including offices, titles, and
reporting requirements) as contemplated in Section 2 hereof, or a material
diminution in the nature or status of Employee's authorities, duties or
responsibilities from those in effect on the Effective Date; (ii) a reduction in
the Base Salary below the applicable levels set forth in Section 3 hereof; (iii)
a relocation of Employee's principal place of business to a location outside
mid-town Manhattan without the Employee's consent; (iv) the failure of the
Company to maintain and to continue Employee's participation in the Company's
benefit plans in accordance with the provisions of Section 4 hereof; (v) a
Change in Control (as defined in Exhibit A attached hereto), and (vi) a material
misrepresentation knowingly made by the Company under the Exchange Agreement or
a knowing material breach of a covenant or agreement by the Company in the
Exchange Agreement.
(e) Other Termination. Employee's employment by the Company may be
-----------------
terminated by the Company other than for Cause at any time
-6-
<PAGE>
after the Earnout Period (as defined in the Exchange Agreement) or by Employee
other than for Good Reason at any time, in either case on not less than thirty
(30) days prior written notice to the other party.
(f) If Employee's employment shall be terminated during the Term (i)
by death, (ii) by Disability, (iii) by the Company other than for Cause or (iv)
by the Employee for Good Reason, Employee shall be entitled to the following
benefits:
(i) Payment of Salary. From the date of termination of Employee's
-----------------
employment ("Termination Date"), the Company shall continue to pay the salary of
Employee for a period of six (6) months in the case of death or Disability and
for a period of twelve (12) months in the case of termination by the Company
other than for Cause, or by the Employee for Good Reason (such six or twelve
month period being referred to herein as the "Applicable Period"), but no
payment shall be made for any portion of the Applicable Period which is (a)
after three (3) years from the Effective Date (except in the case of death or
Disability), or (b) if the Term is automatically extended under Section 2, after
the remaining period of the Term; provided, however, that Employee may elect
within 10 days after termination to receive payments under this Section 5(f)(i)
for the entire Applicable Period, in which event the two-year term of the post-
termination Covenant Not to Compete shall commence at the completion of the
Applicable Period, and for purposes of Section 8 only, the word "Term" as used
therein, shall be deemed to include the entire Applicable Period.
(ii) Continuation of Fringe Benefits. The Company shall continue to
-------------------------------
provide Employee and/or his eligible dependents and beneficiaries with all
Fringe Benefits set forth in Section 4(a) throughout the period during which
payments are made pursuant to Section 5(f)(i).
-7-
<PAGE>
(iii) Equity Awards and Other Benefits. During the period that
--------------------------------
payments are being made pursuant to Section 5(f)(i), Employee shall continue to
vest in options to purchase shares of Class A Common Stock previously granted to
Employee and, to the extent applicable and allowable under the terms of any
plans, programs or arrangements, all other rights under such other benefit
plans, programs or arrangements in which Employee shall be a participant as of
the date of termination.
6. Effect of Termination.
---------------------
(a) In the event that Employee's employment by the Company shall be
terminated for any reason: (A) the Company shall pay to Employee any Base Salary
accrued hereunder on or prior to the date of termination but not theretofore
paid to Employee; and (B) Employee shall be entitled, in accordance with the
terms and conditions of the applicable plan, program or arrangement, to all
benefits (including, without limitation, any benefits vested under any options
to purchase shares of Common Stock or other equity awards granted to Employee or
any bonus awards to Employee in lieu thereof) accrued under any benefit plan,
program or arrangement in which Employee shall have previously been a
participant or in which Employee shall be a participant as of the date of
termination (the "Accrued Benefits").
7. Confidentiality. Employee acknowledges that he may receive
---------------
confidential information regarding the Company. Employee agrees that during the
Term and for a period of three (3) years following the termination of Employee's
employment hereunder, he shall keep such information confidential, unless (i)
such information is generally available to the public, (ii) such information was
available to Employee from other sources or (iii) such information is required
to be disclosed pursuant to law, regulation, court order, subpoena or other
similar requirements.
-8-
<PAGE>
8. Covenant Not To Compete.
-----------------------
(a) Employee covenants and agrees with Company that for the Term and
for a period of two (2) years thereafter (the "Covenant Period"), Employee shall
not, directly or indirectly, own more than a five percent (5%) interest in,
control, manage, operate, join, participate in the ownership, management,
operation or control of, or be connected in any manner with, or have any other
type of direct or indirect financial or other interest in or business
relationship with (as a stockholder, director, officer, employee, agent,
consultant or otherwise) any person or entity which is engaged in a "Competitive
Activity" (as defined below). In addition, during the Covenant Period, Employee
shall not engage, directly or indirectly, as an employee, consultant, agent,
independent contractor or otherwise in any Competitive Activity. For purposes
of this Section 8(a), the term "Competitive Activity" shall mean (i) network
radio programming (whether as a program developer, provider or distributor),
(ii) the advertising representation for network radio businesses, or (iii) any
other business which in any manner competes with Company, its successors or
assigns, in any other business in which Company is engaged at the date of the
termination of Employee's employment by the Company and in which Employee was
directly involved as an employee (but not as a director) of the Company.
Notwithstanding anything contained in this Section 8, Employee may be an
employee, consultant, agent, independent contractor or otherwise act by or on
behalf of any person or entity which is engaged in a Competitive Activity so
long as Employee is not engaged in, and does not engage in, a Competitive
Activity for such person or entity.
(b) The Employee agrees with the Company for the Covenant Period that
Employee (i) will not directly or indirectly hire or solicit for hiring any
employee of the Company or its affiliates or (ii) will not directly
-9-
<PAGE>
or indirectly contact, hire or solicit the Company's providers of radio
programming or any party which has a production agreement with the Company or
its affiliates.
(c) Employee further agrees that services of Employee are specialized
and unique and therefore that the remedy at law for a breach of this Covenant
Not To Compete will be inadequate and that Company shall be entitled to specific
performance and/or injunctive relief for such a breach, which relief shall be
cumulative to other remedies and relief ordinarily available under the
circumstances and shall not be construed as an exclusive remedy or relief.
Employee agrees to reimburse Company, upon demand, for any damages suffered or
incurred by Company as a result of any breach by Employee of this Covenant Not
To Compete and for any costs or expenses incurred by Company in successfully
enforcing its rights and remedies hereunder, including court costs, witness fees
and expenses and attorneys' fees and expenses. The Company, upon demand, shall
reimburse Employee for out-of-pocket costs incurred by him in the successful
defense of a claim by the Company for breach of this Section 8 (including court
costs, witness fees and attorneys' fees and expenses).
(d) Should any provision of this Covenant Not To Compete be held
invalid or unenforceable by a court of competent jurisdiction, such covenant or
provision shall be valid and enforceable to the fullest extent permitted under
applicable law. Employee agrees that any suit, action or proceeding arising
under or relating to this Covenant Not To Compete may be brought in the state or
federal courts in the State of Colorado and hereby irrevocably consents and
submits to the jurisdiction of the state and federal courts in Denver, Colorado
for the purpose of any such suit, action or proceeding. No failure or delay by
Company in exercising any of its rights or
-10-
<PAGE>
remedies hereunder, and no course of dealing between Employee and Company, shall
operate as a waiver of any such right or remedy. No waiver of any default on any
one occasion shall constitute a waiver of any subsequent or other default, nor
shall any waiver, amendment or modification of this Covenant Not To Compete be
binding upon Company unless in writing executed by Company.
(e) Employee acknowledges that the Company competes on a nationwide
basis and that the geographical scope of the covenants contained herein is
reasonable and necessary for the protection of the Company's business.
(f) Employee acknowledges that he is among the Company's executive and
management personnel as defined in C.R.S. 8-2-113(2)(d).
9. Indemnification. During the Term and thereafter, the Company shall
---------------
indemnify Employee to the fullest extent permitted by law against any judgments,
fines, amounts paid in settlement and reasonable expenses (including attorneys'
fees), and advance amounts necessary to pay the foregoing at the earliest time
and to the fullest extent permitted by law, in connection with any claim, action
or proceeding (whether civil or criminal) against employee as a result of
Employee serving as an officer of director of the Company or in any capacity at
the request of the Company, in or with regard to any other entity, employee
benefit plan or enterprise (other than arising out of the Employee's act of
willful misconduct, misappropriation of funds, fraud or breach of this
Agreement). This indemnification shall be in addition to, and not in lieu of,
any other indemnification Employee shall be entitled to pursuant to the
Company's Certificate of Incorporation or By-laws or otherwise. Following
Employee's termination of employment, the Company shall continue to cover
Employee under the Company's directors and officers insurance, if any, for the
period during which Employee may be subject to potential liability for any
claim, action
-11-
<PAGE>
or proceeding (whether civil or criminal) as a result of his service as an
officer or director of the Company or in any capacity at the request of the
Company, in or with regard to any other entity, employee benefit plan or
enterprise on the same terms such coverage was provided during the Term, at the
highest level then maintained for any then or former officer or director.
10. Notices. All notices and other communications under this
-------
Agreement shall be in writing and shall be given in person, by facsimile or
first class mail, certified or registered with return receipt requested, and
shall be deemed to have been duly given upon receipt by the respective persons
named below:
If to Company: Jones International Networks,
Ltd.
9697 E. Mineral Avenue
Englewood, Colorado 80112
Attn: President
Phone: (303) 792-3111
Fax: (303) 799-1644
If to Employee: Gary Schonfeld
15 Deerfield Road
Chappaqua, New York 10514
With a copy to: Fried, Frank, Harris, Shriver
& Jacobson
One New York Plaza
New York, New York 10004
Fax: (212) 859-8586
Attn: Paul M. Reinstein, Esq.
Either party may change such party's address for notices by notice duly given
pursuant hereto.
11. Assignment; Successors. This Agreement is personal in its
----------------------
nature and neither of the parties hereto shall, without the consent of the
other,
-12-
<PAGE>
assign or transfer this Agreement or any rights or obligations hereunder;
provided that, in the event of the merger, consolidation, transfer, or sale of
all or substantially all of the assets of the Company with or to any other
individual or entity, this Agreement shall subject to the provisions hereof, be
binding upon and inure to the benefit of such successor and such successor shall
discharge and perform all the promises, covenants, duties, and obligations of
the Company hereunder.
12. Governing Law. This Agreement shall be governed by and construed
-------------
under and in accordance with the laws of the State of Colorado, without giving
effect to its conflicts of law principles.
13. Entire Agreement; Headings. This Agreement embodies the entire
--------------------------
agreement of the parties respecting the matters within its scope and may be
modified only by a writing executed by each party hereto. Section headings in
this Agreement are included herein for convenience of reference only and shall
not constitute a part of this Agreement for any other purpose.
14. Waiver; Modification. Failure to insist upon strict compliance
--------------------
with any of the terms, covenants, or conditions hereof shall not be deemed a
waiver of such term, covenant, or condition, nor shall any waiver or
relinquishment of, or failure to insist upon strict compliance within any right
or power hereunder at any one or more time be deemed a waiver or relinquishment
of such right or power at any other time or times. This Agreement shall not be
modified in any respect except by a writing executed by each party hereto.
15. Severability. In the event that a court of competent
------------
jurisdiction determines that any portion of this Agreement is in violation of
any statute or public policy, only the portions of this Agreement that violate
such statute or public policy shall be stricken. All portions of this Agreement
that do not violate any statute or public policy shall continue in full force
and effect.
-13-
<PAGE>
16. Counterparts. This Agreement may be executed in several
------------
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed by its duly authorized officer, and Employee has hereunto signed this
Agreement, as of the date first above written.
THE COMPANY:
JONES INTERNATIONAL NETWORKS, LTD.
By: /s/ Gregory J. Liptak
----------------------------
President
EMPLOYEE:
/s/ Gary Schonfeld
------------------------------
Gary Schonfeld
-14-
<PAGE>
EXHIBIT A
---------
A "Change of Control" means the occurrence of any of the following:
(a) A Change of Control as defined in the Post-Closing Agreement,
dated as of July 10, 1998, by and between MAI, Gary Schonfeld/Ron Hartenbaum,
the Company and JONES INTERNATIONAL, LTD.
(b) The consummation of:
(i) A complete liquidation or dissolution of the Company;
(ii) The sale or other disposition of all or substantially all of
the assets of the Company to any Person (other than a transfer to a Subsidiary
or the distribution to the Company's shareholders of the stock of a Subsidiary
or any other assets).
<PAGE>
EXHIBIT 10.21
JONES INTERNATIONAL NETWORKS, LTD.
$100,000,000
11-3/4% Senior Secured Notes due 2005
PURCHASE AGREEMENT
------------------
July 2, 1998
NatWest Capital Markets Limited
135 Bishopsgate
London, EC2M 3XT
United Kingdom
Ladies and Gentlemen:
The undersigned hereby confirms its agreement with you (the "Initial
Purchaser") as set forth below.
1. The Notes. Subject to the terms and conditions herein contained,
---------
Jones International Networks, Ltd., a Colorado corporation (the "Company"),
proposes to issue and sell to the Initial Purchaser $100,000,000 aggregate
principal amount of its 11-3/4% Senior Secured Notes due 2005 (the "Notes").
The Notes will be offered and sold to the Initial Purchaser without
being registered under the Securities Act of 1933, as amended (the "Securities
Act"), in reliance on exemptions therefrom. The Notes are to be issued under an
indenture (the "Indenture") to be dated as of July 10, 1998 between the Company
and United States Trust Company of New York, as trustee (the "Trustee").
In connection with the sale of the Notes, the Company has prepared a
preliminary offering memorandum dated June 11, 1998 (the "Preliminary
Memorandum") and will prepare a final offering memorandum dated July 2, 1998
(the "Final Memorandum"; the Preliminary Memorandum and the Final Memorandum
each herein being referred to as the "Memorandum") setting forth or including a
description of the terms of the Notes, the terms of the offering of the Notes, a
description of the Company and the Subsidiaries (as defined below) and any
material developments relating to the Company and the Subsidiaries occurring
after the date of the most recent historical financial statements included
therein.
The Company and the Initial Purchaser will enter into an Exchange and
Registration Rights Agreement (the "Registration Rights Agreement") prior to or
concurrently with the issuance of the Notes. Pursuant to the Registration
Rights Agreement, under the circumstances and the terms set forth therein, the
Company will agree to file with the Securities and Exchange Commission (the
"Commission"): (i) a registration statement on Form S-4 (the "Exchange Offer
Registration Statement") relating to a registered Exchange Offer (as defined in
<PAGE>
the Registration Rights Agreement) for the Notes under the Securities Act to
offer to the holders of the Notes the opportunity to exchange their Notes for an
issue of notes substantially identical to the Notes (except that (a) interest
thereon will accrue from the last date on which interest was paid on the Notes,
or if no such interest has been paid, from the date of original issuance of the
Notes, (b) such Notes will not contain restrictions on transfer, and (c) such
Notes will not contain provisions relating to an increase in their interest rate
under certain circumstances) that would be registered under the Securities Act
(the "Exchange Notes"); or (ii) alternatively, in the event that applicable
interpretations of the Commission do not permit the Company to effect the
Exchange Offer or do not permit any holder of the Notes who is not eligible to
participate in the Exchange Offer and who so requests, a shelf registration
statement (the "Shelf Registration Statement") to cover resales of Notes (the
"Resale Notes") by such holders who satisfy certain conditions, including the
provision of information in connection with the Shelf Registration Statement.
2. Representations and Warranties. The Company represents and
------------------------------
warrants to, and agrees with the Initial Purchaser that:
(a) Neither the Preliminary Memorandum as of the date thereof nor the
Final Memorandum nor any amendment or supplement thereto as of the date
thereof and, in the case of the Final Memorandum and any amendment or
supplement thereto, at all times subsequent thereto up to the Closing Date
(as defined in Section 3 below) contained or shall contain any untrue
statement of a material fact or omitted or omits to state a material fact
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading, except that the representations
and warranties set forth in this Section 2(a) do not apply to statements or
omissions made in reliance upon and in conformity with information
furnished to the Company in writing by the Initial Purchaser expressly for
use in the Preliminary Memorandum, the Final Memorandum or any amendment or
supplement thereto.
(b) As of the Closing Date, the Company will have the following
authorized and issued capital stock: 50,000,000 shares and 3,647,620
shares of Class A Common Stock authorized and issued, respectively, and
1,785,120 shares of Class B Common Stock authorized and issued; the Company
will own the percentage of the issued and outstanding stock or other equity
securities of each of the subsidiaries listed on Schedule 2 hereto
----------
(collectively, the "Subsidiaries"); all of the outstanding shares of
capital stock of the Company and those Subsidiaries that are corporations
as of the Closing Date will be duly authorized and validly issued, will be
fully paid and nonassessable and were not issued in violation of any
statutory preemptive rights; all of the outstanding ownership interests of
Jones/Owens Programming LLC ("Jones/Owens") held by Jones Radio Network
Ventures, Inc., will be duly authorized and validly existing and will not
have been issued in violation of any statutory preemptive rights, or
preemptive rights under the operating agreement or articles of organization
of Jones/Owens, respectively. Except as set forth in the Final Memorandum,
there are no outstanding (i) options, warrants or other rights to purchase
from the Company and the Subsidiaries, (ii) agreements or other obligations
of the Company or any of the Subsidiaries to issue or (iii) other rights to
convert any obligation into, or exchange any securities of, shares of
capital stock of, or other equity securities of, the Company or any of the
Subsidiaries. The Subsidiaries and the
2
<PAGE>
subsidiaries set forth on Schedule 3 are the only subsidiaries, direct or
----------
indirect, of the Company. Except as disclosed on Schedule 2 and Schedule 3,
---------- ----------
the Company does not own, directly or indirectly, any capital stock or any
other equity securities or have any equity interests in any firm,
partnership, joint venture, limited liability company or other entity or
long term debt securities of any firm, partnership, joint venture, limited
liability company or other entity.
(c) The Company and each of the Subsidiaries has been duly
incorporated or organized, is validly existing and is in good standing as a
corporation or limited liability company under the laws of its jurisdiction
of incorporation or organization, with all requisite corporate power and
authority to own its properties and conduct its business as now conducted,
and as described in the Final Memorandum; none of the Company and the
Subsidiaries is duly qualified to do business as a foreign corporation or
limited liability company in good standing in any other jurisdictions
because the ownership or leasing of its properties or the conduct of its
business does not require such qualification, or the failure to be so
qualified would not, individually or in the aggregate, have a material
adverse effect on the general affairs, management, business, condition
(financial or otherwise), prospects or results of operations of the Company
and the Subsidiaries, taken as a whole (any such event, a "Material Adverse
Effect").
(d) The Company has all requisite corporate power and authority to
execute, deliver and perform its obligations under the Notes. The Notes,
when issued, will be in the form contemplated by the Indenture. The Notes
have been duly and validly authorized by the Company and, when executed and
delivered by the Company and authenticated by the Trustee in accordance
with the provisions of the Indenture and when delivered to and paid for by
the Initial Purchaser in accordance with the terms of this Agreement, will
have been duly executed, issued and delivered and will constitute valid and
legally binding obligations of the Company, will entitle the Initial
Purchaser to the benefits of the Indenture and will be enforceable against
the Company in accordance with their terms, except as the enforceability
thereof may be limited by bankruptcy, insolvency, fraudulent conveyance,
reorganization or other similar laws affecting the enforcement of
creditors' rights generally and by general equitable principles.
(e) The Company has all requisite corporate power and authority to
execute, deliver and perform its obligations under the Indenture. The
Indenture meets the requirements for qualification under the Trust
Indenture Act of 1939, as amended (the "TIA"). The Indenture has been duly
and validly authorized, executed and delivered by the Company and when duly
and validly authorized, executed and delivered by the Trustee, will
constitute a valid and legally binding agreement of the Company,
enforceable against the Company in accordance with its terms, except as the
enforceability thereof may be limited by bankruptcy, insolvency, fraudulent
conveyance, reorganization or other similar laws affecting the enforcement
of creditors' rights generally and by general equitable principles.
(f) The Exchange Notes have been duly and validly authorized by the
Company and, when the Exchange Notes have been duly executed and delivered
by the
3
<PAGE>
Company and authenticated by the Trustee in accordance with the terms of
the Registration Rights Agreement and the Indenture, will constitute valid
and legally binding obligations of the Company, will entitle the holder to
the benefits of the Indenture, and will be enforceable against the Company
in accordance with their terms, except as the enforceability thereof may be
limited by bankruptcy, insolvency, fraudulent conveyance reorganization or
other similar laws affecting the enforcement of creditors' rights generally
and by general equitable principles.
(g) The Company has all requisite corporate power and authority to
execute, deliver and perform its obligations under the Registration Rights
Agreement. The Registration Rights Agreement has been duly and validly
authorized by the Company, and when executed and delivered by the Company,
will constitute a valid and legally binding agreement of the Company
enforceable against the Company in accordance with its terms, except as the
enforceability thereof may be limited by bankruptcy, insolvency, fraudulent
conveyance, reorganization or other similar laws affecting the enforcement
of creditors' rights generally and by general equitable principles.
(h) Each of the Company and JPN, Inc. (the "Subsidiary Pledgor"), as
applicable, has all requisite corporate power and authority to execute,
deliver and perform its respective obligations under the Pledge Agreement,
to be dated the Closing Date, whereby each of the Company and the
Subsidiary Pledgor pledge all of its Pledged Stock (as defined in such
agreement) to United States Trust Company of New York in its capacity as
collateral agent (the "Collateral Agent") for the benefit of the holders of
the Notes (the "Pledge Agreement"). The Pledge Agreement has been duly and
validly authorized by the Company and the Subsidiary Pledgor and, when
executed and delivered by the Company and the Subsidiary Pledgor, will
constitute a valid and legally binding agreement of the Company and the
Subsidiary Pledgor enforceable against them in accordance with its terms
and granting a security interest in the Pledged Stock in favor of the
Collateral Agent, except as the enforceability thereof may be limited by
bankruptcy, insolvency, fraudulent conveyance, reorganization or other
similar laws affecting the enforcement of creditors' rights generally and
by general equitable principles.
(i) Each of the Subsidiaries (the "Subsidiary Guarantors") has all
requisite corporate power and authority to execute, deliver and perform its
obligations under the subsidiary guaranty executed by it (each, a
"Subsidiary Guaranty"). Each Subsidiary Guaranty will be duly and validly
authorized at the Closing Date, and when executed and delivered by the
applicable Subsidiary Guarantor, will constitute a valid and legally
binding agreement of such Subsidiary Guarantor enforceable against such
Subsidiary Guarantor in accordance with its terms, except as the
enforceability thereof may be limited by bankruptcy, insolvency, fraudulent
conveyance, reorganization or other similar laws affecting the enforcement
of creditors' rights generally and by general equitable principles.
(j) The Company has all requisite corporate power and authority to
execute, deliver and perform its obligations under this Agreement and to
consummate the transactions contemplated hereby. This Agreement has been
duly and validly authorized, executed and delivered by the Company.
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(k) No consent, approval, authorization or order of any court or
governmental agency or body or third party is required for the execution,
delivery or performance by the Company or any Subsidiary party thereto, as
applicable, of this Agreement, the Registration Rights Agreement, the
Subsidiary Guaranties, the Indenture and the Pledge Agreement, or the
consummation by the Company or any of the Subsidiaries party thereto, as
applicable, of the transactions contemplated hereby or thereby that are to
be completed on or before the Closing Date, except such as have been
obtained or disclosed in the Final Memorandum and such as may be required
under state securities or "Blue Sky" laws in connection with the purchase
and resale of the Notes by the Initial Purchaser. None of the Company or
any of the Subsidiaries is (i) in violation of its certificate of
incorporation or bylaws (or similar organizational document), (ii) in
breach or violation of any statute, judgment, decree, order, rule or
regulation applicable to any of them or any of their respective properties
or assets, or (iii) in breach of or in default under (nor has any event
occurred which, with notice or passage of time or both, would constitute a
default under) or in violation of any of the terms or provisions of any
indenture, mortgage, deed of trust, loan agreement, note, lease, license,
franchise agreement, permit, certificate, contract or other agreement or
instrument to which any of them is a party or to which any of them or their
respective properties or assets is subject which is material to the Company
and its Subsidiaries taken as a whole (collectively, "Contracts"), except
where such violation, breach or default would not have a Material Adverse
Effect.
(l) The execution, delivery and performance by the Company and the
Subsidiaries party thereto, as applicable, of this Agreement, the
Indenture, the Registration Rights Agreement, the Pledge Agreement and the
Subsidiary Guaranties and the consummation by the Company and the
Subsidiaries party thereto, as applicable, of the transactions contemplated
hereby and thereby, and the fulfillment of the terms hereof and thereof,
and the retention by the Company of NatWest Capital Markets Limited
("NatWest") pursuant to those certain letter agreements (including the
engagement and indemnity letter agreements) dated April 16, 1998
(collectively, the "Engagement Letter") and NatWest's acting as
contemplated hereby and thereby, will not conflict with or constitute or
result in a breach of or a default under (or an event which with notice or
passage of time or both would constitute a default under) or violation of
any of (i) the terms or provisions of any Contract, (ii) the certificate of
incorporation or by-laws (or similar organizational document) of the
Company or any of the Subsidiaries, or (iii) any statute, judgment, decree,
order, rule or regulation applicable to the Company or any of the
Subsidiaries or any of their respective properties or assets, except such
conflicts, breaches, defaults or violations that would not, individually or
in the aggregate, have a Material Adverse Effect.
(m) The audited consolidated financial statements of the Company and
to our knowledge of MediaAmerica, Inc. ("MediaAmerica"), included in the
Preliminary Memorandum and the Final Memorandum present fairly in all
material respects the financial position, results of operations and cash
flows of such entities at the dates and for the periods to which they
relate and have been prepared in accordance with U.S. generally accepted
accounting principles applied on a consistent basis except as otherwise
stated therein. The income statement and balance sheet data appearing
under the caption
5
<PAGE>
"Selected Consolidated Financial Data" in the Preliminary Memorandum and
the Final Memorandum present fairly in all material respects the
information shown therein and have been prepared and compiled on a basis
consistent with the audited financial statements included therein, except
as otherwise stated therein. Each of Arthur Andersen, LLP and to our
knowledge, David Berdon & Co. is an independent public accounting firm
within the meaning of the Securities Act and the rules and regulations
promulgated thereunder.
(n) The income statement and balance sheet data appearing under the
caption "Selected Unaudited Pro Forma Financial Data" included in the
Preliminary Memorandum and the Final Memorandum have been properly computed
on the bases described therein; the assumptions used in the preparation of
such financial data are reasonable and the adjustments used therein are
appropriate to give effect to the transactions or circumstances referred to
therein.
(o) There is not, to the knowledge of the Company, pending or
threatened, any action, suit, proceeding, inquiry or investigation to which
the Company or any of the Subsidiaries is a party, or to which the property
or assets of the Company or any of the Subsidiaries are subject, before or
brought by any court, arbitrator or governmental agency or body which is
reasonably likely to, individually or in the aggregate, have a Material
Adverse Effect or which seeks to restrain, enjoin, prevent the consummation
of or otherwise challenge the issuance or sale of the Notes to be sold
hereunder or the consummation of the transactions contemplated by this
Agreement, the Indenture, the Registration Rights Agreement, the Pledge
Agreement, the Subsidiary Guarantees and the Acquisition Agreements (as
defined below) (the "Transactions").
(p) The Company or its Subsidiaries have adopted, affixed and used
each of the designations listed in Schedule (p)(1) attached hereto (the
"Marks") in association with goods or services offered for sale by the
Company or its Subsidiaries. The Company or its Subsidiaries have a
license from Jones International, Ltd. to use each of the designations
listed in Schedule (p)(2) attached hereto (the "Licensed Marks"). To the
best of each of their knowledge, the Company and its Subsidiaries have the
right to use each of such Marks and Licensed Marks that is a material
trademark, service mark or trade name necessary to conduct the
business now or proposed to be operated by it or them as described in the
Preliminary Memorandum and Final Memorandum. None of the Company nor any of
the Subsidiaries has received any notice of infringement of or conflict of
any of the Marks or Licensed Marks with asserted rights of others with
respect to any trademark, service mark or tradename which, if such
assertion of infringement or conflict were sustained, would, individually
or in the aggregate, have a Material Adverse Effect.
To the best of each of their knowledge, the Company and its
Subsidiaries own or possess adequate licenses or other rights to use, all
material patents, copyrights or know-how necessary to conduct the business
now or proposed to be operated by it or them as described in the
Preliminary Memorandum and Final Memorandum (collectively, the "Other
Intellectual Property"). To the best of each of their knowledge, the
Company and its Subsidiaries have the right to use such Other Intellectual
Property to conduct the
6
<PAGE>
business now or proposed to be operated as so described. None of the
Company nor any of the Subsidiaries has received any notice of infringement
of or conflict with asserted rights of others with respect to any patents,
copyrights or know-how which, if such assertion of infringement or conflict
were sustained, would, individually or in the aggregate, have a Material
Adverse Effect.
(q) The Company and each of the Subsidiaries possesses all material
licenses, permits, certificates, consents, orders, approvals and other
authorizations from, and has made all declarations and filings with, all
federal, state, local and other governmental authorities, all self-
regulatory organizations and all courts and other tribunals, presently
required or necessary to own or lease, as the case may be, and to operate
its respective properties and to carry on its respective businesses as now
or proposed to be conducted as described in the Preliminary Memorandum and
the Final Memorandum (collectively, the "Permits"); each of the Company and
the Subsidiaries has fulfilled and performed all of its obligations with
respect to such Permits and no event has occurred which allows, or after
notice or lapse of time would allow, revocation or termination thereof or
results in any other material impairment of the rights of the holder of any
such Permit; and none of the Company or the Subsidiaries has received any
notice of any proceeding relating to revocation or modification of any such
Permit; except in each such case to the extent that failure to have such
Permits or the nonperformance, revocation, modification or termination of
the Permits would not result in a Material Adverse Effect.
(r) Since the date of the most recent financial statements appearing
in the Final Memorandum, except as described therein, (i) none of the
Company nor the Subsidiaries has incurred any liabilities or obligations,
direct or contingent, or entered into or agreed to enter into any
transactions or contracts (written or oral) which are not in the ordinary
course of business and which liabilities, obligations, transactions or
contracts would, individually or in the aggregate, be material to the
general affairs, management, business, condition (financial or otherwise),
prospects or results of operations of the Company and the Subsidiaries,
either individually or taken as a whole (a "Material Change"), (ii) none of
the Company nor the Subsidiaries has purchased any of its outstanding
capital stock, nor has the Company declared, paid or otherwise made any
dividend or distribution of any kind on its capital stock and (iii) other
than as described in the Final Memorandum, there have been no changes in
the capital stock or long-term indebtedness of the Company or the
Subsidiaries.
(s) There has not occurred any material adverse change, or any
development involving a prospective material adverse change, in the general
affairs, management, business, condition, (financial or otherwise),
prospects or results of operations of the Company and the Subsidiaries,
either individually or taken as a whole, from that set forth in the
Preliminary Memorandum and the Final Memorandum.
(t) The Company and each of the Subsidiaries has filed all necessary
federal, state, local and foreign income and franchise tax returns, and has
paid all taxes shown as due thereon; there is no tax deficiency that has
been asserted against the Company or any of the Subsidiaries other than tax
deficiencies which the Company or any Subsidiary is
7
<PAGE>
contesting in good faith and for which the Company or such Subsidiary has
provided adequate reserves.
(u) The statistical and market-related data included in the Final
Memorandum are based on or derived from sources which the Company and the
Subsidiaries have a reasonable belief to be reliable and accurate.
(v) None of the Company, the Subsidiaries nor any agent acting on any
of their behalf has taken or will take any action that might cause this
Agreement or the sale of the Notes to violate Regulation T, U or X of the
Board of Governors of the Federal Reserve System, in each case as in effect
on the Closing Date.
(w) Each of the Company and the Subsidiaries has good and marketable
title to all real property and good title to all tangible personal property
specifically identified and described in the Preliminary Memorandum and the
Final Memorandum as being owned by it and good and marketable title to any
leasehold estate in the real and personal property described in the
Preliminary Memorandum and the Final Memorandum as being leased by it free
and clear of all liens, charges, encumbrances or restrictions, except as
described in the Preliminary Memorandum and the Final Memorandum or to the
extent the failure to have such title or the existence of such liens,
charges, encumbrances or restrictions would not, individually or in the
aggregate, have a Material Adverse Effect after giving effect to the
repayment of the indebtedness under the credit facility of Jones Radio
Holdings, Inc. ("Radio Holdings") and the release of all liens, charges,
encumbrances and restrictions thereunder.
(x) There are no legal or governmental proceedings or Contracts
involving or affecting the Company or any Subsidiary or any of their
respective properties or assets which would be required to be described in
a prospectus forming part of a registration statement filed with the
Commission pursuant to the Securities Act that are not described in the
Preliminary Memorandum and the Final Memorandum.
(y) Except as would not, individually or in the aggregate, be
reasonably expected to have a Material Adverse Effect (A) each of the
Company and the Subsidiaries is in compliance with and not subject to
liability under applicable Environmental Laws (as defined below), (B) each
of the Company and the Subsidiaries has made all filings and provided all
notices required under any applicable Environmental Laws, and has and is in
compliance with all Permits required under any applicable Environmental
Laws and each of them is in full force and effect, (C) there is no civil,
criminal or administrative action, suit, demand, claim, hearing, notice of
violation, investigation, proceeding, notice or demand letter or request
for information pending or, to the knowledge of the Company or any of the
Subsidiaries, threatened against the Company or any of the Subsidiaries
under any Environmental Law, (D) no lien, charge, encumbrance or
restriction has been recorded under any Environmental Law with respect to
any assets, facility or property owned, operated, leased or controlled by
the Company or any of the Subsidiaries, (E) none of the Company or the
Subsidiaries has received notice that it has been identified as a
potentially responsible party under the Comprehensive Environmental
Response,
8
<PAGE>
Compensation and Liability Act of 1980, as amended ("CERCLA") or any
comparable state law, (F) no property or facility of the Company or any of
the Subsidiaries is listed or proposed for listing on the National
Priorities List under CERCLA or is listed in the Comprehensive
Environmental Response, Compensation, Liability Information System List
promulgated pursuant to CERCLA, or on any comparable list maintained by any
state or local governmental authority.
For purposes of this Agreement, "Environmental Laws" means the common
law and all applicable federal, state and local laws or regulations, codes,
orders, decrees, judgments or injunctions issued, promulgated, approved or
entered thereunder, relating to pollution or protection of public or
employee health and safety or the environment, including, without
limitation, laws relating to (i) emissions, discharges, releases or
threatened releases of hazardous materials into the environment (including,
without limitation, ambient air, surface water, ground water, land surface
or subsurface strata), (ii) the manufacture, processing, distribution, use,
generation, treatment, storage, disposal, transport or handling of
hazardous materials, and (iii) underground and above ground storage tanks,
and related piping, and emissions, discharges, releases or threatened
releases therefrom.
(z) There is no strike, labor dispute, slowdown or work stoppage with
the employees of the Company or any of the Subsidiaries which is pending
or, to the knowledge of the Company or any of the Subsidiaries, threatened.
(aa) Each of the Company and the Subsidiaries carries insurance in
such amounts and covering such risks as is adequate for the conduct of its
business and the value of its properties. Neither the Company nor any of
the Subsidiaries has received notice from any insurer or agent of such
insurer that capital improvements or other expenditures are required or
necessary to be made in order to continue such insurance.
(bb) To the knowledge of the Company, none of the Company nor the
Subsidiaries has any material liability for any prohibited transaction
(within the meaning of Section 4975(c) of the Internal Revenue Code of
1986, as amended (the "Code") or Part 4 of Title I of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA")) (or an
accumulated funding deficiency within the meaning of Section 412 of the
Code or Section 302 of ERISA) or any complete or partial withdrawal
liability (within the meaning of Section 4201 of ERISA) with respect to any
pension, profit sharing or other plan which is subject to ERISA, to which
the Company or any of the Subsidiaries makes or ever has made a
contribution and in which any employee of the Company or of any Subsidiary
is or has ever been a participant. To the knowledge of the Company, with
respect to such plans, to the extent applicable, the Company and each
Subsidiary is in compliance in all material respects with all applicable
provisions of ERISA.
(cc) The Company and each of the Subsidiaries (i) makes and keeps
accurate books and records and (ii) maintains internal accounting controls
which provide reasonable assurance that (A) transactions are executed in
accordance with management's authorization, (B) transactions are recorded
as necessary to permit preparation of its
9
<PAGE>
financial statements and to maintain accountability for its assets, (C)
access to its assets is permitted only in accordance with management's
authorization and (D) the reported accountability for its assets is
compared with existing assets at reasonable intervals.
(dd) None of the Company or the Subsidiaries will be an "investment
company" or a person "controlled by" an "investment company," as such
terms are defined in the Investment Company Act of 1940, as amended, and
the rules and regulations thereunder.
(ee) The Notes, the Exchange Notes, the Registration Rights Agreement
and the Indenture will conform in all material respects to the
descriptions thereof in the Final Memorandum.
(ff) No holder of securities of the Company nor any of the
Subsidiaries will be entitled to have such securities registered under the
registration statements required to be filed by the Company pursuant to the
Registration Rights Agreement other than as expressly permitted thereby.
(gg) Immediately after the consummation of the transactions
contemplated by this Agreement, the fair value of the assets of the Company
and the Subsidiaries (on a consolidated basis) will exceed the sum of its
stated liabilities and identified contingent liabilities; the Company and
the Subsidiaries (on a consolidated basis) are not and the Company and the
Subsidiaries (on a consolidated basis) will not be, after giving effect to
the execution, delivery and performance of this Agreement, and the
consummation of the transactions contemplated hereby, (a) left with
unreasonably small capital with which to carry on its business as it is
currently or proposed to be conducted, (b) unable to pay its debts
(contingent or otherwise) as they mature or otherwise become due or (c)
otherwise insolvent.
(hh) None of the Company, the Subsidiaries or any of their respective
Affiliates (as defined in Rule 501(b) of Regulation D under the Securities
Act) has directly, or through any agent, (i) sold, offered for sale,
solicited offers to buy or otherwise negotiated in respect of, any
"security" (as defined in the Securities Act) which is or could be
integrated with the sale of the Notes in a manner that would require the
registration under the Securities Act of the Notes or (ii) engaged in any
form of general solicitation or general advertising (as those terms are
used in Regulation D under the Securities Act) in connection with the
offering of the Notes or in any manner involving a public offering within
the meaning of Section 4(2) of the Securities Act. Other than materials
prepared for use in the "road show" relating to the offering of the Notes,
the Company has not distributed and will not distribute any offering
material to prospective purchasers in connection with the offering of the
Notes other than the Final Memorandum and any Preliminary Memorandum. No
securities of the same class as the Notes have been issued and sold by the
Company within the six-month period immediately prior to the date hereof.
(ii) Assuming the accuracy of the representations and warranties of
the Initial Purchaser in Section 8 hereof and of the deemed representations
of purchasers of the
10
<PAGE>
Notes under the caption "Transfer Restrictions" in the Final Offering
Memorandum, it is not necessary in connection with the offer, sale and
delivery of the Notes to the Initial Purchaser in the manner contemplated
by this Agreement to register any of the Notes under the Securities Act or
to qualify the Indenture under the TIA, except as provided in the
Registration Rights Agreement.
(jj) No securities of the Company or any Subsidiary are of the same
class (within the meaning of Rule 144A as promulgated under the Securities
Act ("Rule 144A")) as the Notes and listed on a national securities
exchange registered under Section 6 of the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), or quoted in a U.S. automated inter-dealer
quotation system.
(kk) None of the Company or the Subsidiaries has taken, nor will any
of them take, directly or indirectly, any action designed to, or that might
be reasonably expected to, cause or result in stabilization or manipulation
of the price of the Notes in violation of Regulation M under the Exchange
Act.
(ll) None of the Company or the Subsidiaries, or any person acting on
any of their behalf (other than the Initial Purchaser) has engaged in any
directed selling efforts (as that term is defined in Regulation S under the
Securities Act ("Regulation S")) with respect to the Notes; the Company and
its respective Affiliates and any person acting on any of their behalf have
complied with the offering restrictions requirement of Regulation S.
(mm) Each of the Preliminary Memorandum and the Final Memorandum, as
of its respective date, contains all of the information that, if requested
by a prospective purchaser of the Notes, would be required to be provided
to such prospective purchaser pursuant to Rule 144A(d)(4) under the
Securities Act.
(nn) The Notes satisfy the eligibility requirements of Rule 144A(d)(3)
under the Securities Act.
(oo) Neither the Company nor any of the Subsidiaries nor, to the
Company's knowledge, any officer or director purporting to act on behalf of
the Company or any of the Subsidiaries has at any time: (i) made any
contributions to any candidate for political office, or failed to disclose
fully any such contributions, in violation of law, (ii) made any payment of
funds to, or received or retained any funds from, any state, federal or
foreign governmental officer or official, or other person charged with
similar public or quasi-public duties, other than payments required or
allowed by applicable law, (iii) violated or is in violation of any
provision of the Foreign Corrupt Practices Act of 1977, (iv) made any
unlawful bribe, rebate, payoff, influence payment, kickback or other
unlawful payment or (v) engaged in any transactions, maintained any bank
account or used any corporate funds except for transactions, bank accounts
and funds which have been and are reflected in the normally maintained
books and records of the Company and the Subsidiaries.
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<PAGE>
(pp) Except as disclosed in any Memorandum, there are no material
outstanding loans or advances or material guarantees of indebtedness by the
Company or any of its Subsidiaries to or for the benefit of any of the
officers or directors of the Company or any of its Subsidiaries or any of
the members of the families of any of them.
(qq) None of the Company or any of the Subsidiaries has engaged or
retained any person, other than NatWest and M. Kane and Company, to act as
a financial advisor, underwriter or placement agent in connection with the
issuance of the Notes and, except for the fees and expenses payable to the
Initial Purchaser and M. Kane and Company, no person has the right to
receive a material amount of financial advisory, underwriting, placement,
finder's or similar fees in connection with, or as a result of, the
issuance of the Notes and the purchase of the Notes by the Initial
Purchaser or the consummation of the other transactions contemplated
hereby.
(rr) The Company has all requisite corporate power and authority to
execute, deliver and perform its obligations under each of (i) the
Agreement, dated as of June 2, 1998, among MediaAmerica, Inc., a New York
corporation ("MediaAmerica"), Ron Hartenbaum, Gary Schonfeld, Jones Network
Holdings LLC and the Company, whereby the Company has agreed to purchase
certain of the advertising representation and radio programming assets and
assume certain liabilities of MediaAmerica (the "Agreement") and the
Employment Agreement, Post-Closing Agreement and Registration Rights
Agreement (together, the "Acquisition Agreements"). The Agreement has been
duly and validly authorized, executed and delivered by the Company and
constitutes a valid and legally binding agreement of the Company
enforceable against the Company in accordance with its terms, except as the
enforceability thereof may be limited by bankruptcy, insolvency, fraudulent
conveyance, reorganization or other similar laws affecting the enforcement
of creditors' rights generally and by general equitable principles.
3. Purchase, Sale and Delivery of the Notes. On the basis of the
----------------------------------------
representations, warranties, agreements and covenants herein contained and
subject to the terms and conditions herein set forth, the Company agrees to
issue and sell to the Initial Purchaser, and the Initial Purchaser agrees to
purchase from the Company the principal amount of Notes set forth opposite its
name on Schedule 1 hereto at 96.5% of their principal amount. One or more
----------
certificates in definitive form for the Notes that the Initial Purchaser has
agreed to purchase hereunder, and in such denomination or denominations and
registered in such name or names as the Initial Purchaser reasonably requests,
shall be delivered by or on behalf of the Company to the Initial Purchaser,
against payment by or on behalf of such Initial Purchaser of the purchase price
therefor by wire transfer of immediately available funds to such account or
accounts as the Company shall specify prior to the Closing Date, or by such
means as the parties hereto shall agree prior to the Closing Date. Such
delivery of and payment for the Notes shall be made at the offices of the
Company in Englewood, Colorado at 8:00 A.M., Colorado time, on July 10, 1998, or
at such other place, time or date as the Initial Purchaser and the Company may
agree upon, such time and date of delivery against payment (which shall,
notwithstanding anything to the contrary, mean immediately prior to the closing
of the Acquisition) being herein referred to as the "Closing Date."
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<PAGE>
4. Offering by the Initial Purchaser. The Initial Purchaser
---------------------------------
proposes to make an offering of the Notes at the price and upon the terms set
forth in the Final Memorandum, as soon as practicable after this Agreement is
entered into and as in the judgment of the Initial Purchaser is advisable.
5. Covenants of the Company. The Company covenants and agrees with
------------------------
the Initial Purchaser that:
(a) The Company will not amend or supplement the Final Memorandum or
any amendment or supplement thereto of which the Initial Purchaser shall
not previously have been advised and furnished a copy for a reasonable
period of time prior to the proposed amendment or supplement and as to
which the Initial Purchaser shall not have consented, which consent shall
not be unreasonably withheld. The Company will promptly, upon the
reasonable request of the Initial Purchaser or counsel for the Initial
Purchaser, make any amendments or supplements to the Final Memorandum that
may be necessary or advisable in connection with the resale of the Notes by
the Initial Purchaser.
(b) The Company will cooperate with the Initial Purchaser in
arranging for the qualification of the Notes for offering and sale under
the securities or "Blue Sky" laws of such jurisdictions as the Initial
Purchaser may designate and will continue such qualifications in effect for
as long as may be necessary to complete the resale of the Notes; provided,
--------
however, that in connection therewith, the Company shall not be required to
-------
qualify as a foreign corporation or to execute a general consent to service
of process in any jurisdiction or subject itself to taxation in excess of a
nominal dollar amount in any such jurisdiction where it is not now so
subject.
(c) If, at any time prior to the completion of the distribution by
the Initial Purchaser of the Notes, any event occurs or information becomes
known as a result of which the Final Memorandum as then amended or
supplemented would, in the judgment of the Company or in the reasonable
opinion of counsel to the Company include any untrue statement of a
material fact, or omit to state a material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, or if for any other reason it is necessary at any
time to amend or supplement the Final Memorandum to comply with applicable
law, the Company will promptly notify the Initial Purchaser thereof and
will prepare, at the expense of the Company, an amendment or supplement to
the Final Memorandum that corrects such statement or omission or effects
such compliance.
(d) The Company will, without charge, provide to the Initial
Purchaser and to counsel for the Initial Purchaser as many copies of the
Preliminary Memorandum and the Final Memorandum or any amendment or
supplement thereto as the Initial Purchaser may reasonably request.
(e) The Company will apply the net proceeds from the sale of the
Notes substantially as set forth under "Use of Proceeds" in the Final
Memorandum.
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<PAGE>
(f) Until the date on which there are no Notes outstanding, the
Company will furnish to the Initial Purchaser copies of all reports and
other communications (financial or otherwise) furnished by the Company to
the Trustee or the holders of the Notes and, as soon as available, copies
of any reports or financial statements furnished to or filed by the Company
with the Commission or any national securities exchange on which any class
of securities of the Company may be listed, unless otherwise publicly
available.
(g) Until the date on which there are no Notes outstanding, the
Company will furnish to the Initial Purchaser a copy of any unaudited
interim financial statements of the Company and the Subsidiaries for any
period subsequent to the period covered by the most recent financial
statements appearing in the Final Memorandum, unless otherwise publicly
available.
(h) None of the Company, the Subsidiaries or any of their Affiliates
will sell, offer for sale or solicit offers to buy or otherwise negotiate
in respect of any "security" (as defined in the Securities Act) which could
reasonably be expected to be integrated with the sale of the Notes in a
manner which would require the registration under the Securities Act of the
Notes.
(i) None of the Company nor the Subsidiaries will engage in any form
of "general solicitation" or "general advertising" (as those terms are used
in Regulation D under the Securities Act) in connection with the offering
of the Notes or in any manner involving a public offering of the Notes
within the meaning of Section 4(2) of the Securities Act.
(j) None of the Company, the Subsidiaries nor their Affiliates nor any
person acting on any of their behalf will engage in any directed selling
efforts (as that term is defined in Regulation S) with respect to the Notes
and the Company covenants to comply, and to have its Affiliates and each
person acting on its or their behalf comply, with the offering requirements
of Regulation S.
(k) For so long as any of the Notes remain outstanding, the Company
will make available, upon request, to any seller of Notes engaged in a
transaction as to which Rule 144A is applicable the information specified
in Rule 144A(d)(4) under the Securities Act, unless the Company is then
subject to Section 13 or 15(d) of the Exchange Act.
(l) For a period of 180 days from the date of the Final Memorandum,
except Indebtedness (as defined in the Indenture) permitted by the
Indenture, the Company and the Subsidiaries will not offer for sale, sell,
contract to sell or otherwise dispose of, directly or indirectly, or file a
registration statement for, or announce any offer, sale, contract for sale
of or other disposition of any debt securities issued or guaranteed by the
Company or any Subsidiaries (other than the Notes, Resale Notes and
Exchange Notes) without the prior written consent of the Initial Purchaser.
(m) During the period from the Closing Date until two years after the
Closing Date, without the prior written consent of the Initial Purchaser,
the Company and the
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Subsidiaries will not, and will not permit any of their affiliates (as
defined in Rule 144 under the Securities Act) to, resell any of the Notes
that have been reacquired by them, except for Notes purchased by the
Company or any of its affiliates and resold in a transaction registered
under the Securities Act.
(n) In connection with the offering of the Notes, until the Initial
Purchaser shall have notified the Company of the completion of the resale
of the Notes, the Company and the Subsidiaries will not, and will cause
their affiliated purchasers (as defined in the Exchange Act) not to, either
alone or with one or more other persons, bid for or purchase, for any
account in which it or any of its affiliated purchasers has a beneficial
interest, any Notes and not to, and to cause its affiliated purchasers not
to, make bids or purchase for the purpose of creating actual, or apparent,
active trading in or of raising the price of the Notes.
(o) The Company and the Subsidiaries will not take any action prior to
the execution and delivery of the Indenture which, if taken after such
execution and delivery, would have violated any of the covenants contained
in the Indenture.
(p) The Company and the Subsidiaries will not take any action prior to
the Closing Date which would require the Final Memorandum to be amended or
supplemented pursuant to Section 5(c).
(q) Prior to the Closing Date, the Company and the Subsidiaries will
not issue any press release or other communication directly or indirectly
or hold any press conference with respect to the Company, its condition,
financial or otherwise, or earnings, business affairs or business prospects
(except for communications in the ordinary course of business and
consistent with the past practices of the Company and, with respect to a
press release or press conference, of which the Initial Purchaser is
notified), without the prior written consent of the Initial Purchaser,
unless in the judgment of the Company and its counsel, after notification
to the Initial Purchaser, such press release or communication or conference
is required by law.
(r) The Company will use its best efforts to (i) permit the Notes to
be designated PORTAL securities in accordance with the rules and
regulations adopted by the NASD relating to trading in the Private
Offerings, Resales and Trading through Automated Linkages market (the
"PORTAL Market") and (ii) permit the Notes (other than Notes that will be
sold pursuant to Regulation D or Regulations S under the Securities Act) to
be eligible for clearance and settlement through the Depository Trust
Company ("DTC").
6. Expenses. The Company agrees to pay all costs and expenses
--------
incident to the performance of its obligations under this Agreement, whether or
not the transactions contemplated herein are consummated or this Agreement is
terminated pursuant to Section 11 hereof, including all costs and expenses
incident to (i) the printing, word processing or other production of documents
with respect to the transactions contemplated hereby, including any costs of
printing the Preliminary Memorandum and the Final Memorandum and any amendment
or
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supplement thereto, and any "Blue Sky" memoranda, (ii) all arrangements relating
to the delivery to the Initial Purchaser of copies of the foregoing documents,
(iii) the fees and disbursements of counsel, accountants and any other experts
or advisors retained by the Company, (iv) preparation (including printing),
issuance and delivery to the Initial Purchaser of the Notes, (v) the
qualification of the Notes under state securities and "Blue Sky" laws, including
filing fees and reasonable fees and disbursements of counsel for the Initial
Purchaser relating thereto, (vi) fees and expenses of the Trustee and the
Collateral Agent (including fees and expenses of counsel), (vii) all expenses
and listing fees incurred in connection with the application for quotation of
the Notes on the PORTAL Market, (viii) all expenses incurred in connection with
the approval of the Notes for book-entry transfer by DTC, (ix) any fees charged
by Standard & Poors Ratings Service and Moody's Investor's Service for the
rating of the Notes and (x) expenses in connection with any meeting with
prospective investors and all other reasonable out-of-pocket expenses of the
Initial Purchaser (including, without limitation, all road show expenses)
incurred by the Initial Purchaser or any of its affiliates in connection with,
or arising out of, the offering and sale of the Notes, provided, that all
expenses paid or reimbursed by or on behalf of the Company to the Initial
Purchaser or any of its affiliates or to its counsel shall be limited to the
extent provided in the Engagement Letter.
7. Conditions of the Initial Purchaser's Obligations. The
-------------------------------------------------
obligation of the Initial Purchaser to purchase and pay for the Notes shall, in
its sole discretion, be subject to the satisfaction or waiver of the following
conditions on or prior to the Closing Date:
(a) On the Closing Date, the Initial Purchaser shall have received
the opinion, dated as of the Closing Date and addressed to the Initial
Purchaser, of Davis Graham & Stubbs LLP, counsel for the Company, in form
and substance satisfactory for counsel to the Initial Purchaser, dated the
Closing Date, substantially to the effect that:
(i) The Company has been duly incorporated and each of the
Company and the Subsidiaries that are corporations or limited
liability companies are validly existing and is in good standing as a
corporation or limited liability company, as applicable, under the
laws of its jurisdiction of incorporation or organization, with all
requisite corporate or limited liability company power and authority
to own its properties and conduct its business as now conducted, and
as described in the Final Memorandum.
(ii) All of the outstanding shares of capital stock of the
Company and those Subsidiaries that are corporations as of the Closing
Date are duly authorized and validly issued, are fully paid and
nonassessable and were not issued in violation of any statutory
preemptive rights; all of the outstanding ownership interests of all
Subsidiaries that are limited liability companies will be duly
authorized and validly existing and will not have been issued in
violation of any statutory preemptive rights, or preemptive rights
under the operating agreement or articles of organization of such
limited liability companies. Except as set forth in the Final
Memorandum, to our knowledge, there are no outstanding (i) options,
warrants or other rights to purchase from the Company and the
Subsidiaries, (ii) agreements or other obligations of the Company or
any of the Subsidiaries to issue or (iii) other
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rights to convert any obligation into, or exchange any securities of,
shares of capital stock of, or other equity securities of, the Company
or any of the Subsidiaries.
(iii) The Company has all requisite corporate power and
authority to execute, deliver and perform its obligations under the
Notes. The Notes, when issued, will be substantially in the form
contemplated by the Indenture. The Notes have been duly and validly
authorized and when executed and delivered by the Company and
authenticated by the Trustee in accordance with the provisions of the
Indenture and delivered to and paid for by the Initial Purchaser in
accordance with the terms of this Agreement, will constitute valid and
legally binding obligations of the Company, will entitle the holders
to the benefits of the Indenture and will be enforceable against the
Company in accordance with their terms, except as the enforceability
thereof may be limited by bankruptcy, insolvency, fraudulent
conveyance, reorganization or other similar laws affecting the
enforcement of creditors' rights generally and by general equitable
principles.
(iv) The Global Note (as such term is defined in the Indenture)
is substantially in the form contemplated by the Indenture.
(v) The Company has all requisite corporate power and
authority to execute, deliver and perform its obligations under the
Indenture. The Indenture meets the requirements for qualification
under the TIA. The Indenture has been duly and validly authorized,
executed and delivered by the Company and (assuming due authorization,
execution and delivery thereof by the Trustee) constitutes a valid and
legally binding agreement of the Company, enforceable against the
Company in accordance with its terms, except as the enforceability
thereof may be limited by bankruptcy, insolvency, fraudulent
conveyance, reorganization or other similar laws affecting the
enforcement of creditors' rights generally and by general equitable
principles.
(vi) The Exchange Notes have been duly and validly authorized
by the Company, and when the Exchange Notes have been duly executed
and delivered by the Company and authenticated by the Trustee in
accordance with the terms of the Registration Rights Agreement and the
Indenture (assuming due authorization, execution and delivery thereof
by the Trustee), will constitute the valid and legally binding
obligations of the Company, will entitle the holder to the benefits of
the Indenture, and will be enforceable against the Company in
accordance with their terms, except as the enforceability thereof may
be limited by bankruptcy, insolvency, fraudulent conveyance,
reorganization or other similar laws affecting the enforcement of
creditors' rights generally and by general equitable principles.
(vii) The Company has all requisite corporate power and
authority to execute, deliver and perform its obligations under the
Registration Rights Agreement. The Registration Rights Agreement has
been duly and validly authorized, executed and delivered by the
Company and, assuming due
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authorization, execution and delivery thereof by the Initial
Purchaser, constitutes a valid and legally binding agreement of the
Company enforceable against the Company in accordance with its terms,
except as the enforceability thereof may be limited by bankruptcy,
insolvency, fraudulent conveyance, reorganization or other similar
laws affecting the enforcement of creditors' rights generally and by
general equitable principles.
(viii) Each of the Company and the Subsidiary Pledgor, as
applicable, has all requisite corporate power and authority to
execute, deliver and perform its obligations under the Pledge
Agreement, dated the Closing Date, whereby the Company and the
Subsidiary Pledgor pledge all of their Pledged Stock to the Collateral
Agent for the benefit of the holders of the Notes. The Pledge
Agreement has been duly and validly authorized, executed and delivered
by the Company and the Subsidiary Pledgor and constitutes a valid and
legally binding agreement of the Company and the Subsidiary Pledgor,
as applicable, enforceable against them in accordance with its terms,
except as the enforceability thereof may be limited by bankruptcy,
insolvency, fraudulent conveyance, reorganization or other similar
laws affecting the enforcement of creditors' rights generally and by
general equitable principles.
(ix) Assuming receipt of consideration therefor and that the
Subsidiary Guarantees are entered into for a valid corporate purpose,
each of the Subsidiary Guarantors has all requisite corporate power
and authority to execute, deliver and perform its obligations under
its respective Subsidiary Guaranty. Each Subsidiary Guaranty has been
duly and validly authorized, executed and delivered by the applicable
Subsidiary.
(x) The Company has all requisite corporate power and
authority to execute, deliver and perform its obligations under this
Agreement and to consummate the transactions contemplated hereby. This
Agreement has been duly and validly authorized, executed and delivered
by the Company and the Subsidiaries.
(xi) No consent, approval, authorization or order of any court
or governmental agency or body or third party is required for the
execution, delivery or performance by the Company or any Subsidiary of
this Agreement, the Registration Rights Agreement (except as may be
required by the Securities Act, the Exchange Act and the TIA as
contemplated therein), the Indenture, the Subsidiary Guaranties or the
Pledge Agreement, or the consummation by the Company or any of the
Subsidiaries party thereto, as applicable, of the transactions
contemplated hereby or thereby that are to be completed prior to or on
the date hereof, except such as have been obtained or disclosed in the
Final Memorandum or as may be required by state securities laws.
(xii) The execution, delivery and performance by the Company
and the Subsidiaries party thereto, as applicable, of this Agreement,
the Indenture, the
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Registration Rights Agreement, the Pledge Agreement and the Subsidiary
Guaranties and the consummation by the Company and the Subsidiaries
party thereto of the transactions contemplated hereby and thereby will
not conflict with or constitute or result in a breach of or a default
under (or an event which with notice or passage of time or both would
constitute a default under) any material contract (relying as to
materiality solely upon a certificate of officers of the Company
identifying such contracts) or violation of any of the certificate of
incorporation or by-laws (or similar organizational document) of the
Company or any of the Subsidiaries, or, to such counsel's knowledge,
violate any statute, judgment, decree, order, rule or regulation
applicable to the Company or any of the Subsidiaries or any of their
respective properties or assets.
(xiii) To such counsel's knowledge, there is not pending or
threatened, any action, suit, proceeding, inquiry or investigation to
which the Company or any of the Subsidiaries is a party or to which
the property or assets of the Company or any of the Subsidiaries are
subject, before or brought by any court, arbitrator or governmental
agency or body which are reasonably likely to, individually or in the
aggregate, have a Material Adverse Effect or which seeks to restrain,
enjoin, prevent the consummation of or otherwise challenge the
issuance or sale of the Notes to be sold hereunder or the consummation
of the Transactions.
(xiv) The use of the proceeds of the Notes by the Company, as
described in the Final Memorandum under the caption "Use of Proceeds,"
will not violate Regulation T, U or X of the Board of Governors of the
Federal Reserve System.
(xv) There are no legal or governmental proceedings to which
the Company or any Subsidiary is a party which would be required to be
described in a prospectus forming part of a registration statement
filed with the Commission pursuant to the Securities Act that are not
described in the Preliminary Memorandum and the Final Memorandum.
(xvi) Neither the Company nor any of the Subsidiaries is or
immediately after the sale of the Notes to be sold hereunder and the
application of the proceeds from such sale (as described in the Final
Memorandum under the caption "Use of Proceeds") will be an "investment
company" as such term is defined in the Investment Company Act of
1940, as amended, and the rules and regulations thereunder.
(xvii) The Notes satisfy the eligibility requirements of Rule
144A(d)(3) under the Securities Act.
(xviii) The statements in the Final Memorandum under the caption
"Description of Notes" and "Exchange Offer and Registration Rights,"
insofar as they describe the provisions of the documents and
instruments therein described, constitute fair summaries thereof
accurate in all material respects.
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(xix) No registration under the Securities Act of the Notes is
required in connection with the sale of the Notes to the Initial
Purchaser or the initial resale of the Notes by the Initial Purchaser
in the manner contemplated by this Agreement and the Final Memorandum
and prior to the commencement of the Exchange Offer or the
effectiveness of the Shelf Registration Statement (as defined in the
Registration Rights Agreement), the Indenture is not required to be
qualified under the TIA, in each case assuming (i) the accuracy of the
representations and warranties set forth in the Final Memorandum under
the caption "Transfer Restrictions" by purchasers who buy such Notes
in the resale thereof, (ii) the accuracy of the Initial Purchaser's
representations in Section 8 hereof and (iii) the due performance by
the Initial Purchaser of the agreements set forth in Section 8 hereof.
(xx) The Company has all requisite corporate power and
authority to execute, deliver and perform its obligations under each
of the Acquisition Agreements. Each of the Acquisition Agreements has
been duly and validly authorized, executed and delivered by the
Company and (assuming due authorization, execution and delivery
thereof by the other parties thereto) constitutes a valid and legally
binding agreement of the Company enforceable against the Company in
accordance with its terms, except as the enforceability thereof may be
limited by bankruptcy, insolvency, fraudulent conveyance,
reorganization or other similar laws affecting the enforcement of
creditors' rights generally and by general equitable principles.
In rendering such opinion, such counsel (A) may assume as to laws of
any state other than the State of Colorado that such laws are identical to
the laws of the State of Colorado, to the extent specified in such opinion
and (B) may rely as to matters of fact, to the extent they deem proper, on
certificates of responsible officers of the Company and public officials.
In addition to the foregoing, such counsel shall state that it is has
participated in conferences with directors, executive officers and other
representatives of the Company, representatives of the Company's
independent public accountants and representatives of the Initial Purchaser
and its counsel, at which conferences the contents of the Final Memorandum
and related matters were discussed, and although such counsel is not
passing upon, and does not assume any responsibility for, the accuracy,
completeness or fairness of the statements in the Final Memorandum, on the
basis of the foregoing (relying as to materiality to a large extent upon
the views of officers and other representatives of the Company), no facts
have come to such counsel's attention to lead it to believe that the Final
Memorandum and any further amendments or supplements thereto as of their
respective dates and on the date of such opinion letter contained or
contains an untrue statement of a material fact or omitted or omits to
state a material fact required to be stated therein, or necessary to make
the statements therein, in the light of the circumstances under which they
were made, not misleading (it being understood that such counsel expresses
no view with respect to forward looking information, including, without
limitation, the information identified under the caption "Forward-Looking
Information" in
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<PAGE>
the Final Memorandum, the financial statements and the financial, industry,
market and statistical data included therein or omitted therefrom). The
opinion of Davis Graham & Stubbs LLP described in this Section shall be
rendered to the Initial Purchaser at the request of the Company and shall
so state therein.
(b) On the Closing Date, the Initial Purchaser shall have received
the opinion, in form and substance satisfactory to the Initial Purchaser,
dated as of the Closing Date and addressed to the Initial Purchaser, of
Willkie Farr & Gallagher, counsel for the Initial Purchaser, with respect
to certain legal matters relating to this Agreement and such other related
matters as the Initial Purchaser may reasonably require. In rendering such
opinion, Willkie Farr & Gallagher shall have received and may rely upon
such certificates and other documents and information as it may reasonably
request to pass upon such matters.
(c) On the Closing Date, the Initial Purchaser shall have received
the certificate of the Trustee, dated as of the Closing Date and addressed
to the Initial Purchaser, in form and substance satisfactory to counsel for
the Initial Purchaser.
(d) On the Closing Date, the Initial Purchaser shall have received
good standing certificates for the Company and the Subsidiaries other than
for any Subsidiaries incorporated or organized after the date hereof.
(e) On the Closing Date, the Initial Purchaser shall have received
the following documents duly authorized, executed and delivered by each of
the parties thereto, in form and substance satisfactory for counsel to the
Initial Purchaser, and containing such terms and conditions that are usual
and customary in transactions similar to those contemplated hereby and
thereby, dated the Closing Date:
(i) the Subsidiary Guaranties;
(ii) the Pledge Agreement;
(iii) the Indenture; and
(iv) the Registration Rights Agreement.
(f) On the Closing Date, the creditors under the existing credit
facility of each of Radio Holdings and MediaAmerica shall have terminated
and released all security interests and liens held by them on the assets
owned by the Company and its Subsidiaries. The Collateral Agent shall have
received such releases of security interests and liens on the assets owned
by the Company and its Subsidiaries as may have been reasonably requested
by the Initial Purchaser, which releases shall be in form and substance
reasonably satisfactory to counsel to the Initial Purchaser. Without
limiting the foregoing, there shall have been delivered proper termination
statements (Form UCC-3 or the appropriate equivalent) for filing under the
UCC of each jurisdiction where a financing statement (Form UCC-1 or the
appropriate equivalent) was filed with respect to the Company or any of its
Subsidiaries in connection with the security interests created with respect
to the
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existing credit facilities of each of Radio Holdings and MediaAmerica and
the documentation related thereto.
(g) On the Closing Date, the Global Group Note (as defined in the
Memorandum) shall have been converted into Class A Common Stock as
described in the Memorandum and the Initial Purchaser shall have received
evidence thereof.
(h) On the Closing Date, the Initial Purchaser shall have received a
copy of the resolutions of the Company and the Subsidiary Pledgor,
certified by the Secretary of the applicable entity, approving the pledge
of the Pledged Stock (as defined in the Pledge Agreement) and the
resolutions of the Board of Directors, certified by the Secretary of the
applicable entity, of each Subsidiary Guarantor, approving the execution
and delivery of its Subsidiary Guaranty.
(i) On the Closing Date, the Initial Purchaser shall have received
all of the certificates evidencing the Pledged Stock pledged under the
Pledge Agreement, together with executed and undated stock powers.
(j) The Initial Purchaser shall have received from Arthur Andersen
LLP comfort letters dated the date hereof and the Closing Date, in form and
substance satisfactory to counsel for the Initial Purchaser, which describe
the procedures as the Initial Purchaser may request and Arthur Andersen LLP
is willing to perform and report upon.
(k) The Initial Purchaser shall have received from David Berdon & Co.
LLP comfort letters dated the date hereof and the Closing Date with respect
to the financial information relating to MediaAmerica, in form and
substance satisfactory to counsel for the Initial Purchaser.
(l) The representations and warranties of the Company and the
Subsidiaries contained in this Agreement shall be true and correct in all
material respects on and as of the date hereof and on and as of the Closing
Date as if made on and as of the Closing Date; the statements of the
Company's or any Subsidiaries' officers made pursuant to any certificate
delivered in accordance with the provisions hereof shall be true and
correct in all material respects on and as of the date made and on and as
of the Closing Date; the Company and the Subsidiaries shall have performed
in all material respects all covenants and agreements and satisfied all
conditions on their part to be performed or satisfied hereunder at or prior
to the Closing Date; and, except as described in the Final Memorandum
(exclusive of any amendment or supplement thereto after the date hereof),
subsequent to the date of the most recent financial statements in such
Final Memorandum, there shall have been no event or development that,
individually or in the aggregate, has had, or would be reasonably likely to
have, a Material Adverse Effect.
(m) The sale of the Notes hereunder shall not be enjoined
(temporarily or permanently) on the Closing Date.
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(n) There shall not have occurred any invalidation of Rule 144A under
the Securities Act by any court or any withdrawal or proposed withdrawal of
any rule or regulation under the Securities Act or the Exchange Act by the
Commission or any amendment or proposed amendment thereof by the Commission
which in the reasonable judgment of the Initial Purchaser would materially
impair the ability of the Initial Purchaser to purchase, hold or effect
resales of the Notes as contemplated hereby.
(o) There shall not have occurred any change, or any development
involving a prospective change, in the general business affairs, condition
(financial or otherwise), prospects or results of operations, of the
Company and the Subsidiaries taken as a whole, from that set forth in the
Final Memorandum that constitutes a Material Adverse Effect and that makes
it, in the Initial Purchaser's reasonable judgment, impracticable to market
the Notes on the terms and in the manner contemplated in the Final
Memorandum.
(p) Subsequent to the date of the most recent financial statements in
the Final Memorandum (exclusive of any amendment or supplement thereto
after the date hereof), the conduct of the business and operations of the
Company and the Subsidiaries shall not have been interfered with by strike,
fire, flood, hurricane, accident or other calamity (whether or not insured)
or by any court or governmental action, order or decree, and, except as
otherwise stated therein, the properties of the Company and the
Subsidiaries shall not have sustained any loss or damage (whether or not
insured) as a result of any such occurrence, except any such interference,
loss or damage which would not, individually or in the aggregate, have a
Material Adverse Effect.
(q) No securities of the Company shall have been downgraded or placed
on any "watch list" for possible downgrading by any nationally recognized
statistical rating organization.
(r) The Initial Purchaser shall have received certificates of the
Company, dated the Closing Date, signed by its Chief Executive Officer and
Chief Financial Officer, to the effect that:
(i) The representations and warranties of the Company contained
in this Agreement are true and correct in all material respects as of
the date thereof and as of the Closing Date, and the Company has
performed in all material respects all covenants and agreements and
satisfied in all material respects all conditions on its part to be
performed or satisfied hereunder at or prior to the Closing Date;
(ii) At the Closing Date, since the date hereof or since the date
of the most recent financial statements in the Final Memorandum
(exclusive of any amendment or supplement thereto after the date
hereof), no event or events have occurred, no information has become
known nor does any condition exist that, individually or in the
aggregate, has had, or could reasonably be expected to have, a
Material Adverse Effect;
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(iii) The sale of the Notes hereunder has not been enjoined
(temporarily or permanently); and
(iv) The conditions (other than the consummation of the
offering of the Notes) in the Acquisition Agreement to the closing of
the Acquisition (as defined in the Final Memorandum) have been
satisfied or waived by the parties to the Acquisition Agreement.
(s) The Initial Purchaser shall have received a certificate from the
corporate secretary of the Company, dated the Closing Date, attaching
certified copies of (i) all resolutions of the Board of Directors of the
Company authorizing (a) the transactions contemplated by this Agreement and
(b) the Acquisition Agreements, including, without limitation, approving
the offering of the Notes, the entering into of this Agreement, the
Indenture, the Registration Rights Agreement and the Pledge Agreement and
(ii) the certificate of incorporation and by-laws (or other organizational
documents) of the Company and each of the Subsidiaries, and certifying the
names and true signatures of those officers of the Company and each of the
Subsidiaries executing any documents contemplated by this Agreement.
On or before the Closing Date, the Initial Purchaser and counsel for
the Initial Purchaser shall have received such further documents, opinions,
certificates, letters and schedules or instruments relating to the business,
corporate, legal and financial affairs of the Company and the Subsidiaries as
they shall have heretofore reasonably requested from the Company and the
Subsidiaries.
The Company and the Subsidiaries shall furnish to the Initial
Purchaser such conformed copies of such documents, opinions, certificates,
letters, schedules and instruments in such quantities as the Initial Purchaser
shall reasonably request.
8. Offering of Notes; Restrictions on Transfer. The Initial
-------------------------------------------
Purchaser agrees with the Company that (i) it has not and will not solicit
offers for, or offer or sell, the Notes by any form of general solicitation or
general advertising (as those terms are used in Regulation D under the
Securities Act) or in any manner involving a public offering within the meaning
of Section 4(2) of the Securities Act and (ii) it has and will solicit offers
for the Notes only from, and will offer the Notes only to (A) in the case of
offers inside the United States, persons whom the Initial Purchaser reasonably
believes to be QIBs or, if any such person is buying for one or more
institutional accounts for which such person is acting as fiduciary or agent,
only when such person has represented to the Initial Purchaser that each such
account is a QIB, to whom notice has been given that such sale or delivery is
being made in reliance on Rule 144A, and, in each case, in transactions under
Rule 144A and (B) in the case of offers outside the United States, to persons
other than U.S. persons ("foreign purchasers," which term shall include dealers
or other professional fiduciaries in the United States acting on a discretionary
basis for foreign beneficial owners (other than an estate or trust)).
The Initial Purchaser agrees that it has (i) not offered or sold and
will not offer or sell any Notes to persons in the United Kingdom prior to
admission of the Notes as applicable, to
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listing in accordance with Part IV of the Financial Services Act of 1986 (the
"Financial Services Act"), except to persons whose ordinary activities involve
them in acquiring, holding, managing or disposing of investments (as principal
or agent) for purpose of their business or otherwise in circumstances which have
not resulted and will not result in an offer to the public in the United Kingdom
within the meaning of the Public Offers of Securities Regulation 1995 or the
Financial Services Act, (ii) complied and will comply with all applicable
provisions of the Financial Services Act with respect to anything done by them
in relation to the Notes in, from or otherwise involving the United Kingdom, and
(iii) only issued or passed on, and will only issue or pass on, in the United
Kingdom any document received by it in connection with the issue of the Notes
other than any document which consists of or any part of listing particulars,
supplementary listing particulars or any other document required or permitted to
be published by listing rules under Part IV of the Financial Services Act, to a
person who is of a kind described in Article 11(3) of the Financial Services Act
1986 (Investment Advertisements) (Exemptions) Order 1996 or is a person to whom
the document may otherwise lawfully be issued or passed on.
In connection with sales outside the United States, the Initial
Purchaser agrees that it will not offer, sell or deliver the Notes to, or for
the account or benefit of, U.S. Persons (i) as part of its distribution at any
time or (ii) otherwise prior to 40 days after the closing of the Offering, and
it will send to any dealer to whom it sells Notes during such period a
confirmation or other notice setting forth the restrictions on offers and sales
of the Notes within the United States or to, or for the account or benefit of,
U.S. Persons.
The Initial Purchaser represents and warrants that it is an Accredited
Investor, with such knowledge and experience in financial and business matters
as are necessary in order to evaluate the merits and risks of an investment in
the Notes. The Initial Purchaser agrees to comply with the applicable
provisions of Rule 144A and Rule 144 under the Securities Act. The Initial
Purchaser hereby acknowledges that the Company and, for purposes of the opinions
to be delivered to the Initial Purchaser pursuant to Section 7(a) hereof,
counsel to the Company will rely upon the accuracy and truth of the
representations contained in this Section 8 and the Initial Purchaser hereby
consents to such reliance.
9. Indemnification and Contribution. (a) The Company agrees to
--------------------------------
indemnify and hold harmless the Initial Purchaser and each person controlled by
or under common control with the Initial Purchaser, and directors, officers,
agents, representatives, general partners and employees of the Initial Purchaser
or such persons, and each other person who controls the Initial Purchaser or
such persons within the meaning of Section 15 of the Securities Act or Section
20 of the Exchange Act, to the full extent lawful against any losses, claims,
damages, expenses or liabilities to which the Initial Purchaser or such other
person may become subject under the Securities Act, the Exchange Act or
otherwise, insofar as any such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon:
(i) any untrue statement or alleged untrue statement of any
material fact contained in any Memorandum or any amendment or
supplement thereto or any application or other document, or any
amendment or supplement thereto, executed by the Company or any
Subsidiary or based upon written information furnished by or on behalf
of the Company or any Subsidiary filed in any jurisdiction
25
<PAGE>
in order to qualify the Notes under the securities or "Blue Sky" laws
thereof or filed with any securities association or securities
exchange (each an "Application") or;
(ii) the omission or alleged omission to state, in any Memorandum
or any amendment or supplement thereto or any Application, a material
fact required to be stated therein or necessary to make the statements
therein not misleading;
and will reimburse, as incurred, the Initial Purchaser and each such other
person for any reasonable legal or other expenses incurred by the Initial
Purchaser or such other person in connection with investigating, defending
against or appearing as a third-party witness in connection with any such loss,
claim, damage, liability or action; provided, however, the Company will not be
-------- -------
liable in any such case to the extent that any such loss, claim, damage, or
liability arises out of or is based upon any untrue statement or alleged untrue
statement or omission or alleged omission made in the Final Memorandum or any
amendment or supplement thereto or any Application in reliance upon and in
conformity with written information furnished to the Company by the Initial
Purchaser specifically for use therein. This indemnity agreement will be in
addition to any liabilities or obligations that the Company or any Subsidiary
may otherwise have to the indemnified parties, including under the Engagement
Letter. Subject to Section 9(c), the Company shall not be liable under this
Section 9 for any settlement of any claim or action effected without its prior
consent, which consent shall not be unreasonably withheld; provided, further,
-------- -------
that the Company will not be required to indemnify a person if such person sold
to the person asserting the claim the Notes which are the subject of such claim
and such untrue statement or omission or alleged untrue statement or omission
was contained or made in the Preliminary Memorandum and corrected in the Final
Memorandum or any amendment or supplement thereto and the Final Memorandum does
not contain any other untrue statement or omission or alleged untrue statement
or omission of a material fact that was the subject matter of the related
proceeding and such person failed to deliver or provide a copy of the Final
Memorandum (as amended or supplemented) to such person with or prior to the
confirmation of the sale of such Notes sold to such person if required by
applicable laws, unless such failure to deliver or provide a copy of the Final
Memorandum (as amended or supplemented) was a result of noncompliance by the
Company with its duties under this Agreement.
(b) The Initial Purchaser agrees to indemnify and hold harmless the
Company, its directors, officers, agents, representatives, general partners
and employees, and each other person, if any, who controls the Company
within the meaning of Section 15 of the Securities Act or Section 20 of the
Exchange Act against any losses, claims, damages or liabilities to which
the Company or any such director, officer, agent, representative, general
partner, employee or controlling person may become subject under the
Securities Act, the Exchange Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out of
or are based upon (i) any untrue statement or alleged untrue statement of
any material fact contained in any Memorandum or any amendment or
supplement thereto or any Application, or (ii) the omission or the alleged
omission to state therein a material fact required to be stated in any
Memorandum or any amendment or supplement thereto or any Application, or
necessary to make the statements therein not misleading, in each case to
the extent, but only to the extent, that such untrue
26
<PAGE>
statement or alleged untrue statement or omission or alleged omission was
made in reliance upon and in conformity with written information furnished
to the Company by the Initial Purchaser specifically for use therein; and
subject to the limitation set forth immediately preceding this clause, will
reimburse, as incurred, any reasonable legal or other expenses incurred by
the Company or any such director, officer or controlling person in
connection with investigating or defending against or appearing as a third
party witness in connection with any such loss, claim, damage, liability or
action in respect thereof. This indemnity agreement will be in addition to
any liability that the Initial Purchaser may otherwise have to the
indemnified parties. Subject to Section 9(c), the Initial Purchaser shall
not be liable under this Section 9 for any settlement of any claim or
action effected without its written consent, which consent shall not be
unreasonably withheld.
(c) Promptly after receipt by an indemnified party under this Section
9 of notice of the commencement of any action for which such indemnified
party is entitled to indemnification under this Section 9, such indemnified
party will, if a claim in respect thereof is to be made against the
indemnifying party under this Section 9, notify the indemnifying party of
the commencement thereof in writing; but the omission to so notify the
indemnifying party (i) will not relieve it from any liability under
paragraph (a) or (b) above unless and to the extent such failure results in
the forfeiture by the indemnifying party of substantial rights and defenses
and (ii) will not, in any event, relieve the indemnifying party from any
obligations to any indemnified party other than the indemnification
obligation provided in paragraphs (a) and (b) above. In case any such
action is brought against any indemnified party, and it notifies the
indemnifying party of the commencement thereof, the indemnifying party will
be entitled to participate therein with counsel reasonably satisfactory to
such indemnified party and, to the extent that it may wish, jointly with
any other indemnifying party similarly notified, to assume the defense
thereof; provided, however, that (i) the defendants in any such action
-------- -------
include both the indemnified party and the indemnifying party and the
indemnified party shall have been advised by counsel that there may be one
or more legal defenses available to it and/or other indemnified parties
that are different from or additional to those available to the
indemnifying party, or (ii) the indemnifying party shall not have employed
counsel reasonably satisfactory to the indemnified party to represent the
indemnified party within a reasonable time after receipt by the
indemnifying party of notice of the institution of such action, then, in
each such case, the indemnifying party shall not have the right to direct
the defense of such action on behalf of such indemnified party or parties
and such indemnified party or parties shall have the right to select
separate counsel to defend such action on behalf of such indemnified party
or parties. After notice from the indemnifying party to such indemnified
party of its election so to assume the defense thereof, the indemnifying
party will not be liable to such indemnified party under this Section 9 for
any legal or other expenses, other than reasonable costs of investigation,
subsequently incurred by such indemnified party in connection with the
defense thereof, unless (i) the indemnified party shall have employed
separate counsel in accordance with the proviso to the immediately
preceding sentence (it being understood, however, that in connection with
such action the indemnifying party shall not be liable for the expenses of
more than one separate counsel
27
<PAGE>
(in addition to local counsel) in any one action or separate but
substantially similar actions arising out of the same general allegations
or circumstances designated by the Initial Purchaser in the case of
paragraph (a) of this Section 9 or either the Company or any of the
Subsidiaries in the case of paragraph (b) of this Section 9, representing
the indemnified parties under such paragraph (a) or paragraph (b), as the
case may be, who are parties to such action or actions) or (ii) the
indemnifying party has authorized in writing the employment of counsel for
the indemnified party at the expense of the indemnifying party. After such
notice from the indemnifying party to such indemnified party, the
indemnifying party will not be liable for the costs and expenses of any
settlement of such action effected by such indemnified party without the
prior written consent of the indemnifying party, unless such indemnified
party waived in writing its rights under this Section 9, in which case the
indemnified party may effect such a settlement without such consent. An
indemnifying party shall not, without the prior written consent of the
indemnified party, which consent may not be unreasonably withheld, effect
any settlement or compromise of any pending or threatened proceeding in
respect of which the indemnified party is or could have been a party, or
indemnity could have been sought hereunder by the indemnified party, unless
such settlement (A) includes an unconditional written release of the
indemnified party, in form and substance reasonably satisfactory to the
indemnified party, from all liability on claims that are the subject matter
of such proceeding and (B) does not include any statement as to an
admission of fault, culpability or failure to act by or on behalf of the
indemnified party.
(d) In circumstances in which the indemnity agreement provided for in
the preceding paragraphs of this Section 9 is unavailable to an indemnified
party in respect of any losses, claims, damages or liabilities (or actions
in respect thereof), each indemnifying party, in order to provide for just
and equitable contribution, shall contribute to the amount paid or payable
by such indemnified party as a result of such losses, claims, damages or
liabilities (or actions in respect thereof) in such proportion as is
appropriate to reflect (i) the relative benefits received by the
indemnifying party or parties on the one hand and the indemnified party on
the other from the offering of the Notes or (ii) if the allocation provided
by the foregoing clause (i) is not permitted by applicable law, not only
such relative benefits but also the relative fault of the indemnifying
party or parties on the one hand and the indemnified party on the other in
connection with the statements or omissions or alleged statements or
omissions or breaches that resulted in such losses, claims, damages or
liabilities (or actions in respect thereof). The relative benefits received
by the Company on the one hand and the Initial Purchaser on the other shall
be deemed to be in the same proportion as the total proceeds from the
offering (net of discounts and commissions and before deducting expenses)
received by the Company bears to the total discounts and commissions
received by the Initial Purchaser. The relative fault of the parties shall
be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by the
Company on the one hand, or the Initial Purchaser on the other, the
parties' relative intent, knowledge, access to information and opportunity
to correct or prevent such statement or omission or alleged statement or
omission, and any other equitable considerations appropriate in the
circumstances. The
28
<PAGE>
Company and the Initial Purchaser agree that it would not be equitable if
the amount of such contribution were determined by pro rata or per capita
allocation or by any other method of allocation that does not take into
account the equitable considerations referred to in the first sentence of
this paragraph (d). Notwithstanding any other provision of this paragraph
(d), the Initial Purchaser shall not be obligated to make contributions
hereunder that in the aggregate exceed the total discounts, commissions and
other compensation received by the Initial Purchaser under this Agreement,
less the aggregate amount of any damages for which indemnification is not
available that the Initial Purchaser has otherwise been required to pay by
reason of the untrue or alleged untrue statements or the omissions or
alleged omissions to state a material fact, and no person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was
not guilty of such fraudulent misrepresentation. For purposes of this
paragraph (d), each person, if any, who controls the Initial Purchaser
within the meaning of Section 15 of the Securities Act or Section 20 of the
Exchange Act shall have the same rights to contribution as the Initial
Purchaser, and each director of the Company, each officer of the Company
and each person, if any, who controls the Company within the meaning of
Section 15 of the Securities Act or Section 20 of the Exchange Act, shall
have the same rights to contribution as the Company.
10. Survival Clause. The respective representations, warranties,
---------------
agreements, covenants, indemnities and other statements of the Company, its
officers and the Initial Purchaser set forth in this Agreement or made by or on
behalf of them pursuant to this Agreement shall remain in full force and effect,
regardless of (i) any investigation made by or on behalf of the Company, any of
its officers or directors, the Initial Purchaser or any other person referred to
in Section 9 hereof and (ii) delivery of and payment for the Notes. The
respective agreements, covenants, indemnities and other statements set forth in
Sections 6, 9 and 15 hereof shall remain in full force and effect, regardless of
any termination or cancellation of this Agreement.
11. Termination. (a) This Agreement may be terminated in the sole
-----------
discretion of the Initial Purchaser by written notice to the Company given prior
to the Closing Date in the event that the Company shall have failed, refused or
been unable to perform all obligations and satisfy all conditions on its part to
be performed or satisfied hereunder at or prior thereto or, if at or prior to
the Closing Date any of the following has occurred:
(i) any of the Company or the Subsidiaries has sustained any
loss or interference with respect to its businesses or properties from
fire, flood, earthquakes, hurricane, accident or other calamity,
whether or not covered by insurance, or from any strike, labor
dispute, slow down or work stoppage or any legal or governmental
proceeding, which loss or interference has had or is reasonably likely
to have a Material Adverse Effect, or there shall have been, in the
sole judgment of the Initial Purchaser, any other event or development
that, individually or in the aggregate, has or is reasonably likely to
have a Material Adverse Effect (including without limitation a change
in control of the Company or the Subsidiaries), except in each case as
described in the Final Memorandum (exclusive of any amendment or
supplement thereto);
29
<PAGE>
(ii) there shall have occurred any change, or any development
involving a prospective change, in the condition, financial or
otherwise, or in the earnings, business or operations, of the Company
and the Subsidiaries, taken as a whole, from that set forth in the
Final Memorandum that is material and adverse and that makes it, in
the Initial Purchaser's sole judgment, impracticable to market the
Notes on the terms and in the manner contemplated in the Final
Memorandum;
(iii) trading generally shall have been suspended or materially
limited on or by, as the case may be, either of the New York Stock
Exchange or the National Association of Securities Dealers, Inc. or
the setting of minimum prices for trading on such exchange or market
shall have occurred;
(iv) a banking moratorium shall have been declared by New York,
Colorado or United States authorities;
(v) there shall have been (A) an outbreak or escalation of
hostilities between the United States and any foreign power, (B) an
outbreak or escalation of any other insurrection or armed conflict
involving the United States, (C) any material change in the financial
markets of the United States or (D) any other national or
international calamity or emergency which, in the case of (A), (B),
(C) or (D) above and in the sole judgment of the Initial Purchaser,
makes it impracticable or inadvisable to proceed with the offering or
the delivery of the Notes as contemplated by the Final Memorandum; or
(vi) any securities of the Company or any Subsidiary shall have
been downgraded or placed on any "watch list" for possible downgrading
by any nationally recognized statistical rating organization.
(b) Termination of this Agreement pursuant to this Section 11 shall be
without liability of any party to any other party except as provided in
Sections 6 and 10 hereof.
12. Information Supplied by the Initial Purchaser. The failure to
---------------------------------------------
state the Initial Purchaser's commission and discount, the omission or statement
of information relating to state securities blue sky laws and statements set
forth in the last paragraph on the cover page of the Final Memorandum, the first
sentence of the penultimate paragraph under the heading "Risk Factors-Lack of
Public Market; Restrictions on Resale" and paragraphs 2 and 5 through 8 under
the heading "Plan of Distribution" in the Final Memorandum constitute the only
information furnished by the Initial Purchaser to the Company for the purposes
of Sections 2(a) and 9 hereof.
13. Notices. All communications hereunder shall be in writing and,
-------
if sent to the Initial Purchaser, shall be mailed or delivered to (i) NatWest
Capital Markets Limited, 135 Bishopsgate, London, England, with a copy to
Willkie Farr & Gallagher, 787 Seventh Avenue, New York, New York 10019-6099,
Attention: John S. D'Alimonte, Esq.; if sent to the Company, shall be mailed or
delivered to the Company at Jones International Networks, Ltd., 9697 East
Mineral Avenue, Englewood, Colorado 80112, Attention: Gregory Liptak with a copy
to Davis
30
<PAGE>
Graham & Stubbs LLP, 370 Seventeenth Street, Suite 4700, Denver, Colorado,
80202, Attention: Patricia Peterson, Esq.
All such notices and communications shall be deemed to have been duly
given: when delivered by hand, if personally delivered; five business days
after being deposited in the mail, postage prepaid, if mailed; and one business
day after being timely delivered to a next-day air courier.
14. Successors. This Agreement shall inure to the benefit of and be
----------
binding upon the Initial Purchaser, the Company and its successors and legal
representatives, and nothing expressed or mentioned in this Agreement is
intended or shall be construed to give any other person any legal or equitable
right, remedy or claim under or in respect of this Agreement, or any provisions
herein contained; this Agreement and all conditions and provisions hereof being
intended to be and being for the sole and exclusive benefit of such persons and
for the benefit of no other person except that (i) the indemnities of the
Company contained in Section 9 of this Agreement shall also be for the benefit
of any person or persons who control the Initial Purchaser within the meaning of
Section 15 of the Securities Act or Section 20 of the Exchange Act and (ii) the
indemnities of the Initial Purchaser contained in Section 9 of this Agreement
shall also be for the benefit of the directors of the Company and officers and
any person or persons who control the Company within the meaning of Section 15
of the Securities Act or Section 20 of the Exchange Act. No purchaser of Notes
from the Initial Purchaser will be deemed a successor because of such purchase.
15. APPLICABLE LAW. THE VALIDITY AND INTERPRETATION OF THIS
--------------
AGREEMENT, AND THE TERMS AND CONDITIONS SET FORTH HEREIN, SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO
CONTRACTS MADE AND TO BE PERFORMED WHOLLY THEREIN, WITHOUT GIVING EFFECT TO ANY
PROVISIONS THEREOF RELATING TO CONFLICTS OF LAW.
16. Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
31
<PAGE>
If the foregoing correctly sets forth our understanding, please
indicate your acceptance thereof in the space provided below for that purpose,
whereupon this letter shall constitute a binding agreement between the Company
and the Initial Purchaser.
Very truly yours,
JONES INTERNATIONAL NETWORKS, LTD.
By: /s/ Jay B. Lewis
------------------
Name: Jay B. Lewis
Title: Group Vice President
<PAGE>
SCHEDULE 1
----------
<TABLE>
<CAPTION>
Initial Purchaser Principal Amount
----------------- ----------------
<S> <C>
NatWest Capital Markets Limited $100,000,000
</TABLE>
<PAGE>
SCHEDULE 2
----------
SUBSIDIARIES
------------
<TABLE>
<CAPTION>
Percentage Number of Class of Jurisdiction of
Subsidiary Ownership* Shares Stock Organization
---------- --------- ------ ----- ------------
<S> <C> <C> <C> <C>
JPN, Inc. 100% 2,980,953 Class A Colorado
100% 1,785,120 Class B
Jones Space Holdings, Inc. 100% 1,000 Common Colorado
Jones Earth Segment, Inc. 100% 6,296 Class A Colorado
6,296 Class B
Jones Infomercial Networks, Inc. 100% 6,296 Class A Colorado
6,296 Class B
Jones Radio Holdings, Inc. 100% 10,000 Class A Colorado
10,000 Class B
Great American Country, Inc. 100% 10,000 Class A Colorado
10,000 Class B
Jones Galactic Radio, Inc. 100% 62,963 Class A Colorado
62,963 Class B
Jones Infomercial Network Ventures, Inc. 100% 10,000 Class A Colorado
10,000 Class B
Jones Galactic Radio Partners, Inc. 100% 10,000 Class A Colorado
10,000 Class B
Jones Radio Network, Inc. 100% 10,000 Class A Colorado
10,000 Class B
Jones Audio Services, Inc. 100% 1,000 Common Colorado
Jones Radio Network Ventures, Inc. 100% 10,000 Class A Colorado
10,000 Class B
Jones/Owens Radio Programming LLC 90% N/A N/A Colorado
Jones MAI, Inc. 100% 100 Common New York
Jones MAI Radio, Inc. 100% 1,000 Common Colorado
</TABLE>
* Ownership of these subsidiaries are held indirectly by Jones International
Networks, Ltd., except for JPN, Inc.
<PAGE>
SCHEDULE 3
----------
OTHER INTERESTS
---------------
Product Information Network Venture 54% N/A N/A Colorado
Galactic/Tempo d/b/a Superaudio 50% N/A N/A Colorado
<PAGE>
SCHEDULE P(1)
Note: various of the designations listed below are trakemarks or servicemarks of
the respective owners thereof, and are used by the Company or its Subsidiaries
with permission.
ADULT HIT RADIO
SOFT HITS
US COUNTRY
GOOD-TIME OLDIES
NAC (NEW ADULT CONTEMPORARY)
Z-SPANISH
ROCK ALTERNATIVE
THE NEW MUSIC OF YOUR LIFE
CLASSICAL CONNECTION
CLASSIC HIT COUNTRY
ROCK CLASSICS
CROOK & CHASE CENTERSTAGE SPECIALS
THE CROOK & CHASE COUNTRY COUNTDOWN
THE JIMMY CARTER ENTERTAINMENT REPORT
OUTDOOR LIFE RADIO
<PAGE>
SCHEDULE P(2)
CD COUNTRY U.S. Trademark Registration No. 1,873,415
DRAGON (design) U.S. Trademark Registration Nos. 1,576,854 and 1,825,499
GALACTIC RADIO U.S. Trademark Registration No.1,580,588
GREAT AMERICAN COUNTRY U.S. Trademark Registration Nos. 2,080,904 and 2,068,897
PIN, PRODUCT INFORMATION NETWORK U.S. Trademark Registration No. 2,037,430
SUPERAUDIO U.S. Trademark Registration No. 1,705,987 and 1,795,464
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF JONES INTERNATIONAL NETWORKS, LTD.
(All are Colorado corporations, unless otherwise indicated)
Great American Country, Inc.
JPN, Inc.
Jones Audio Services, Inc.
Jones Earth Segment, Inc.
Jones Galactic Radio, Inc.
Jones Galactic Radio Partners, Inc.
Jones MAI Radio, Inc.
Jones Radio Holdings, Inc.
Jones Radio Network, Inc.
Jones Radio Network Ventures, Inc.
Jones/Owens Radio Programming LLC, a Colorado limited liability company
Jones Infomercial Networks, Inc.
Jones Infomercial Network Ventures, Inc.
Jones Infomercials International, Ltd.
Jones Space Holdings, Inc.
MediaAmerica, Inc., a New York corporation
Product Information Network Venture, a Colorado general partnership
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
dated August 1, 1998 (and to all references to our Firm) included in or made a
part of the Jones International Networks, Ltd. registration statement.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Denver, Colorado,
August 21, 1998.
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the reference to our firm under the caption "EXPERTS" in
the Prospectus forming part of the Form S-4 Registration Statement of Jones
International Network, Ltd. and to the incorporation of our reports, dated July
14, 1998 and January 23, 1998 on the financial statements of MediaAmerica, Inc.,
as of June 30, 1998, December 31, 1997 and 1996 and for the six months and three
months ended June 30, 1998 and 1997, and for each of the three years in the
period ended December 31, 1997.
/s/ David Berdon & Co. llp
DAVID BERDON & CO. LLP
CERTIFIED PUBLIC ACCOUNTANTS
New York, New York
August 12, 1998
