<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 12, 1997
NO. 333-20885
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
GLOBAL BROADCASTING SYSTEMS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 5961 13-3895162
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
JURISDICTION OF CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
INCORPORATION OR
ORGANIZATION)
---------------
GLOBAL BROADCASTING SYSTEMS, INC.
1740 BROADWAY, 17TH FLOOR
NEW YORK, NEW YORK 10019
(212) 246-9000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
RACHAMIM ANATIAN
GLOBAL BROADCASTING SYSTEMS, INC.
1740 BROADWAY, 17TH FLOOR
NEW YORK, NEW YORK 10019
(212) 246-9000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
---------------
COPIES TO:
R. RONALD HOPKINSON, ESQ.
LATHAM & WATKINS JEFFREY M. KNETSCH, ESQ.
885 THIRD AVENUE, BROWNSTEIN HYATT FARBER & STRICKLAND, P.C.
SUITE 1000 410 17TH STREET, SUITE 2200
NEW YORK, NEW YORK 10022 DENVER, COLORADO 80202
(212) 906-1200 (303) 534-6335
---------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please 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(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
_________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
---------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
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<PAGE>
EXPLANATORY NOTE
This Registration Statement contains two forms of prospectus: one to be used
in connection with an underwritten public offering of % Senior Subordinated
Notes due 2007 of Global Broadcasting Systems, Inc. (the "Note Prospectus")
and one to be used in a concurrent underwritten public offering of Class A
Common Stock of Global Broadcasting Systems, Inc. (the "Common Stock
Prospectus"). The Note Prospectus and the Common Stock Prospectus are
identical except for the front, back and inside front cover pages and the
sections entitled "Summary--The Offering," "Summary--Concurrent Offering,"
"Risk Factors--Absence of Public Market" and "Underwriting." In addition, the
Note Prospectus will not contain the sections entitled "Risk Factors--
Substantial Dilution," "--Shares Eligible for Future Sale," "--Volatility of
Stock Price," "Dividend Policy," "Dilution" and "Shares Eligible for Future
Sale" contained in the Common Stock Prospectus. The form of the Note
Prospectus is included herein and is followed by the alternate pages to be
used in the Common Stock Prospectus. The alternate pages for the Common Stock
Prospectus included herein are labeled "Alternate Page for Common Stock
Prospectus." Final forms of each prospectus will be filed with the Securities
and Exchange Commission under Rule 424(b) under the Securities Act of 1933, as
amended.
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED MARCH 12, 1997
GLOBAL BROADCASTING SYSTEMS, INC.
$270,000,000
% SENIOR SUBORDINATED NOTES DUE 2007
The % Senior Subordinated Notes due 2007 (the "Notes") are being offered
(the "Notes Offering") by Global Broadcasting Systems, Inc. ("GBS" or the
"Company"). The Notes will mature on , 2007. Interest on the Notes will
accrue at a rate of % per annum and will be payable semi-annually in arrears
on and of each year, commencing on , 1997. Concurrently with
the Notes Offering, the Company is offering 12,500,000 shares of its Class A
Common Stock, par value $.01 per share (the "Class A Common Stock"), to the
public (the "Common Stock Offering" and, together with the Notes Offering, the
"Offerings"). The Notes Offering is contingent upon the consummation of the
Common Stock Offering and the Common Stock Offering is contingent upon the
consummation of the Notes Offering. See "Summary--Concurrent Offering." The
Notes and the Class A Common Stock are referred to collectively herein as the
"Securities."
The Notes will be redeemable at the option of the Company, in whole or in
part, at any time on and after , 2002 at the redemption prices set forth
herein, plus accrued and unpaid interest, if any, to the applicable redemption
date. In addition, on or prior to , 2000, the Company may redeem up to 35%
of the then outstanding principal amount of the Notes at the redemption prices
set forth herein, plus accrued and unpaid interest, if any, to the redemption
date with the net proceeds of one or more Equity Offerings (as defined);
provided that at least $175.5 million in aggregate principal amount of Notes
remain outstanding immediately after the occurrence of each such redemption.
The 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 all or any part (equal to $1,000 or an integral
multiple thereof) of each holder's Notes at an offer price in cash equal to
101% of the aggregate principal amount thereof, plus accrued and unpaid
interest, if any, to the date of repurchase. See "Description of Notes."
The Notes will rank subordinate in right of payment to all existing and
future Senior Indebtedness (as defined) of the Company. At the Closing of the
Notes Offering, the Company will use a portion of the net proceeds to purchase
a portfolio of Pledged Securities (as defined) consisting of U.S. government
securities that will be pledged as security for payment of the first two
scheduled interest payments due on the Notes. As of December 31, 1996, after
giving pro forma effect to the Offerings and the application of the net
proceeds therefrom, the aggregate principal amount of outstanding indebtedness
of the Company would have been $270.0 million, all of which would have been
attributable to the Notes. See "Use of Proceeds," "Capitalization" and
"Description of Notes."
The Company does not intend to apply to list the Notes on any securities
exchange or to include the Notes on the National Association of Securities
Dealers Automated Quotation System.
SEE "RISK FACTORS" BEGINNING ON PAGE 11 FOR A DESCRIPTION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS IN EVALUATING AN INVESTMENT
IN THE SECURITIES.
-----------
THE 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.
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<TABLE>
<CAPTION>
PRICE UNDERWRITING
TO THE DISCOUNTS PROCEEDS TO
PUBLIC(1) AND COMMISSIONS(2) THE COMPANY(3)
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<S> <C> <C> <C>
Per Note..................... % % %
Total........................ $ $ $
</TABLE>
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(1) Plus accrued interest, if any, from the date of issuance.
(2) Does not include (i) the financial advisory fee payable by the Company to
the Underwriter equal to 0.5% of the total Price to the Public in the
Offerings or (ii) warrants to purchase 2.5% of the number of shares of
Class A Common Stock that will be issued to the public in the Common Stock
Offering, including the Over-allotment Option, if exercised (the
"Representatives' Warrants"). The Company has agreed to indemnify the
Underwriter against, and to provide contribution with respect to, certain
liabilities under the Securities Act. See "Underwriting."
(3) Before deducting expenses payable by the Company estimated at $ .
The Notes are being offered by the Underwriter, subject to prior sale, when,
as and if delivered to and accepted by the Underwriter and subject to its right
to reject any order in whole or in part. It is expected that delivery of the
Notes will be made against payment therefor in New York, New York or in book-
entry form through the facilities of The Depository Trust Company on or about
, 1997.
-----------
FRIEDMAN, BILLINGS, RAMSEY & CO., INC.
-----------
THE DATE OF THIS PROSPECTUS IS , 1997
<PAGE>
[MAP OF STATION LOCATIONS]
[PICTURES OF PRODUCTS]
IN CONNECTION WITH THE OFFERINGS, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SECURITIES
OFFERED HEREBY AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED IN THE OVER-THE-COUNTER MARKET OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and consolidated financial statements appearing elsewhere in this
Prospectus. Unless otherwise indicated, all statements made in this Prospectus
assume no exercise of the Over-allotment Option (as defined), the
Representatives' Warrants or outstanding options to acquire Class A Common
Stock. As of [March 31,] 1997, Global Broadcasting Systems, Inc. had acquired
two full-power UHF television stations and had entered into agreements to
acquire [18] full-power UHF television stations (the "Acquisitions"). Unless
the context otherwise requires, the information contained in this Prospectus
gives effect to the Acquisitions. All information herein gives effect to the
13,924.0888-for-1 stock split (the "Stock Split") to be effected prior to
consummation of the Offerings. See "Description of Capital Stock."
THE COMPANY
The Company is a national televised home-shopping retailer offering high-
quality merchandise at manufacturers' direct prices that are up to 25% to 50%
below those of its principal competitors. On March 1, 1996, the Company began
full-time, national distribution of its video home-shopping programming via
satellite to all home satellite dishes in the United States. As of [March 31],
1997, the Company owned [two] independent full-power UHF television stations
and had agreements to acquire an additional [18] independent full-power UHF
stations. Following the Acquisitions, the Company's national station group will
broadcast the Company's programming in 12 of the top 25 markets (based on the
Nielsen designated market area or DMA ranking) throughout the United States
(including New York, Los Angeles, Chicago, Philadelphia, San Francisco, Boston,
Dallas, Detroit, Houston, Seattle, Denver and St. Louis). The Company's
national station group, following the Acquisitions, will have an aggregate
acquisition value in excess of $430.0 million and a total over-the-air audience
reach of approximately 30 million homes. Pursuant to current "must carry"
regulations, which require local cable television operators to carry certain
over-the-air broadcasters' programming without payment of a fee, approximately
21.9 million of the television households in the DMAs of the Company's stations
will also receive the Company's programming by cable. Following the
Acquisitions, the Company will be the third largest television station operator
in the United States (based on the aggregate number of television households
which will receive the Company's programming over-the-air) or the ninth largest
television station operator in the United States (based on the aggregate number
of television households which will receive its programming over-the-air,
discounted by 50% for UHF stations pursuant to Federal Communications
Commission ("FCC") rules). The Company's acquisition strategy is designed to
capitalize on the national scope of its station group to maximize revenues and
profits.
Home-shopping involves the sale of merchandise through dedicated television
channels and blocks of television programming that reach consumers via
broadcast television, cable television or satellite dish. The home-shopping
industry has experienced strong growth since its inception in 1982 and
aggregate revenues for the industry have increased steadily from approximately
$4.0 million in 1983 to over $3.0 billion in 1996, representing a compound
annual growth rate of approximately 66%. The industry is currently dominated by
only two companies--The Home Shopping Network ("HSN") and QVC Network, Inc.
("QVC")--whose combined sales represented approximately 95% of the industry's
1996 revenues.
As of [March 31], 1997, approximately 4.2 million homes were receiving the
Company's programming over-the-air, 3.3 million homes were receiving the
Company's programming over cable pursuant to "must carry" regulations and 2.3
million homes were receiving the Company's programming by home satellite dish.
The "must carry" rules have been challenged by the cable industry and the
United States Supreme Court is expected to rule definitively on this issue by
June 1997. If the "must carry" rules are overturned, the Company will continue
to utilize the UHF stations owned by it to broadcast its programming over-the-
air and may also elect to enter into affiliation agreements with cable
operators to carry the Company's programming in exchange
3
<PAGE>
for the payment of a carriage fee. The Company believes that, even if the "must
carry" rules are overturned, it can compete effectively against other home
shopping companies because (i) the experience of HSN indicates that a
significant proportion of sales can be made over-the-air and (ii) the Company's
low overhead should enable it to operate profitably even if it is required to
pay cable carriage fees.
The Company currently offers a wide variety of high-quality brand name and
non-branded jewelry, sports memorabilia, health and beauty products, fitness
equipment, electronics and fashion merchandise. The Company's programming is
broadcast 24 hours a day, 7 days a week and consists of both one-hour and
multi-hour program segments. During each segment, merchandise is described and
demonstrated by show hosts, and orders are placed directly with GBS by viewers
who call a toll-free telephone number. Each program segment has a theme devoted
to a particular category of product or lifestyle. From time to time, GBS
broadcasts special program segments devoted to merchandise associated with a
particular celebrity, geographical region or seasonal interest. During both
regular and special program segments, show hosts talk to viewers live on the
air, and the Company will offer viewers opportunities to win prizes in the form
of credits that may be applied toward future purchases.
STRATEGY
The Company's objective is to establish the leading trademark on television
for discounted high-quality fashion and lifestyle merchandise by implementing
the following strategy:
. National Television Station Base. The experience of other home-shopping
companies indicates that, without access to at least 20 million full-
time television households, an electronic retailer will not be
successful. The Company's station acquisition strategy is designed to
ensure that the Company is able to attain this critical mass.
Accordingly, the Company intends to consummate the Acquisitions and to
pursue additional television station acquisitions up to the maximum
number permissible under current laws and regulations. The Company's
national station group will enable the Company to reach a significant
television audience without payment of carriage fees to cable system
operators which its competitors incur.
. Favorable Supplier Arrangements and Low Cost Operations. The Company
believes its supplier arrangements and low cost structure should enable
it to operate profitably while continuing to offer savings to its
customers of up to 25% to 50% over its principal competitors. The
Company's "ZERO INVENTORY" policy, under which it maintains no inventory
of merchandise sold on its programming, enables it to pay 50% of the
cost of all merchandise sold on its programming to suppliers within one
day of delivery. As a result, the Company's suppliers offer merchandise
to the Company at substantially lower prices than those available to the
Company's competitors and have agreed to accept all returns from the
Company's customers within 30 to 45 days. This enables the Company to
operate without incurring significant costs associated with warehousing,
distributing and managing inventory. The Company believes that it will
be difficult for its current competitors to implement similar supply
arrangements because those competitors incur significantly higher
overhead expenses and working capital requirements than the Company in
connection with warehousing, distributing and managing inventory, which
would likely preclude such competitors from paying suppliers 50% of the
cost of merchandise within one day of delivery.
. Low-Priced, High-Quality Merchandise. Industry data demonstrates that
price is a key factor affecting home-shopping sales. Due to its
favorable supplier arrangements and low cost structure, the Company is
able to offer high-quality merchandise that is comparable to that of its
principal home-shopping competitors at prices that are up to 25% to 50%
lower.
4
<PAGE>
. Strategic Relationships. According to industry research, sales
attributable to jewelry range from approximately 40% to 70% of a home-
shopping company's aggregate sales. Through family members of the co-
founder, Chairman and Chief Executive Officer of the Company, GBS enjoys
strategic relationships with many of its jewelry suppliers. The Company
believes that these relationships will provide an advantage to the
Company in terms of merchandise variety, quality control and price.
. Flexible Payment Terms. The Company offers extended payment terms that
permit a customer to pay for a product in up to 12 monthly installments
using any major credit card or the Company's own credit card. The
Company believes that the availability of these flexible payment terms
should enable it to compete effectively for home-shopping sales.
. Multiple Distribution Channels. Through a combination of innovative
programming, interactive information services, print media and online
access, the Company believes it can increase sales per television
household by increasing active and repeat customers. In areas where
interactive television is available, the Company's interactive shopping
database will work in concert with its televised programming and will
allow consumers to access additional information regarding any
merchandise displayed on the Company's televised programming. The
Company also plans to distribute a print catalogue highlighting products
presented on its televised program. The Company will maintain a web site
on the internet where customers will be able to view and obtain
information regarding its products and to place orders. In addition, the
Company will distribute a video, or "electronic catalogue," highlighting
its most popular products.
. Full-Time Broadcast. Industry research indicates that, to be successful,
a home-shopping company must distribute its programming to at least 20
million television households 24 hours a day, seven days a week.
Following the Acquisitions, approximately 30 million over-the-air homes
will receive the Company's programming on a full-time basis.
. Satellite Access. The Company is party to an agreement with GE American
Communications, Inc. ("GE Americom") which provides the Company access
until December 31, 2004 to a preemptible transponder on domestic
communications satellite C-4 ("Satcom C-4"). Satcom C-4 is one of four
primary satellites from which cable operators receive their programming.
Pursuant to the agreement with GE Americom, the Company has purchased
unusual transponder protection, which the Company believes should enable
it to distribute its programming continuously to all home satellite
dishes in the United States and to all of its television stations for
retransmission over-the-air and to cable operators that carry the
Company's programming.
. International Expansion. The Company intends to market its products in
international markets, particularly in Asia and Europe where the success
of electronic retailers such as FujiSankei TV indicate that demand
exists for home-shopping. The Company's distribution methods in
international markets are expected to be similar to those utilized in
the United States, and the Company intends to pursue joint ventures and
other strategic partnerships to increase international sales.
. Strong Capitalization. Upon consummation of the Offerings, the Company
will have raised at least $300.0 million of equity capital and $270.0
million of long-term debt. On a pro forma basis, as of December 31,
1996, the Company's ratio of debt to equity would have been
approximately 0.90 to 1.00.
The Company maintains its principal executive offices at 1740 Broadway, New
York, New York 10019, and its telephone number is (212) 246-9000.
5
<PAGE>
COMPANY TELEVISION STATIONS
The following table summarizes certain information with respect to the
television stations that the Company expects to own and operate or have
agreements to acquire as of [March 31,] 1997. See "Risk Factors--Risks Related
to the Acquisitions."
<TABLE>
<CAPTION>
NUMBER OF
TOTAL TELEVISION
NUMBER OF HOMES ACTUAL OR
TELEVISION REACHED NUMBER EXPECTED
MARKET DMA HOMES IN BY STATION'S OF CABLE ACQUISITION ACQUISITION
AREA RANK (1)(2) DMA(2) SIGNAL(3) HOMES(4) STATUS DATE PRICE
--------------------- ----------- ------------- ------------ ------------ ------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
New York, NY 1 6.7 million 1.6 million 4.6 million Pending 6/1/97 $
Los Angeles, CA 2 4.9 million 3.6 million 3.0 million Pending 7/1/97 $
Los Angeles, CA 2 4.9 million 4.7 million 3.0 million Pending 7/1/97 $
Los Angeles, CA 2 4.9 million 1.3 million 3.0 million Pending 7/1/97 $
Chicago, IL 3 3.1 million -- (5) 1.8 million Pending 6/30/97 $
Philadelphia, PA 4 2.6 million .9 million 2.0 million Pending 7/15/97 $
San Francisco, CA 5 2.3 million 2.2 million 1.6 million Closed 3/6/97 $
Boston, MA 6 2.1 million 2.0 million 1.7 million [Closed] 3/28/97 $
Dallas-Ft. Worth, TX 8 1.8 million 1.4 million .9 million Pending 7/30/97 $
Detroit, MI 9 1.7 million 2.2 million 1.1 million Pending 9/15/97 $
Houston, TX 11 1.6 million 1.5 million .9 million Pending 7/30/97 $
Seattle, WA 12 1.5 million -- (5) 1.0 million Pending [5/30/97] $
Denver, CO 18 1.2 million .7 million .7 million Pending [6/1/97] $
St. Louis, MO 20 1.1 million 1.0 million .6 million Pending [6/1/97] $
Fayetteville, NC 29 .8 million .3 million .5 million Pending 6/1/97 $
Raleigh-Durham, NC 29 .8 million .7 million .5 million Pending [4/1/97] $
Nashville, TN 33 .8 million .4 million .5 million Pending 7/15/97 $
Louisville, KY 50 .5 million .2 million .4 million Pending 7/15/97 $
Mobile, AL 61 .4 million .5 million .3 million Pending [4/1/97] $
Knoxville, TN 62 .4 million .2 million .3 million Pending 7/15/97 $
------------- ----------- ------------ ---------------
Total................ [33.5 million(6) 21.9 million(6) $433.85 million(7)]
============= ============ ===============
</TABLE>
- --------
(1) Represents the designated market area ("DMA") or the area in which
television stations licensed to a particular city have a greater audience
share than television stations licensed to another city. See "Business--
Industry Overview--U.S. Television Industry."
(2) Source: BIA's Investing in Television '96 Market Report.
(3) Source: 1996 Television and Cable Factbook.
(4) Represents the number of cable homes in the DMA that will receive the
Company's programming pursuant to the FCC's "must carry" rules. Source:
BIA's Investing in Television '96 Market Report.
(5) Current information is unavailable.
(6) Represents total number of unduplicated homes.
(7) Station acquisition prices are currently subject to confidentiality
provisions.
SPONSOR
The Company's co-founder, Chairman and Chief Executive Officer (the
"Sponsor") has agreed that, on or prior to consummation of the Offerings, he
will have invested at least $100 million in the common equity of the Company
(the "Sponsor's Capital Contribution") through the acquisition of common stock
and capital contributions. The Sponsor has agreed that the disinterested
members of the Company's Board of Directors may elect to increase the Sponsor's
Capital Contribution by up to an additional $50 million on or prior to the
closing of the Offerings. The Sponsor is one of the founders of USA Detergents,
Inc. ("USA Detergents"), a leading manufacturer and marketer of low-priced,
high-quality laundry and household cleaning products. USA Detergents
consummated an initial public offering of its common stock on August 7, 1995 at
a price to the public of $14.50 per share (or $9.67 per share after giving
effect to a 3-for-2 stock split in February 1996). The common stock of USA
Detergents is listed on The Nasdaq National Market under the symbol "USAD."
6
<PAGE>
SOURCES AND USES OF FUNDS
The Company intends to use the proceeds of the Offerings to finance the
Acquisitions, to purchase the Pledged Securities, to repay certain
indebtedness, to pay fees and expenses in connection with the Offerings and for
general corporate purposes, as set forth below:
<TABLE>
<S> <C>
SOURCES OF FUNDS(1):
Notes Offering.................................................. $270,000,000
Common Stock Offering........................................... 200,000,000
------------
Total sources of funds........................................ $470,000,000
============
USES OF FUNDS:
Acquisitions(2)................................................. $373,950,000
Pledged Securities.............................................. 36,450,000
Bridge Loan(3).................................................. 28,500,000
Fees and expenses............................................... 27,000,000
General corporate purposes...................................... 4,100,000
------------
Total uses of funds........................................... $470,000,000
============
</TABLE>
- --------
(1) Excludes the Sponsor's Capital Contribution.
(2) Excludes brokers' fees payable in connection with the Acquisitions. The
Company has entered into an agreement pursuant to which the Company has
agreed to pay a consultant (the "Consultant") a fee in connection with each
Acquisition introduced by the Consultant and closed by the Company equal,
at the Consultant's option, to either (i) .0161% of the outstanding Common
Stock or (ii) the sum of (A) 5% of the first $1.0 million of the
Acquisition purchase price, (B) 4% of the second $1.0 million of the
Acquisition purchase price, (C) 3% of the third $1.0 million of the
Acquisition purchase price, (D) 2% of the fourth $1.0 million of the
Acquisition purchase price and (E) 1% of the remaining Acquisition purchase
price. The Company currently estimates that it will pay approximately $[3.1
million] in the aggregate in connection with the Acquisitions if the
Consultant elects to receive a cash fee. However, the Consultant has
informed the Company that it intends to receive its fee in the form of
Class A Common Stock, which, if issued, would result in the issuance of
shares of Class A Common Stock representing approximately .0161% of the
outstanding Common Stock.
(3) Represents approximately $25 million in indebtedness outstanding under a
term loan with a group of lenders. This debt has a final maturity of May
15, 1998 and provides for interest at a rate of 13% per annum through May
15, 1997 and 15% thereafter (the "Bridge Loan"). Also represents a
prepayment premium equal to approximately $2.5 million and a deferred
placement fee of $1.0 million. The proceeds of all borrowings under the
Bridge Loan were used to finance the acquisition of two stations.
7
<PAGE>
THE OFFERING
Securities Offered..... $270.0 million in aggregate principal amount of %
Senior Subordinated Notes due 2007.
Issuer................. Global Broadcasting Systems, Inc.
Maturity............... , 2007.
Interest............... Interest on the Notes will accrue at a rate of %
per annum and will be payable semi-annually in
arrears on and of each year, commencing on
, 1997.
Optional Redemption.... The Notes will be redeemable at the option of the
Company, in whole or in part, at any time on and
after , 2002, at the redemption prices set forth
herein, plus accrued and unpaid interest, if any, to
the applicable redemption date.
In addition, on or prior to , 2000, the Company
may redeem up to 35% of the then outstanding
principal amount of the Notes at the redemption
prices set forth herein, plus accrued and unpaid
interest, if any, to the redemption date with the net
proceeds of one or more Equity Offerings; provided
that at least $175.5 million in aggregate principal
amount of Notes remain outstanding immediately after
the occurrence of 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 all or any part (equal to $1,000 or an
integral multiple thereof) of each holder's Notes at
an offer price in cash equal to 101% of the aggregate
principal amount thereof, plus accrued and unpaid
interest, if any, to the date of repurchase. See
"Description of Notes--Repurchase at the Option of
Holders--Change of Control."
Security............... At the closing of the Offerings, the Company will use
approximately $36.45 million of the net proceeds from
the issuance of the Notes to purchase a portfolio of
securities, consisting of U.S. government securities
(the "Pledged Securities"), that will be pledged as
security for the payment of the first two scheduled
interest payments due on the Notes. Proceeds from the
Pledged Securities will be used by the Company to
make interest payments on the Notes through , 1998
and as security for repayment of principal of the
Notes. See "Description of Notes--Security." The
Pledged Securities will be held by the Trustee under
the Pledge Agreement (as defined herein) pending
disbursement.
Ranking................ The Notes will rank subordinate to all existing and
future Senior Indebtedness of the Company. As of
December 31, 1996, after giving pro forma effect to
the Offerings and the application of the net proceeds
therefrom, the aggregate principal amount of
outstanding indebtedness of the Company would have
been $270.0 million, all of which would have been
attributable to the Notes. See "Use of Proceeds,"
"Capitalization" and "Description of Notes."
Certain Covenants...... The indenture pursuant to which the Notes will be
issued (the "Indenture") will contain certain
covenants that, among other things,
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<PAGE>
limit the ability of the Company and its Restricted
Subsidiaries (as defined) to incur additional
Indebtedness (as defined), pay dividends or make
other distributions, repurchase Equity Interests (as
defined) or subordinated Indebtedness, create certain
liens, enter into certain transactions with
affiliates, sell assets and issue or sell Equity
Interests of Restricted Subsidiaries and limit the
ability of the Company to enter into certain mergers
and consolidations. See "Description of Notes."
Use of Proceeds......... The proceeds from the Notes Offering, together with
the proceeds from the Common Stock Offering, will be
used to finance the Acquisitions, to purchase the
Pledged Securities, to repay certain indebtedness,
for fees and expenses in connection with the
Offerings and for general corporate purposes. See
"Use of Proceeds."
CONCURRENT OFFERING
Concurrently with the Notes Offering, the Company is offering 12,500,000
shares of its Class A Common Stock, par value $0.01 per share, to the public.
In connection therewith, the Company has granted the Underwriters a 30-day
option (the "Over-allotment Option") to purchase up to 1,875,000 additional
shares of Class A Common Stock to cover over-allotments, if any. The Notes
Offering is contingent upon the consummation of the Common Stock Offering, and
the Common Stock Offering is contingent upon the consummation of the Notes
Offering.
RISK FACTORS
Prior to making an investment in the Notes offered hereby, prospective
purchasers should carefully review the information set forth under the caption
"Risk Factors" as well as other information set forth in this Prospectus.
9
<PAGE>
SUMMARY FINANCIAL AND OPERATING DATA
The financial and operating data set forth below at December 31, 1996 and
1995 and for the year ended December 31, 1996 and the period June 15, 1995
(date of inception) to December 31, 1995 have been derived from the audited
combined financial statements of Global Broadcasting Systems, Inc., formerly
Ramcast Corp. ("Ramcast"). On January 30, 1997, Global Shopping Network, Inc.
("GSN") was merged with and into Ramcast and, in connection therewith, Ramcast
changed its name to Global Broadcasting Systems, Inc. (the "Corporate
Restructuring"). Global Broadcasting Systems, Inc. and GSN are referred to
herein as the "Combined Group." This information should be read in conjunction
with the historical financial statements of the Combined Group included
elsewhere herein.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 15, 1995
DECEMBER 31, (DATE OF INCEPTION)
1996 TO DECEMBER 31, 1995
----------------- --------------------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues........................ $ 199 $ 9
Gross profit........................ 51 4
Distribution, transmission and pro-
duction expenses................... 5,773 223
Selling, general and administrative
expenses........................... 5,108 606
Total operating expenses........... 10,880 829
Operating income (loss)............. (10,830) (825)
Interest income, net................ -- 1
Net loss............................ (10,832) (824)
Net loss per share.................. $ (7,500.37) $(570.54)
Weighted average common and common
equivalent shares ................. 1,444.2 1,444.2
Deficiency of earnings to fixed
charges(1)......................... $ 10,832 $ 824
BALANCE SHEET DATA (AT END OF PERI-
OD):
Cash and cash equivalents........... $ -- $ --
Working capital..................... 2,719 (111)
Total assets........................ 5,278 100
Long-term debt, less current maturi-
ties............................... -- --
Shareholders' equity................ 3,706 (11)
</TABLE>
- --------
(1) For purposes of this computation, earnings consists of income before income
taxes plus fixed charges (other than capitalized interest) and amortization
of previously capitalized interest. Fixed charges consist of interest
expense, amortization of debt issuance costs, capitalized interest and that
portion of rental expenses representative of the interest factor.
10
<PAGE>
RISK FACTORS
An investment in the Securities offered hereby involves a high degree of
risk. Prospective investors should consider carefully, in addition to the
other information contained in this Prospectus (including the financial
statements and notes thereto), the following factors in connection with an
investment in the Securities offered hereby. Many of the statements in this
Prospectus are forward-looking in nature and, accordingly, whether they prove
to be accurate is subject to many risks and uncertainties. The actual results
that the Company achieves may differ materially from any forward-looking
statements in this Prospectus. Factors that could cause or contribute to such
differences include, but are not limited to, those discussed below and those
contained in "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and elsewhere in this Prospectus.
LIMITED OPERATING HISTORY
The Company has limited experience in the home-shopping industry and, since
inception, has been primarily engaged in start-up activities. In March 1996,
the Company began full-time, national distribution of its video home-shopping
programming via satellite to all home satellite dishes in the United States.
As part of its business plan, as of [March 31,] 1997, the Company will have
acquired [two] UHF television stations and will have entered into agreements
to acquire an additional [18] UHF television stations in order to increase
distribution of its home-shopping programming and increase sales. The
Company's success will depend, in large part, on its ability to achieve its
business plan which, in turn, is dependent on numerous factors, many of which
are beyond the Company's control. Specifically, success of the Company's
business plan will depend on, among other things, its ability to consummate
the Acquisitions on a timely basis and on terms currently contemplated in the
acquisition agreements; its ability to increase distribution through
additional acquisitions; its ability to convert viewers into active customers;
its ability to generate repeat sales; and its ability to maintain its current
supplier arrangements.
RISKS RELATED TO THE ACQUISITIONS
Consummation of each of the Acquisitions is subject to a number of
conditions, certain of which are beyond the Company's control. Closing
conditions include, without limitation, (i) the prior approval by the FCC of
the assignments or transfers of control of operating licenses issued by the
FCC, (ii) the expiration of any waiting period under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976 ("Hart-Scott-Rodino"), (iii) the receipt of
satisfactory environmental audits and (iv) with certain stated exceptions, the
maintenance of normal broadcast transmission until closing. Certain of the
Acquisitions are evidenced by non-binding letters of intent and there can be
no assurance that definitive agreements with respect to such Acquisitions will
be executed on the terms described herein or at all. As a result of the
foregoing, there can be no assurance as to when the Acquisitions will be
consummated or that they will be consummated on the terms described herein or
at all. In the event that the Acquisitions are not consummated due to a
material breach by the Company, the Company may lose escrow deposits in the
aggregate amount of approximately $ million.
RISKS RELATED TO SUPPLIER ARRANGEMENTS
The Company's business plan assumes that the Company will continue to offer
merchandise to its customers at prices significantly below those of its
principal competitors. Its ability to continue to do so will be dependent upon
maintaining its current supplier arrangements. The Company has thus far been
able to obtain favorable pricing for its merchandise but, as is customary in
the industry, such arrangements are not evidenced by written agreements and,
therefore, are subject to termination or modification at any time. While the
Company believes that the accelerated payment and other terms that it offers
to suppliers create sufficient economic incentives for such suppliers to
maintain their existing supply arrangements, no assurance can be given that
such arrangements will be continued. The loss or modification of such supply
arrangements could have a material adverse effect on the Company.
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<PAGE>
The Company's business plan assumes that the Company will maintain a
comparatively low cost structure primarily as a result of its "ZERO INVENTORY"
policy. The success of the Company's "ZERO INVENTORY" policy will depend, in
part, upon the ability of the Company's suppliers to fulfill customer orders
and process customer returns efficiently and reliably. The Company's suppliers
generally have not operated under this type of supply arrangement in the past
and, although the Company believes that its suppliers will be able to satisfy
the Company's merchandise supply requirements in a timely manner, there can be
no assurance that they will be able to do so.
NEED FOR ADDITIONAL CAPITAL
In addition to the Acquisitions, the Company intends to pursue the
acquisition of additional television stations in order to increase its
distribution. In connection therewith, the Company will need to raise
additional debt and/or equity capital. There can be no assurance, however,
that any such capital will be available to the Company on acceptable terms, if
at all. If the Company is unable to raise such additional capital, it may be
unable to consummate additional acquisitions which, in turn, may limit the
Company's ability to increase distribution of its programming to the levels
currently anticipated. Any such failure could adversely impact the Company's
future results of operations.
FUTURE REVENUE GROWTH
Following the Acquisitions, the Company's strategy is to increase revenues
by increasing active and repeat customers through, among other things,
innovative programming, interactive information services, print media and
online access. There can be no assurance, however, that the Company's strategy
will be successful or that the Company's revenues will increase following the
Acquisitions at levels currently anticipated by the Company.
Following consummation of the Acquisitions, the Company also plans to
increase revenues by increasing the number of television households reached by
its programming through additional acquisitions of independent full-power
television stations throughout the United States. There can be no assurance,
however, that the Company will be able to identify and acquire suitable
stations or that the Company will be able to raise the additional debt and/or
equity financing required to fund such acquisitions. Similarly, there can be
no assurance that any future acquisitions will be successfully integrated into
the Company's operations or that such acquisitions will not have a material
adverse effect on the Company's financial condition and results of operations.
See "--Need for Additional Capital," "--Regulatory Matters" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources."
POSSIBLE LOSS OF MUST CARRY RIGHTS
The Cable Television Consumer Protection and Competition Act of 1992 (the
"Cable Act") and corresponding FCC rules allow each commercial television
broadcast station to demand carriage on a specified channel on cable systems
within its DMA by exercising its "must carry" rights. All of the Company's
television stations have exercised their "must carry" rights. The cable
industry has challenged the constitutionality of the Cable Act's "must carry"
provisions, alleging, among other points, that "must carry" infringes on a
cable system's First Amendment rights. The United States Supreme Court is
expected to issue a decision by June 1997. Even if the Supreme Court declares
the "must carry" provisions of the Cable Act and the corresponding FCC rules
unconstitutional, the Company will continue to have access to at least 30
million viewers following consummation of the Acquisitions through over-the-
air television and home satellite dishes and the Company could increase
distribution of its programming through carriage agreements with one or more
cable operators. However, industry data indicates that cable carriage
agreements typically require payment to cable operators of an upfront fee and
a percentage of net sales ranging from 5% to 10% and, if the Company were
required to enter into such carriage agreements, its profitability would be
adversely affected, possibly to a material extent. See "Business--Federal
Regulations and New Technologies."
LEVERAGE; INABILITY TO SERVICE OBLIGATIONS
Following the Offerings, the Company will be highly leveraged. As of
December 31, 1996, on a pro forma basis as if the Offerings and the
application of the net proceeds thereof had been completed on such date, the
12
<PAGE>
Company's indebtedness would have been $270.0 million. In addition, for the
year ended December 31, 1996, on a pro forma basis after giving effect to the
Offerings and the application of the net proceeds therefrom as if such
transactions had occurred on January 1, 1996, the Company's earnings would
have been insufficient to cover its fixed charges by $47.1 million. Subject to
the restrictions in the Indenture, the Company may incur additional
indebtedness from time to time to finance acquisitions, for capital
expenditures or for other purposes.
The degree to which the Company is leveraged following the Offerings could
have material consequences to the Company and the holders of the Company's
securities, including, but not limited to, the following: (i) the Company's
ability to obtain additional financing in the future for acquisitions, working
capital, capital expenditures, general corporate or other purposes may be
impaired, (ii) a substantial portion of the Company's cash flow from
operations will be dedicated to the payment of the principal and interest on
its debt and will not be available for other purposes, (iii) certain of the
Company's borrowings may be at variable rates of interest, which could result
in higher interest expense in the event of increases in interest rates and
(iv) the agreements governing the Company's long-term debt will contain
restrictive financial and operating covenants, and the failure by the Company
to comply with such covenants could result in an event of default under the
applicable instruments, which could permit acceleration of the debt under such
instruments and in some cases acceleration of debt under other instruments
that contain cross-default or cross-acceleration provisions. See "Description
of Notes."
The Company's ability to make scheduled payments of principal of, and to pay
interest on and to refinance, its debt depends on its future financial
performance, which, to a certain extent, is subject to general economic,
financial, competitive, legislative, regulatory, technological and other
factors beyond its control, as well as the success of the Company's
acquisition and operating strategies. Management believes that the net
proceeds of the Offerings, together with the Pledged Securities and cash flows
from operations commencing as early as the third quarter of 1998, will be
adequate to meet the Company's anticipated future requirements for the
Acquisitions, capital expenditures, working capital and scheduled payments of
interest on its debt. However, the Company has a limited operating history and
its ability to achieve anticipated liquidity will be substantially impacted by
a number of factors, many of which are beyond the Company's control.
Specifically, the Company's success will be impacted by, among other things,
its ability to consummate the Acquisitions on the terms and at the times
currently contemplated by the Company; its ability to increase distribution
through additional acquisitions; its ability to convert viewers into active
customers; its ability to generate repeat sales; and its ability to maintain
its current supplier arrangements. If the cost of the Acquisitions or the
Company's estimates of future cash flows from operations are inaccurate in any
material respect, the Company's cash needs could exceed its cash availability.
In such event, the Company may be required to raise additional debt or equity
capital and no assurances can be given that any such capital will be available
on favorable terms if at all.
The Company expects that it will need to raise additional debt or equity
capital to finance station acquisitions in addition to the pending
Acquisitions. Furthermore, the Company may be required to make significant
expenditures in connection with emerging technologies. Such expenditures could
include payments for spectrum and/or capital expenditures required to upgrade
the Company's television stations and, depending on their magnitude, such
expenditures could adversely affect the Company's liquidity. Finally, the
Company may be required to refinance a portion of the principal amount of the
Notes and/or any other indebtedness prior to or at maturity. There can be no
assurance that the Company will be able to raise additional capital through
the sale of securities, the disposition of television stations or otherwise
for any such purpose. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources."
DEPENDENCE ON ECONOMIC FACTORS
Because the Company derives substantially all of its revenue from the sale
of merchandise, its revenues may be adversely affected by economic conditions
which impact potential customers. In particular, operating results in
individual geographic markets will be adversely affected by local and or
regional economic downturns. Such economic downturns might have an adverse
impact on the Company's financial condition and results of operations. See
"Management Discussion and Analysis of Financial Condition and Results of
Operations."
13
<PAGE>
SATELLITE TRANSPONDER ARRANGEMENTS
The Company's programming is transmitted via Satcom C-4, a preemptible
satellite transponder, under a services agreement with GE Americom expiring on
December 31, 2004 (the "Services Agreement"). "Preemptible" means that a
transponder may be preempted at any time to restore (a) another failed
transponder that is entitled to protection, (b) a satellite failure or (c)
other service offerings of GE Americom, including construction delay
protection and launch protection. Notwithstanding the preemptibility of its
transponder, however, the Company has purchased an unusual transponder
protection package which it believes provides it with significant protections.
The package provides that, (a) in the event that the Company's transponder
fails, the Company's signal will be restored to one of two spare transponders
on Satcom C-4, subject to availability and (b) in the event that neither spare
transponder on Satcom C-4 is available or the Company's transponder is
preempted, service will be restored either to (i) a spare transponder or
another preemptible transponder on Satcom C-1 or (ii) a spare transponder or a
preemptible transponder on Spacenet III, in each case, subject to
availability. The Services Agreement may be terminated by GE Americom to
comply with the applicable federal, state or administrative law and upon the
happening of certain events, including: (a) certain events of bankruptcy or
insolvency of the Company; (b) certain payment defaults by the Company; (c)
certain nonconforming transponder use by the Company; (d) transmission by the
Company of certain communications that expose GE Americom to costs, expenses,
liability or other penalties not covered by compensation, indemnity or
insurance provided by the Company or that depict or describe "sexually
explicit conduct" as defined in 18 U.S.C. (S) 2256(2); and (e) certain pending
or threatened civil, criminal or administrative proceedings or investigations
based upon the content of the Company's communications (other than civil
proceedings for libel, slander or intellectual property infringement).
Although the Company has never had an interruption in its programming due to
transponder failure and believes that such interruption is unlikely to occur,
there can be no assurance that there will not be an interruption or
termination of satellite transmission in the future. Such interruption or
termination could have a material adverse effect on the Company. In addition,
the availability of replacement satellites and transponder time in the future
is dependent on a number of factors over which the Company has no control. See
"Business--Program Transmission."
REGULATORY MATTERS
The Company's operations are subject to extensive and changing regulation on
an ongoing basis by the FCC, which enforces the Communications Act of 1934, as
amended, and to a lesser extent by other regulatory agencies (such as the
Federal Aviation Administration). Approval by the FCC is required for the
issuance, renewal and assignment of station operating licenses and the
transfer of control of station licensees. There can be no assurance that the
FCC will approve all of the pending acquisitions that require an assignment or
transfer of control of an FCC license to the Company. In addition, the FCC
licenses held by the Company will come up for renewal from time to time.
Although in substantially all cases, such licenses are renewed by the FCC,
there can be no assurance that any of the Company's television licenses will
be renewed at their expiration dates for the full terms or at all. The non-
renewal or limitation of one or more of the Company's television broadcast
licenses could have a material adverse effect on the Company.
Congress and the FCC currently have under consideration and may in the
future adopt new laws or modifications to existing laws, regulations and
policies regarding a wide variety of matters, including attribution rules or
station ownership limitations, that could directly or indirectly adversely
affect the ownership and operation of the Company's broadcast properties, as
well as the Company's business strategies. See "--Possible Loss of Must Carry
Rights."
The adoption of various measures could accelerate the trend toward vertical
integration in the media and home entertainment industries and cause the
Company to face formidable competition in the future. Such measures could
include (and, in the case of the Telecom Act, do include) the elimination or
modification of certain restrictions on radio and television station
ownership, the removal or modification of restrictions on the participation by
regional telephone operating companies in cable television and other direct-
to-home video technologies, and the elimination or modification of
restrictions on the offering of multiple network services by
14
<PAGE>
the existing major television networks. Although the elimination of certain
ownership restrictions has enabled the Company to pursue its television
station acquisition strategy to date, the Company is unable to predict whether
other potential changes in the regulatory environment could restrict or
curtail the ability of the Company to acquire, operate and dispose of stations
in the future or, in general, to compete profitably with other operators of
television station and other media properties. See "Business--Federal
Regulations and New Technologies."
IMPACT OF NEW TECHNOLOGIES; POTENTIAL COST OF SPECTRUM
In recent years, the FCC has adopted policies providing for authorization of
new technologies and a more favorable operating environment for certain
existing technologies that have the potential to provide additional
competition for television stations. Further advances in technology such as
video compression, direct broadcast satellites and programming delivered
through fiber optic telephone lines could facilitate the entry of new channels
and encourage the development of increasingly specialized "niche" programming.
In particular, the Company may be affected by the development and regulation
of digital television ("DTV"). DTV will require significant new capital
investments in DTV broadcasting capacity, and no assurance can be given that
the Company will have adequate financial resources to make such capital
investments. In addition, certain members of Congress from time to time have
offered and continue to offer various proposals that would require a public
auction for the spectrum necessary to effect the transition to DTV. These
proposals could require broadcasters to make a substantial investment in order
to obtain the spectrum for DTV. See "Business--Federal Regulations and New
Technologies."
COMPETITION
The Company operates in an industry dominated by two established
competitors--HSN and QVC--both of which are larger than the Company. As a
result, the Company competes directly for viewer loyalty. The Company believes
that it will compete effectively against its primary competitors by offering
its customers a wide range of high quality merchandise at substantial savings
with a high degree of convenience and customer service; however, there can be
no assurance that the Company will be able to compete effectively or maintain
or increase revenues or operating profits in the future. The Company also
competes indirectly with mail order companies and many other types of retail
outlets, and with new media technologies, such as computer on-line shopping
services. In addition, advances in technology such as digital compression
could facilitate the creation of additional channel space for televised
shopping programs and the formation of new televised shopping competitors. See
"Business--Federal Regulations and New Technologies" and "--Competition."
MANDATORY REDEMPTION OF COMMON STOCK
In order to comply with the FCC foreign ownership rules, the Company's
Certificate of Incorporation permits the Company to redeem any shares of
either class of Common Stock owned by foreign nationals, foreign governments
or the representatives of either ("Foreign Interests") and to take other
actions designed to ensure compliance with the foreign ownership restrictions
of the Communications Act and related FCC rules. In general, the
Communications Act limits direct ownership by Foreign Interests in FCC
broadcast licensees to 20% and indirect ownership by Foreign Interests to 25%.
Pursuant to the Company's Certificate of Incorporation, if the Company elects
to effect any such redemption of Common Stock, the redemption price per share
will be equal to the lesser of fair market value or, if such shares were
purchased within one year of the redemption date, the purchase price therefor,
and may be paid in cash, securities or a combination thereof.
INABILITY TO SATISFY A CHANGE OF CONTROL OFFER
The Indenture provides that, upon the occurrence of a Change of Control, the
holders of the Notes will have the right to require the Company to repurchase
the Notes at a price equal to 101% of the aggregate principal amount thereof,
plus accrued and unpaid interest, if any, to the date of repurchase. If a
Change of Control were to occur, due to the highly leveraged nature of the
Company, the Company might not have the financial resources to repay all of
its obligations under any indebtedness that would become payable upon the
occurrence of such
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<PAGE>
Change of Control. The Company's failure to make a required repurchase of the
Notes in the event of a Change of Control would create an Event of Default
under the Notes. See "--Leverage; Inability to Service Obligations" and
"Description of Notes--Repurchase at the Option of Holders--Change of
Control."
POTENTIAL ANTI-TAKEOVER PROVISIONS
The Company's Certificate of Incorporation contains, among other things,
provisions authorizing the issuance of "blank check" preferred stock and two
classes of Common Stock with different voting rights. See "Description of
Capital Stock." The Company is also subject to the provisions of Section 203
of the Delaware General Corporation Law. In addition, the Communications Act
of 1934, as amended (the "Communications Act"), and FCC rules require the
prior consent of the FCC to any change of control of the Company. These
provisions could delay, deter or prevent a merger, consolidation, tender offer
or other business combination or change of control involving the Company that
some or a majority of the Company's stockholders might consider to be in their
best interests, including tender offers or attempted takeovers that might
otherwise result in such stockholders receiving a premium over the market
price for the Class A Common Stock.
CONTROL OF THE COMPANY BY CLASS B STOCKHOLDERS.
The Company's common stock is divided into two classes with different voting
rights, which allows for the maintenance of control of the Company by the
holders of the Class B Common Stock. Holders of Class A Common Stock are
entitled to one vote per share on all matters submitted to a vote of
stockholders and the holders of Class B Common Stock are entitled to two votes
per share. Both classes vote together as a single class on all matters, except
in connection with certain amendments to the Company's Certificate of
Incorporation and as required by Delaware law. Shares of Class B Common Stock
may be converted, at the option of the holder at any time, into shares of
Class A Common Stock on a one-for-one basis. Purchasers in the Common Stock
Offering will acquire shares of Class A Common Stock which, together with
Class A Common Stock outstanding immediately prior to the Common Stock
Offering, will represent 40.19% of all of the outstanding Common Stock of the
Company but possess only 25.15% of the total voting power of all of the Common
Stock outstanding immediately following the Common Stock Offering. Upon
completion of the Common Stock Offering, the outstanding shares of Class B
Common Stock will represent 74.85% of the total voting power of all
outstanding shares of Common Stock. The holders of the Class B Common Stock
will, therefore, have the power to elect the entire Board of Directors of the
Company. The Sponsor, by virtue of his beneficial ownership of 92.68% of the
Class B Common Stock, will have 69.37% of the voting power of all outstanding
Common Stock and will have sufficient voting power to determine the outcome of
any matter submitted to stockholders for approval (except matters on which the
holders of Class A Common Stock are entitled to vote separately as a class),
including the power to determine the outcome of all corporate transactions.
See "Description of Capital Stock."
RELIANCE ON SENIOR MANAGEMENT
The Company's business is dependent to a significant extent upon the
performance of its senior management team. The loss of the services of any one
or more of these individuals could have a material adverse effect on the
Company. The Company has entered into employment agreements with its Chief
Executive Officer, its President and its Chief Operating Officer. However,
there can be no assurance that the Company will be able to retain any of such
employees or prevent them from competing with the Company in the event of
their departure. In addition, the Company currently maintains key-person life
insurance in the amount of $2.0 million for each of the Company's Chief
Executive Officer, President and Chief Operating Officer. See "Management--
Employment Agreements."
ABSENCE OF PUBLIC MARKET
The Notes constitute a new issue of securities with no established trading
market. The Company does not intend to apply for listing of the Notes on any
securities exchange or for quotation through the National
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<PAGE>
Association of Securities Dealers Automated Quotation System. There can be no
assurance that an active trading market for the Notes will develop or be
sustained after the Offerings. If a trading market does not develop or is not
maintained, holders of the Notes may experience difficulty in reselling the
Notes or may be unable to sell them at all. If a market for the Notes
develops, any such market may be discontinued at any time. Although Friedman,
Billings, Ramsey & Co. Inc. has advised the Company that it currently intends
to make a market in the Notes, it is not obligated to do so and may
discontinue such market making at any time without notice. In addition, such
market making will be subject to the limits imposed by the Securities Act and
the Securities Exchange Act of 1934, as amended (the "Exchange Act"). See
"Underwriting."
SEASONALITY
The Company expects its business, like other retail businesses, to be
seasonal in nature, with a high percentage of its sales, profits and cash
flows generated during the last quarter of the calendar year.
USE OF PROCEEDS
The gross proceeds to be received by the Company from the sale of the
Securities in the Offerings will be approximately $470.0 million (or
approximately $500.0 million if the over-allotment option is exercised in
full). The Company expects to apply the gross proceeds from the Offerings for
the following purposes: (i) approximately $373.95 million will be used to fund
the purchase price of the Acquisitions, (ii) approximately $36.45 million will
be used to purchase the Pledged Securities, (iii) approximately $28.5 million
will be used to repay all indebtedness outstanding under the Bridge Loan, (iv)
approximately $27.0 million will be used to pay fees and expenses in
connection with the Offerings (including $24.3 million for underwriting
discounts and commissions and financial advisory fees) and (v) approximately
$4.1 million will be used for general corporate purposes, including funding
operating losses.
Pending application as set forth above, the net proceeds from the Offerings
will be invested in short-term interest-bearing investment grade securities.
17
<PAGE>
CAPITALIZATION
The following table sets forth the cash and cash equivalent and total
capitalization of the Company (i) at December 31, 1996, as adjusted for the
Corporate Restructuring and the Stock Split, (ii) at December 31, 1996, as
further adjusted for borrowings under the Bridge Loan and for the portion of
the Sponsor's Capital Contribution made after December 31, 1996 and (iii) as
further adjusted to reflect the Offerings.
<TABLE>
<CAPTION>
DECEMBER 31, 1996
---------------------------------------
AS ADJUSTED
BRIDGE LOAN AND
SPONSOR'S CAPITAL AS ADJUSTED
ACTUAL CONTRIBUTION(1) OFFERINGS
-------- ----------------- -----------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
Cash and cash equivalents............. $ -- $111,499 $489,549(2)
======== ======== ========
Restricted Cash(3).................... $ -- $ -- $ 36,450
======== ======== ========
Long-term debt, including current
portion:
Bridge Loan(4)...................... $ -- $ 25,000 $ --
Notes offered hereby................ -- -- 270,000
-------- -------- --------
Total............................. $ -- $ 25,000 $270,000
Shareholders' equity:
Preferred Stock, par value $.01 per
share, 75,000 shares authorized; no
shares issued, actual; as adjusted
Bridge Loan and Sponsor's Capital
Contribution; and as adjusted
Offerings.......................... -- -- --
Class A Common Stock, par value $.01
per share, 45,000,000 shares
authorized; 118,772 shares issued,
actual and as adjusted Bridge Loan
and Sponsor's Capital Contribution;
12,618,772 shares issued, as
adjusted Offerings(5).............. 1 1 126
Class B Common Stock, par value $.01
per share, 25,000,000 shares
authorized; 15,942,330 shares
issued, actual, as adjusted Bridge
Loan and Sponsor's Capital
Contribution and as adjusted
Offerings(6)....................... 159 159 159
Additional paid-in capital.......... 15,202 102,701 287,726
Accumulated deficit................. (11,656) (11,656) (16,156)(7)
-------- -------- --------
Total shareholders' equity........ 3,706 91,205 271,855
-------- -------- --------
Total capitalization.............. $ 3,706 $116,205 $541,855
======== ======== ========
</TABLE>
- --------
(1) Assumes the Sponsor's Capital Contribution of $100 million. See "Summary--
Sponsor" and "Certain Relationships and Related Transactions."
(2) The Company intends to apply approximately $373.95 million of the net
proceeds from the Offerings to fund the Acquisitions.
(3) Represents the Pledged Securities that will be purchased with a portion of
the net proceeds of the Offerings.
(4) On February 26, 1997, the Company entered into the Bridge Loan pursuant to
which approximately $25.0 million was borrowed thereunder to finance the
acquisition of two stations. All amounts outstanding under the Bridge Loan
will be repaid with a portion of the proceeds of the Offerings.
(5) Does not include Class A Common Stock issuable upon conversion of the
Class B Common Stock. Each share of Class B Common Stock is convertible at
the option of the holder into one share of Class A Common Stock. As of
December 31, 1996, assuming full conversion into Class A Common Stock of
all Class B Common Stock, and pro forma for the Common Stock Offering, a
total of 28,561,102 shares of Class A Common Stock would be outstanding
immediately after the Common Stock Offering. Also does not include
2,300,000 shares of Class A Common Stock reserved for issuance upon
exercise of options issued under the Company's 1997 Stock Option Plan.
Upon consummation of the Offerings, options to purchase a total of 30,000
shares of the Class A Common Stock will be outstanding under the 1997
Stock Option Plan.
(6) Assumes no conversion of Class B Common Stock into Class A Common Stock.
(7) Reflects the write-off of deferred financing fees of $2.0 million incurred
in connection with the Bridge Loan and the prepayment premium of $2.5
million.
18
<PAGE>
SELECTED FINANCIAL DATA
The financial and operating data set forth below at December 31, 1996 and
1995 and for the year ended December 31, 1996 and for the period from June 15,
1995 (date of inception) to December 31, 1995 have been derived from the
audited combined financial statements of Global Broadcasting Systems, Inc. On
January 30, 1997, GSN was merged with and into Ramcast and, in connection
therewith, Ramcast changed its name to Global Broadcasting Systems, Inc. This
information should be read in conjunction with the historical financial
statements of the Combined Group included elsewhere herein.
<TABLE>
<CAPTION>
JUNE 15, 1995
YEAR ENDED (DATE OF INCEPTION) TO
DECEMBER 31, 1996 DECEMBER 31, 1995
----------------- ----------------------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenue......................... $ 199 $ 9
Cost of revenue..................... 148 5
Gross profit........................ 51 4
Distribution, transmission and pro-
duction expenses................... 5,773 223
Selling, general and administrative
expenses........................... 5,108 606
Total operating expenses.......... 10,880 829
Operating income (loss)............. (10,830) (825)
Interest income, net................ -- 1
Other income (expense).............. (2) --
Net loss............................ (10,832) (824)
Net loss per share.................. $(7,500.37) $(570.54)
Weighted average common and common
equivalent shares.................. 1,444.2 1,444.2
Deficiency of earnings to fixed
charges(1)......................... $ 10,832 $ 824
PRO FORMA FINANCIAL DATA(2):
Net loss per share(3)............... $ (1.81)
Interest (income) expense, net(3)... 40,815
Deficiency of earnings to fixed
charges(1)(3)...................... 47,147
BALANCE SHEET DATA (AT END OF PERIOD):
Cash and cash equivalents........... $ -- $ --
Working capital..................... 2,719 (111)
Total assets........................ 5,278 100
Long-term debt, less current maturi-
ties............................... -- --
Shareholders' equity................ 3,706 (11)
</TABLE>
- --------
(1) For purposes of this computation, earnings consists of income before
income taxes plus fixed charges (other than capitalized interest) and
amortization of previously capitalized interest. Fixed charges consist of
interest expense, amortization of debt issuance costs, capitalized
interest and that portion of rental expenses representative of the
interest factor.
(2) Pro forma to give effect to (i) the Corporate Restructuring, (ii) the
Stock Split, (iii) the Sponsor's Capital Contribution (assuming a
Sponsor's Capital Contribution of $100 million), (iv) the write-off of
issuance costs and the prepayment premium associated with the repayment of
the Bridge Loan and (v) the Offerings and the application of the net
proceeds therefrom as set forth in "Use of Proceeds," as if each such
transaction had occurred on January 1, 1996. The unaudited pro forma
financial information does not purport to be indicative of the financial
position or operating results which would have been achieved had the
Offerings taken place at the date indicated and should not be construed as
representative of the Company's financial position or results of
operations for any future period or date.
(3) Assumes an interest rate of 13.0% per annum with respect to the Notes and
the write-off of issuance costs and the prepayment premium associated with
the repayment of the Bridge Loan. A change of 0.125% in the interest rate
would result in a change in pro forma interest expense of approximately
$0.3 million for the year ended December 31, 1996.
19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Many of the statements in this Management's Discussion and Analysis of
Financial Condition and Results of Operations are forward-looking in nature
and, accordingly, whether they prove to be accurate is subject to many risks
and uncertainties. The actual results that the Company achieves may differ
materially from any forward-looking statements in this Management's Discussion
and Analysis of Financial Condition and Results of Operations.
GENERAL
The Company is a national televised home-shopping retailer offering high-
quality merchandise at manufacturers' direct prices that are up to 25% to 50%
below those of its principal competitors. The Company was incorporated in May
1996 under the name "Ramcast Corp." to hold the FCC licenses of the television
stations currently owned or to be acquired by the Company. GSN was formed in
June 1995 to conduct the televised home-shopping retail and programming
operations of the Company. On January 30, 1997, GSN was merged with and into
the Company and, in connection therewith, the Company changed its name to
"Global Broadcasting Systems, Inc." Accordingly, the results of operations for
the Company discussed below for 1995 include the results of operations for GSN
and the results of operations for the Company discussed below for 1996 include
the combined results of operations for GSN and Ramcast. The following
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" should be read in conjunction with the audited combined financial
statements of the Combined Group for 1996 and 1995 (from inception) included
elsewhere herein.
The Company derives revenues from the sale of merchandise marketed through
home-shopping programming carried by its UHF television stations over-the-air
and by cable television operators pursuant to "must carry" provisions of
applicable law and regulation. As of [March 31,] 1997, approximately 4.2
million homes were receiving the Company's programming over-the-air, 3.3
million homes were receiving the Company's programming by cable television and
2.3 million homes were receiving the Company's programming by home satellite
dish. As of [March 31,] 1997, the Company will be party to agreements to
acquire an additional [18] UHF television stations throughout the United
States pursuant to the Acquisitions. The Company currently anticipates that
all such acquisitions will be consummated by September 1997. Following the
Acquisitions, the Company will own stations with an aggregate acquisition
value in excess of $430.0 million and a total over-the-air audience reach of
approximately 30 million homes. The Company's principal operating costs are
expected to relate to telesales personnel and facilities, station personnel
and other station costs, satellite transponder and other transmission costs
and advertising.
The Company has formulated a business plan based on management's experience
and the historical results of operations of other home-shopping companies. As
of December 31, 1996, HSN's home-shopping programming was broadcast to
approximately 55.2 million full-time equivalent television homes (of which
approximately 18.9 million received HSN's programming over-the-air) and QVC's
home-shopping programming was broadcast to approximately 57.6 million full-
time equivalent television homes, all of which received QVC's programming by
cable television. Full-time equivalent television homes represent all of an
entity's television homes that receive programming 24 hours a day, seven days
a week and a portion of the television homes that receive programming by home
satellite dish and/or on a part-time basis. The discount, if any, applied to
satellite dish and part-time homes varies depending on each entity's estimate
of the relative value provided by such homes. The Company's business plan
assumes that the Company will have access to approximately 30 million
television homes over-the-air at the end of each of 1997 and 1998. During
1996, the net sales per full time equivalent home of HSN and QVC were
approximately $20 and $30, respectively. The Company's business plan assumes
that it will record annualized net sales per television home of approximately
$4.50 in the second quarter of 1997, increasing to approximately $12.50 by the
first quarter of 1998 as the Company completes the Acquisitions and integrates
the acquired stations into its operations. Thereafter, the Company's business
plan assumes net sales per television home of $12.50 for 1998. Gross margins
for HSN and QVC during 1996 were approximately 38%. The Company believes that
its gross margins should equal or exceed those of its competitors due to the
favorable prices at which it currently purchases merchandise from its
suppliers. Operating expenses
20
<PAGE>
for HSN and QVC were approximately 33% and 29%, respectively, of net sales in
1996. The Company believes that its operating expenses should be lower than
those of its competitors due to its "ZERO INVENTORY" policy and low overhead
structure. HSN and QVC reported operating profit (loss) margins of (0.2%) and
10.5%, respectively, during 1996. The Company believes that its operating
profit margins should equal or exceed those of its primary competitors due
largely to the benefits of its "ZERO INVENTORY" policy, supplier arrangements
and ownership of television stations that broadcast its programming to over-
the-air television homes and cable operators for retransmission pursuant to
"must carry" rules without payment of carriage fees.
During 1996 and 1995, HSN reported payments to cable operators in an
aggregate amount of approximately $74 million and $84 million, respectively,
for carriage of its programming. The Company believes that even if "must
carry" rules are struck down and it is required to pay cable carriage fees for
access to cable subscribers, its operating profit margins should continue to
equal or exceed those of its primary competitors due primarily to the cost
benefits of its "ZERO INVENTORY" policy and supplier arrangements. In
particular, the Company's primary competitors typically incur the following
costs which the Company should avoid as a result of its supplier arrangements
and "ZERO INVENTORY" policy: (i) higher product costs; (ii) increased cost of
capital due to inventory financing needs and (iii) costs associated with the
warehousing and storage of inventory (e.g., lease expense and/or depreciation
of owned warehouses, labor and general and administrative costs associated
with inventory maintenance and tracking). Based on the foregoing, the Company
currently contemplates that it may begin generating net income as early as the
third quarter of 1998.
The Company believes that its business plan is achievable due primarily to
(i) the expected audience reach of its programming upon consummation of the
Acquisitions; (ii) its ability to offer high-quality merchandise at
substantially reduced prices; (iii) the favorable prices at which the Company
currently purchases merchandise from its suppliers; (iv) the operating cost
savings attributable to its "ZERO INVENTORY" policy; and (v) the ownership of
a national television station group from which it broadcasts its programming
to over-the-air television homes and cable operators for retransmission
pursuant to the "must carry" rules without payment of carriage fees. However,
the Company has a limited operating history and its ability to achieve
anticipated results of operations will be substantially impacted by a number
of factors, many of which are beyond the Company's control. Specifically, the
Company's success will be impacted by, among other things, its ability to
consummate the Acquisitions on a timely basis and on the terms currently
contemplated in the acquisition agreements; its ability to increase
distribution through additional acquisitions; its ability to convert viewers
into active customers; its ability to generate repeat sales; and its ability
to maintain its current supplier arrangements. In addition, the Company's
prospects and future results of operations will be impacted by the other
factors set forth under "Risk Factors."
FISCAL 1996 COMPARED TO THE PERIOD FROM JUNE 15, 1995 (DATE OF INCEPTION) TO
DECEMBER 31, 1995 (THE "1995 PERIOD")
Net Revenue. Net revenue for 1996 increased to $198,845 from $9,479 for the
1995 Period. The increase in net revenue for 1996 was attributable to the
commencement of transmission of the Company's home-shopping programming in
March 1996. Net revenue for the 1995 Period was attributable to sales from
initial test marketing.
Distribution, Transmission and Production Expenses. Distribution,
transmission and production expenses for 1996 increased to $5,772,550 from
$222,711 for the 1995 Period, primarily as a result of the increase in
production costs (primarily rent and salaries) and transmission costs
(primarily for satellite transponder access) attributable to the commencement
of transmission of the Company's home-shopping programming in March 1996.
Distribution, transmission and production expenses for the 1995 Period related
primarily to the cost of broadcast time and production of infomercials in
connection with the Company's initial test marketing.
21
<PAGE>
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for 1996 increased to $5,107,784 from $605,853 for the
1995 Period, primarily as a result of increased activity levels associated
with the commencement of transmission of the Company's home-shopping
programming in March 1996. Selling, general and administrative expenses for
1996 included approximately $267,000 of accrued salaries for 1996 that will be
paid in the second quarter of 1997 and approximately $1,800,000 of
compensation expense attributable to Common Stock issued by the Company as
incentive compensation.
Operating Loss. As a result of the foregoing, operating loss for 1996
increased to $10,829,535 from $824,635 for the 1995 Period.
LIQUIDITY AND CAPITAL RESOURCES
The Company has incurred operating losses and negative operating cash flows
since it commenced operations due primarily to start-up costs and the cost of
identifying television stations for acquisitions. The Company has historically
financed its cash requirements through equity issuances to, and capital
contributions from, Rachamim Anatian, its co-founder, Chairman and Chief
Executive Officer and through borrowings under the Bridge Loan. The Company's
cash requirements have been funded by the Sponsor on an as-needed basis and,
as a result of timing differences between payments by the Company and funding
by the Sponsor, the Company's balance sheet typically reflects current
liabilities for checks issued in excess of bank balances. As of [March 31,]
1997, the Company had raised an aggregate of approximately $ million in
equity capital and had borrowed $25.0 million under the Bridge Loan to fund
two television station acquisitions and to fund operating losses. Upon
consummation of the Offerings, the Company's co-founder, Chairman and Chief
Executive Officer will have made capital contributions and/or purchased
capital stock of the Company for an aggregate of between $100 million and $150
million. See "Summary--Sponsor."
Net cash used by operating activities during 1996 was $7,691,287 compared to
$543,430 during the 1995 Period. The increase in 1996 was attributable to
increased expenditures in connection with commencement of transmission of the
Company's home-shopping programming, primarily for satellite transponder
access and salaries and rental expense for production personnel and
facilities. Net cash used in investing activities during 1996 was $5,066,859
compared to $104,879 during the 1995 Period. Cash used by investing activities
during 1996 was attributable primarily to amounts paid to escrow in connection
with pending television station acquisitions ($4,150,000) and capital
expenditures for property and equipment. Net cash provided by financing
activities for 1996 was $12,758,344 compared to $648,309 for the 1995 Period.
Net cash provided by financing activities was attributable primarily to
purchases of capital stock and capital contributions by the Sponsor.
Following the consummation of the Offerings, the Company intends to continue
to increase its distribution through the acquisition of additional stations.
As of [March 31,] 1997, the Company will be party to agreements to acquire
[18] additional UHF television stations throughout the United States for an
aggregate acquisition price of $398.85 million. A portion of the net proceeds
from the Offerings will be used to fund such acquisitions. Following
consummation of the Offerings, the Company also expects to make capital
expenditures primarily related to refurbishing, upgrading and general
maintenance of its television stations. The Company has budgeted approximately
$[3.0] million for such capital expenditures in each of fiscal 1997 and 1998.
The Company intends to enter into a factoring arrangement pursuant to which
its accounts receivable will be purchased with recourse and serviced by an
unrelated third party. Management believes that the net proceeds of the
Offerings, together with the Pledged Securities and cash flows from operations
commencing by as early as the third quarter of 1998, will be adequate to meet
the Company's anticipated future requirements for the Acquisitions, capital
expenditures, working capital and scheduled payments of interest on its debt.
However, the Company has a limited operating history and its ability to
achieve anticipated liquidity will be substantially impacted by a number of
factors, many of which are beyond the Company's control. Specifically, the
Company's success will be impacted by, among other things, its ability to
consummate the Acquisitions on the terms and at the times currently
contemplated by the Company; its ability to increase distribution through
additional acquisitions; its ability to convert viewers into active customers;
its ability to generate repeat sales; and its ability to maintain its current
supplier arrangements. If the cost of the Acquisitions or the Company's
estimates of future cash flows from operations are inaccurate in any material
respect, the Company's cash needs could exceed its cash
22
<PAGE>
availability. In such event, the Company may be required to raise additional
debt or equity capital and no assurances can be given that any such capital
will be available on favorable terms if at all.
The Company expects that it will need to raise additional debt or equity
capital to finance station acquisitions in addition to the pending
Acquisitions. Furthermore, the Company may be required to make significant
expenditures in connection with emerging technologies. Such expenditures could
include payments for spectrum and/or capital expenditures required to upgrade
the Company's television stations and, depending on their magnitude, such
expenditures could adversely affect the Company's liquidity. Finally, the
Company may be required to refinance a portion of the principal amount of the
Notes and/or any other indebtedness prior to or at maturity. There can be no
assurance that the Company will be able to raise additional capital through
the sale of securities, the disposition of television stations or otherwise
for any such purpose.
THE COMPANY
The Company was incorporated in May 1996 under the name "Ramcast Corp." to
hold the FCC licenses of the television stations currently owned or to be
acquired by the Company. GSN was formed in June 1995 to conduct the televised
home-shopping retail and programming operations of the Company. On January 30,
1997, GSN was merged with and into the Company and, in connection therewith,
the Company changed its name to "Global Broadcasting Systems, Inc."
23
<PAGE>
BUSINESS
GENERAL
The Company is a national televised home-shopping retailer offering high-
quality merchandise at manufacturers' direct prices that are up to 25% to 50%
below those of its principal competitors. On March 1, 1996, the Company began
full-time, national distribution of its video home-shopping programming via
satellite to all home satellite dishes in the United States. As of [March 31],
1997, the Company owned [two] independent full-power UHF television stations
and had agreements to acquire an additional [18] independent full-power UHF
stations. Following the Acquisitions, the Company's national station group
will broadcast the Company's programming in 12 of the top 25 markets (based on
the Nielsen designated market area or DMA ranking) throughout the United
States (including New York, Los Angeles, Chicago, Philadelphia, San Francisco,
Boston, Dallas, Detroit, Houston, Seattle, Denver and St. Louis). The
Company's national station group, following the Acquisitions, will have an
aggregate acquisition value in excess of $430.0 million and a total over-the-
air audience reach of approximately 30 million homes. Pursuant to current
"must carry" regulations, which require local cable television operators to
carry certain over-the-air broadcasters' programming without payment of a fee,
approximately 21.9 million of the television households in the DMAs of the
Company's stations will also receive the Company's programming by cable.
Following the Acquisitions, the Company will be the third largest television
station operator in the United States (based on the aggregate number of
television households which will receive the Company's programming over-the-
air) or the ninth largest television station operator in the United States
(based on the aggregate number of television households which will receive its
programming over-the-air, discounted by 50% for UHF stations pursuant to FCC
rules). The Company's acquisition strategy is designed to capitalize on the
national scope of its station group to maximize revenues and profits.
Home-shopping involves the sale of merchandise through dedicated television
channels and blocks of television programming that reach consumers via
broadcast television, cable television or satellite dish. The home-shopping
industry has experienced strong growth since its inception in 1982 and
aggregate revenues for the industry have increased steadily from approximately
$4.0 million in 1983 to over $3.0 billion in 1996, representing a compound
annual growth rate of approximately 66%. The industry is currently dominated
by only two companies--HSN and QVC--whose combined sales represented
approximately 95% of the industry's 1996 revenues. Silver King Communications,
Inc. ("Silver King"), which recently merged with HSN and currently carries
HSN's programming on over 12 broadcast television stations located in many of
the top markets, has publicly announced its intention to distribute HSN's
programming exclusively via cable and to develop original programming--
including news, sports, children's programming, court coverage, and game
shows--for distribution on Silver King's broadcast television stations. Silver
King's new local format is expected to commence in the fall of 1997 in Dallas
and Miami, followed by Los Angeles in 1998. Management believes that
significant market share opportunities will be created for the Company if
Silver King discontinues HSN's over-the-air programming in a significant
number of its markets.
As of [March 31], 1997, approximately 4.2 million homes were receiving the
Company's programming over-the-air, 3.3 million homes were receiving the
Company's programming over cable pursuant to "must carry" regulations and 2.3
million homes were receiving the Company's programming by home satellite dish.
The "must carry" rules have been challenged by the cable industry and the
United States Supreme Court is expected to rule definitively on this issue by
June 1997. If the "must carry" rules are overturned, the Company will continue
to utilize the UHF stations owned by it to broadcast its programming over-the-
air and may also elect to enter into affiliation agreements with cable
operators to carry the Company's programming in exchange for the payment of a
carriage fee. The Company believes that, even if the "must carry" rules are
overturned, it can compete effectively against other home shopping companies
because (i) the experience of HSN indicates that a significant proportion of
sales can be made over-the-air and (ii) the Company's low overhead should
enable it to operate profitably even if it is required to pay cable carriage
fees.
The Company currently offers a wide variety of high-quality brand name and
non-branded jewelry, sports memorabilia, health and beauty products, fitness
equipment, electronics and fashion merchandise. The Company's programming is
broadcast 24 hours a day, 7 days a week and consists of both one-hour and
multi-
24
<PAGE>
hour program segments. During each segment, merchandise is described and
demonstrated by show hosts, and orders are placed directly with GBS by viewers
who call a toll-free telephone number. Each program segment has a theme
devoted to a particular category of product or lifestyle. From time to time,
GBS broadcasts special program segments devoted to merchandise associated with
a particular celebrity, geographical region or seasonal interest. During both
regular and special program segments, show hosts talk to viewers live on the
air, and the Company will offer viewers opportunities to win prizes in the
form of credits that may be applied toward future purchases.
STRATEGY
The Company's objective is to establish the leading trademark on television
for discounted high-quality fashion and lifestyle merchandise by implementing
the following strategy:
National Television Station Base. The experience of other home-shopping
companies indicates that, without access to at least 20 million full-time
television households, an electronic retailer will not be successful. The
Company's station acquisition strategy is designed to ensure that the Company
is able to attain this critical mass. Accordingly, the Company intends to
consummate the Acquisitions and to pursue additional television station
acquisitions up to the maximum number permissible under current laws and
regulations. The Company's national station group will enable the Company to
reach a significant television audience without payment of carriage fees to
cable system operators. In contrast, HSN and QVC distribute their programming
via cable under carriage agreements pursuant to which they pay significant
fees. During 1996 and 1995, HSN paid cable operators an aggregate of
approximately $74 million and $84 million, respectively, for carriage of its
programming.
Favorable Supplier Arrangements and Low Cost Operations. The Company
believes its supplier arrangements and low cost structure should enable it to
operate profitably while continuing to offer savings to its customers of up to
25% to 50% over its principal competitors. The Company's "ZERO INVENTORY"
policy, under which it maintains no inventory of merchandise sold on its
programming, enables it to pay 50% of the cost of all merchandise sold on its
programming to suppliers within one day of delivery. As a result, the
Company's suppliers offer merchandise to the Company at substantially lower
prices than those available to the Company's competitors and have agreed to
accept all returns from the Company's customers within 30 to 45 days. This
enables the Company to operate without incurring significant costs associated
with warehousing, distributing and managing inventory. The Company believes
that it will be difficult for its current competitors to implement similar
supply arrangements because those competitors incur significantly higher
overhead expenses and working capital requirements than the Company in
connection with warehousing, distributing and managing inventory, which would
likely preclude such competitors from paying suppliers 50% of the cost of
merchandise within one day of delivery.
Low-Priced, High-Quality Merchandise. Industry data demonstrates that price
is a key factor affecting home-shopping sales. Due to favorable supplier
arrangements and low cost structure, the Company is able to offer high-quality
merchandise that is comparable to that of its home-shopping competitors at
prices that are up to 25% to 50% lower.
Strategic Relationships. According to industry research, sales attributable
to jewelry range from approximately 40% to 70% of a home-shopping company's
aggregate sales. Through family members of the co-founder, Chairman and Chief
Executive Officer of the Company, GBS enjoys strategic relationships with many
of its jewelry suppliers. The Company believes that these relationships will
provide an advantage to the Company in terms of merchandise variety, quality
control and price.
Flexible Payment Terms. The Company offers extended payment terms that
permit a customer to pay for a product in up to 12 monthly installments using
any major credit card or the Company's own credit card. The Company believes
that the availability of these flexible payment terms should enable it to
compete effectively for home-shopping sales.
25
<PAGE>
Multiple Distribution Channels. Through a combination of innovative
programming, interactive information services, print media and online access,
the Company believes it can increase sales per television household by
increasing active and repeat customers. In areas where interactive television
is available, the Company's interactive shopping database will work in concert
with its televised programming and will allow consumers to access additional
information regarding any merchandise displayed on the Company's televised
programming. The Company also plans to distribute a print catalogue
highlighting products presented on its televised program. The Company will
maintain a web site on the internet where customers will be able to view and
obtain information regarding its products and to place orders. In addition,
the Company will distribute a video, or "electronic catalogue," highlighting
its most popular products.
Full-Time Broadcast. Industry research indicates that, to be successful, a
home-shopping company must distribute its programming to at least 20 million
television households 24 hours a day, seven days a week. Following the
Acquisitions, approximately 30 million over-the-air homes will receive the
Company's programming on a full-time basis.
Satellite Access. The Company is party to an agreement with GE Americom
which provides the Company access until December 31, 2004 to a preemptible
transponder on Satcom C-4. Satcom C-4 is one of four primary satellites from
which cable operators receive their programming. Pursuant to the agreement
with GE Americom, the Company has purchased unusual transponder protection,
which the Company believes should enable it to distribute its programming
continuously to all home satellite dishes in the United States and to all of
its television stations for retransmission over-the-air and to cable operators
that carry the Company's programming.
International Expansion. The Company intends to market its products in
international markets, particularly in Asia and Europe where the success of
electronic retailers such as FujiSankei TV indicate that demand exists for
home-shopping. The Company's distribution methods in international markets are
expected to be similar to those utilized in the United States, and the Company
intends to pursue joint ventures and other strategic partnerships to increase
international sales.
Strong Capitalization. Upon consummation of the Offerings, the Company will
have raised at least $300.0 million of equity capital and $270.0 million of
long-term debt and, on a pro forma basis, as of December 31, 1996, the
Company's ratio of debt to equity would have been approximately 0.90 to 1.00.
INDUSTRY OVERVIEW
U.S. Television Industry
Commercial television broadcasting began in the United States on a regular
basis in the 1940s over channels in the very high frequency ("VHF") broadcast
band (Channels 2-13). Television channels were later allocated by the FCC in
the ultra high frequency ("UHF") broadcast band (Channels 14-83). In
subsequent actions, the FCC reallocated Channels 70-83 to nonbroadcast
services.
All television stations in the United States are grouped by Nielsen, a
national audience measuring service, into approximately 210 generally
recognized television markets that are ranked in size according to various
formulae based upon actual or potential audience. Each designated market area,
or DMA, is an exclusive geographic area consisting of all counties in which
the home-market commercial stations receive the greatest percentage of total
viewing hours. Nielsen periodically publishes data on estimated audiences for
the television stations in the various television markets throughout the
country. The estimates are expressed in terms of the percentage of the total
potential audience in the market viewing a station (the station's "rating")
and of the percentage of television households actually viewing the station
(the station's "share").
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Although VHF and UHF stations are located in the same market, UHF television
stations have suffered competitive disadvantages in the past. These
disadvantages stemmed from the lack of any regulatory requirement prior to
1962 that television receivers have the capacity to receive Channels 14-83. As
a result, there was insufficient quality programming available for UHF
stations. The Company believes that these historical disadvantages have been
ameliorated, to some extent, by advances in technology, liberalization of
government regulation and increased availability of network programming,
although UHF stations often continue to suffer from an inferior broadcast
signal due to the increased power necessary to achieve the same signal quality
as that of VHF stations.
The requirement that television tuners receive UHF signals, coupled with
improvements in the capacity of television receiver designs, has removed many
of the technical impediments to consumers receiving over-the-air UHF station
broadcast signals. The recent increase in programming available for UHF
television stations, particularly through the new Fox Television Network, the
United Paramount Network and the Warner Brothers Network, also has increased
the commercial viability of UHF stations. Further, the carriage of UHF
stations on cable systems (through exercise of a station's "must-carry" rights
or retransmission consent) has partially overcome the weakness of UHF
television stations' broadcast signals.
The relaxation of government regulation also has improved the competitive
position of UHF television stations and has made the Company's acquisition
strategy possible. First, in 1984 the FCC deregulated the level of commercial
matter permissible on UHF television stations. As a result, television
stations are now able to broadcast home-shopping formats that are almost
entirely commercial matter. Second, under the recently enacted Telecom Act, it
is now permissible for a group UHF owner to have stations that reach as much
as 70% of the national audience. This was accomplished by Congress'
elimination of the restriction on the number of television stations that any
single party could own, operate, control or otherwise have an interest in
throughout the country. Furthermore, the Telecom Act eliminated the FCC rule
that limited the national audience reach of any single broadcaster to 25% and
replaced it with a national audience reach standard of 35%. The Telecom Act
did not change the FCC rule that discounts the audience reach of UHF
television stations by 50% (thus, permitting UHF group owners to reach up to
70% of the national audience). The FCC has stated that it will review the UHF
discount in its biennial review of ownership rules in 1998. The Telecom Act
also authorized the FCC to consider relaxing its current prohibition against
owning more than one television station in a market (the "duopoly rule"). The
FCC is currently considering whether to eliminate the duopoly rule.
Home-Shopping
Home-shopping involves the sale of merchandise through dedicated television
channels and blocks of television programming that reach consumers via
broadcast television, cable television or satellite dish. The home-shopping
industry has experienced strong growth since its inception in 1982 and
aggregate revenues for the industry have grown steadily from approximately
$4.0 million in 1983 to over $3.0 billion in 1996, representing a compound
annual growth rate of approximately 66%. Today, the industry is dominated by
two competitors--HSN and QVC--whose combined sales represented approximately
95% of the industry's 1996 revenues.
Customer Purchase Patterns
The typical home-shopping customer is a 45 to 50 year old female with a
median annual household income of $45,000 to $50,000. Jewelry comprises the
largest product category for both first-time and repeat buyers. According to
industry research, jewelry ranges from approximately 40% to 70% of a home-
shopping company's aggregate sales. As a customer becomes accustomed to buying
from television, the customer may move on to purchase electronics, then
collectibles, followed by clothing. Industry data also demonstrates that price
is a key factor affecting sales to consumers by home-shopping companies.
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THE COMPANY'S STATIONS AND THEIR MARKETS
HSN and QVC distribute home-shopping programming on a full-time basis in
substantially all of the markets in which the Company currently owns stations
or plans to acquire stations in the Acquisitions. In some of the markets
discussed below, there are also smaller competitors that distribute home-
shopping programming on a full-time or part-time basis.
OWNED STATIONS
The following is a description of the television stations that the Company
expects to own as of [March 15,] 1997 and the markets in which they operate.
San Francisco, California
The Company operates KCNS, on Channel 38 in San Francisco, California. The
San Francisco-Oakland-San Jose television market is the fifth largest in the
United States, serving over 6.3 million people and approximately 2.3 million
television households. The station's signal covers 2.2 million television
households. Seventy percent of the San Francisco television households
subscribe to cable. Located on Mount Sutro, the station's transmitter operates
with 5,000 kilowatts of power at an average height above terrain of 1,444
feet. Mount Sutro, the highest point in San Francisco, is the city's most
desirable transmitter location and is not currently accepting new antennae. In
addition, the Mount Sutro antennae co-operative is currently upgrading all
Mount Sutro signals. San Francisco Bay Area residents earn on average
approximately $57,000 per household.
Boston, Massachusetts
The Company operates , on Channel in , New Hampshire, which serves
the Boston, Massachusetts television market. Boston is the sixth largest DMA
in the United States, with a population of over 5.7 million people and 2.1
million television households. The station's signal reaches approximately 2.0
million television households. The Boston market is unusual in that is has a
relatively high cable penetration rate of 77%. Boston's average annual
household income is over $55,000 per year.
PENDING ACQUISITIONS
The following is a description of the television stations to be acquired by
the Company in the Acquisitions and the markets in which they will operate.
New York, New York
The New York station serves the New York City metropolitan area, the largest
market in the United States. The New York City metropolitan area is home to
nearly 18 million people and seven million television households. The New York
City metropolitan area's cable penetration rate is 68%. The station's over-
the-air signal covers over 1.5 million television households. The New York
City metropolitan market has an average per household income of over $61,000
per year.
Los Angeles, California
The Company plans to acquire three stations in Los Angeles. The metropolitan
Los Angeles television market is the second largest in the United States with
over 15 million people and nearly five million television households. One
station's signal reaches approximately 4.7 million television households, one
reaches over 3.6 million television households and the third reaches nearly
1.3 million television households. In light of the relatively low level of
cable penetration in the Los Angeles market (only 60%) as compared to many
other large
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markets, such as New York, Philadelphia, San Francisco-Oakland-San Jose and
Boston (which all have cable penetration of upwards of 70%), more television
viewers in the Los Angeles market rely on over-the-air television than viewers
in other markets. One station, with 3,770 kilowatts of power and a 2,372 foot
antennae, is well positioned to take advantage of this reliance on over-the-
air broadcasts. The station's transmitter site is centrally located near
Claremont and, with state-of-the art facilities in Burbank, broadcasts the
station's programming over all of the major population centers of the entire
Los Angeles basin in Los Angeles, Orange, San Bernadino, Riverside and Ventura
counties. In addition, the station's facilities were upgraded recently to
incorporate many new advanced digital services and technologies. The second
station, with its 3,134 kilowatt transmitter, provides over-the-air television
service to the rapidly-growing communities of the Antelope Valley and the San
Bernardino-Riverside region, as well as the communities on the eastern end of
the San Gabriel Valley. The third station with its 4,575 kilowatt transmitter
provides over-the-air television service to Ventura County, most of Los
Angeles County and the city of Santa Barbara. Average household income in Los
Angeles is over $52,000 per year.
Chicago, Illinois
The greater Chicago television market is the third largest in the United
States, serving 8.6 million people and approximately 3.1 million television
households. With kilowatts of power, a foot antenna, the station's
signal reaches million television households. Similar to Los Angeles,
Chicago enjoys a relatively low cable penetration rate of 59% and, therefore,
is relatively dependent on over-the-air television signals. Chicago residents
currently have an average annual household income of over $55,000.
Philadelphia, Pennsylvania
Comprising over 7.2 million people and more than 2.6 million television
households, the Philadelphia DMA is the fourth largest in the United States.
Philadelphia's cable penetration rate is 75%. The station's signal reaches
nearly .9 million television households. The station transmits using 12
kilowatts of power and a 280 foot antenna. Philadelphia households earn, on
average, nearly $53,000 per year.
Dallas-Ft. Worth, Texas
The Dallas-Ft. Worth market is the eighth largest in the United States with
over 1.8 million television households. The station's signal reaches
approximately 1.4 million television households. Dallas-Ft. Worth, like the
Houston market, has a relatively low cable penetration rate of 51%. Average
household income in Dallas-Ft. Worth is approximately $51,000 per year.
Detroit, Michigan
The Detroit market is the ninth largest in the United States with a
population of nearly 4.8 million people and over 1.7 million television
households. The station is located west of Detroit, and over 2.2 million
television households receive the station's signal. Detroit's cable
penetration rate is 65%. Average annual household income in Detroit exceeds
$51,000 per year.
Houston, Texas
The station is newly licensed and began operations in November 1993. The
Houston television market is the 11th largest in the United States with
approximately 4.5 million people and nearly 1.6 million television households.
The station broadcasts its over-the-air signal to over 1.5 million television
households in the greater Houston area. Houston's cable penetration rate is
55%. As a result, more viewers in the Houston area rely on a station's over-
the-air broadcast signal than in other larger markets. Average annual
household income in Houston is approximately $50,000.
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Seattle, Washington
The Seattle-Tacoma television market is the 12th largest in the United
States, encompassing approximately four million people and 1.5 million
television households. The cable penetration rate is 71%. The station holds an
FCC permit to construct a transmitter using 5,000 kilowatts of power and an
antenna height of 1,289 feet above average terrain. Seattle-Tacoma's average
household income is approximately $49,000.
Denver, Colorado
The Denver television market is comprised of 2.9 million people and 1.2
million television households, making it the 18th largest television market in
the United States. The station's signal covers approximately 700,000
television households in Denver and the surrounding suburbs of Englewood,
Boulder, Aurora and Golden. The Denver area has a relatively low cable
penetration rate of 61%. The station, which has been operating since 1987,
transmits from within Denver using 5,000 kilowatts of power and a 315 foot
antenna. Denver has an average household income of over $46,000.
St. Louis, Missouri
The St. Louis television market is the 20th largest in the United States,
serving 3.0 million people and 1.1 million television households. Transmitting
from a site south of St. Louis with 5,000 kilowatts of power and an antenna
1,132 feet above average terrain, the station's signal reaches approximately
one million television households. At 51%, St. Louis has the third lowest
cable penetration rate, along with Dallas-Ft. Worth and Minneapolis-St.Paul,
among the top 50 television markets. St. Louis has an average annual household
income of approximately $46,000.
Raleigh-Durham, North Carolina
The Company plans to acquire two stations in Raleigh-Durham. The Raleigh-
Durham television market is the 29th largest in the United States and is
comprised of two million people and nearly 800,000 total television
households. Raleigh-Durham's cable penetration rate is 61%. One station's
signal reaches approximately 700,000 television households. The station
transmits using 1,236 kilowatts of power and an antenna that is 1,245 feet
above average terrain. The second station's signal reaches nearly 300,000
television households. The station broadcasts using 339 kilowatts of power
from a height of 850 feet. The average annual income in Raleigh-Durham is over
$40,000 per year.
Nashville, Tennessee
Over 2.0 million people and approximately 766,000 television households form
the Nashville television market, making it the 33rd largest in the United
States. The station's signal reaches .4 million television households.
Nashville's cable penetration rate is 61%. The station broadcasts using 1,910
kilowatts of power and an antenna with an average height above terrain of 821
feet. Nashville has an average household income of approximately $42,000.
Louisville, Kentucky
Louisville is the 50th largest DMA in the United States, with 1.4 million
people and over 500,000 television households. The station broadcasts over-
the-air to approximately 218,000 television households in the Louisville
market. With a cable penetration rate of 65%, the Louisville market is
consistent with the national rate. Louisville has an average annual household
income of approximately $41,500.
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Mobile, Alabama
The Mobile-Pensacola television market contains 1.1 million people and
436,000 television households, making it the 61st largest market in the United
States. The station's signal reaches approximately 475,000 television
households. Seventy percent of Mobile households subscribe to cable. The
station transmits using 4,335 kilowatts of power and an antenna 1,428 feet
above average terrain. Mobile has an average annual household income of
$38,000.
Knoxville, Tennessee
Knoxville is home to 1.1 million people and over 400,000 television
households, the Knoxville television market is the 62nd largest in the United
States. The station's grade B signal extends to the outskirts of Knoxville and
covers 154,500 television households. Cable penetration in the Knoxville
market is 66%. The station transmits from roughly 30 miles northwest of
Knoxville using 20 kilowatts of power at an average height above terrain of
1,296 feet. Knoxville's average annual household income is just over $37,000.
SUPPLIER ARRANGEMENTS, DISTRIBUTION AND PRODUCTS
Supplier Arrangements. The Company has implemented a "ZERO INVENTORY" policy
under which the Company maintains no inventory of merchandise sold on its
programs. Because the Company maintains no inventory, its liquidity is
improved and, as a result, it is able to pay its suppliers 50% of the cost of
merchandise within one day of the date the merchandise is shipped to the
Company's customer or received by the Company, with the balance paid within 45
days. In contrast, the Company's competitors generally pay for merchandise
between 30 and 90 days after receipt. The payment terms offered by the Company
result in greater purchasing flexibility for the Company's suppliers and
enable them to purchase goods at reduced prices. As a result, the Company is
able to negotiate more favorable purchase prices for merchandise from its
suppliers and to offer that merchandise to its customers at prices that are up
to 25% to 50% below those of its principal competitors. Furthermore, because
of these payment terms the Company's suppliers have agreed to accept all
returns from the Company's customers within 30 to 45 days. These supplier
arrangements enable the Company to operate with lower product costs and lower
cost of capital due to inventory financing needs and without costs associated
with the warehousing and storage of inventory (e.g., lease expense and/or
depreciation of owned warehouses, labor and general and administrative costs
associated with inventory maintenance and tracking).
Distribution. The Company's products are delivered to the customer within
seven to 10 business days of receipt of a purchase order. Suppliers have the
option to "drop ship" products directly to the customer or to ship the product
to the Company for subsequent distribution by the Company to its customers.
Larger products are generally "drop-shipped" by the supplier, while smaller
products are shipped to the Company for delivery to the customer. Each item is
packaged in a separate item box and jewelry is packaged in a jewelry box
similar to standard retail. All deliveries are prepaid; no CODs are utilized.
Products are generally delivered by United Parcel Service, however, based upon
the value of a product, expedited shipping (next day and second day) is
available. For an additional charge, a customer may have most other products
shipped overnight by Federal Express or United Parcel Service.
Low-Priced, High-Quality Products. The Company currently offers a wide
variety of low-price, high-quality brand name and non-branded jewelry,
collectibles, health and beauty products, fitness equipment, electronics and
fashion merchandise. The Company is able to offer a wide variety of products
to consumers and to change products frequently because of the Company's "ZERO
INVENTORY" policy. Through family members of the co-founder, Chairman and
Chief Executive Officer of the Company, the Company enjoys strategic
relationships with many of its jewelry suppliers, all of whom are located in
New York's "diamond district." The Company is not dependent upon any one
particular supplier for any significant portion of its merchandise. One of the
Company's strategies is to have products manufactured to its specifications or
designed exclusively for sale by the Company. In addition, the Company intends
to continue introducing new products and product lines. For example, the
Company is currently negotiating with major designers to carry brand-name
clothing at
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discounted prices. For the year ended December 31, 1996, jewelry,
collectibles, health and beauty products, fitness equipment and other
miscellaneous items accounted for approximately 72%, 16%, 4%, 3% and 5%,
respectively, of the Company's net sales.
MARKETING
In addition to offering low-priced, high-quality products, the Company
employs a variety of interrelated techniques for marketing its products sold
on the air.
Flexible Payment Terms. The Company offers extended payment terms that
permit a customer to pay for a product in up to 12 monthly installments using
any major credit card or the Company's own credit card. Publicly available
data regarding the operations of other electronic retailers indicate that
electronic retailing customers will elect to take advantage of credit card or
"flexible payment" plans with respect to as much as 40% of an electronic
retailer's aggregate sales. The Company offers customers its flexible payment
plan option on most items. When the installment payment plan is selected by
the customer, the first payment is billed to the customer's credit card
immediately. The customer's credit card is subsequently billed up to 11
additional monthly installments until the total purchase price of the product
has been received by the Company. The Company intends to enter into a
factoring arrangement whereby the accounts receivable generated from its
"flexible payment" plan will be purchased with recourse and serviced by an
unrelated third party.
GBS Catalog and Club Membership. The Company will distribute a catalog to
customers up to four times per year. The catalog will display products that
may be ordered by telephone or mail, list a program guide showing the schedule
of upcoming segments and feature articles on GBS show hosts and other
employees. In addition, the Company will offer customers free club memberships
which will entitle customers to special discounts and services. Club members
will complete questionnaires that will enable the Company to develop customer
profiles with respect to, among other things, buying history and product
interest. GBS believes that this information will enable it to more
effectively market its products.
Games and Promotion. During regular and special program segments, in
addition to displaying and describing products, show hosts engage in "on the
air" telephone conversations with viewers and describe and display products
while giving suggestions for usage. From time to time such callers will be
selected to play games in order to win merchandise credits or "Shopping
Dollars." The Company will also offer trip giveaways linked to various themed
programming. Each month the Company will select a "Beauty Buyer of the Month"
based on letters to the show and beauty product purchases. The grand prize
winner will be awarded a weekend in New York for a complete beauty makeover by
a co-host of the Company's beauty segment programming. In addition, from time
to time, the Company will award compact discs and T-shirts to program viewers
who write to the show. The Company believes that "on-air" conversations and
games increase viewer interest in its programming in a cost efficient manner.
Program Segments. The Company's program schedule consists of both one-hour
and multi-hour program segments during which merchandise fitting within the
theme of the program segment is displayed, described and demonstrated by a
show host. Each program segment has a theme devoted to a particular category
of product or lifestyle, such as Beauty Basics, Global Beauty, Hollywood
Collectibles, Golden Friday, Healthy Cooking and Home Life. From time to time,
GBS broadcasts special program segments devoted to merchandise associated with
a particular celebrity, geographical region or seasonal interest, such as the
Chinese New Year, Mardi Gras and Valentine's Day. GBS will inform its viewers
of the schedule for particular program segments by publishing a weekly
schedule, as well as with cable guide listings and on-air announcements. By
providing viewers with a weekly schedule, GBS will allow viewers to tune in
during program segments of particular interest to them. The weekly schedule
will also allow viewers the option of videotaping GBS program segments for
viewing and shopping at a more convenient time, during which customers may
order any item still available.
Special Pricing. GBS will offer special price reductions which provide
customers with additional savings. Special price reductions will be offered in
conjunction with certain themes such as a "Special of the Day" whereby one
item is offered throughout the day at a reduced price for that day only or an
"Anniversary" whereby a discount is offered on the anniversary of the date an
item was first displayed on the show. In addition,
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the Company will promote its products from time to time by offering "two for
the price of one" and gifts with purchases over a specified dollar amount. The
Company believes that promotions based on price will increase the appeal of
its programming and encourage customers to place orders.
PROGRAMMING
The Company's programming is designed to create a friendly sales
environment. The Company utilizes a number of sets and props to create
settings in keeping with the themes of the various segments. The results of
other electronic retailers indicate that consumers need a reasonable time to
make purchase decisions. Therefore, the Company typically displays only one
product at a time and usually no more than 10 to 12 products per hour. The
show host describes the use, quality, features and price of the product. Show
host dialogue is relaxed and attempts to avoid high-pressure sales tactics.
While the product is being displayed, the product's purchase price is
displayed. From time to time, an introductory or special price may be
displayed. The shipping and handling charges are also shown. Viewers place
orders to purchase merchandise by calling a toll-free telephone number. Each
person placing an order with the Company is given a membership number as is
each person requesting such a number. Membership numbers are used to speed
order-taking and perform credit checks.
Typically, less than 10% of all home-shopping viewers actually purchase
merchandise. The Company's goal is to increase its active customers, in part,
through innovative programming and interactive information services. The
Company intends to broadcast alternative programming that has proven
successful when utilized by competitors. In areas where interactive television
is available, the Company's interactive shopping database will work in concert
with its televised programming and will allow consumers to access additional
information regarding any merchandise displayed on the Company's televised
programming.
ORDER ENTRY AND DATA PROCESSING
The Company has installed a state-of-the-art telephone system that is
currently capable of handling over 4,000 calls per day. Through the Company's
total order processing system ("TOPS"), telemarketers have easy access to
information about products and customers' purchase patterns and item
preferences to assist them in making sales. When a call is placed to the
Company, the customer's profile is activated through a membership number or
the caller's telephone number. Telemarketers can access the customer's buying
habits and suggest other purchases which may compliment a previous order. In
the event that the number of calls at any given time exceeds the system's
volume capacity, the system will automatically reroute calls to one of two
overflow facilities. In addition, customers will have the option, via touch
tone phone, of ordering items at any time without speaking to an operator and
of checking on open orders, product availability and future show and item
schedules.
TOPS interfaces with all areas of the Company's operations and all
personnel. The Company believes that TOPS enhances marketing and sales by
providing lines of communications at all levels of operations. The input from
approximately 16 order entry and customer service terminals in the Company's
New York City facilities is processed by TOPS. Purchasing, receiving and order
fulfillment are also performed by TOPS. Information can be accessed quickly
and easily. Management believes that the Company's telephone system and TOPS
computer system are each capable of handling anticipated growth of the Company
with minimal modification. The maximum estimated capacity of the phone system
is approximately 50,000 calls per day which would require approximately 100
order entry and customer service operators.
GBS PROGRAM TRANSMISSION
The Company's programming originates from Chelsea Television Studios, a New
York production facility whose current clients include MSNBC and The Maury
Povich Show. Pursuant to a written agreement, the Company uses the studio and
technical facilities of Chelsea Television Studios to produce the Company's
programming. By means of the "uplink" facility at Chelsea Television Studios,
the Company's programming is transmitted to Satcom C-4, one of four primary
satellites from which cable operators receive their programming. From Satcom
C-4, the Company transmits its programming to home satellite dishes throughout
the United States and to the Company's television stations for broadcast to
viewers over-the-air and for retransmission to local cable system operators.
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FEDERAL REGULATIONS AND NEW TECHNOLOGIES
Existing Regulation. Television broadcasting is subject to the jurisdiction
of the FCC under the Communications Act. The Communications Act prohibits the
operation of television broadcast stations except under a license issued by
the FCC and empowers the FCC, among other things, to issue, revoke, renew and
modify broadcast licenses, determine the locations of stations, regulate the
equipment used by stations, approve changes in the ownership and control of a
television station's licensee, adopt regulations to carry out the provisions
of the Communications Act (such as ownership, operation and employment
practices of television stations) and impose penalties for violation of such
regulations. The Communications Act prohibits the assignment of a license or
the transfer of control of a licensee without prior approval of the FCC.
License Grant and Renewal. Existing television broadcast licenses generally
have a term of five years. The Telecom Act recently extended the period for
which licenses may be granted or renewed from five years to eight years, but
licenses may be renewed for a shorter period upon a finding by the FCC that
the "public interest, convenience, and necessity" would be served thereby. The
recently enacted Telecom Act amends the Communications Act by requiring a
broadcast license to be renewed if the FCC finds that (i) the station has
served the public interest, convenience and necessity; (ii) there have been no
serious violations of either the Communications Act or the FCC's rules and
regulations by the licensee; and (iii) there have been no other violations
which, taken together, would constitute a pattern of abuse. At the time an
application is made for renewal of a television license, parties in interest
may file petitions to deny renewal, and such parties, including members of the
public, may comment upon the service the station has provided during the
preceding license term and urge denial of the application. If the FCC finds
that the licensee has failed to meet the above-mentioned requirements, it
could deny the renewal application or grant a conditional approval, including
renewal for a lesser term. The FCC will not consider competing applications
contemporaneously with a renewal application. Only after denying a renewal
application can the FCC accept and consider competing applications for the
license. In substantially all cases broadcast licenses are renewed by the FCC
even when petitions to deny or competing applications are filed against
broadcast license renewal applications. The Company is not aware of any facts
or circumstances that could prevent the renewal of the licenses for its
stations or those to be acquired in the Acquisitions at the end of their
respective license terms.
Multiple Ownership Restrictions. Currently, the FCC has rules that limit the
ability of individuals and entities to own or have an ownership interest above
a certain level (an "attributable" interest, as defined more fully below) in
broadcast stations, as well as other mass media entities. The current rules
limit the number of radio and television stations that may be owned both on a
national and a local basis. On a national basis, a single entity may hold
"attributable interests" in an unlimited number of U.S. television stations
provided that those stations operate in markets containing cumulatively no
more than 35% of the television homes in the U.S. For this purpose, only 50%
of the television households in a market are counted toward the 35% national
audience reach limitation if the owned station is a UHF station (as are nearly
all of the Company's television stations).
On a local basis, FCC rules currently allow an individual or entity to have
an attributable interest in only one television station in a market. In
addition, FCC rules generally prohibit an individual or entity from having an
attributable interests in both a television station and either a radio
station, daily newspaper or cable television system that is located in the
same local market served by the television station. Proposals currently before
the FCC could substantially alter these standards. For example, the Telecom
Act directs the FCC to conduct a rulemaking proceeding to determine whether
restricting ownership of more than one television station in the same area
should be retained, modified or eliminated. It is the intent of Congress that
if the FCC revises the multiple ownership rules, it should permit co-located
VHF/VHF combinations only in compelling circumstances, where competition and
diversity will not be harmed. To comply with this directive, the FCC recently
initiated a rulemaking proceeding in which it suggested narrowing the
geographic scope of the local television cross-ownership rule (the "duopoly
rule") from Grade B to Grade A contours so long as both stations are in
different local DMA markets. The Telecom Act also required the FCC to initiate
a rulemaking proceeding to expand the exception to its "one-to-a-market" rule
so that a single entity may own television and radio stations in the same
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market if the market contains at least 30 independent radio and television
"voices." The FCC recently proposed that the one-to-a-market waiver policy be
extended to the top 50 markets and possibly to smaller markets if the market
contains more than 30 independent voices. In this rulemaking proceeding, the
FCC also has proposed to count local marketing agreements (operating
agreements in which the station owners contract with another entity to operate
or program a certain amount of time for the station ("LMAs")), as attributable
to the owner if the LMA covers more than 15% of the station's weekly time. The
Telecom Act also directs the FCC to revise its rules to permit cross-ownership
interests between a broadcast network and a cable system. The Telecom Act
further authorizes the FCC to consider revising its rules to permit common
ownership of co-located broadcast stations and cable systems.
Expansion of the Company's broadcast operations in particular areas and
nationwide will continue to be subject to the FCC's ownership rules and any
changes the FCC or Congress may adopt. Any relaxation of the FCC's ownership
rules may increase the level of competition in one or more of the markets in
which the Company's stations are located, particularly to the extent that the
Company's competitors may have greater resources and thereby be in a better
position to capitalize on such changes.
Under the FCC's ownership rules, a direct or indirect purchaser of certain
types of securities of the Company could violate FCC regulations if that
purchaser owned or acquired an "attributable" or "meaningful" interest in
other media properties in the same areas as stations owned by the Company or
in a manner otherwise prohibited by the FCC. All officers and directors of a
licensee, as well as general partners, uninsulated limited partners and
stockholders or other individuals (such as trustees) who own or vote five
percent or more of the voting power of the outstanding common stock of a
licensee (either directly or indirectly), generally will be deemed to have an
"attributable" interest in the licensee. Certain institutional investors which
exert no control or influence over a licensee may own up to 10% of the voting
power of the outstanding common stock before attribution occurs. Under current
FCC regulations, debt instruments, non-voting stock, certain limited
partnership interests (provided the licensee certifies that the limited
partners are not "materially involved" in the management and operation of the
subject media property) and voting stock held by minority stockholders in
cases in which there is a single majority stockholder generally are not
subject to attribution.
The FCC's cross-interest policy, which precludes an individual or entity
from having a "meaningful" (even though not "attributable") interest in one
media property and an "attributable" interest in a broadcast, cable or
newspaper property in the same area, may be invoked in certain circumstances
to reach interests not expressly covered by the multiple ownership rules.
Neither the Company nor, to the best of the Company's knowledge, any officer,
director or shareholder of the Company holds an interest in another radio or
television station, cable television system or daily newspaper that is
inconsistent with the FCC's ownership rules and policies.
In January 1995, the FCC released a notice of proposed rulemaking designed
to permit a "thorough review of [its] broadcast media attribution rules."
Among the issues on which the FCC sought comment were: (i) whether to change
the voting stock attribution benchmarks from five percent to 10% and, for
passive investors, from 10% to 20%; (ii) whether there are any circumstances
in which non-voting stock interests, which are currently considered non-
attributable, should be considered attributable; (iii) whether the FCC should
eliminate its single majority shareholder exception (pursuant to which voting
interests in excess of five percent are not considered cognizable if a single
majority shareholder owns more than 50% of the voting power); (iv) whether to
relax insulation standards for business development companies and other
widely-held limited partnerships; (v) how to treat limited liability companies
and other new business forms for attribution purposes; (vi) whether to
eliminate or codify the cross-interest policy; and (vii) whether to adopt a
new policy which would consider whether multiple "cross interests" or other
significant business relationships (such as time brokerage agreements, debt
relationships or holdings of nonattributable interests), which individually do
not raise concerns, raise issues with respect to diversity and competition. In
light of Congress' enactment of the Telecom Act, the FCC, in December 1996,
issued a further notice in this proceeding to determine what, if any, impact
the Telecom Act's relaxation of ownership rules should have on its attribution
proceeding.
35
<PAGE>
No officer, director or five percent stockholder of the Company currently
holds an interest in another television station, radio station, cable
television system or daily newspaper that is inconsistent with the FCC's
ownership rules and policies or with ownership by the Company of its stations.
Alien Ownership Restrictions. The Communications Act restricts the ability
of foreign entities or individuals to own or hold interests in broadcast
licenses. Foreign governments, representatives of foreign governments, non-
U.S. citizens, representatives of non-U.S. citizens, and corporations or
partnerships organized under the laws of a foreign nation are barred from
holding broadcast licenses. Non-U.S. citizens, collectively, may directly or
indirectly own or vote up to 20% of the capital stock of a licensee. However,
a broadcast license may not be granted to or held by any corporation that is
controlled, directly or indirectly, by any other corporation more than one-
fourth of whose capital stock is owned or voted by non-U.S. citizens or their
representatives or by foreign governments or their representatives, or by non-
U.S. corporations, if the FCC finds that the public interest will be served by
the refusal or revocation of such license. The Company, therefore, may be
restricted from having more than one-fourth of its stock owned or voted
directly or indirectly by non-U.S. citizens, foreign governments,
representatives of non-U.S. citizens or foreign governments, or foreign
corporations. One holder of the Class B Common Stock, who owns and votes less
than 3% of the outstanding Common Stock (less than 2% after the Offerings), is
a non-U.S. citizen.
Programming and Operations. The Communications Act requires broadcasters to
serve the "public interest." Since the late 1970s, the FCC gradually has
relaxed or eliminated many of the more formalized procedures it had developed
to promote the broadcast of certain types of programming responsive to the
needs of a station's community of license. Broadcast station licensees,
however, continue to be required to present programming that is responsive to
local community problems, needs and interests and to maintain certain records
demonstrating such responsiveness. Complaints from viewers concerning a
station's programming often will be considered by the FCC when it evaluates
license renewal applications of a licensee, although such complaints may be
filed at any time and generally may be considered by the FCC at any time.
Stations also must follow various rules promulgated under the Communications
Act that regulate, among other things, political advertising, sponsorship
identification, the advertisements of contests and lotteries, programming
directed to children, obscene and indecent broadcasts and technical
operations, including limits on radio frequency radiation. In addition, most
broadcast licensees, including the Company's licensees, must develop and
implement affirmative action programs designed to promote equal employment
opportunities and must submit reports to the FCC with respect to these matters
on an annual basis and in connection with a license renewal application.
The Cable Act. The Cable Act requires each television broadcaster to make an
election to exercise either certain "must carry" or, alternatively,
"retransmission consent" rights in connection with their carriage by cable
systems in the station's local market. If a broadcaster chooses to exercise
its "must carry" rights, it may demand carriage on a specified channel on
cable systems within its DMA. "Must carry" rights are not absolute, and their
exercise is dependent on variables such as the number of activated channels
on, and the location and size of, the cable system and the amount of
duplicative programming on a broadcast station. Under certain circumstances, a
cable system may decline carriage of a given station. If a broadcaster chooses
to exercise its retransmission consent rights, it may prohibit cable systems
from carrying its signal, or permit carriage under a negotiated compensation
arrangement. The FCC's "must carry" requirements provide all broadcast
stations, every three years, can elect either "must carry" or retransmission
consent status. The last election was made by October 1, 1996 and took effect
on January 1, 1997 and last until December 31, 1999. All of the Company's
television stations have elected "must carry" status.
On April 8, 1993, a special three-judge panel of the U.S. District Court for
the District of Columbia upheld the constitutionality of the "must carry"
provisions of the Cable Act. However, on June 27, 1994, the United States
Supreme Court in a 5-4 decision vacated the lower court's judgment and
remanded the case to the District Court for further proceedings. The Supreme
Court found the "must carry" rules to be content neutral and supported by
legitimate governmental interests under appropriate constitutional First
Amendment standards; however, it also found that genuine issues of material
fact still remained that must be resolved in a more detailed
36
<PAGE>
evidentiary record. On December 12, 1995, the United States District Court for
the District of Columbia, in a 2 to 1 decision, upheld the "must carry"
requirements compelling cable systems to carry broadcast signals. The cable
industry appealed the decision to the Supreme Court and the Supreme Court
heard oral argument in October 1996. A final decision on the constitutionality
of "must carry" is expected by June 1997.
Digital Television. The FCC has proposed the adoption of rules for
implementing DTV service in the United States. Implementation of DTV is
expected to improve the technical quality of television signals receivable by
viewers and to provide broadcasters the flexibility to offer new services,
including high definition television ("HDTV"), simultaneous broadcasting of
multiple programs of SDTV and data broadcasting. The expected benefits of DTV
are further enhanced with the advent of digital channel compression, which
will expand channel capacity, thereby providing more channel space for
shopping on demand services. In addition, the FCC recently adopted a standard
for the transmission of digital television that is anticipated to provide
certainty to broadcasters, equipment manufacturers and consumers so that the
benefits of digital broadcasting can be realized.
The FCC also must adopt DTV service rules and a table of DTV allotments
before broadcasters can provide the services enabled by new digital
technology. To this end, on August 9, 1995, the FCC released a Fourth Further
Notice of Proposed Rulemaking that invited comment on a broad range of issues
related to the implementation of DTV. The FCC proposed that broadcasters be
allowed greater flexibility in responding to market demand by transmitting a
mix of HDTV, SDTV and perhaps other services.
In addition, on August 14, 1996, the FCC released a Sixth Further Notice of
Proposed Rulemaking that proposed a Table of Allotments to allow broadcasters
to transition to DTV. The FCC proposed policies for developing the initial DTV
allotments, procedures for assigning DTV frequencies, and plan for spectrum
recovery. Both of these proceedings are expected to be completed by the end of
1997.
The Telecom Act directs the FCC, if it issues licenses for DTV, to limit the
initial eligibility for such licenses to incumbent broadcast licensees. The
Telecom Act also authorizes the FCC to adopt regulations that would permit
broadcasters to use such spectrum for ancillary or supplementary services. It
is expected that the FCC will assign all existing television licensees a
second channel on which to provide DTV simultaneously with their current
analog (National Television System Committee or "NTSC") service. It is
possible after a period of years that broadcasters would be required to cease
NTSC operations, return the NTSC channel to the FCC, and broadcast only with
the newer digital technology. Some members of Congress have advocated
authorizing the FCC to auction either NTSC or DTV channels; however, the
Telecom Act allows the FCC to determine when such licenses will be returned
and how to allocate returned spectrum.
Under certain circumstances, conversion to DTV operations would reduce a
station's geographical coverage area but the majority of stations will obtain
service areas that match or exceed the limits of existing operations. Due to
additional equipment costs, implementation of DTV will impose some near-term
financial burdens on television stations providing the service. At the same
time, there is a potential for increased revenues to be derived from DTV.
Although the Company believes the FCC will authorize DTV in the United States,
the Company cannot predict precisely when or under what conditions such
authorization might be given, when NTSC operations must cease, or the overall
effect the transition to DTV might have on the Company's business.
ENVIRONMENTAL REGULATION
The Company's operations are subject to federal, state and local
environmental laws and regulations that impose limitations on the discharge
of, and establish standards for the handling, generation, emission, release,
discharge, treatment, storage and disposal of, certain materials, substances
and wastes. The Company's operations are in material compliance with the terms
of all applicable environmental laws and regulations.
37
<PAGE>
In connection with due diligence related to the acquisition of a facility
located in Burbank, California, exploratory soil sampling yielded evidence of
potential soil contamination on a portion of the site. The Company believes
that the source of the contamination detected is attributable to an adjacent
landowner. The Company's facility is located within the boundaries of the
North Hollywood Area Superfund site (also known as the San Fernando Valley
Area #1 Superfund Site), which has been listed on the National Priorities List
("NPL") under the federal Comprehensive Environmental Response, Compensation
and Liability Act ("CERCLA" or "Superfund"). The site includes an area of
groundwater contamination of approximately 5,300 acres, and the facility is
close to properties identified by EPA as potential sources of the
contamination. Several entities have entered into a consent decree with EPA
obligating the entities to clean up groundwater contamination within the
Superfund site. The facility has not been identified as a contributor to the
groundwater contamination and EPA has indicated to the prior owner of the
property that the prior owner would not be asked by EPA to participate in the
regional groundwater cleanup projects in the Superfund site. In addition, EPA
has not listed either the facility or the prior owners as a potentially
responsible party.
Pursuant to the purchase agreement by which the Company will acquire the
facility, the Company will be indemnified by the former owners of the
facility. The Company cannot at this time estimate the actual costs of
investigation or cleanup associated with the contamination at the facility, if
any. However, based on currently available information, the Company believes
that its indemnification rights are sufficient to address any expected
liability with respect to any such investigation or cleanup and, in any event,
such investigation or cleanup is unlikely to have a material adverse effect on
the Company.
TRADEMARKS, SERVICE MARKS AND TRADENAMES
The Company intends to register its trademarks and service marks as they are
developed or acquired. The Company intends to vigorously protect such marks
and believes that there will be substantial goodwill associated with them.
COMPETITION
The Company operates in an industry dominated by two established
competitors--HSN and QVC--both of which are larger than the Company. As a
result, the Company competes directly for viewer loyalty. The Company believes
that it will compete effectively against its primary competitors by offering
its customers a wide range of high quality merchandise at substantial savings
with a high degree of convenience and customer service; however, there can be
no assurance that new home-shopping competitors will not enter the market or
that the Company will be able to compete effectively or maintain or increase
revenues or operating profits in the future. The Company also competes with
smaller home shopping competitors in some markets and indirectly with mail
order companies and many other types of retail outlets, and with new media
technologies, such as computer on-line shopping services. In addition,
advances in technology such as digital compression could facilitate the
creation of additional channel space for televised shopping programs and the
formation of new televised shopping competitors.
EMPLOYEES
As of January 17, 1997, the Company had approximately 159 full-time
employees. Upon completion of the Acquisitions, the Company expects to have
approximately 450 full-time employees. The Company's employees at its San
Francisco, California and Boston, Massachusetts stations are covered by
collective bargaining agreements with the National Association of Broadcast
Employees and Technicians, the Broadcasting and Cable Television Workers
Sector of the Communications Workers of America, AFL-CIO and Local 1228 of the
International Brotherhood of Electrical Workers, AFL-CIO, respectively. The
collective bargaining agreement with respect to the San Francisco, California
station expires in May 1997 and covers three full-time and three part-time
master control staff employees. The collective bargaining agreement with
respect to the Boston, Massachusetts station expires in August 1997 and covers
three full-time and three part-time master control staff employees. The
Company considers its employee relations to be good.
38
<PAGE>
PROPERTIES
The Company leases approximately 5,021 square feet in New York, New York for
its corporate offices. The lease expires in July 1997. The Company has an
option to extend the term of the lease until July 1999.
The Company leases approximately 42,000 square feet of space for use as an
order entry, customer service and distribution facility in New York, New York.
The lease expires in October 2001.
The Company leases approximately 20,000 square feet of space for use as its
programming production facilities in New York, New York. The lease expires in
June 1998.
The Company leases one satellite transponder to transmit GBS's programming.
The Company also leases most of its data processing equipment and some of its
telecommunications equipment.
LEGAL PROCEEDINGS
On or about April 19, 1996, a former employee of the Company who was
terminated after approximately two months of employment commenced an action
against GSN and Rachamin Anatian, the Company's co-founder, Chairman and Chief
Executive Officer, in the United States District Court for the Southern
District of New York. The complaint alleged, inter alia, claims for relief for
breach of an alleged employment agreement, fraud, promissory estoppel, labor
law violations and unjust enrichment. The complaint seeks compensatory damages
in an amount not less than $20,000,000, punitive damages in an amount not less
than $25,000,000 and injunctive relief to compel GSN, among other things, to
transfer a one-percent interest in GSN to plaintiff. The action is currently
in the discovery phase. The Company believes it has meritorious defenses to
the claims in the complaint and intends to vigorously contest the litigation
and move for summary judgment following the completion of discovery.
Other than as described above, the Company is not a party to any pending
legal proceeding the resolution of which, the management of the Company
believes, would have a material adverse effect on the Company's results of
operations or financial condition, or to any other pending legal proceedings
other than ordinary, routine litigations incidental to its business. As the
proceedings are still in the discovery stage, no range of the potential loss
is currently estimable.
39
<PAGE>
MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND SENIOR MANAGEMENT
The current directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Rachamim Anatian........ 41 Director, Chairman, Chief Executive Officer and Treasurer
Barbara Laurence........ 43 Director and President
Mordechai Gal-Oliver.... 45 Director, Chief Operating Officer and Executive Vice President
Daniel De Wolf, Esq..... 39 Director and Secretary
Harvey K. Watkins....... 54 Chief Financial Officer
</TABLE>
DIRECTORS AND EXECUTIVE OFFICERS
Rachamim Anatian is co-founder, Chairman, Chief Executive Officer and
Treasurer of the Company. Mr. Anatian has served as Chief Executive Officer of
the Company and GSN since their formation. From 1989 to 1995, Mr. Anatian was
a founder and acted as a director of USA Detergents, a publicly traded company
listed on NASDAQ under the symbol "USAD," and engaged in real estate
investment transactions for his own account.
Barbara Laurence is co-founder and President of the Company. Ms. Laurence
has served as President of the Company and GSN since their formation. She was
President of Barbara Laurence Associates, a full service public relations and
marketing company, from 1978 to 1994.
Mordechai Gal-Oliver is Chief Operating Officer and Executive Vice President
of the Company. Mr. Gal-Oliver has served as Chief Operating Officer and
Executive Vice President of the Company since January 29, 1997. Prior to
joining the Company, Mr. Gal-Oliver served as President of the "Wonderful
World" and O.R. production companies in Israel. In addition, from February
1995 to January 1997, Mr. Gal-Oliver acted as executive producer for various
live worldwide satellite feed broadcasts.
Daniel De Wolf, Esq. is a Director and the Secretary of the Company. He has
been a Partner in the law firm of Camhy Karlinsky & Stein LLP since 1994 and
is Chairman of the Corporate and Securities Department at such law firm. From
1992 to 1994, Mr. De Wolf was a partner in the law firm of Lacher & Lovell-
Taylor. Mr. De Wolf is a Director of Innopet Brands. See "Certain
Relationships and Related Transactions."
Harvey K. Watkins, J.D., M.B.A., C.P.A., is the Chief Financial Officer of
the Company. From 1994 until joining the Company in February 1997, Mr. Watkins
served as Senior Vice President of Finance of Radio Equity Partners LP, a
radio ownership organization. From 1990 to 1993, Mr. Watkins served as Vice
President, Chief Financial Officer and Corporate Treasurer of Viewer's Choice,
a pay-per-view cable programming organization.
The Company intends to appoint two additional independent directors, at
least one of which will be appointed prior to the consummation of the
Offerings.
The current key employees of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Kelly Dobbs................ 37 Director of Programming
Allison Kluger............. 31 Executive Producer
Stefanie Gross............. 29 Director of Merchandise
Larry Stacks............... 33 Director of Management Information Systems
Richard Levinson........... 51 Director of Broadcast Properties
David Sifford.............. 53 Director of Broadcasting and Special Programming
</TABLE>
KEY EMPLOYEES
Kelly Dobbs is the Director of Programming for GBS. From 1994 to 1996, Ms.
Dobbs implemented the programming department for Telebroadcasting, an Hispanic
Shopping Channel in Latin America based in Miami.
40
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During 1994, she served as Product Presenter for the Joan Rivers show, "Can We
Shop." From 1991 to 1994, she served as a show host for QVC. Ms. Dobbs has
over 6,000 hours of on-air television hosting in electronic retailing and news
programming.
Allison Kluger is the Executive Producer for GBS. From 1994 to 1996, Mrs.
Kluger served as Producer and On-Air Host for Q2 Resource Television, an
electronic retailing network and division of QVC. From 1987 to 1994, she
served as Special Projects Producer Associate and Field Producer for the "Good
Morning America" Television Program, Capital Cities / ABC-TV.
Stefanie Gross is the Director of Merchandise for the Company. From 1994 to
1996, Ms. Gross served as Senior Buyer of the entertainment division of Q2, a
television network division of QVC. From 1992 to 1994, she served as
Merchandise Coordinator to Reader's Digest Kids Catalog. From 1991 to 1992,
Ms. Gross served as Associate Manager to Gap Kids NY.
Larry Stacks is the Director of Management Information Systems. From 1989 to
1996, Mr. Stacks served as Director of sales and installations of Artificial
Intelligence Response System, Inc., a software vending company.
Richard Levinson is the Director of Broadcast Properties for GBS. Mr.
Levinson was the founder and from 1987 to the present has served as President
of Showcase Cablevision, Inc., a private cable television operator. From 1995
until he joined the Company, Mr. Levinson served as Executive Vice President
of Numar Tech Inc., a direct response company that creates and produces
infomercials for broadcast, cable and print media. Mr. Levinson has more than
25 years of experience in cable television operations.
David Sifford is the Director of Broadcasting and Special Programming for
GBS. From 1987 until joining the Company in March 1997, Mr. Sifford served as
Executive Vice President of Tribune Entertainment Company, where he was
responsible for program development and advertiser, station and international
sales and marketing for several syndicated programs, including "Geraldo,"
"Soul Train," "The Dennis Miller Show," "The Joan Rivers Show" and "Can We
Shop? Starring Joan Rivers." From 1984 to 1987, Mr. Sifford was the President
of King World Enterprises and, in 1984, coordinated the initial public
offering for King World Enterprises.
DIRECTOR LIABILITY LIMITATION
The Certificate of Incorporation provides that a director of the Company
shall not be personally liable to it or its stockholders for monetary damages
to the fullest extent permitted by Delaware Corporation Law. In accordance
with Delaware Corporation Law, the Certificate of Incorporation does not
eliminate or limit the liability of a director for acts or omissions that
involve intentional misconduct by a director or a knowing violation of law by
a director for voting or assenting to an unlawful distribution, or for any
transaction from which the director will personally receive a benefit in
money, property, or services to which the director is not legally entitled.
Delaware Corporation Law does not affect the availability of equitable
remedies such as an injunction or rescission based upon a director's breach of
his duty of care. Any amendment to these provisions of the Delaware
Corporation Law will automatically be incorporated by reference into the
Certificate of Incorporation and the Bylaws, without any vote on the part of
its stockholders, unless otherwise required.
DIRECTOR COMPENSATION
Directors who are not employees of the Company receive $ for each meeting
that they attend. In addition, the Company reimburses directors for their
travel and other expenses incurred in connection with attending meetings of
the Board of Directors (the "Board"). Non-employee directors also participate
in the Company's 1997 Stock Option Plan.
DIRECTOR COMMITTEES
The Board of Directors intends to form a Compensation Committee (the
"Compensation Committee") and an Audit Committee. The Compensation Committee
will consist of at least two non-employee directors and a majority of the
Audit Committee will be non-employee directors.
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<PAGE>
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth a summary of certain information regarding
compensation paid or accrued by GSN and Ramcast during fiscal 1996 to each of
the Company's chief executive officer and other executive officers whose total
annual salary and bonus paid by GSN and Ramcast exceeded $100,000 during such
period (collectively, the "Named Executives"). Following the Offerings, all
executive compensation will be paid by GBS and each of the Named Executives
has entered into an employment agreement with GBS. See "--Employment
Agreements."
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
-------------------------------------------------
OTHER
NAME AND FISCAL ANNUAL LONG-TERM
PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION COMPENSATION
------------------ ------ -------- ------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Rachamim Anatian........... 1996 $200,000 $ -- $ 5,000(1) $ --
Chairman and Chief Execu-
tive Officer
Barbara Laurence........... 1996 100,000 -- -- 1,368,960(2)
President
</TABLE>
- --------
(1) Represents amounts paid by the Company under a lease for a car utilized by
Mr. Anatian.
(2) Represents 130 shares of Class B Common Stock of GSN and 50 shares of
Common Stock of the Company issued to Ms. Laurence during 1996. Such
shares of Common Stock were to vest in increments over time; however, in
connection with the Offerings, the vesting of such shares was accelerated.
EMPLOYMENT AGREEMENTS
In [March] 1997, GBS entered into employment agreements with each of
Rachamim Anatian, Barbara Laurence and Mordechai Gal-Oliver (the
"Executives"). Each employment agreement provides for an initial annual base
salary of $200,000 and a performance-based, incentive cash bonus payment of up
to 1.5 times base salary, capped at $500,000 per year (including base salary)
to be determined by the Compensation Committee. Each employment agreement has
a term of three years expiring in 2000 and may be terminated by either the
Company or the Executive at any time upon 30 days' notice for any reason. If
the Company terminates the agreement without Cause (as defined in each
employment agreement) or the Executive leaves for Good Reason (as defined in
each employment agreement), the Executive is entitled to his or her base
salary for a period equal to the remaining term of the agreement and a pro
rated incentive bonus for the year of termination. Each employment agreement
also provides that if the Executive's employment with the Company is
terminated with Cause or without Good Reason, the Executive will not compete
with the Company for a period of two years following such termination. In
addition to participation in the benefits offered to the Company's senior
employees generally, each employment agreement requires the Company to provide
the Executive with term life insurance of not less than $500,000 and requires
the Company to maintain for its benefit "key person" life insurance of
$2,000,000 on the life of each Executive. Each employment agreement provides
that the Executive will devote substantially all of his or her professional
time to the affairs of the Company.
The employment agreements further provide that on or prior to the closing of
the Offerings, Ms. Laurence and Mr. Gal-Oliver will each be granted options
under the 1997 Stock Option Plan to purchase 15,000 shares of Class A Common
Stock at an exercise price equal to the public offering price. Subject to the
continued employment of each Executive with the Company, such Executive's
options will become exercisable in three equal installments on each of the
first three anniversaries of the grant date; provided that if such Executive's
employment is terminated by the Company without Cause or by such Executive for
Good Reason, such options
42
<PAGE>
shall be 100% exercisable as of such termination. Furthermore, upon the
termination of an Executive's employment without Cause or resignation for Good
Reason, such Executive may require the Company to (i) repurchase the shares of
Class A Common Stock and Class B Common Stock held by such Executive as of the
closing of the Offerings (the "Restricted Stock") and any shares acquired upon
exercise of any options issued pursuant to the 1997 Stock Option Plan, at a
price per share equal to the greater of (x) the price paid by such Executive
for such shares and (y) the then "fair market value" of such shares and (ii)
cancel in exchange for payment any outstanding portion of any options issued
to such Executive pursuant to the 1997 Stock Option Plan at a price per share
subject to such option equal to the excess, if any, of the then "fair market
value" of such share over the per share exercise price of such option;
provided, however, that the foregoing provisions shall not apply with respect
to Mr. Anatian unless, at the time his employment is terminated by the
Company, Mr. Anatian beneficially owns shares of Common Stock representing
less than 51% of the voting power of all then outstanding Common Stock. Upon
an Executive's resignation without Good Reason or termination for Cause, the
Company has the right to require such Executive to sell his or her Restricted
Stock to the Company for its then fair market value and to cancel such
Executive's options in exchange for a payment equal to the excess, if any, of
the then fair market value of such stock over the exercise price thereof.
1997 STOCK OPTION PLAN
In [March] 1997, the Company adopted the Global Broadcasting Systems, Inc.
1997 Stock Option Plan (the "1997 Stock Option Plan"). The 1997 Stock Option
Plan is intended to assist the Company in attracting and retaining key
employees (including the Executive Officers) and independent consultants of
outstanding ability and to promote the identification of their interests with
those of the stockholders of the Company. In addition to options granted to
officers, employees or consultants, the 1997 Stock Option Plan provides for
the granting of options ("Director Options") to the Company's independent non-
employee directors pursuant to a formula, as described in further detail
below. The 1997 Stock Option Plan permits the grant of non-qualified stock
options and incentive stock options to purchase shares of Class A Common Stock
covering 2,300,000 authorized but unissued or reacquired shares of Class A
Common Stock, subject to adjustment to reflect events such as stock dividends,
stock splits, recapitalizations, mergers or reorganizations of or by the
Company. No individual may be granted options covering more than 350,000
shares in any calendar year.
Unless sooner terminated by the Board, the 1997 Stock Option Plan will
expire on January 31, 2007. Such termination will not affect the validity of
any option outstanding under the 1997 Stock Option Plan on the date of
termination.
The Compensation Committee (or the Board with respect to Director Options)
has the discretion to make appropriate adjustments in the number and kind of
securities subject to the 1997 Stock Option Plan and to outstanding options
thereunder to reflect dividends or other distributions; a recapitalization,
reclassification, stock split, reverse stock split, or reorganization, merger
or consolidation of the Company; the split-up, spin-off, combination,
liquidation or dissolution of the Company; the disposition of all or
substantially all of the assets of the Company or the exchange of Common Stock
or other securities of the Company; or other similar corporate transaction or
event (an "extraordinary corporate event").
If any portion of an option terminates or lapses unexercised, or is
cancelled upon grant of a new option (which may be at a higher or lower
exercise price than the option so cancelled), the shares which were subject to
the unexercised portion of such option will continue to be available for
issuance under the 1997 Stock Option Plan.
Prior to the Offerings, the Board will administer the 1997 Stock Option
Plan; following the closing of the Offerings, the Compensation Committee will
administer the 1997 Stock Option Plan with respect to options granted to
employees and consultants and the full Board will administer the 1997 Stock
Option Plan with respect to Director Options. The Compensation Committee will
consist of at least two members of the Board, each of whom is a "non-employee
director" for purposes of Rule 16b-3 under the Securities Exchange Act of
1934, as amended ("Rule 16b-3") and an "outside director" for purposes of
Section 162(m) of the Internal Revenue
43
<PAGE>
Code of 1986, as amended (the "Code"). Subject to the terms and conditions of
the 1997 Stock Option Plan, the Compensation Committee has the authority to
select the persons to whom options are to be granted, to determine the number
of shares to be subject thereto and the terms and conditions thereof, and to
make all other determinations and to take all other actions necessary or
advisable for the administration of the 1997 Stock Option Plan. Similarly, the
Board has discretion to determine the terms and conditions of Director Options
and to interpret and administer the 1997 Stock Option Plan with respect to
Director Options, consistent with the specific formula terms described in more
detail below. The Compensation Committee (and the Board) are also authorized
to adopt, amend and rescind rules relating to the administration of the 1997
Stock Option Plan.
The 1997 Stock Option Plan may be amended, modified, suspended or terminated
by the Compensation Committee (or the Board with respect to Director Options),
subject to shareholder approval if such approval is then required by
applicable law or in order for options granted under the 1997 Stock Option
Plan to continue to satisfy the requirements of Rule 16b-3 or Code Section
162(m). The Compensation Committee (or the Board with respect to Director
Options) also retains the discretion to determine that outstanding options
under the 1997 Stock Option Plan will expire upon certain specified
"extraordinary corporate events," but in such event the Compensation Committee
(or Board) may also give optionees the right to exercise their outstanding
options in full during some period prior to such event, even though the rights
have not yet otherwise become fully exercisable.
The exercise price for all options, together with any applicable tax
required to be withheld, must be paid in full in cash at the time of exercise
or purchase or may, with the approval of the Compensation Committee (or the
Board with respect to Director Options) be paid in whole or in part in Common
Stock valued at their fair market value on the date of exercise (which may,
except with respect to incentive stock options, include an assignment of the
right to receive the cash proceeds from the sale of Common Stock subject to an
option or other right pursuant to a "cashless exercise" procedure) or by
delivery of other property, or by a recourse promissory note payable to the
Company, or by a combination of the foregoing.
NONQUALIFIED STOCK OPTIONS ("NQSOS") will provide for the right to purchase
Class A Common Stock at a specified price which, except with respect to NQSOs
intended to qualify as performance-based compensation under Section 162(m) of
the Code, may be less than fair market value on the date of grant (but not
less than par value), and usually will become exercisable (in the discretion
of the Compensation Committee) in one or more installments after the grant
date, subject to the participant's continued employment with the Company
and/or subject to the satisfaction of individual or Company performance
targets established by the Compensation Committee. NQSOs may be granted for
any term specified by the Compensation Committee.
INCENTIVE STOCK OPTIONS ("ISOS") will be designed to comply with the
provisions of the Code and will be subject to certain restrictions contained
in the Code. Among such restrictions, ISOs must have an exercise price not
less than the fair market value of a share of Class A Common Stock on the date
of grant, may only be granted to employees, must expire within a specified
period of time following the optionee's termination of employment, and must be
exercised within the ten years after the date of grant; but may be
subsequently modified to disqualify them from treatment as ISOs. In the case
of an ISO granted to an individual who owns (or is deemed to own) at least 10%
of the total combined voting power of all classes of stock of the Company, the
1997 Stock Option Plan provides that the exercise price must be at least 110%
of the fair market value of a share of Class A Common Stock on the date of
grant and the ISO must expire upon the fifth anniversary of the date of its
grant.
DIRECTOR OPTIONS are NQSOs granted to non-employee directors of the Company
pursuant to a formula. Under the formula in the 1997 Stock Option Plan,
following the closing date of the Offerings, when a director is initially
elected to the Board and is at that time a non-employee director, he or she
automatically shall be granted an NQSO to purchase 5,000 shares of Class A
Common Stock. During the term of the 1997 Stock Option Plan, each then current
non-employee director shall automatically be granted an NQSO to purchase 5,000
shares of Class A Common Stock at each subsequent annual meeting at which he
or she is reelected to the Board. Members of the Board who are employees who
subsequently terminate employment with the Company and remain on the Board
will not receive an initial NQSO grant as a non-employee director, but to the
extent they are otherwise
44
<PAGE>
eligible, will receive NQSOs as described in the preceding sentence after such
termination of employment. The exercise price of the Director Options shall be
the fair market value of a share of Class A Common Stock on the date of grant.
Each Director Option shall become exercisable in cumulative annual
installments of one third on each of the first three anniversaries of the date
of grant, subject to the director's continued service as a director; provided,
however, to the extent permitted by Rule 16b-3, the Board may accelerate the
exercisability of Director Options upon the occurrence of certain specified
extraordinary corporate transactions or events and provided further, that in
any event, upon the occurrence of a "Change in Control" of the Company (as
defined in the 1997 Stock Option Plan) all outstanding Director Options shall
become immediately exercisable. No portion of a Director Option shall be
exercisable after the tenth anniversary of the date of grant and no portion of
a Director Option shall be exercisable upon the expiration of one year
following the director's termination of services as director of the Company.
In connection with the Offerings, and pursuant to the employment contracts
summarized above, the Company has granted NQSOs to purchase 15,000 shares of
Class A Common Stock to each of Barbara Laurence and Mordechai Gal-Oliver.
Such options have an exercise price per share equal to the public offering
price and become exercisable for one-third of the shares covered thereby on
each of the first three anniversaries of the date of grant, subject to
acceleration as described above.
Certain Federal Income Tax Consequences with Respect to Options under the
1997 Option Plan
An optionee generally will not recognize taxable income on the grant of an
NQSO under the 1997 Stock Option Plan, but will recognize ordinary income on
the exercise of such option. The amount of income recognized on the exercise
of an option generally will be equal to the excess, if any, of the fair market
value of the shares at the time of exercise over the aggregate exercise price
paid for the shares, regardless of whether the exercise price is paid in cash
or in shares or other property. Where ordinary income is recognized by an
optionee in connection with the exercise of an option, the Company generally
will be entitled to a deduction equal to the amount of ordinary income so
recognized.
An optionee generally will not recognize taxable income upon either the
grant or exercise of an ISO granted under the 1997 Stock Option Plan.
Generally, upon the sale or other taxable disposition of the shares of the
Common Stock acquired upon exercise of an ISO, the optionee will recognize
long-term capital gain in an amount equal to the excess, if any, of the amount
realized in such disposition over the option exercise price, provided that no
disposition of the shares has taken place within either (a) two years from the
date of grant of the ISO or (b) one year from the date of exercise. If the
shares of the Common Stock acquired upon exercise of an ISO are sold or
otherwise disposed of before the end of the one-year and two-year periods
specified above, the difference between the option exercise price and the fair
market value of the shares on the date of exercise generally will be taxable
as ordinary income; the balance of the amount realized from such disposition,
if any, will be taxed as capital gain. If the shares of the Common Stock
acquired upon exercise of an ISO are disposed of before the expiration of the
one-year and two-year periods and the amount realized is less than the fair
market value of the shares at the date of exercise, the optionee's ordinary
income generally is limited to excess, if any, of the amount realized in such
disposition over the option exercise price paid. The Company generally will be
entitled to a tax deduction with respect to an ISO only to the extent the
optionee has ordinary income upon sale or other disposition of the shares of
the Common Stock.
The rules governing the tax treatment of options and an optionee's receipt
of shares in connection with such grants are quite technical, so that the
above description of tax consequences is necessarily general in nature and
does not purport to be complete. Moreover, statutory provisions are, of
course, subject to change, as are their interpretations, and their application
may vary in individual circumstances. Finally, the tax consequences under
applicable state law may not be the same as under the federal income tax laws.
45
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table gives information concerning the beneficial ownership of
the Common Stock of GBS as of [March 31], 1997, and after the sale of the
Class A Common Stock offered hereby (assuming no exercise of the Over-
allotment Option): (i) by each person who is known by the Company to own
beneficially more than 5% of either class of the Company's Common Stock; (ii)
by each Named Executive; and (iii) by all directors and executive officers of
the Company as a group. All information gives effect to the 13,924.0888-for-1
stock split to be effected immediately prior to the Offerings.
<TABLE>
<CAPTION>
PERCENTAGE OF ALL PERCENTAGE OF VOTE
OUTSTANDING OF ALL OUTSTANDING
COMMON STOCK COMMON STOCK
----------------- ---------------------
NUMBER OF NUMBER OF BEFORE AFTER BEFORE AFTER
SHARES OF SHARES OF COMMON COMMON COMMON COMMON
CLASS B CLASS A STOCK STOCK STOCK STOCK
STOCKHOLDER COMMON STOCK COMMON STOCK OFFERING OFFERING OFFERING OFFERING
----------- ------------ ------------ -------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Rachamim Anatian........ 18,075,124(1) -- 89.887% 55.430% 91.264% 69.372%
Barbara Laurence........ 696,204 443,301 5.667% 3.494% 4.634% 3.523%
All directors and
executive officers as a
group (5 persons)...... 19,277,650 448,634 98.098% 60.494% 98.468% 74.848%
</TABLE>
- --------
(1) Includes 8,856,818 shares held by several limited liability companies
controlled by Mr. Anatian, all of which shares have been pledged to secure
loans to such limited liability companies by a single lender.
46
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
INDEMNIFICATION AGREEMENT
Rachamim Anatian, the Company's founder, Chairman and Chief Executive
Officer, personally guaranteed certain obligations of GSN (the "Anatian
Obligations"). In connection therewith, pursuant to an Indemnification
Agreement, dated March 10, 1997, the Company has agreed to indemnify Mr.
Anatian for any costs, losses or damages suffered by him in connection with
the Anatian Obligations.
Barbara Laurence, the Company's President, personally guaranteed certain
obligations of GSN (the "Laurence Obligations"). In connection therewith,
pursuant to an Indemnification Agreement, dated March 23, 1996 (the
"Indemnification Agreement"), GSN and Rachamim Anatian, the Company's founder,
Chairman and Chief Executive Officer, agreed, jointly and severally, to
indemnify Ms. Laurence for any costs, losses or damages suffered by her in
connection with the Laurence Obligations. To secure the obligations of GSN and
Mr. Anatian under the Indemnification Agreement, GSN agreed to maintain "key-
person" insurance for Mr. Anatian in the amount of $2.0 million. In connection
with the Corporate Restructuring, the Company has assumed the obligations of
GSN under the Indemnification Agreement.
TAX LOAN
The Company intends to enter into a loan agreement with Barbara Laurence
prior to the consummation of the Offerings, pursuant to which the Company will
agree to loan Ms. Laurence an amount equal to any income tax liability to Ms.
Laurence arising from the compensation, if any, attributable to all Common
Stock issued to her prior to the Offerings. The loan to Ms. Laurence will have
a five-year maturity and will be recourse only to the shares of Common Stock
held by Ms. Laurence from time to time.
SPONSOR'S CAPITAL CONTRIBUTION
Rachamim Anatian, co-founder, Chairman and Chief Executive Officer of the
Company, has agreed to make the Sponsor's Capital Contribution to the Company.
See "Summary--Sponsor."
TRANSACTIONS WITH CAMHY KARLINSKY & STEIN, LLP
The Company leases office space from the law firm of Camhy Karlinsky &
Stein, LLP, of which Daniel De Wolf, who will be appointed as a director of
the Company prior to the closing of the Offerings, is a partner. The Company
incurred rent expense to Camhy Karlinsky & Stein in 1996 and 1995,
respectively, of approximately $146,000 and $56,000. The Company also incurred
legal expenses for services provided by Camhy Karlinsky & Stein, LLP in the
amounts of approximately $38,000 and $8,000 in 1996 and 1995, respectively.
TRANSACTIONS WITH MANAGEMENT
The Company is a party to employment agreements with certain members of
management, including the Named Executives. See "Management--Employment
Agreements."
In addition, prior to commencing the Offerings, the Company issued shares of
Common Stock to certain employees of the Company, including the Named
Executives and certain directors of the Company.
47
<PAGE>
DESCRIPTION OF NOTES
General
The Notes will be issued pursuant to the Indenture (the "Indenture") between
the Company and IBJ Schroder Bank & Trust Company, as trustee (the "Trustee").
The terms of the Notes include those stated in the Indenture and those made
part of the Indenture by reference to the Trust Indenture Act of 1939, as
amended (the "Trust Indenture Act"). The Notes are subject to all such terms,
and Holders of Notes are referred to the Indenture and the Trust Indenture Act
for a statement thereof. The following summary of certain provisions of the
Indenture does not purport to be complete and is qualified in its entirety by
reference to the text of the Indenture, including the definitions therein of
certain terms used below. A copy of the proposed form of Indenture is
available as set forth below under "--Available Information." The definitions
of certain terms used in the following summary are set forth below under
"Certain Definitions."
The Notes will be general unsecured obligations of the Company (except as
described below under "Security"), subordinated in right of payment to all
existing and future Senior Indebtedness of the Company. See "Subordination."
As of December 31, 1996, on a pro forma basis, the Company had no Senior
Indebtedness outstanding.
As of the date of this Prospectus, the Company has one Subsidiary, which
will be merged with and into the Company upon consummation of the Offerings.
Each future subsidiary of the Company (if any) will constitute a Restricted
Subsidiary unless the Company designates such Subsidiary as an Unrestricted
Subsidiary in the circumstances permitted by the Indenture. Unrestricted
Subsidiaries will not be subject to many of the restrictive covenants set
forth in the Indenture.
Principal, Maturity and Interest
The Notes will be limited in aggregate principal amount to $270.0 million
and will mature on , 2007. Interest on the Notes will accrue at the rate
of % per annum and will be payable semi-annually in arrears on and
, commencing on , 1997, to Holders of record on the immediately
preceding and . Interest on the Notes will accrue from the most
recent date to which interest has been paid or, if no interest has been paid,
from the date of original issuance. Interest will be computed on the basis of
a 360-day year comprised of twelve 30-day months. Principal, premium (if any),
and interest on the Notes will be payable at the office or agency of the
Company maintained for such purpose within the City and State of New York or,
at the option of the Company, payment of interest may be made by check mailed
to the Holders of the Notes at their respective addresses set forth in the
register of Holders of Notes; provided that all payments with respect to Notes
the Holders of which have given wire transfer instructions to the Company will
be required to be made by wire transfer of immediately available funds to the
accounts specified by the Holders thereof. Until otherwise designated by the
Company, the Company's office or agency in New York will be the office of the
Trustee maintained for such purpose. The Notes will be issued in denominations
of $1,000 and integral multiples thereof.
Security
The Company will enter into a pledge and security agreement (the "Pledge
Agreement") with IBJ Schroder Bank & Trust Company, as collateral agent (the
"Collateral Agent"), providing for the pledge by the Company to the Collateral
Agent for the benefit of the Holders of the Notes of the Pledged Securities
referred to below and all proceeds of the foregoing (collectively, the
"Collateral").
The Pledge Agreement will provide that, upon the closing of the Notes
Offering, the Company will be required to purchase and pledge to the
Collateral Agent (for the benefit of the Holders of the Notes) U.S. Government
Securities in such amount as will be sufficient upon receipt of scheduled
interest and principal payments on such Pledged Securities, in the opinion of
a nationally recognized firm of independent public
48
<PAGE>
accountants selected by the Company or the Company's regular independent
public accountants, to provide for payment in full of the first two scheduled
interest payments due on the Notes (together with any securities pledged in
substitution therefor, as provided below, the "Pledged Securities"). The
Company expects to use approximately $36.45 million of the net proceeds of the
Notes Offering to acquire U.S. Government Securities initially constituting
the Pledged Securities; however, the precise amount to be acquired will depend
upon the interest rates on U.S. Government Securities prevailing at the time
of the closing of the Notes Offering. The Pledged Securities will be held by
the Collateral Agent in a separate account (the "Pledge Account"). Pursuant to
the Pledge Agreement, immediately prior to an interest payment date on the
Notes, the Company may either deposit with the Trustee from funds otherwise
available to the Company cash sufficient to pay the interest on the Notes
scheduled to be paid on such date or the Company may direct the Collateral
Agent to release to the Trustee from the Pledge Account proceeds sufficient to
pay interest then due on the Notes. In the event that the Company exercises
the former option, the Pledge Agreement provides that the Company may
thereafter direct the Collateral Agent to release to the Company proceeds of
Pledged Securities from the Pledge Account in like amount.
Interest earned on the Pledged Securities will be added to the Pledge
Account and invested in U.S. Government Securities. In the event that the
funds or Pledged Securities held in the Pledge Account exceed the amount
sufficient, in the opinion of a nationally recognized firm of independent
public accountants selected by the Company or the Company's regular
independent public accountants, to provide for payment in full of the first
two scheduled interest payments due on the Notes (or, in the event an interest
payment or payments have been made, an amount sufficient to provide for
payment in full of any interest payments remaining, up to and including the
second scheduled interest payment), the Trustee will be permitted to release
to the Company at the Company's request any such excess amount. The Notes will
be secured by a first priority security interest in the Pledged Securities and
in the Pledge Account and, accordingly, the Pledged Securities and the Pledge
Account will also secure repayment of the principal amount of the Notes to the
extent of such security. At any time while the Pledge Agreement is in force,
the Pledge Agreement allows the Company to substitute Marketable Securities
(as defined in the Indenture) for the U.S. Government Securities originally
pledged as collateral; provided, however, that the Marketable Securities so
substituted must have a fair market value (measured at the date of
substitution), in the opinion of a nationally recognized firm of independent
public accountants selected by the Company or the Company's regular
independent public accountants, at least equal to 125.0% of the aggregate
amount of the first two scheduled interest payments on the Notes that remain
unpaid (or a pro rata portion of such interest payments equal to the
percentage of such interest payments to be secured by such Marketable
Securities) as of the date such Marketable Securities are proposed to be
substituted as security for the Company's obligation under the Pledge
Agreement.
Under the Pledge Agreement, assuming that the Company makes the first two
scheduled interest payments on the Notes in a timely manner, all of the
Pledged Securities will be released from the Pledge Account, and thereafter
the Notes will be unsecured.
So long as no Event of Default shall have occurred and be continuing, and
subject to certain terms and conditions in the Indenture and the Pledge
Agreement, the Company will be entitled to exercise any voting and other
consensual rights pertaining to the Pledged Securities. Upon the occurrence
and during the continuance of an Event of Default, (a) all rights of the
Company and its Subsidiaries to exercise such voting or other consensual
rights shall cease, and all such rights shall become vested in the Collateral
Agent, which, to the extent permitted by law, shall have the sole right to
exercise such voting and other consensual rights and (b) the Collateral Agent
may sell the Collateral or any part thereof in accordance with the terms of
the Pledge Agreement. All funds distributed under the Pledge Agreement and
received by the Collateral Agent for the benefit of the Holders of the Notes
will be distributed by the Collateral Agent in accordance with the provisions
of the Indenture.
Subordination
The payment of principal of, premium (if any), and interest on the Notes
will be subordinated in right of payment, as set forth in the Indenture, to
the prior payment in full of all Senior Indebtedness, whether outstanding on
the date of the Indenture or thereafter incurred.
49
<PAGE>
Upon any distribution to creditors of the Company in a liquidation or
dissolution of the Company or in a bankruptcy, reorganization, insolvency,
receivership or similar proceeding relating to the Company or its property,
any assignment for the benefit of creditors or any marshalling of the
Company's assets and liabilities, the holders of Senior Indebtedness will be
entitled to receive payment in full of all Obligations due in respect of such
Senior Indebtedness (including interest after the commencement of any such
proceeding at the rate specified in the applicable Senior Indebtedness) before
the Holders of Notes will be entitled to receive any payment with respect to
the Notes, and until all Obligations with respect to Senior Indebtedness are
paid in full, any distribution to which the Holders of Notes would be entitled
shall be made to the holders of Senior Indebtedness, except that Holders of
Notes may receive payments in the form of Permitted Junior Securities and any
securities issued in exchange for such Permitted Junior Securities, payments
made from the proceeds of the Pledged Securities as described under "Security"
and payments made from the trust described under "Legal Defeasance and
Covenant Defeasance" (collectively, "Permitted Payments").
The Company is also prohibited from making any payment upon or in respect of
the Notes (except Permitted Payments) if (i) a default in the payment of the
principal of, premium (if any), or interest on Designated Senior Indebtedness
occurs and is continuing beyond any applicable period of grace or (ii) any
other default occurs and is continuing with respect to Designated Senior
Indebtedness that permits holders of the Designated Senior Indebtedness as to
which such default relates to accelerate its maturity and the Trustee receives
a notice of such default (a "Payment Blockage Notice") from the Company or the
holders of such Designated Senior Indebtedness. Payments on the Notes may and
shall be resumed (a) in the case of a payment default, upon the date on which
such default is cured or waived and (b) in case of a nonpayment default, the
earlier of the date on which such nonpayment default is cured or waived or 179
days after the date on which the applicable Payment Blockage Notice is
received, unless the maturity of any Designated Senior Indebtedness has been
accelerated. No new period of payment blockage may be commenced unless and
until (i) 360 days have elapsed since the effectiveness of the immediately
prior Payment Blockage Notice and (ii) all scheduled payments of principal,
premium (if any), and interest on the Notes that have come due have been paid
in full in cash. No nonpayment default that existed or was continuing on the
date of delivery of any Payment Blockage Notice to the Trustee may constitute
the basis for a subsequent Payment Blockage Notice. The Indenture will further
require that the Company promptly notify holders of Senior Indebtedness if
payment of the Notes is accelerated because of an Event of Default.
As a result of the subordination provisions described above, in the event of
a liquidation or insolvency, Holders of Notes may recover less ratably than
creditors of the Company who are holders of Senior Indebtedness.
Optional Redemption
Except as provided in the following paragraph, the Notes will not be
redeemable at the Company's option prior to , 2002. Thereafter, the Notes
will be subject to redemption at the option of the Company, in whole or in
part, upon not less than 30 nor more than 60 days' notice, at the redemption
prices (expressed as percentages of principal amount) set forth below,
together with accrued and unpaid interest thereon to the applicable redemption
date, if redeemed during the twelve-month period beginning on of the
years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2002........................................................... %
2003........................................................... %
2004........................................................... %
2005........................................................... %
2006 and thereafter............................................ 100.000%
</TABLE>
Notwithstanding the foregoing, the Company may at its option redeem up to
35% of the then-outstanding principal amount of the Notes at any time prior to
, 2000 with the net proceeds of one or more Equity Offerings, upon not
less than 30 but not more than 60 days' notice, at the redemption prices
(expressed as percentages of principal amount) set forth below, together with
accrued and unpaid interest thereon to the
50
<PAGE>
applicable redemption date, if redeemed during the twelve-month period
beginning on of the years indicated below; provided that not less than
$175.5 million aggregate principal amount of Notes shall remain outstanding
following any such redemption and, provided further, that such redemption
shall occur within 45 days of the date of the closing of each such Equity
Offering:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
1997........................................................... %
1998........................................................... %
1999........................................................... %
</TABLE>
Selection and Notice
If less than all of the Notes are to be redeemed at any time, selection of
Notes for redemption will be made by the Trustee in compliance with the
requirements of the principal national securities exchange, if any, on which
the Notes are listed or, if the Notes are not so listed, on a pro rata basis,
by lot or by such other method as the Trustee deems fair and appropriate;
provided that any Note redeemed in part may only be redeemed in an amount that
is a whole multiple of $1,000. Notice of redemption shall be mailed by first
class mail at least 30 but not more than 60 days before the redemption date to
each Holder of Notes to be redeemed at its registered address. 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 the redemption date, interest will cease to accrue on Notes
or portions thereof called for redemption.
Mandatory Redemption
Except as set forth below under "Repurchase at the Option of Holders," the
Company is not required to make any mandatory redemption or sinking fund
payments with respect to the Notes.
Repurchase at the Option of Holders
Change of Control
Upon the occurrence of a Change of Control, each Holder of Notes will have
the right to require the Company to repurchase all or any part (equal to
$1,000 or an integral multiple thereof) of such Holder's Notes pursuant to the
offer described below (the "Change of Control Offer") at an offer price in
cash equal to 101% of the aggregate principal amount thereof plus accrued and
unpaid interest thereon to the date of purchase (the "Change of Control
Payment"). Within 30 days following any Change of Control, the Company will
mail a notice to each Holder describing the transaction or transactions that
constitute the Change of Control and offering to repurchase Notes pursuant to
the procedures required by the Indenture and described in such notice. The
Company will comply with the requirements of Rule 14e-1 under the Exchange Act
and any other securities laws and regulations thereunder to the extent such
laws and regulations are applicable in connection with the repurchase of the
Notes as a result of a Change of Control.
On the Change of Control Payment Date, the Company will, to the maximum
extent lawful, (1) accept for payment all Notes or portions thereof properly
tendered pursuant to the Change of Control Offer, (2) deposit with the Trustee
an amount equal to the Change of Control Payment in respect of all Notes or
portions thereof so tendered and (3) deliver or cause to be delivered to the
Trustee the Notes so accepted together with an Officers' Certificate stating
the aggregate principal amount of Notes or portions thereof being purchased by
the Company. The Trustee will promptly mail to each Holder of Notes so
tendered the Change of Control Payment for such Notes, and the Trustee will
promptly authenticate and mail (or cause to be transferred by book entry) to
each Holder a new Note equal in principal amount to any unpurchased portion of
the Notes surrendered, if any; provided that each such new Note will be in a
principal amount of $1,000 or an integral multiple thereof. The Indenture will
provide that, prior to complying with the provisions of this covenant, but in
any event within 30 days following a Change of Control, the Company will
either repay all outstanding Senior Indebtedness or obtain the requisite
consents, if any, under all agreements governing outstanding Senior
Indebtedness to permit the repurchase of Notes required by this covenant. The
Company will publicly announce the results of the Change of Control Offer in
the Wall Street Journal on or as soon as practicable after the Change of
Control Payment Date.
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The Change of Control provisions described above will be applicable whether
or not any other provisions of the Indenture are applicable. Except as
described above with respect to a Change of Control, the Indenture does not
contain provisions that permit the Holders of the Notes to require that the
Company repurchase or redeem the Notes in the event of a takeover,
recapitalization or similar restructuring.
The Company will not be required to make a Change of Control Offer upon a
Change of Control if a third party makes the Change of Control Offer in the
manner, at the times and otherwise in compliance with the requirements set
forth in the Indenture applicable to a Change of Control Offer made by the
Company and purchases all Notes validly tendered and not withdrawn under such
Change of Control Offer.
The definition of Change of Control includes a phrase relating to the sale,
lease, transfer, conveyance or other disposition of "all or substantially all"
of the assets of the Company and its Subsidiaries taken as a whole. Although
there is a developing body of case law interpreting the phrase "substantially
all," there is no precise established definition of that phrase under
applicable law. Accordingly, the ability of a Holder of Notes to require the
Company to repurchase such Notes as a result of a sale, lease, transfer,
conveyance or other disposition of less than all of the assets of the Company
and its Subsidiaries taken as a whole to another Person or group may be
uncertain.
Asset Sales
The Indenture will provide that the Company will not, and will not permit
any of its Restricted Subsidiaries to, engage in an Asset Sale unless (i) the
Company (or the Restricted Subsidiary, as the case may be) receives
consideration at the time of such Asset Sale at least equal to the fair market
value (evidenced by a resolution of the Board set forth in an Officers'
Certificate delivered to the Trustee) of the assets or Equity Interests issued
or sold or otherwise disposed of and (ii) at least 75% of the consideration
therefor received by the Company or such Restricted Subsidiary is in the form
of cash; provided that the amount of (x) any liabilities (as shown on the
Company's or such Restricted Subsidiary's most recent balance sheet) of the
Company or any Restricted Subsidiary (other than contingent liabilities and
liabilities that are by their terms subordinated to the Notes or any guarantee
thereof) that are assumed by the transferee of any such assets pursuant to a
customary novation agreement that releases the Company or such Restricted
Subsidiary from further liability with respect thereto and (y) any notes or
other obligations received by the Company or any such Restricted Subsidiary
from such transferee that are converted by the Company or such Restricted
Subsidiary into cash within 90 days following such Asset Sale (to the extent
of the cash received), will be deemed to be cash for purposes of this
provision.
Within 270 days after the receipt of any Net Proceeds from an Asset Sale,
the Company may apply such Net Proceeds, at its option, (a) to reduce Senior
Indebtedness of the Company, (b) to reduce Senior Indebtedness of a Subsidiary
Guarantor, or (c) to an investment in a Permitted Business or assets used in a
Permitted Business or the Company may commit to apply such Net Proceeds as set
forth in this clause (c) so long as such investment is consummated within 360
days after the receipt of such Net Proceeds. Pending the final application of
any such Net Proceeds, the Company may temporarily invest such Net Proceeds in
any manner that is not prohibited by the Indenture. Any Net Proceeds from
Asset Sales that are not applied or invested as provided in the preceding
sentence of this paragraph will be deemed to constitute "Excess Proceeds."
When the aggregate amount of Excess Proceeds exceeds $25.0 million, the
Company will be required to make an offer to all Holders of Notes (an "Asset
Sale Offer") to purchase the maximum principal amount of Notes that may be
purchased out of the Excess Proceeds, at an offer price in cash in an amount
equal to 100% of the principal amount thereof plus accrued and unpaid interest
thereon to the date of purchase, in accordance with the procedures set forth
in the Indenture. To the extent that the aggregate amount of Notes tendered
pursuant to an Asset Sale Offer is less than the Excess Proceeds, the Company
may use any remaining Excess Proceeds for general corporate purposes. If the
aggregate principal amount of Notes surrendered by Holders thereof exceeds the
amount of Excess Proceeds, the Trustee shall select the Notes to be purchased
in compliance with the requirements of the principal national securities
exchange, if any, on which the Notes are listed or, if the Notes are not so
listed, on a pro rata basis. Upon completion of such Asset Sale Offer, the
amount of Excess Proceeds shall be reset at zero.
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Any future credit agreements or other agreements relating to Senior
Indebtedness to which the Company becomes a party may contain provisions
prohibiting a repurchase of Notes and providing that certain change of
control events and asset dispositions by the Company will constitute a default
thereunder. In the event a Change of Control or an Asset Sale occurs at a time
when the Company is prohibited from purchasing Notes, the Company could seek
the consent of its lenders to the purchase of Notes or could attempt to
refinance the borrowings that contain such prohibition. If the Company does
not obtain such a consent or repay such borrowings, the Company will remain
prohibited from purchasing Notes. In such case, the Company's failure to
purchase tendered Notes would constitute an Event of Default under the
Indenture which would, in turn, likely constitute a default under any Senior
Indebtedness then outstanding. In such circumstances, the subordination
provisions in the Indenture would likely restrict payments to the Holders of
Notes.
Certain Covenants
Restricted Payments
The Indenture will provide that the Company will not, and will not permit
any of its Restricted Subsidiaries to, directly or indirectly: (i) declare or
pay any dividend or make any other payment or distribution on account of any
Equity Interests of the Company or any of its Restricted Subsidiaries
including, without limitation, any payment in connection with any merger or
consolidation involving the Company (other than (x) dividends or distributions
payable in Equity Interests (other than Disqualified Stock) of the Company and
(y) dividends or distributions payable to the Company or any Wholly Owned
Restricted Subsidiary of the Company); (ii) purchase, redeem or otherwise
acquire or retire for value any Equity Interests of the Company; (iii) make
any principal payment on, or purchase, redeem, defease or otherwise acquire or
retire for value any Indebtedness that is subordinated to the Notes, except at
the original final maturity thereof or in accordance with the scheduled
mandatory redemption or repayment provisions set forth in the original
documentation governing such Indebtedness (but not pursuant to any mandatory
offer to repurchase upon the occurrence of any event) or (iv) make any
Restricted Investment (all such payments and other actions set forth in
clauses (i) through (iv) above being collectively referred to as "Restricted
Payments"), unless:
(a) no Default or Event of Default shall have occurred and be continuing
or would occur as a consequence thereof;
(b) the Company would, at the time of such Restricted Payment and after
giving pro forma effect thereto as if such Restricted Payment had been made
at the beginning of the applicable four-quarter period, have been permitted
to incur at least $1.00 of additional Indebtedness pursuant to the Fixed
Charge Coverage Ratio test set forth in the first paragraph of the covenant
entitled "Incurrence of Indebtedness and Issuance of Disqualified Stock";
and
(c) such Restricted Payment, together with the aggregate of all other
Restricted Payments made by the Company and its Restricted Subsidiaries
after the date of the Indenture (excluding Restricted Payments permitted by
clauses (ii) and (iii) of the next succeeding paragraph), is less than the
sum of (1) 50% of the Consolidated Net Income of the Company for the period
(taken as one accounting period) from the beginning of the first fiscal
quarter commencing after the date of the Indenture to the end of the
Company's most recently ended fiscal quarter for which internal financial
statements are available at the time of such Restricted Payment (or, if
such Consolidated Net Income for such period is a deficit, minus 100% of
such deficit), plus (2) 100% of the aggregate net cash proceeds received by
the Company as a contribution to its common equity capital or from the
issue or sale after the date of the Indenture of Equity Interests of the
Company or of debt securities of the Company that have been converted into
such Equity Interests (other than Equity Interests (or convertible debt
securities) sold to a Subsidiary of the Company and other than Disqualified
Stock or debt securities that have been converted into Disqualified Stock),
plus (3) to the extent that any Restricted Investment that was made after
the date of the Indenture is sold for cash or otherwise liquidated or
repaid for cash, the lesser of (A) the cash return of capital with respect
to such Restricted Investment (less the cost of disposition, if any) and
(B) the initial amount of such Restricted Investment; provided that no cash
proceeds received by the Company from the issue or sale of any Equity
Interests of
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the Company will be counted in determining the amount available for
Restricted Payments under this clause (c) to the extent such proceeds were
used to redeem, repurchase, retire or acquire any Equity Interests of the
Company pursuant to clause (ii) of the next succeeding paragraph, to
defease, redeem or repurchase any subordinated Indebtedness pursuant to
clause (iii) of the next succeeding paragraph or to repurchase, redeem or
acquire any Equity Interests of the Company pursuant to clause (iv) of the
next succeeding paragraph.
The foregoing provisions will not prohibit the following: (i) the payment of
any dividend within 60 days after the date of declaration thereof, if at such
date of declaration such payment would have complied with the provisions of
the Indenture; (ii) the redemption, repurchase, retirement or other
acquisition of any Equity Interests of the Company in exchange for, or out of
the net proceeds of, the substantially concurrent sale (other than to a
Subsidiary of the Company) of other Equity Interests of the Company (other
than Disqualified Stock); provided that the amount of any such net cash
proceeds that are utilized for any such redemption, repurchase, retirement or
other acquisition shall be excluded from clause (c)(2) of the preceding
paragraph; (iii) the defeasance, redemption or repurchase of subordinated
Indebtedness with the net proceeds from an incurrence of Permitted Refinancing
Indebtedness or the substantially concurrent sale (other than to a Subsidiary
of the Company) of Equity Interests of the Company (other than Disqualified
Stock); provided that the amount of any such net cash proceeds that are
utilized for any such redemption, repurchase, retirement or other acquisition
shall be excluded from clause (c)(2) of the preceding paragraph; (iv) the
repurchase, redemption or other acquisition or retirement for value of any
Equity Interests of the Company held by any member of the Company's or any of
the Company's Restricted Subsidiaries' management (other than Rachamim
Anatian) pursuant to any management equity subscription agreement, stock
option agreement or similar agreement or arrangement; provided that the
aggregate price paid for all such repurchased, redeemed, acquired or retired
Equity Interests shall not exceed $500,000 in any twelve-month period plus the
aggregate cash proceeds received by the Company during such twelve-month
period from any reissuance of Equity Interests by the Company to members of
management of the Company and its Restricted Subsidiaries; provided that the
amount of any cash proceeds received by the Company from any reissuance of
Equity Interests to members of management of the Company and its Restricted
Subsidiaries that are utilized for any such repurchases, redemptions and other
acquisitions and retirements of Equity Interests pursuant to this clause (iv)
shall be excluded from clause (c)(2) of the preceding paragraph; (v) payments
in respect of Equity Interests of any Person the holders of which are entitled
to exercise statutory appraisal rights in connection with the acquisition of
such Person by the Company or any Restricted Subsidiary in an amount not to
exceed 5.0% of any class of such Equity Interests; (vi) the repurchase,
redemption or other acquisition or retirement for value of any Equity
Interests of the Company held by an alien to the extent necessary to comply
with the Communications Act of 1934 and the rules and regulations thereunder;
and (vii) additional Restricted Payments not to exceed an aggregate of $ in
any twelve-month period.
The Board may designate any Restricted Subsidiary to be an Unrestricted
Subsidiary if (i) at the time of such designation no Default exists and such
designation would not cause a Default, (ii) such designation is approved by a
majority of the non-employee members of the Board and (iii) such Subsidiary
otherwise meets the definition of Unrestricted Subsidiary. For purposes of
making such determination, all outstanding Investments by the Company and its
Restricted Subsidiaries (except to the extent repaid in cash) in the
Subsidiary so designated will be deemed to be Restricted Payments at the time
of such designation and will reduce the amount available for Restricted
Payments under the first paragraph of this covenant. All such outstanding
Investments will be deemed to constitute Investments in an amount equal to the
greater of (x) the net book value of such Investments at the time of such
designation and (y) the fair market value of such Investments at the time of
such designation. Such designation will only be permitted if such Restricted
Payment would be permitted at such time and if such Restricted Subsidiary
otherwise meets the definition of an Unrestricted Subsidiary.
Not later than the date of making any Restricted Payment, the Company shall
deliver to the Trustee an Officers' Certificate stating that such Restricted
Payment is permitted and setting forth the basis upon which the calculations
required by the covenant "Restricted Payments" were computed, which
calculations shall be based upon the Company's latest available financial
statements.
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Incurrence of Indebtedness and Issuance of Disqualified Stock
The Indenture will provide that the Company will not, and will not permit
any of its Subsidiaries to, directly or indirectly create, incur, issue,
assume, guarantee or otherwise become directly or indirectly liable with
respect to (collectively, "incur") any Indebtedness (including Acquired Debt)
and that the Company and the Restricted Subsidiaries will not issue any
Disqualified Stock; provided, however, that the Company and the Restricted
Subsidiaries may incur Indebtedness or issue shares of Disqualified Stock if
the Fixed Charge Coverage Ratio for the Company's most recently ended four
full fiscal quarters for which internal financial statements are available
immediately preceding the date on which such additional Indebtedness is
incurred or such Disqualified Stock is issued, in each case determined on a
pro forma basis (including a pro forma application of the net proceeds
therefrom) as if the additional Indebtedness had been incurred, or the
Disqualified Stock had been issued, as the case may be, at the beginning of
such four-quarter period, would have been at least (i) 1.25 to 1 for an
incurrence or issuance occurring on or before , 1998 [fourth full fiscal
quarter], or (ii) 1.50 to 1 for an incurrence or issuance occurring after
, 1998 and on or before , 1998 [sixth full fiscal quarter], or (iii)
1.75 to 1 for an incurrence or issuance occurring after , 1998 and on or
before , 1999 [eighth full fiscal quarter], or (iv) 2.0 to 1 for an
incurrence or issuance occurring at any time thereafter or, solely in the case
of an incurrence of Indebtedness or an issuance of Disqualified Stock on or
before , 1999 [eighth full fiscal quarter], the Fixed Charge Coverage
Ratio for the Company's most recently ended full fiscal quarter for which
internal financial statements are available immediately preceding the date on
which such additional Indebtedness is incurred or such Disqualified Stock is
issued, in each case determined on a pro forma basis (including a pro forma
application of the net proceeds therefrom) as if the additional Indebtedness
had been incurred, or the Disqualified Stock had been issued, as the case may
be, at the beginning of such quarter, would have been at least 2.0 to 1.
The provisions of the first paragraph of this covenant will not apply to the
incurrence of any of the following items of Indebtedness: (i) the incurrence
by the Company of Indebtedness under revolving credit facilities and the
issuance and creation of letters of credit and banker's acceptances thereunder
(with letters of credit and banker's acceptances being deemed to have a
principal amount equal to the face amount thereof) up to an aggregate amount
equal to the greater of (x) $50.0 million or (y) the Borrowing Base; (ii) the
incurrence by the Company of Indebtedness represented by the Notes and the
Subsidiary Guarantees; (iii) Indebtedness (including Capital Lease
Obligations) incurred by the Company or any of its Restricted Subsidiaries to
finance the purchase, lease or improvement of property (real or personal) or
equipment (whether through the direct purchase of assets or the Capital Stock
of any Person owning such assets) in an aggregate principal amount which, when
aggregated with the principal amount of all other Indebtedness then
outstanding and incurred pursuant to this clause (together with any
Refinancing Indebtedness with respect thereto), does not exceed $10.0 million;
(iv) Indebtedness incurred by the Company or any of its Restricted
Subsidiaries constituting reimbursement obligations with respect to letters of
credit issued in the ordinary course of business, including without limitation
letters of credit in respect of workers' compensation claims or self-
insurance, or similar reimbursement obligations regarding workers'
compensation claims; provided, however, that upon the drawing of such letters
of credit or the incurrence of such Indebtedness, such obligations are
reimbursed within 30 days following such drawing or incurrence; (v)
Indebtedness arising from agreements of the Company or a Restricted Subsidiary
providing for indemnification, adjustment of purchase price or similar
obligations, in each case incurred or assumed in connection with the
disposition of any business, assets or a Subsidiary, other than guarantees of
Indebtedness incurred by any Person acquiring all or any portion of such
business, assets or a Subsidiary for the purpose of financing such
acquisition; provided, however, that (i) such Indebtedness is not reflected on
the
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balance sheet of the Company or any Restricted Subsidiary (contingent
obligations referred to in a footnote to financial statements and not
otherwise reflected on the balance sheet will not be deemed to be reflected on
such balance sheet for purposes of this clause (i)) and (ii) the maximum
assumable liability in respect of all such Indebtedness shall at no time
exceed the gross proceeds, including non-cash proceeds (the fair market value
of which shall be measured at the time received and without giving effect to
any subsequent changes in value) actually received by the Company and its
Restricted Subsidiaries in connection with such disposition; (vi) the
incurrence by the Company or any of its Restricted Subsidiaries of Permitted
Refinancing Indebtedness in exchange for, or the net proceeds of which are
used to refund, refinance or replace, Indebtedness that was permitted by the
Indenture to be incurred; (vii) the incurrence by the Company or any of its
Restricted Subsidiaries of intercompany Indebtedness between or among the
Company and any of its Wholly Owned Restricted Subsidiaries; provided,
however, that (i) if the Company is the obligor on such Indebtedness, such
Indebtedness is expressly subordinated to the prior payment in full in cash of
all Obligations with respect to the Notes and (ii)(A) any subsequent issuance
or transfer of Equity Interests that results in any such Indebtedness being
held by a Person other than the Company or a Wholly Owned Restricted
Subsidiary and (B) any sale or other transfer of any such Indebtedness to a
Person that is not either the Company or a Wholly Owned Restricted Subsidiary
shall be deemed, in each case, to constitute an incurrence of such
Indebtedness by the Company or such Restricted Subsidiary, as the case may be;
(viii) Hedging Obligations that are incurred in the ordinary course of
business (1) for the purpose of fixing or hedging interest rate risk with
respect to any Indebtedness that is permitted by the terms of the Indenture to
be outstanding or (2) for the purpose of fixing or hedging currently exchange
rate risk with respect to any currency exchanges; (ix) the guarantee by the
Company or any of the Subsidiary Guarantors of Indebtedness of the Company or
a Restricted Subsidiary of the Company that was permitted to be incurred by
another provision of this covenant; (x) the incurrence by the Company's
Unrestricted Subsidiaries of Non-Recourse Debt, provided, however, that if any
such Indebtedness ceases to be Non-Recourse Debt of an Unrestricted
Subsidiary, such event shall be deemed to constitute an incurrence of
Indebtedness by a Restricted Subsidiary of the Company; and (xi) additional
Indebtedness in an aggregate amount outstanding not to exceed $ at any
time.
For purposes of determining compliance with this covenant, in the event that
an item of Indebtedness meets the criteria of more than one of the categories
described in clauses (i) through (x) above or is entitled to be incurred
pursuant to the first paragraph of this covenant, the Company shall, in its
sole discretion, classify such item of Indebtedness in any manner that
complies with this covenant and such item of Indebtedness will be treated as
having been incurred pursuant to only one of such clauses or pursuant to the
first paragraph hereof. Accrual of interest of the accretion of accreted value
will not be deemed to be an incurrence of Indebtedness for purposes of this
covenant.
Liens
The Indenture will provide that the Company will not, and will not permit
any of its Restricted Subsidiaries to, directly or indirectly create, incur,
assume or suffer to exist any Lien securing Indebtedness or trade payables on
any property or asset now owned or hereafter acquired, or on any income or
profits therefrom or assign or convey any right to receive income therefrom,
except Permitted Liens.
Dividend and Other Payment Restrictions Affecting Subsidiaries
The Indenture will provide that the Company will not, and will not permit
any of its Restricted Subsidiaries to, directly or indirectly create or
otherwise cause or suffer to exist or become effective any encumbrance or
restriction on the ability of any Restricted Subsidiary to: (i)(a) pay
dividends or make any other distributions to the Company or any of its
Restricted Subsidiaries on its Capital Stock or with respect to any other
interest or participation in, or measured by, its profits, or (b) pay any
Indebtedness owed to the Company or any of its Restricted Subsidiaries; (ii)
make loans or advances to the Company or any of its Restricted Subsidiaries;
or (iii) transfer any of its properties or assets to the Company or any of its
Restricted Subsidiaries, except for such encumbrances or restrictions existing
under or by reason of (a) secured Senior Indebtedness permitted to be incurred
by the terms of the Indenture that limit the right of the debtor to dispose of
the assets securing such
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Indebtedness; (b) the Indenture and the Notes; (c) applicable law; (d) any
agreement or other instrument of a Person acquired by the Company or any of
its Restricted Subsidiaries, as in effect at the time of acquisition (but not
created in contemplation thereof), which encumbrance or restriction is not
applicable to any Person, or the properties or assets of any Person, other
than the Person, or the property or assets of the Person, so acquired,
provided that, in the case of an encumbrance or restriction contained in any
agreement or instrument governing Indebtedness, such Indebtedness was
permitted by the terms of the Indenture to be incurred; (d) by reason of
customary non-assignment provisions in leases entered into in the ordinary
course of business and consistent with past practices; (e) purchase money
obligations for property acquired in the ordinary course of business that
impose restrictions of the nature described in clause (iii) above on the
property so acquired; (f) Permitted Refinancing Indebtedness, provided that
the restrictions contained in the agreements governing such Permitted
Refinancing Indebtedness are no more restrictive than those contained in the
agreements governing the Indebtedness being refinanced; (g) contracts for the
sale of assets, including contracts for the sale of the Capital Stock of a
Subsidiary, containing customary restrictions on the disposition of such
assets or the conduct of business of such Subsidiary pending consummation of
such sale; (h) restrictions on cash or other deposits or net worth imposed by
customers under contracts entered into in the ordinary course of business; or
(i) customary provisions in joint venture agreements entered into in the
ordinary course of business.
Merger, Consolidation or Sale of Assets
The Indenture will provide that the Company may not consolidate or merge
with or into (whether or not the Company is the surviving entity), or sell,
assign, transfer, lease, convey or otherwise dispose of all or substantially
all of its properties or assets in one or more related transactions to,
another corporation, Person or entity unless (i) the Company is the surviving
corporation or entity or the Person formed by or surviving any such
consolidation or merger (if other than the Company) or to which such sale,
assignment, transfer, lease, conveyance or other disposition shall have been
made is a corporation organized or existing under the laws of the United
States, any state thereof or the District of Columbia; (ii) the entity or
Person formed by or surviving any such consolidation or merger (if other than
the Company) or the entity or Person to which such sale, assignment, transfer,
lease, conveyance or other disposition will have been made assumes all the
obligations of the Company under the Notes and the Indenture pursuant to a
supplemental indenture in form reasonably satisfactory to the Trustee; (iii)
immediately after such transaction, no Default or Event of Default exists; and
(iv) the Company or the entity or Person formed by or surviving any such
consolidation or merger, or to which such sale, assignment, transfer, lease,
conveyance or other disposition will have been made (A) will have Consolidated
Net Worth immediately after the transaction equal to or greater than the
Consolidated Net Worth of the Company immediately preceding the transaction
and (B) will, at the time of such transaction after giving pro forma effect
thereto as if such transaction had occurred at the beginning of the applicable
four-quarter period, be permitted to incur at least $1.00 of additional
Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in the
first paragraph of the covenant entitled "Incurrence of Indebtedness and
Issuance of Disqualified Stock."
Sale and Leaseback Transactions
The Indenture will provide that the Company will not, and will not permit
any of its Restricted Subsidiaries to, enter into any sale and leaseback
transaction; provided that the Company or any Subsidiary Guarantor may enter
into a sale and leaseback transaction if (i) the Company or such Subsidiary
Guarantor could have (a) incurred Indebtedness in an amount equal to the
Attributable Debt relating to such sale and leaseback transaction pursuant to
the Fixed Charge Coverage Ratio test set forth in the first paragraph of the
covenant entitled "Incurrence of Additional Indebtedness and Issuance of
Disqualified Stock" and (b) incurred a Lien to secure such Indebtedness
pursuant to the covenant entitled "Liens," (ii) the gross cash proceeds of
such sale and leaseback transaction are at least equal to the fair market
value (as determined in good faith by the Board of Directors and set forth in
an Officers' Certificate delivered to the Trustee) of the property that is the
subject of such sale and leaseback transaction and (iii) the transfer of
assets in such sale and leaseback transaction is permitted by, and the
proceeds of such transaction are applied in compliance with, the covenant
described above under the covenant entitled "Asset Sales."
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Transactions with Affiliates
The Indenture will provide that the Company will not, and will not permit
any of its Restricted Subsidiaries to, make any payment to, or sell, lease,
transfer or otherwise dispose of any of its properties or assets to, or
purchase any property or assets from, or enter into or make or amend any
contract, agreement, understanding, loan, advance or guarantee with, or for
the benefit of, any Affiliate (each of the foregoing, an "Affiliate
Transaction"), unless (i) such Affiliate Transaction is on terms that are no
less favorable to the Company or such Restricted Subsidiary than those that
would have been obtained in a comparable transaction by the Company or such
Restricted Subsidiary with an unrelated Person and (ii) the Company delivers
to the Trustee (a) with respect to any Affiliate Transaction or series of
related Affiliate Transactions involving aggregate consideration in excess of
$1.0 million, a resolution of the Board set forth in an Officers' Certificate
certifying that such Affiliate Transaction complies with clause (i) above and
that such Affiliate Transaction has been approved by a majority of the
disinterested members of the Board and by a majority of the non-employee
members of the Board and (b) with respect to any Affiliate Transaction or
series of related Affiliate Transactions involving aggregate consideration in
excess of $10.0 million, an opinion as to the fairness to the Company or such
Restricted Subsidiary of such Affiliate Transaction from a financial point of
view issued by an accounting, appraisal or investment banking firm of national
standing; provided, however, that the following shall not be deemed Affiliate
Transactions: (a) any employment agreement or arrangement or any other
compensation plan available generally to the employees of the Company or its
Restricted Subsidiaries, in each case entered into by the Company or any of
its Restricted Subsidiaries in the ordinary course of business, (b) directors'
fees and indemnification arrangements in the ordinary course of business and
consistent with the Company's past practice, (c) transactions among the
Company and its Restricted Subsidiaries, (d) Restricted Payments permitted by
the provisions of the Indenture described above under clause (iv) of the
second paragraph of the covenant entitled "Restricted Payments" or Permitted
Investments described below under clause (vii) of the definition of "Permitted
Investments," and (e) transactions effected pursuant to a written contract
approved in advance as provided above.
Anti-Layering
The Indenture will provide that (i) the Company will not incur, create,
issue, assume, guarantee or otherwise become liable for any Indebtedness that
is subordinate or junior in right of payment to any Senior Indebtedness and
senior in any respect in right of payment to the Notes, and (ii) the Company
shall not permit any Subsidiary Guarantor to incur, create, issue, assume,
guarantee or otherwise become liable for any Indebtedness that is subordinate
or junior in right of payment to its Senior Indebtedness and senior in any
respect in right of payment to the Subsidiary Guarantees.
Subsidiary Guarantees
The Indenture will provide that the Company's payment obligations under the
Notes will be jointly and severally guaranteed (the "Subsidiary Guarantees")
by each Subsidiary Guarantor. The Subsidiary Guarantee of each Subsidiary
Guarantor will be subordinated to the prior payment in full of all Senior
Indebtedness of such Subsidiary Guarantor on substantially the same terms as
the Notes are subordinated to the Senior Indebtedness of the Company. The
obligations of each Subsidiary Guarantor under its Subsidiary Guarantee will
be limited so as not to constitute a fraudulent conveyance under applicable
law.
The Indenture will provide that no Subsidiary Guarantor may consolidate with
or merge with or into another corporation, Person or entity (other than the
Company, another Subsidiary Guarantor or a Person that becomes a Subsidiary
Guarantor as a result of such transaction) unless (i) subject to the
provisions of the following paragraph, the Person formed by or surviving any
such consolidation or merger (if other than such Subsidiary Guarantor) assumes
all the obligations of such Subsidiary Guarantor under the Notes and the
Indenture pursuant to a supplemental indenture in form and substance
reasonably satisfactory to the Trustee; (ii) immediately after giving effect
to such transaction, no Default or Event of Default exists; (iii) such
Subsidiary Guarantor, or any Person formed by or surviving any such
consolidation or merger, would have Consolidated Net Worth (immediately after
giving effect to such transaction), equal to or greater than the Consolidated
Net Worth of such Subsidiary Guarantor immediately preceding the transaction
and (iv) the Company would be permitted by virtue
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of the Company's pro forma Fixed Charge Coverage Ratio, immediately after
giving effect to such transaction, to incur at least $1.00 of additional
Indebtedness pursuant to the Fixed Charge Coverage Ratio set forth in the
covenant entitled "Incurrence of Indebtedness and Issuance of Disqualified
Stock."
The Indenture will provide that, in the event of a sale or other disposition
of all or substantially all of the assets of any Subsidiary Guarantor by way
of merger, consolidation or otherwise, or a sale or other disposition of all
of the capital stock of any Subsidiary Guarantor, then such Subsidiary
Guarantor (in the event of a sale or other disposition of all of the capital
stock of such Subsidiary Guarantor) or the entity acquiring the property of
such Subsidiary Guarantor (in the event of a sale or other disposition of all
or substantially all of the assets of such Subsidiary Guarantor) will be
released and relieved of any obligations under its Subsidiary Guarantee;
provided that the Net Proceeds of such sale or other disposition are applied
in accordance with the applicable provisions of the Indenture. See "Asset
Sales."
Line of Business
The Company will not, and will not permit any Restricted Subsidiary to,
engage in any business other than a Permitted Business, except to such extent
as would not be material to the Company and its Restricted Subsidiaries taken
as a whole.
Reports
The Indenture will provide that, whether or not required by the rules and
regulations of the Commission, so long as any Notes are outstanding, the
Company will cause copies of all quarterly and annual financial 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 is required to file with the Commission pursuant to Section
13 or 15(d) of the Exchange Act to be filed with the Trustee (and for the
Trustee to mail the same to the Holders at their addresses appearing in the
register of Notes maintained by the Registrar), in each case, within 15 days
of filing with the Commission. If the Company is not subject to the
requirements of Section 13 or 15(d) of the Exchange Act, the Company will
nevertheless continue to cause the annual and quarterly financial statements,
including any notes thereto (and, with respect to annual information only, a
report by the Company's certified independent accountants) and a "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
comparable to that which would have been required to appear in annual or
quarterly reports filed under Section 13 or 15(d) of the Exchange Act, to be
so filed with the Commission for public availability and with the Trustee (and
for the Trustee to mail to the Holders) within 120 days after the end of the
Company's fiscal years and within 60 days after the end of each of the first
three quarters of each such fiscal years.
Events of Default and Remedies
The Indenture will provide that each of the following constitutes an Event
of Default:
(i) default for 30 days in the payment when due of interest on the Notes
(whether or not prohibited by the subordination provisions of the
Indenture);
(ii) default in payment when due of principal or premium, if any, on the
Notes at maturity, upon redemption or otherwise (whether or not prohibited
by the subordination provisions of the Indenture);
(iii) failure by the Company to comply with the provisions described
under the covenants entitled "Change of Control," "Asset Sales,"
"Restricted Payments," "Incurrence of Indebtedness and Issuance of
Disqualified Stock" or "Merger, Consolidation or Sale of Assets;"
(iv) failure by the Company for 60 days after notice to comply with its
other agreements in the Indenture, the Pledge Agreement or the Notes;
(v) default under any mortgage, indenture or instrument under which there
may be issued or by which there may be secured or evidenced any
Indebtedness for money borrowed by the Company or any of its Restricted
Subsidiaries (or the payment of which is guaranteed by the Company or any
of its Restricted Subsidiaries) whether such Indebtedness or Guarantee now
exists or is created after the date of the
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Indenture, which default (a) is caused by a failure to pay when due any
principal of such Indebtedness prior to the expiration of the grace period
provided in such Indebtedness on the date of such default (a "Payment
Default") or (b) results in the acceleration of such Indebtedness prior to
its scheduled maturity and, in each case, the principal amount of any such
Indebtedness, together with the principal amount of any other such
Indebtedness under which there has been a Payment Default or the maturity
of which has been so accelerated, aggregates $10.0 million or more;
(vi) failure by the Company or any of its Restricted Subsidiaries to pay
final judgments aggregating in excess of $5.0 million, which judgments are
not stayed within 60 days after their entry;
(vii) any Subsidiary Guarantee shall be held in any judicial proceeding
to be unenforceable or invalid or shall cease for any reason to be in full
force and effect or any Subsidiary Guarantor, or any Person acting on
behalf of any Subsidiary Guarantor, shall deny or disaffirm its obligations
under its Subsidiary Guarantee;
(viii) the Company breaches any material representation, warranty or
agreement set forth in the Pledge Agreement, or the Pledge Agreement is
unenforceable against the Company for any reason; and
(ix) certain events of bankruptcy or insolvency with respect to the
Company or any of its Significant Subsidiaries.
If any Event of Default occurs and is continuing, the Trustee or the Holders
of at least 25% in principal amount of the then-outstanding Notes may declare
all the Notes to be due and payable immediately. Notwithstanding the
foregoing, in the case of an Event of Default arising from certain events of
bankruptcy or insolvency with respect to the Company, any Restricted
Subsidiary that would constitute a Significant Subsidiary or any group of
Restricted Subsidiaries that, taken together, would constitute a Significant
Subsidiary, all outstanding Notes will become due and payable without further
action or notice. Holders of the Notes may not enforce the Indenture, the
Pledge Agreement or the Notes except as provided in the Indenture. Subject to
certain limitations, Holders of a majority in principal amount of the then-
outstanding Notes may direct the Trustee in its exercise of any trust or
power.
In the case of any Event of Default occurring by reason of any willful
action (or inaction) taken (or not taken) by or on behalf of the Company with
the intention of avoiding payment of the premium that the Company would have
had to pay if the Company then had elected to redeem the Notes pursuant to the
optional redemption provisions of the Indenture, an equivalent premium shall
also become and be immediately due and payable to the extent permitted by law
upon the acceleration of the Notes. If an Event of Default occurs prior to
, 2002 by reason of any willful action (or inaction) taken (or not taken)
by or on behalf of the Company with the intention of avoiding the prohibition
on redemption of the Notes prior to such date, then the premium specified in
the Indenture shall also become immediately due and payable to the extent
permitted by law upon the acceleration of the Notes.
The Holders of a majority in aggregate principal amount of the Notes then
outstanding, by notice to the Trustee, may on behalf of the Holders of all of
the Notes waive any existing Default or Event of Default and its consequences
under the Indenture or the Pledge Agreement, except that: (i) at least 75% in
aggregate principal amount of the Outstanding Notes is required to waive a
continuing Default or Event of Default relating to (a) the release of any
Collateral from the Lien created by the Indenture and the Pledge Agreement,
(b) the alteration of any of the provisions of the Pledge Agreement in a
manner that adversely affects the rights of any Holder, or (c) any change in
the covenant entitled "Offer to Repurchase Upon Change of Control" or the
provisions relating to subordination (including by way of an amendment to any
of the definitions used in any such sections) that adversely affects the
rights of any Holder of Notes; and (ii) consent of all Holders of Notes then
outstanding is required to waive a Default or Event of Default relating to the
payment of principal of, or interest or premium, if any, on the Notes. The
Trustee may withhold from Holders of the Notes notice of any continuing
Default or Event of Default (except a Default or Event of Default relating to
the payment of principal, premium or interest) if it determines that
withholding notice is in such Holders' interest.
The Company is required to deliver to the Trustee annually a statement
regarding compliance with the Indenture, and the Company is required upon
becoming aware of any Default or Event of Default to deliver to the Trustee a
statement specifying such Default or Event of Default.
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No Personal Liability of Directors, Officers, Employees and Stockholders
No director, officer, employee, incorporator or stockholder of the Company,
as such, shall have any liability for any obligations of the Company under the
Notes, the Indenture or the Pledge Agreement for any claim based on, in
respect of, or by reason of, such obligations or their creation. Each Holder
of Notes by accepting a Note waives and releases all such liability. The
waiver and release are part of the consideration for issuance of the Notes.
Such waiver may not be effective to waive liabilities under the federal
securities laws and it is the view of the Commission that such a waiver is
against public policy.
Legal Defeasance and Covenant Defeasance
The Company may, at its option and at any time, elect to have all of its
obligations discharged with respect to the outstanding Notes ("Legal
Defeasance") except for (i) the rights of Holders of outstanding Notes to
receive payments in respect of the principal of, premium (if any), and
interest on such Notes when such payments are due from the trust referred to
below, (ii) the Company's obligations with respect to the Notes concerning
issuing temporary Notes, registration of Notes, mutilated, destroyed, lost or
stolen Notes and the maintenance of an office or agency for payment and money
for security payments held in trust, (iii) the rights, powers, trusts, duties
and immunities of the Trustee, and the Company's obligations in connection
therewith and (iv) the Legal Defeasance provisions of the Indenture. In
addition, the Company may, at its option and at any time, elect to have the
obligations of the Company released with respect to certain covenants that are
described in the Indenture ("Covenant Defeasance") and thereafter any omission
to comply with such obligations shall not constitute a Default or Event of
Default with respect to the Notes. In the event Covenant Defeasance occurs,
certain events (not including non-payment, bankruptcy, receivership,
rehabilitation and insolvency events) described under "Events of Default" will
no longer constitute an Event of Default with respect to the Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance, (i) the
Company must irrevocably deposit with the Trustee, in trust for the benefit of
the Holders of the Notes, cash in U.S. dollars, non-callable Government
Securities or a combination thereof, in such amounts as will be sufficient, in
the opinion of a nationally recognized firm of independent public accountants,
to pay the principal of, premium (if any), and interest on the outstanding
Notes on the stated maturity or on the applicable redemption date, as the case
may be, and the Company must specify whether the Notes are being defeased to
maturity or to a particular redemption date; (ii) in the case of Legal
Defeasance, the Company shall have delivered to the Trustee an opinion of
counsel in the United States reasonably acceptable to the Trustee confirming
that (A) the Company has received from, or there has been published by, the
Internal Revenue Service a ruling or (B) since the date of the 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 Holders of the outstanding Notes will not recognize income,
gain or loss for federal income tax purposes as a result of such Legal
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
Legal Defeasance had not occurred; (iii) in the case of Covenant Defeasance,
the Company shall have delivered to the Trustee an opinion of counsel in the
United States reasonably acceptable to the Trustee confirming that the Holders
of the outstanding Notes 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; (iv) no Default or Event of Default shall have occurred and be
continuing on the date of such deposit (other than a Default or Event of
Default resulting from the borrowing of funds to be applied to such deposit)
or insofar as certain Events of Default specified in the Indenture are
concerned, at any time in the period ending on the 91st day after the date of
deposit; (v) such Legal Defeasance or Covenant Defeasance will not result in a
breach or violation of, or constitute a default under, any material agreement
or instrument (other than the Indenture) to which the Company or any of its
Subsidiaries is a party or by which the Company or any of its Subsidiaries is
bound; (vi) the Company must have delivered to the Trustee an opinion of
counsel to the effect that after the 91st day following the deposit, the trust
funds will not be subject to the effect of any applicable bankruptcy,
insolvency, reorganization or similar laws affecting creditors' rights
generally; (vii) the Company must deliver to the Trustee an Officers'
Certificate stating that the deposit was not made by the Company with the
intent of
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preferring the Holders of Notes over the other creditors of the Company with
the intent of defeating, hindering, delaying or defrauding creditors of the
Company or others; and (viii) the Company must deliver to the Trustee an
Officers' Certificate and an opinion of counsel, each stating that all
conditions precedent provided for relating to the Legal Defeasance or the
Covenant Defeasance have been complied with.
Transfer and Exchange
The registered Holder of a Note will be treated as the owner of such Note
for all purposes. A Holder may transfer or exchange Notes in accordance with
the Indenture. The Registrar and the Trustee may require a Holder, among other
things, to furnish appropriate endorsements and transfer documents and the
Company may require a Holder to pay any taxes and fees required by law or
permitted by the Indenture. The Company is not required to transfer or
exchange any Note selected for redemption. Also, the Company is not required
to transfer or exchange any Note for a period of 15 days before a selection of
Notes to be redeemed.
Amendment, Supplement and Waiver
Except as provided in the next two succeeding paragraphs, the Indenture, the
Pledge Agreement, the Guarantees or the Notes may be amended or supplemented
with the consent of the Holders of at least a majority in principal amount of
the Notes then outstanding (including, without limitation, consents obtained
in connection with a purchase of, or tender offer or exchange offer for,
Notes), and any existing default or compliance with any provision of the
Indenture or the Notes may be waived with the consent of the Holders of a
majority in principal amount of the then outstanding Notes (including consents
obtained in connection with a purchase of, or tender offer or exchange offer
for Notes).
Without the consent of each Holder affected, however, an amendment or waiver
may not (with respect to any Note held by a non-consenting Holder): (i) reduce
the principal amount of Notes whose Holders must consent to an amendment,
supplement or waiver; (ii) reduce the principal of or change the fixed
maturity of any Note; (iii) reduce the rate of or change the time for payment
of interest on any Notes; (iv) waive a Default or Event of Default in the
payment of principal of or premium, if any, or interest on the Notes (except a
rescission of acceleration of the Notes by the Holders of at least a majority
in aggregate principal amount of the Notes and a waiver of the payment default
that resulted from such acceleration); (v) make any Note payable in money
other than that stated in the Notes; (vi) make any change in the provisions of
the Indenture relating to waivers of past Defaults or the rights of Holders of
Notes to receive payments of principal, premium or interest on the Notes; or
(vii) make any change in the foregoing amendment and waiver provisions. In
addition, without the consent of at least 75% in aggregate principal amount of
the Outstanding Notes (including consents obtained in connection with a tender
offer or exchange offer for Notes), no waiver, amendment or supplement to the
Indenture, the Guarantees or the Pledge Agreement may (i) release any
Collateral from the Lien created by the Indenture and the Pledge Agreement,
(ii) alter any of the provisions of the Pledge Agreement in a manner that
adversely affects the rights of any Holder, or (iii) make any change in the
covenant entitled "Offer to Repurchase Upon Change of Control" or the
provisions relating to subordination (including by way of an amendment to any
of the definitions used in any such sections) that adversely affects the
rights of any Holder of Notes.
Notwithstanding the foregoing, without the consent of any Holder of Notes,
the Company and the Trustee may amend or supplement the Indenture, the Pledge
Agreement, the Guarantees or the Notes to cure any ambiguity, defect or
inconsistency, to provide for uncertificated Notes in addition to or in place
of certificated Notes, to provide for additional Guarantors of the Notes, or
the release, in accordance with the Indenture, of any Subsidiary Guarantor, to
provide for the assumption of the Company's or any Subsidiary Guarantor's
obligations to Holders of the Notes in the case of a merger or consolidation,
to make any change that would provide any additional rights or benefits to the
Holders of the Notes or that does not adversely affect the legal rights under
the Indenture of any such Holder, or to comply with requirements of the
Commission in order to effect or maintain the qualification of the Indenture
under the Trust Indenture Act.
In the event that the Company pays any consideration to Holders of Notes in
connection with the solicitation of any consent, the Company shall pay such
consideration to all Holders of Notes, including Holders who withhold consent.
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Concerning the Trustee
The Indenture contains certain limitations on the rights of the Trustee,
should the Trustee 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 as security or otherwise. The Trustee will be permitted to
engage in other transactions with the Company; however, if the Trustee
acquires any conflicting interest, it must eliminate such conflict within
90 days, apply to the Commission for permission to continue as Trustee or
resign.
The Holders of a majority in principal amount of the then-outstanding Notes
will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee, subject to
certain exceptions. 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 man in the
conduct of his own affairs. Subject to such provisions, the Trustee will be
under no obligation to exercise any of its rights or powers under the
Indenture at the request of any Holder of Notes, unless such Holder shall have
offered to the Trustee security and indemnity satisfactory to it against any
loss, liability or expense.
Additional Information
Anyone who receives this Prospectus may obtain a copy of the Indenture
without charge by writing to the Company, 1740 Broadway, 17th Floor, New York,
New York 10019, Attention: Corporate Secretary.
Certain Definitions
Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for a full disclosure of all such terms, as well as
any other capitalized terms used herein for which no definition is provided.
"Acquired Debt" means, with respect to any specified Person, (i)
Indebtedness of any other Person existing at the time such other Person merges
with or into or becomes a Subsidiary of such specified Person, including
Indebtedness incurred in connection with, or in contemplation of, such other
Person merging with or into or becoming a Subsidiary of such specified Person,
and (ii) Indebtedness secured by a Lien encumbering any asset acquired by such
specified Person.
"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 purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled
by" and "under common control with"), as used with respect to any Person,
shall mean the possession, directly or indirectly, of the power to direct or
cause the direction of the management or policies of such Person, whether
through the ownership of voting securities, by agreement or otherwise;
provided that beneficial ownership of 10% or more of the voting securities of
a Person shall be deemed to constitute control.
"Asset Sale" means (i) the sale, lease, conveyance or other disposition of
any assets (including, without limitation, by way of a sale and leaseback)
(provided that the sale, lease, conveyance or other disposition of all or
substantially all of the assets of the Company and its Subsidiaries taken as a
whole will be governed by the provisions of the Indenture described above
under the covenant entitled "Change of Control" and/or the provisions
described above under the covenant entitled "Merger, Consolidation or Sale of
Assets" and not by the provisions of the Asset Sale covenant), and (ii) the
issue or sale by the Company or any of its Restricted Subsidiaries of Equity
Interests of any of the Company's Subsidiaries, in the case of either clause
(i) or (ii), whether in a single transaction or a series of related
transactions (a) that have a fair market value in excess of $1.0 million or
(b) for net proceeds in excess of $1.0 million. Notwithstanding the foregoing,
the following shall not be deemed Asset Sales: (i) a transfer of assets by the
Company to a Restricted Subsidiary or by a Subsidiary to the Company or to a
Restricted Subsidiary, (ii) the sale of inventory by the Company or a
Restricted Subsidiary in the ordinary course of business, (iii) the sale of
accounts receivable pursuant to factoring arrangements entered into in the
ordinary course of business, (iv) the sale of property or equipment that have
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become worn out, obsolete or damaged or otherwise unusable for use in
connection with the business of the Company or any Restricted Subsidiary, as
the case may be, (v) an issuance of Equity Interests by a Wholly Owned
Restricted Subsidiary to the Company or to another Wholly Owned Restricted
Subsidiary, (vi) a Restricted Payment that is permitted by the covenant
described above under the covenant entitled "Restricted Payments," (vii) a
disposition of Cash Equivalents in the ordinary course of business, (viii) the
disposition of all or substantially all of the assets of the Company in a
manner permitted pursuant to the provisions described above under "Merger,
Consolidation or Sale of Assets" or any disposition that constitutes a Change
in Control, (ix) any exchange of like property pursuant to Section 1031 of the
Internal Revenue Code of 1986, as amended, for use in a Permitted Business,
and (x) any disposition of assets pursuant to a foreclosure.
"Attributable Debt" in respect of a sale and leaseback transaction means, at
the time of determination, the present value (discounted at the rate of
interest implicit in such transaction, determined in accordance with GAAP) of
the obligation of the lessee for net rental payments during the remaining term
of the lease included in such sale and leaseback transaction (including any
period for which such lease has been extended or may, at the option of the
lessor, be extended).
"Borrowing Base" means, with respect to any Person as of any date, an amount
equal to 80% of the consolidated book value of all accounts receivable of such
Person and its Restricted Subsidiaries as of such date that are not more than
90 days past due and 65% of the consolidated book value of all inventory owned
by such Person and its Restricted Subsidiaries as of such date, in each case
determined in accordance with GAAP. The determination of the Borrowing Base
shall be made on the basis of the most recent available information of such
Person as of the date of determination.
"Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that
would at such time be so required to be capitalized on the balance sheet in
accordance with GAAP.
"Capital Stock" means, (i) in the case of a corporation, corporate stock,
(ii) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated) of
corporate stock, (iii) in the case of a partnership, partnership interests
(whether general or limited) and (iv) any other interest or participation that
confers on a Person the right to receive a share of the profits and losses of,
or distributions of assets of, the issuing Person.
"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 having maturities of not more than six
months from the date of acquisition, (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) above 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) through (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.
"Change of Control" means the occurrence of any of the following: (i) any
sale, lease, transfer, conveyance or other disposition (other than by way of
merger or consolidation) in one or a series of related transactions, of all or
substantially all of the assets of the Company and its Restricted Subsidiaries
taken as a whole to any "person" (as defined in Section 13(d)(3) of the
Exchange Act) or "group" (as defined in Sections 13(d)(3) and 14(d)(2) of the
Exchange Act), (ii) the adoption of a plan for the liquidation or dissolution
of the Company, (iii) the Company consolidates with, or merges with or into,
another "person" (as defined above) or sells, assigns,
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conveys, transfers, leases or otherwise disposes of all or substantially all
of its assets to any "person" (as defined above) or "group" (as defined above)
in a transaction or series of related transactions in which the Voting Stock
of the Company is converted into or exchanged for cash, securities or other
property, other than any transaction where (A) the outstanding Voting Stock of
the Company is converted into or exchanged for (1) Voting Stock (other than
Disqualified Stock) of the surviving or transferee corporation and/or (2)
cash, securities and other property in an amount which could be paid by the
Company as a Restricted Payment under the Indenture and (B) the "beneficial
owners" (as defined in Rule 13d-3 under the Exchange Act) of the Voting Stock
of the Company immediately prior to such transaction own, directly or
indirectly, not less than a majority of the total combined voting power of the
outstanding Voting Stock of the surviving or transferee corporation
immediately after such transaction, (iv) the consummation of any transaction
or series of related transactions (including, without limitation, by way of
merger or consolidation) the result of which is that any "person" (as defined
above) or "group" (as defined above) other than Rachamim Anatian or any Person
controlled by Rachamim Anatian becomes the "beneficial owner" (as defined
above) of Voting Stock of the Company representing 50% or more of the total
combined voting power of the Company's outstanding Voting Stock, or (v) the
first day on which a majority of the members of the Board of Directors of the
Company are not Continuing Directors.
"Consolidated Net Income" means, with respect to any Person for any period,
the aggregate of the Net Income of such Person and its Restricted Subsidiaries
for such period, on a consolidated basis, determined in accordance with GAAP;
provided, however, that (i) the Net Income of any Person that is not a
Restricted Subsidiary or that is accounted for by the equity method of
accounting shall be included only to the extent of the amount of dividends or
distributions paid in cash to the referent Person or a Restricted Subsidiary
thereof, (ii) the Net Income of any Restricted Subsidiary shall be excluded to
the extent that the declaration or payment of dividends or similar
distributions by that Restricted Subsidiary of that Net Income is not, at the
date of determination, permitted without any prior governmental approval
(which has not been obtained) or, directly or indirectly, by operation of the
terms of its charter or any agreement, instrument, judgment, decree, order,
statute, rule or governmental regulation applicable to that Restricted
Subsidiary or its stockholders, (iii) the Net Income of any Person acquired in
a pooling of interests transaction for any period prior to the date of such
acquisition shall be excluded, and (iv) the cumulative effect of a change in
accounting principles shall be excluded.
"Consolidated Net Worth" means, with respect to any Person as of any date,
the sum of (i) the consolidated equity of the common stockholders of such
Person and its consolidated Subsidiaries as of such date plus (ii) the
respective amounts reported on such Person's balance sheet as of such date
with respect to any series of preferred stock (other than Disqualified Stock).
"Continuing Directors" means, as of any date of determination, any member of
the Board of Directors of the Company who (i) was a member of such Board of
Directors on the date of the Indenture or (ii) was nominated for election or
elected to such Board of Directors with the approval of a majority of the
Continuing Directors who were members of such Board at the time of such
nomination or election.
"Default" means any event that is or with the passage of time or the giving
of notice or both would be an Event of Default.
"Designated Senior Indebtedness" means any Senior Indebtedness of the
Company permitted under the Indenture the outstanding principal amount of
which is $25.0 million or more and that has been designated by the Company as
"Designated Senior Indebtedness."
"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 at the option of the holder thereof), or upon the happening of
any event, matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or redeemable at the option of the holder thereof, in
whole or in part, on or prior to date on which the Notes mature.
"EBITDA" means, with respect to any Person for any period, the Consolidated
Net Income of such Person for such period plus (i) an amount equal to any
extraordinary loss plus any net loss realized in connection with
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an Asset Sale (to the extent such losses were deducted in computing such
Consolidated Net Income), plus (ii) provision for taxes based on income or
profits of such Person and its Restricted Subsidiaries for such period, to the
extent that such provision for taxes was included in computing such
Consolidated Net Income, plus (iii) consolidated interest expense of such
Person and its Restricted Subsidiaries for such period, whether paid or
accrued and whether or not capitalized (including, without limitation,
amortization of original issue discount, non-cash interest payments, the
interest component of any deferred payment obligations, the interest component
of all payments associated with Capital Lease Obligations, imputed interest
with respect to Attributable Debt, commissions, discounts and other fees and
charges incurred in respect of letter of credit or bankers' acceptance
financings, and net payments (if any) pursuant to Hedging Obligations), to the
extent that any such expense was deducted in computing such Consolidated Net
Income, plus (iv) depreciation and amortization (including amortization of
goodwill and other intangibles but excluding amortization of prepaid cash
expenses that were paid in a prior period) and other non-cash charges of such
Person and its Subsidiaries for such period to the extent that such
depreciation, amortization and other non-cash charges were deducted in
computing such Consolidated Net Income, in each case, on a consolidated basis
and determined in accordance with GAAP.
"Eligible Institution" means a commercial banking institution that has
combined capital and surplus of not less than $500.0 million or its equivalent
in foreign currency, whose debt (or the debt of whose holding company) is
rated "A" (or higher) according to S&P or "A2" (or higher) by Moody's at the
time as of which any investment or rollover therein is made.
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into or exchangeable for Capital Stock).
"Equity Offering" means a public offering by the Company of its Equity
Interests that is registered under the Securities Act.
"Fixed Charges" means, with respect to any Person for any period, the sum of
(i) the consolidated interest expense of such Person and its Restricted
Subsidiaries for such period, whether paid or accrued (including, without
limitation, amortization of original issue discount, non-cash interest
payments, the interest component of any deferred payment obligations, the
interest component of all payments associated with Capital Lease Obligations,
imputed interest with respect to Attributable Debt, commissions, discounts and
other fees and charges incurred in respect of letter of credit or bankers'
acceptance financings, and net payments (if any) pursuant to Hedging
Obligations) and (ii) the consolidated interest expense of such Person and its
Restricted Subsidiaries that was capitalized during such period, and (iii) any
interest expense on Indebtedness of another Person that is Guaranteed by such
Person or one of its Restricted Subsidiaries or secured by a Lien on assets of
such Person or one of its Restricted Subsidiaries (whether or not such
Guarantee or Lien is called upon) and (iv) the product of (a) all cash
dividend payments (and non-cash dividend payments in the case of a Person that
is a Restricted Subsidiary) on any series of preferred stock of such Person,
times (b) a fraction, the numerator of which is one and the denominator of
which is one minus the then current combined federal, state and local
statutory tax rate of such Person, expressed as a decimal, in each case, on a
consolidated basis and in accordance with GAAP.
"Fixed Charge Coverage Ratio" means, with respect to any Person for any
period, the ratio of (i) the EBITDA of such Person for such period plus, in
the case of the Company, the principal amount of Pledged Securities held by
the Trustee as of the last day of such period to (ii) the Fixed Charges of
such Person for such period. In the event that the Company or any of its
Restricted Subsidiaries incurs, assumes, Guarantees, repays, repurchases or
redeems any Indebtedness (other than revolving credit borrowings) or issues,
repurchases or redeems preferred stock subsequent to the commencement of the
period for which the Fixed Charge Coverage Ratio is being calculated but on or
prior to the date on which the event for which the calculation of the Fixed
Charge Coverage Ratio is made (the "Fixed Charge Calculation Date"), then the
Fixed Charge Coverage Ratio shall be calculated giving pro forma effect to
such incurrence, assumption, Guarantee, repayment, repurchase or redemption of
Indebtedness, or such issuance or redemption of preferred stock, as if the
same had occurred at the beginning of the applicable four-quarter reference
period. In addition, for purposes of making the
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computation referred to above, (i) acquisitions that have been made by the
Company or any of its Restricted Subsidiaries, including through mergers or
consolidations and including any related financing transactions, during the
four-quarter reference period or subsequent to such reference period and on or
prior to the Fixed Charge Calculation Date shall be deemed to have occurred on
the first day of the four-quarter reference period and EBITDA for such
reference period shall be calculated without giving effect to clause (iii) of
the proviso set
forth in the definition of Consolidated Net Income, (ii) the EBITDA
attributable to discontinued operations, as determined in accordance with
GAAP, and operations or businesses disposed of prior to the Fixed Charge
Calculation Date, shall be excluded, and (iii) the Fixed Charges attributable
to discontinued operations, as determined in accordance with GAAP, and
operations or businesses disposed of prior to the Fixed Charge Calculation
Date, shall be excluded, but only to the extent that the obligations giving
rise to such Fixed Charges will not be obligations of the referent Person or
any of its Restricted Subsidiaries following the Fixed Charge Calculation
Date.
"GAAP" means generally accepted accounting principles 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 may be approved by a significant segment of the accounting
profession of the United States, which are in effect from time to time.
"Government Securities" means direct obligations of, or obligations
guaranteed by, the United States of America for the payment of which guarantee
or obligations the full faith and credit of the United States is pledged.
"Guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness.
"Hedging Obligations" means, with respect to any Person, the obligations of
such Person under (i) interest rate or currency swap agreements, interest rate
cap agreements and interest rate collar agreements and (ii) other agreements
or arrangements designed to protect such person against fluctuations in
interest rates or currency exchange rates.
"Indebtedness" means, with respect to any Person, any indebtedness of such
Person, whether or not contingent, in respect of borrowed money or evidenced
by bonds, notes, debentures or similar instruments or letters of credit (or
reimbursement agreements in respect thereof) or representing Capital Lease
Obligations or the balance deferred and unpaid of the purchase price of any
property or representing any Hedging Obligations, except any such balance that
constitutes an accrued expense or trade payable, if and to the extent any of
the foregoing indebtedness (other than letters of credit and Hedging
Obligations) would appear as a liability upon a balance sheet of such Person
prepared in accordance with GAAP, as well as all indebtedness of others
secured by a Lien on any asset of such Person (whether or not such
indebtedness is assumed by such Person) and, to the extent not otherwise
included, the Guarantee by such Person of any indebtedness of any other
Person. The principal amount of Indebtedness represented by letters of credit
shall be deemed to be equal to the maximum potential liability thereunder.
"Investment Grade Securities" means (i) securities issued or directly and
fully guaranteed or insured by the United States government or any agency or
instrumentality thereof (other than Cash Equivalents), (ii) debt securities or
debt instruments with a rating of BBB- or higher by S&P or Baa3 or higher by
Moody's or the equivalent of such rating by such rating organization or, if no
rating of S&P or Moody's then exists, the equivalent of such rating by any
other nationally recognized securities rating agency, but excluding any debt
securities or instruments constituting loans or advances among the Company and
its Subsidiaries, and (iii) investments in any fund that invests exclusively
in investments of the type described in clauses (i) and (ii) above (other than
immaterial amounts of cash held pending investment and/or distribution).
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"Investments" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the forms of direct or
indirect loans (including Guarantees or other obligations), advances or
capital contributions (excluding commission, travel and similar advances to
officers and employees made in the ordinary course of business), purchases or
other acquisitions for consideration of Indebtedness, Equity Interests or
other securities, together with all items that are or would be classified as
investments on a balance sheet prepared in accordance with GAAP; provided that
an acquisition of assets, Equity Interests or other
securities by the Company for consideration consisting of Equity Interests
(other than Disqualified Stock) of the Company shall not be deemed to be an
Investment. If the Company or any Restricted Subsidiary of the Company sells
or otherwise disposes of any Equity Interests of any direct or indirect
Restricted Subsidiary of the Company such that, after giving effect to any
such sale or disposition, such Person is no longer a Restricted Subsidiary of
the Company, the Company shall be deemed to have made an investment on the
date of any such sale or disposition equal to the fair market value of the
Equity Interests of such Restricted Subsidiary not sold or disposed of.
"Lien" means, with respect to any asset, any mortgage, lien, pledge, charge,
security interest or encumbrance of any kind in respect of such asset, whether
or not filed, recorded or otherwise perfected under applicable law (including
any conditional sale or other title retention agreement, any lease in the
nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement
under the Uniform Commercial Code (or equivalent statutes) of any
jurisdiction).
"Marketable Securities" means:
(i) Government Securities or, for purposes of determining whether such
Government Securities may serve as substitute Pledged Securities,
Government Securities having a maturity date on or before the date on which
the payments of interest (or principal) on the Notes to which such
Government Securities are pledged occur;
(ii) any certificate of deposit maturing not more than 270 days after the
date of acquisition issued by, or time deposit of, an Eligible Institution;
(iii) commercial paper maturing not more than 270 days after the date of
acquisition issued by a corporation (other than an Affiliate of the
Company) with a rating at the time as of which any investment therein is
made of "A-1" (or higher) according to S&P or "P-1" (or higher) according
to Moody's;
(iv) any banker's acceptances or money market deposit accounts issued or
offered by an Eligible Institution; and
(v) any fund investing exclusively in investments of the types described
in clauses (i) through (iv) above.
"Moody's" means Moody's Investors Service, Inc. and its successors.
"Net Income" means, with respect to any Person, the net income (loss) of
such Person, determined in accordance with GAAP and before any reduction in
respect of preferred stock dividends, excluding, however, (i) any gain or
loss, together with any related provision for taxes on such gain or loss,
realized in connection with (a) any Asset Sale or (b) the disposition of any
securities by such Person or any of its Restricted Subsidiaries or the
extinguishment of any Indebtedness of such Person or any of its Restricted
Subsidiaries and (ii) any extraordinary gain or loss, together with any
related provision for taxes on such extraordinary gain or loss.
"Net Proceeds" means the aggregate cash proceeds received by the Company or
any of its Restricted Subsidiaries in respect of any Asset Sale (including,
without limitation, any cash received upon the sale or other disposition of
any non-cash consideration received in any Asset Sale), net of the direct
costs relating to such Asset Sale (including, without limitation, legal,
accounting and investment banking fees, and sales commissions) and any
relocation expenses incurred as a result thereof, taxes paid or payable as a
result thereof (after taking into account any available tax credits or
deductions and any tax sharing arrangements), amounts required to be
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applied to the repayment of Indebtedness secured by a Lien on the asset or
assets that were the subject of such Asset Sale and any reserve for adjustment
in respect of the sale price of such asset or assets established in accordance
with GAAP.
"Non-Recourse Debt" means Indebtedness (i) as to which neither the Company
nor any of its Restricted Subsidiaries (a) provides credit support of any kind
(including any undertaking, agreement or instrument that would constitute
Indebtedness), (b) is directly or indirectly liable (as a guarantor or
otherwise), or (c) constitutes the lender; and (ii) no default with respect to
which (including any rights that the holders thereof may have to take
enforcement action against an Unrestricted Subsidiary) would permit (upon
notice, lapse of time or both) any holder of any other Indebtedness of the
Company or any of its Restricted Subsidiaries to declare a default on such
other Indebtedness or cause the payment thereof to be accelerated or payable
prior to its stated maturity; and (iii) as to which the lenders have been
notified in writing that they will not have any recourse to the stock or
assets of the Company or any of its Restricted Subsidiaries.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Permitted Business" means any business 80% or more of the revenues of which
are derived from electronic or home-shopping retailing and activities
reasonably incidental thereto or representing a reasonable extension,
development or expansion thereof.
"Permitted Investments" means (i) any Investment in the Company or in a
Restricted Subsidiary of the Company, (ii) any Investment in Cash Equivalents
or Investment Grade Securities, (iii) any Investments by the
Company or any Restricted Subsidiary of the Company in a Person if, as a
result of such Investment, (a) such person becomes a Subsidiary Guarantor or
(b) such Person is merged, consolidated or amalgamated with or into, or
transfers or conveys substantially all of its assets to, or is liquidated
into, the Company or a Restricted Subsidiary of the Company, (iv) any
Investment in securities or other assets not constituting cash or Cash
Equivalents and received in connection with an Asset Sale made pursuant to the
provisions of the covenant entitled "Asset Sales" or any other disposition of
assets not constituting an Asset Sale, (v) any investment existing on the date
of the Indenture, (vi) any Investment acquired by the Company or any
Restricted Subsidiary (x) in exchange for any other Investment or accounts
receivable held by the Company or such Restricted Subsidiary in connection
with or as a result of a bankruptcy, workout, reorganization or
recapitalization of the issuer of such other Investment or accounts receivable
or (y) as a result of foreclosure by the Company or any Restricted Subsidiary
with respect to any secured Investment or other transfer of title with respect
to any secured Investment in default, (vi) loans and advances to officers,
directors and employees for business-related travel expenses, relocation
expenses and other similar expenses, in each case incurred in the ordinary
course of business and other loans or advances to employees (other than
Rachamim Anatian) that are approved by a majority of the Company's
disinterested directors, (vii) any Investment in a Permitted Business (other
than an Investment in an Unrestricted Subsidiary) having an aggregate fair
market value, taken together with all other Investments made pursuant to this
clause (vii) that are at the time outstanding, not to exceed 10% of the
Company's total consolidated assets at the time of such Investment (without
giving effect to subsequent changes in value of such Investment), (viii)
Investments acquired solely in exchange for Equity Interests of the Company
(other than Disqualified Stock), (ix) Hedging Obligations permitted pursuant
to the covenant described above under the caption "Incurrence of Indebtedness
and Issuance of Disqualified Stock," and (x) other Investments having a fair
market value, taken together with all other Investments made pursuant to this
clause (ix) that are at the time outstanding, not to exceed $ million at the
time of such Investment (without giving effect to subsequent changes in the
value of such Investment).
"Permitted Junior Securities" means equity securities of the Company and
debt securities of the Company or any Guarantor, as the case may be, that are
subordinated at least to the same extent as the Notes to Senior Indebtedness
of the Company or the Subsidiary Guarantee of such Guarantor to the Senior
Indebtedness of such Guarantor, as the case may be.
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"Permitted Liens" means (i) Liens securing Senior Indebtedness that was
permitted by the terms of the Indenture to be incurred; (ii) Liens in favor of
the Company, (iii) Liens securing Acquired Debt permitted by the terms of the
Indenture on property of a Person existing at the time such Person is merged
with or into or consolidated with the Company or any Restricted Subsidiary of
the Company, provided, that such Liens (x) were not incurred in connection
with, or in contemplation of, such merger or consolidation and (y) do not
extend to any assets other than those of the Person merged into or
consolidated with the Company or such Restricted Subsidiary; (iv) Liens
securing Acquired Debt permitted by the Indenture on property existing at the
time of acquisition thereof by the Company or any Restricted Subsidiary of the
Company; provided that such Liens were not incurred in connection with, or in
contemplation of, such acquisition and do not extend to any assets of the
Company or any of its Restricted Subsidiaries other than the property so
acquired; (v) Liens to secure Indebtedness (including Capital Lease
Obligations) permitted by clause (iii) of the second paragraph of the covenant
entitled "Incurrence of Indebtedness and Issuance of Disqualified Stock"
covering only the assets acquired with such Indebtedness; (vi) Liens securing
Indebtedness incurred to refinance Indebtedness that has been secured by a
Lien permitted under the Indenture; provided that (a) any such Lien shall not
extend to or cover any assets or property not securing the Indebtedness so
refinanced and (b) the refinancing Indebtedness secured by such Lien shall
have been permitted to be incurred under the covenant entitled "Incurrence of
Indebtedness and Issuance of Disqualified Stock" and (vii) Liens on assets of
Unrestricted Subsidiaries that secure Non-Recourse Debt of Unrestricted
Subsidiaries.
"Permitted Refinancing Debt" means any Indebtedness of the Company or any
Restricted Subsidiary issued in exchange for, or the net proceeds of which are
used to extend, refinance, renew, replace, defease or refund other
Indebtedness of the Company or any of its Restricted Subsidiaries; provided
that: (i) the principal amount
(or accreted value, if applicable) of such Permitted Refinancing Indebtedness
does not exceed the principal amount (or accreted value, if applicable) of the
Indebtedness so extended, refinanced, renewed, replaced, defeased or refunded
(plus the amount of reasonable expenses incurred in connection therewith);
(ii) such Permitted Refinancing Indebtedness has a final maturity date later
than the final maturity date of, and has a Weighted Average Life to Maturity
equal to or greater than the Weighted Average Life to Maturity of, the
Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded; (iii) if the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded is subordinated in right of payment to the
Notes, such Permitted Refinancing Indebtedness has a final maturity date later
than the final maturity date of, and is subordinated in right of payment to,
the Notes on terms at least as favorable to the Holders of Notes as those
contained in the documentation governing the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded.
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Restricted Subsidiary" of a Person means any Subsidiary of the referent
Person that is not an Unrestricted Subsidiary.
"Senior Indebtedness" means (i) with respect to the Company, any
Indebtedness permitted to be incurred by the Company under the terms of the
Indenture, unless the instrument under which such Indebtedness is incurred
expressly provides that it is on a parity with or subordinated in right of
payment to the Notes and (ii) with respect to any Subsidiary Guarantor, any
Indebtedness permitted to be incurred by such Subsidiary Guarantor under the
terms of the Indenture, unless the instrument under which such Indebtedness is
incurred expressly provides that such Indebtedness is on a parity with or
subordinated in right of payment to the Subsidiary Guarantee of such
Subsidiary Guarantor. Notwithstanding anything to the contrary in the
foregoing, Senior Indebtedness will not include (w) any liability for federal,
state, local or other taxes, (x) any Indebtedness of the Company or any
Subsidiary Guarantor to any Subsidiaries of the Company or other Affiliates of
the Company, (y) any trade payables or (z) any Indebtedness that is incurred
in violation of the Indenture.
"Significant Subsidiary" means any Subsidiary that would be a "significant
subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated
pursuant to the Act, as such Regulation is in effect on the date hereof.
"S&P" means Standard and Poor's Corporation and its successors.
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"Subsidiary" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50% of the total
voting power of shares of Capital Stock entitled (without regard to the
occurrence of any contingency) to vote in the election of directors, managers
or trustees thereof is at the time owned or controlled, directly or
indirectly, by such Person or one or more of the other Subsidiaries of that
Person (or a combination thereof) and (ii) any partnership (a) the sole
general partner or the managing general partner of which is such Person or a
Subsidiary of such Person or (b) the only general partners of which are such
Person or one or more Subsidiaries of such Person (or any combination
thereof).
"Subsidiary Guarantor" means each Subsidiary of the Company that is created
after the date of the Indenture and that executes a Subsidiary Guarantee
pursuant to the provisions of the Indenture.
"Unrestricted Subsidiary" means (i) any Subsidiary that is incorporated in
any jurisdiction outside the United States or that is designated by the Board
of Directors of the Company as an Unrestricted Subsidiary pursuant to a
resolution of the Board of Directors that includes the approval of a majority
of the non-employee members of the Board of Directors; but only to the extent
that such Subsidiary: (a) has no Indebtedness other than Non-Recourse Debt;
(b) is not party to any agreement, contract, arrangement or understanding with
the Company or any Restricted Subsidiary of the Company unless the terms of
any such agreement, contract, arrangement or understanding are no less
favorable to the Company or such Restricted Subsidiary than those that might
be obtained at the time from Persons who are not Affiliates of the Company;
(c) is a Person with respect to which neither the Company nor any of its
Restricted Subsidiaries has any direct or indirect obligation (x) to subscribe
for additional Equity Interests or (y) to maintain or preserve such Person's
financial condition or to cause such Person to achieve any specified level of
operating results; and (d) has not guaranteed or otherwise directly or
indirectly provided credit support for any Indebtedness of the Company or any
of its Restricted Subsidiaries (other than the Notes). Any such designation by
the Board of Directors shall be evidenced to the Trustee by filing with the
Trustee a certified copy of the resolution of the Board of Directors giving
effect to such designation and an Officers' Certificate certifying that such
designation complied with the foregoing conditions and was permitted by the
covenant entitled "Restricted Payments." If, at any time, any Unrestricted
Subsidiary would fail to meet the foregoing requirements as an Unrestricted
Subsidiary, it shall thereafter cease to be an Unrestricted Subsidiary for
purposes of the Indenture and any Indebtedness of such Subsidiary shall be
deemed to be incurred by a Restricted Subsidiary of the Company as of such
date (and, if such Indebtedness is not permitted to be incurred as of such
date under the covenant entitled "Incurrence of Indebtedness and Issuance of
Disqualified Stock," the Company shall be in default of such covenant). The
Board of Directors of the Company may at any time designate any Unrestricted
Subsidiary to be a Restricted Subsidiary; provided that such designation shall
be deemed to be an incurrence of Indebtedness by a Restricted Subsidiary of
the Company of any outstanding Indebtedness of such Unrestricted Subsidiary
and such designation shall only be permitted if (i) such Indebtedness is
permitted under the covenant entitled "Incurrence of Indebtedness and Issuance
of Disqualified Stock," and (ii) no Default or Event of Default would be in
existence following such designation.
"Voting Stock" means any class or classes of Capital Stock pursuant to which
the holders thereof have the general voting power under ordinary circumstances
to elect at least a majority of the board of directors, managers or trustees
of any Person (irrespective of whether or not, at the time, stock of any other
class or classes shall have, or might have, voting power by reason of the
happening of any contingency).
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (i) the then outstanding
principal amount of such Indebtedness into (ii) the total of the product
obtained by multiplying (a) the amount of each then remaining installment,
sinking fund, serial maturity or other required payments of principal,
including payment at final maturity, in respect thereof, by (b) the number of
years (calculated to the nearest one-twelfth) that will elapse between such
date and the making of such payment.
"Wholly Owned Restricted Subsidiary" of any Person means a Restricted
Subsidiary of such Person all of the outstanding Capital Stock or other
ownership interests of which (other than directors' qualifying shares) shall
at the time be owned by such Person or by one or more Wholly Owned Restricted
Subsidiaries of such Person or by such Person and one or more Wholly Owned
Restricted Subsidiaries of such Person.
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DESCRIPTION OF CAPITAL STOCK
Upon consummation of the Offerings, the authorized capital stock of the
Company consists of (i) 45,000,000 shares of Class A Common Stock, par value
$.01 per share (the "Class A Common Stock"), (ii) 25,000,000 shares of Class B
Common Stock, par value $.01 per share (the "Class B Common Stock"), and (iii)
75,000 shares of Preferred Stock, par value $.01 per share (the "Preferred
Stock"). Immediately prior to the consummation of the Offerings, the Company
will effect the Stock Split, pursuant to which (i) each holder of Class A
Common Stock will receive 13,924.0888 shares of Class A Common Stock for each
share of Class A Common Stock then held by such holder and (ii) each holder of
Class B Common Stock will receive 13,924.0888 shares of Class B Common Stock
for each Share of Class B Common Stock then held by such holder. Upon the
closing of the Offerings, 13,106,575 shares of Class A Common Stock,
19,502,107 shares of Class B Common Stock and no shares of Preferred Stock
will be issued and outstanding.
The following summary description of the Company's capital stock sets forth
the material terms of the capital stock, but does not purport to be complete.
A description of the Company's capital stock is contained in the Certificate
of Incorporation, which is filed as an exhibit to the registration statement
of which this Prospectus forms a part. Reference is made to such exhibit for a
detailed description of the provisions thereof summarized below.
COMMON STOCK
Voting, Dividend and Other Rights. The voting powers, preferences and
relative rights of the Class A Common Stock and the Class B Common Stock are
identical in all respects, except that (i) the holders of Class A Common Stock
are entitled to one vote per share and holders of Class B Common Stock are
entitled to two votes per share, (ii) stock dividends on Class A Common Stock
may be paid only in shares of Class A Common Stock and stock dividends on
Class B Common Stock may be paid only in shares of Class B Common Stock and
(iii) shares of Class B Common Stock have certain conversion rights and are
subject to certain restrictions on ownership and transfer described below
under "Conversion Rights and Restrictions on Transfer of Class B Common
Stock." Any amendment to the Certificate of Incorporation that has any of the
following effects will require the approval of the holders of a majority of
the outstanding shares of each of the Class A Common Stock and Class B Common
Stock, voting as separate classes: (i) any decrease in the voting rights per
share of Class A Common Stock or any increase in the voting rights of Class B
Common Stock; (ii) any increase in the number of shares of Class A Common
Stock into which shares of Class B Common Stock are convertible; or (iii) any
change in the powers, preferences or special rights of the Class A Common
Stock or Class B Common Stock adversely affecting the holders of the Class A
Common Stock. Except as described above or as required by law, holders of
Class A Common Stock and Class B Common Stock vote together on all matters
presented to the stockholders for their vote or approval, including the
election of directors.
Immediately following the Offerings, the outstanding shares of Class A
Common Stock will represent 25.15% of the total voting power of all
outstanding shares of Common Stock and the outstanding shares of Class B
Common Stock will represent 74.85% of the total voting power of all
outstanding shares of Common Stock. The holders of the Class B Common Stock
will, therefore, have the power to elect the entire Board of Directors of the
Company. The Sponsor, by virtue of his beneficial ownership of 92.68% of the
Class B Common Stock, will have approximately 69.37% of the voting power of
all outstanding Common Stock and will have sufficient voting power to
determine the outcome of any matter submitted to stockholders for approval
(except matters on which the holders of Class A Common Stock are entitled to
vote separately as a class), including the power to determine the outcome of
all corporate transactions.
Each share of Class A Common Stock and Class B Common Stock is entitled to
receive dividends if, as and when declared by the Board of Directors of the
Company out of funds legally available therefor. The Class A Common Stock and
Class B Common Stock share equally, on a share-for-share basis, in any cash
dividends declared by the Board of Directors.
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In the event of a merger or consolidation to which the Company is a party,
each share of the Class A Common Stock and Class B Common Stock will be
entitled to receive the same consideration, except that holders of Class B
Common Stock may receive stock with greater voting power in lieu of stock with
lesser voting power received by the holders of the Company's Class A Common
Stock in a merger in which the Company is not the surviving corporation.
Stockholders of the Company have no preemptive or other rights to subscribe
for additional shares. Subject to any rights of holders of any Preferred
Stock, all holders of Common Stock, regardless of class, are entitled to share
equally on a share for share basis in any assets available for distribution to
stockholders on liquidation, dissolution or winding up of the Company. No
shares of Common Stock are subject to redemption or a sinking fund. In the
event of any increase or decrease in the number of outstanding shares of
either Class A Common Stock or Class B Common Stock from a stock split,
combination or consolidation of shares or other capital reclassification, the
Company is required to take parallel action with respect to the other class so
that the number of shares of each class outstanding immediately following the
stock split, combination, consolidation or capital reclassification bears the
same relationship to each other as the number of shares of each class
outstanding before such event.
Conversion Rights and Restrictions on Transfer of Class B Common Stock. The
Class A Common Stock has no conversion rights. Each share of Class B Common
Stock is convertible at the option of the holder at any time and from time to
time into one share of Class A Common Stock.
The Company's Certificate of Incorporation provides that any holder of
shares of Class B Common Stock desiring to transfer such shares to a person
other than a Permitted Transferee (as defined below) must present such shares
to the Company for conversion into an equal number of shares of Class A Common
Stock upon such transfer. Thereafter, such shares of Class A Common Stock may
be freely transferred to persons other than Permitted Transferees, subject to
applicable securities laws.
Shares of Class B Common Stock may not be transferred except to (i) current
Class B Common Stockholders (collectively, the "Class B Stockholders") or any
"immediate family member" of any of the Class B Stockholders; (ii) any trust
(including a voting trust), corporation, partnership or other entity, more
than 50% of the voting equity interests of which are owned directly or
indirectly by (or, in the case of a trust not having voting equity interests
which is more than 50% for the benefit of) and which is controlled by, one or
more persons referred to in this paragraph; or (iii) the estate of any person
referred to in this paragraph until such time as the property of such estate
is distributed in accordance with such person's will or applicable law (the
persons listed in clauses (i), (ii) and (iii) are collectively referred to
herein as the "Permitted Transferees"). "Immediate family member" means the
spouse or any parent of any of the Class B Stockholders, any lineal descendent
of a parent of any of the Class B Stockholders and the spouse of any such
lineal descendent (parentage and descent in each case to include adoptive and
step relationships). Upon any sale or transfer of ownership or voting rights
to a transferee other than a Permitted Transferee or if an entity no longer
remains a Permitted Transferee, such shares of Class B Common Stock will
automatically convert into an equal number of shares of Class A Common Stock.
Accordingly, no trading market is expected to develop in the Class B Common
Stock and the Class B Common Stock will not be listed or traded on any
exchange or in any market.
Effects of Disproportionate Voting Rights. The disproportionate voting
rights of the Class A Common Stock and Class B Common Stock could have an
adverse effect on the market price of the Class A Common Stock. Such
disproportionate voting rights may make the Company a less attractive target
for takeover than it otherwise might be, or render more difficult or
discourage a merger proposal, a tender offer or a proxy contest, even if such
actions were favored by stockholders of the Company other than the holders of
the Class B Common Stock. Accordingly, such disproportionate voting rights may
deprive holders of Class A Common Stock of an opportunity to sell their shares
at a premium over prevailing market prices, since takeover bids frequently
involve purchases of stock directly from stockholders at such premium price.
73
<PAGE>
CERTAIN PROVISIONS OF THE CERTIFICATE OF INCORPORATION RELATING TO FOREIGN
OWNERSHIP OF COMMON STOCK
The Certificate of Incorporation contains provisions designed to assist the
Company in complying with the provisions of the Communications Act regulating
the ownership of broadcasting companies by aliens. See "Business--Federal
Regulations and New Technologies." The following is a summary of those
provisions of the Certificate of Incorporation.
Under the Communications Act, a broadcast license may not be granted to or
held by any corporation that is controlled, directly or indirectly, by any
other corporation more than one-fourth of whose capital stock is owned or
voted by non-U.S. citizens or their representatives, by foreign governments or
their representatives, or by non-U.S. corporations, if the FCC finds that the
public interest will be served by the refusal or revocation of such license.
The FCC has interpreted this provision to require an affirmative public
interest finding before a broadcast license may be granted to or held by any
such corporation. The FCC has rarely if ever made such an affirmative finding.
For the purpose of monitoring compliance with this provision, the Certificate
of Incorporation requires the Company, as promptly as practicable after shares
of Common Stock are first held by more than 100 holders of record, to
implement the procedures described below in this paragraph. The Certificate of
Incorporation requires the Company to maintain separate stock records for
alien stockholders and non-alien stockholders. In addition, the Certificate of
Incorporation requires the Company to place on each certificate representing
shares of stock owned, voted or otherwise controlled by an alien the legend
"Foreign Share Certificate" and to place on each other stock certificate the
legend "Domestic Share Certificate." Pursuant to the Certificate of
Incorporation, the holder of any shares of Company stock represented by a
Domestic Share Certificate is required, if such shares are owned, voted or
otherwise controlled by an alien, to deliver such certificate to the Company
to be replaced by a Foreign Share Certificate. Any holder of Foreign Share
Certificates representing shares of Common Stock that are not owned, voted or
otherwise controlled by aliens, may deliver such Foreign Share Certificates to
the Company or its agent to be replaced by Domestic Share Certificates. Any
Foreign Share Certificates delivered to the Company for replacement with
Domestic Share Certificates must be accompanied by an affidavit stating that
the shares of the Company's stock represented by the Foreign Share Certificate
are not owned, voted or otherwise controlled by an alien.
The Certificate of Incorporation provides that the Company will have the
right to determine, by vote of the Company's Board of Directors or in
conformity with regulations prescribed by the Company's Board, whether any
person is an alien, whether any shares of stock of the Company are owned,
voted or otherwise controlled by aliens and whether any affidavit described
above is false.
Outstanding shares of Common Stock held by a Disqualified Holder (as defined
below) are subject to redemption by the Company, by action of the Board of
Directors or in conformity with regulations prescribed by the Board of
Directors to the extent necessary to prevent the loss or secure the
reinstatement of any license or franchise from any governmental agency held by
the Company or any of its subsidiaries, which license or franchise is
conditioned upon some or all of the holders of the Company's stock possessing
prescribed qualifications. The Certificate of Incorporation prescribes the
following terms and conditions for any such redemption: (a) the redemption
price of the shares to be redeemed shall be equal to the lesser of (i) the
Fair Market Value (as defined below) of such shares or (ii) if such stock was
purchased by such Disqualified Holder within one year of the redemption date,
such Disqualified Holder's purchase price for such shares; (b) the redemption
price of such shares may be paid in cash, securities (valued according to a
specified method) or any combination thereof; (c) if less than all the shares
held by Disqualified Holders are to be redeemed, the shares to be redeemed
will be selected in such manner as is determined by the Board of Directors or
in conformity with regulations prescribed by the Board of Directors, which may
include selection first of the most recently purchased shares thereof,
selection by lot, selection based upon failure to comply with the provisions
described in this paragraph or selection in any other manner determined by the
Board of Directors or in conformity with regulations prescribed by the Board
of Directors; (d) at least 30 days written notice of the redemption date must
be given to the record holders of the shares selected to be redeemed (unless
waived in writing by such holder), except that the redemption date may be the
date on which written notice is given to such record holders if cash,
securities or a combination thereof sufficient to effect the redemption is
deposited in trust for the benefit of such record holders and subject to
immediate withdrawal by them upon surrender of the stock certificates for
their
74
<PAGE>
shares to be redeemed; (e) from and after the redemption date, any and all
rights of whatever nature, which may be held by the owners of shares called
for redemption (including without limitation any rights to vote or participate
in dividends declared on stock of the same class or series as such shares),
will cease and terminate and such owners will thenceforth be entitled only to
receive the cash, securities or a combination thereof payable in respect of
such redemption; and (f) such other terms and conditions as the Board of
Directors may determine.
For purposes of the foregoing provisions of the Certificate of
Incorporation, the following meanings are assigned to certain terms:
"Disqualified Holder" means any holder of capital stock whose holding of such
stock, either individually or when taken together with the holding of shares
of any class or series of stock of the Company by any other holders, may
result, in the judgment of the Board of Directors, in the loss of, or the
failure to secure the reinstatement of, any license or franchise from any
governmental agency held by the Company or any of its subsidiaries to conduct
any portion of its business. "Fair Market Value" of a share of any class or
series of stock of the Company means the average closing price for such a
share for each of the 45 most recent days on which shares of stock of such
class or series were traded preceding the fifth day prior to the day on which
notice of redemption is given, except that if shares of stock of such class or
series are not traded on any securities exchange or in the over-the-counter
market, "Fair Market Value" is any value determined by the Board of Directors
in good faith.
The Certificate of Incorporation also authorizes the Board of Directors to
adopt such other provisions as the Board of Directors may deem necessary or
desirable to avoid violation of the alien ownership provisions of the
Communications Act and to carry out the provisions of the Certificate of
Incorporation relating to alien ownership.
PREFERRED STOCK
The Company has authorized 75,000 shares of Preferred Stock. No shares of
Preferred Stock have been issued and the Company does not presently
contemplate the issuance of such shares. The Board of Directors is empowered
by the Company's Certificate of Incorporation to designate and issue from time
to time one or more classes or series of Preferred Stock without any action of
the stockholders. The Board of Directors may authorize issuance in one or more
classes or series, and may fix and determine the relative rights, preferences
and limitations of each class or series so authorized. Such action could
adversely affect the voting power of the holders of the Common Stock or could
have the effect of discouraging or making difficult any attempt by a person or
group to obtain control of the Company.
SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW
The Company is subject to Section 203 of the Delaware General Corporation
Law, which generally prohibits a publicly held Delaware corporation from
engaging in a "business combination" with an "interested stockholder" for a
period of three years after the date of the transaction in which the person
became an interested stockholder, unless (i) prior to such date of the Board
of Directors of the corporation approved either the business combination or
the transaction in which the person became an interested stockholder, (ii)
upon consummation of the transaction that resulted in the stockholder becoming
an interested stockholder, the interested stockholder owns at least 85% of the
outstanding voting stock of the corporation excluding shares owned by officers
or directors of the corporation and by certain employee stock plans, or (iii)
on or after such date the business combination is approved by the Board of
Directors of the corporation and by the affirmative vote of at least 66 2/3%
of the outstanding voting stock of the corporation that is not owned by the
interested stockholder. A "business combination" generally includes mergers,
asset sales and similar transactions between the corporation and the
interested stockholder, and other transactions resulting in a financial
benefit to the stockholder. An "interested stockholder" is a person who,
together with affiliates and associates, owns 15% or more of the corporation's
voting stock or who is an affiliate or associate of the corporation and,
together with his affiliates and associates, has owned 15% or more of the
corporation's voting stock within three years.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is Continental Stock
Transfer & Trust Company.
75
<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting Agreement,
Friedman, Billings, Ramsey & Co., Inc. (the "Underwriter") has agreed to
purchase from the Company the Notes at the public offering price less the
underwriting discounts and commissions set forth on the cover page of this
Prospectus.
The Underwriting Agreement provides that the obligations of the Underwriter
thereunder are subject to certain conditions precedent and that the
Underwriter will purchase all of the Notes offered hereby if any of the Notes
are purchased.
The Company has been advised by the Underwriter that the Underwriter
proposes to offer the Notes directly to the public initially at the price to
the public set forth on the cover page of this Prospectus and to certain
dealers at such price less a concession not in excess of $ per Note. The
Underwriter may allow, and such dealers may reallow, discounts not in excess
of $ per Note to certain other dealers. After the Notes have been released
for sale to the public, the offering price and other selling terms may be
changed by the Underwriter.
The Notes will constitute a new class of securities with no established
trading market. The Company does not intend to list such securities on any
national securities exchange or on the Nasdaq National Market. The Underwriter
intends to make a market in the Notes on completion of the Notes Offering, as
permitted by applicable laws and regulations. The Underwriter, however, is not
obligated to make a market in the Notes, and any such market making may be
discontinued at any time at the sole discretion of the Underwriter.
The Company has agreed to pay the Underwriter a financial advisory fee of
0.5% of the total price to the public set forth on the cover page of this
Prospectus. The Company has also agreed that during the period ending 12
months after the closing of the Offerings, the Underwriter shall have the
right to act as the exclusive financial advisor and as the non-exclusive
placement agent or underwriter in connection with any non-bank debt or equity
financings by the Company.
The Company has agreed to issue to the Underwriter and to Prime Charter
Ltd., one of the representatives of the underwriters of the Common Stock
Offering, warrants to purchase an aggregate of 312,500 shares (359,375 shares
if the Over-allotment Option is exercised in full) of Class A Common Stock
(the "Representatives' Warrants"). The shares of Class A Common Stock subject
to the Representatives' Warrants will be in all respects identical to the
shares of Class A Common Stock offered to the public in the Common Stock
Offering. The Representatives' Warrants will be exercisable for a five-year
period commencing one year after the closing date of the Offerings at a per
share exercise price equal to 110% of the initial public offering price in the
Common Stock Offering. Neither the Representatives' Warrants nor the
underlying shares of Class A Common Stock may be transferred, assigned, or
hypothecated for a period of one year from the closing of the Offerings,
except to the extent permitted by applicable rules of the National Association
of Securities Dealers, Inc. During the period beginning one year from the
closing of the Offerings and ending five years after such effective date, the
Company has agreed at its expense to register under the Securities Act the
shares of Class A Common Stock issued or issuable upon exercise of the
Representatives' Warrants and, for the period beginning one year from the date
of this Prospectus and ending seven years after such effective date, to
include such shares of Class A Common Stock in any appropriate registration
statement which is filed by the Company. The Representatives' Warrants will
contain anti-dilution provisions providing for appropriate adjustment of the
exercise price and number of shares that may be purchased upon the occurrence
of certain events. The Representatives' Warrants may be exercised by paying
the exercise price in cash, through the surrender of shares of Class A Common
Stock, through a reduction in the number of shares covered thereby, or by
using a combination of such methods.
The Underwriting Agreement provides that the Company will indemnify the
Underwriter and its controlling persons against certain liabilities under the
Securities Act, or will contribute to payments that the Underwriter and its
controlling persons may be required to make in respect thereof. The Company
has been advised that, in the opinion of the Commission, such indemnification
is against public policy as expressed in the Securities Act and is, therefore,
unenforceable.
76
<PAGE>
The Underwriter has advised the Company that the Underwriter does not intend
to confirm sales to any account over which it exercises discretionary
authority.
The Underwriter is also acting as one of the managing underwriters of the
Common Stock Offering. See "Summary--Concurrent Offering." The Underwriter
acted as placement agent for the Bridge Loan, for which it received a fee of
$1.0 million which will be paid out of the proceeds of the Offerings.
LEGAL MATTERS
Certain legal matters with respect to the legality of the Securities offered
hereby will be passed upon for the Company by Latham & Watkins, New York, New
York. Certain legal matters will be passed upon for the Underwriters by
Brownstein Hyatt Farber & Strickland, P.C., Denver, Colorado.
EXPERTS
The combined financial statements of the Company as of December 31, 1996 and
December 31, 1995 and for the year ended December 31, 1996 and the period June
15, 1995 (date of inception) to December 31, 1995, included in the Prospectus,
and in the registration statement on Form S-1 (the "Registration Statement")
have been included herein and in the Registration Statement in reliance upon
the reports by KPMG Peat Marwick LLP, independent certified public
accountants, appearing elsewhere herein and in the Registration Statement, and
upon the authority of said firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement under the
Securities Act, with respect to the Securities offered hereby. This Prospectus
does not contain all of the information set forth in the Registration
Statement and the exhibits and schedules thereto. For further information with
respect to the Company and such Securities, reference is hereby made to such
Registration Statement, which can be inspected and copied at the public
reference facilities maintained by the Commission at Judiciary Plaza, Room
1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the Regional
Offices of the Commission at Seven World Trade Center, New York, New York
10048 and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Copies of such material also can be obtained from the Public
Reference Section of the Commission, Washington, D.C. 20549 at prescribed
rates. The Commission also maintains a Web site that contains reports, proxy
and information statements and other materials that are filed through the
Commission's Electronic Data Gathering, Analysis and Retrieval system. This
Web site can be accessed at http://www.sec.gov.
Statements contained in this Prospectus as to the contents of any contract
or other document are not necessarily complete, and in each instance reference
is made to the copy of such contract or other document filed as an exhibit to
the Registration Statement, each such statement being qualified in all
respects by such reference. For the purposes hereof, the term "Registration
Statement" means the original Registration Statement and any and all
amendments thereto.
77
<PAGE>
GLOBAL BROADCASTING SYSTEMS, INC.
INDEX TO COMBINED FINANCIAL STATEMENTS
COMBINED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditor's Report.............................................. F-2
Combined Balance Sheets at December 31, 1996 and 1995..................... F-3
Combined Statements of Operations for the year ended December 31, 1996 and
for the period from
June 15, 1995 (date of inception) to December 31, 1995................... F-4
Combined Statements of Cash Flows for the year ended December 31, 1996 and
for the period from
June 15, 1995 (date of inception) to December 31, 1995................... F-5
Combined Statements of Stockholders' Equity for the year ended December
31, 1996 and for the period from June 15, 1995 (date of inception) to
December 31, 1995........................................................ F-6
Notes to Combined Financial Statements at December 31, 1996 and 1995...... F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Global Broadcasting Systems, Inc.:
We have audited the accompanying combined balance sheets of Global
Broadcasting Systems, Inc., as of December 31, 1996 and 1995 and the related
statements of operations, stockholders' equity, and cash flows for the year
ended December 31, 1996 and for the period from June 15, 1995 (date of
inception) to December 31, 1995. These combined financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these combined 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 combined financial statements referred to above present
fairly, in all material respects, the financial position of Global
Broadcasting Systems, Inc. as of December 31, 1996 and 1995, and the results
of its operations and its cash flows for the year ended December 31, 1996 and
for the period from June 15, 1995 (date of inception) to December 31, 1995 in
conformity with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
New York, NY
January 30, 1997
F-2
<PAGE>
GLOBAL BROADCASTING SYSTEMS, INC.
COMBINED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
------------ ---------
<S> <C> <C>
ASSETS
Current assets:
Cash................................................ $ 198 $ --
Funds held in escrow (note 8)....................... 4,150,000 --
Other current assets................................ 140,167 --
------------ ---------
Total current assets............................ 4,290,365 --
Property and equipment:
Software............................................ 150,000 --
Furniture and fixtures.............................. 107,770 30,764
Leasehold improvements.............................. 118,966 --
Computer equipment.................................. 149,252 23,572
Studio equipment.................................... 21,091 2,443
Less accumulated depreciation and amortization...... (34,457) (5,250)
------------ ---------
Net property and equipment...................... 512,622 51,529
Deposits and other assets............................. 474,659 48,100
------------ ---------
$ 5,277,646 $ 99,629
============ =========
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Checks issued in excess of bank balance............. 205,597 209
Accounts payable.................................... 228,102 --
Accrued salary and fringe benefits.................. 517,642 110,439
Other accrued expenses.............................. 540,686 --
Deferred rent....................................... 79,658 --
------------ ---------
Total liabilities............................... 1,571,685 110,648
------------ ---------
Stockholders' equity:
Preferred stock--$0.01 par value; 10,000 shares au-
thorized; no shares issued and outstanding......... -- --
Common stock:
Class A--$0.01 par value; 5,000 shares authorized;
8.529 and 3.060 shares issued and outstanding,
respectively (note 1)............................ -- --
Class B--$0.01 par value; 5,000 shares authorized;
1,144.940 and 130.815 shares issued and outstand-
ing, respectively (note 1)....................... 11 1
Additional paid-in capital.......................... 15,361,679 812,934
Accumulated deficit................................. (11,655,729) (823,954)
------------ ---------
Total stockholders' equity...................... 3,705,961 (11,019)
------------ ---------
Commitments and contingencies (notes 3 and 8)
$ 5,277,646 $ 99,629
============ =========
</TABLE>
See accompanying notes to combined financial statements.
F-3
<PAGE>
GLOBAL BROADCASTING SYSTEMS, INC.
COMBINED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996 AND FOR THE PERIOD FROM JUNE 15, 1995 (DATE OF
INCEPTION) TO DECEMBER 31, 1995
<TABLE>
<CAPTION>
JUNE 15, 1995
(DATE OF INCEPTION)
TO DECEMBER 31,
1996 1995
------------ -------------------
<S> <C> <C>
Net revenue................................. $ 198,845 $ 9,479
Cost of revenue............................. (148,046) (5,550)
------------ ---------
Gross Profit................................ 50,799 3,929
Distribution, production and transmission
expenses................................... 5,772,550 222,711
Selling, general and administrative ex-
penses..................................... 5,107,784 605,853
------------ ---------
Total operating expenses................ 10,880,334 828,564
------------ ---------
Operating loss.............................. (10,829,535) (824,635)
------------ ---------
Other income (expense)
Interest income........................... -- 681
Other income (expense).................... (2,240) --
------------ ---------
Total other income (expense)............ (2,240) 681
------------ ---------
Loss before income tax benefit.............. (10,831,775) (823,954)
Income tax benefit.......................... -- --
------------ ---------
Net loss.................................... $(10,831,775) $(823,954)
------------ ---------
Net loss per share (note 1):................ $ (7,500.37) $ (570.54)
------------ ---------
Weighted average number of common shares
outstanding (note 1)....................... 1,444.166 1,444.166
============ =========
</TABLE>
See accompanying notes to combined financial statements.
F-4
<PAGE>
GLOBAL BROADCASTING SYSTEMS, INC.
COMBINED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1996 AND FOR THE PERIOD FROM JUNE 15, 1995 (DATE OF
INCEPTION) TO DECEMBER 31, 1995
<TABLE>
<CAPTION>
JUNE 15, 1995
(DATE OF
INCEPTION) TO
DECEMBER 31,
1996 1995
------------ -------------
<S> <C> <C>
Cash flows from operating activities:
Net loss......................................... $(10,831,775) $(823,954)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation and amortization.................. 29,207 5,250
Services received in exchange for common
stock......................................... 1,995,799 164,835
Changes in operating assets and liabilities:
Increase in other current assets............. (140,167) --
Increase in accounts payable................. 228,102 --
Increase in accrued expenses................. 947,889 110,439
Increase in deferred rent.................... 79,658 --
------------ ----------
Net cash used by operating activities.............. (7,691,287) (543,430)
------------ ----------
Cash flow from investing activities:
Purchases of property and equipment.............. (490,300) (56,779)
Increase in deposits and other assets............ (426,559) (48,100)
Deposits on pending acquisitions................. (4,150,000) --
------------ ----------
Net cash used by investing activities.............. (5,066,859) (104,879)
------------ ----------
Cash flow from financing activities:
Proceeds from sale of common stock and capital
contributions................................... 12,552,956 648,100
Increase in checks issued in excess of bank
balances........................................ 205,388 209
------------ ----------
Net cash provided by financing activities.......... 12,758,344 648,309
------------ ----------
Net increase in cash............................... 198 --
Cash--beginning.................................... -- --
------------ ----------
Cash--ending....................................... $ 198 $ --
============ ==========
Supplementary disclosure:
Interest paid.................................... $ -- $ --
Taxes paid....................................... 1,540 --
============ ==========
</TABLE>
See accompanying notes to combined financial statements.
F-5
<PAGE>
GLOBAL BROADCASTING SYSTEMS, INC.
COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY
YEAR ENDED DECEMBER 31, 1996 AND FOR THE PERIOD FROM JUNE 15, 1995 (DATE OF
INCEPTION) TO DECEMBER 31, 1995
<TABLE>
<CAPTION>
COMMON STOCK (NOTE 1)
------------------------------
CLASS A CLASS B ADDITIONAL TOTAL
------------- ---------------- PAID-IN ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT EQUITY
------ ------ --------- ------ ---------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at June 15,
1995................... -- $ -- -- $ -- $ -- $ -- --
----- ------ --------- ----- ---------- ----------- -----------
Issuance of common stock
and capital
contributions.......... -- 125.460 1 648,099 -- 648,100
Shares issued for
services in-kind (note
4)..................... 3.060 5.355 -- 164,835 -- 164,835
Net loss................ -- -- -- -- -- (823,954) (823,954)
----- ------ --------- ----- ---------- ----------- -----------
Balance at December 31,
1995................... 3.060 -- 130.815 1 812,934 (823,954) (11,019)
----- ------ --------- ----- ---------- ----------- -----------
Issuance of common stock
and capital
contributions.......... -- 960.735 9 12,552,947 -- 12,552,956
Shares issued for
services in-kind (note
4)..................... 5.469 53.390 1 1,995,798 -- 1,995,799
Net loss................ -- -- -- -- -- (10,831,775) (10,831,775)
----- ------ --------- ----- ---------- ----------- -----------
Balance at December 31,
1996................... 8.529 -- 1,144.940 11 15,361,679 (11,655,729) 3,705,961
===== ====== ========= ===== ========== =========== ===========
</TABLE>
See accompanying notes to combined financial statements.
F-6
<PAGE>
GLOBAL BROADCASTING SYSTEMS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES
Basis of Presentation and Nature of Business
These financial statements contain the combined financial statements of
Global Shopping Network, Inc. (GSN) and Ramcast Corporation (Ramcast). The
combined entity is hereafter referred to as the Company. GSN was incorporated
on June 15, 1995 to develop a network for the sale of electronics, jewelry,
memorabilia, health and beauty and fitness products. GSN's current
distribution is limited to transmission, via satellite, to home satellite
dishes. Ramcast Corporation was incorporated in May, 1996 to acquire broadcast
properties, principally full power Ultra High Frequency (UHF) television
stations, and to hold the related Federal Communication Commission (FCC)
license for the stations which will serve as the primary means of distribution
for GSN's products.
GSN and Ramcast are related through common ownership and control and,
pursuant to the Agreement and Plan of Merger, were merged on January 30, 1997
(Note 10). All significant intercompany transactions have been eliminated for
the purposes of this combination. This merger has been effected in the
combined statements of stockholders' equity and the stockholders' equity
portion of the combined balance sheets for all periods presented as if the
merger had taken place at the beginning of the earliest period presented.
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation.
Depreciation for financial statement purposes is computed using the straight-
line method over an estimated useful life of seven years for property,
furniture and fixtures, and production equipment and an estimated useful life
of three years for computer equipment. Leasehold improvements are amortized
over the shorter of the estimated useful life of the improvements or the life
of the lease.
Revenue Recognition
Revenue from the sale of products is recognized upon shipment of the
merchandise. An allowance is recorded to provide for sales returns based upon
return experience.
Income Taxes
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109 (SFAS No. 109), Accounting for Income
Taxes. Under SFAS No. 109, deferred tax assets and liabilities are determined
based upon the differences between financial reporting and tax bases of assets
and liabilities and are measured using the enacted tax rates and laws that
will be in effect when the differences are expected to be recovered or
settled.
Management Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results may differ from those estimates.
F-7
<PAGE>
GLOBAL BROADCASTING SYSTEMS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995--(CONTINUED)
(2) EARNINGS PER SHARE
Earnings per share are computed based upon the weighted average common
shares which would have been outstanding had the merger of GSN into Ramcast
been completed as of the beginning of the earliest period presented (note 10).
Pursuant to Securities and Exchange Commission Staff Accounting Bulletin Topic
4:D, stock issued during the period preceding the date of the Company's
initial public offering has been included in the calculation of weighted
average shares of common stock as if issued at the beginning of the earliest
period presented.
(3) LEASES
The Company leases office space, studio space, and various equipment with
lease terms extending beyond one year. Additionally, the Company has entered
into a long-term agreement for the procurement of satellite transponder time.
The following is a schedule, by year, of future minimum rental payments
required under operating leases that have initial or remaining noncancelable
lease terms in excess of one year as of December 31, 1996:
<TABLE>
<S> <C>
Year ending December 31:
1997..................................................... $ 2,640,551
1998..................................................... 2,693,852
1999..................................................... 2,756,976
2000..................................................... 2,635,913
2001..................................................... 2,592,165
Thereafter............................................... 6,300,000
-----------
Total minimum payments required........................ $19,619,457
===========
</TABLE>
Rental expense for the operating leases for the year ended December 31, 1996
and for the period from June 15, 1995 (date of inception) to December 31, 1995
was $1,886,904 and $44,829, respectively. The 1996 amount includes $525,000
paid under the transponder agreement.
(4) COMMON STOCK
On January 29, 1997, Ramcast amended its Certificate of Incorporation (note
10) and changed its name to Global Broadcasting Systems, Inc. As a result of
the amendment, Ramcast's common stock was converted to Global Broadcasting
Systems, Inc. Class B Common Stock and a new Global Broadcasting Systems, Inc.
Class A Common Stock, par value $ .01, was created with rights equal to those
of the new Class B Common Stock except as discussed in Note 10.
As discussed in Note 1, the Common Stock and related accounts are presented
to effect the Merger of Global Shopping Network, Inc. into Global Broadcasting
Systems, Inc.
Stock Compensation
The Company has granted 5.469 and 3.060 shares of Global Broadcasting
Systems, Inc. Class A Common Stock, 53.390 and 5.355 shares of Global
Broadcasting Systems, Inc. Class B Common Stock during the year ended December
31, 1996 and the period from June 15, 1995 (date of inception) to December 31,
1995, respectively, to employees and consultants as compensation and for rent
concessions to the landlord. The Company recorded compensation and consulting
expenses aggregating $1,835,770 and $164,835 for these periods, based upon the
estimated fair value of the shares at the date of grant. These compensation
amounts include 35.032 shares of Global Broadcasting Systems, Inc. Class A
Common Stock and 8.000 shares of Global Broadcasting Systems, Inc. Class B
Common Stock which were earned during 1996 but were not issued until January
1997.
F-8
<PAGE>
GLOBAL BROADCASTING SYSTEMS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995--(CONTINUED)
As part of a lease agreement for studio space, the Company issued 1% of GSN
Class B common stock to the lessor in exchange for rent concessions. An
additional 2.5% to 3.75% of the then outstanding GSN Class B common stock is
to be issued upon the earlier of (1) immediately prior to an initial public
offering by the Company or (2) July 14, 1997. The number of shares to be
issued is dependent upon actual studio usage during the lease term. The shares
shall be exchanged for voting GSN Class A shares immediately prior to an
initial public offering. The Company recognized an expense in the amount of
$160,029 for the stock issued in exchange for these concessions in the year
ended December 31, 1996.
(5) ACCUMULATED DEFICIT
The Company has commenced principal operations as of December 31, 1996 but
has not generated significant revenue from these operations as the Company is
currently using a temporary distribution channel pending the acquisition of
the television stations. Additionally, the Company has realized accumulated
losses of $11,655,729 from inception to December 31, 1996. The Company
believes it will be able to obtain sufficient working capital to meet its
current obligations, fund operations and fund the capital requirements of the
pending television station acquisitions, through an issuance of debt and
equity securities in the public markets or through other sources including
continued financial support from the principal stockholder. From the date of
inception through December 31, 1996, the principal stockholder has provided
the working capital for the Company as expenditures were made. Additionally,
pursuant to a capital contribution agreement, the principal stockholder has
committed to make additional contributions that, together with his capital
contributions and purchases of common equity to the closing date of the
proposed public offering, will amount to a minimum of $100 million on the
closing date of the proposed public offering. The ability of the Company to
continue as a going concern is dependent on the Company's ability to obtain
this additional funding.
(6) INCOME TAXES
The Company reports profits and losses for income tax purposes on the
accrual basis method of accounting in accordance with SFAS No. 109. For the
period from June 15, 1995 (date of inception) to December 31, 1996, the
Company incurred no income tax liability and generated net operating loss
carryforwards and other deferred tax assets approximating $11.6 million which
expire between 2010 and 2011. As it is not more-likely-than-not that these
assets will be recoverable, a valuation allowance has been established for the
full amount of the deferred tax asset.
(7) RELATED PARTY TRANSACTIONS
The Company leases office space and contracts for legal services with a
stockholder, who is also a member of the Board of Directors. The Company has
recognized expenses of $197,643 and $63,976 for these services during the year
ended December 31, 1996 and for the period from June 15, 1995 (date of
inception) through December 31, 1995, respectively. Amounts payable to the
party are $13,636 and $8,147 as of December 31, 1996 and 1995, respectively.
(8) COMMITMENTS AND CONTINGENCIES
The Company is party to four definitive agreements to acquire one station in
each of New Hampshire and North Carolina and two stations in California for an
aggregate acquisition price of $110.5 million. The acquisitions are scheduled
to close by April 1997. The Company is pursuing an additional 16 television
station acquisitions for an aggregate purchase price of $323.35 million.
F-9
<PAGE>
GLOBAL BROADCASTING SYSTEMS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995--(CONTINUED)
Employment Agreements
The Company has entered into employment agreements with three key executives
that provide for three year employment contracts at specified salaries and
incentive bonuses, which are subject to approval by the Board of Directors.
LEGAL PROCEEDINGS
On or about April 19, 1996, a former employee of the Company who was
terminated after approximately two months of employment commenced an action
against GSN and Rachamin Anatian, the Company's co-founder, Chairman and Chief
Executive Officer, in the United States District Court for the Southern
District of New York. The complaint alleged, inter alia, claims for relief for
breach of an alleged employment agreement, fraud, promissory estoppel, labor
law violations and unjust enrichment. The complaint seeks compensatory damages
in an amount not less than $20,000,000, punitive damages in an amount not less
than $25,000,000 and injunctive relief to compel GSN, among other things, to
transfer a one-percent interest in GSN to plaintiff. The action is currently
in the discovery phase. The Company believes it has meritorious defenses to
the claims in the complaint and intends to vigorously contest the litigation
and move for summary judgment following the completion of discovery. As the
proceedings are still in the discovery stage, no range of the potential loss
is currently estimable.
(9) FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments are limited to cash, trade receivables,
checks issued in excess of bank balances and accounts payable. The carrying
amounts of these financial instruments approximates their fair value due to
the short maturity of these instruments.
(10) MERGER BETWEEN GLOBAL SHOPPING NETWORK, INC. AND RAMCAST CORPORATION AND
REORGANIZATION
On January 29, 1997, Ramcast amended its Certificate of Incorporation and
changed its name to Global Broadcasting Systems, Inc. The amendment authorized
5,000 shares of Class A and Class B common stock. The outstanding Ramcast
common stock was converted into Global Broadcasting Systems, Inc. Class B
common stock. The voting powers, preferences and relative rights of the
Ramcast Corporation Class A common stock and the Ramcast Corporation Class B
common stock are identical in all respects, except that (i) the holders of
Class A common stock are entitled to one vote per share and holders of Class B
common stock are entitled to two votes per share, (ii) stock dividends on
Class A common stock may be paid only in shares of Class A common stock and
dividends on Class B common stock may be paid only in Class B common stock and
(iii) shares of Class B common stock have certain conversion rights and are
subject to certain restrictions on ownership and transfer.
On January 30, 1997, pursuant to the Agreement and Plan of Merger GSN was
merged with and into Ramcast. The merger was effected by converting each share
of GSN's Class A common stock into .153 shares of Global Broadcasting, Inc.
Corporation Class B common stock and converting each share of GSN's Class B
common stock into .153 shares of Global Broadcasting, Inc. Corporation Class A
common stock. The combined balance sheets and combined statement of
stockholders' equity and weighted average shares outstanding and the earnings
per share have been restated to reflect the resulting equity structure.
F-10
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER PERSON IS AUTHORIZED IN CONNECTION WITH
ANY OFFERING MADE HEREBY TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTA-
TIONS NOT CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMA-
TION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY
THE COMPANY OR BY THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OF-
FER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITY OTHER THAN THE
SECURITIES OFFERED HEREBY, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR A SOLIC-
ITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANY PERSON
IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITA-
TION TO SUCH PERSON. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE AN IMPLICATION THAT THE INFOR-
MATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HERE-
OF.
-----------------
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary....................................................... 3
Summary Financial and Operating Data..................................... 10
Risk Factors............................................................. 11
Use of Proceeds.......................................................... 17
Capitalization........................................................... 18
Selected Financial Data.................................................. 19
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 20
The Company.............................................................. 23
Business................................................................. 24
Management............................................................... 40
Summary Compensation Table............................................... 42
Principal Stockholders................................................... 46
Certain Relationships and Related Transactions........................... 47
Description of Notes..................................................... 48
Description of Capital Stock............................................. 72
Underwriting............................................................. 76
Legal Matters............................................................ 77
Experts.................................................................. 77
Additional Information................................................... 77
Index to Combined Financial Statements................................... F-1
</TABLE>
UNTIL , 1997, (90 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT PARTICI-
PATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS
IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING
AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
$270,000,0000
GLOBAL BROADCASTING SYSTEMS, INC.
% SENIOR SUBORDINATED NOTES DUE 2007
-----------------
PROSPECTUS
-----------------
FRIEDMAN, BILLINGS, RAMSEY & CO., INC.
, 1997
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
[ALTERNATE PAGE FOR COMMON STOCK PROSPECTUS]
SUBJECT TO COMPLETION, DATED MARCH 12, 1997
GLOBAL BROADCASTING SYSTEMS, INC.
12,500,000 SHARES
CLASS A COMMON STOCK
All of the 12,500,000 shares of Class A Common Stock, par value $0.01 per
share (the "Class A Common Stock"), being offered hereby (the "Common Stock
Offering"), are being sold by Global Broadcasting Systems, Inc. (the "Company"
or "GBS"). Holders of Class A Common Stock are entitled to one vote per share
on all matters submitted to a vote of stockholders and holders of outstanding
Class B Common Stock of the Company (the "Class B Common Stock" and, together
with the Class A Common Stock, the "Common Stock") are entitled to two votes
per share. Both classes vote together as a single class on all matters, except
in connection with certain amendments to the Company's Certificate of
Incorporation and as required by Delaware law. See "Description of Capital
Stock." Shares of Class B Common Stock are convertible into shares of Class A
Common Stock on a one-for-one basis at the option of the holder. Immediately
following the Common Stock Offering, assuming no exercise of the Underwriters'
over-allotment option, holders of the Company's Class A Common Stock will have
approximately 25.15% of the combined voting power of the Company's outstanding
Common Stock.
Concurrently with the Common Stock Offering, the Company is offering
$270,000,000 in aggregate principal amount of its % Senior Subordinated Notes
due 2007 (the "Notes") to the public (the "Notes Offering" and, together with
the Common Stock Offering, the "Offerings"). The Common Stock Offering is
contingent upon the consummation of the Notes Offering and the Notes Offering
is contingent upon the consummation of the Common Stock Offering. See
"Summary--Concurrent Offering." The Class A Common Stock and the Notes are
referred to collectively herein as the "Securities."
Prior to the Common Stock Offering, there has been no public market for the
Common Stock. It is currently estimated that the initial public offering price
will be between $15.00 and $17.00 per share. See "Underwriting" for information
relating to the factors considered in determining the initial public offering
price.
The Class A Common Stock has been approved for listing on The Nasdaq National
Market System ("NASDAQ") under the symbol "GBSI."
SEE "RISK FACTORS" BEGINNING ON PAGE 11 FOR A DESCRIPTION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS IN EVALUATING AN INVESTMENT
IN THE SECURITIES.
-----------
THE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRICE UNDERWRITING
TO THE DISCOUNTS PROCEEDS TO
PUBLIC AND COMMISSIONS(1) THE COMPANY(2)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share................... $ $ $
- --------------------------------------------------------------------------------
Total(3).................... $ $ $
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(1) The Company has agreed to indemnify the Underwriters against, and to
provide contribution with respect to, certain liabilities under the
Securities Act. See "Underwriting."
(2) Does not include (i) the financial advisory fee payable by the Company to
Friedman, Billings, Ramsey & Co., Inc. equal to 0.5% of the total Price to
the Public in the Offerings or (ii) warrants to purchase 2.5% of the number
of shares of Class A Common Stock that will be issued to the public in the
Common Stock Offering, including the Over-allotment Option, if exercised
(the "Representatives' Warrants"). Before deducting expenses payable by the
Company estimated at $ .
(3) The Company has granted the Underwriters a 30-day option (the "Over-
allotment Option") to purchase up to 1,875,000 additional shares of Class A
Common Stock on the same terms and conditions as set forth above solely to
cover over-allotments, if any. If such option is exercised in full, the
total Price to the Public, Underwriting Discounts and Commissions and
Proceeds to the Company will be $ , $ and $ , respectively.
See "Underwriting."
The shares of Class A Common Stock are being offered by the several
Underwriters, subject to prior sale, when, as and if delivered to and accepted
by the Underwriters and subject to their right to reject any order in whole or
in part. It is expected that delivery of the shares will be made against
payment therefore in New York, New York or in book-entry form through the
facilities of the Depository Trust Company on or about , 1997.
-----------
FRIEDMAN, BILLINGS, RAMSEY & CO., INC. PRIME CHARTER LTD.
THE DATE OF THIS PROSPECTUS IS , 1997
<PAGE>
[MAP OF STATION LOCATIONS]
[PICTURES OF PRODUCTS]
IN CONNECTION WITH THE OFFERINGS, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SECURITIES
OFFERED HEREBY AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET
SYSTEM, IN THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF
COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
ALT-2
<PAGE>
[ALTERNATE PAGE FOR COMMON STOCK PROSPECTUS]
THE OFFERING
Class A Common Stock
offered hereby.......... 12,500,000 shares
Common Stock to be
outstanding after the
Common Stock Offering:
Class A Common 13,106,575 shares(1)
Stock.................
Class B Common
Stock................. 19,502,107 shares(2)
Total...............
32,608,682 shares
Voting Rights........... Holders of Class A Common Stock are entitled to one
vote per share on all matters submitted to a vote of
stockholders and holders of outstanding Class B
Common Stock are entitled to two votes per share.
Both classes vote together as a single class on all
matters, except in connection with certain amendments
to the Company's Certificate of Incorporation and as
required by Delaware law. Immediately following the
Common Stock Offering, holders of Class A Common
Stock will have approximately 25.15% of the combined
voting power of the Company's outstanding Common
Stock.
Use of Proceeds.........
The net proceeds of the Common Stock Offering,
together with the net proceeds of the Note Offering,
will be used to finance the Acquisitions, to purchase
the Pledged Securities, to repay certain
indebtedness, for fees and expenses in connection
with the Offerings and for general corporate
purposes. See "Use of Proceeds."
"GBSI."
NASDAQ symbol......
- --------
(1) Does not include Class A Common Stock issuable upon conversion of the Class
B Common Stock. Each share of Class B Common Stock is convertible at the
option of the holder into one share of Class A Common Stock. Assuming full
conversion into Class A Common Stock of all Class B Common Stock and pro
forma for the Common Stock Offering, a total of 32,608,682 shares of Class
A Common Stock will be outstanding immediately after the Common Stock
Offering. Also does not include 2,300,000 shares of Class A Common Stock
reserved for issuance pursuant to options issued under the Company's 1997
Stock Option Plan. Upon consummation of the Offerings, options to purchase
a total of 30,000 shares of Class A Common Stock will be outstanding under
the 1997 Stock Option Plan.
(2) Assumes no conversion of such Class B Common Stock into Class A Common
Stock.
CONCURRENT OFFERING
Concurrently with the Common Stock Offering, the Company is offering
$270,000,000 in aggregate principal amount of its % Senior Subordinated Notes
due 2007 to the public. The Common Stock Offering is contingent upon the
consummation of the Notes Offering, and the Notes Offering is contingent upon
the consummation of the Common Stock Offering.
RISK FACTORS
Prior to making an investment in the Class A Common Stock offered hereby,
prospective purchasers should carefully review the information set forth under
the caption "Risk Factors" as well as other information set forth in this
Prospectus.
ALT-3
<PAGE>
[ALTERNATE PAGE FOR COMMON STOCK PROSPECTUS]
RISK FACTORS
SUBSTANTIAL DILUTION
Purchasers of Class A Common Stock will experience substantial dilution in
pro forma net tangible book value per share of Class A Common Stock from the
initial public offering price. See "Dilution."
SHARES ELIGIBLE FOR FUTURE SALE
Immediately following consummation of the Offerings, there will be
outstanding 13,106,575 shares of Class A Common Stock (14,981,575 shares if the
Underwriters' over-allotment option is exercised in full) and 19,502,107 shares
of Class B Common Stock. The 12,500,000 shares of Class A Common Stock offered
hereby (plus an additional 1,875,000 shares if the Underwriters' over-allotment
option is exercised in full) will be freely tradeable without restriction or
registration under the Securities Act by persons other than "affiliates" (as
defined in the Securities Act) of the Company. The remaining 606,575 shares of
Class A Common Stock and all of the 19,502,107 shares of Class B Common Stock
will be "restricted securities" under the Securities Act and may only be sold
pursuant to an effective registration statement under the Securities Act or an
applicable exemption from the registration requirements of the Securities Act,
including Rule 144 thereunder. The Company, its Executive Officers and certain
affiliated entities, who collectively beneficially own 443,301 shares of Class
A Common Stock and 19,268,948 shares of Class B Common Stock, have agreed with
the Underwriters not to offer, sell, contract to sell, pledge, grant any option
to purchase or otherwise dispose of their shares of Common Stock of the Company
or any securities convertible into or exercisable or exchangeable for such
Common Stock or in any other manner transfer all or a portion of the economic
consequences associated with the ownership of such Common Stock for a period of
180 days after the date of this Prospectus without the prior written consent of
Friedman, Billings, Ramsey & Co. Inc., subject to certain limited exceptions
described under "Underwriting." At the expiration of such lock-up period, there
will be 19,712,249 shares of Common Stock that will be "restricted securities"
held by "affiliates" and eligible for resale subject to Rule 144. See "Shares
Eligible For Future Sale."
No prediction can be made as to the effect, if any, that future sales of
shares of Common Stock or the availability of shares for future sale will have
on the market price of shares of Class A Common Stock prevailing from time to
time. Sales of substantial amounts of Common Stock (including shares issuable
upon the exercise of stock options), or the perception that such sales could
occur, could adversely affect prevailing market prices for the Class A Common
Stock.
VOLATILITY OF STOCK PRICE
The initial public offering price of the Class A Common Stock was determined
by negotiations between the Company and the Underwriters and may not be
indicative of the market price of the Class A Common Stock after the Common
Stock Offering. There can be no assurance that the market price of the Class A
Common Stock will not experience significant fluctuations that are unrelated or
disproportionate to the Company's performance. See "Description of Capital
Stock" and "Underwriting."
ABSENCE OF PUBLIC MARKET
The Class A Common Stock constitutes a new issue of securities with no
established trading market. The Class A Common Stock has been approved for
listing on NASDAQ, however, there can be no assurance that an active trading
market for the Class A Common Stock will develop or be sustained after the
Offerings. If a trading market does not develop or is not maintained, holders
of the Class A Common Stock may experience difficulty in reselling the Class A
Common Stock or may be unable to sell them at all. If a market for the Class A
Common Stock develops, any such market may be discontinued at any time.
Although Friedman, Billings, Ramsey & Co., Inc. and Prime Charter Ltd. have
advised the Company that they currently intend to make a market in the Class A
Common Stock, they are not obligated to do so and may discontinue such market
making at any time without
ALT-4
<PAGE>
[ALTERNATE PAGE FOR COMMON STOCK PROSPECTUS]
notice. In addition, such market making will be subject to the limits imposed
by the Securities Act and the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). See "Underwriting."
DIVIDEND POLICY
The Company currently intends to retain all earnings and other cash
resources, if any, to fund the development and growth of its business and,
therefore, does not anticipate paying any cash dividends in the foreseeable
future. In addition, the Indenture contains significant restrictions on the
Company's ability to declare and pay dividends.
ALT-5
<PAGE>
[ALTERNATE PAGE FOR COMMON STOCK PROSPECTUS]
DILUTION
As of December 31, 1996, as adjusted for the Corporate Restructuring, the
Stock Split and the Sponsor's Capital Contribution of $100 million, the net
tangible book value of the Company was $91.2 million in the aggregate, or $5.68
per share of Common Stock. "Net tangible book value per share" represents the
amount of total tangible assets of the Company reduced by the amount of total
liabilities and divided by the number of shares of Common Stock outstanding.
After giving effect to the Corporate Restructuring, the Stock Split, the
Sponsor's Capital Contribution of $100 million and the sale of the shares of
Class A Common Stock offered hereby, at an offering price of $16 per share, net
of offering expenses, the net pro forma tangible book value of the Common Stock
as of December 31, 1996 would have been $276.4 million in the aggregate, or
$9.68 per share. This represents an immediate increase in net tangible book
value of $4.00 per share of Common stock to existing stockholders as a result
of the Common Stock Offering and an immediate dilution of $6.32 per share to
new stockholders purchasing shares of Class A Common Stock in the Common Stock
Offering. "Dilution per share" represents the difference between the price per
share to be paid by new stockholders for the shares of Class A Common Stock
issued in the Common Stock Offering and the net pro forma tangible book value
per share as of December 31, 1996. The following table illustrates this per
share dilution:
<TABLE>
<S> <C> <C>
Assumed offering price per share................................ $16.00
------
Net tangible book value per share before the Common Stock
Offering(1)(2)................................................. 5.68
----
Increase per share attributable to the Common Stock Offering.. 4.00
----
Net tangible book value per share as adjusted to reflect the
Common Stock Offering(2)....................................... 9.68
------
Dilution per share to new shareholders.......................... $ 6.32
======
</TABLE>
- --------
(1) Adjusted to give effect to the Corporate Restructuring and the Sponsor's
Capital Contribution of $100 million.
(2) Neither the net tangible book value per share before the Common Stock
Offering nor the net tangible book value per share as adjusted to reflect
the Common Stock Offering give effect to the Note Offering. Giving effect
thereto, net tangible book value per share before the Common Stock Offering
and net tangible book value per share as adjusted to reflect the Common
Stock Offering would have been $4.92 and $9.25, respectively.
The following table sets forth, on a pro forma basis as of December 31, 1996,
after giving effect to the Corporate Restructuring, the Stock Split and the
Sponsor's Capital Contribution of $100 million, the number of shares of Common
Stock purchased from the Company, the total consideration paid to the Company
and the average price per share paid by existing stockholders and by the new
investors purchasing shares of Common Stock from the Company in this Offering
(before deducting the estimated underwriting discount and offering expenses to
be paid by the Company):
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
------------------ -----------------------
AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ------------ ------- -------------
<S> <C> <C> <C> <C> <C>
Existing Stockholders... 16,061,102 56.234% $102,201,725(1) 33.819% $ 6.363
New Investors........... 12,500,000 43.766% $200,000,000 66.181% $16.000
---------- ------- ------------ -------
Total.................. 28,561,102 100.000% $302,201,725 100.000%
</TABLE>
- --------
(1) $100,700,000 in cash and $1,317,725 in services rendered.
The foregoing tables assume no exercise of the Underwriters' Over-allotment
Option or of any outstanding options or the Representatives' Warrants.
ALT-6
<PAGE>
[ALTERNATE PAGE FOR COMMON STOCK PROSPECTUS]
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offerings, the Company will have outstanding
13,106,575 shares of Class A Common Stock (14,981,575 shares if the
Underwriters' over-allotment option is exercised in full) and 19,502,107 shares
of Class B Common Stock. The 12,500,000 shares of Class A Common Stock
(assuming the Underwriters' over-allotment option is not exercised) offered
hereby will be freely tradeable by persons other than affiliates of the
Company. The remaining 606,575 shares of Class A Common Stock and all of the
19,502,107 shares of Class B Common Stock will be "restricted securities" under
the Securities Act and may only be sold pursuant to an effective registration
statement under the Securities Act or an applicable exemption from the
registration requirement of the Securities Act, including Rule 144 thereunder.
In general, Rule 144, as currently in effect, provides that a person (or
persons whose sales are aggregated) who is an affiliate of the Company or who
has beneficially owned shares which are issued and sold in reliance upon
certain exemptions from registration under the Securities Act ("Restricted
Shares") for at least two years is entitled to sell within any three-month
period a number of shares that does not exceed the greater of 1% of the then
outstanding shares of Class A Common Stock (beginning on the 91st day
immediately after the Common Stock Offering) or the average weekly trading
volume in the Class A Common Stock during the four calendar weeks preceding the
filing of a notice of intent to sell. Sales under Rule 144 are also subject to
certain manner-of-sale provisions, notice requirements and the availability of
current public information about the Company. However, a person who is not
deemed to have been an "affiliate" of the Company at any time during the three
months preceding a sale, and who has beneficially owned Restricted Shares for
at least three years, would be entitled to sell such shares under Rule 144
without regard to volume limitations, manner-of-sale provisions, notice
requirements or the availability of current public information about the
Company. In connection with the Common Stock Offering, the Company, its
Executive Officers and certain affiliated entities, who collectively
beneficially own 443,301 shares of Class A Common Stock and 19,268,948 shares
of Class B Common Stock, have agreed, directly or indirectly, not to sell,
offer to sell, solicit an offer to buy, contract to sell, pledge, grant any
option to purchase or otherwise transfer or dispose of, or register or announce
the sale or offering of any shares of capital stock of the Company beneficially
owned by them or any securities beneficially owned by them convertible into, or
exercisable or exchangeable for capital stock of the Company for a period of
180 days after the date of this Prospectus without the prior written consent of
Friedman, Billings, Ramsey & Co. Inc., subject to certain limited exceptions
described under "Underwriting." See "Underwriting."
A maximum of 30,000 shares of Common Stock may also be issued upon exercise
of employee stock options that will be outstanding immediately following the
Offerings. Unless the issuance of such shares is registered by the Company,
such shares will constitute "restricted securities" under the Securities Act.
In addition, persons deemed "affiliates" of the Company will be required to
comply with the terms and conditions of Rule 144 under the Securities Act when
selling such shares.
Prior to the Common Stock Offering, there has been no public market for the
shares of Common Stock, and no predictions can be made as to the effect that
sales of Common Stock under Rule 144, pursuant to a registration statement or
otherwise, or the availability for shares of Common Stock for sale, will have
on the market price prevailing from time to time. Nevertheless, sales of
substantial amounts of Common Stock in the public market, or the perception
that such sales could occur, could adversely affect prevailing market prices
and could impair the Company's future ability to raise capital through an
offering of its equity securities.
ALT-7
<PAGE>
[ALTERNATE PAGE FOR COMMON STOCK PROSPECTUS]
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting Agreement,
the Underwriters named below (the "Underwriters"), represented by Friedman,
Billings, Ramsey & Co., Inc. ("FBR") and Prime Charter Ltd. (the
"Representatives"), have severally agreed to purchase from the Company the
following respective number of shares of Class A Common Stock at the public
offering price less the underwriting discounts and commissions set forth on the
cover page of this Prospectus:
<TABLE>
<CAPTION>
NUMBER
OF
SHARES
------
<S> <C>
Friedman, Billings, Ramsey & Co., Inc.................................
Prime Charter Ltd.....................................................
----
Total...............................................................
====
</TABLE>
The Underwriting Agreement provides that obligations of the several
Underwriters thereunder are subject to certain conditions precedent and that
the Underwriters will purchase all of the shares of Class A Common Stock
offered hereby if any of such shares are purchased.
The Company has been advised by the Underwriters that the Underwriters
propose to offer the shares of Class A Common Stock directly to the public
initially at the public offering price set forth on the cover page of this
Prospectus and to certain dealers at such price less a concession not in excess
of $ per share. The Underwriters may allow, and such dealers may allow,
discounts not in excess of $ per share to certain other dealers. After the
shares of Class A Common Stock have been released for sale to the public, the
offering price and other selling terms may be changed by the Underwriters.
The Company has agreed to pay FBR, one of the Representatives, a financial
advisory fee of 0.5% of the total price to the public set forth on the cover
page of this Prospectus. The Company has also agreed that during the period
ending 12 months after the closing of the Offerings, FBR shall have the right
to act as the exclusive financial advisor and as the non-exclusive placement
agent or underwriter in connection with any non-bank debt on equity financings
by the Company.
The Company has granted an option to the Underwriters, exercisable for a
period of 30 days after the date of this Prospectus, to purchase up to
1,875,000 additional shares of Class A Common Stock at the public offering
price less the underwriting discounts and commissions set forth on the cover
page of this Prospectus. The Underwriters may exercise this option only to
cover over-allotments, if any. To the extent that the Underwriters exercise
this option, each of the Underwriters will have a firm commitment, subject to
certain conditions, to purchase approximately the same proportion of such
additional shares as the number of other shares to be purchased by such
Underwriter bears to the total number of shares being sold in the Common Stock
Offering. If purchased, the Underwriters will offer such additional shares on
the same terms as those on which all shares are being offered in the Common
Stock Offering.
The Company, its Executive Officers and certain affiliated entities have
agreed that, for a period of 180 days after the date of this Prospectus, they
will not, directly or indirectly, sell, offer to sell, solicit an offer to buy,
contract to sell, pledge, grant any option to purchase or otherwise transfer or
dispose of, or register or announce the sale or offering of any shares of
capital stock of the Company beneficially owned by them or any securities
beneficially owned by them convertible into, or exercisable or exchangeable
for, capital stock of the Company without the prior written consent of FBR,
except, in the case of the Company, for the grant of options under the
Company's 1997 Stock Option Plan, the issuance of Common Stock upon exercise of
outstanding options and the issuance of Class A Common Stock upon conversion of
the Class B Common Stock and, in the
ALT-8
<PAGE>
[ALTERNATE PAGE FOR COMMON STOCK PROSPECTUS]
case of the stockholders, for the pledge by certain limited liability companies
controlled by Mr. Anatian of up to 49% of all shares of common stock
beneficially owned by Mr. Anatian, for transfers to family members and
affiliates who agree to be bound by the lock-up provisions and for transfers
among Rachamim Anatian, Barbara Laurence and Mordechai Gal-Oliver or any of
their family members and affiliates. See "Management--1997 Stock Options Plan."
The Company has agreed to issue to the Representatives warrants to purchase
an aggregate of 312,500 shares (359,375 shares if the Over-allotment Option is
exercised in full) of Class A Common Stock (the "Representatives' Warrants").
The shares of Class A Common Stock subject to the Representatives' Warrants
will be in all respects identical to the shares of Class A Common Stock offered
to the public in the Common Stock Offering. The Representatives' Warrants will
be exercisable for a five-year period commencing one year after the closing
date of the Offerings at a per share exercise price equal to 110% of the
initial public offering price in the Common Stock Offering. Neither the
Representatives' Warrants nor the underlying shares of Class A Common Stock may
be transferred, assigned, or hypothecated for a period of one year from the
closing of the Offerings, except to the extent permitted by applicable rules of
the National Association of Securities Dealers, Inc. During the period
beginning one year from the closing of the Offerings and ending five years
after such effective date, the Company has agreed at its expense to register
under the Securities Act the shares of Class A Common Stock issued or issuable
upon exercise of the Representatives' Warrants and, for the period beginning
one year from the date of this Prospectus and ending seven years after such
effective date, to include such shares of Class A Common Stock in any
appropriate registration statement which is filed by the Company. The
Representatives' Warrants will contain anti-dilution provisions providing for
appropriate adjustment of the exercise price and number of shares that may be
purchased upon the occurrence of certain events. The Representatives' Warrants
may be exercised by paying the exercise price in cash, through the surrender of
shares of Class A Common Stock, through a reduction in the number of shares
covered thereby, or by using a combination of such methods.
The Underwriting Agreement provides that the Company will indemnify the
Underwriters and their controlling persons against certain liabilities under
the Securities Act, or will contribute to payments the Underwriters and their
controlling persons may be required to make in respect thereof. The Company has
been advised that, in the opinion of the Commission, such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable.
The Representatives have advised the Company that no Underwriter intends to
confirm sales to any account over which it exercises discretionary authority
except to the extent that the aggregate of such sales does not exceed 5% of the
number of shares of Class A Common Stock to be purchased by such Underwriter.
Prior to the Common Stock Offering, there has been no market for the Class A
Common Stock. The initial public offering price was determined by negotiations
among the Company and the Representatives. The primary factors considered in
such negotiations were prevailing economic prospects, the financial and
operating performance of the Company, an assessment of the Company's
management, the prospects for future earnings of the Company, market valuations
of public companies in related businesses and the general condition of the
securities markets.
FBR is also acting as the Underwriter of the Notes Offering. See "Summary--
Concurrent Offering." FBR acted as placement agent for the Bridge Loan, for
which it earned a fee of $1.0 million which will be paid out of the proceeds of
the Offerings.
ALT-9
<PAGE>
[ALTERNATE PAGE FOR COMMON STOCK PROSPECTUS]
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER PERSON IS AUTHORIZED IN CONNECTION WITH
ANY OFFERING MADE HEREBY TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS
NOT CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COM-
PANY OR BY THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITY OTHER THAN THE SECURI-
TIES OFFERED HEREBY, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION
OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANY PERSON IN ANY
JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION TO
SUCH PERSON. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUN-
DER SHALL UNDER ANY CIRCUMSTANCES CREATE AN IMPLICATION THAT THE INFORMATION
CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.
----------------
TABLE OF CONTENTS
----------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary....................................................... 3
Summary Financial and Operating Data..................................... 10
Risk Factors............................................................. 11
Use of Proceeds.......................................................... 17
Dividend Policy..........................................................
Dilution.................................................................
Capitalization........................................................... 18
Selected Financial Data.................................................. 19
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 20
The Company.............................................................. 23
Business................................................................. 24
Management............................................................... 40
Summary Compensation Table............................................... 42
Principal Stockholders................................................... 46
Certain Relationships and Related Transactions........................... 47
Description of Notes..................................................... 48
Description of Capital Stock............................................. 72
Shares Eligible for Future Sale..........................................
Underwriting............................................................. 76
Legal Matters............................................................ 77
Experts.................................................................. 77
Additional Information................................................... 77
Index to Combined Financial Statements................................... F-1
</TABLE>
UNTIL , 1997, (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS EF-
FECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDI-
TION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDER-
WRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
12,500,000 SHARES
GLOBAL BROADCASTING SYSTEMS, INC.
CLASS A COMMON STOCK
----------------
PROSPECTUS
----------------
FRIEDMAN, BILLINGS, RAMSEY & CO., INC.
PRIME CHARTER LTD.
, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the expenses expected to be incurred in
connection with the issuance and distribution of the securities registered
hereby, all of which expenses, except for the Commission registration fee, the
National Association of Securities Dealers, Inc. filing fee and the Nasdaq
National Market System listing application fee, are estimates:
<TABLE>
<CAPTION>
DESCRIPTION AMOUNT
----------- ------
<S> <C>
Securities and Exchange Commission Registration Fee......... $151,515.16
National Association of Securities Dealers, Inc. Filing
Fee........................................................ 30,500.00
Nasdaq National Market System Listing Application Fee....... 48,750.00
Accounting Fees and Expenses................................ *
Legal Fees and Expenses..................................... *
Printing and Engraving Fees and Expenses.................... *
Trustee Fees and Expenses................................... *
Transfer Agent Fees and Expenses............................ *
Miscellaneous Expenses...................................... *
-----------
Total..................................................... $ *
===========
</TABLE>
- --------
* To be provided by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company is a Delaware corporation. Reference is made to Section
102(b)(7) of the Delaware General Corporation Law (the "DGCL"), which enables
a corporation in its original certificate of incorporation or an amendment
thereto to eliminate or limit the personal liability of a director for
violations of the director's fiduciary duty, except (i) for any breach of the
director's duty of loyalty to the corporation or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct or
a knowing violation of law (iii) pursuant to Section 174 of the DGCL
(providing for liability of directors for unlawful payments of dividends of
unlawful stock purchase or redemptions) or (iv) for any transaction from which
a director derived an improper personal benefit.
Reference is also made to Section 145 of the DGCL, which provides that a
corporation may indemnify any person, including an officer or director, who
is, or is threatened to be made, party to any threatened, pending or completed
legal action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of such corporation),
by reason of the fact that such person was an officer, director, employee or
agent of such corporation or is or was serving at the request of such
corporation as a director, officer, employee or agent of another corporation
or enterprise. The indemnity may include expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably
incurred by such person in connection with such action, suit or proceeding,
provided such officer, director, employee or agent acted in good faith and in
a manner he reasonably believed to be in, or not opposed to, the corporation's
best interest and, for criminal proceedings, had no reasonable cause to
believe that his conduct was unlawful. A Delaware corporation may indemnify
any officer or director in an action by or in the right of the corporation
under the same conditions, except that no indemnification is permitted without
judicial approval if the officer or director is adjudged to be liable to the
corporation. Where an officer or director is successful on the merits or
otherwise in the defense of any action referred to above, the corporation must
indemnify him against the expenses that such officer or director actually and
reasonably incurred.
Article VIII of the By-laws of the Company (filed as Exhibit 3.3) provides
for indemnification of the officers and directors to the full extent permitted
by applicable law.
Rachamim Anatian, the Company's co-founder, Chairman and Chief Executive
Officer, personally guaranteed certain obligations of GSN (the "Anatian
Obligations"). In connection therewith, pursuant to an
II-1
<PAGE>
Indemnification agreement, dated March 10, 1997, the Company agreed to
indemnify Mr. Anatian for any costs, losses or damages suffered by him in
connection with the Anatian Obligations.
Barbara Laurence, the Company's President, personally guaranteed certain
obligations of GSN (the "Laurence Obligations"). In connection therewith,
pursuant to an Indemnification Agreement, dated March 23, 1996 (the
"Indemnification Agreement"), GSN and Rachamim Anatian, the Company's founder,
Chairman and Chief Executive Officer, agreed, jointly and severally, to
indemnify Ms. Laurence for any costs, losses or damages suffered by her in
connection with the Laurence Obligations. To secure the obligations of GSN and
Mr. Anatian under the Indemnification Agreement, GSN agreed to maintain "key-
person" insurance for Mr. Anatian in the amount of $2.0 million. In connection
with the Corporate Restructuring, the Company has assumed the obligations of
GSN under the Indemnification Agreement.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Since its incorporation in May 1996, the Company has issued the following
securities:
(a) On June 6, 1996, the Company issued 50 shares of Common Stock to Barbara
Laurence as compensation for services rendered valued at $979,350. Exemption
from registration for this issuance was claimed on the grounds that the
issuance of such securities did not involve a public offering within the
meaning of Section 4(2) of the Securities Act of 1933, as amended.
(b) On June 7, 1996, the Company issued 225 shares of Common Stock to
Rachamim Anatian and 100 shares to each of Charles Gundy LLC, Chesed LLC,
Keter LLC, Kaballa LLC, Atik LLC, Mamash LLC, and Van Harper LLC, in return
for cash payment by Rachamim Anatian of $9,788,350. The Company also issued 30
shares of Common Stock to Mordechai Gal-Oliver in exchange for a cash payment
of $587,610. Exemption from registration for these issuances was claimed on
the grounds that the issuances of such securities did not involve a public
offering within the meaning of Section 4(2) of the Securities Act of 1933, as
amended.
(c) On July 7, 1996, the Company issued .625 shares of Common Stock to
Daniel De Wolf as compensation for services rendered valued at $12,242 and 1
share to Regina Jabbour in exchange for services rendered valued at $19,587.
Exemption from registration for these issuances was claimed on the grounds
that the issuances of such securities did not involve a public offering within
the meaning of Section 4(2) of the Securities Act of 1933, as amended.
(d) On October 6, 1996, the Company issued Larry Stacks .5 shares of Common
Stock in exchange for services rendered valued at $9,794, and issued Edward
Stacks .5 shares of Common Stock in exchange for services rendered valued at
$9,794. Exemption from registration for this issuance was claimed on the
grounds that the issuance of such securities did not involve a public offering
within the meaning of Section 4(2) of the Securities Act of 1933, as amended.
(e) On January 29, 1997, the Company issued 4 shares of Common Stock to
Regina Jabbour in exchange for services rendered valued at $78,348, 2 shares
to Larry Stacks in exchange for services rendered valued at $39,174, and 2
shares to Edward Stacks in exchange for services rendered valued at $39,174.
Exemption from registration for these issuances was claimed on the grounds
that the issuance of such securities did not involve a public offering within
the meaning of Section 4(2) of the Securities Act of 1933, as amended.
(f) On January 29, 1997, the Company amended its Certificate of
Incorporation to provide for two classes of Common Stock, Class A and Class B.
This amendment also provided that each issued and outstanding share of Common
Stock was designated as one share of Class B Common Stock.
(g) On January 30, 1997, the Company issued 192.708 shares of Class B Common
Stock to Rachamim Anatian in return for a cash payment of $2,039,236.
Exemption from registration for this issuance was claimed on the grounds that
the issuance of such securities did not involve a public offering within the
meaning of Section 4(2) of the Securities Act of 1933, as amended.
(h) In connection with its merger with Global Shopping Network, Inc.
("GSN"), on January 30, 1997 the Company issued to (i) Barbara Laurence 31.837
shares of Class A Common Stock in exchange for 208.082
II-2
<PAGE>
shares of GSN Class B Common Stock; (ii) Daniel De Wolf .383 shares of Class A
Common Stock in exchange for 2.5 shares of GSN Class B Common Stock; (iii)
Chelsea Television Studios 8.17 shares of Class A Common Stock in exchange for
53.396 shares of GSN Class A Common Stock; (iv) Regina Jabbour .765 shares of
Class A Common Stock in exchange for 5 shares of GSN Class A Common Stock; (v)
Larry Stacks .860 shares of Class A Common Stock in exchange for 5.621 GSN
shares of Class B Common Stock; (vi) Edward Stacks .860 shares of Class A
Common Stock in exchange for 5.621 shares of GSN Class B Common Stock; and
(vii) Lucille Werlinich .688 shares of Class A Common Stock in exchange for
4.497 shares of GSN Class B Common Stock. Also in connection with its merger
with GSN, on January 30, 1997, the Company issued to (i) Rachamim Anatian
92.008 shares of Class B Common Stock in exchange for 601.3575 shares of GSN
Class A Common Stock; (ii) 12.629 shares of Class B Common Stock to each of
Charles Gundy LLC, Chesed LLC, Keter LLC, Kaballa LLC, Atik LLC, Mamash LLC
and Van Harper LLC, in each case for 82.5393 shares of GSN Class A Common
Stock from each of the above LLCs (iii) Ofer Mucha 4.590 shares of Class B
Common Stock in exchange for 30 shares of GSN Class A Common Stock; (iv)
Steven Fallas .765 shares of Class B Common Stock in exchange for 5 shares of
GSN Class A Common Stock; (v) Mordechai Rausch .765 shares of Class B Common
Stock in exchange for 5 shares of GSN Class A Common Stock; and (vi) Mordechai
Gal-Oliver 5.738 shares of Class B Common Stock in exchange for 37.5 shares of
GSN Class A Common Stock. Exemption from registration for these issuances is
claimed because such securities were issued in accordance with Rule 152 of the
Securities Act of 1933, as amended, and on the grounds that the issuances of
such securities did not involve a public offering within the meaning of
Section 4(2) of the Securities Act of 1933, as amended.
(i) On February 26, 1997, the Company issued $25,000,000 aggregate principal
amount of notes constituting the Bridge Loan to five accredited investors.
Exemption from registration for this issuance was claimed on the grounds that
the issuance of such securities did not involve a public offering within the
meaning of Section 4(2) of the Securities Act of 1933, as amended.
None of the share numbers set forth above give effect to the 13,924.0888-to-
1 stock split that will be effected prior to the Offerings.
ITEM 16. EXHIBITS.
(a) Exhibits:
A list of the exhibits included as part of this Registration Statement is
set forth in the Exhibit Index that immediately precedes such exhibits and is
incorporated by reference.
(b) Financial Statement Schedules.
All schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission have been omitted
because they are not required, are inapplicable or the required information
has already been provided elsewhere in the Registration Statement.
ITEM 17. UNDERTAKINGS.
(a) The undersigned Registrant hereby undertakes to provide to the
Underwriters at the closing specified in the Underwriting Agreement,
certificates in such denominations and registered in such names as required by
the Underwriters to permit prompt delivery to each purchaser.
(b) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the 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
II-3
<PAGE>
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.
(c) The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be a part of this
Registration Statement as of the time it was declared effective.
(2) For purposes of determining any liability under the Securities Act of
1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment to Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the County of New
York, State of New York on March 12, 1997.
Global Broadcasting Systems, Inc.
By: /s/ Rachamim Anatian
-------------------------------
RACHAMIM ANATIAN
CHIEF EXECUTIVE OFFICER
POWER OF ATTORNEY
Know All Men By These Presents, that each person whose signature appears on
the signature page to this Amendment to Registration Statement constitutes and
appoints Rachamim Anatian and Barbara Laurence, and each of them, his true and
lawful attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments (including post-effective
amendments) to this Amendment to Registration Statement, and to file the same,
with all exhibits thereto, and other documents in connection therewith, with
the Securities and Exchange Commission, and grants unto said attorneys-in-fact
and agents, and each of them, full power and authority to do and perform each
and every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or any of them, or their or his substitutes, may lawfully do or cause
to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to Registration Statement has been signed by the following persons in the
capacities indicated on March 12, 1997.
SIGNATURE TITLE
/s/ Rachamim Anatian
- ------------------------------------- Director, Chairman and Chief
RACHAMIM ANATIAN Executive Officer
/s/ Barbara Laurence
- ------------------------------------- Director and President
BARBARA LAURENCE
/s/ Daniel De Wolf
- ------------------------------------- Director and Secretary
DANIEL DE WOLF
/s/ Harvey Watkins
- ------------------------------------- Chief Financial Officer
HARVEY WATKINS
/s/ Stacy Goodman
- ------------------------------------- Chief Accounting Officer
STACY GOODMAN
II-5
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
------- ----------- ------------
<C> <S> <C>
**1.1 Form of Underwriting Agreement for Notes Offering
**1.2 Form of Underwriting Agreement for Common Stock
Offering
*2 Agreement and Plan of Merger, dated January 30, 1997,
between GBS and GSN
*3.1 Certificate of Incorporation of Ramcast
*3.2 Certificate of Amendment to the Certificate of
Incorporation of Ramcast
*3.3 Amended and Restated Bylaws of Ramcast
**3.4 1997 Stock Option Plan of GBS
*4.1 Form of Indenture between GBS and IBJ Schroder Bank &
Trust Company, as Trustee with respect to Notes
*4.2 Form of Notes (included in Exhibit 4.1)
4.3 Form of Class A Common Stock Certificate
**5 Opinion of Latham & Watkins
**10.1 Employment Agreement between GBS and Mr. Anatian,
dated , 1997
**10.2 Employment Agreement between GBS and Mr. Gal-Oliver,
dated , 1997
**10.3 Employment Agreement between GBS and Ms. Laurence,
dated , 1997
*10.4 Agreement between GSN and Chelsea Television Studios,
dated January 16, 1996
**10.5 Programming Facilities Agreement between GSN and
Chelsea Television, dated , 1997
***10.6 Agreement between GSN and GE American Communications,
Inc., dated March 27, 1996
*10.7 Earth Station Service Agreement between GSN and GE
American Communications, Inc., dated January 8, 1997
*10.8 Lease Agreement with Dino & Sons Realty Co., dated
October 1996
**10.9 Asset Purchase Agreement, dated September , 1996,
relating to Boston station acquisition
**10.10 Asset Purchase Agreement, dated July , 1996, relating
to Raleigh-Durham station acquisition
10.11 Asset Purchase Agreement, dated July 3, 1996, relating
to San Francisco station acquisition
**10.12 Stock Purchase Agreement, dated November , 1996,
relating to Los Angeles station acquisition
10.13 Indemnification Agreement, dated March 23, 1996,
between Ramcast and Ms. Laurence
10.14 Indemnification Agreement, dated March 10, 1997,
between GBS and Mr. Anatian
**10.15 Loan Agreement, dated , 1997, between GBS and Ms.
Laurence
*10.16 Capital Contribution Agreement, dated January 30,
1997, between Mr. Anatian and GBS.
12 Computation of Earnings to Fixed Charges
**23.1 Consent of Latham & Watkins (included in the Opinion
of Latham & Watkins, filed as Exhibit 5)
23.2 Consent of KPMG Peat Marwick LLP
24 Power of Attorney (included on the signature page in
Part II of Amendment No. 2 to Registration Statement)
*25 Form T-1
</TABLE>
- --------
*Previously filed.
**To be filed by amendment.
*** Portions of this exhibit (previously filed) have received confidential
treatment pursuant to Rule 406(b) under the Securities Act.
II-6
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
------- ----------- ------------
<C> <S> <C>
**1.1 Form of Underwriting Agreement for Notes Offering
**1.2 Form of Underwriting Agreement for Common Stock
Offering
*2 Agreement and Plan of Merger, dated January 30, 1997,
between GBS and GSN
*3.1 Certificate of Incorporation of Ramcast
*3.2 Certificate of Amendment to the Certificate of
Incorporation of Ramcast
*3.3 Amended and Restated Bylaws of Ramcast
**3.4 1997 Stock Option Plan of GBS
*4.1 Form of Indenture between GBS and IBJ Schroder Bank &
Trust Company, as Trustee with respect to Notes
*4.2 Form of Notes (included in Exhibit 4.1)
4.3 Form of Class A Common Stock Certificate
**5 Opinion of Latham & Watkins
**10.1 Employment Agreement between GBS and Mr. Anatian,
dated , 1997
**10.2 Employment Agreement between GBS and Mr. Gal-Oliver,
dated , 1997
**10.3 Employment Agreement between GBS and Ms. Laurence,
dated , 1997
*10.4 Agreement between GSN and Chelsea Television Studios,
dated January 16, 1996
**10.5 Programming Facilities Agreement between GSN and
Chelsea Television, dated , 1997
***10.6 Agreement between GSN and GE American Communications,
Inc., dated March 27, 1996
*10.7 Earth Station Service Agreement between GSN and GE
American Communications, Inc., dated January 8, 1997
*10.8 Lease Agreement with Dino & Sons Realty Co., dated
October 1996
**10.9 Asset Purchase Agreement, dated September , 1996,
relating to Boston station acquisition
**10.10 Asset Purchase Agreement, dated July , 1996, relating
to Raleigh-Durham station acquisition
10.11 Asset Purchase Agreement, dated July 3, 1996, relating
to San Francisco station acquisition
**10.12 Stock Purchase Agreement, dated November , 1996,
relating to Los Angeles station acquisition
10.13 Indemnification Agreement, dated March 23, 1996,
between Ramcast and Ms. Laurence
10.14 Indemnification Agreement, dated March 10, 1997,
between GBS and Mr. Anatian
**10.15 Loan Agreement, dated , 1997, between GBS and Ms.
Laurence
*10.16 Capital Contribution Agreement, dated January 30,
1997, between Mr. Anatian and GBS.
12 Computation of Earnings to Fixed Charges
**23.1 Consent of Latham & Watkins (included in the Opinion
of Latham & Watkins, filed as Exhibit 5)
23.2 Consent of KPMG Peat Marwick LLP
24 Power of Attorney (included on the signature page in
Part II of Amendment No. 2 to Registration Statement)
*25 Form T-1
</TABLE>
- --------
*Previously filed.
**To be filed by amendment.
*** Portions of this exhibit (previously filed) have received confidential
treatment pursuant to Rule 406(b) under the Securities Act.
<PAGE>
Exhibit 4.3
STOCK CERTIFICATE WITH A CERTIFICATE NO., THE NUMBER OF SHARES AND THE GLOBAL
BROADCASTING SYSTEMS, INC. EMBLEM, WITH THE FOLLOWING TEXT:
"Global Broadcasting Systems, Inc., incorporated under the laws of the State of
Delaware. CUSIP 378933105. This certifies that _____________________ is the
owner of ________________ fully paid and non-assessable shares of Class A Common
Stock, par value $0.01 per share, of Global Broadcasting Systems, Inc.
transferable on the books of the Corporation by the holder hereof in person or
by duly authorized Attorney, on surrender of this Certificate properly endorsed.
This Certificate is not valid until countersigned and registered by the Transfer
Agent and Registrar. Witness the facsimile seal of the Corporation and the
facsimile signatures of its duly authorized officers.
CERTIFICATE OF STOCK
Dated ____________, 19__.
Countersigned and Registered:
CONTINENTAL STOCK TRANSFER AND TRUST COMPANY.
Transfer Agent
and Registrant
By:
Authorized Officer
_____________________________ [CORPORATE SEAL] _______________________________
Treasurer President
BACK OF CERTIFICATE: VARIOUS ABBREVIATIONS AND THE LANGUAGE:
"For value received, ______ hereby sell, sign and transfer unto _______________
_______ Shares of the Common Stock represented by the within Certificate and do
hereby irrevocably constitute and appoint _______________________ Attorney to
transfer the said Shares on the books of the within named Corporation with full
power of substitution in the premises.
Dated ___________, 19__.
In the presence of ______________.
Notice: The signature of the Assignment must correspond with the name as written
upon the face of the Certificate and every particular without alteration or
enlargement or any change whatever. Social security or other identifying number
of Assignee."
<PAGE>
EXHIBIT 10.11
KCNS ASSET PURCHASE AGREEMENT
BY AND BETWEEN
RAMCAST CORP.
AND
WEST COAST UNITED BROADCASTING CO.
DATED AS OF JULY 3, 1996
<PAGE>
THIS KCNS ASSET PURCHASE AGREEMENT dated as of July 3, 1996 is made
and entered into by and between RAMCAST Corp., a Delaware corporation ("Buyer"),
and WEST COAST UNITED BROADCASTING CO., A Washington corporation ("Seller").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Seller owns and operates, under licenses from the Federal
Communications Commission (the "FCC" or the "Commission"), television station
KCNS-TV and its auxiliary facilities in San Francisco, California, including all
the "Broadcasting Assets" (as hereinafter defined);
WHEREAS, Buyer desires to purchase all the Broadcasting Assets from
Seller and to obtain from Seller an assignment of all Commission licenses and
authorizations held by Seller in connection with its operation of the Station
(as hereinafter defined), Seller desires to sell all the Broadcasting Assets to
Buyer and to assign to Buyer all Commission licenses and authorizations held by
Seller in connection with its operation of the Station and, in connection
therewith, Buyer is willing to assume certain specified obligations of Seller
relating to the Station, all in accordance with the terms and conditions herein
set forth;
WHEREAS, Seller may not assign the aforesaid licenses and
authorizations to Buyer without the prior written consent of the Commission, the
receipt of which is a condition precedent to the consummation of this Agreement;
and
KCNS Asset Purchase Agreement - Page 1
<PAGE>
WHEREAS, the Schedules to this Agreement are contained in separate
Volumes of Schedules dated, initialed by or on behalf of Buyer and Seller, and
delivered to Buyer concurrently with the execution and delivery of this
Agreement;
NOW, THEREFORE, in consideration of the mutual promises contained
herein, the parties hereto hereby agree as follows:
1. Definitions. As used herein, the following terms shall have the
-----------
following meanings:
1.1 Broadcasting Assets. Subject to the provisions of Section 7,
-------------------
Broadcasting Assets shall mean the assets set forth below
existing on the date of this Agreement and all such assets
acquired between that date and the Closing Date:
(a) all real property leasehold interests of Seller owned, used
or held for use in the conduct of the business and
operations of the Station as of the date hereof and more
fully described in Schedule 1.1(a) hereto;
(b) all equipment, furniture, fixtures, vehicles, tapes, office
materials and supplies, spare parts, tubes and other
tangible personal property of every kind and description
owned, leased or held and used by or useful to Seller
primarily in connection with the business and operations of
the Station, including, without limitation, as set forth in
Schedules 1.1(b)(1), assets which are or will be property
owned
KCNS Asset Purchase Agreement - Page 2
<PAGE>
by Seller at Closing, and 1.1(b)(2) assets which will be
leased but not owned by Seller at Closing, but not including
those items set forth in Schedule 1.8, all of which are to
be specifically excluded from the assets to be transferred
to Buyer pursuant to this Agreement, and any additions,
improvements and replacements thereto between the date
thereof and the Closing Date;
(c) all contracts, agreements and leases of Seller, but not
including the real property leases described on Schedule
1.1(a), and not including those contracts and agreements not
being assumed by Buyer, which pertain to the business and
operations of the Station on the date hereof and set forth
on Schedule 1.1(c) hereto;
(d) all Licenses (as defined below) and, to the extent
assignable, any other governmental authorizations held and
used by or useful to Seller in connection with the business
and operations of the Station as of the date hereof, all of
which Licenses and other governmental authorizations are set
forth in Schedule 1.1(d) hereto;
(e) all franchises, trademarks, trade names, call letters,
including all rights in and to the call letters "KCNS" and
"KCNS-TV", service marks, copyrights in literary property of
any kind, jingles and privileges, if any, owned or held and
used by or useful to Seller in connection with the business
and operations of the Station as of the
KCNS Assets Purchase Agreement - Page 3
<PAGE>
date hereof, as set forth in Schedule 1.1(e) hereto, and any
additions, renewals or extensions thereto between the date
hereof and the Closing Date, but not including any
tradenames, trademarks, service marks, copyrights or
goodwill associated with, belonging to or related to the
programming known as Inside China, Rainbow TV, Amasia and/or
Fengshui, all of which are specifically excluded from the
assets to be transferred to Buyer pursuant to this
Agreement; and
(f) all other tangible personal property of every kind and
description owned or held and used by or useful to Seller in
connection with the business and operations of the Station
on the date hereof, including, without limitation, the
computer software of the Station.
1.2 Business Day means a day on which commercial banking institutions
------------
in New York, New York are open for the transaction of
substantially all of their banking business.
1.3 Closing means the consummation of the purchase, assignment and
-------
sale of the Broadcasting Assets, and assumption of the Assumed
Obligations (as hereinafter defined), contemplated hereunder.
1.4 Closing Date means 9:30 a.m. Pacific Standard Time on a date ten
------------
(10) Business Days after the date on which the Final Order has
been issued provided that the Closing shall not be sooner than
the first Business Day
KCNS Asset Purchase Agreement - Page 4
<PAGE>
after 180 days following the date this Agreement is executed,
unless the parties mutually agree to a different time and date;
and provided, further, that Buyer may elect to extend the Closing
until an additional thirty (30) days thereafter.
1.5 Closing Place means the offices of West Coast United Broadcasting
-------------
Co., 1550 Bryant Street, San Francisco, California, or such other
place as the parties may agree.
1.6 Code means the Internal Revenue Code of 1986, as amended.
----
1.7 ERISA means the Employee Retirement Income Security Act of 1974,
-----
as amended.
1.8 Excluded Assets means the assets set forth in Schedule 1.8 and
---------------
all assets not specifically identified as Broadcasting Assets
including, (a) cash and cash equivalents on hand or on deposit in
banks, marketable securities or inter-company or inter-affiliate
accounts, (b) the name West Coast United Broadcasting Company,
any logogram, tradename, trademark, service mark, copyright or
patent (including applications and licenses therefor) related
thereto, (c) the names Inside China, Rainbow TV, Amasia or
Fengshui or any programming rights, logograms, tradenames,
trademarks, service marks, copyrights or patents related thereto,
(d) the income tax records of Seller, (e) policies of insurance,
(f) any contract, lease or agreement other than those
specifically set forth in Schedule 1.1(c) hereto, (g) any and all
KCNS Asset Purchase Agreement - Page 5
<PAGE>
accounts receivable of Seller, any goodwill or going concern
value attributable to Seller but not to the Station, if any, (h)
the amount of any pre-payments of taxes, insurance and other
expenses attributable to the period beginning on the Closing Date
and (i) any software, computer discs and/or related property not
located on the premises of the Station provided that copies of
such software, computer discs and\or related property utilized by
Seller in the operation of the Station may be copied by Buyer, at
Buyer's sole expense, to the extent permitted by law.
1.9 Final Order means the order of the Commission granting its
-----------
consent to the application referred to in Section 3 below,
including but not limited to an order by the Chief, Mass Media
Bureau, issued under delegated authority, which order has become
final either (a) by expiration of the time for review,
reconsideration or appeal of such order without any motion for
review, reconsideration or appeal having been timely filed or
instituted by the Commission on its own motion, or (b) in the
event of review, reconsideration or appeal, the Commission's
order has been affirmed and become final by expiration of the
time for further review, reconsideration or appeal.
1.10 Licenses means all licenses, permits and authorizations issued by
--------
the Commission for the operation of the Station and all
applications therefor, and any additions, renewals or extensions
thereto between the date hereof
KCNS Asset Purchase Agreement - Page 6
<PAGE>
and the Closing Date.
1.11 Station means television broadcast station KCNS, San Francisco,
-------
California, all broadcast auxiliary stations operated in
conjunction therewith and the Broadcasting Assets.
1.12 Uninsured Cost means with respect to which insurance proceeds are
--------------
not collected and are not capable of being collected in spite of
reasonable efforts by Seller.
2. Purchase of Assets, Purchase Prices and Method of Payment.
---------------------------------------------------------
2.1 Purchase of Assets. Subject to the terms and conditions contained
------------------
in this Agreement, at the Closing and effective 12:01 a.m.
Pacific Standard Time on the Closing Date:
(i) Seller shall sell, assign, transfer and deliver to
Buyer and Buyer shall purchase from Seller, the
Broadcasting Assets, but not the Excluded Assets, for
the consideration specified in Section 2.2 below,
(ii) Seller shall assign and deliver to Buyer, and Buyer
shall accept assignment from Seller, the Licenses and,
to the extent transferable, the other governmental
authorizations, and
(iii) Seller shall transfer and deliver to Buyer, and Buyer
shall assume, the Assumed Obligations, as defined in
Section 2.5 below.
2.2 Consideration. For and in full consideration of the assignments
-------------
and
KCNS Asset Purchase Agreement - Page 7
<PAGE>
(b) At Closing, the Earnest Money, together with any interest
accrued thereon, shall be disbursed to Seller and, in
addition, Buyer shall pay the sum of Twenty Seven Million
Dollars ($27,000,000) to Seller by wire transfer of Federal
funds in accordance with Seller's instructions delivered to
Buyer not less than two business days before the Closing
Date. At Closing, Seller shall redeposit with the Escrow
Agent Two Hundred Fifty Thousand Dollars ($250,000) to be
held and disbursed as provided in the Escrow Agreement.
2.4 Obligations. Except as set forth in Section 2.5 below, Buyer does not,
-----------
and shall not, assume or be deemed to have assumed under this
Agreement or by reason of any transactions contemplated hereunder any
debts, liabilities (contingent or otherwise) or obligations of Seller
of any nature whatsoever including, without limitation, (i) taxes,
(ii) obligations under all contracts, agreements and leases of Seller
not listed on any Schedule hereto, (iii) obligations arising out of or
in connection with any litigation, proceeding or investigation of any
nature arising out of the operation of the Station prior to the
Closing Date, and (iv) liabilities or obligations (contingent or
otherwise) in connection with any current or prior Employee Plan
(within the meaning of Section 4.9 hereof) and under any labor
agreement except as assumed pursuant to Section 7.9 hereof.
2.5 Assumed Obligations. Buyer shall assume and timely pay or perform no
-------------------
KCNS Asset Purchase Agreement - Page 9
<PAGE>
obligations of Seller other than the following (the "Assumed
Obligations"):
(a) all obligations relating solely to the ownership of the
Broadcasting Assets or the operation of the Station on or
after the Closing Date under:
(i) all contracts, agreements and leases of Seller
which pertain exclusively to the business and
operations of the Station and are set forth in
Schedules 1.1(a), 1.1(b)(2), and 1.1(c) hereto;
and
(ii) all contracts or amendments, renewals or other
modifications thereof which are entered into by
Seller between the date hereof and Closing Date
subject to the provisions of Sections 7.9 and
Section 13.3 below.
2.6 Allocation of Purchase Price. The Purchase Price, the adjustments
----------------------------
required pursuant to Section 13 hereof and the Assumed
Obligations shall be allocated among the Broadcasting Assets in
accordance with an allocation schedule to be prepared (the
"Allocation"), and the parties agree to report the purchase and
sale of the Broadcasting Assets in a manner consistent with the
Allocation, taking into account their respective tax and
financial accounting methods and practices. Notwithstanding the
foregoing, Buyer, at its election and expense, may obtain a
professional appraisal of the Broadcasting Assets which complies
with the applicable
KCNS Asset Purchase Agreement - Page 10
<PAGE>
requirements of Section 1060 of the Code and the regulations
promulgated thereunder (the "Appraisal"), in which case the
Allocation shall be based on the Appraisal and the parties shall
report the purchase and sale of the Broadcasting Assets in a
manner consistent with the Appraisal, taking into account their
respective tax and financial accounting methods and practices.
Buyer and Seller also shall comply with the applicable
information reporting requirements of Section 1060 of the Code
and the regulations promulgated thereunder. If any taxing
authority makes or proposes an allocation with respect to the
Broadcasting Assets that differs materially from the Allocation
or the Appraisal, as the case may be, Buyer and Seller shall each
have the right, at such party's election and expense, to contest
such taxing authority's determination. In the event of such a
contest, the other party agrees to cooperate reasonably with the
contesting party and shall have the right to file such protective
claims or returns as may be reasonably required to protect its
interest.
3. Application to the Commission. Buyer and Seller shall use their
-----------------------------
best efforts to file an application (the "Applications") with the Commission
within ten (10) days after the directors and shareholders of Seller shall have
affirmatively voted to approve this Agreement and the terms and conditions set
forth herein. (unless extended by mutual agreement of the parties), requesting
its written consent to the assignment of the Licenses (and any extensions or
renewals thereof) from Seller to Buyer as contemplated herein. Buyer and Seller
shall each pay one half
KCNS Asset Purchase Agreement - Page 11
<PAGE>
of the fee payable to the Commission in connection with the filing of the
Applications. Buyer and Seller shall each pay its own expenses in connection
with the preparation, prosecution and defense of the Applications. Buyer and
Seller shall, with respect to the Station, diligently take, or cooperate in the
taking of, all necessary, desirable and proper steps, provide any additional
information reasonably required, and otherwise use their best efforts to obtain
promptly the requested consent and approval of the Applications by the
Commission. If the FCC consent shall impose any condition upon either party
hereto, such party shall use its best efforts to comply with such condition;
provided, however, that neither Buyer nor Seller shall have any obligation to
take any unreasonable steps to satisfy complainants. If FCC reconsideration or
review or if judicial review shall be sought with respect to any FCC consent, by
a third party or upon the FCC's own motion, Buyer and Seller shall cooperate in
opposing such requests for FCC reconsideration or review or for judicial review.
Time is of the essence with respect to the provisions of this Section 3.
4. Representations and Warranties of Seller. Seller represents,
----------------------------------------
warrants, and agrees to and with Buyer that:
4.1 Organization and Standing. Seller (a) is a corporation duly
-------------------------
organized, validly existing and in good standing under the laws
of the State of Washington, (b) has full corporate power and
authority to enter into and perform this Agreement and the Escrow
Agreement, to own, hold, lease and operate the Broadcasting
Assets and to carry on the business associated with the
Broadcasting Assets as now being conducted and proposed to be
KCNS Asset Purchase Agreement - Page 12
<PAGE>
conducted by it under existing agreements, (c) is duly qualified
to do business and is in good standing as a foreign corporation
in California and every other jurisdiction in which the nature of
the business conducted by it requires such qualification, except
where the failure to so qualify or be in good standing would not
materially adversely affect Buyer or Seller, and (d) owns none of
the Broadcasting Assets, and conducts none of the business or
operations of the Station through any other corporation,
partnership or other entity.
4.2 Authorization and Binding Obligations. The execution, delivery
-------------------------------------
and performance of this Agreement and the Escrow Agreement have
been unanimously authorized and approved by the Board of
Directors of Seller, and the Board of Directors of Seller has
unanimously recommended this Agreement for approval by the
stockholders of Seller in accordance with the laws governing
Washington corporations. When the execution, delivery and
performance of this Agreement and the Escrow Agreement have been
duly and validly authorized by all necessary corporate action,
including approval of the entire transaction by the requisite
vote of Seller's shareholders, this Agreement and the Escrow
Agreement shall constitute valid and binding agreements of Seller
enforceable in accordance with their terms except as their
enforceability may be limited by bankruptcy, insolvency,
moratorium or other laws relating to or affecting creditors'
KCNS Asset Purchase Agreement - Page 13
<PAGE>
rights generally and the exercise of judicial discretion in
accordance with general equitable principles.
4.3 No Contravention. The execution, delivery and performance of this
----------------
Agreement and the Escrow Agreement, the consummation of the
transactions contemplated hereby and thereby and the compliance
with the provisions hereof and thereof by Seller will not (a)
violate any provisions of the corporate charter or by-laws of
Seller, (b) result in the breach of, or constitute (or with
notice or lapse of time or both constitute) a default under, or
result in the creation of any lien, charge or encumbrance upon
any of the Broadcasting Assets under the provisions of any
agreement or other instrument to which Seller is a party or by
which the property of Seller is bound or affected or (c) violate
any laws, rules, regulations, orders, judgments, writs,
injunctions, awards, decrees or Licenses or other governmental
authorizations applicable to Seller or any of its assets or
properties.
4.4 Title to Broadcasting Assets.
----------------------------
(a) Seller has, and at the Closing will have a legally valid
lease to all the real property leasehold interests set forth
in Schedule 1.1(a) to be transferred by it hereunder,
binding and enforceable upon Seller and, to the best of
Seller's knowledge, upon the Landlord in each lease
("Landlords"), in accordance with its terms. Said leases are
KCNS Asset Purchase Agreement - Page 14
<PAGE>
in full force and effect and have not been amended or modified
except as set forth in Schedule 1.1(a). There exists no default
on the part of the Landlords or Seller under the leases and no
event has occurred which, with the giving of notice or the
passage of time, or both, would constitute a default, and the
Seller has no right of offset or defense to its liability for the
payment, when due, or rent or any other charges due thereunder.
The Landlords have fully and satisfactorily performed all work
which they are required to perform for the Seller under the
leases and pursuant to all plans and specifications approved by
the Seller and all required contributions by the Landlords to the
Seller on account of the Seller's improvements have been
received. The Seller is in actual physical possession of the
space demised to the Seller under the leases and is paying rent
and other charges due to the Landlords in accordance with the
terms thereof. No person other than the Seller has any right of
occupancy with respect to such space pursuant to any sublease or
assignment thereof or otherwise for any part of premises set
forth in the leases, nor has the Seller received notice of a
prior sale, transfer, assignment, hypothecation or pledge of the
leases or of the rents secured therein. The Seller has no
defense, set off or counterclaim against the Landlords arising
out of any
KCNS Asset Purchase Agreement - Page 15
<PAGE>
other transaction between Seller and the Landlords or under
the leases. Seller has not deposited any funds with the
Landlords to secure the performance of the obligations of
the Seller under the leases.
(i) Landlord has, pursuant to that Agreement of Second
Lease Renewal and Amendment between Sutro Tower Inc.
and West Coast United Broadcasting Co. dated March 1,
1995, provided the utility services required in
paragraph 32 thereof.
(b) Seller has, or will have at Closing, good and marketable
title to all the personal property to be transferred by it
hereunder, free and clear of all mortgages, pledges, claims,
liens, charges, and any other encumbrances, except for and
subject only to (i) liens for taxes not yet due or payable
and (ii) the leases set forth in Schedule 1.1(b)(2).
Schedules 1.1(b)(1) and 1.1(b)(2) list all tangible personal
property reasonably necessary to conduct the business and
operations of the Station as presently conducted and owned
or held and used by or useful to Seller in connection with
the business and operations of the Station (except for any
item of tangible personal property having an original cost
of less than Two Thousand Five Hundred Dollars ($2,500.00)).
KCNS Asset Purchase Agreement - Page 16
<PAGE>
4.5 Condition of Assets.
-------------------
(a) The Broadcasting Assets described in Schedules 1.1(b)(1) and
1.1(b)(2) are in Seller's possession and are being operated
in accordance with the Licenses and in accordance with good
standards of broadcast engineering, are available for
immediate use in the operation of the Station and, and
except to the extent set forth on Schedule 4.5, do not
require maintenance or repairs other than ordinary, routine
maintenance and repairs.
(b) There are no outstanding contracts made by Seller for any
improvements to the Real Property Leasehold Interests which
have not been fully paid for.
4.6 Licenses: Qualification to be Assignor of Licenses.
--------------------------------------------------
(a) Schedule 1.1(d) hereto contains a true and complete list and
brief description of all Licenses required to permit, in
accordance with the rules and regulations of the Commission
and any other licenses required by governmental authority,
the continued operation of the business associated with the
Broadcasting Assets as now conducted or proposed to be
conducted under existing agreements, and any activity
ancillary or incidental to the ownership or operations of
the Station, and Seller is the authorized legal holder of
the Licenses.
(b) Each of the Licenses is valid and in full force and effect;
Seller is
KCNS Asset Purchase Agreement - Page 17
<PAGE>
in compliance with all the provisions of the Licenses and
with the Communications Act of 1934, as amended, and all
rules, regulations and orders of the Commission that are
applicable to Seller or to the operation of the Station or
the Broadcasting Assets. The Commission has not instituted
any proceedings for the cancellation, non-renewal or
modification of any of the Licenses and, to the knowledge of
Seller, no such proceedings are threatened. All other
licenses, permits or authorizations of any federal, state or
local governmental department or agency other than the
Commission which are required for the continued operation of
the business associated with the Station or the Broadcasting
Assets as now conducted or proposed to be conducted under
existing agreements (the "Governmental Authorizations") have
been obtained and are in full force and effect.
(c) There is no fact that, under present law (including the
Communications Act of 1934, as amended) and the present
rules and regulations of the Commission would disqualify
Seller from being the assignor of the Station or would delay
approval by the Commission of the Applications.
4.7 Contracts. All contracts, leases and agreements set forth on
---------
Schedules 1.1(a), 1.1(b)(2) and 1.1(c) are valid and binding
obligations of Seller and
KCNS Assets Purchase Agreement - Page 18
<PAGE>
licensed for its use and are valid and in good standing.
4.9 Plans and Agreements Relating to Employees.
------------------------------------------
(a) Except as set forth on Schedules 1.1(c) and 4.9(a) hereto,
there are no employee benefit plans, contracts or
arrangements of any type (including, without limitation, (i)
any employee benefit plans described in Section 3(3) of
ERISA, and (ii) any personnel policies, deferred
compensation plans, incentive plans, bonus plans or
arrangements, stock option plans, stock purchase plans,
golden parachute agreements, severance pay plans, dependent
care plans, cafeteria plans, employee assistance programs,
scholarship programs, employment contracts and other similar
plans, agreements and arrangements which are not so
described) which are currently in effect, or which have been
approved before the date of this Agreement but are not yet
effective, for the benefit of employees of Seller (or
beneficiaries of such employees) who provide or provided
services primarily to or in connection with the Station (the
"Station Employees"). Each of such employee benefit plans,
contracts or arrangements is herein referred to as an
"Employee Plan."
(b) Seller made available for review by Buyer true, correct and
complete copies of the following documents with respect to
each
KCNS Asset Purchase Agreement - Page 20
<PAGE>
Employee Plan (where applicable): (i) all plan documents and
agreements, as well as collective bargaining agreements and
amendments of same: and (ii) the most recent copies of all
summary plan descriptions, booklets and employee handbooks
distributed to plan participants.
(c) With respect to any funded employee pension plan within the
meaning of Section 3(2) of ERISA, (i) there has been no
accumulated funding deficiency within the meaning of Section
302(a)(2) of ERISA or Section 412 of the Code, which has
resulted or could result in the imposition of a lien upon
any of the Broadcasting Assets of Seller; and (ii) no event
has occurred and no circumstance exists under which Seller
has incurred or may incur, directly or indirectly, liability
under the provisions of Title IV of ERISA which could become
a liability of Buyer as a result of the transactions
contemplated hereby.
(d) Schedule 4.9(b) sets forth a list of all Station Employees,
together with their annualized base pay and a description of
the amount and basis of their other compensation, including
whether such compensation is governed by a collective
bargaining agreement. As of the date of this Agreement,
there are no labor controversies pending, or, to the best
of Seller's knowledge, threatened between
KCNS Asset Purchase Agreement - Page 21
<PAGE>
it and the Station Employees, except as set forth in
Schedule 4.9(c).
(e) Except as set forth in Schedule 4.9(d), Seller is not on the
date of this Agreement a party to any collective bargaining
agreement covering the employment of any Station Employees.
Seller neither is obligated to contribute nor is otherwise a
party to any employee welfare benefit plan or employee
pension benefit plan which is a multi-employer plan within
the meaning of Section 3(37) of ERISA covering any such
employee. Seller has not incurred any withdrawal liability
(either as a contributing employer or as part of a
controlled group which includes a contributing employer)
which has not been satisfied or which will not be satisfied
prior to the Closing to any multi-employer plan (as defined
in Section 3(37) of ERISA) in connection with any complete
or partial withdrawal from such plan occurring on or before
the Closing.
(f) With respect to each Employee Plan which is a group health
plan within the meaning of Section 5001(b)(1) of the Code,
Seller has complied with the provisions of Section 4980(B)
of the Code.
4.10 Financial Statements. Schedule 4.10 contains true and accurate
--------------------
copies of Seller's audited balance sheets as of December 31,
1995, 1994 and 1993 and the related statements of income,
stockholders equity and cash flows of Seller for the fiscal years
in the period ended December 31, 1995,
KCNS Asset Purchase Agreement - Page 22
<PAGE>
(collectively, the "Financial Statements").
4.11 Insurance. Schedule 4.11 contains a true and complete list, as
---------
of the date thereof, of all policies of insurance taken out by,
or for the benefit of, Seller which are in full force and effect
and cover any part of the Broadcasting Assets, the business
associates therewith or the personnel associated therewith, and
indicated the types and amounts of insurance under such policies.
Seller is not in default with respect to any provisions contained
in any insurance policies listed in Schedule 4.11 in any respect
that could result in a cancellation of such policies or a refusal
by the insurer to pay under such policies, nor has it failed to
give any notice or present any claim under any such insurance
policies in due and timely fashion.
4.12 Litigation. Except for administrative rulemaking or other
----------
proceedings of general applicability to the broadcast industry or
except as set forth in Schedule 4.12, (a) there is no litigation,
proceeding or investigation of any nature pending or, to the best
knowledge of Seller, threatened against Seller, any of its
affiliates, or the Broadcasting Assets which might result in a
material adverse effect upon the Station or the Broadcasting
Assets, which seeks to enjoin, prohibit or otherwise challenge
the transactions contemplated hereby or which might result in a
material adverse effect on the enjoyment and use by Buyer of the
Broadcasting Assets to be acquired
KCNS Asset Purchase Agreement - Page 23
<PAGE>
hereunder; (b) no judgment, award, order, or decree has been
rendered against Seller or, to the best knowledge of Seller,
affecting either Seller, any of its affiliates, or the
Broadcasting Assets which might result in a material adverse
effect upon the Station or the Broadcasting Assets or which
adversely affects the validity or enforceability of any of the
Licenses or Governmental Authorizations or the contracts, leases
or agreements listed in the Schedules hereto. Seller has not
violated or defaulted under any order, rule, regulation, policy,
writ, or decree of the Commission or any court or other agency or
governmental body in any respect which might materially adversely
affect the Station or the Broadcasting Assets.
4.13 Complaints. There is not, to the knowledge of Seller, any
----------
Commission investigation, notice of apparent liability or order
of forfeiture pending or outstanding against the Station
respecting any violation, or allegation thereof, of any
Commission rule, regulation or policy, or, to the knowledge of
Seller, any complaint before the Commission as a result of which
an investigation, notice of apparent liability, or order of
forfeiture may issue from the Commission relating to the Station.
To Seller's knowledge, Seller is in compliance with the Equal
Employment Opportunity rules and regulations of the Commission
with respect to the Station.
4.14 Reports. Excluding reports and statements which do not materially
-------
affect the business and operations of the Station, all reports
and statements
KCNS Asset Purchase Agreement - Page 24
<PAGE>
currently required to be filed by Seller with the Commission or
with any other governmental agency with respect to the Station
have been filed and substantially complied with and shall
continue to be filed and be in substantial compliance on a
current basis until the Closing Date. All such material reports
and statements are substantially complete and correct as filed,
and copies thereof will be furnished promptly to Buyer.
4.15 Taxes. Except as specifically set forth in Schedule 4.15 hereto,
-----
(i) all returns and reports of U.S. federal, state, local and
foreign income, profits, franchise, unincorporated business,
capital, general corporate, sales, use, occupation, property,
excise and any and all other taxes which Seller has assumed or
succeeded to or for which it was, is or may be otherwise liable,
whether directly, indirectly or by reason of having been included
in a consolidated return filed on behalf of one or more other
corporations (all such taxes, irrespective of the period for
which payable or attributable, being hereinafter referred to as
"Taxes") that are or were required to be filed have been filed on
a timely basis (taking into account any extensions granted by the
relevant taxing authorities) with the appropriate taxing
authorities in all jurisdictions in which such returns and
reports are or were required to be filed, and all such returns
and reports are true, correct and complete in all material
respects, (ii) all Taxes for which Seller was, is or may be
liable (including interest, additions to tax and penalties
thereon,
KCNS Asset Purchase Agreement - Page 25
<PAGE>
together with interest on such additions to tax and penalties)
have been fully paid, deposited, adequately reserved for or are
being contested in good faith, and other than as set forth on
Schedule 4.15, Seller is not otherwise aware of any deficiencies,
adjustments or other changes in assessments with respect to any
such Taxes, (iii) no issues have been raised (or are currently
pending) by any taxing authority in connection with any of the
returns and reports referred to in clause (i) of this Section
4.15(a) which are reasonably likely to be determined adversely to
Seller, (iv) no waivers or extensions of any statue of
limitations relating to the payment of Taxes for which Seller is,
was or may be liable have been given or have been requested by
any taxing authority, (v) no liens for Taxes for which Seller is,
was or may be liable which have not been satisfied or discharged
by payment or concession by the relevant taxing authority are in
force as of the hereof, and (vi) other than as set forth on
Schedule 4.15 hereto, Seller has not received notice and is not
otherwise aware of any audit, examination, action or proceeding
by any governmental authority for assessment or collection of
Taxes, charges, penalties or interest for which Seller was, is or
may be liable, and Seller has not executed a waiver of any
statue of limitations with respect thereto.
(b) Schedule 4.15 hereto describes all adjustments to the
returns and reports of Taxes referred to in Section 4.15
(a)(i) hereof and the
KCNS Asset Purchase Agreement - Page 26
<PAGE>
resulting deficiencies proposed with respect thereto in
writing by the relevant taxing authorities for periods prior
hereto. All deficiencies proposed in writing by such taxing
authorities for periods prior hereto have been paid,
reserved against, settled or are being contested in good
faith.
(c) All Taxes for which Seller was, is or may be liable that are
or were required by law to have been withheld, deposited or
collected have been duly withheld, deposited or collected
and, to the extent required, have been paid to the relevant
taxing authority.
4.16 Misstatements and Omissions. No representation or warranty made
---------------------------
by Seller in this Agreement, and no statement made in any
Exhibit, Schedule, certificate or other document furnished
pursuant to this Agreement, contains or will contain any untrue
statement of a material fact or omits or fails to state, or will
omit or fail to state, any material fact or information necessary
to make such representation or warranty or any such statement not
materially misleading.
4.17 Environmental Matters.
---------------------
(a) For purposes of this section, "Hazardous Materials" means
any wastes, substances, or materials, whether solids,
liquids or gases, that are deemed hazardous, toxic,
pollutants, or contaminants, including but not limited to
substances defined as "hazardous
KCNS Asset Purchase Agreement - Page 27
<PAGE>
wastes," "hazardous substances," "toxic substances,"
"radioactive materials," or other similar designations in,
or otherwise subject to regulation or reporting under, the
Comprehensive Environmental Response, Compensation and
Liability Act of 1980, ("CERCLA") as amended by the
Superfund Amendments and Reauthorization Act of 1986
("SARA"), 42 U.S.C. (S) 9601 et seq.; the Toxic Substance
------
Control Act ("TSCA"); 15 U.S.C. (S) 2601 et seq.; the
------
Hazardous Materials Transportation Act, 49 U.S.C. (S) 1802
et seq.; the Resource Conservation and Recovery Act
------
("RCRA"), 42 U.S.C. (S) 9601 et seq.; the Clean Water Act
------
("CWA"), 33 U.S.C. (S) 1251 et seq.; the Safe Drinking Water
------
Act, 42 U.S.C. (S) 300f et seq.; the Clean Air Act ("CAA"),
------
42 U.S.C. (S) 7401 et seq.; or other applicable federal,
------
state, or local laws, including any rules, regulations,
orders, or ordinances adopted, or other criteria and
guidelines promulgated pursuant to the preceding laws or
other similar federal, state, or local laws, regulations,
rules, orders, or ordinances relating to the protection of
human health and the environment (collectively
"Environmental Laws"). "Hazardous Materials" includes but is
not limited to polychlorinated biphenyis (PCBs), asbestos,
lead-based paints, and gasoline, diesel fuel, fuel oil,
motor oil, waste or used oil, petroleum raw materials and
any
KCNS Asset Purchase Agreement - Page 28
<PAGE>
other petroleum hydrocarbons (collectively, "Petroleum
Hydrocarbons"), including any additives, byproducts, or
contaminants associated therewith. "Environmental Condition"
means any pollution, contamination, degradation, damage or
injury caused by, related to, arising from, or in connection
with the generation, handling, use, treatment, storage,
transportation, disposal, discharge, release, or emission of
any "Hazardous Materials". "Environmental Liabilities" shall
mean any and all liabilities, responsibilities, claims,
suits, losses, costs (including remediation, removal,
response, abatement, cleanup, investigative and/or
monitoring costs and any other related costs and expenses),
other causes of action recognized now or at any later time,
damages, settlements, expenses, charges, assessments, liens,
penalties, fines, pre-judgement and post-judgment interest,
attorney fees and other legal fees (a) pursuant to any
agreement, order, notice, requirement, responsibility, or
directive (including directives embodied in Environmental
Laws), injunction, judgment or similar documents (including
settlements), or (b) pursuant to any claim by a governmental
entity or other third person or entity for personal injury,
property damage, damage to natural resources, remediation,
or similar costs or expenses incurred or asserted by such
entity or
KCNS Asset Purchase Agreement - Page 29
<PAGE>
person pursuant to common law or statute.
(b) Seller hereby represents and warrants that except as set
forth on Schedule 4.17(b):
(i) There are no pending or, to Seller's knowledge
threatened, actions, suits, claims, legal proceedings
or any other proceedings based on Hazardous Materials
or the Environmental Laws at the Property, or any
part thereof, or otherwise arising from Seller's
activities at the Property involving Hazardous
Materials;
(ii) To the best of Seller's knowledge, here are no
conditions, facilities, procedures or any other facts
or circumstances which could give rise to claims,
expenses, losses, liabilities, or governmental action
against Buyer in connection with any Hazardous
Materials present at or disposed of from the real
property leasehold interests, including without
limitation the following conditions arising out of,
resulting from, or attributable to, the assets,
business, or operations of Seller at the real
property leasehold interests: (A) the presence of any
Hazardous Materials on the real property leasehold
interests or the release or threatened release of any
Hazardous Materials into the environment from the
real
KCNS Asset Purchase Agreement - Page 30
<PAGE>
property leasehold interests; (B) the off-site
disposal of Hazardous Materials originating on or
from the real property leasehold interests or the
business or operations of Seller; (C) the release or
threatened release of any Hazardous Materials into
any storm drain, sewer, septic system or publicly
owned treatment works; (D) any noncompliance with
federal, state or local requirements governing
occupational safety and health, or presence or
release in the air and water supply systems of the
real property leasehold interests of any substances
that pose a hazard to human health or an impediment
to working conditions; or (E) any facility
operations, procedures or designs, which do not
conform to the statutory or regulatory requirements
of any Environmental Laws;
(iii) To the best of Seller's knowledge, neither PCBs nor
asbestos-containing materials nor Petroleum
Hydrocarbons are present on or in the real property
leasehold interests other than as may be "contained
in" the transformers used in connection with the
Station's transmitters, provided however, any such
hazardous materials shall not be considered to be
"contained in" to the extent that such
KCNS Assets Purchase Agreement - Page 31
<PAGE>
materials have leaked, spilled or been released into
the environment.
(iv) To the best of Seller's knowledge, the real property
leasehold interests contain no underground storage
tanks, or underground piping associated with tanks,
used currently or in the past for Hazardous Materials
or petroleum products.
5. Representations and Warranties of Buyer. Buyer represents,
---------------------------------------
warrants and agrees to and with Seller that:
5.1 Organization and Standing. Buyer (a) is a corporation duly
-------------------------
organized, validly existing and in good standing under the laws
of the State of Delaware, (b) has full corporate power and
authority to enter into and perform this Agreement and the Escrow
Agreement, to own, lease and operate the Broadcasting Assets, and
to carry on the business associated with the Broadcasting Assets
as now being conducted and proposed to be conducted by it under
existing agreements, and (c) is, or on the Closing Date will be,
duly qualified to do business and in good standing as a foreign
corporation in New York and California and every other
jurisdiction in which the nature of the business to be conducted
by it requires such qualification, except where the failure to so
qualify would not materially adversely affect Buyer or Seller.
5.2 Authorization and Binding Obligations. The execution, delivery
-------------------------------------
and
KCNS Asset Purchase Agreement - Page 32
<PAGE>
performance of this Agreement and the Escrow Agreement of even
date have been duly and validly authorized by all necessary
corporate action, including approval of the entire transaction by
the requisite vote of the board of directors of Buyer. This
Agreement and the Escrow Agreement have been duly executed and
delivered by Buyer and constitute the valid and binding agreement
of Buyer, enforceable in accordance with their terms except as
their enforceability may be limited by bankruptcy, insolvency,
moratorium or other laws relating to or affecting creditors'
rights generally and the exercise of judicial discretion in
accordance with general equitable principles.
5.3 No Contravention. The execution, delivery and performance of this
----------------
Agreement and the Escrow Agreement, the consummation of the
transactions contemplated hereby and thereby, and the compliance
with the provisions hereof and thereof by Buyer will not (a)
violate any provisions of the corporate charter or by-laws of
Buyer, (b) result in the breach of, or constitute (or with notice
or lapse of time or both constitute) a default under, the
provisions of any agreement or other instrument to which Buyer is
a party or by which the property of Buyer is bound or affected,
or (c) violate any laws, rules, regulations, orders, judgments,
writs, injunctions, awards, decrees, licenses or permits
applicable to Buyer or its respective assets or properties.
KCNS Asset Purchase Agreement - Page 33
<PAGE>
5.4 Litigation. Except for administrative rulemaking or other
----------
proceedings of general applicability to the broadcast industry,
or except as otherwise contemplated by this Agreement, there is
no litigation, proceeding, judgment, claim, action, investigation
or complaint before the Commission, other governmental body or
court of any nature instituted or, to the best of Buyer's
knowledge, threatened against or affecting it which would affect
Buyer's authority or ability to carry out this Agreement and the
Escrow Agreement.
5.5 Qualification To Be Licensee. Buyer is qualified to be a FCC
----------------------------
licensee and assignee of the Station under the applicable rules,
regulations and policies of the FCC. Neither Buyer nor any person
with an ownership or positional (as defined by the FCC) interest
(whether or not such interest is attributable under the
applicable rules, regulations and policies of the FCC) in Buyer
will, at any time from the date hereof until after Closing has
occurred, take any action which would cause the Buyer to be
disqualified as an FCC licensee or assignee of the Station or
which would require the waiver of any applicable FCC rule or
regulation with respect to this transaction for Buyer to be found
qualified as an FCC licensee or an assignee of the Station. Buyer
has no knowledge of any fact which would, under existing law
(including the Communications Act of 1934, as amended) and
existing rules, regulations and practices of the Commission,
KCNS Asset Purchase Agreement - Page 34
<PAGE>
disqualify Buyer as an assignee of the Licenses or as owner and
operator of the Broadcasting Assets.
5.6 Acknowledgment of Condition of Assets. Buyer has had an
-------------------------------------
opportunity to examine the Broadcasting Assets, and each of them,
and has reached an independent business judgment as to the
condition thereof and understands and agrees that it is
purchasing the Broadcasting Assets, and each of them, "as is,
where is" with all faults and without any warranty whatsoever as
to condition, merchantability or fitness for any use or purpose
whatsoever, other than those specific representations and
warranties of Seller as set forth herein.
6. Cable Systems. Seller represents and warrants that Schedule 6 hereto
-------------
sets forth a true, correct and complete list of all cable systems which on the
date hereof carry the Station's signal, all of which carry the signal without
specific contractual arrangement under the Commission's "must carry" rules.
Seller agrees to use its best efforts to take any and all actions necessary to
cause the Station's signal to continue to be carried on each cable system listed
on Schedule 6, including, without limitation, to obtain carriage under the
Commission's "must carry" rules on all such cable systems.
7. Conduct of Business to Closing. Seller agrees with respect to the
------------------------------
Station that pending the Closing, except with prior written consent of Buyer:
7.1 Conduct of Business. Seller shall conduct the business and
-------------------
operations of the Station in a careful and prudent manner and,
except as otherwise
KCNS Asset Purchase Agreement - Page 35
<PAGE>
contemplated by this Agreement, in the normal and ordinary course
of business in accordance with its present practices and shall
use its best efforts to preserve and promote such business and to
avoid any act which might have a material adverse effect upon the
value of such business as a going concern or upon the
Broadcasting Assets.
7.2 Broadcasting Assets. Seller shall maintain the Broadcasting
-------------------
Assets in the condition specified in Section 4.5 hereof.
7.3 Inventory. Seller shall maintain its existing inventory levels
---------
(including office supplies, spare parts, tubes, equipment and the
like) and shall replace inventory items expended, depleted or
worn out in accordance with Seller's normal operating procedures.
7.4 Employee Compensation and Benefits. Seller shall not, except as
----------------------------------
provided herein, increase the compensation, expense allowance or
other benefits payable or to become payable to any employee of
the Station, except in the ordinary course of business and in
conformity with Seller's normal patterns of adjustment with
respect to the Station.
7.5 Organization. etc. Seller shall use its best efforts to (a)
------------------
maintain the present quality of the operations of the Station;
(b) preserve the value of the Station as a going concern; (c)
preserve intact the business organization of the Station; and (d)
preserve for the Station the existing relationships with those
having business with the Station.
KCNS Asset Purchase Agreement - Page 36
<PAGE>
7.6 Insurance. Seller shall cause to be maintained in effect through
---------
the day following the Closing Date property damage, liability and
other insurance of at least the same type, amount and coverage as
that in effect on the date hereof with respect to the
Broadcasting Assets.
7.7 Transfer of Broadcasting Assets. Seller shall not sell, assign,
-------------------------------
lease or otherwise transfer or dispose of any of the Broadcasting
Assets without replacement with an equivalent asset of equivalent
kind, condition and value, except where such disposition is in
the ordinary course of business and the asset involved is no
longer used or useful.
7.8 Encumbrances. Seller shall not create, assume or permit to exist
------------
any mortgage, pledge, claim, lien, charge, servitude,
restriction, encroachment, lease, occupancy, tenancy, option,
preemptive right, or other encumbrance affecting any of the
Broadcasting Assets (or their replacements), which is not removed
at or prior to the Closing Date, other than those permitted by
this Agreement.
7.9 Agreements. Seller shall perform all obligations required to be
----------
performed by it under all agreements, leases and contracts set
forth on Schedule 1.1(c) hereto and, except as provided herein or
with the prior consent of Buyer, shall not amend or unilaterally
terminate the same (or waive any substantial right thereunder).
Seller shall promptly notify Buyer of any amendment, renewal or
extension, prior to the Closing
KCNS Asset Purchase Agreement - Page 37
<PAGE>
Date, of the Labor Agreement or the entering into of any new
collective bargaining agreement prior to the Closing Date.
Notwithstanding any other provisions of this Agreement, Buyer
shall have no obligation to assume any existing labor agreement
or Seller's obligations thereunder.
7.10 Licenses. Seller shall not, by any act or omission to act within
--------
its reasonable knowledge and power, surrender, modify, adversely
affect or forfeit any of the licenses.
8. Conditions Precedent to the Obligations of the Parties.
------------------------------------------------------
8.1 Conditions to Closing of Buyer. The obligation of Buyer under this
------------------------------
Agreement to purchase the Broadcasting Assets and to assume the Assumed
Obligations at Closing is subject to the following conditions precedent:
(a) Consent of Commission. (i) The Commission (including for
---------------------
purposes hereof the Chief, Mass Media Bureau, acting under
delegated authority) shall have issued and order(s)
consenting to the assignment of the Licenses to Buyer (the
"Orders") without the imposition of any condition that would
be unduly burdensome on or materially adverse to Buyer with
any affiliate thereof and each of said Orders shall have
become a Final Order; and
(ii) Seller shall have complied with the conditions
applicable to it imposed in the Orders.
KCNS Asset Purchase Agreement - Page 38
<PAGE>
(b) Purchase Price. Seller shall have complied with the terms of
--------------
Section 2.1 hereof and, to the extent applicable, the Escrow
Agreement.
(c) Delivery of Instruments of Conveyance and Transfer. Buyer
--------------------------------------------------
shall have received the instruments and other documents
required to be delivered to it pursuant to Section 12
hereof.
(d) Accuracy of Representations and Warranties. The
------------------------------------------
representations and warranties made herein (and in any
document delivered in connection herewith) by Seller shall
be true and correct in all material respects when made and
shall be true and correct in all material respects as of the
Closing Date with the same force and effect as though they
had been made thereon, except as otherwise contemplated by
this Agreement. Seller acknowledges and agrees that the
provisions of this Section 8.1(d) do not in any way preclude
or limit Buyer's right to indemnification for any loss,
cost, liability, damage and expense (including legal and
other expenses incident thereto) arising out of or resulting
from any inaccuracy, misrepresentation or breach of any
representation, warranty covenant or agreement of Seller
under this Agreement.
(e) Compliance with Agreement. All of the terms, covenants,
-------------------------
KCNS Asset Purchase Agreement-Page 39
<PAGE>
agreements and conditions of this Agreement to be performed
or complied with by Seller on or prior to the Closing shall
have been duly performed or complied with in all material
respects.
(f) No Obstructive Proceeding. No action or proceeding shall
-------------------------
have be instituted against, and no order, decree or judgment
of any court, agency, commission, or governmental authority
shall be subsisting against, the parties or any of the
parties which would render it unlawful, as of the Closing
Date, to effect the transactions contemplated hereunder in
accordance with the terms hereof or would affect, as of the
Closing Date, the assignability or validity of the Licenses.
(g) Adverse Change. There shall have been no materially adverse
--------------
change in the Station or the Broadcasting Assets from the
date hereof to the Closing Date except loss or damage
covered by an applicable policy of insurance and provided
that the lost or damaged assets shall have been repaired or
replaced or, alternatively, that the proceeds of the
applicable policy of insurance shall have been assigned to
Buyer.
(h) Officers' Certificates and Good Standing Certificates.
-----------------------------------------------------
Seller shall have delivered to Buyer at Closing:
(i) a certificate from the Secretary or Assistant Secretary
of
KCNS Asset Purchase Agreement - Page 40
<PAGE>
Seller confirming the existence, incorporation and
good standing of Seller on the date of Closing,
together with copies of its resolutions authorizing
the execution, delivery and performance of this
Agreement, the Escrow Agreement and all other
documents and the taking of all action required
thereunder or in connection therewith on behalf of
Seller;
(ii) a certificate of the Secretary or Assistant Secretary
of Seller certifying the incumbency of officers of
Seller and their genuine signatures, with a cross
certification of such Secretary or Assistant
Secretary's incumbency and genuine signature;
(iii) a certificate of the President and Chief Financial
Officer of Seller confirming that the representations
and warranties provided by Seller set forth in Section
4 hereof are true and correct in all material respects
as of the date of Closing with the same force and
effect as if they had been made thereon and certifying
that all covenants, agreements and conditions of this
Agreement to be performed or complied with by Seller
on or prior to the Closing have been duly performed or
complied with in all
KCNS Asset Purchase Agreement - Page 41
<PAGE>
material respects; and
(iv) certificates, executed by the proper official of
each jurisdiction, as to the good standing and
qualification to do business of Seller in
Washington and California.
(i) Opinions of Counsel. Buyer shall have received the written
-------------------
opinion of Young, deNormandie & Oscarsson, counsel for
Seller, dated the Closing Date, in substantially the form
attached to this Agreement as Exhibit A. In rendering its
opinion, such counsel may rely, to the extent appropriate,
as to matters of fact upon statements and certificates of
officers of Seller, and upon opinions attached to its
opinion from local or special counsel with respect to
matters appropriately covered by such local or special
counsel opinions.
(j) Certifications. Five (5) business days prior to Closing,
--------------
Seller shall have delivered to Buyer a certified schedule,
together with true and correct copies, of: (i) all
amendments, renewals, extensions, or other modifications
which have been entered into after the date of this
Agreement with respect to all agreements, leases and
contracts which are to be assigned to Buyer hereunder; (ii)
all tangible assets subject to the provisions of Section
13.3 hereof, and (iii) any other supplement to the
information provided on the Schedules hereto with respect to
any matter hereafter arising which, if existing or occurring
at the date of this
KCNS Asset Purchase Agreement-Page 42
<PAGE>
Agreement or the date of any of the Schedules, would have
been required to be set forth in or described in such
Schedules.
(k) Hart-Scott-Rodino Waiting Period. The applicable waiting
--------------------------------
period(s) under the Hart-Scott-Rodino Antitrust Improvement
Act of 1976 (the "Anti-Trust Act") with respect to the
transactions contemplated by this Agreement shall have
expired.
(l) Purchase of Certain Assets. Seller shall have purchased and
--------------------------
acquired all of the Broadcasting Assets described on
Schedule 1.1(b)(1) which Seller is leasing as of the date
hereof, so that, upon consummation of the transactions
contemplated hereby, Buyer shall purchase and acquire full
title to these assets.
(m) Non-disturbance. Attornment and Subordination Agreements.
--------------------------------------------------------
Non-disturbance, Attornment and Subordination Agreements
shall have been entered into by the Buyer as tenant, and any
lenders encumbering all real property leasehold interest as
set forth on Schedule 1.1(a), on terms and conditions to be
specified, in substantially the form attached hereto as
Exhibit B.
(n) Landlord Estoppel Certificate. Landlord Estoppel
-----------------------------
Certificates shall have been entered into by the Landlords
for all real property leasehold interests as set forth on
Schedule 1.1(a), in substantially the forms attached hereto
as Exhibits C and D.
KCNS Asset Purchase Agreement - page 43
<PAGE>
8.2 Conditions to Closing of Seller. The obligation of Seller under
-------------------------------
this Agreement to sell the Broadcasting Assets at Closing is
subject to the following conditions precedent:
(a) Consent of Commission.
---------------------
(i) The Commission (including for purposes hereof the
Chief, Mass Media Bureau, acting under delegated
authority) shall have issued the Orders without the
imposition of any condition that would be unduly
burdensome on or materially adverse to Seller; and
(ii) Buyer shall have complied with the conditions
applicable to it imposed in the Orders.
(b) Purchase Price. Buyer shall have complied with the terms of
--------------
Sections 2.2 and 2.3 hereof and of the Escrow Agreement.
(c) Delivery of Instruments of Assumption. Buyer shall have
-------------------------------------
delivered to Seller in accordance with Section 2.5 hereof
one or more instruments whereby Buyer assumes and agrees to
perform the Assumed Obligations, such instruments to be in
form and substance reasonably acceptable to Seller's
counsel.
(d) Representations and Warranties True and Correct. The
-----------------------------------------------
representations and warranties made herein (and in any
document delivered in connection herewith) by Buyer shall be
true and
KCNS Asset Purchase Agreement - Page 44
<PAGE>
correct in all material respects when made and shall be true
and correct in all material respects as of the Closing Date
with the same force and effect as if they had been made
thereon, except as otherwise contemplated by this Agreement.
Buyer acknowledges and agrees that the provisions of this
Section 8.2(d) do not in any way preclude or limit Seller's
right to indemnification for any loss, cost, liability,
damage and expense (including legal and other expenses
incident thereto) arising out of or resulting from any
inaccuracy, misrepresentation or breach of any
representation or warranty of Buyer under this Agreement.
(e) Compliance with Agreement. All of the terms, covenants,
-------------------------
agreements and conditions of this Agreement to be performed
or complied with by Buyer on or prior to the Closing shall
have been duly performed or complied with in all material
respects.
(f) No Obstructive Proceeding. No action or proceeding shall
-------------------------
have been instituted against, and no order, decree or
judgment of any court, agency, commission, or governmental
authority shall be subsisting against, the parties or any of
the parties which would render it unlawful, as of the
Closing Date, to effect the transactions contemplated
hereunder in accordance with the terms
KCNS Asset Purchase Agreement - Page 45
<PAGE>
hereof or would affect, as of the Closing Date, the
assignability of the Licenses.
(g) Officer's Certificates and Good Standing Certificates. Buyer
-----------------------------------------------------
shall have delivered to Seller at Closing:
(i) a certificate from the Secretary or Assistant
Secretary of Buyer confirming the existence,
incorporation and good standing of Buyer on the date
of Closing, together with copies of its resolutions
authorizing the execution, delivery and performance
of this Agreement, the Escrow Agreement and all other
documents and the taking of all action required
thereunder or in connection therewith on behalf of
Buyer;
(ii) a certificate of the Secretary or Assistant Secretary
of Buyer certifying the incumbency of officers of
Buyer and their genuine signatures, with a cross
certification of such Secretary or Assistant
Secretary's incumbency and genuine signature;
(iii) a certificate of the President and Chief Financial
Officer of Buyer confirming that the representations
and warranties provided by the Buyer set forth in
Section 5 hereof are true and correct in all material
respects as of
KCNS Assets Purchase Agreement - Page 46
<PAGE>
the date of Closing with the same force and effect as
if they had been made thereon and certifying that all
covenants, agreements and conditions of this
Agreement to be performed or complied with by Buyer
on or prior to the Closing have been duly performed
or complied with in all material respects; and
(iv) certificates, executed by the proper official of each
jurisdiction, as to the good standing and
qualification to do business of Buyer in Delaware,
New York and California.
(h) Opinion of Counsel. Seller shall have received the written
------------------
opinion of Fulbright & Jaworski L.L.P., counsel of Buyer,
dated the Closing Date, in substantially the form attached
to this Agreement as Exhibit E. In rendering its opinion,
such counsel may rely, to the extent appropriate, as to
matters of fact upon statements and certificates of officers
of Buyer and upon opinions attached to their opinion from
local or special counsel with respect to matters
appropriately covered by such local or special counsel
opinions.
(i) Hart-Scott-Rodino Waiting Period. The applicable waiting
--------------------------------
period(s) under the Antitrust Act with respect to the
transactions
KCNS Asset Purchase Agreement - Page 47
<PAGE>
contemplated by this Agreement shall have expired.
9. Covenants of Parties Pending Closing.
------------------------------------
9.1 Covenants of Seller Pending Closing.
-----------------------------------
(a) Financial Statements. Seller shall furnish to Buyer within
--------------------
thirty (30) days after the end of each monthly accounting
period, commencing with the period ending July 31, 1996, an
unaudited profit and loss statement of the Station for such
period and the year to date results for the period of its
fiscal year ended at the end of such period. The monthly
financial statements to be delivered by Seller hereunder
shall be prepared in accordance with the ordinary business
practices of Seller and shall accurately reflect the
financial records of Seller with respect to the operation of
the Station as of the dates and for the periods indicated.
Seller shall also furnish to Buyer any other information
concerning the financial condition and operations of the
Station as Buyer may reasonably request.
(b) Litigation or Damage. Seller shall promptly notify Buyer of
--------------------
(i) any litigation instituted or, to Seller's knowledge,
threatened against Seller, any of its affiliates or the
Station or which challenges the transactions comtemplated
hereby and (ii) any damage to or destruction of any of the
Broadcasting Assets with an original cost in excess of Five
Thousand Dollars ($5,000).
KCNS Asset Purchase Agreement - Page 48
<PAGE>
(c) Consents and Approvals. Seller shall use its best efforts to
----------------------
obtain, on or prior to the Closing Date, from each person,
firm, association, corporation and governmental authority
(other than the Commission) all consents and approvals to
the transfer, conveyance or assignment of any of the
Broadcasting Assets to Buyer as herein provided which are
required by the terms of any agreements, permits, approvals,
conditions and authorizations to which it is a party or
otherwise and on terms and conditions which impose no
additional obligations or liabilities on Buyer. Each party
shall cooperate with the others to the extent reasonably
necessary to obtain any such consents or approvals.
(d) Access and Information. Seller shall give Buyer and its
----------------------
counsel, accountants, engineers and other authorized
representatives reasonable access, during normal business
hours throughout the period prior to the Closing Date, to
all Broadcasting Assets to be assigned, transferred or
conveyed hereunder and to the books and records relating
thereto and shall furnish Buyer during such period with all
information concerning the affairs of the Station as it may
reasonably request in order to enable Buyer to make such
examinations and investigations thereof as it shall deem
necessary; provided, however, that in each instance mutually
satisfactory arrangements shall be made in advance in order
to avoid interruption and to minimize interference with the
normal business and operations of the
KCNS Asset Purchase Agreement - Page 49
<PAGE>
Station. Without limiting the foregoing, Seller agrees (i)
that representatives of Deloitte & Touche LLP may, at
Buyer's expense, undertake an audit of the Station as of and
for the calendar year 1996, and Seller shall reasonably
cooperate with the representatives of Deloitte & Touche LLP
in the conduct of the audit, including execution by the
appropriate officers of Seller of the standard client
representation letter required by Statement of Auditing
Standards No. 19 and (ii) to use its best efforts to obtain
on a timely basis any reports, audited financial statements
and other documents necessary for any financing, including,
without limitation, any public or private offering of
securities of Buyer or affiliates thereof. Buyer agrees to
provide to Seller a copy of the audited financial statements
produced as result of such audit, without cost or charge, at
Seller's request.
(e) Antitrust Compliance. Seller shall file with the Federal
--------------------
Trade Commission and the Department of Justice the
notification and report form required by, and will use its
best efforts to comply with any request for supplemental
information in connection with, the Antitrust Act.
(f) Notice of Events. Prior to Closing, Seller shall furnish to
----------------
Buyer promptly, and in any event within five (5) Business
Days after obtaining or having knowledge thereof, notice of:
(i) Any breach of any term or provision of the Agreement,
on the part
KCNS Asset Purchase Agreement - Page 50
<PAGE>
of Seller, whether or not any requirement for notice or
lapse of time or other condition precedent has been
satisfied, which is then continuing, together with a
certificate of Seller specifying the details thereof and
the action which Seller has taken or proposes to take with
respect thereto;
(ii) Any action, suit or proceeding challenging the sale or
assignment of the Broadcasting Assets or the transactions
contemplated by this Agreement;
(iii) Any notice or other communication from any third party
alleging that the consent of such third party is or may be
required in connection with the transactions contemplated
by this Agreement;
(iv) Any other development which would prevent or raise a
material doubt about the possibility of the satisfaction of
any condition set forth in Section 8.1; and
(v) Any notice or other communication from the Commission, any
other regulatory authority or any other third party, the
approval or consent of which is being sought in connection
with the transactions contemplated by this Agreement.
(g) No Violation. Seller shall not take any action or omit to take
------------
any action which will make the transactions contemplated by this
Agreement unlawful.
KCNS Asset Purchase Agreement - Page 51
<PAGE>
(h) Contributions to Fund Employee Pension Plans. Prior to or as
--------------------------------------------
soon as practicable after the Closing, Seller shall make all
contributions with respect to any funded employee pension
plan within the meaning of Section 3(2) of ERISA for all
periods ending prior to the Closing (including periods from
the first day of the current plan year to the Closing) in
accordance with the terms of the plan and applicable law.
9.2 Covenants of Buyer Pending Closing.
----------------------------------
(a) Notice of Events. Prior to Closing, Buyer shall furnish
----------------
to Seller promptly, and in any event within five (5)
Business Days after obtaining or having knowledge
thereof, notice of:
(i) Any breach of any term or provision of the
Agreement, on the part of Buyer, whether or
not any requirement for notice or lapse of
time or other condition precedent has been
satisfied, which is then continuing,
together with a certificate of Buyer
specifying the details thereof and the action
which Buyer has taken or proposes to take
with respect thereto;
(ii) Any action, suit or proceeding challenging
the sale or assignment of the Broadcasting
Assets or the transactions contemplated by
this Agreement;
(iii) Any notice of other communication from any
third party
KCNS Asset Purchase Agreement - Page 52
<PAGE>
alleging that the consent of such third party is or may
be required in connection with the transactions
contemplated by this Agreement;
(iv) Any other development which would prevent or raise a
material doubt about the possibility of the
satisfaction of any condition set forth in Section 8.2;
and
(v) Any notice or other communication from the Commission,
any other regulation authority or any other third
party, the approval or consent of which is being sought
in connection with the transactions contemplated by
this Agreement.
(b) No Violation. Buyer shall not take any action or omit to take any
------------
action which will make the transactions contemplated by this
Agreement unlawful.
(c) Antitrust Compliance. Buyer shall file with the Federal Trade
--------------------
Commission and the Department of Justice the notification and
report from required by, and shall use its best efforts to comply
with any request for supplemental information in connection with,
the Antitrust Act.
(d) Security for Performance. Buyer shall cause to be executed and
------------------------
placed in escrow, or delivered to Seller, that certain promissory
note in the form set forth as Schedule 9.2(d)(1) (the "Note") and
KCNS Asset Purchase Agreement - Page 53
<PAGE>
shall provide Seller with satisfactory security for the
performance or its obligations hereunder by providing Seller
with an executed agreement in the form of Schedule
9.2(d)(2), hereto which by this reference are incorporated
herein and specifically made a part hereof.
10. Mutual Covenants and Agreements
-------------------------------
10.1 Best Efforts. Subject to the terms and conditions herein
------------
provided, each party hereto shall use its best efforts to take,
or cause to be taken, all action, and to do, or cause to be done,
all things necessary, proper or advisable to consummate and make
effective as promptly as practicable the transactions
contemplated by this Agreement.
10.2 Public Announcements. Prior to the Closing Date, Seller and Buyer
--------------------
shall not, without the prior written approval of the other
parties, make any press release or other public announcement
concerning the transactions contemplated by this Agreement except
to the extent that any party shall be so obligated by law, in
which case the other parties shall be advised and the parties
shall use their best efforts to cause a mutually agreeable
release or announcement to be issued. Notwithstanding the
foregoing, Seller understands, acknowledges and agrees that
Buyer, or an affiliate thereof, may become a publicly-traded
company and, in connection therewith, may be required to disclose
this transaction, the terms thereof and information
KCNS Asset Purchase Agreement - Page 54
<PAGE>
relating to the Station and the Broadcasting Assets by one or
more filings with the Securities and Exchange Commission or other
federal or state regulating bodies. To the extent possible, Buyer
will give Seller prior notice of, and an opportunity to review,
any such disclosure.
10.3 Further Assurances. Each party shall, at any time and from time
------------------
to time after the Closing Date, upon request of any other party,
do, execute, acknowledge and deliver, or cause to be done,
executed, acknowledged and delivered, all such further acts,
instruments, assignments and assurances as may be reasonably
required in order to carry out the intent of this Agreement.
10.4 Replacement and Repair of Tangible Broadcasting Assets.
------------------------------------------------------
(a) Subject to the provisions of Section 8.1(g), Seller agrees
that it shall promptly replace (or repair, if appropriate)
any tangible Broadcasting Assets that are lost, damaged or
destroyed prior to the Closing Date, or that prior to the
Closing Date cease to be in good operating condition or
repair, cease to be adequate for the uses to which they are
being put or to be available for immediate use in the
operation of the Station or that require maintenance or
repairs.
(b) Notwithstanding the foregoing, if in the event of a
fire or other casualty the aggregate Uninsured Cost of all
repairs and replacements of tangible Broadcasting Assets
destroyed or damaged
KCNS Asset Purchase Agreement - Page 55
<PAGE>
by fire or other casualty exceeds One Million Five Hundred
Thousand Dollars ($1,500,000), either Seller or Buyer shall be
entitled to terminate this Agreement upon written notice to the
other within thirty (30) days following the occurrence of such
fire or other casualty. However, if Seller elects to terminate
this Agreement as provided in the immediately preceding sentence,
Buyer shall be entitled to nullify Seller's election to terminate
this Agreement by giving written notice to Seller, within ten
(10) Business Days after the date of Seller's notice to Buyer
terminating this Agreement, that it elects to proceed to Closing
hereunder. If Buyer shall make such election, Seller shall be
obligated to pay up to Five Hundred Thousand Dollars ($500,000)
of the Uninsured Cost of all repairs and replacements of the
tangible Broadcasting Assets destroyed or damaged by fire or
other casualty, but shall have no further responsibility or
liability with respect to such Uninsured Cost. In any event, to
the extent that Seller is obligated to bear the Uninsured Cost of
repairs and replacements of tangible Broadcasting Assets, it
shall indemnify Buyer against such Uninsured Costs as and when
such costs are incurred or required to be paid.
11. Termination.
-----------
KCNS Asset Purchase Agreement - Page 56
<PAGE>
11.1 Effect of Termination without Breach or Material Default. In the event
--------------------------------------------------------
that the FCC has not issued a Final Order approving or disapproving
this transaction on or before July 31, 1997, or, in the event that the
FCC shall have denied the Applications for reasons not related to the
qualification of Seller or Buyer to be an FCC licensee of the Station,
then any party hereunder, provided it is not then in material breach
of its obligations under this Agreement, may terminate this Agreement
without liability and Buyer shall be entitled to an immediate return
of the Note and of the Earnest Money together with all interest earned
thereon. However, if the last required consent of the Commission shall
have become a Final Order within ten (10) Business Days prior to such
termination, such termination shall become effective only if the
Closing does not occur within ten (10) Business Days after such
consent has become a Final Order. No such termination shall relieve
any party then in material breach of its obligations under this
Agreement from any liability therefor.
11.2 Effect of Termination as a Result of Breach or Material Default.
---------------------------------------------------------------
In the event of termination of this Agreement as a result of a
breach or material default by one party hereto:
(a) if Seller shall be in material breach of or material default
under any provision of this Agreement, or should Seller
refuse to perform or refuse to proceed to Closing under this
Agreement, Buyer may elect to terminate this Agreement in
which event Buyer shall be
KCNS Asset Purchase Agreement - Page 57
<PAGE>
entitled to an immediate return of the Note and of the Earnest
Money together with all interest earned thereon in addition to
other remedies which it may have under this Agreement. However,
Seller recognizes that, due to the unique value and special
nature of the Station and the Broadcasting Assets, failure of
Seller to carry out its obligations under this Agreement, and to
consummate the transactions contemplated hereby, would cause
irreparable injury and that monetary damages alone would be
inadequate. Buyer shall therefore be entitled, in addition to all
other remedies which may be available at law or in equity,
including monetary damages, to obtain specific performance of
Seller's obligation to close the transaction contemplated by this
Agreement, unless such performance shall be restrained or
enjoined by a court of competent jurisdiction or prevented by a
government agency having jurisdiction over such matters. In any
action to enforce Seller's obligation to close the transaction
contemplated by this Agreement, Seller hereby waives the defense
that there is an adequate remedy at law.
(b) provided Seller is not in material breach of or material default
under any provision of this Agreement and Seller has not refused
to perform or refused to proceed to Closing under this Agreement,
KCNS Asset Purchase Agreement-Page 58
<PAGE>
if buyer shall be in material breach of or material default under
any provision of the Agreement, or, if the FCC shall have denied
the Applications or have entered an order designating the
Application for Hearing and if the reasons for such denial or
such designation relate, in whole or in part, to Buyer's
qualifications to be an FCC licensee or assignee of the Station,
or, if the Commission shall not have ruled on the Applications by
July 31, 1997 as a result of any failure by Buyer to respond in a
timely manner to an inquiry or request for further information by
the Commission with respect to the Applications or if Buyer
otherwise fails to use its best efforts to promptly obtain the
consent of the Commission to the transfer and assignment of the
License as set forth in Section 3 hereof, or, if the Applications
shall have been approved by the Commission and have become a
Final Order prior to July 31, 1997 and Buyer fails or refuses to
proceed to Closing in breach of this Agreement, then the Note
shall become immediately due and payable according to its terms
and the Earnest Money held in escrow, including all interest
earned thereon, shall be immediately forfeited to Seller as
liquidated damages, it being agreed by both parties hereto that
the payment of the Note and the forfeiture of said Earnest Money,
including all interest earned
KCNS Asset Purchase Agreement - Page 59
<PAGE>
thereon, shall constitute full payment for any and all damages
suffered by Seller by reason of any or all such circumstances,
and Buyer shall have no further liability or obligation to Seller
hereunder. Buyer and Seller agree in advance that the actual
damages of Seller under any or all such circumstances would be
difficult to ascertain and that the amount of the payment to
Seller as provided in this Section constitutes a fair and
equitable amount to compensate Seller for damages sustained due
to any or all circumstances. Nothing in this Section shall be
deemed to limit Seller's right to seek monetary damages for a
material breach of, or a material default under, this Agreement
by Buyer arising or occuring after Closing.
11.3 Notwithstanding any other provision of this Agreement Buyer may
terminate this Agreement at any time without any liability or
obligation to Seller if (i) the shareholders of Seller shall not
have authorized, approved and adopted the transactions
contemplated by the Agreement in accordance with the applicable
laws of Washington and California prior to September 10, 1996, or
(ii) in any vote by the shareholders of Seller to authorize,
approve and adopt the transactions contemplated by this
Agreement, less than two-thirds of all the votes entitled to be
cast on the transaction are cast to approve the transaction.
12. Instruments of Assignment and Transfer.
--------------------------------------
KCNS Asset Purchase Agreement - Page 60
<PAGE>
12.1 Instruments of Assignment and Transfer of Real Property Leasehold
-----------------------------------------------------------------
Interests. At the Closing, to effect the assignments and
---------
transfers of the Real Property Leasehold Interests from Seller to
Buyer as herein provided, Seller shall execute and deliver to
Buyer one or more assignments in authentic form, assigning and
transferring to Buyer good and marketable title to all the Real
Property Leasehold Interests, as set forth under this Agreement,
all in form and substance reasonably satisfactory to counsel for
Buyer, and dated the Closing Date, as follows:
(a) assignments in authentic form of all right, title and
interest of Seller in and under all leases and in its
leasehold interests in real property, including all rights
under the lease agreements referred to in Schedule 1.1(a);
(b) consents, if any, required of any lessors under any leases
to the assignments described in clause (a) above;
(c) landlord estoppel certificates executed by all landlords or
successors thereto to the leasehold interests in real
property referred to in Schedule 1.1(a); and
(d) nondisturbance and subordination agreements executed by all
landlords and or successors thereto and all lenders, if any,
to the leasehold interests in real property referred to in
Schedule 1.1(a).
12.2 Instruments of Assignment and Transfer of Personal Property. At
-----------------------------------------------------------
the
KCNS Asset Purchase Agreement - Page 61
<PAGE>
Closing, to effect the transfers and assignments from Seller to
Buyer as herein provided, Seller shall execute and deliver to
Buyer the following bills of sale, certificates, assignments and
other instruments of transfer assigning and transferring to Buyer
good and marketable title to all the personal property to be
transferred hereunder, free and clear of all mortgages, pledges,
claims, liens, charges and any other encumbrances except as
permitted under this Agreement, all in form and substance
reasonably satisfactory to counsel for Buyer, and dated the
Closing Date as follows:
(a) assignment of all leases and leasehold interests in personal
property to the extent that such leases or leaseholds
interests may be assigned by Seller pursuant to the terms of
such leases, including all rights under the lease agreements
referred to in Schedule 1.1(b)(2);
(b) bill(s) of sale for all tangible personal property;
(c) assignment of all Licenses and other transferable
Governmental Authorizations for the Station;
(d) assignment of all contracts and other intangible assets to
be transferred pursuant to this Agreement, including,
without limitation, the Broadcasting Assets described in
Section 1.1(e) and (f) hereof; and
KCNS Asset Purchase Agreement - Page 62
<PAGE>
(e) such other instruments or documents as Buyer may reasonably
request in connection with the transfer to it of the
personal property to be transferred, not inconsistent with
the obligations of Seller under this Agreement.
13. Income, Expenses, Proration.
--------------------------
13.1 General. Seller shall be allocated all income earned or accrued,
-------
and shall be allocated all liabilities and obligations incurred,
relating to the ownership of the Broadcasting Assets and the
operation of the Station through the close of business on the day
preceding the Closing Date. Buyer shall be allocated all income
earned or accrued, and shall be allocated all liabilities and
obligations incurred, other than those obligations which are not
Assumed Obligations, relating to the ownership of the
Broadcasting Assets and the operation of the Station after the
close of business on the day preceding the Closing Date. All
amounts paid or payable by Buyer or Seller, whether prior to, on
or subsequent to the Closing Date, and relating to ownership of
the Broadcasting Assets or operation of the Station prior to, on
and subsequent to the Closing Date shall be allocated between
Buyer and Seller, in accordance with GAAP, proportionately based
on the number of days prior to and subsequent to the Closing Date
for the applicable period to which the expense items are
attributable. The items so allocated shall include, without
limitation, lease
KCNS Asset Purchase Agreement - Page 63
<PAGE>
payments, expenses prepaid or deposits given by Seller,
prepayments or deposits received by Seller, ad valorem real
estate, tangible and intangible personal property and other
property taxes (but excluding income taxes and taxes arising by
reason of the transactions provided for herein), business and
license fees, wages, salaries of employees, payroll taxes and
utility expenses.
13.2 Trade, Barter or Similar Arrangements. Seller shall exercise its
-------------------------------------
best efforts to reduce the outstanding balance under all trade,
barter or similar arrangements for the sale of advertising time
for other than cash as much as reasonably possible prior to the
Closing Date. To the extent the aggregate value of the Station's
future performance obligations under all such arrangements as of
the Closing Date exceeds the aggregate value of the goods,
services or other items yet to be received thereunder as of the
Closing Date, then Seller shall be solely responsible for the
amount of such difference and the performance of such
obligations.
13.3 Capital Items. Should Seller, subsequent to the date hereof,
-------------
purchase or commit to purchase any tangible capital asset (other
than replacement items for which there shall be no adjustment),
the aggregate amount payable to Seller pursuant to Section 2.2(b)
above shall be increased in the amount, if any, of the purchase
price of that asset actually paid by Seller prior to the Closing
(and Buyer shall assume any remaining liability therefor),
KCNS Asset Purchase Agreement - Page 64
<PAGE>
provided Buyer has previously consented in writing to the
purchase or acquisition thereof by Seller. If any of the tangible
assets described in Schedule 1.1(b)(1) hereto (other than
Excluded Assets and those replaced or expended in the ordinary
course of business) is disposed of by Seller other than in
conformity with Section 7.7, the aggregate amount payable to
Seller pursuant to Section 2.2(b) above shall be decreased in the
amount of the replacement cost for an equivalent asset.
13.4 Vacation, Sick Pay. Seller shall be responsible for and shall pay
------------------
all vacation and sick pay for all the Station Employees accrued
in accordance with GAAP as of the Closing Date.
13.5 Determination, Payment and Final Settlement. Prorations and
-------------------------------------------
adjustments under this Section 13 shall be determined and paid as
provided in Section 2.2.
14. Risks of Loss. Subject to the provisions of Section 10.4, the risk of
-------------
any loss, damage, impairment, confiscation or condemnation of the Broadcasting
Assets or any part thereof from fire or any other casualty or cause shall be
borne by Seller at all times prior to the Closing Date. In any such event, the
proceeds of, or any claim for any loss payable under, any insurance policy,
judgment or award with respect thereto shall be paid to Seller, which shall
repair, replace or restore any such Broadcasting Assets as soon as possible
after its loss, impairment, confiscation or condemnation.
15. Failure of Broadcast Transmission. If any event referred to in
---------------------------------
Section 14 above
KCNS Asset Purchase Agreement - Page 65
<PAGE>
occurs or any event occurs which prevents broadcast transmission by the Station
in the normal and usual manner and if Seller cannot restore or replace the
Broadcasting Assets so that such conditions are cured and normal and usual
transmission can be resumed before the Closing Date, the Closing Date shall be
postponed, the exact date and time of such postponed closing to be such date and
time within the effective period of the Commission's consent contemplated under
this Agreement as shall be designated by Seller upon ten (10) days written
notice to Buyer. In the event that such assets cannot be restored within the
effective period of the Commission's consent, the parties shall join in an
application or applications requesting the Commission to extend the effective
period of its consent for a period of an additional sixty (60) days. If such
Broadcasting Assets have not been restored or replaced by the Closing Date, as
and to the extent postponed pursuant to this Section 15, either party shall have
the right, by giving written notice of its election to do so to the other party,
to terminate this Agreement forthwith without any further obligation hereunder.
Notwithstanding the foregoing, if the Station shall cease broadcast
transmission for a period of thirty (30) consecutive days, Buyer shall have the
right, by giving written notice of its election to do so to Seller within
fifteen (15) days of receipt of written notice of such event from Seller, to
terminate this Agreement forthwith without any further obligation to Seller
hereunder.
16. Books and Records of the Station. Seller shall retain all records,
--------------------------------
books of account, files, documents and correspondence relating to the operation
of the Station prior to the Closing Date, except operations manuals, warranties
on any of the Broadcasting assets, leases, service agreements and other
documents relating to the day to day operation of the Broadcasting Assets;
KCNS Asset Purchase Agreement - Page 66
<PAGE>
provided, however, that Seller shall retain and make available for inspection
and copying by Buyer and its representatives for any reasonable purpose all such
records, books of account, files, documents and correspondence, and Seller shall
not dispose of, alter or destroy any such materials without giving thirty (30)
days prior written notice to Buyer so that Buyer may, at its expense, examine,
make copies of, or take possession of such materials.
17. Exclusive Relationship. From the date hereof until the termination
----------------------
hereof in accordance herewith, Seller will not, and will cause the officers,
directors, employees and other agents of Seller not to, directly or indirectly,
take any action to (i) continue, solicit, initiate or encourage discussions or
negotiations with, or provide any nonpublic information to any person or entity
("Person"), other than Buyer and its affiliates, concerning any proposal to
purchase or acquire any equity securities or assets of, or merge, combine or
enter into any similar transaction with, Seller ("Acquisition Proposal"), (ii)
provide information with respect to Seller, the Station or the assets of Seller
to any Person, other than Buyer, or (iii) enter into or commit to enter into a
transaction with any Person, other than Buyer and its affiliates, concerning an
Acquisition Proposal.
Seller recognized and acknowledges that a breach by Seller of this Section
17 will cause irreparable and material loss and damage to Buyer as to which it
will not have an adequate remedy at law or in damages. Accordingly, Seller
acknowledges and agrees that specific performance, the issuance of an injunction
or other equitable remedy is an appropriate remedy for any such breach.
18. Certain Employee Benefit Matters.
--------------------------------
KNCS Asset Purchase Agreement - Page 67
<PAGE>
(a) Except as otherwise specifically provided herein with
respect to the assumption of certain employment contracts,
Buyer does not and will not assume the sponsorship of, the
responsibility for contributions to, or any liability in
connection with, any Employee Plan. Without limiting the
foregoing, Seller shall be liable for any continuation
coverage (including any penalties, excise taxes or interest
resulting from the failure to provide continuation coverage)
required by Section 4980B of the Code due to qualifying
events which occur on or before the Closing Date.
(b) Seller shall be responsible for making all applicable
severance payments, including vacation pay, sick pay or
similar payments and benefits which may be due, to Seller's
employees solely in accordance with applicable law and
Seller's severance policies in the event such employees are
terminated by Seller, at the request of Buyer on, or prior
to the Closing Date. Buyer will notify Seller at least 30
days prior to Closing which of Seller's employees, if any,
will be hired by Buyer. Buyer shall be solely liable for
making any applicable severance payments to any employees
which are retained and employed by Buyer after the Closing
Date.
19. Certain Tax Matters.
-------------------
19.1 Tax Returns Through Closing. Seller and Buyer shall each
---------------------------
prepare and file on a timely basis all reports and returns
of Taxes relating to the Station and its operation and the
Broadcasting Assets as such party is
KCNS Asset Purchase Agreement - Page 68
<PAGE>
required to file by applicable law. Seller and Buyer shall
each cooperate with the other in the preparation of such
returns and shall each provide to the party making any
filing all information and access to all records relating to
the Station necessary in order for the prompt and accurate
filing of such returns.
19.2 Subsequent Liability. If, on or subsequent to the Closing
--------------------
Date, any liability for Taxes for which Seller was, is or
may be liable is imposed on Buyer with respect to any period
ending on or prior to the Closing Date, then Seller shall
indemnify and hold Buyer harmless from and against, and
shall pay, the full amount of such Tax liability, including
any interest, additions to tax and penalties thereon,
together with interest on such additions to tax or
penalties (as well as reasonable attorneys' or other fees
and disbursements of Buyer incurred in determination thereof
or in connection therewith). Buyer shall notify Seller, upon
its receipt of any notice thereof, of the imposition or
threatened imposition of any liability for Taxes for which
Seller was, is or may be liable, and Seller shall, at its
sole expense and in its reasonable discretion, either settle
any such Tax claim that may be the subject of
indemnification under this Section 19.2 at such time and on
such terms as it shall deem appropriate or assume the entire
defense thereof; provided, however, that Seller shall in no
event take any position in such settlement or defense that
would subject Buyer to any
KCNS Asset Purchase Agreement - Page 69
<PAGE>
civil fraud or any civil or criminal penalty. Notwithstanding the
foregoing, Seller shall not consent, without the prior written
approval of Buyer, which prior written approval shall not be
unreasonably withheld, to any change in the treatment of any item
which would in any material respect affect the Tax liability of
Buyer for a period subsequent to the Closing Date.
19.3 Survival of Tax Indemnification Provisions. Notwithstanding any
------------------------------------------
other provision in this Agreement, the obligation of Seller to
indemnify and hold harmless Buyer under Section 19.2 hereof shall
begin on the Closing Date and end upon the latest of (i) three
years from the date of the last filing of a return or report of
Taxes for which Seller was, is or may be liable and covering such
Taxes for which indemnification is provided in Section 19.2
hereof, (ii) the expiration of the applicable statute of
limitations, or (iii) six months following the ultimate
disposition of any claim with respect to any Taxes for which
Seller was, is or may be liable.
20. Possession and Control of the Station. Notwithstanding any other
-------------------------------------
provision of this Agreement, between the date of this Agreement and the Closing
Date, Buyer shall not directly or indirectly control, supervise or direct, or
attempt to control, supervise or direct, the operations of the Station, and the
conduct of such business operation, including control and supervision of
programming, shall be the sole responsibility of and in the complete discretion
and independent and separate control of Seller.
21. Brokers. Seller acknowledges that it has retained Gammon Media Brokers
-------
KCNS Asset Purchase Agreement - Page 70
<PAGE>
with copies to:
Rachamin Anatian
Chairman and Chief Executive Officer
Ramcast Corp.
1740 Broadway, 17th Floor
New York, New York 10019
Telecopier: (212) 246-4463
and
Richard A. Palmer, Esq.
Fulbright & Jaworski L.L.P.
666 Fifth Avenue
New York, New York 10103
Telecopier: (212) 752-5958
and
Erwin G. Krasnow, Esq.
Verner, Liipfert, Bernhard, McPherson & Hand
Suite 700
901 15th Street, N.W.
Washington, D.C. 20005
Telecopier: (202) 371-6279
(b) If to Seller to:
Carson Chen
President
West Coast United Broadcasting Co.
1550 Bryant Street, Suite 850
San Francisco, California 94103
Telecopier: (415) 863-3998
with copies to:
John G. Young, Esq.
Young, deNormandie & Oscarsson
1191 Second Avenue, Suite 1901
Seattle, Washington 98101
Telecopier: (206) 623-6923
KCNS Asset Purchase Agreement - Page 72
<PAGE>
and
R. Clark Wadlow, Esq.
Sidley & Austin
1722 Eye Street N.W.
Washington, D.C. 20006
or at such other address as either party shall specify by notice to the other.
23. Survival of Representations and Warranties, Indemnification.
-----------------------------------------------------------
(a) The several representations and warranties of the parties
contained in this Agreement (or in any document delivered in
connection herewith) shall be deemed to have been made on
the date of this Agreement and on the Closing Date, shall be
deemed to be material and to have been relied upon by Buyer
or Seller, as the case may be, notwithstanding any
investigation made by Buyer or Seller, shall survive the
Closing Date and, except as otherwise specifically provided
in this Agreement, shall remain operative and in full force
and effect for a period of two years following the Closing
Date, except as to any matters with respect to which a bona
fide written claim shall have been made or an action at law
or in equity shall have commenced before such date, in which
event survival shall continue (but only with respect to, and
to the extent of, such claim) until the final resolution of
such claim or action, including all applicable periods for
appeal; provided, however, that the representations and
warranties contained in Sections 4.4 and 4.17 shall continue
for a period of 4 years following the Closing Date and the
KCNS Asset Purchase Agreement - Page 73
<PAGE>
representations and warranties relating to Taxes and ERISA
and the representations and warranties contained in Section
4.12, shall survive for the periods equal to the applicable
statute of limitations on assessment and collection relating
to claims with respect thereto.
(b) Seller shall indemnify and hold Buyer and its affiliates,
officers, directors, stockholder, employees, agents and
successors and assigns harmless from and against:
(i) any and all loss, cost, liability, damage and expense
(including legal and other expenses incident thereto)
arising out of or resulting from any inaccuracy,
misrepresentation or breach of any representation,
warranty, covenant or agreement of Seller under this
Agreement, or any obligation or liability of Seller
other than the Assumed Obligations, provided Buyer
shall have given prompt written notice to Seller of
such breach and an opportunity to defend any claim,
demand, action, suit, proceeding or other asserted
liability; and
(ii) any and all liabilities of the Station and Seller
(other than the Assumed Obligations), including any
and all actions, suits, proceedings, demands,
assessments, judgments, costs and expenses
(including legal and other expenses incident
thereto), resulting from any causes of action or
claims of any kind
KCNS Asset Purchase Agreement - Page 74
<PAGE>
asserted by unrelated third parties arising from actions or
omissions of Seller or the Station prior to the Closing Date;
subject to the condition that Buyer shall have given Seller
prompt written notice of, and an opportunity to defend, any and
all such asserted liabilities.
In addition to the indemnification provided in Section 23(b) hereof, and
notwithstanding the disclosure of any matters on Schedule 4.17 hereof, Seller
shall indemnify, defend and hold Buyer and its directors, officers, employees,
agents, stockholders harmless from and against any and all Environmental
Liabilities that may be imposed upon or incurred by Buyer arising out of or in
connection with: (i) any and all Environmental Conditions, known or unknown,
existing on or prior to the Closing Date on, at, or underlying the real property
leasehold interests, (ii) any acts or omissions of the Seller relating to the
ownership or operation of the real property on or prior to the Closing Date,
(iii) the handling, storage, treatment or disposal or any Hazardous Materials
generated by Seller on or prior to the Closing Date, and (iv) any breach by
Seller of any representation or warranty contained in Section 4.17 hereof;
provided, however, that for the purpose of this paragraph 23(b), all such
- -------- -------
representations, warranties, covenants, and agreements of Sellers as set forth
in Section 4.17 shall be deemed to have been made without any qualification as
to materiality or knowledge. This environmental indemnification shall survive
the term of this Agreement.
This indemnity agreement in this Section 23(b) shall be in addition to any
liability which Seller may incur to Buyer and shall not foreclose any other
rights or remedies Buyer
KCNS Asset Purchase Agreement - Page 75
<PAGE>
may have to enforce the provisions of this Agreement.
(c) Buyer shall indemnify and hold Seller and its affiliates,
officers, directors, stockholders, employees, agents and
successors and assigns harmless from and against:
(i) any and all loss, cost, liability, damage and expense
(including legal and other expenses incident thereto)
arising out of or resulting from any inaccuracy,
misrepresentation or breach of any representation,
warranty, covenant or agreement of Buyer under this
Agreement, provided Seller shall have given prompt
written notice to Buyer of such breach and an
opportunity to defend any claim, demand, action,
suit, proceeding or other asserted liability; and
(ii) any and all liabilities of the Station and of Buyer,
including any and all actions, suits, proceedings,
demands, assessments, judgments, costs and expenses
(including legal and other expenses incident
thereto), resulting from causes of action or claims
of any kind asserted by unrelated third parties
arising from actions or omissions of Buyer or the
Station on or after the Closing Date; subject to the
condition that Seller shall have given
KCNS Asset Purchase Agreement - Page 76
<PAGE>
Buyer prompt written notice of, and an opportunity to
defend, any and all such asserted liabilities.
The indemnification provided for in this Section 23(c) shall apply to
all losses and liabilities, as described in subparts (i) and (ii) above, of any
amount claimed under this Section 23(c) from and after the point such a single
loss or liability or an aggregate of several such losses and/or liabilities
exceeds Twenty Five Thousand Dollars ($25,000); except that this limitation on
the indemnification obligation of Buyer shall not apply to any amount owed by
Buyer to Seller in connection with the adjustment amount described in Section
13.
This indemnity agreement in this Section 23(c) shall be in addition to
any liability which Buyer may incur to Seller or Stockholder and shall not
foreclose any other rights or remedies Seller may have to enforce the provisions
of this Agreement.
(d) Indemnification Procedure.
-------------------------
(i) If at any time a party entitled to indemnity
hereunder (the "Indemnitee") shall receive notice of
any state of facts that may result in a loss or
liability of the type described in Sections 23(b)(i),
23(b)(ii) or 23(c)(i) or 23(c)(ii) (a "Loss"), the
Indemnitee shall promptly give written notice (a
"Notice of Claim") to the parties obligated to
provided indemnity hereunder (the "Indemnitor") of
the discovery of such potential or actual Loss. A
Notice of Claim shall set forth (A) a brief
description of the nature of the potential or actual
Loss, and (B) the total
KCNS Assets Purchase Agreement - Page 77
<PAGE>
amount of Loss anticipated (including any costs or
expenses which have been or may be reasonably
incurred in connection therewith). Upon receipt of a
Notice of Claim, Indemnitor may elect to cure the
occurrence of the event resulting in the Loss (the
"Event of Loss") within thirty (30) days after the
date of receipt of the Notice of Claim, or if such
cure cannot be effected within such thirty (30) day
period, diligently proceed to effect such cure. If
such cure cannot be effected, payment of the amount
of Loss due the Indemnitee as set forth in a Notice
of Claim shall be made by Indemnitor no later than
the thirtieth (30th) day after the date of the Notice
of Claim (or such later date as the Indemnitor
receives written notice that an actual Loss has
occurred) unless the provisions of subsection
23(d)(ii) or (iii) are applicable thereto. The
Indemnitee's failure to give prompt notice or to
provide copies of documents or to furnish relevant
data shall not constitute a defense (in whole or in
part) to any claim by the Indemnitee against the
Indemnitor for Indemnification, except and only to
the extent that such failure shall have caused or
increased such liability or adversely affected the
ability of the Indemnitor to defend against or reduce
its liability.
KCNS Asset Purchase Agreement - Page 78
<PAGE>
(ii) If the Indemnitor shall reject any Loss as to which a
Notice of Claim is sent by the Indemnitee, the
Indemnitor shall give written notice of such
rejection to the Indemnitee within thirty (30) days
after the date of receipt of the Notice of Claim.
(iii) If any Notice of Claim relates to any claim made
against an Indemnitee by a third person, the Notice
of Claim shall state the nature, basis and amount of
such claim. The Indemnitor shall have the right, at
its election, by written notice given to the
Indemnitee, to assume the defense of the claim as to
which such notice has been given. Except as provided
in the next sentence, if the Indemnitor so elects to
assume such defense, it shall diligently and in good
faith defend such claim and shall keep the Indemnitee
reasonably informed of the status of such defense,
and the Indemnitee shall cooperate fully with the
Indemnitor in the defense of such claim, provided
that in the case of any settlement providing for
remedies other than monetary damages for which
indemnification is provided, the Indemnitee shall
have the right to approve the settlement, which
approval shall not be unreasonably withheld or
delayed. If the Indemnitor does not so elect defend
any claim as aforesaid or shall fail to defend any
claim diligently and in good faith (after having so
elected), the
KCNS Asset Purchase Agreement-Page 79
<PAGE>
Indemnitee may assume the defense of such claim and
take such other action as it may elect to defend or
settle such claim as it may determine in its
reasonable discretion, provided that the Indemnitor
shall have the right to approve any settlement, which
approval will not be unreasonably withheld or
delayed.
24. Confidentiality. Prior to Closing, Buyer and its officers, employees,
---------------
agents and representatives shall not use for its or their own benefit and shall
hold in strictest confidence and shall not disclose, any data or information
relating to Seller or the Station (the "Seller's Information") obtained from
Seller or from any of its officers, directors, employees, shareholders, agents
or representatives in connection with this Agreement, except for data or
information which Buyer has also obtained from any person not connected in any
way to Seller, or which is generally known to the public. If the transaction
contemplated by this Agreement shall not be consummated for any reason, Buyer
shall return to Seller all data and information, and any other written or
recorded material obtained by Buyer from Seller in connection with this
Agreement, and all copies, transcripts, tapes, summaries, extracts or abstracts
thereof or therefrom, and shall not disclose any of Seller's Information to any
third party whatsoever. Notwithstanding anything to the contrary contained
herein, the parties hereto acknowledge and agree that Buyer may disclose the
Seller's Information to Buyer's directors, officers, employees, affiliates and
representatives including, without limitation, financial advisors, attorneys and
accountants, in connection with (a) the transactions contemplated hereby, (b)
any financing, including, without limitation, any private or public
KCNS Asset Purchase Agreement - Page 80
<PAGE>
offering of the securities of Buyer or any affiliate thereof and (c) as may be
required by applicable law.
25. Costs, Expenses, etc. Experts as otherwise specifically set forth
--------------------
herein, each of the parties hereto shall bear all costs and expenses incurred by
it in connection with this Agreement and in the preparation for and consummation
of the transactions provided for herein, including the fees and expenses of
counsel, accountants and consultants, whether or not such transactions shall be
consummated, and shall not be entitled to any reimbursement therefor from the
other party. All sales, transfer, conveyance, recordation, filing or use taxes,
fees or assessments, motor vehicle transfer taxes or other fees applicable to,
imposed upon, or arising out of the sale assignment, conveyance and transfer
to Buyer of the Broadcasting Assets as contemplated by this Agreement shall be
paid by Buyer.
26. Future Operations.
-----------------
(a) Seller agrees that it will not, directly or indirectly, for a period
of five years from the Closing Date, own more than a three percent
interest in, manage or operate any television broadcast station or
cable pay per view television service which serves the metropolitan
San Francisco area.
(b) Seller agrees and warrants that the covenants contained in this
Section 26 are reasonable, that valid consideration has been and will
be received therefor and that the agreements set forth herein are the
result of arms-length negotiation between the parties hereto.
(c) Seller acknowledges and agrees that in the event of any violation
of the
KCNS Asset Purchase Agreement - Page 81
<PAGE>
covenant contained in this Section 26, Buyer's damages will
be difficult to ascertain and its remedy at law will be
inadequate. Accordingly, Seller agrees that, in addition to
such remedies as Buyer may have available to it, to obtain
in any court of competent jurisdiction, Buyer shall be
entitled to specific performance of one or more of Seller's
obligation under this Agreement and to an injunction to
prevent any continuing or threatened violation of any
provision of the Agreement. The seeking or obtaining by
Buyer of such injunctive relief shall not foreclose or in
any way limit the right of Buyer to obtain a money judgment
against Seller for any damage to Buyer that may result from
any breach by Seller of any provision of this Agreement.
(d) If any of the provisions of or covenants contained in this
Section 26 is hereafter construed to be invalid or
unenforceable in any jurisdiction, the same shall not affect
the remainder of the provisions or the enforceability
thereof in any other jurisdiction, which shall be given full
effect, without regard to the invalidity or unenforceability
in such other jurisdiction. If any of the provisions of or
covenants contained in this Section 26 is held to be
unenforceable in any jurisdiction because of the duration or
geographic scope and in all other respects, the parties
agree that any court making such determination shall have
the power to reduce the duration or geographic scope of such
provision or covenant and, in its reduced form, said
provision or covenant shall be enforceable; provided,
--------
however, that the determination of
-------
KCNS Asset Purchase Agreement - Page 82
<PAGE>
such court shall not affect the enforceability of this Section 26 in
any other jurisdiction.
27. Bulk Sales Law. Buyer waives compliance by Seller with the provisions
--------------
of bulk sales and similar laws applicable to this transaction, if any; provided,
however, that any loss, liability, obligation or cost suffered by Buyer as a
result of the failure by Seller to comply therewith shall be borne by Seller
and that Seller shall indemnify and hold Buyer harmless therefrom.
Notwithstanding any other provision of this Agreement, the covenants and
agreements contained in this Section 27 shall survive the Closing Date for the
period equal to the applicable statute of limitations relating to claims with
respect thereto.
28. Headings and Entire Agreement. The section and subsection headings do
-----------------------------
not constitute any part of this Agreement and are inserted herein for
convenience of reference only. Except for that certain Non-Disclosure Agreement
dated on or about June, 1996 between Buyer and Seller (the "Non-Disclosure
Agreement"), this Agreement, together with the Exhibits and Schedules hereto and
the Escrow Agreement embody the entire agreement between the parties with
respect to the subject matter hereof and supersedes all prior agreements and
understandings between the parties relating to the subject matter hereof and
thereof. It may not be amended, modified or changed orally, but only in writing
signed by the party against whom enforcement of any amendment, modification,
change, waiver, extension or discharge is sought. To the extent that any of the
provisions of this Agreement, the Escrow Agreement and the Non-Disclosure
Agreement conflict or are inconsistent, the provisions of this Agreement shall
apply.
KCNS Asset Purchase Agreement-Page 83
<PAGE>
29. Government Filings. Within thirty (30) days of the date of this
------------------
Agreement, and in no event later than August 15, 1996, each party shall make or
cause to be made any and all filings which are required under the Antitrust Act
with respect to the transactions contemplated by this Agreement, and shall
cooperate in the taking of all steps that are necessary, proper or desirable to
expedite the preparation and filing of such notification and the furnishing of
all information required in connection therewith.
30. Waiver. No waiver of a breach of, or default under, any provision of
------
this Agreement shall be deemed a waiver of such provision or of any subsequent
breach or default of the same or similar nature or of any other provision or
condition of this Agreement.
31. Binding Effect and Assignment. This Agreement shall be binding upon
-----------------------------
and shall inure to the benefit of the parties. Neither this Agreement nor any
obligation hereunder shall be assignable except with the prior written consent
of the other parties; provided, however, that Buyer may assign this Agreement or
any of its rights and obligations hereunder to any wholly-owned subsidiary of
Buyer without the prior written consent of Seller. Neither party assumes any
duty hereunder to any other person or entity, and this Agreement shall operate
exclusively for the benefit of the parties hereto and their permitted assigns
not for the benefit of any other person or entity.
32. Applicable Law. This Agreement shall be governed by and interpreted
--------------
in accordance with the laws of the State of California, other than the conflicts
of laws principles thereof.
33. Severability. In the event that any term or provision of this
------------
Agreement is
KCNS Asset Purchase Agreement - Page 84
<PAGE>
determined to be void, unenforceable or contray to law, the remainder of this
Agreement shall not be affected and shall remain in full force and effect,
provided that such continuation would not materially diminish the benefits of or
rights under this Agreement for any party.
34. Counterparts. This Agreement may be executed in several counterparts,
------------
each of which, when so executed and delivered, shall be deemed an original, but
all of which taken together shall constitute one agreement.
35. Attorneys Fees. In the event that a dispute arises concerning the
--------------
interpretation or enforcement of any provision of this Agreement and any party
refers that dispute to an attorney for resolution, the prevailing party in such
dispute shall be entitled to recover its costs, including attorneys fees,
incurred in connection therewith, whether or not litigation is actually
commenced.
KCNS Assets Purchase Agreement - Page 85
<PAGE>
IN WITNESS WHEREOF, each party has caused this Agreement to be duly
executed, sealed and delivered in its name and on its behalf, all as of the date
and year first above written.
WITNESS: RAMCAST CORP.
???????????? BY: /s/ Barbara Laurence
- -------------------------- ---------------------------------
Barbara Laurence
Its President
WITNESS: WEST COAST UNITED BROADCASTING CO.
????????????? BY: /s/ Carson Chen
- ----------------------------- --------------------------------
Carson Chen
Its President
KCNS Asset Purchase Agreement - Page 86
<PAGE>
<TABLE>
<CAPTION>
Schedule Description Section
- -------- ----------- -------
Reference
---------
<S> <C> <C>
1.1(a) Real Property Leasehold Interests 1.1(a)
1.1(b)(1) Inventory of Personal Property 1.1(b)
1.1(b)(2) Inventory of Leased Personal Property 1.1(b)
1.1(c) Inventory of Contract, Agreements 1.1(c)
and Leases
1.1(d) Authorizations 1.1(d)
1.1(e) Tradenames, Trademarks, Service Marks 1.1(e)
Copyrights and Patents
1.8 Excluded Property 1.8
4.5 Condition of Broadcasting Assets 4.5(a)
4.9(a) Special Employee Compensation 4.9(a)
4.9(b) Station Employees 4.9(d)
4.9(c) Labor Controversies 4.9(d)
4.9(d) Collective Bargaining Agreement 4.9(e)
4.10 Financial Statements 4.10
4.11 Insurance 4.11
4.12 Litigation 4.12
4.15 Taxes 4.15
4.17(b) Environmental Litigation 4.17(b)
6 Cable Companies That Carry KCNS 6
9.2(d)(1) Promissory Note 9.2(d)
9.2(d)(2) Guaranty 9.2(d)
</TABLE>
<PAGE>
WEST COAST UNITED BROADCASTING CO.
SCHEDULE NUMBER: 1.1(a) REAL PROPERTY LEASEHOLD INTERESTS
----------------------------------
REAL PROPERTY LEASES:
LESSOR PROPERTY LOCATION
- ------ -----------------
HAMM'S BUILDING ASSOCIATES 1550 BRYANT STREET
1550 BRYANT STREET SAN FRANCISCO, CA 94103
SAN FRANCISCO, CA 94103
a) West Coast United Broadcasting Co. entered into and is operating under a
verbal lease agreement with the lessor for the lease of suites 740, 748
and storage space 315 as referenced in the Lease Extension Agreement
dated January 27, 1995.
b) West Coast United Broadcasting Co. entered into and is operating under a
written lease agreement for suite 775 dated March 10, 1992, which was
modified and extended by the Lease Extension Agreement dated January 27,
1995.
c) West Coast United Broadcasting Co. entered into and is operating under a
written lease agreement for suite 850 dated August 2, 1989, extended in
1991, 1993 and by the Lease Extension Agreement dated January 27, 1995.
d) West Coast United Broadcasting Co. entered into and is operating under a
verbal lease with lessor to maintain and operate two roof top
satellite dishes.
SUTRO TOWER, INC. ONE LA AVANZADA
250 PALO ALTO AVENUE SAN FRANCISCO, CA
SAN FRANCISCO, CA 94114
a) Written lease agreement date March 1, 1995
<PAGE>
WEST COAST UNITED BROADCASTING CO.
SCHEDULE NUMBER: 1.1(b)(1) INVENTORY OF PERSONAL PROPERTY
------------------------------
Attached is the inventory schedule of personal property.
<PAGE>
01-Jul-96 2
West Coast United Broadcasting Co.
- --------------------------------------------------------------------------------
Furnitures & Equipment Inventory
- --------------------------------------------------------------------------------
Data Taken: 1/5/96* FINAL
- --------------------------------------------------------------------------------
LOCATION CODE: (P)=PRODUCTION-Red, (E)=ENGINEERING-Wht,
- --------------------------------------------------------------------------------
(T)-Tower-Blue, (O)=Office-Grn/Yel
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
*Updated for 1996 purchases through 6/27/96
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Asset Asset Serial
- --------------------------------------------------------------------------------
Description Location Number Number
- --------------------------------------------------------------------------------
- ---------------- ------ ------ ------
- --------------------------------------------------------------------------------
486 1GB Opti Gold (File Server) 0 29
- --------------------------------------------------------------------------------
HP Laserjet 4si MX Printer 0 30
- --------------------------------------------------------------------------------
Executive Desk (3) 0 31A-C
- --------------------------------------------------------------------------------
Credenza (2) 0 32A-B
- --------------------------------------------------------------------------------
Desk Chairs (grey (4) 0 33A-D
- --------------------------------------------------------------------------------
Office Chairs 0 34A-D
- --------------------------------------------------------------------------------
File Cabinets (3) Grey 0 35A-C
- --------------------------------------------------------------------------------
Wood Lateral File Drawers (2) 0 36A-B
- --------------------------------------------------------------------------------
Computer Table 0 37
- --------------------------------------------------------------------------------
Mac Classic Computer 0 38 BCGMD42D
- --------------------------------------------------------------------------------
Bookshelf (4 shelf) 0 40
- --------------------------------------------------------------------------------
Glass Table 0 41
- --------------------------------------------------------------------------------
Samsun TV 19" 0 42
- --------------------------------------------------------------------------------
Panasonic TV 19" 0 43
- --------------------------------------------------------------------------------
0 45A-C
- --------------------------------------------------------------------------------
File Cabinets 2 drawer (5) 0 46A-E
- --------------------------------------------------------------------------------
Large Exec Desk Chairs (blk) (2) 0 47A-B
- --------------------------------------------------------------------------------
Desk Chair Black 0 49
- --------------------------------------------------------------------------------
Desk Chairs Grey (3) 0 50A-C
- --------------------------------------------------------------------------------
Desk Chair Burgundy 0 51
- --------------------------------------------------------------------------------
Office Chairs-Grey (3) 0 52A-D
- --------------------------------------------------------------------------------
Desk (3) 0 53A-C
- --------------------------------------------------------------------------------
Computer Desk 0 54
- --------------------------------------------------------------------------------
FAX Machine (Sales) 0 55
- --------------------------------------------------------------------------------
Copy Machine-Xerox (Sales) 0 56
- --------------------------------------------------------------------------------
Lamp 0 57
- --------------------------------------------------------------------------------
Wall Divider (5) 0 58A-E
- --------------------------------------------------------------------------------
IPC 386 Computer 0 59 Mary-Traffic
- --------------------------------------------------------------------------------
<PAGE>
01-Jul-96 3
West Coast United Broadcasting Co.
- --------------------------------------------------------------------------------
Furnitures & Equipment Inventory
- --------------------------------------------------------------------------------
Date Taken: 1/5/96* FINAL
- --------------------------------------------------------------------------------
LOCATION CODE: (P)=PRODUCTION-Red, (E)=ENGINEERING-Wht,
- --------------------------------------------------------------------------------
(T)-Tower-Blue, (O)=Office-Grn/Yel
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
*Updated for 1996 purchases through 6/27/96
- --------------------------------------------------------------------------------
Asset Asset Serial
- --------------------------------------------------------------------------------
Description Location Number Number
- --------------------------------------------------------------------------------
- -------------------- ------- ------ ------
- --------------------------------------------------------------------------------
386 Computer Compaq ProLinea 30 60 3/5253
- --------------------------------------------------------------------------------
Large Exec Chair Blk 0 61
- --------------------------------------------------------------------------------
Large Exec Chair Grey (2) 0 62A-B
- --------------------------------------------------------------------------------
Lateral file cabinet 2 drawer 0 63
- --------------------------------------------------------------------------------
Mac Classic Computer 0 65 E11492WMO43LL/?
- --------------------------------------------------------------------------------
4 Drawer file cabinet 0 70
- --------------------------------------------------------------------------------
Blk Leather Exec Chair (Jack) 0 71
- --------------------------------------------------------------------------------
VGA Monitor (Used) Mary 0 72
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
01-Jul-96 1
West Coast United Broadcasting Co.
- --------------------------------------------------------------------------------
Furnitures & Equipment Inventory
- --------------------------------------------------------------------------------
Date Taken: 1/5/96* FINAL
- --------------------------------------------------------------------------------
LOCATION CODE: (P)=PRODUCTION-Red, (E)=ENGINEERING-Wht,
- --------------------------------------------------------------------------------
(T)-Tower-Blue, (O)=Office-Grn/Yel
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
*Updated for 1996 purchases through 6/27/96
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Asset Asset Serial
- --------------------------------------------------------------------------------
Description Location Number Number
- --------------------------------------------------------------------------------
- --------------- ----- ----- -----
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Engineering
- --------------------------------------------------------------------------------
Monterey 100C Satellite Receive (E 1 951102/953494
- --------------------------------------------------------------------------------
Color Receiver Panasonic 1381 E 2 F89140064
- --------------------------------------------------------------------------------
Color Receiver Panasonic 1381 E 3 MB02220099
- --------------------------------------------------------------------------------
Video DA-Crest CDA-5 E 4
- --------------------------------------------------------------------------------
Switcher Teknec PSW-6 E 5
- --------------------------------------------------------------------------------
Henry Audio Match Box E 6
- --------------------------------------------------------------------------------
Tannoy Speaker E 9
- --------------------------------------------------------------------------------
Remote Control, Sony RM440 E 10 18115
- --------------------------------------------------------------------------------
VCR Sony VO-9850 E 11 73898
- --------------------------------------------------------------------------------
VCR Sony VP-5000 E 12A 56730
- --------------------------------------------------------------------------------
VCR Sony VP-5000 E 12B 55910
- --------------------------------------------------------------------------------
VCR Sony VP-5800 E 13 16951
- --------------------------------------------------------------------------------
TV/Monitor JVC CX-60US E 14
- --------------------------------------------------------------------------------
Printer LX-810 Epson E 15
- --------------------------------------------------------------------------------
B/W Monitor Packard Bell E 16
- --------------------------------------------------------------------------------
IBM XT PC E 17
- --------------------------------------------------------------------------------
Two Drawer Cabinet E 18
- --------------------------------------------------------------------------------
Time MT-90 E 19
- --------------------------------------------------------------------------------
Desks (2) E 20
- --------------------------------------------------------------------------------
Chairs (4) E 21
- --------------------------------------------------------------------------------
Satellite Desk E 22
- --------------------------------------------------------------------------------
Color Monitor Hyundai E 24
- --------------------------------------------------------------------------------
PC 286 Tech-1000 E 25 B9041381
- --------------------------------------------------------------------------------
Hand Truck E 27
- --------------------------------------------------------------------------------
GVG 10XL Switcher E 29
- --------------------------------------------------------------------------------
BCR Sony BVU-900 E 30 56733 Not Working
- --------------------------------------------------------------------------------
<PAGE>
01-Jul-96 2
West Coast United Broadcasting Co.
- --------------------------------------------------------------------------------
Furnitures & Equipment Inventory
- --------------------------------------------------------------------------------
Date Taken: 1/5/96* FINAL
- --------------------------------------------------------------------------------
LOCATION CODE: (P)=PRODUCTION-Red, (E)=ENGINEERING-Wht,
- --------------------------------------------------------------------------------
(T)-Tower-Blue, (O)=Office-Grn/Yel
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
*Updated for 1996 purchases through 6/27/96
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Asset Asset Serial
- --------------------------------------------------------------------------------
Description Location Number Number
- --------------------------------------------------------------------------------
- --------------- ----- ----- -----
- --------------------------------------------------------------------------------
BCR Sony, BVU-800 E 31 Not Working
- --------------------------------------------------------------------------------
Tennsco Metal Cabinet E 32
- --------------------------------------------------------------------------------
Wooden Shelf E 33
- --------------------------------------------------------------------------------
5 ft Table E 34
- --------------------------------------------------------------------------------
Book Shelf E 35
- --------------------------------------------------------------------------------
Wooden Shelf E 36
- --------------------------------------------------------------------------------
Book Shelf E 37
- --------------------------------------------------------------------------------
TV Signal Generator Leander-400 E 38 8080961
- --------------------------------------------------------------------------------
Audio Amp Video Tek APM2RS E 39
- --------------------------------------------------------------------------------
Vectorscope Tek 500A E 40
- --------------------------------------------------------------------------------
Color Monitor Panasonic 5702 E 41
- --------------------------------------------------------------------------------
Generator-Audio Precision E 43 PIP-OOOOL
- --------------------------------------------------------------------------------
Signal Generator Tek 149A E 49
- --------------------------------------------------------------------------------
DC Power Supply Sorenson E 50
- --------------------------------------------------------------------------------
STL Microwave Transmitter E 53 205359
- --------------------------------------------------------------------------------
STL Microwave Transmitter E 54 205360
- --------------------------------------------------------------------------------
<PAGE>
01-Jul-96 1
West Coast United Broadcasting Co.
- --------------------------------------------------------------------------------
Furnitures & Equipment Inventory
- --------------------------------------------------------------------------------
Date Taken: 1/5/96* FINAL
- --------------------------------------------------------------------------------
LOCATION CODE: (P)=PRODUCTION-Red, (E)=ENGINEERING-Wht,
- --------------------------------------------------------------------------------
(T)-Tower-Blue, (O)=Office-Grn/Yel
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
*Updated for 1996 purchases through 6/27/96
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Asset Asset Serial
- --------------------------------------------------------------------------------
Description Location Number Number
- --------------------------------------------------------------------------------
- --------------- ----- ----- -----
- --------------------------------------------------------------------------------
Camera-JVC KY-25 P 1A 11751325
- --------------------------------------------------------------------------------
Camera-JVC KY-25 P 1B 15550888
- --------------------------------------------------------------------------------
Camera-JVC KY-25 P 1C 15550891
- --------------------------------------------------------------------------------
Tripod-Bogen P 2
- --------------------------------------------------------------------------------
Tripod-O'Connor P 3
- --------------------------------------------------------------------------------
Tape Deck-Sony PVV-1 P 4A 11227
- --------------------------------------------------------------------------------
Camera Sony TXC573 P 4B 13221
- --------------------------------------------------------------------------------
Camera Case Sony P 5
- --------------------------------------------------------------------------------
Batt. Chrgr-JVC AA G104 P 6 07550081
- --------------------------------------------------------------------------------
Batt. Chrgr-Sony BC-1WA P 7 13087
- --------------------------------------------------------------------------------
Lamp Case Lowel P 8
- --------------------------------------------------------------------------------
Tripod Sachtler P 9
- --------------------------------------------------------------------------------
Tripod-Manfyotto P 10
- --------------------------------------------------------------------------------
Monitor-Panasonic 1330 P 11A UG3541132
- --------------------------------------------------------------------------------
Monitor-Panasonic 1330 P 11B UG434624
- --------------------------------------------------------------------------------
Monitor-Panasonic 1330 P 11C UG4344723
- --------------------------------------------------------------------------------
Intercom/Clearcom RM-120A P 12 519678
- --------------------------------------------------------------------------------
Audio DA Technica AT-4033 P 13
- --------------------------------------------------------------------------------
Stand-Mike Atlas P 14
- --------------------------------------------------------------------------------
Fire Extinguisher P 15
- --------------------------------------------------------------------------------
Tables-Small (Tea) P 16
- --------------------------------------------------------------------------------
Cabinet-Steel Storage P 17
- --------------------------------------------------------------------------------
Camera Cases (2) P 18
- --------------------------------------------------------------------------------
Bookcases (2) P 19
- --------------------------------------------------------------------------------
Book cases/Metal (2) P 20
- --------------------------------------------------------------------------------
Screens/Studio Props (2) P 21
- --------------------------------------------------------------------------------
Chairs/Studio Props (2) P 22 (2)-Stations (2)-Leos
- --------------------------------------------------------------------------------
Stool Set (Studio/Props) (3) P 23
- --------------------------------------------------------------------------------
<PAGE>
01-Jul-96 2
West Coast United Broadcasting Co.
- --------------------------------------------------------------------------------
Furnitures & Equipment Inventory
- --------------------------------------------------------------------------------
Date Taken: 1/5/96* FINAL
- --------------------------------------------------------------------------------
LOCATION CODE: (P)=PRODUCTION-Red, (E)=ENGINEERING-Wht,
- --------------------------------------------------------------------------------
(T)-Tower-Blue, (O)=Office-Grn/Yel
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
*Updated for 1996 purchases through 6/27/96
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Asset Asset Serial
- --------------------------------------------------------------------------------
Description Location Number Number
- --------------------------------------------------------------------------------
- --------------- ----- ----- -----
- --------------------------------------------------------------------------------
Portable Table (studio) P 24
- --------------------------------------------------------------------------------
Lapel mikes (2) P 25
- --------------------------------------------------------------------------------
Lamp-Colortrain Berkeley P 26
- --------------------------------------------------------------------------------
Table-Studio P 27
- --------------------------------------------------------------------------------
Table Anchor Studio P 28
- --------------------------------------------------------------------------------
Ladders Studio P 29
- --------------------------------------------------------------------------------
Small Bookcases (3) P 30
- --------------------------------------------------------------------------------
Lamps Loweltoya (2) P 35
- --------------------------------------------------------------------------------
Lamp OMNI P 36
- --------------------------------------------------------------------------------
Stand-Cue (Studio) P 37
- --------------------------------------------------------------------------------
Curtain Holders (studio) (2) P 38
- --------------------------------------------------------------------------------
Chairs Portable Cloth (3) P 39
- --------------------------------------------------------------------------------
Tripod Case P 40
- --------------------------------------------------------------------------------
Tape Deck VO 6800 P 41 11447
- --------------------------------------------------------------------------------
Lamp Lowell P 42
- --------------------------------------------------------------------------------
Belt Batt Holder P 43
- --------------------------------------------------------------------------------
Camera Sony DXC-M3A P 44 90074
- --------------------------------------------------------------------------------
CAmera Adapter Sony CM8-7 P 45A 313957
- --------------------------------------------------------------------------------
Camera Adapter Sony DC-8 P 45B 17972
- --------------------------------------------------------------------------------
Mike EV 635-A/B (2) P 46
- --------------------------------------------------------------------------------
Flower Pots (Studio) (2) P 47
- --------------------------------------------------------------------------------
Chinese Laquer Jar P 48
- --------------------------------------------------------------------------------
Vacuum Cleaner P 49
- --------------------------------------------------------------------------------
Chairs Vinyl (Studio) (4) P 50
- --------------------------------------------------------------------------------
Mike Sony ECM 672 P 51
- --------------------------------------------------------------------------------
Mike Sony EC55B (4) P 52
- --------------------------------------------------------------------------------
Tool Box P 53
- --------------------------------------------------------------------------------
Stand Mike Short P 54
- --------------------------------------------------------------------------------
<PAGE>
01-Jul-96 3
West Coast United Broadcasting Co.
- --------------------------------------------------------------------------------
Furnitures & Equipment Inventory
- --------------------------------------------------------------------------------
Date Taken: 1/5/96* FINAL
- --------------------------------------------------------------------------------
LOCATION CODE: (P)=PRODUCTION-Red, (E)=ENGINEERING-Wht,
- --------------------------------------------------------------------------------
(T)-Tower-Blue, (O)=Office-Grn/Yel
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
*Updated for 1996 purchases through 6/27/96
- --------------------------------------------------------------------------------
Asset Asset Serial
- --------------------------------------------------------------------------------
Description Location Number Number
- --------------------------------------------------------------------------------
- ------------ ----- ----- -----
- --------------------------------------------------------------------------------
Tape Deck Sony V09800 P 55A 13877
- --------------------------------------------------------------------------------
Tape Deck Sony V09800 P 55B 78217
- --------------------------------------------------------------------------------
Tape Deck Sony V09800 P 55C 75361
- --------------------------------------------------------------------------------
Tape Deck Sony V09850 P 56A 75536
- --------------------------------------------------------------------------------
Tape Deck Sony V09850 P 56B 78867
- --------------------------------------------------------------------------------
Tape Deck Sony V09850 P 56C 78854
- --------------------------------------------------------------------------------
Tape Deck Sony V09850 P 56D 13556
- --------------------------------------------------------------------------------
Remote Control Sony RM450 P 57A 78679
- --------------------------------------------------------------------------------
Remote Control Sony RM450 P 57B 78609
- --------------------------------------------------------------------------------
VHS Tape Deck JVC BR-8600U P 58 178102216
- --------------------------------------------------------------------------------
VHS Tape Deck JVC BP-8600U P 59 16811325
- --------------------------------------------------------------------------------
Remote Control JVC RM-86U P 60 09052526
- --------------------------------------------------------------------------------
Table-Edit P 61
- --------------------------------------------------------------------------------
Table Editing (2) P 62
- --------------------------------------------------------------------------------
Cassette Storage (8) P 63
- --------------------------------------------------------------------------------
Rack-Wood P 65
- --------------------------------------------------------------------------------
Table-Production P 66
- --------------------------------------------------------------------------------
Tape Deck Sony PVW2800 P 68A 12571
- --------------------------------------------------------------------------------
Tape Deck Sony PVW2800 P 68B 12597
- --------------------------------------------------------------------------------
TBC Hotronics P 69
- --------------------------------------------------------------------------------
Gen. Lock Sigma CSG 300 P 70 1078132
- --------------------------------------------------------------------------------
Gen. Lock Horita CSG RM50 P 71 CS3121500
- --------------------------------------------------------------------------------
Remote control Sony PVE500 P 72 701579
- --------------------------------------------------------------------------------
Monitor Sony PVM1342 P 73A 202789
- --------------------------------------------------------------------------------
Monitor Sony PVM1342 P 73B
- --------------------------------------------------------------------------------
Monitor 3 B/W Panasonic P 74
- --------------------------------------------------------------------------------
Waveform Leader 5860-A P 75 3041040
- --------------------------------------------------------------------------------
Vector Scope leader 5850-B P 76 3120281
- --------------------------------------------------------------------------------
<PAGE>
01-Jul-96 4
West Coast United Broadcasting Co.
- --------------------------------------------------------------------------------
Furnitures & Equipment Inventory
- --------------------------------------------------------------------------------
Date Taken: 1/5/96* FINAL
- --------------------------------------------------------------------------------
LOCATION CODE: (P)=PRODUCTION-Red, (E)=ENGINEERING-Wht,
- --------------------------------------------------------------------------------
(T)-Tower-Blue, (O)= Office-Grn/Yel
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
*Updated for 1996 purchases through 6/27/96
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Asset Asset Serial
- --------------------------------------------------------------------------------
Description Location Number Number
- --------------------------------------------------------------------------------
- ----------------- ------ ----- -----
- --------------------------------------------------------------------------------
Switcher Panasonic 1X5 P 77
- --------------------------------------------------------------------------------
Clearcom Main Station P 78
- --------------------------------------------------------------------------------
Camera Remote JVC RMP-200 (2) P 79 14551016/105507
- --------------------------------------------------------------------------------
GLI 486 Computer P 80
- --------------------------------------------------------------------------------
Keyboard P 81
- --------------------------------------------------------------------------------
Monitor KFC Graphics P 82 )50154507A
- --------------------------------------------------------------------------------
Graphics Hdwr-Alladin P 83 AEI-11768
- --------------------------------------------------------------------------------
Speaker Realistic (2) P 85
- --------------------------------------------------------------------------------
Audio Board BIAMP P 86 811536
- --------------------------------------------------------------------------------
CD Player Technics P 87
- --------------------------------------------------------------------------------
Audio DA Merill (2) P 88
- --------------------------------------------------------------------------------
Speakers - TAnoy (3) P 91
- --------------------------------------------------------------------------------
Video DA (2) P 92
- --------------------------------------------------------------------------------
Chairs Office (4) P 93
- --------------------------------------------------------------------------------
Cassette Storage (2) P 94
- --------------------------------------------------------------------------------
Rack 5 feet P 95
- --------------------------------------------------------------------------------
Table F/X MAC P 96
- --------------------------------------------------------------------------------
Table Audio P 97
- --------------------------------------------------------------------------------
Table Portable Edit P 98
- --------------------------------------------------------------------------------
Air Conditioner Movin Cool P 99
- --------------------------------------------------------------------------------
Computer MAC II CI P 100
- --------------------------------------------------------------------------------
Hard Disk MAC P 101
- --------------------------------------------------------------------------------
FX Digital Graphics P 102
- --------------------------------------------------------------------------------
Printer MAC P 103
- --------------------------------------------------------------------------------
Monitor Sony 4-368 P 104
- --------------------------------------------------------------------------------
Monitor Sony Trinitron P 105
- --------------------------------------------------------------------------------
Keyboard MAC P 106
- --------------------------------------------------------------------------------
Aphex Audio P 107
- --------------------------------------------------------------------------------
<PAGE>
01-Jul-96 5
West Coast United Broadcasting Co.
- --------------------------------------------------------------------------------
Furnitures & Equipment Inventory
- --------------------------------------------------------------------------------
Date Taken: 1/5/96* FINAL
- --------------------------------------------------------------------------------
LOCATION CODE: (P)=PRODUCTION-Red, (E)= ENGINEERING-Wht,
- --------------------------------------------------------------------------------
(T)-Tower-Blue, (O)=Office-Gm/Yel
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
*Updated for 1996 purchases through 6/27/96
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Asset Asset Serial
- --------------------------------------------------------------------------------
Description Location Number Number
- --------------------------------------------------------------------------------
- ------------ ------ ----- -----
- --------------------------------------------------------------------------------
Cassette Play TASCAM 122 P 108
- --------------------------------------------------------------------------------
CD Player TASCAM D401 P 109
- --------------------------------------------------------------------------------
Audio TASCAM PB32 P 110
- --------------------------------------------------------------------------------
Video Patch Panel P 111
- --------------------------------------------------------------------------------
Audio AMP PRO-1200 P 112
- --------------------------------------------------------------------------------
Audio Board Panasonic 4416 P 113
- --------------------------------------------------------------------------------
Tape Deck PVW-2600 P 114 11002
- --------------------------------------------------------------------------------
Toaster Graphics P 115
- --------------------------------------------------------------------------------
Monitor Commodore P 116
- --------------------------------------------------------------------------------
Monitor Sony 1380 P 117
- --------------------------------------------------------------------------------
VHS Tape Deck Pansonic 7500A P 118
- --------------------------------------------------------------------------------
TV Emerson (2) P 119
- --------------------------------------------------------------------------------
Tape Deck Sony 5800 P 120 27189
- --------------------------------------------------------------------------------
Tape Deck Sony 5850 P 121 72444
- --------------------------------------------------------------------------------
Remote Control Sony RM440 P 122 16115
- --------------------------------------------------------------------------------
Microwave Oven P 126
- --------------------------------------------------------------------------------
Storage Cabinet P 127
- --------------------------------------------------------------------------------
Tape Deck Sony 5600 P 128 18908
- --------------------------------------------------------------------------------
Printer HP laser P 129
- --------------------------------------------------------------------------------
Computer 486 P 130
- --------------------------------------------------------------------------------
Monitor-Computer P 131
- --------------------------------------------------------------------------------
Keyboard P 132
- --------------------------------------------------------------------------------
Monitor Panasonic S-702 P 133
- --------------------------------------------------------------------------------
Timer Onron P 134
- --------------------------------------------------------------------------------
Desks (5) P 136
- --------------------------------------------------------------------------------
File Cabinet (4 drawers) P 137
- --------------------------------------------------------------------------------
Chairs Office (8) P 138
- --------------------------------------------------------------------------------
Storage Cabinet P 139
- --------------------------------------------------------------------------------
<PAGE>
01-Jul-96 6
West Coast United Broadcasting Co.
- --------------------------------------------------------------------------------
Furnitures & Equipment Inventory
- --------------------------------------------------------------------------------
Date Taken: 1/5/96* FINAL
- --------------------------------------------------------------------------------
LOCATION CODE: (P)=PRODUCTION-Red, (E)=ENGINEERING-Wht,
- --------------------------------------------------------------------------------
(T)-Tower-Blue, (O)=Office-Grn/Yel
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
*Updated for 1996 purchases through 6/27/96
- --------------------------------------------------------------------------------
Asset Asset Serial
- --------------------------------------------------------------------------------
Description Location Number Number
- --------------------------------------------------------------------------------
- ----------------- ------ ------ ------
- --------------------------------------------------------------------------------
Copier Cannon P 140
- --------------------------------------------------------------------------------
File Cabinet (small P 141
- --------------------------------------------------------------------------------
Sofa P 142
- --------------------------------------------------------------------------------
Table-Coffee P 143
- --------------------------------------------------------------------------------
Table cabinet 2 drawer P 144
- --------------------------------------------------------------------------------
Mirror P 145
- --------------------------------------------------------------------------------
Racks equipment P 147
- --------------------------------------------------------------------------------
TBC Prime Image P 148
- --------------------------------------------------------------------------------
Singer 16mm Camera p 149
- --------------------------------------------------------------------------------
Shure Audio Mixer P 150
- --------------------------------------------------------------------------------
Genther TH-100 Telehybrid P 151.00
- --------------------------------------------------------------------------------
<PAGE>
01-Jul-96 1
West Coast United Broadcasting Co.
- --------------------------------------------------------------------------------
Furnitures & Equipment Inventory
- --------------------------------------------------------------------------------
Date Taken: 1/5/96* FINAL
- --------------------------------------------------------------------------------
LOCATION CODE: (P)=PRODUCTION-Red, (E)=ENGINEERING-Wht,
- --------------------------------------------------------------------------------
(T)-Tower-Blue, (O)=Office-Grn/Yel
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
*Updated for 1996 purchases through 6/27/96
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Asset Asset Serial
- --------------------------------------------------------------------------------
DESCRIPTION Location Number Number
- --------------------------------------------------------------------------------
- ----------- ------- ------ ------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Tower
- --------------------------------------------------------------------------------
Combiner Remote Control MRC-1 T 1 41573
- --------------------------------------------------------------------------------
Measurement Set V700A T 2 B042259
- --------------------------------------------------------------------------------
Frequency Counter HP53181A T 3 348A00643
- --------------------------------------------------------------------------------
TTC Transmitter T 4
- --------------------------------------------------------------------------------
Sigma, Generator TSG-0199 T 5 B022178
- --------------------------------------------------------------------------------
Transmitter Exciter 1 T 6
- --------------------------------------------------------------------------------
TV Signal Demodulator 145-1 T 7 B0121195
- --------------------------------------------------------------------------------
TV Monitor Sony PVM1342Q Mo T 8 2014452
- --------------------------------------------------------------------------------
Oscilloscope Tek 1718R T 9
- --------------------------------------------------------------------------------
Video Distribution Amplifier T 10
- --------------------------------------------------------------------------------
Video Distribution Amplifier-Tek T 11 00643801
- --------------------------------------------------------------------------------
RF Delay Line TTC T 12
- --------------------------------------------------------------------------------
Transmitter Exciter 2 T 13
- --------------------------------------------------------------------------------
Dielectric Dehydrator T 14 21757-502
- --------------------------------------------------------------------------------
Short Slant Equipment Rack T 15
- --------------------------------------------------------------------------------
Short Slant Equipment Rack T 16
- --------------------------------------------------------------------------------
Table-Lunch T 17
- --------------------------------------------------------------------------------
Microwave Oven, GE T 19
- --------------------------------------------------------------------------------
Refrigerator T 20
- --------------------------------------------------------------------------------
Timecard Clock T 21
- --------------------------------------------------------------------------------
2 Drawer File Cabinet T 27
- --------------------------------------------------------------------------------
Metal Book Shelf T 29
- --------------------------------------------------------------------------------
Wooden Book Shelf T 30
- --------------------------------------------------------------------------------
Metal Desk T 31
- --------------------------------------------------------------------------------
Wooden Short Book Shelf T 32
- --------------------------------------------------------------------------------
Air Conditioner-Sanyo T 33 0141724
- --------------------------------------------------------------------------------
<PAGE>
01-Jul-96 2
West Coast United Broadcasting Co.
- --------------------------------------------------------------------------------
Furnitures & Equipment Inventory
- --------------------------------------------------------------------------------
Date Taken: 1/5/96* FINAL
- --------------------------------------------------------------------------------
LOCATION CODE: (P)=PRODUCTION-Red, (E)=ENGINEERING-Wht,
- --------------------------------------------------------------------------------
(T)-Tower-Blue, (O)=Office-Grn/Yel
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
*Updated for 1996 purchases through 6/27/96
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ASSET ASSET SERIAL
- --------------------------------------------------------------------------------
DESCRIPTION LOCATION NUMBER NUMBER
- --------------------------------------------------------------------------------
- ----------- -------- ---- ------
- --------------------------------------------------------------------------------
Wooden Book Shelf T 34
- --------------------------------------------------------------------------------
Small Book Shelf T 35
- --------------------------------------------------------------------------------
Work Bench T 36
- --------------------------------------------------------------------------------
TV Color Monitor, Barco T 37
- --------------------------------------------------------------------------------
TV Color Monitor, Barco T 38
- --------------------------------------------------------------------------------
TV Sync Generator Tek 110 T 39 LR-37158
- --------------------------------------------------------------------------------
TV Equipment Short Rack T 47
- --------------------------------------------------------------------------------
Metal Cabinet T 48
- --------------------------------------------------------------------------------
Watt Measurement Meter T 62
- --------------------------------------------------------------------------------
Engineering Tool Box T 63
- --------------------------------------------------------------------------------
Measurement Result Printer T 65 1F8E333132
- --------------------------------------------------------------------------------
Tektronix 145 T 66
- --------------------------------------------------------------------------------
Spectrum Analyzer Tek 2712 T 67 B022957
- --------------------------------------------------------------------------------
Antenna Conbiner (MCI T 69
- --------------------------------------------------------------------------------
Chairs (8) T 70
- --------------------------------------------------------------------------------
B/W Monitor, Panasonic T 71 5Y103757-9
- --------------------------------------------------------------------------------
GVG 10XL Video Switcher T 72 0477
- --------------------------------------------------------------------------------
EBS Receiver IFT0806 T 73 1060333
- --------------------------------------------------------------------------------
Tape Deck, Sony VP-9000 T 74A 23828
- --------------------------------------------------------------------------------
Tape Deck, Sony VP-9000 T 74B 23686
- --------------------------------------------------------------------------------
Tape Deck, Sony VP-9000 T 74C 23830
- --------------------------------------------------------------------------------
Tape Deck, Sony VP-9000 T 74D 23679
- --------------------------------------------------------------------------------
Tape Deck, Sony VP-9000 T 74E 23678
- --------------------------------------------------------------------------------
Tape Deck, Sony VO-9600 T 75 78189
- --------------------------------------------------------------------------------
Tape Deck, Sony VO-9650 T 76 78859
- --------------------------------------------------------------------------------
B/W Video Monitor, Pansonic T 77 96101484-6
- --------------------------------------------------------------------------------
Audio Distribution Amplifier FOR-AT 78 1930803
- --------------------------------------------------------------------------------
Video 1X6 Switcher, NEG T 80
- --------------------------------------------------------------------------------
<PAGE>
01-Jul-96 3
West Coast United Broadcasting Co.
- --------------------------------------------------------------------------------
Furnitures & Equipment Inventory
- --------------------------------------------------------------------------------
Date Taken: 1/5/96* FINAL
- --------------------------------------------------------------------------------
LOCATION CODE: (P)=PRODUCTION-Red, (E)=ENGINEERING-Wht,
- --------------------------------------------------------------------------------
(T)-Tower-Blue, (O)=Office-Grn/Yel
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
*Updated for 1996 purchases through 6/27/96
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Asset Asset Serial
- -------------------------------------------------------------------------------
Description Location Number Number
- -------------------------------------------------------------------------------
- ----------------- ----- ---- -----
- -------------------------------------------------------------------------------
Tape Deck, Sony VO-5850 T 81 28054
- --------------------------------------------------------------------------------
Tape Deck, Sony VO-5000 T 82 55910
- --------------------------------------------------------------------------------
Microwave STL Receiver T 83 205362-3
- --------------------------------------------------------------------------------
Tape Deck, Sony VO-5850 T 84 17353
- --------------------------------------------------------------------------------
Audio Compressor, Limitor Orban T 85 188176HB
- --------------------------------------------------------------------------------
Waveform Monitor T 86A 11950510
- --------------------------------------------------------------------------------
Waveform Monitor T 86B 11950511
- --------------------------------------------------------------------------------
10XL Video Switcher, GVG T 87 0484
- --------------------------------------------------------------------------------
Video Main Board Switcher, GVG T 88 0148
- --------------------------------------------------------------------------------
Vertical Insert Test Signal, Tek T 89
- --------------------------------------------------------------------------------
TV Color Sync Generator, 6358 T 90
- --------------------------------------------------------------------------------
Video Distribution Amplifier FOR-A T 91 1930808
- --------------------------------------------------------------------------------
Video Distribution Amplifier FOR-A T 92 1930769
- --------------------------------------------------------------------------------
B/W Video Monitor, Panasonic T 93 96101493-5
- --------------------------------------------------------------------------------
Time Base Corrector H-Tronic AP4 T 94A
- --------------------------------------------------------------------------------
Time Base Corrector H-Tronic AP4 T 94B
- --------------------------------------------------------------------------------
Time Base Corrector H-Tronic AP4 T 94C
- --------------------------------------------------------------------------------
Time Base Corrector H-Tronic AP4 T 94D
- --------------------------------------------------------------------------------
TBC, FOR-A 700 T 95 3020142
- --------------------------------------------------------------------------------
B/W Video Monitor, Panasonic T 96
- --------------------------------------------------------------------------------
TV Color Monitor PVM 1342Q T 97A 2014593
- --------------------------------------------------------------------------------
TV Color Monitor PVM 1342Q T 97B 2014600
- --------------------------------------------------------------------------------
Vectorscope, Tek 1730 T 98 B040925
- --------------------------------------------------------------------------------
Waveform Monitor Tek 1720 T 99 B030048
- --------------------------------------------------------------------------------
Audio Monitor, Belar TVM-101 T 101 230003
- --------------------------------------------------------------------------------
Audio Monitor, Video Tek T 102 06890115
- --------------------------------------------------------------------------------
Waveform Monitor, Video Tek T 103 B08881072
- --------------------------------------------------------------------------------
Time Clock T 104
- --------------------------------------------------------------------------------
<PAGE>
01-Jul-96 4
West Coast United Broadcasting Co.
- --------------------------------------------------------------------------------
Furnitures & Equipment Inventory
- --------------------------------------------------------------------------------
Date Taken: 1/5/96* FINAL
- --------------------------------------------------------------------------------
LOCATION CODE: (P)=PRODUCTION-Red, (E)=ENGINEERING-Wht,
- --------------------------------------------------------------------------------
(T)-Tower-Blue, (O)= Office-Grn/Yel
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
*Updated for 1996 purchases through 6/27/96
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Asset Asset Serial
- --------------------------------------------------------------------------------
Description Location Number Number
- --------------------------------------------------------------------------------
- ---------- ------- --- ------
- --------------------------------------------------------------------------------
TV Color monitor, Sony T 105A 2000525
- --------------------------------------------------------------------------------
TV Color monitor, Sony T 105B 2000731
- --------------------------------------------------------------------------------
10XL Video/Audio Switcher, GVG T 106 0329
- --------------------------------------------------------------------------------
TBC, H-tronic T 107
- --------------------------------------------------------------------------------
Tape Deck Controller, RM450 T 108 81411
- --------------------------------------------------------------------------------
7' B/W Monitor T 109
- --------------------------------------------------------------------------------
Character Generator 3M T 110 0581
- --------------------------------------------------------------------------------
3ft. ladder T 112
- --------------------------------------------------------------------------------
Equipment Racks (4) T 113
- --------------------------------------------------------------------------------
Wooden Book shelf T 114
- --------------------------------------------------------------------------------
Audio Speakers (2) Tanoy T 115
- --------------------------------------------------------------------------------
Air Conditioner Sanyo T 116 0140424
- --------------------------------------------------------------------------------
7ft Equipment Racks (3) T 117
- --------------------------------------------------------------------------------
Audio Speaker T 118
- --------------------------------------------------------------------------------
Main Program Switcher, GVG T 119 0150
- --------------------------------------------------------------------------------
Audio Source Speakers (2) T 120
- --------------------------------------------------------------------------------
Small Table T 121
- --------------------------------------------------------------------------------
Fire Extinguisher T 123
- --------------------------------------------------------------------------------
Small Book Case T 127
- --------------------------------------------------------------------------------
Tape Deck Controller RM440 T 128 23020
- --------------------------------------------------------------------------------
Tape Deck, Sony BVU-900 T 129A 11919
- --------------------------------------------------------------------------------
Tape Deck, Sony BVU-900 T 129B 11873
- --------------------------------------------------------------------------------
Tape Deck, Sony BVU-950 T 130 16147
- --------------------------------------------------------------------------------
Stereo Generator 8185A T 132 2800415FF
- --------------------------------------------------------------------------------
Reference Monitor TVM-210 T 136 210260
- --------------------------------------------------------------------------------
Audio TV Meter Panel T 137
- --------------------------------------------------------------------------------
CMC 4.5 Shadow Box Meter T 138 35369
- --------------------------------------------------------------------------------
CMC 4.5 Shadow Box Meter T 139 35370
- --------------------------------------------------------------------------------
Hewlett Packard Digital Broad- T 140 Various
cast System
<PAGE>
WEST COAST UNITED BROADCASTING CO.
SCHEDULE NUMBER: 1.1(b)(2) INVENTORY OF LEASED PROPERTY
----------------------------
Pitney Bowes Scale and Postage Meter
Xerox 5021 Copier
<PAGE>
WEST COAST UNITED BROADCASTING CO.
SCHEDULE NUMBER: 1.1(c) INVENTORY OF CONTRACTS,
-----------------------
AGREEMENTS AND LEASES
-----------------------
<TABLE>
<CAPTION>
Contract
Name Type Description Period
---- ---- ----------- ------
<S> <C> <C> <C>
Pitney Bowes(1) Off. Equip Postage Meter & Scale Lease 5/95-8/99
Xerox(1) Off. Equip Xerox Lease 12/94-3/98
Chinese Television Network (CTN) Program (2) CTN New, City Spy, ET 8/95-12/96
CTV Receivable (3) Inside China/Changing China 1/96-12/96
</TABLE>
(1) Agreement not assignable.
(2) Programming purchased by KCNS
(3) Production and air time purchased from KCNS
<PAGE>
WEST COAST UNITED BROADCASTING CO.
SCHEDULE NUMBER: 1.1(d) AUTHORIZATIONS
--------------
The following licenses are held by West Coast United Broadcasting Co.
FCC
- ---
FCC license granted to KCNS-Channel 38 was renewed 11/30/93 and
expires on 12/01/98. KCNS-Channel 38 applied for and was granted
a license to operate a microwave dish at Sutro tower in February,
1995.
City and County of San Francisco
- --------------------------------
We are registered to conduct business in the city and county of
San Francisco. Business Tax ID Number: 911166728-01
State of California
- -------------------
We are registered as a "foreign" corporation with the Franchise Tax
Board of California.
State of Washington
- -------------------
We are registered as a Domestic Profit Organization by the
State of Washington. Business ID 601 425 056
<PAGE>
WEST COAST UNITED BROADCASTING CO.
SCHEDULE NUMBER: 1.1(e) TRADENAMES, TRADEMARKS,
-----------------------
SERVICE MARKS, COPYRIGHTS
---------------------------
AND PATENTS
-------------
Tradenames, Trademarks, Service Marks, Copyrights and
Patents held by West Coast United Broadcasting Co. are as follows:
KCNS-TV38
KCNS-Channel 38
Channel 38 Logo
<PAGE>
West Coast United Broadcasting Co.
Schedule Number: 1.8 Excluded Personal Property
--------------------------
The following personal property will be retained by
West Coast United Broadcasting Co.
(1) 4-Drawer File Cabinet (Inv. #19)
(1) 2-Drawer File Cabinet (Inv. #64)
(1) HPII Plus Printer (Inv. #66-at YMC's)
(1) FAX machine (Inv. #68-at Carson's)
(1) Apple Laserjet (Inv. #68-at Carson's)
(1) FAX Machine-Panasonic (Purchased with Sprints-at YMC's)
(1) 486 120MHz Opti Gold (Inv. #44)
(1) Cannon P32-DH Calculator (YMC office)
(1) Brass Arm Lamp (YMC-P)
(1) White Air Cleaner (YMC-P)
(2) Disk Storage Cases (YMC-P)
(1) Chinese Vase (YMC-P)
(1) set Quartz bookends (YMC-P)
(3) Plants (YMC-P)
(1) Chinese Screen Print (YMC-P)
Windows 3.1 Software (YMC-P)
Chop Sticks (YMC-P)
Contents of Bookcase (Brent-P)
Artwork in Brent's office (Brent-P) 5 pictures
Gold Pocket Watch in Brent's office (Brent-P)
Art Museum Book in Brent's office (Brent-P)
Chinese Plate and Stand in Brent's office (Brent-P)
Teak/Bird Stand in Brent's office (Brent-P)
Chop Sticks (Brent-P)
Fees Paintings (Brent-P)
Chinese Paperweight (Brent-P)
Calculator on Brent's Desk (Brent-P)
Desk Set on Brent's Desk (Brent-P)
Oakland A's Bar-(Brent-P)
Howard Miller Clock (Brent-P)
Sony 8" color TV #5046998 in traffic (Brent-P)
Artwork in Martin's office (Martin-P)
Picture Golden Gate Bridge in Martin's office (Brent-P)
Flower Picture near Xerox room (Brent-P) (signed by Regan)
Artwork in common area and lobby (Lee's-P) S pictures
Oscilloscope in Engineering (Sun's desk) (Carson-P)
Artwork in sales department (Caren, Tom, Anna, Tony and Jenny-P)
Picture-1996 Championship Season in Sales (Brent-P)
Stereo at Caren's desk (Caren-P)
Contents of bookcase in Jack's office (Jack-P)
Artwork in Jack's office (Jack-P)
Computer, CD's, disks, modem and related equipment in Larry's office
(Larry-P)
Coffee Pot in Larry's office (Larry-P)
Radio, books (non-KCNS), Mistek printer in Larry's office (Larry-P)
Artwork in Duffy's office (Leo-P)
Chinese decorations in Duffy's office (Leo/Duffy-P)
Artwork in Production office (Leo-P)
Coffee Pot in Production (Brent-P)
(4) Chinese Chairs-Inside China Set (Leo-P)
(2) Chinese tables-Inside China Set (Leo-P)
Portable Fan in Studio (Leo-P)
(2) Chinese Scroll Chairs-Inside China Set (Leo-P)
Marble horse/carriage-Inside China Set (Leo-P)
Fang Shui Backdrop (Leo-P)
Chinese Lantern in Studio (Leo-P)
Hanging Red Balls in Studio (Leo-P)
Mahogany room divider-Inside China Set (Leo-P)
Large Chinese Vase in Studio (Leo-P)
Table Chinese table-Inside China Set (Leo-P)
<PAGE>
Exhibit 10.13
May 23, 1996
Ms. Barbara Laurence
Global Shopping Network, Inc.
1740 Broadway, 17th Floor
New York, New York 10019-4315
Re: Indemnification Agreement
-------------------------
Dear Ms. Laurence:
This letter ("Letter Agreement") memorializes the agreement among
Global Shopping Network, Inc. ("Global"), Rachamin Anatian ("Anatian") and you
with regard to any indemnification by Global and Anatian to you. To induce you
to enter into and maintain certain guarantees of obligations of Global that you
have undertaken, Global and Anatian hereby agree are follows:
1. Indemnification Against Guaranteed Obligations. Global and
Anatian recognize that you have executed certain personal guaranties of certain
obligations of Global, and that such personal guaranties have benefited Global
and Anatian as its principal stockholder. The obligations of Global that you
have personally guaranteed as of the date hereof are listed on Schedule 1
hereto; such obligations as they may exist from time to time, together with any
other obligations of Global that you may elect to personally guarantee as they
may exist from time to time, are referred to herein as the "Guaranteed
Obligations." Global and Anatian hereby agree, jointly and severally, to
indemnify you, and pay or reimburse you for any costs, losses, or damages or
liabilities (including, without limitation, reasonable fees of attorneys,
interest and penalties) (collectively, "Guaranteed Losses" and individually, a
"Guaranteed Loss") whatsoever
<PAGE>
Ms. Barbara Lawrence
Global Network, Inc.
May 23, 1996
Page 2
incurred or suffered by you regardless of the cause of the reason for which such
Guaranteed Loss(es) are incurred or suffered. Such indemnification obligation
shall be absolute, unconditional and irrevocable and Global and Anatian
specifically waive any right of contribution on your part in respect of such
indemnification, regardless of whether your negligence or misconduct may have
contributed to the causation of such Guaranteed Loss(es). Such indemnification
obligation shall not be affected by any action or omission of Global or you
that may have the effect of increasing the amount of, delaying the payment or
satisfaction of, or releasing any collateral for, any Guaranteed Obligations, or
any other thing, fact or matter whatsoever including without limitation the
bankruptcy or insolvency of Global.
2. Collateral Security. To secure the prompt and timely satisfaction
-------------------
of the obligations of Global and Anatian pursuant to paragraph 1 hereof, Global
and Anatian authorize you to cause Global to establish and maintain (and Global
and Anatian agree to cooperate in the establishment and maintenance of), and to
cause Global to pay the premiums with respect to, a term life insurance policy
for Global's benefit on the life of Anatian having a policy amount equal to $2
million and to cause Global to grant to you and perfect a first lien and
security interest in such life insurance policy and all proceeds thereof. Global
irrevocably agrees that in the event of the death of Anatian and if there are
Guaranteed Obligations outstanding and unsatisfied as of such date of death, all
proceeds of such life insurance policy shall be payable
<PAGE>
Ms. Barbara Lawrence
Global Shopping Network, Inc.
May 23, 1996
Page 3
to you or as you shall direct in satisfaction of (x) the Guaranteed Obligations
or (y) the indemnification obligations of Global hereunder, and hereby assigns
and sets over to you all such proceeds for such purpose. You shall be entitled
to cause such proceeds to be so applied in any order and amount that you shall
elect, and to cause any such proceeds to be held in escrow pending the final
adjudication or settlement of any Guaranteed Obligations, and following such
final adjudication and settlement and the payment and satisfaction in full of
the obligations of Global and Anatian under paragraph 1 hereof you shall take
all steps necessary on your part to cause any excess proceeds to be paid or
remitted to Global. In the event of the death of Anatian, you shall be entitled
to assign any such proceeds or your interest in such life insurance policy to
any creditor or creditors in respect of the Guaranteed Obligations.
3. Release of Personal Guarantees. It is recognized that the objective of
Global is to be in a position that does not require you to execute or maintain
any personal guarantee in respect of the obligations of Global, and nothing
herein shall be deemed to required you to executed or maintain any such personal
guarantees. Global agrees to use, and you are authorized to cause Global to use,
reasonable commercial efforts to cause any personal guarantees executed by you
to be released as soon as reasonably practical. At such time as you have been
irrevocably released in writing by the beneficiaries of all such personal
guarantees to
<PAGE>
Ms. Barbara Lawrence
Global Shopping Network, Inc.
May 23, 1996
Page 4
your reasonable satisfaction, you shall release the security interest described
in paragraph 2 and the obligations of Global and Anatian under paragraph 1 shall
terminate.
4. General Indemnification. In addition to the indemnification obligations
------------------------
under paragraph 1 hereof, Global and Anatian hereby agree, jointly and
severally, to indemnify you, and pay or reimburse you for, any other cost,
losses, damages or liabilities (including, without limitation, reasonable fees
of attorneys, interest and any penalties) (collectively, "Losses" and
individually, a "Loss") incurred or suffered by you with respect to or in
connection with any and all actions taken or omitted by you on behalf of Global,
except for any and all Losses which result from your gross negligence or
willfull misconduct. In no event shall the provisions of this paragraph 4 be
construed to limit the provisions of paragraph 1 hereof, and if any conflict
shall be found to exist between such provisions the provisions of paragraph 1
shall govern. You shall be entitled to be advanced the costs of any defense of
any action or proceeding that may give rise to an indemnification obligation
hereunder against an undertaking to repay any amounts so advanced if it is
ultimately determined by a final judgment not subject to appeal that you were
not entitled to indemnification under the standards of this paragraph 4.
5. Successors and Assigns. The terms and conditions of this Agreement shall
-----------------------
inure to the benefit of and be binding upon the respective successors of the
parties hereto;
<PAGE>
Ms. Barbara Lawrence
Global Shopping Network, Inc.
May 23, 1996
Page 5
provided, however, that this Agreement may not be assigned by the parties hereto
- -------- -------
without the prior written consent of the other parties hereto, except for the
permitted assignment of life insurance proceeds described in paragraph 2.
6. Modification and Waiver. No amendment, modification,
-----------------------
alteration of the terms or provisions of this Agreement shall be binding unless
the same shall be in writing and duly executed 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 which is entitled to the benefits of such waived terms
or provisions. No waiver of any of the provisions of this Agreement shall be
deemed to or will constitute a waiver of any other provision hereof (whether or
not same). No delay on the part of any party hereto in exercising any right,
power or privilege herein shall operate as a waiver thereof.
7. Notices. Any and all notices, payments and other
-------
communications required or permitted under the Agreement shall be in writing,
and shall be deemed to have been effectively delivered for all purposes upon the
mailing thereof by first-class certified mail, return receipt requested, postage
prepaid, addressed to Global Shopping Network, Inc. at 1740 Broadway, 17th
Floor, New York, New York 10019, and to Rachamin Anatian at 1740 Broadway, 17th
Floor, New York, New York 10019-4315, or at such other address as a party
<PAGE>
Ms. Barbara Lawrence
Global Shopping Network, Inc.
May 23, 1996
Page 6
may designate in writing sent by first-class certified mail, return receipt
requested, postage prepaid, to the other party.
8. Entire Agreement. This Agreement sets forth the entire understanding
----------------
of the parties hereto with respect to the subject matter hereof. Any prior
agreements or undertakings among the parties hereto regarding the subject matter
hereof are merged into and superseded by this Agreement.
9. Governing Law. This Agreement shall be governed by, construed and
-------------
enforced in accordance with the laws of the State of New York without regard to
the principles of conflict of laws.
10. The provisions of this agreement shall survive the termination of
your employment by and/or stockholding in Global until the final and irrevocable
satisfaction in full or all Guaranteed Obligations and the payment of all
Guarantee Losses and Losses.
<PAGE>
Ms. Barbara Lawrence
Global Shopping Network, Inc.
May 23, 1996
Page 7
IN WITNESS WHEREOF, the undersigned have executed this Agreement on
the 23rd day of May 1996.
GLOBAL SHOPPING NETWORK, INC.
By: /s/ Rachamin Anatian
--------------------------------
Name:
Title:
/s/ Rachamin Anatian
-----------------------------------
Rachamin Anatian
ACCEPTED AND AGREED TO:
/s/ Barbara Laurence
- -------------------------
BARBARA LAURENCE
<PAGE>
SCHEDULE 1 TO LAURENCE INDEMNIFICATION AGREEMENT
1. Advanta Leasing Corp., dated January 12, 1996.
2. American Express.
3. Arenson Office Furniture, dated December 23, 1996.
4. Century Copies Services.
5. DMGT.
6. Great America Leasing, dated October 5, 1995.
7. Joe Franklin.
8. Matrixx Marketing Inc., dated September 5, 1995.
9. National Fulfillment, Inc.
10. PDR Productions.
<PAGE>
EXHIBIT 10.14
GLOBAL BROADCASTING SYSTEMS, INC.
1740 Broadway, 17th Floor
New York, NY 10019
March 10, 1997
Mr. Rachamim Anatian
Chief Executive Officer
Global Broadcasting Systems, Inc.
1740 Broadway, 17th Floor
New York, New York 10019-4315
Re: Indemnification Agreement
-------------------------
Dear Mr. Anatian:
This letter ("Letter Agreement") memorializes the agreement among
Global Broadcasting Systems, Inc. ("Global") and you ("Anatian") with regard to
any indemnification by Global to you. To induce you to enter into and maintain
certain guarantees of obligations of Global that you have undertaken, Global
hereby agrees as follows:
1. Indemnification Against Guaranteed Obligations. Global recognizes
----------------------------------------------
that you have executed certain personal guarantees of certain obligations of
Global, and that such personal guaranties have benefited Global. The obligation
of Global that you have personally guaranteed as of the date hereof are listed
on Schedule 1 hereto; such obligations as they may exist from time to time,
together with any other obligations of Global that are added to Schedule 1
hereto and you elect to personally guarantee as they may exist from time to
time, are referred to herein as the "Guaranteed Obligations." Global hereby
agrees to indemnify you, and pay or reimburse you for any costs, losses, or
damages or liabilities arising out of or in connection with
<PAGE>
the Guaranteed Obligations (including, without limitation, reasonable fees of
attorneys, interest and penalties) (collectively, "Guaranteed Losses" and
individually, a "Guaranteed Loss") whatsoever incurred or suffered by you
regardless of the cause of the reason for which such Guaranteed Loss(es) are
incurred or suffered. Such indemnification obligation shall be absolute,
unconditional and irrevocable and Global specifically waives any right of
contribution on your part in respect of such indemnification, regardless of
whether your negligence or misconduct may have contributed to the causation of
such Guaranteed Loss(es). Such indemnification obligation shall not be affected
by any action or omission of Global or you that may have the effect of
increasing the amount of, delaying the payment or satisfaction of, or releasing
any collateral for, any Guaranteed Obligations, or any other thing, fact or
matter whatsoever including without limitation the bankruptcy or insolvency of
Global.
2. Release of Personal Guarantees. It is recognized that the
------------------------------
objective of Global is to be in a position that does not require you to execute
or maintain any personal guarantee in respect of the obligations of Global, and
nothing herein shall be deemed to require you to execute or maintain any such
personal guarantees. Global agrees to use, and you are authorized to cause
Global to use, reasonable commercial efforts to cause any personal guarantees
executed by you to be released as soon as reasonably practical. At such time as
you have been irrevocably released in writing by the beneficiaries of all such
personal guarantees to your reasonable satisfaction, the obligations of Global
and Anatian under paragraph 1 shall terminate.
<PAGE>
3. General Indemnification. In addition to the indemnification
-----------------------
obligations under paragraph 1 hereof, Global hereby agrees to indemnify you, and
pay or reimburse you for, any other cost, losses, damages or liabilities arising
out of or in connection with the Guaranteed Obligations (including, without
limitation, reasonable fees of attorneys, interest and any penalties)
(collectively, "Losses" and individually, a "Loss") incurred or suffered by you
with respect to or in connection with any and all actions taken or omitted to be
taken by you on behalf of Global, except for any and all Losses which result
from your gross negligence or willful misconduct. In no event shall the
provisions of this paragraph 3 be construed to limit the provisions of paragraph
1 hereof, and if any conflict shall be found to exist between such provisions
the provisions of paragraph 1 shall govern. You shall be entitled to be advanced
the costs of any defense of any action or proceeding that may give rise to an
indemnification obligation hereunder against an undertaking to repay any amounts
so advanced if it is ultimately determined by a final judgment not subject to
appeal that you were not entitled to indemnification under the standards of this
paragraph 3.
4. Successors and Assigns. The terms and conditions of this
----------------------
Agreement shall inure to the benefit of and be binding upon the respective
successors of the parties hereto; provided, however, that this Agreement may not
be assigned by the parties hereto without the prior written consent of the other
parties hereto.
5. Modification and Waiver. No amendment, modification, alteration
-----------------------
<PAGE>
of the terms or provisions of this Agreement shall be binding unless the same
shall be in writing and duly executed 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 which is entitled to the benefits of such waived terms or
provisions. No waiver of any of the provisions of this Agreement shall be deemed
to or will constitute a waiver of any other provision hereof. No delay on the
part of any party hereto in exercising any right, power or privilege herein
shall operate as a waiver thereof.
6. Notices. Any and all notices, payments and other communications
-------
required or permitted under this Agreement shall be in writing, and shall be
deemed to have been effectively delivered for all purposes upon the mailing
thereof by first-class certified mail, return receipt requested, postage
prepaid, addressed to Global Broadcasting Systems, Inc. at 1740 Broadway, 17th
Floor, New York, New York 10019 or at such other address as a party may
designate in writing sent by first-class certified mail, return receipt
requested, postage prepaid, to the other party.
7. Entire Agreement. This Agreement sets forth the entire
----------------
understanding of the parties hereto with respect to the subject matter hereof.
Any prior agreements or undertakings among the parties hereto regarding the
subject matter hereof are merged into and superseded by this Agreement.
<PAGE>
8. Governing Law. This Agreement shall be governed by, construed
-------------
and enforced in accordance with the laws of the State of New York without regard
to the principles of conflict of laws.
9. The provisions of this Agreement shall survive the termination of
your employment by and/or stockholding in Global until the final and irrevocable
satisfaction in full of all Guaranteed Obligations and the payment of all
Guaranteed Losses and Losses.
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Agreement on
the date and year first above written.
GLOBAL SHOPPING NETWORK, INC.
By: /s/ Barbara Laurence
---------------------------
Barbara Laurence
President
ACCEPTED AND AGREED TO:
/s/ Rachamin Anatian
- -----------------------------
RACHAMIM ANATIAN
<PAGE>
SCHEDULE 1 TO ANATIAN INDEMNIFICATION AGREEMENT
1. Siemen's Telephone System, dated October 1996.
2. MD & S.
<PAGE>
Exhibit 12
Global Broadcasting Systems, Inc.
Computation of Ratio of Earnings to Fixed Charges
(dollars in thousands)
<TABLE>
<CAPTION>
Pro Forma June 15, 1995
Year ended Year ended (date of inception) to
December 31, 1996 December 31, 1996 December 31, 1995
----------------- ----------------- ----------------------
<S> <C> <C> <C>
Net loss before extraordinary item $ (10,832) $ (47,147) $ (824)
Income tax benefit 0 0 0
----------- ---------- -----------
Loss before income tax benefit and
extraordinary item (10,832) (47,147) (824)
Fixed charges 629 41,444 15
----------- ---------- -----------
Loss before income tax benefit
fixed charges and extraordinary item $ (10,203) $ (10,203) $ (809)
=========== ========== ===========
Fixed charges:
Interest 35,100
Amortization of deferred debt costs 5,715
Interest factor of rent expense (1) 629 629 15
----------- ---------- -----------
Total Fixed Charges $ 629 $ 41,444 $ 15
=========== ========== ===========
Deficiency of earnings to fixed charges $ (10,832) $ (47,147) $ (824)
=========== ========== ===========
</TABLE>
(1) Interest factor of rent expense is comprised of one-third of all rental
expenses incurred during the period. This is deemed by management to be
representative of the interest factor of rental payments.
<PAGE>
EXHIBIT 23.2
The Board of Directors
Global Broadcasting Systems, Inc.
We consent to the use of our report included herein and to the reference to our
firm under the heading "Experts" in the prospectus.
/s/ KPMG Peat Marwick LLP
New York, NY
March 12, 1997
