<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 31, 1997
NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
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 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:
GAY L. BRONSON, ESQ. JOHN R. GARRETT, ESQ.
LATHAM & WATKINS BROWNSTEIN HYATT FARBER & STRICKLAND,
885 THIRD AVENUE, SUITE 1000 P.C.
NEW YORK, NEW YORK 10022 410 17TH STREET, SUITE 2200
(212) 906-1200 DENVER, COLORADO 80202
(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. [_]
---------------
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
PROPOSED
TITLE OF EACH CLASS OF MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED OFFERING PRICE(1) REGISTRATION FEE
- --------------------------------------------------------------------------------
<S> <C> <C>
Class A Common Stock......................... $230,000,000 $69,696.97
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% Senior Subordinated Notes due 2007........ $270,000,000 $81,818.19
</TABLE>
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(1) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457 under the Securities Act of 1933. Includes the offering price
for shares of Class A Common Stock that may be issued pursuant to the
Underwriters' Over-allotment Option.
---------------
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 and back 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 JANUARY 31, 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 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 Indebtedness and Factoring Arrangements--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 Indebtedness and Factoring Arrangements--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 TO THE UNDERWRITING 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 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.
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 15,] 1997, Global Broadcasting Systems, Inc. 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 30% 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 15],
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 15], 1997, approximately 2.9 million homes were receiving the
Company's programming over-the-air, 2.1 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 viewers are given 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 30% 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 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 30% 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 and some of its
memorabilia 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 maintains a web site on
the internet where customers are able to view and obtain information
regarding its products and to place orders. In addition, the Company
distributes 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 15,] 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 4/1/97 $
Los Angeles, CA 2 4.9 million 4.7 million 3.0 million Pending 4/1/97 $
Los Angeles, CA 2 4.9 million 1.3 million 3.0 million Pending 4/1/97 $
Chicago, IL 3 3.1 million 2.5 million 1.8 million Pending 6/30/97 $
Philadelphia, PA 4 2.6 million 2.8 million 2.0 million Pending 5/15/97 $
San Francisco, CA 5 2.3 million 2.2 million 1.6 million [Closed] 2/28/97 $
Boston, MA 6 2.1 million 2.0 million 1.7 million Pending 2/5/97 $
Dallas-Ft. Worth, TX 8 1.8 million -- (5) .9 million Pending 5/30/97 $
Detroit, MI 9 1.7 million 2.2 million 1.1 million Pending 3/15/97 $
Houston, TX 11 1.6 million 1.5 million .9 million Pending 4/1/97 $
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 $
Raleigh-Durham, NC 29 .8 million .3 million .5 million Pending 3/15/97 $
Raleigh-Durham, NC 29 .8 million .7 million .5 million [Closed] 2/3/97 $
Nashville, TN 33 .8 million -- (5) .5 million Pending 4/15/97 $
Louisville, KY 50 .5 million .2 million .4 million Pending 3/20/97 $
Mobile, AL 61 .4 million .5 million .3 million Pending 4/1/97 $
Knoxville, TN 62 .4 million .2 million .3 million Pending 3/15/97 $
------------ ----------- ------------ ---------------
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 also the co-founder 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. In February 1996, USA Detergents
completed a 3-for-2 stock split in the form of a 50% stock dividend. 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 pending
Acquisitions, to purchase the Pledged Securities, 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)................................................. $397,950,000
Pledged Securities.............................................. 36,450,000
Fees and expenses............................................... 27,000,000
General corporate purposes...................................... 8,600,000
------------
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) 1/32 of one percent 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 .28125% of the
outstanding Common Stock.
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 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 Indebtedness and Factoring
Arrangements--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 Indebtedness and Factoring
Arrangements--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 Indebtedness and
Factoring Arrangements--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,
8
<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 Indebtedness
and Factoring Arrangements--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, 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, 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 15,] 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 Indebtedness and Factoring Arrangements."
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
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<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 CLASS A 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
15
<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 Indebtedness and Factoring Arrangements--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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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 $397.95 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 $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 (iv) approximately $8.6 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 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
SPONSOR'S CAPITAL AS ADJUSTED
ACTUAL CONTRIBUTION(1) OFFERINGS
-------- ----------------- -----------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
Cash and cash equivalents............. $ -- $ 87,499 $494,049(2)
======== ======== ========
Restricted Cash(3).................... $ -- $ -- $ 36,450
======== ======== ========
Long-term debt, including current
portion:
Notes offered hereby................ $ -- $ -- $270,000
-------- -------- --------
Shareholders' equity:
Preferred Stock, par value $.01 per
share, 75,000 shares authorized; no
shares issued, actual; as adjusted
Sponsor's Capital Contribution; and
as adjusted Offerings.............. -- -- --
Class A Common Stock, par value $.01
per share, 45,000,000 shares
authorized; 118,759 shares issued,
actual and as adjusted Sponsor's
Capital Contribution; 12,618,759
shares issued, as adjusted
Offerings(4)....................... 1 1 126
Class B Common Stock, par value $.01
per share, 25,000,000 shares
authorized; 15,942,246 shares
issued, actual, as adjusted
Sponsor's Capital Contribution and
as adjusted Offerings(5)........... 159 159 159
Additional paid-in capital.......... 15,202 102,701 275,576
Accumulated deficit................. (11,656) (11,656) (11,656)
-------- -------- --------
Total shareholders' equity........ 3,706 91,205 264,205
-------- -------- --------
Total capitalization.............. $ 3,706 $ 91,205 $534,205
======== ======== ========
</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 $397.95 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) 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 32,608,696 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 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.
(5) Assumes no conversion of Class B Common Stock into Class A Common Stock.
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)............... $ (1.65)
Interest (income) expense, net(3)... 36,315
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) and (iv) 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. 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 30% 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 15,] 1997, approximately 2.9
million homes were receiving the Company's programming over-the-air, 2.1
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 15,] 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. 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 15,] 1997, the Company had raised an aggregate of
approximately $ million in equity capital 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 15,] 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.
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 availability. In such event, the Company may be required
to raise
22
<PAGE>
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 30% 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 15],
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 15], 1997, approximately 2.9 million homes were receiving the
Company's programming over-the-air, 2.1 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 viewers are given 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
30% 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 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 30% 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 and some of its memorabilia 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
maintains a web site on the internet where customers are able to view and
obtain information regarding its products and to place orders. In addition,
the Company distributes 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.
Los Angeles, California
The Company operates on Channel in , California, which began
operations in August 1993. 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. The station's signal reaches approximately
4.7 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 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. The 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. Average household income in Los Angeles is over $52,000 per
year.
Raleigh-Durham, North Carolina
The Company operates , Channel in , North Carolina, which serves the
Raleigh-Durham television market. 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%. The 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 average annual income in
Raleigh-Durham is over $40,000 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 Company plans to acquire , Channel , in 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 , which operates on Channel in ,
California. The station's signal reaches over 3.6 million television
households. With its 3,134 kilowatt transmitter located 24 miles southwest of
, the station 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.
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Los Angeles, California
The Company plans to acquire , which operates on Channel in ,
California. The station's signal reaches nearly 1.3 million television
households. With its 4,575 kilowatt transmitter located east of , the
station provides over-the-air television service to Ventura County, most of
Los Angeles County and the city of Santa Barbara.
Chicago, Illinois
The Company plans to acquire , which operates on Channel in ,
Indiana and serves the Chicago, Illinois television market. 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
5,000 kilowatts of power, a 479 foot antenna and a transmitter site near the
south side of Chicago, the station's signal reaches 2.5 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
The Company plans to acquire , which operates on Channel in , New
Jersey and serves the Philadelphia television market. 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 78%. The station's signal reaches beyond the
Philadelphia DMA to nearly 2.8 million television households. The station
transmits from within the Philadelphia city-limits using 2,340 kilowatts of
power and a 1,100 foot antenna. Philadelphia households earn, on average,
nearly $53,000 per year.
San Francisco, California
The Company plans to acquire , which operates on Channel in ,
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 presently upgrading all Mount Sutro signals, for which the
Company will pay an additional $2,400 per year in fees. The signal upgrade, if
undertaken by the Company, would have cost between $10 million and $20
million. San Francisco Bay Area residents earn on average approximately
$57,000 per household.
Boston, Massachusetts
The Company plans to acquire , 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.
Raleigh-Durham, North Carolina
The Company plans to acquire , Channel in , North Carolina, which,
though serving the Raleigh-Durham television market, does not broadcast its
signal to Raleigh or Durham. The station's signal reaches nearly 300,000
television households. The station broadcasts from southwest of , using 339
kilowatts of power from a height of 850 feet.
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Dallas-Ft. Worth, Texas
The Company plans to acquire , Channel , which serves the Dallas-Ft.
Worth market. 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 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 Company plans to acquire , Channel in , Michigan which serves
the Detroit market. The Detroit market is the sixth 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 in , which is 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 Company plans to acquire , Channel in , Texas which will serve
the Houston market. 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. The Houston market is
unusual in that, of the 10 television markets that are larger, each one, with
the exception of Dallas-Ft. Worth, has a cable penetration rate that is
significantly higher than the 55% cable penetration rate in the Houston
market. 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.
Seattle, Washington
The Company plans to acquire Channel in , 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 Company plans to acquire , Channel in 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 Company plans to acquire , Channel in , Illinois which serves
the greater St. Louis area. 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.
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Nashville, Tennessee
The Company plans to acquire , Channel in , Tennessee, which serves
the Nashville, Tennessee television market. 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. Nashville's cable
penetration rate is 61%. The station began broadcasting in 1988 and currently
transmits from a site three miles south of Lebanon using 2,250 kilowatts of
power and an antenna with an average height above terrain of 528 feet.
Nashville has an average household income of approximately $42,000.
Louisville, Kentucky
The Company plans to acquire , Channel in , Louisville, which serves
the Louisville market. 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.
Mobile, Alabama
The Company plans to acquire , which operates on Channel in ,
Alabama and serves the , Alabama-Pensacola, Florida television market. 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
from a site roughly halfway between and 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
The Company plans to acquire , Channel in , Tennessee, which serves
the Knoxville, Tennessee television market. 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 on 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 180
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 30% 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 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).
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Distribution. The Company's suppliers ship all products within 24 to 72
hours 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 suppliers
generally opt to "drop-ship" products, while smaller manufacturers rely on the
Company for delivery to the customer. Each item shipped 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," and some of its memorabilia suppliers. 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 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 accounts receivable from the Company's
"flexible payment" plan are purchased with recourse and serviced pursuant to
the Company's factoring arrangements by an unrelated third party. See
"Description of Indebtedness and Factoring Arrangements."
GBS Catalog and Club Membership. The Company distributes a catalog to
customers up to four times per year. The catalog displays products that may be
ordered by telephone or mail, lists a program guide showing the schedule of
upcoming segments and features articles on GBS show hosts and other employees.
In addition, the Company offers customers free club memberships which entitle
customers to special discounts and services. Club members complete
questionnaires that 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 are
selected to play games in order to win merchandise credits or "Shopping
Dollars." The Company also offers trip giveaways linked to
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various themed programming. Each month the Company selects a "Beauty Buyer of
the Month" based on letters to the show and beauty product purchases. The
grand prize winner is 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 awards 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 informs 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 allows viewers to tune in during program
segments of particular interest to them. The weekly schedule also allows
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 offers special price reductions which provide customers
with additional savings. Special price reductions are 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, the Company promotes 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. A schedule of the Company's current weekly programming is set
forth on the inside back cover page of this Prospectus. 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 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 50,000 calls per day. Through the Company's
total order processing system ("TOPS"), telemarketers have easy
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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 automatically reroutes calls to one of two
overflow facilities. In addition, customers 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 28 order entry and customer service terminals in the Company's
New York City facilities is processed by TOPS. Purchasing, receiving, order
fulfillment and financial reporting functions 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 minor, if any, modifications.
GBS PROGRAM TRANSMISSION
The Company's programming originates from Chelsea Television Studios, a New
York production facility whose current clients include CNBC 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.
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
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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
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
35
<PAGE>
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.
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
36
<PAGE>
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 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.
37
<PAGE>
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.
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.
Among these marks, the most important is expected to be the service mark " ."
However, the Company believes that the loss of this mark would not have a
material adverse effect on its business.
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 1997.
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, an action was commenced 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.
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<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 and Chief Executive Officer
Barbara Laurence............. 43 Director and President
Mordechai Gal-Oliver......... 45 Director and Chief Operating Officer
Daniel De Wolf, Esq.......... 39 Director Designee
</TABLE>
DIRECTORS AND EXECUTIVE OFFICERS
Rachamim Anatian is co-founder, Chairman and Chief Executive Officer 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 co-founded 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 a co-founder of the Company and has served as Chief
Operating Officer 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. will be appointed as a Director of GBS prior to the
Offerings. 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
Lachr & Lovell-Taylor. Mr. De Wolf is a Director of Innoset Brands. See
"Certain Relationships and Related Transactions."
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
</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. 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 GOOD
MORNING AMERICA Television Program, Capital Cities / ABC-TV.
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<PAGE>
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.
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.
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."
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<PAGE>
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 January 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 shall be 100% exercisable as of such termination.
Furthermore, upon the termination of an Executive's employment without Cause
or 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
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<PAGE>
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 January 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 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 Option Plan.
Prior to the Offerings, the Board will administer the 1997 Option Plan;
following the closing of the Offerings, the Compensation Committee will
administer the 1997 Option Plan with respect to options granted to employees
and consultants and the full Board will administer the 1997 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 Code of 1986, as amended (the "Code"). Subject to the terms
and conditions of the 1997 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 Option Plan.
Similarly, the Board has discretion to determine the terms and conditions of
Director Options and to interpret and administer the 1997 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 Option Plan.
The 1997 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 Option Plan to
continue to satisfy the requirements of Rule 16b-3 or Code Section 162(m). The
Compensation Committee (or the Board with
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<PAGE>
respect to Director Options) also retains the discretion to determine that
outstanding options under the 1997 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 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 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 shares of Class A Common
Stock. During the term of the 1997 Option Plan, each then current non-employee
director shall automatically be granted an NQSO to purchase
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 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 on each of
the annual meetings of shareholders that are subsequent to the
date of grant and at which directors are elected, 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 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.
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<PAGE>
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 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 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 15], 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........ 18,075,138(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 (4 persons)...... 19,277,664 448,634 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 , 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
On , 1997, the Company entered into a loan agreement with Barbara
Laurence, pursuant to which the Company agreed 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.
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<PAGE>
DESCRIPTION OF INDEBTEDNESS AND FACTORING ARRANGEMENTS
DESCRIPTION OF NOTES
DESCRIPTION OF FACTORING ARRANGEMENTS
48
<PAGE>
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,
19,502,121 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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<PAGE>
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.
50
<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
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<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 .
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<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 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.
53
<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."
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 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 of Form
S-1 (the "Registration Statement") under the Securities Act, with respect to
the Securities offered hereby. For the purposes hereof, the term "Registration
Statement" means the original Registration Statement and any and all
amendments thereto. 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.
54
<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. The financial statements do not include any
adjustments that might be necessary should the Company be unable to continue
as a going concern.
(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, an action was commenced 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.
(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
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
Principal Stockholders................................................... 46
Certain Relationships and Related Transactions........................... 47
Description of Indebtedness and Factoring Arrangements................... 48
Description of Capital Stock............................................. 49
Underwriting............................................................. 53
Legal Matters............................................................ 54
Experts.................................................................. 54
Additional Information................................................... 54
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 JANUARY 31, 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 Company intends to apply to list the Class A Common Stock 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 TO THE UNDERWRITING 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>
[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 19,502,121 shares(2)
Stock.................
Total............... 32,608,696 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 for fees and expenses in
connection with the Offerings and for general
corporate purposes. See "Use of Proceeds."
Proposed NASDAQ
symbol.................. "GBSI."
- --------
(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 32,608,696 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-2
<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 19,502,121
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 19,502,121 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 19,268,962 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
19,712,263 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 Company intends to list the Class A Common
Stock 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-3
<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-4
<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... 16,061,005 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.................. 28,561,005 100.000% $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-5
<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 19,502,121
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
19,502,121 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
12,268,962 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-6
<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-7
<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."
ALT-8
<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..................................... 11
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
Principal Stockholders................................................... 46
Certain Relationships and Related Transactions........................... 47
Description of Indebtedness and Factoring Arrangements................... 48
Description of Capital Stock............................................. 49
Shares Eligible for Future Sale..........................................
Underwriting............................................................. 53
Legal Matters............................................................ 54
Experts.................................................................. 54
Additional Information................................................... 54
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 January , 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
180.412 shares of Class B Common Stock in exchange for 1179.133 shares of GSN
Class A Common Stock; (ii) Ofer Mucha 4.590 shares of Class B Common Stock in
exchange for 30 shares of GSN Class A Common Stock; (iii) Steven Fallas .765
shares of Class B Common Stock in exchange for 5 shares of GSN Class A Common
Stock; (iv) Mordechai Rausch .765 shares of Class B Common Stock in exchange
for 5 shares of GSN Class A Common Stock; and (v) 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.
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 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
II-3
<PAGE>
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 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 January 31, 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 Registration Statement constitutes and appoints
Rachamim Anatian and Barbara Laurence, and each of them, his or her true and
lawful attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, 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
Registration Statement has been signed by the following persons in the
capacities indicated on January 31, 1997.
SIGNATURE TITLE
/s/ Rachamim Anatian Director, Chairman and Chief
- ------------------------------------- Executive Officer
RACHAMIM ANATIAN (chief financial officer)
/s/ Barbara Laurence Director and President
- -------------------------------------
BARBARA LAURENCE
/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 , 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
January , 1997
**10.2 Employment Agreement between GBS and Mr. Gal-Oliver,
dated January , 1997
**10.3 Employment Agreement between GBS and Ms. Laurence,
dated January , 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 , 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 the initial Registration Statement)
**25 Form T-1
</TABLE>
- --------
** To be filed by amendment.
II-6
<PAGE>
EXHIBIT 2
AGREEMENT AND PLAN OF MERGER
----------------------------
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement"), dated as of
---------
January __, 1997, is between Global Shopping Network, Inc., a Delaware
corporation ("GSN") and Global Broadcasting Systems, Inc., a Delaware
---
corporation (the "Company").
-------
RECITALS
--------
WHEREAS, the respective Boards of Directors of GSN and the Company
each have determined that it is in the best interests of their respective
stockholders to effect the merger of GSN with and into the Company upon the
terms and subject to the conditions set forth herein (the "Merger"), in
------
accordance with the General Corporation Law of the State of Delaware (the
"DGCL");
----
NOW, THEREFORE, in consideration of the premises and the mutual
agreements and conditions contained herein, and for other good and valuable
consideration the receipt and adequacy of which is hereby acknowledged, GSN and
the Company hereby agree as follows:
ARTICLE I
---------
THE MERGER
----------
1.1 The Merger. At the Effective Time (as defined in Section 1.3
----------
hereof), in accordance with the DGCL, as a result of the Merger, the separate
existence of GSN shall cease, and the Company shall continue as the surviving
corporation (the "Surviving Corporation"). The Company and GSN are sometimes
---------------------
referred to herein as the "Constituent Corporations."
------------------------
1.2 Effect of the Merger. From and after the Effective Time, the
--------------------
Merger shall have all the effects provided by applicable law.
1.3 Consummation of the Merger. As soon as practicable on the
--------------------------
Closing Date (as defined in Section 1.6 hereof), the parties hereto will cause a
certificate of merger with respect to the Merger (the "Certificate of Merger")
---------------------
to be executed and filed with the Secretary of State of the State of Delaware
in accordance with the DGCL and take all such further actions as may be required
by law to make the Merger effective. The Merger shall become effective at the
time of day on the date that the Merger Certificate is filed with the Secretary
of State of the State of Delaware in accordance with the DGCL, or at such later
time as may be agreed by the Company and GSN and specified in the Certificate of
Merger in accordance with applicable law. The date and time when the Merger
shall become effective is referred to herein as the "Effective Time".
--------------
1.4 Certificate of Incorporation; Bylaws; Directors and Officers.
------------------------------------------------------------
(a) The Certificate of Incorporation of the Company in effect
immediately prior to the Effective Time shall be the Certificate of
Incorporation of the Surviving Corporation and shall thereafter continue in
full force and effect until thereafter amended as provided therein and by
applicable law.
(b) The Bylaws of the Company in effect immediately prior to the
Effective Time shall be the Bylaws of the Surviving Corporation and shall
thereafter continue in full force and effect until thereafter amended as
provided therein, by the Certificate of Incorporation and by applicable
law.
<PAGE>
(c) The directors and officers of the Company immediately prior to
the Effective Time shall be the initial directors and officers, respectively, of
the Surviving Corporation until their successors have been duly elected or
appointed or until their earlier death, resignation or removal in accordance
with the Certificate of Incorporation and Bylaws of the Surviving Corporation.
1.5 Conditions. The respective obligations of the Company and GSN to
----------
consummate the Merger are subject to the receipt of all necessary approvals, if
any, by the stockholders of the Company and GSN in accordance with applicable
law and their respective Certificates of Incorporation and Bylaws.
1.6 Closing. The closing of the Merger shall take place at the
-------
offices of Latham & Watkins, 885 Third Avenue, Suite 1000, New York, New York
10022 at 10:00 a.m. Eastern time on the first business day on which the
conditions set forth in Section 1.5 hereof are fulfilled or at such other date
and time as the Company and GSN may agree. Such date and time being referred to
herein as the "Closing Date."
------------
ARTICLE II
----------
CONVERSION AND EXCHANGE OF CERTIFICATES
---------------------------------------
2.1 Conversion of Securities. At the Effective Time, by virtue of
------------------------
the Merger and without any action on the part of GSN, the Company, the Surviving
Corporation or the holders of any of the following securities:
(a) Each share of Class A Common Stock, par value $.01 per share (the
"Class A Shares"), of GSN (including fractional shares, if any) issued and
--------------
outstanding immediately prior to the Effective Time (other than any (i)
Class A Shares held by the Company and (ii) any Dissenting Shares (as
defined in Section 2.2 hereof)) shall be converted into and become .153
validly issued, fully paid and nonassessable shares (or equivalent
fractional shares) of Class B Common Stock, par value $.01 per share, of
the Surviving Corporation (the "Surviving Corporation Class B Common
------------------------------------
Stock"). Fractional shares of the Surviving Corporation Class B Common
-----
Stock issued pursuant to this Section 2.1(a) shall be rounded to the
nearest one-one thousandth (.001) of a share of Surviving Corporation Class
B Common Stock.
(b) Each share of Class B Common Stock, par value $.01 per share (the
"Class B Shares"), of GSN (including fractional shares, if any) issued and
--------------
outstanding immediately prior to the Effective Time (other than (i) Class B
Shares held by the Company and (ii) any Dissenting Shares) shall be
converted into and become .153 validly issued, fully paid and nonassessable
shares (or equivalent fractional shares) of Class A Common Stock, par value
$.01 per share, of the Surviving Corporation (the "Surviving Corporation
---------------------
Class A Common Stock"). Fractional shares of the Surviving Corporation
--------------------
Class A Common Stock issued pursuant to this Section 2.1(b) shall be
rounded to the nearest one-one thousandth (.001) of a share of Surviving
Corporation Class A Common Stock.
(c) As of the Effective Time, all Class A Shares and all Class B
Shares shall cease to be outstanding and shall automatically be cancelled
and retired and shall cease to exist, and each holder of a certificate
representing any Class A Share or Class B Share shall cease to have any
rights with respect thereto, except to receive the Surviving Corporation
Class B Common
2
<PAGE>
Stock and/or the Surviving Corporation Class A Common Stock pursuant
to Section 2.1 hereof and the rights provided for in Section 2.2 hereof.
(d) Each Class A Share and Class B Share owned by or held in the
treasury of GSN immediately prior to the Effective Time shall cease to be
outstanding and shall automatically be cancelled and retired without
payment of any consideration therefor and cease to exist.
2.2 Dissenting Shares. Notwithstanding anything in this Agreement to
-----------------
the contrary, holders (collectively, "Dissenting Shareholders") of (a) Class A
-----------------------
Shares (collectively, "Class A Dissenting Shares") issued and outstanding
-------------------------
immediately prior to the Effective Time who have (i) neither voted in favor of
the Merger nor consented thereto in writing, (ii) delivered a written demand for
appraisal of such Class A Dissenting Shares in the manner provided in the DGCL
and (iii) as of the Effective Time, not effectively withdrawn or lost such right
to appraisal and (b) Class B Shares (collectively, "Class B Dissenting Shares",
-------------------------
and together with Class A Dissenting Shares, "Dissenting Shares") issued and
-----------------
outstanding immediately prior to the Effective Time who have (i) delivered a
written demand for appraisal of such Class B Dissenting Shares in the manner
provided in DGCL and (ii) as of the Effective Time, not effectively withdrawn or
lost such right to appraisal, in each case, shall be entitled only to such
rights as are granted by Section 262 of the DGCL and shall not be entitled to
receive the Surviving Corporation Class B Common Stock and/or the Surviving
Corporation Class A Common Stock pursuant to Section 2.1 hereof. Each Dissenting
Shareholder who becomes entitled to payment for Dissenting Shares pursuant to
Section 262 of the DGCL shall receive payment therefor from the Surviving
Corporation in accordance with the DGCL; provided, however, that (i) if any such
Dissenting Shareholder shall have failed to establish his or her entitlement to
appraisal rights as provided in Section 262 of the DGCL, (ii) if any such
Dissenting Shareholder shall have effectively withdrawn his or her demand for
appraisal of his or her Dissenting Shares or lost his or her right to appraisal
and payment of his or her Dissenting Shares under Section 262 of the DGCL or
(iii) if neither any Dissenting Shareholder nor the Surviving Corporation shall
have filed a petition demanding a determination of the value of all Dissenting
Shares within the time provided in Section 262 of the DGCL, such Dissenting
Shareholder or Shareholders shall forfeit the right to appraisal of his or her
Dissenting Shares, and each such Dissenting Share shall thereupon be deemed to
have been converted, as of the Effective Time, into and represent the right to
receive from the Surviving Corporation, the Surviving Corporation Class B Common
Stock and/or the Surviving Corporation Class A Common Stock pursuant to Section
2.1 hereof.
2.3 Exchange of Certificates. From and after the Effective Time, the
------------------------
Surviving Corporation shall act as exchange agent in effecting the exchange of
the Class A Shares for the Surviving Corporation Class B Common Stock and Class
B Shares for the Surviving Corporation Class A Common Stock.
2.4 Stock Transfer Books. From and after the Effective Time, the
--------------------
stock transfer books of GSN shall be closed, and there shall be no further
registration of transfers of Class A Shares or Class B Shares on the books and
records of GSN or the Surviving Corporation. If, after the Effective Time (a)
certificates representing Class A Shares are presented to the Surviving
Corporation, they shall be cancelled and exchanged for the Surviving Corporation
Class B Common Stock, subject to applicable law in the case of Dissenting Shares
and (b) certificates representing Class B Shares are presented to the
3
<PAGE>
Surviving Corporation, they shall be cancelled and exchanged for the Surviving
Corporation Class A Common Stock, subject to applicable law in the case of
Dissenting Shares.
ARTICLE III
-----------
MISCELLANEOUS
-------------
3.1 Termination. This Agreement may be terminated at any time prior
-----------
to the Effective Time, whether prior to or after the receipt of any stockholder
approvals, by mutual written consent of the Boards of Directors of the
Constituent Corporations.
3.2 Effect of Termination. In the event of the termination of this
---------------------
Agreement as provided in Section 3.1, this Agreement shall forthwith become void
and there shall be no liability or obligation on the part of the Company or GSN
or any of their respective directors or officers.
3.3 Amendment. This Agreement may not be amended except by action of
---------
the Board of Directors of each of the parties hereto which Amendment is set
forth in an instrument in writing signed on behalf of each of the parties
hereto; provided, however, that if an approval of the Merger by the
stockholders of either the Company and/or GSN is required by applicable law and
such approval is received by the Company and/or GSN, as the case may be, no
amendment may be made without the further approval by the applicable
stockholders if such amendment would require such approval under applicable law.
3.4 Waiver. At any time prior to the Effective Time, whether before
------
or after the approval of the stockholders of the Constituent Corporations, any
of the provisions of this Agreement may be waived, subject to the proviso
contained in Section 3.3, by action taken by the Board of Directors of the party
which is, or whose stockholders are, entitled to the benefits thereof. Any
agreement on the part of a party hereto to any such waiver shall be valid only
if set forth in an instrument in writing signed on behalf of such party by a
duly authorized officer.
3.5 Successors and Assigns. This Agreement shall be binding upon and
----------------------
inure to the benefit of and be enforceable by the respective successors and
assigns of the parties hereto, provided, however, that no party hereto shall
assign any of its rights, interests or obligations hereunder without the prior
written consent of the other party.
3.6 Headings. The Article and Section headings herein are for
--------
convenience of reference only, do not constitute a part of this Agreement and
shall not be deemed to limit or otherwise affect any of the provisions hereof.
3.7 Counterparts. This Agreement may be executed in counterparts,
------------
each of which shall be an original, but all of which together shall constitute
one and the same agreement.
3.8 Miscellaneous.
-------------
(a) This Agreement constitutes the entire agreement and supersedes
all other prior agreements and undertakings, both written and oral, between
the parties, with respect to the subject matter hereof.
(b) This Agreement is not intended to confer upon any person other
than a party hereto any rights or remedies hereunder.
4
<PAGE>
(c) This Agreement shall be governed in all respects, including
validity, interpretation and effect, by the laws of the State of New York,
without giving effect to the principles of conflict of laws thereof.
IN WITNESS WHEREOF, GSN and the Company have caused this Agreement to be
executed as of the date first written above by their duly authorized respective
officers.
GLOBAL SHOPPING NETWORK, INC.
By:________________________________
Name:
Title:
GlOBAL BROADCAST SYSTEMS, INC.
By:________________________________
Name:
Title:
5
<PAGE>
EXHIBIT 3.1
CERTIFICATE OF INCORPORATION
OF
RAMCAST CORP.
***************
FIRST. The name of the Corporation is Ramcast Corp.
SECOND. The address of the Corporation's registered office in the
State of Delaware is 1209 Orange Street, in the City of Wilmington, County of
New Castle. The name of its registered agent at such address is The Corporation
Trust Company.
THIRD. The purpose of the Corporation is to engage in any lawful act
or activity for which corporations may be organized under the General
Corporation Law of the State of Delaware.
Preferred and Common Shares.
---------------------------
FOURTH. Authorized Shares.
-----------------
1. The aggregate number of shares which
the Corporation shall have authority to
issue is 12,000, of which 2,000 shares
of par value of $.01 per share shall be
designated Preferred Shares, and 10,000
shares of the par value of $.01 per
share shall be designated Common Shares.
<PAGE>
2. Authority is hereby expressly granted to the
Board of Directors from time to time to issue the
Preferred Shares as Preferred Shares of any series
and, in connection with the creation of each such
series, to fix by the resolution or resolutions
providing for the issue of shares thereof, the number
of shares of such of series, and the designations,
powers, preferences, and rights, and the
qualifications, limitations, and restrictions, of
such series, to the full extent now or hereafter
permitted by the laws of the State of Delaware.
FIFTH. The name and mailing address of the incorporator is Daniel I.
De Wolf, of Camhy Karlinsky & Stein LLP, 1740 Broadway New York, New York 10011.
SIXTH. Election of directors need not be by written ballot.
SEVENTH. The Board of Directors is authorized to adopt, amend, or
repeal By-Laws of the Corporation (except as and to the extent provided in the
By-Laws).
EIGHTH. Any person who was or is a party or is threatened to be made
a party to any threatened, pending, or completed action, suit, or proceeding,
whether civil, criminal, administrative, or investigative (whether or not by or
in the right of the Corporation) by reason of the fact that he is or was a
director, officer, incorporator, employee, or agent of the Corporation, or is or
was serving at the request of the Corporation as a director, officer,
incorporator, employee, partner, trustee, or agent of another corporation,
partnership, joint venture, trust, or other enterprise (including an employee
benefit plan), shall be entitled to be indemnified by the Corporation to the
full extent then permitted by law against expenses (including reasonable counsel
fees and disbursements), judgments, fines (including excise taxes
-2-
<PAGE>
assessed on a person with respect to an employee benefit plan), and amounts paid
in settlement incurred by him in connection with such action, suit, or
proceeding. Such right of indemnification shall inure whether or not the claim
asserted is based on matters which antedate the adoption of this Article
EIGHTH. Such right of indemnification shall continue as to a person who has
ceased to be a director, officer, incorporator, employee, partner, trustee, or
agent and shall inure to the benefit of the heirs and personal representatives
of such a person. The indemnification provided by this Article EIGHTH shall not
be deemed exclusive of any other rights which may be provided now or in the
future under any provision currently in effect or hereafter adopted of the
By-Laws, by any agreement, by vote of stockholders, by resolution of
disinterested directors, by provision of law, or otherwise.
NINTH. No director of the Corporation shall be liable to the
Corporation or any of is stockholders for monetary damages for breach of
fiduciary duty as a director, provided that this provision does not eliminate
the liability of the director (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) under Section 174 of Title 8 of the Delaware Code, or (iv) for any
transaction from which the director derived an improper personal benefit. For
purposes of the prior sentence, the term "damages" shall, to the extent
permitted by law, include without limitation, any judgment, fine, amount paid in
settlement, penalty, punitive damages, excise or other tax assessed with respect
to an employee benefit plan, or expense of any nature (including, without
limitation, reasonable counsel fees and disbursements). Each person who serves
as a director of the corporation while this Article NINTH is in effect shall be
deemed to be doing so in reliance on the provisions of
-3-
<PAGE>
this Article NINTH, and neither the amendment or repeal of this Article NINTH,
nor the adoption of any provision of this Certificate of Incorporation
inconsistent with this Article NINTH, shall apply to or have any effect on the
liability or alleged liability of any director of the Corporation for, arising
out of, based upon, or in connection with any acts or omissions of such director
occurring prior to such amendment, repeal, or adoption of an inconsistent
provision. The provisions of this Article NINTH are cumulative and shall be in
addition to and independent of any and all other limitations on or eliminations
of the liabilities of directors of the Corporation, as such, whether such
limitations or eliminations arise under or are created by any law, rule,
regulation, by-law, agreement, vote of shareholders or disinterested directors,
or otherwise.
IN WITNESS WHEREOF, I have made, signed, and sealed this Certificate of
------------------
Incorporation this 14th day of May, 1996.
/s/ Daniel I. De Wolf
------------------------------------
Daniel I. De Wolf, Incorporator
-4-
<PAGE>
EXHIBIT 3.2
CERTIFICATE OF AMENDMENT
TO THE
CERTIFICATE OF INCORPORATION
OF
RAMCAST CORP.
______________
PURSUANT TO SECTION 242 OF THE
GENERAL CORPORATION LAW OF THE STATE OF DELAWARE
______________
Ramcast Corp. (the "Corporation"), a corporation organized and
existing under and by virtue of the General Corporation Law of the Share of
Delaware, DOES HEREBY CERTIFY THAT:
FIRST: That the Certificate of Incorporation of the Corporation is to
be amended as follows:
By striking out the whole of the Article FIRST thereof as it now
exists and inserting in lieu and instead thereof a new Article FIRST, reading as
follows:
"FIRST. The name of the Corporation is Global Broadcasting
Systems, Inc."
SECOND: That the Certificate of Incorporation of the Corporation is
to be further amended as follows:
By striking out the whole of the Article FOURTH thereof as it now
exists and inserting in lieu and instead thereof a new Article FOURTH, reading
as follows:
"FOURTH. Authorized Shares.
-----------------
1. The aggregate number of shares which the Corporation shall
have authority to issue is 20,000, of which (a) 10,000 shares shall be
designated as Preferred Stock, par value $.01 per share ("Preferred Stock"),
(b) 5,000 shares shall be designated as Class A
<PAGE>
Common Stock, par value $.01 per share ("Class A Common Stock"), and (c) 5,000
shares shall be designated as Class B Common Stock, par value $.01 per share
("Class B Common Stock" and, together with the Class A Common Stock, the
"Common Stock").
2. The voting powers, preferences and relative rights of the Class A
Common Stock and the Class B Common Stock shall be identical in all respects,
except that (a) except as required by law, with respect to all matters upon
which stockholders are entitled to vote, the holders of Class A Common Stock are
entitled to cast one vote in respect of each Share of Class A Common Stock
standing in his or her name on the stock transfer records of the Corporation and
holders of Class B Common Stock are entitled to cast two (2) votes in respect of
each share of Class B Common Stock standing in his or her name on the stock
transfer records of the Corporation, (b) stock dividends on Class A Common Stock
may be paid only in shares of Class A Stock and stock dividends on Class B
Common Stock may be paid only in shares of Class B Common Stock and (c) the
Class A Common Stock has no conversion rights and 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 (1) fully paid and nonassessable share of Class A Common Stock.
Any holder of shares of Class B Common Stock may effect the conversion of shares
of Class B Common Stock into Class A Common Stock by surrendering such holder's
certificate or certificates representing the Class B Common Stock to be
converted, duly endorsed, at the office of the Corporation or any duly appointed
and acting transfer agent for the Class B Common Stock, as applicable, together
with a written notice to the Corporation at such office that such holder elects
to convert all or a specified number of shares of Class B Common Stock
represented by such certificate and stating the name or names in which such
holder desires the certificate or certificates representing the Class A Common
Stock to be issued. Any certificate for shares surrendered for conversion shall
be accompanied by instruments of transfer, in form satisfactory to the
Corporation, duly executed by the holder of such shares or the duly authorized
representative of such holder. Promptly thereafter, the Corporation shall issue
and deliver to such holder or such holder's nominee or nominees a certificate or
certificates for the number of shares of Class A Common Stock to which holder
shall be entitled as herein provided. Such conversion shall be deemed to have
been made immediately and automatically at the close of business on the date of
receipt by the Corporation or any such transfer agent, and the person or persons
entitled to receive the Class A Common Stock issuable on such conversion shall
be treated for all purposes as the record holder or holders of such Class A
Common Stock at the close of business on that date. The Corporation shall
reserve and keep available, out of its authorized but unissued Class A Common
Stock (and any other capital stock deliverable upon conversion), solely for the
purpose of effecting the conversion of the shares of Class B Common Stock,
sufficient shares of Class A Common Stock and other capital stock deliverable
upon the conversion of all shares of Class B Common Stock and other convertible
securities from time to time outstanding. Shares of Class B Common Stock that
have been converted under this paragraph 2 of this
<PAGE>
Article FOURTH or under paragraph 5 of this Article FOURTH shall be returned
to the status of authorized but unissued shares.
3. Any amendment to the Certificate of Incorporation that has any of
the following effects shall require the approval of the holders of 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 powers, preference 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 shall vote together on all matters presented to the
stockholders for their vote or approval, including the election of directors.
4. The Class A Common Stock and Class B Common Stock shall share
equally, on a share-for-share basis, in any cash dividends and other
distributions of cash or any other right or property (except as set forth in
paragraph 2 of this Article FOURTH) declared by the Board of Directors from time
to time out of assets or funds of the Corporation legally available therefor.
5. A Beneficial Owner (as hereinafter defined) of Class B Common
Stock may transfer, directly or indirectly, Beneficial Ownership (as
hereinafter defined) of shares of Class B Common Stock, whether by sale,
assignment, gift or otherwise, only to a Permitted Transferee and no Beneficial
Owner of Class B Common Stock may otherwise transfer Beneficial Ownership (as
hereinafter defined) of any shares of Class B Common Stock. A "Permitted
Transferee" shall be (a) any of Rachamin Anatian, Barbara Laurence, Mordechai
Gal-Oliver, Ofer Mucha, Steven Fallas, Mordechai Rausch, Daniel De Wolf, Regina
Jabbour, Larry Stacks or Edward Stacks (each, a "Class B Stockholder" and
collectively, the "Class B Stockholders") or any Immediate Family Member (as
hereinafter defined) of any of the Class B Stockholders; (b) 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 clause (a) (each such trust, corporation, partnership or
other entity, a "Control Entity") or one or more other Control Entities (or a
combination thereof); or (c) the estate of any person referred to in clause (a)
until such time as the property of such estate is distributed in accordance with
such person's will or applicable law. "Immediate Family Member" shall mean 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
<PAGE>
to include adoptive and step relationships). "Beneficial Ownership" shall mean
possession of the power and authority, either singly or jointly with another, to
vote or dispose of or to direct the voting or disposition of such shares and
"Beneficial Owner" shall mean the person or persons who possess such power and
authority. Upon any sale or transfer or Beneficial Ownership 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.
6. Any person who holds shares of Class B Common stock for the
Beneficial Ownership of another, including (a) any broker or dealer in
securities; (b) any clearing house; (c) any bank, trust company, savings and
loan association or other financial institution; (d) any other nominee; and (e)
any savings plan, account or trust, such as an individual retirement account,
principally for the benefit of any individual, may only transfer such shares to
the person or persons for whose benefit it holds such shares or to a Permitted
Transferee. Notwithstanding anything to the contrary set forth herein, any
Permitted Transferee may pledge such shares to a pledge pursuant to a bona fide
pledge of such shares as collateral security for indebtedness due to the
pledgee, provided that shares may not be transferred to or registered in the
name of the pledgee unless such pledgee is a Permitted Transferee. In the event
of foreclosure or other similar action by the pledgee, if such pledgee is not a
Permitted Transferee, such pledged shares shall automatically, without any act
or deed on the part of the Corporation or any other person, be converted into
shares of Class A Common Stock unless within five business days after such
foreclosure or similar event such pledged shares are returned to the pledgor or
transferred to a Permitted Transferee. The foregoing provisions of this
paragraph 6 of this Article FOURTH shall not be deemed to restrict or prevent
any transfer of such shares by operation of law upon incompetence, death,
dissolution or bankruptcy of any Class B Stockholder or any provision of law
providing for, or judicial order of, forfeiture, seizure or impoundment.
7. The Corporation and any transfer agent of Class B Common Stock
may as a condition to the transfer or the registration of any transfer of shares
of Class B Common Stock permitted by paragraph 5 of this Article FOURTH require
the furnishing of such affidavits or other proof as they deem necessary to
establish that such transferee is a Permitted Transferee. A good faith
determination by the Corporation (a) that a transferee of shares of Class B
Common Stock is or is not a Permitted Transferee on the date of transfer, or (b)
that, by reason of any change in the direct or indirect control of such
transferee subsequent to such transfer, such person would have or have not
qualified at the time of the transfer of the Class B Common Stock to such person
as a Permitted Transferee shall be conclusive.
8. Each issued and outstanding share of common stock of the
<PAGE>
Corporation as of the date hereof is hereby designated as one share of Class B
Common Stock."
9. The Board of Directors of the Corporation is hereby expressly
vested with authority to provide for the issuance of shares of Preferred Stock
in one or more classes or one or more series, with such voting powers, full or
limited, or no voting powers, and with such designations, preferences and
relative, participating, optional and other special rights, and qualifications,
limitations or restrictions thereof, if any, as shall be stated and expressed in
the resolution or resolutions providing for such issue adopted by the Board of
Directors under the General Corporation Law of the State of Delaware. Except as
otherwise provided by law, the holders of the Preferred Stock of the Corporation
shall only have such voting rights as are provided for or expressed in the
resolutions of the Board of Directors relating to such Preferred Stock adopted
pursuant to the authority contained in the Certificate of Incorporation.
THIRD: That the Certificate of Incorporation of the Corporation is to
be further amended as follows:
By adding a new Article Tenth and Article Eleventh thereto, reading as
follows:
"TENTH: For the purpose of monitoring compliance with the Alien
Entity (as hereinafter defined) ownership restrictions of the Communications Act
of 1934, as amended (the "Communications Act"), the Corporation shall, as
promptly as practicable after shares of Common Stock are first held by more than
100 holders of records, implement the following procedures:
1. The Corporation shall maintain separate stock records with
respect to all classes of stock: a domestic record covering non-Alien Entity
stockholders and a foreign record covering Alien Entity stockholders. Every
certificate representing shares of stock determined to be owned of record or
beneficially or voted by or for the account of, or otherwise controlled directly
or indirectly by, and Alien Entity shall be marked "Foreign Share Certificate".
Every certificate issued not marked "Foreign Share Certificate" shall be marked
"Domestic Share Certificate".
2. Any holder of shares of any class or series of stock of the
Corporation that are owned of record or beneficially or voted by or for the
account of, or otherwise controlled directly or indirectly by, an Alien Entity
shall deliver any Domestic Share Certificates representing such shares to the
Corporation to be replaced by Foreign Share Certificates.
<PAGE>
3. Any holder of Foreign Share Certificates representing shares of
any class or series of stock of the Corporation that are not owned of record or
beneficially or voted by or for the account of, or otherwise controlled directly
or indirectly by, an Alien Entity may deliver such Foreign Share Certificates to
the Corporation to be replaced by Domestic Share Certificates. Any delivery of
Foreign Share Certificates pursuant to this paragraph must be accompanied by an
affidavit in form and substance reasonably satisfactory to the Corporation
stating that the shares of stock of the Corporation represented by the Foreign
Share Certificate are not owned of record or beneficially or voted by or for the
account of, or otherwise controlled directly or indirectly by, an Alien Entity.
The Corporation shall have the right to determine, by vote of the
Board of Directors or in conformity with regulations prescribed by the Board of
Directors, (a) whether any person is an Alien Entity, (b) whether any shares
stock of the Corporation are owned of record or beneficially or voted by or for
the account of, or otherwise controlled directly or indirectly by, Alien
Entities and (c) whether any affidavit delivered pursuant to paragraph 3 of this
Article TENTH is false.
ELEVENTH: For purposes of Article TENTH and this Article ELEVENTH:
1. Definitions:
-----------
(a) "Alien Entity" means any individual not a citizen of the
United States of America; any partnership or limited liability company
controlled by Aliens; a foreign government; a corporation, joint-stock
company or association organized under the laws of a foreign country;
any other corporation controlled by Aliens; and any corporation, joint-
stock company, partnership, limited liability company, trust,
association or other entity controlled directly or indirectly by one or
more of the above.
(b) "Disqualified Holder" shall mean any holder of outstanding
shares of any class or series of stock of the Corporation 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 Corporation by
any other holders, may result, in the sole judgment of the Board of
Directors, in the loss of, or the failure to secure the reinstatement
of, any license or franchise from any government agency held by the
Corporation or any of its subsidiaries to conduct any portion of the
business of the Corporation or any of its subsidiaries.
(c) "Fair Market Value" of a share of any class or series of
stock of
<PAGE>
the Corporation shall mean the average Closing Price for such a share
on each of the 45 most recent days on which shares of stock of such
class or series shall have been traded preceding the day on which
notice of redemption shall be given pursuant to paragraph 2(d) of this
Article ELEVENTH; provided, however, that if shares of stock of such
class or series are not traded on any securities exchange, automated
quotation system or in the over-the-counter market, "Fair Market
Value" shall be determined by the Board of Directors in good faith.
"Closing Price" on any day means (i) if such stock is traded on any
United States national securities exchange(s) registered under the
Securities Exchange Act of 1934, as amended, the reported closing
sales price or, in case no such sale takes place, the average of the
reported closing bid and asked prices on the principal securities
exchange on which such stock is listed, (ii) if such stock is traded
on the NASDAQ National Market System or in the over-the-counter
market, the highest closing sales prices or bid quotations for such
stock or (iii) if no such prices or quotations are available, the fair
market value on the day in question as determined by the Board of
Directors in good faith.
(d) "Redemption Date" shall mean the date fixed by the Board of
Directors for the redemption of any shares of stock of the Corporation
pursuant to this Article ELEVENTH.
(e) "Redemption Securities" shall mean any debt or equity
securities of the Corporation, any of its subsidiaries or any other
Corporation, or any combination thereof, having such terms and
conditions as shall be approved by the Board of Directors and which,
together with any cash to be paid as part of the redemption price, in
the opinion of any nationally recognized accounting or investment
banking firm selected by the Board of Directors (which may be a firm
which provides other investment banking, brokerage or other services
to the Corporation), has a value, at the time notice of redemption is
given pursuant to paragraph 2(d) of this Article ELEVENTH, at least
equal to the price required to be paid pursuant to paragraph 2(a) of
this Article ElEVENTH (assuming, in the case of Redemption Securities
to be publicly traded, such Redemption Securities were fully
distributed and subject only to normal trading activity).
2. Notwithstanding any other provision of this Certificate of
Incorporation to the contrary, outstanding shares of any class or series of
stock of the Corporation held by a Disqualified Holder shall always be subject
to redemption by the Corporation, 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 Corporation or any of its
subsidiaries to
<PAGE>
conduct any portion of the business of the Corporation or any of its
subsidiaries, which license or franchise is conditioned upon some or all of the
holders of the Corporation's stock possessing prescribed qualifications. The
terms and conditions of such redemption shall be as follows:
(a) the redemption price of the shares to be redeemed pursuant
to this Article ELEVENTH shall be equal to the lesser of (i) the Fair
Market Value of such shares or (ii) if such shares were 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,
Redemption Securities or any combination thereof;
(c) if less than all the shares held by the Disqualified Holders
are to redeemed, the shares to be redeemed and the identity of the
Disqualified Holders from whom shares will be redeemed shall be
selected in such manner as shall be 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 Article TENTH of the Certificate of
Incorporation or selection in any other manner determined by the Board
of Directors or in conformity with regulations prescribed by the Board
of Directors, which determination shall be conclusive;
(d) at least 30 days written notice of the Redemption Date shall
be given to the record holders of the shares selected to be redeemed
(unless waived in writing by any such holder), provided that the
Redemption Date may be the date on which written notice shall be given
to such record holders if cash, Redemption Securities or a combination
thereof, sufficient to effect the redemption shall have been
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 shares to be redeemed;
(e) from and after the Redemption Date, unless the Corporation
fails to make all applicable payments in respect of such redemption,
any and all rights of whatever nature, of the holders of shares so
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), shall cease and terminate and such owners
shall thenceforth be entitled only to receive
<PAGE>
the cash, Redemption Securities or combination thereof payable in
respect of such redemption; and
(f) such other terms and conditions as the Board of
Directors shall determine.
3. The Board of Directors, by a majority vote, shall be authorized
at any time and from time to time to adopt such other provisions as the Board of
Directors may deem necessary or desirable to avoid violation of the provisions
of Section 310(b) of the Communications Act as now in effect or as it may
hereafter from time to time be amended, and to carry out the provisions of
Articles TENTH and ELEVENTH of this Restated Certificate of Incorporation.
FOURTH: The foregoing amendments were duly adopted in accordance with
Section 242 of the General Corporation Law or the State of Delaware by written
consent of the stockholders of the Corporation in accordance with the provisions
of Section 228 of the General Corporation Law of the State of Delaware.
<PAGE>
IN WITNESS WHEREOF, said Ramcast Corp. has caused this certificate to
be signed by Rachamim Anatian, its Chairman of the Board and Chief Executive
Officer, and attested by Barbara Laurence, its President and Secretary, this
_____ day of January, 1997.
By: _________________________
Rachamim Anatian
Chairman of the Board and
Chief Executive Officer
ATTEST:
By: _________________________
Barbara Laurence
President and Secretary
<PAGE>
EXHIBIT 3.3
AMENDED AND RESTATED
BY-LAWS OF
RAMCAST CORP.
ARTICLE I
OFFICES
-------
Section 1. The registered office shall be in the City of Wilmington,
County of New Castle, State of Delaware.
Section 2. The Corporation may also have offices at such other places
both within and without the State of Delaware as the board of directors may from
time to time determine or the business of the Corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
------------------------
Section 1. All meetings of the stockholders shall be held at any
place within or outside the State of Delaware as shall be designated from time
to time by the board of directors. In the absence of any such designation,
stockholders meetings shall be held at the principal executive office of the
Corporation.
Section 2. An annual meeting of Stockholders shall be held each year
on a date and a time designated by the board of directors. At each annual
meeting directors shall be elected and any other proper business may be
transacted.
Section 3. At an annual meeting of the stockholders, only such
business (including the nomination of persons for election as directors as
described below) shall be conducted as shall have been properly brought before
the meeting. To be properly brought before an annual meeting, business must
<PAGE>
be (a) specified in the notice of meeting (or any supplement thereto) given by
or at the direction of the Board or Directors, (b) otherwise properly brought
before the meeting by or at the direction of the Board of Directors, or (c)
otherwise properly brought before the meeting by a stockholder. For business to
be properly brought before an annual meeting by a stockholder, the stockholder
must have given timely notice thereof in writing to the Secretary of the
Corporation. To be timely, a stockholder's notice shall be delivered to or
mailed and received at the principal executive offices of the Corporation not
less than 60 days nor more than 90 days prior to the meeting at which directors
are to be elected; provided, however, that in the event that less than 70 days'
notice or prior public disclosure of the date of the meeting is given or made to
stockholders, notice by the stockholder to be timely must be so received no
later than the close of business on the tenth day following the day on which
such notice of the date of the meeting was mailed or such public disclosure was
made.
A stockholder's notice to the Secretary shall set forth as to each
matter the stockholder proposes to bring before the annual meeting (a) a brief
description of the business desired to be brought before the annual meeting and
the reasons for conducting such business at the annual meeting, (b) the name and
address, as they appear on the Corporation's books, of the stockholder proposing
such business, (c) the class and number of shares of the Corporation which are
beneficially owned by the stockholder and (d) any material interest of the
stockholder in such business. Notwithstanding anything in the By-Laws to the
contrary, no business shall be conducted at an annual meeting except in
accordance with the procedures set forth in this Section 3.
In the case of nominations of persons for election as directors, only
persons who are nominated in accordance with the following procedures shall be
eligible for election as directors. Nominations of persons for election to the
Board of Directors of the Corporation may be made at a meeting of stockholders
(i) by or at the direction of the Board of Directors, (ii) by any nominating
committee or person appointed to make such nominations by the Board of
Directors, or (iii) by any stockholder of the Corporation entitled to vote for
the election of directors at the meeting who complies
2
<PAGE>
with the notice procedures set forth in this Section 3. Such nominations, if
made by a stockholder of the Corporation as such, shall be made pursuant to
timely notice (as described in the first paragraph of this Section 3) in writing
addressed to the Secretary of the Corporation. Such stockholder's notice shall
set forth: (a) as to each person whom the stockholder proposes to nominate for
election or re-election as a director (i) the name, age, business address and
residence address of the person, (ii) the principal occupation or employment of
the person, (iii) the class and number of shares of stock of the corporation
which are beneficially owned by the person and (iv) any other information
relating to the person that would be required to be disclosed in solicitations
for proxies for the election of directors pursuant to Regulation 14A under the
Securities Exchange Act of 1934, as amended, or any successor thereto, and (b)
as to the stockholder giving the notice (i) the name and record address of the
stockholder and (ii) the class and number of shares of the Corporation which
are beneficially owned by the stockholder. The Corporation may require any
proposed nominee to furnish such other information as may reasonably be required
by the Corporation to determine the eligibility of such proposed nominee to
serve as a director of the Corporation. No person shall be eligible for election
as a director of the Corporation unless nominated in accordance with the
procedures set forth herein.
The presiding officer of an annual meeting shall, if the facts
warrant, determine and declare to the meeting that business or a nomination of a
director was not properly brought before the meeting in accordance with this
Section 3, and if the presiding officer should so determine, the presiding
officer shall so declare to the meeting and say such business not properly
brought before the meeting shall not be transacted or that the defective
nomination shall be disregarded.
Section 4. A majority of the stock issued and outstanding and
entitled to vote at any meeting of the stockholders, the holders of which are
present in person or represented by proxy, shall constitute a quorum for the
transaction of business except as otherwise provided by law, by the Certificate
of Incorporation, or by these By-Laws. A quorum, once established, shall not be
broken by the withdrawal of enough votes to leave less than a quorum and the
votes may continue to transact
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business until adjournment. If, however, such quorum shall not be present or
represented at any meeting of the stockholders, a majority of the voting stock
represented in person or by proxy may adjourn the meeting from time to time,
without notice other than announcement at the meeting, until a quorum shall be
present or represented. At such adjourned meeting at which a quorum shall be
present or represented, any business may be transacted which might have been
transacted at the meeting as originally notified. If the adjournment is for more
than thirty days, or if after the adjournment a new record date is fixed for the
adjourned meeting, a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote thereat.
Section 5. When a quorum is present at any meeting, the vote of the
holders of a majority of the stock having voting power present in person or
represented by proxy shall decide any question brought before such meeting,
unless the question is one upon which by express provision of the statutes, or
the Certificate of Incorporation, or these By-Laws, a different vote is
required in which case such express provisions shall govern and control the
decision of such question.
Section 6. At each meeting of the stockholders, each stockholder
having the right to vote may vote in person or may authorize another person or
persons to act for him by proxy appointed by an instrument in writing subscribed
by such stockholder and bearing a date not more than three years prior to said
meeting, unless said instrument provides for a longer period. All proxies must
be filed with the secretary of the Corporation at the beginning of each meeting
in order to be counted in any vote at the meeting. Each stockholder shall have
one vote for each share of stock having voting power, registered in his name on
the books of the Corporation on the record date set by the board of directors as
provided in Article V, Section 6 hereof. All elections shall be had and all
questions decided by a plurality vote.
Section 7. Special meetings of the stockholders, for any purpose, or
purposes, unless otherwise prescribed by statue or by the Certificate of
Incorporation, may be called by the president and shall be called by the
president or the secretary at the request in writing of a majority of the board
of directors, or at the request in writing of stockholders owning a majority in
amount of the entire capital
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stock of the Corporation issued and outstanding, and entitled to vote. Such
request shall state the purpose or purposes of the proposed meeting. Business
transacted at any special meeting of stockholders shall be limited to the
purposes stated in the notice.
Section 8. Whenever stockholders are required or permitted to take
any action at a meeting, a written notice of the meeting shall be given which
notice shall state the place, date and hour of the meeting, and, in the case of
a special meeting, the purpose or purposes for which the meeting is called. The
written notice of any meeting shall be given to each stockholder entitled to
vote at such meeting not less than ten nor more than sixty days before the date
of the meeting. If mailed, notice is given when deposited in the United States
mail, postage prepaid, directed to the stockholder at his address as it appears
on the records of the Corporation.
Section 9. The officer who has charge of the stock ledger of the
Corporation shall prepare and make, at least ten days before every meeting of
stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten days prior to the meeting, either at a place within the city where the
meeting is to be held, which place shall be specified in the notice of the
meeting, or, if not so specified, at the place where the meeting is to be held.
The list shall also be produced and kept at the time and place of the meeting
during the whole time thereof, and may be inspected by any stockholder who is
present.
Section 10. Unless otherwise provided in the Certificate of
Incorporation, any action required to be taken at any annual or special meeting
of stockholders of the Corporation, or any action which may be taken at any
annual or special meeting of such stockholders, may be taken without a meeting,
without prior notice and without a vote, if a consent in writing, setting forth
the action so taken, shall be signed by the holders of outstanding stock having
not less than the minimum number of votes
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that would be necessary to authorize or take such action at a meeting at which
all shares entitled to vote thereon were present and voted. Prompt notice of the
taking of the corporate action without a meeting by less than unanimous written
consent shall be given to those stockholders who have not consented in writing.
ARTICLE III
DIRECTORS
---------
Section 1. The board of directors shall consist of a minimum of one
(1) and a maximum of fifteen (15) directors. The number of directors shall be
fixed or changed from time to time, within the minimum and maximum, by the then
appointed directors. The directors need not be stockholders. The directors shall
be elected at the annual meeting of the stockholders, except as provided in
Section 2 of this Article, and the director elected shall hold office until his
successor is elected and qualified; provided, however, that unless otherwise
restricted by the Certificate of Incorporation or by law, any director or the
entire board of directors may be removed, either with or without cause, from the
board of directors at any meeting of stockholders by a majority of the stock
represented and entitled to vote thereat.
Section 2. Vacancies on the board of directors by reason of death,
resignation, retirement, disqualification, removal from office, or otherwise,
and newly created directorships resulting from any increase in the authorized
number of directors may be filled by a majority of the directors then in office,
although less than a quorum, or by a sole remaining director. The directors so
chosen shall hold office until the next annual election of directors and until
their successors are duly elected and shall qualify, unless sooner displaced. If
there are no directors in office, then an election of directors may be held in
the manner provided by statute. If, at the time of filling any vacancy or any
newly created directorship, the directors then in office shall constitute less
than a majority of the whole board (as constituted immediately prior to any such
increase), the Court of Chancery may, upon application of any stockholder or
stockholders holding at least ten percent of the total number of the shares at
the time
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outstanding having the right to vote for such directors, summarily order an
election to be held to fill any such vacancies or newly created directorships,
or to replace the directors chosen by the directors then in office.
Section 3. The property and business of the Corporation shall be
managed by or under the direction of its board of directors. In addition to the
powers and authorities by these By-Laws expressly conferred upon them, the board
may exercise all such powers of the Corporation and do all such lawful acts and
things as are not by statue or by the Certificate of Incorporation or by these
By-Laws directed or required to be exercised or done by the stockholders.
MEETINGS OF THE BOARD OF DIRECTORS
----------------------------------
Section 4. The directors may hold their meetings and have one or more
offices, and keep the books of the Corporation outside of the State of Delaware.
Section 5. Regular meetings of the board of directors may be held
without notice at such time and place as shall from time to time be determined
by the board.
Section 6. Special meetings of the board of directors may be called
by the president on forty-eight hours' notice to each director, either
personally or by mail or by telegram; special meetings shall be called by the
president or the secretary in like manner and on like notice on the written
request of two directors unless the board consists of only one director; in
which case special meetings shall be called by the president or secretary in
like manner or on like notice on the written request of the sole director.
Section 7. At all meetings of the board of directors a majority of
the authorized number of directors shall be necessary and sufficient to
constitute a quorum for the transaction of business, and the vote of a majority
of the directors present at any meeting at which there is a quorum, shall be the
act of the board of directors, except as may be otherwise specifically provided
by statute, by the Certificate of Incorporation or by these By-Laws. If a quorum
shall be present at any meeting of the board of directors the directors present
thereat may adjourn the meeting from time to time, without notice other
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than announcement at the meeting, until a quorum shall be present. If only one
director is authorized, such sole director shall constitute a quorum.
Section 8. Unless otherwise restricted by the Certificate of
Incorporation or these By-Laws, any action required or permitted to be taken at
any meeting of the board of directors or of any committee thereof may be taken
without a meeting, if all members of the board or committee, as the case may be,
consent thereto in writing, and the writing or writings are filed with the
minutes of proceedings of the board or committee.
Section 9. Unless otherwise restricted by the Certificate of
Incorporation or these By-Laws, members of the board of directors, or any
committee designated by the board of directors, may participate in a meeting of
the board of directors, or any committee, by means of conference telephone or
similar communications equipment by means of which all persons participating in
the meeting can hear each other, and such participation in a meeting shall
constitute presence in person at such meeting.
COMMITTEES OF DIRECTORS
-----------------------
Section 10. The board of directors may, by resolution passed by a
majority of the whole board, designate one or more committees, each such
committee to consist of one or more of the directors of the corporation. The
board may designate one or more directors as alternate members of any committee,
who may replace any absent or disqualified member at any meeting of the
committee. In the absence or disqualification of a member of a committee, the
member or members thereof present at any meeting and not disqualified from
voting, whether or not he or they constitute a quorum, may unanimously appoint
another member of the board of directors to act at the meeting in the place of
any such absent or disqualified member. Any such committee, to the extent
provided in the resolution of the board of directors, shall have and may
exercise all the powers and authority of the board of directors in the
management of the business and affairs of the Corporation, and may authorize the
seal of the Corporation to be affixed to all papers which may require it; but no
such committee shall have the power or authority in reference to amending the
Certificate of Incorporation, adopting an agreement of merger
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or consolidation, recommending to the stockholders the sale, lease or exchange
of all or substantially all of the corporation's property and assets,
recommending to the stockholders a dissolution of the corporation or a
revocation of a dissolution, or amending the By-Laws of the Corporation; and,
unless the resolution or the Certificate of Incorporation expressly so provide,
no such committee shall have the power or authority to declare a dividend or to
authorize the issuance of stock.
Section 11. Each Committee shall keep regular minutes of its meetings
and report the same to the board of directors when required.
COMPENSATION OF DIRECTORS
-------------------------
SECTION 12. Unless otherwise restricted by the Certificate of
Incorporation or these By-laws, the board of directors shall have the authority
to fix the compensation of directors. The directors may be paid their expenses,
if any, of attendance at each meeting of the board of directors and may be paid
a fixed sum for attendance at each meeting of the board of directors or a stated
salary as director. No such payment shall preclude any director from serving the
Corporation in any capacity and receiving compensation therefor. Members of
special or standing committees may be allowed like compensation for attending
committee meetings.
ARTICLE IV
OFFICERS
--------
Section 1. The officers of this corporation shall be chosen by the
board of directors and shall include a chairman of the board, a president, a
secretary, and a treasurer. The Corporation may also have at the discretion of
the board of directors such other officers as are desired, including one or more
vice presidents, one or more assistant secretaries and assistant treasurers,
and such other officers as may be appointed in accordance with the provisions of
Section 3 hereof. In the event there are two or more vice presidents, then one
or more may be designated as executive vice president, senior vice president,
vice president-marketing, or other similar or dissimilar title. At the time of
the election of
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officers, the directors may by resolution determine the order of their rank.
Any number of offices may be held by the same person, unless the Certificate of
Incorporation or these By-Laws otherwise provide.
Section 2. The board of directors, at its first meeting after each
annual meeting of stockholders, shall choose the officers of the Corporation.
Section 3. The board of directors may appoint such other officers and
officers and agents as is shall deem necessary who shall hold their offices for
such terms and shall exercise such powers and perform such duties as shall be
determined from time to time by the board.
Section 4. The salaries of all officers and agents of the Corporation
shall be fixed by the board of directors.
Section 5. The officers of the Corporation shall hold office until
their successors are chosen and qualify in their stead. Any officer elected or
appointed by the board of directors may be removed at any time by the
affirmative vote of a majority of the board of directors. If the office of any
officer or officers becomes vacant for any reason, the vacancy shall be filed by
the board of directors.
CHAIRMAN OF THE BOARD
---------------------
Section 6. The chairman of the board shall be the chief executive
officer of the Corporation and shall, subject to the control of the board of
directors, have general supervision, direction and control of the business and
officers of the Corporation. He shall preside at all meetings of the
stockholders and at all meetings of the board of directors. He shall be an ex-
officio member of all committees and shall have the general powers and duties of
management usually vested in the office of chief executive office of
corporations, and shall have such other powers and duties as may be prescribed
by the board of directors or the By-Laws.
PRESIDENT
---------
Section 7. In the absence or disability of the chairman of the board,
the president shall perform all the duties of the chairman of the board, and
when so acting shall have all the powers of and
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be subject to all the restrictions upon the chairman of the board. The
presidents shall have such other duties as from time to time may be prescribed
for him by the board of directors.
VICE PRESIDENTS
---------------
Section 8. The vice presidents shall have such duties as from time to
time may be prescribed for them, respectively, by the board of directors.
SECRETARY AND ASSISTANT SECRETARY
---------------------------------
Section 9. The secretary shall attend all sessions of the board of
directors and all meetings of the stockholders and record all votes and the
minutes of all proceedings in a book to be kept for that purpose; and shall
perform like duties for the standing committees when required by the board of
directors. He shall give, or cause to be given, notice of all meetings of the
stockholders and of the board of directors, and shall perform such other duties
as may be prescribed by the board of directors or the By-Laws. He shall keep in
safe custody the seal of the Corporation, and when authorized by the board,
affix the same to any instrument requiring it, and when so affixed it shall be
attested by his signature or by the signature of an assistant secretary. The
board of directors may give general authority to any other officer to affix the
seal of the Corporation and to attest the affixing by his signature.
Section 10. The assistant secretary, or if there be more than one,
the assistant secretaries in the order determined by the board of directors, or
if there be no such determination, the assistant secretary designated by the
board of directors, shall, in the absence or disability of the secretary,
perform the duties and exercise the powers of the secretary and shall perform
such other duties and have such other powers as the board of directors may from
time to time prescribe.
TREASURER AND ASSISTANT TREASURER
---------------------------------
Section 11. The treasurer shall have the custody of the corporation
funds and securities and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the Corporation and shall deposit all
moneys, and other valuable effects in the name and to the credit of the
Corporation, in such depositories as may be designated by the board of
directors. He shall disburse the
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funds of the Corporation as may be ordered by the board of directors, taking
proper vouchers for such disbursements, and shall render to the board of
directors, at its regular meetings, or when the board of directors so requires,
an account of all his transactions as treasurer and of the financial condition
of the Corporation. If required by the board of directors, he shall give the
corporation a bond, in such sum and with such surety or sureties as shall be
satisfactory to the board of directors, for the faithful performance of the
duties of his office and for the restoration to the Corporation, in case of his
death, resignation, retirement or removal from office, of all books, papers,
vouchers, money and other property of whatever kind in his possession or under
his control belonging to the Corporation.
Section 12. The assistant treasurer, or if there shall be more than
one, the assistant treasurers in the order determined by the board of directors,
or if there be no such determination, the assistant treasurer designated by the
board of directors, shall, in the absence or disability of the treasurer,
perform the duties and exercise the powers of the treasurer and shall perform
such other duties and have such other powers as the board of directors may from
time to time prescribe.
ARTICLE V
CERTIFICATES OF STOCK
---------------------
Section 1. Every holder of stock of the Corporation shall be entitled
to have a certificate signed by, or in the name of the Corporation by, the
chairman or vice chairman of the board of directors, or the president or a vice
president, and by the secretary or an assistant secretary, or the treasurer or
an assistant treasurer of the Corporation, certifying the number of shares
represented by the certificate owned by such stockholder in the Corporation.
Section 2. Any or all of the signatures on the certificate may be a
facsimile. In case any officer, transfer agent, or registrar who has signed or
whose facsimile signature has been placed upon a certificate shall have ceased
to be such officer, transfer agent, or registrar before such certificate is
issued, it may be issued by the Corporation with the same effect as if he were
such officer, transfer agent, or registrar at the date of issue.
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Section 3. If the Corporation shall be authorized to issue more than
one class of stock or more than one series of any class, the powers,
designations, preference and relative, participating, optional or other special
rights of each class of stock or series thereof and the qualification,
limitations or restrictions of such preferences and/or rights shall be set forth
in full or summarized on the face or back of the certificate which the
Corporation shall issue to represent such class or series of stock, provided
that, except as otherwise provided in section 202 of the General Corporation Law
of Delaware, in lieu of the foregoing requirements, there may be set forth on
the face or back of the certificate which the Corporation shall issue to
represent such class or series of stock, a statement that the Corporation will
furnish without charge to each stockholder who so request the powers,
designations, preferences and relative, participating, optional or other special
rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights.
LOST, STOLEN OR DESTROYED CERTIFICATES
--------------------------------------
Section 4. The board of directors may direct a new certificate or
certificates to be issued in place of any certificate or certificates
theretofore issued by the Corporation alleged to have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
the certificate of stock to be lost, stolen or destroyed. When authorizing such
issue of a new certificate or certificates, the board of directors may, in its
discretion and as a condition precedent to the issuance thereof, require the
owner of such lost, stolen or destroyed certificate or certificates, or his
legal representative, to advertise the same in such manner as it shall require
and/or to give the corporation a bond in such sum as it may direct as indemnity
against any claim that may be made against the corporation with respect to the
certificate alleged to have been lost, stolen or destroyed.
TRANSFERS OF STOCK
------------------
Section 5. Upon surrender to the Corporation, or the transfer agent
of the Corporation, of a certificate for shares duly endorsed or accompanied by
proper evidence of succession, assignation
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or authority to transfer, it shall be the duty of the Corporation to issue a
new certificate to the person entitled thereto, cancel the old certificate and
record the transaction upon its books.
FIXING RECORD DATE
------------------
Section 6. In order that the Corporation may determine the
stockholders entitled to notice of or to vote at any meeting of the
stockholders, or any adjournment thereof, or to express consent to corporate
action in writing without a meeting, or entitled to receive payment of any
dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock or
for the purpose of any other lawful action, the board of directions may fix a
record date which shall not be more than sixty nor less than ten days before the
date of such meeting, nor more than sixty days prior to any other action. A
determination of stockholders of record entitled to notice of or to vote at a
meeting of stockholders shall apply to any adjournment of the meeting; provided,
however, that the board of directors may fix a new record date for the adjourned
meeting.
REGISTERED STOCKHOLDER
----------------------
Section 7. The Corporation shall be entitled to treat the holder of
record of any share or shares of stock as the holder in fact thereof and
accordingly shall not be bound to recognize any equitable or other claim or
interest in such share on the part of any other person, whether or not it shall
have express or other notice thereof, save as expressly provided by the laws of
the State of Delaware.
ARTICLE VI
GENERAL PROVISIONS
------------------
DIVIDENDS
---------
Section 1. Dividends upon the capital stock of the Corporation,
subject to the provisions of the Certificate of Incorporation, if any, may be
declared by the board of directors at any regular or special meeting, pursuant
to law. Dividends may be paid in cash, in property, or in shares of the capital
stock, subject to the provisions of the Certificate of Incorporation.
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Section 2. Before payment of any dividend there may be set aside out
of any funds of the Corporation available for dividends such sum or sums as the
directors from time to time, in their absolute discretion, think proper as a
reserve fund to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the corporation, or for such other
purpose as the directors shall think conducive to the interests of the
corporation, and the directors may abolish any such reserve.
CHECKS
------
Section 3. All checks or demands for money and notes of the
Corporation shall be signed by such officer or officers as the board of
directors may from time to time designate.
FISCAL YEAR
-----------
Section 4. The fiscal year of the Corporation shall be fixed by
resolution of the board of directors.
SEAL
----
Section 5. The corporate seal shall have inscribed thereon the name
of the corporation and the words "Corporate Seal, Delaware." Said seal may be
used by causing it or a facsimile thereof to be impressed or affixed or
reproduced or otherwise.
NOTICES
-------
Section 6. Whenever, under the provisions of the statutes or of the
Certificate of Incorporation or of these By-Laws, notice is required to be given
to any director or stockholder, it shall not be construed to mean personal
notice, but such notice may be given in writing, by mail, addressed to such
director or stockholder, at his address as it appears on the records of the
Corporation, with postage thereon prepaid, and such notice shall be deemed to be
given at the time when the same shall be deposited in the United States mail.
Notice to directors may also be given by telegram.
Section 7. Whenever any notice is required to be given under the
provisions of the statutes or of the Certificate of Incorporation or of these
By-Laws, a waiver thereof in writing, signed
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by the person or persons entitled to said notice, whether before or after the
time stated therein, shall be deemed equivalent thereto.
ARTICLE VII
AMENDMENTS
----------
Section 1. These By-Laws may be altered, amended or repealed or new
By-Laws may be adopted by the stockholders or by the board of directors, when
such power is conferred upon the board of directors by the Certificate of
Incorporation, at any regular meeting of the stockholders or of the board of
directors or at any special meeting of the stockholders or of the board of
directors if notice of such alteration, amendment, repeal or adoption of new By-
Laws be contained in the notice of such special meeting. If the power to adopt,
amend or repeal By-Laws is conferred upon the board of directors by the
Certificate of Incorporation it shall not divest or limit the power of the
stockholders to adopt, amend or repeal By-Laws.
ARTICLE VIII
INDEMNIFICATION
---------------
Section 1(a). The Corporation shall indemnify any person who was or is
a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the Corporation) by
reason of the fact that he is or was a director, officer, employee or agent of
the Corporation, or is or was serving at the request of the Corporation as a
director, officer , employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the Corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo
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contendere or its equivalent, shall not, of itself, create a presumption that
the person did not act in good faith and in a manner which he reasonably
believed to be in or not opposed to the best interests of the Corporation, and,
with respect to any criminal action or proceeding, had reasonable cause to
believe that his conduct was unlawful.
(b) The Corporation shall indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action or suit by or in the right of the Corporation to procure a judgment in
its favor by reason of the fact that he is or was a director, officer, employee
or agent of the Corporation, or is or was serving at the request of the
Corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the Corporation and except that no such indemnification shall
be made in respect of any claim, issue or matter as to which such person shall
have been adjudged to be liable for negligence or misconduct in the performance
of his duty to the Corporation unless and only to the extent that the Court of
Chancery of Delaware or the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which such Court of Chancery or such
other court shall deem proper.
(c) To the extent that a director, officer, employee or agent of the
Corporation shall be successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in paragraphs (a) and (b), or in defense
of any claim, issue or matter therein, he shall be indemnified against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection therewith.
(d) Any indemnification under paragraphs (a) and (b) (unless ordered
by a court) shall be made by the Corporation only as authorized in the specific
case upon a determination that indemnification of the director, officer,
employee or agent is proper in the circumstances because he has
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met the applicable standard of conduct set forth in paragraphs (a) and (b). Such
determination shall be made (1) by the board of directors by a majority vote of
a quorum consisting of directors who were not parties to such action, suit or
proceeding, or (2) if such a quorum is not obtainable, or, even if obtainable a
quorum of disinterested directors so directs, by independent legal counsel in a
written opinion, or (3) by the stockholders.
(e) Expenses incurred in defending a civil or criminal action, suit
or proceeding may be paid by the Corporation in advance of the final
disposition of such action, suit or proceeding as authorized by the board of
directors in the manner provided in paragraph (d) upon receipt of an undertaking
by or on behalf of the director, officer, employee or agent to repay such amount
unless it shall ultimately be determined that he is entitled to be indemnified
by the Corporation as authorized in this Section 1.
(f) The indemnification provided by this Section 1 shall not be
deemed exclusive of any other rights to which those indemnified may be entitled
under any by-law, agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding such office, and shall continue as to a person
who has ceased to be a director, officer, employee or agent and shall inure to
the benefit of the heirs, executors and administrators of such a person.
(g) The board of directors may authorize, by a vote of a majority
of a quorum of the board of directors, the Corporation to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the Corporation, or is or was serving at the request of the Corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise against any liability asserted against
him and incurred by him in any such capacity, or arising out of his status as
such, whether or not the Corporation would have the power to indemnify him
against such liability under the provisions of this Section 1.
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(h) For the purposes of this Section 1, references to "the
Corporation" shall include, in addition to the resulting corporation, any
constituent corporation (including any constituent of a constituent) absorbed in
a consolidation or merger which, if its separate existence had continued, would
have had power and authority to indemnify its directors, officers, and employees
or agents, so that any person who is or was a director, officer, employee or
agent of such constituent corporation, or is or was serving at the request of
such constituent corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
shall stand in the same position under the provisions of the Section with
respect to the resulting or surviving corporation as he would have with respect
to such constituent corporation if its separate existence had continued.
(i) For purposes of this section, references to "other enterprises"
shall include employee benefit plans; references to "fines" shall include any
excise taxes assessed on a person with respect to an employee benefit plan; and
references to "serving at the request of the Corporation" shall include service
as a director, officer, employee or agent of the Corporation which imposes
duties on, or involves services by, such director, officer, employee or agent
with respect to an employee benefit plan, its participants or beneficiaries; and
a person who acted in good faith and in a manner he reasonably believed to be in
the interest of the participants and beneficiaries of an employee benefit plan
shall be deemed to have acted in a manner "not opposed to the best interests of
the Corporation" as referred to in this section.
19
<PAGE>
EXHIBIT 10.4
CHELSEA TELEVISION STUDIOS
221 West 26th Street
New York, New York 10001
January 16, 1996
Global Shopping Network
1740 Broadway, 17th Floor
New York, New York 10019
Attn: Mr. Rachamin Anatian
--------------------
Dear Rami:
The following deal memo shall serve to confirm our agreement concerning
the material terms and conditions relating to the facilities package and
associated costs for your upcoming studio venture scheduled for start up on or
about January 15, 1996.
We have based our costs on a utilization of Studio A at 226 West 26th
Street. This utilization would be dedicated five days per week Monday through
Friday. Your commitment will be for a guaranteed minimum one year term (January
15, 1996 - January 14, 1997) with an automatic four year renewal commencing
January 15, 1997 through January 14, 2001.
Based on the requirements outlined herein, Chelsea Television Studios is
prepared to offer Global Shopping Network ("GSN") the enclosed studio,
lighting, and technical facilities package rate of $60,000.00 per month for
year one. This rate is based on utilization of up to 18 hours per day subject
to our enclosed understanding of additional compensation. Utilization beyond 18
hours per day and on weekends will result in additional costs to GSN to be
mutually agreed upon, in writing prior thereto.
Were you to proceed beyond year one and require expansion, Chelsea
Television Studios will use its best efforts to provide this additional space
for use by GSN. However, a reassessment of costs associated with this expanded
facility will be discussed and approved in writing between the two parties
prior to any increased utilization.
GSN strictly observes the Jewish laws regarding the Sabbath and Jewish
holidays. Accordingly, GSN hereby assigns its interest in the business
generated by GSN during the Sabbath and any Jewish holidays to Chelsea
Television Studios. Therefore based on the
<PAGE>
CHELSEA TELEVISION STUDIOS
Global Shopping Network
January 16, 1996
Page 2
foregoing, in addition to the monthly payment of basic costs, Chelsea
Television Studios will receive initially as additional compensation 1.75% of
GSN's Common Stock representing your ownership of any profits from the Sabbath;
and additionally, 1.75% of GSN's Common Stock which is being paid to you as an
advance for the sale of your profits generated on the Sabbath. Such shares
shall, in the aggregate, equal 3.5% of GSN's issued and outstanding Common
Stock immediately prior to GSN's initial public offering ("IPO"). This 3.5%
percentage is to increase commensurate with facilities utilization based upon
the following schedule during the first year of this relationship:
<TABLE>
<CAPTION>
================================================================================
Equity Ownership in GSN
---------------------------------------------------------------
Average hours Advance Payment
Per Day Profits from Sabbath for Buying Profits Total
================================================================================
<S> <C> <C> <C>
10 hours 1.75% 1.75% 3.5%
- --------------------------------------------------------------------------------
12 hours 2.08 2.0% 4.0%
- --------------------------------------------------------------------------------
14 hours 2.25% 2.25% 4.5%
- --------------------------------------------------------------------------------
16 - 18 hours 2.375% 2.375% 4.75%
================================================================================
</TABLE>
GSN will issue the referenced stock to Chelsea Television Studios as
follows: 1% upon acceptance of this proposal, the remaining percentage (e.g.,
2.5% - 3.75%) will be issued on the earlier of the following dates: a)
immediately prior to an IPO, or b) no later than July 14th, 1997. Upon
issuance, such shares shall be non-voting shares but shall be convertible to
voting shares immediately prior to an IPO (at no charge to Chelsea Television
Studios). Further, such shares shall not be registered under the Securities Act
of 1933. The holding period of all GSN stock issued to Chelsea Television
Studios is to commence as of the date of the initial shares issued under this
agreement. The parties agree that the non-voting stock to be issued to Chelsea
Television Studios under this agreement will be exchanged for voting common
stock of GSN immediately prior to the IPO (at no charge to Chelsea Television
Studios) and such exchange shall be reflected in any and all public disclosure
documents. It is further agreed that Chelsea Television Studios shall have the
right, at its option, to sell any of its shares in an amount proportionate to
any shares being sold by any and all "control" persons or entities in any IPO
or private placement of securities, subject to the advice and consent of the
underwriters.
The initial 3.5% and any subsequent increase in shares issued to Chelsea
Television Studios pursuant to the terms of this agreement shall not be subject
to any dilution by any issuance of common stock hereafter except and until an
aggregate of $4,000,000.00 has
<PAGE>
CHELSEA TELEVISION STUDIOS
Global Shopping Network
January 16, 1996
Page 3
been contributed as capital to GSN. Following such capital investment, the
shares issued to Chelsea Television Studios shall be subject to dilution upon
the same basis and to the same extent that all other shares are being diluted
by virtue of the issuance of stock, options, rights, or other securities. In
the event GSN shall at any time subdivide or combine the outstanding shares of
common stock, the number of shares issuable to Chelsea Television Studios or to
be surrendered by Chelsea Television Studios shall be increased or decreased in
the same proportion as the shares owned by all other shareholders. All
appropriate anti-dilution adjustments and any additional issuances of shares
provided for herein, shall be made by GSN to Chelsea Television Studios within
60 days of any such event which requires an anti-dilution adjustment.
Chelsea Television Studios, its directors, officers, shareholders and
employees will be indemnified by GSN and its directors, officers, and employees
against any debt obligations incurred by GSN during the course of its
participation in this project, that are not obligations of Chelsea Television
Studios.
Sales tax charges are additional as applicable to the monthly
compensation fees. If applicable, GSN will provide Chelsea Television Studios
with an indemnification or tax exemption certificate prior to finalization of
billing for this production.
The facilities included in this proposal are as follows:
STUDIO:
- ------
40' x 40' x 16' to grid Primary studio, 1 - 38' x 21 ' x 18' studio per
Schedule B. A third insert stage will be made available on an occasional basis
at no added cost not to exceed two days, per month. Each studio would be
provided with a lighting grid and electrical distribution system. The
facilities are equipped with 400 Amps of three phase power to accommodate your
lighting requirements. GSN will be provided with one dimmer board and an
appropriate complement of dimmers and lighting instruments to accommodate
multiple lighting setups to minimize turnaround time. Further discussion
regarding our complement will be required with your designated lighting
director to finalize any potential added costs in this area. These additional
costs will be determined during the startup phase of this production.
Electricity costs are included in our pricing. Bulb replacement costs
would be additional and would be based solely on your utilization.
Weekend utilization will result in added costs.
<PAGE>
CHELSEA TELEVISION STUDIOS
Global Shopping Network
January 16, 1996
Page 4
Set storage will be accommodated upon your request in the area adjacent
to the stage at no additional cost. Chelsea Television Studios will allocate
this area (200 sq. ft) to GSN for the duration of the contractual production
period.
TECHNICAL FACILITIES:
The facilities which you have requested would be provided as follows or
reconfigured pending further discussions. Additional daily utilization of the
facilities listed below would be billed at an agreed upon rate of $3,000.00 per
day.
1 Grass Valley 200 video production switcher with monitor bridge
3 Ikegami BL-55 studio configured cameras with Sachtler Variopeds
3 BVW-65/70 or PVW-2800 playback and record VTRs (configuration to be
determined)
1 Sony BVE-910 editor
1 Chyron Infinit! character generator with expanded memory, RGB tools,
etc.
1 Abekas A-53D DVE dual channel
1 Abekas A-42 still store
1 Soundcraft 24 Input audio console
4 Cetec Vega wireless diversity microphones (4 hardline backups also
included)
1 RTS two channel communications system with IFB and floor SA Associated
video/audio monitoring and distribution Associated cabling and
interconnects
SUPPORT SPACE:
- -------------
Our studio is augmented with dressing rooms, makeup room, and production
offices (as depicted on our enclosed Schedule B) equipped with a digital phone
switch for your utilization during scheduled dates of production. Telephone
calls will be billed additionally subject to your utilization. Additional
office space can be made available at a rate of $35.00 per square foot per
annum on the second floor, subject to availability. The studio control room is
adjacent to the stage area for easy access.
TECHNICAL STAFF:
- ---------------
On the occasions that an additional operator may be required through our
facility an additional cost of $300.00 per day (or prevailing rate for
freelance, if less) would be incurred
<PAGE>
CHELSEA TELEVISION STUDIOS
Global Shopping Network
January 16, 1996
Page 5
or we may utilize the services of a production intern at no cost. How such
utilization will reflect on your production is yet to be determined by your
producers and directors.
POST PRODUCTION:
- ---------------
Chelsea Post will provide additional editing, graphics, paintbox,
duplication or conversion requirements through our on site facility at
competitive industry pricing on a right of last refusal basis.
INSURANCE:
- ---------
Attached (Schedule C) is an outline of the required insurance coverage
GSN must supply to Chelsea Television Studios upon acceptance of this agreement
and prior to moving into the space.
The following is not included in the studio package:
1. Bulb replacement
2. Additional lighting equipment outside agreed upon complement
3. Additional equipment and/or crew outside agreed upon complement
4. Office supplies
5. Set supplies (i.e. paint, props, tools, etc.)
6. Messenger fees
7. Secretarial fees
8. Xerox machine
9. Overtime not specified on your list of requirements
10. Catering services
11. Set storage outside agreed upon allocation
12. Telephone usage (cost plus 10%)
13. Cartage fees for sets and props
14. Security (if required on show days)
15. Replacement keys for office facilities
16. Studio floor cleanup upon loadout
17. Sales tax
GSN will provide Chelsea Television Studios with a detailed production
schedule subject to its availability. Any changes to this schedule resulting in
additional dates or additional facilities may affect final pricing and
availability.
<PAGE>
CHELSEA TELEVISION STUDIOS
Global Shopping Network
January 16, 1996
Page 6
Payment terms for the studio and technical facilities will be
$120,000.00 (first and last month's payment) upon acceptance of this proposal.
The balance of the monthly charges will be due promptly on the 15th of each
month prior to your continued utilization, except that if the facility lease is
renewed after the first year, the sum of $60,000.00 will be credited for the
monthly period of January 15-February 15, 1997.
This proposal is subject to availability up until the point of execution
and payment of the initial fee.
If the foregoing comports with your agreement and understanding of the
transaction, kindly sign below and return to my attention together with your
check and insurance certificate.
Thank you.
CHELSEA TELEVISION STUDIOS, INC.
By: /s/ Eric Duke
------------------------------
Name: Eric Duke
UNDERSTOOD AND AGREED:
GLOBAL SHOPPING NETWORK, INC.
By: /s/ Rachamin Anatian
- ----------------------------------
Name: R. Anatian
Title: Chairman
<PAGE>
EXHIBIT 10.7
EARTH STATION SERVICE AGREEMENT (PRIVATE)
THIS IS AN AGREEMENT, dated January 8, 1997, between GE AMERICAN
COMMUNICATIONS, INC., ("GE Americom"), with offices located in Princeton, New
Jersey, and GLOBAL SHOPPING NETWORK, INC. ("Customer"), with offices located in
New York, New York.
The parties agree with each other as follows:
Article 1. Scope
- ----------------
GE Americom agrees to provide to Customer (i) redundant analog video microwave
service ("Microwave Service") from GE Americom's microwave site at 60 Broad
Street, New York City to GE Americom's Vernon Valley, New Jersey earth station
and (ii) redundant video uplink service ("Uplink Service") from the Vernon
Valley earth station no later than 2/28/97 to GE Americom's C-4 satellite (such
services hereinafter collectively referred to as "the Services"). The Services
shall meet the performance specifications described in Attachment A.
<PAGE>
2
Article 2. Term
- ---------------
A. The term of this Agreement shall begin on January 11, 1997 (the "Commencement
Date") and continue on a non-cancelable basis until January 11, 2000 with an
option to renew, which option must be exercised by Customer upon 90 days written
notice, for an additional term of two years from January 11, 2000 to January 11,
2002.
B. Expiration of the term shall not terminate any pre-existing obligation of
either party.
Article 3. Price and Payment
- ----------------------------
A. During the term, Customer shall pay to GE Americom monthly recurring service
charges of (i) One Thousand Five Hundred Dollars ($1,500.00) for the Microwave
Service and (ii) Nine Thousand Five Hundred Dollars ($9,500.00) for the Uplink
Service, for a total monthly recurring service charge of Eleven Thousand Dollars
($11,000.00) for the initial term from January 11, 1997 to January 11, 2000 and
a monthly recurring service charge of $13,000 for the renewal term from January
11, 2000 to January 11, 2002. The service charge for the first month of the term
shall be paid to GE Americom on January 22, 1997.
<PAGE>
3
B. Payment shall be made by Customer to GE Americom by:
(i) wire transfer to the following:
Deposit to GECC/Americom Account # 50-232-328
c/o Bankers Trust Company
One Bankers Trust Plaza
New York, NY 10006
ABA No. 021-001-033; or
(ii) company or bank check of immediately available funds to the following:
GE American Communications, Inc.
P.O. Box 18202
Newark, New Jersey 07191
C. Except for the first month of the term, GE Americom will send monthly bills
to Customer thirty (30) days prior to the due date for payment of the monthly
recurring charges, which shall be the first day of every month in which the
Services are provided. GE Americom will assess a late payment charge of one and
one-half percent (1.5%) per month compounded monthly, on payments not received
by the due date. For the purposes of determining the rate for service not
covering a full month, the rate shall be calculated at a daily rate of
one-thirtieth (1/30) of the monthly rate. GE Americom's failure to bill or delay
in billing Customer for any charge due under this Agreement shall not relieve
Customer of its
<PAGE>
4
obligation to pay the same on a timely basis. GE Americom may suspend provision
of the Services upon two business days' notice if Customer fails to pay any sums
due GE Americom.
D. All charges are exclusive of taxes, duties and user fees. Customers shall pay
directly for all taxes, duties and user fees, including any privilege or excise
taxes based on gross revenue pertaining to the Services and allocable to the
Services or shall reimburse GE Americom for same if GE Americom pays such taxes,
duties or user fees; provided, that, Customer shall not be responsible for
payment of any taxes based on the net income of GE Americom.
Article 4. Indemnification
- --------------------------
A. During any period Customer or any third party authorized or permitted by
Customer, including without limitation, Customer's successors, subcontractors or
transferees ("Customer's Designees") transmits material using the Services,
Customer shall indemnify end hold GE Americom and its affiliates, their
respective officers, directors, employees and agents harmless from and against
all loss, liability, damage, claims and expense, including but not limited to
reasonable attorneys' fees and
<PAGE>
5
disbursements, arising from or related to: (a) claims for libel, slander,
infringement of copyright or other intellectual property rights arising from the
communications transmitted by Customer or Customer's Designees; and (b) any
other claim arising from any use of the Services and not based on the content of
the communications transmitted using the Services.
B. Any party obligated Lo provide indemnification pursuant to this Article 4
(the "indemnitor") shall promptly defend any claims against the party entitled
to indemnification from the indemnitor pursuant to this Article 4 (the
"indemnitee"), any affiliated company of the indemnitee or any of their
respective directors, officers agents or employees (together with the
indemnitee, the "indemnified group"), with counsel of the indemnitor's choosing
at its own cost and expense. The indemnitee shall cooperate with, and assist as
reasonably requested by, the indemnitor in the defense of any such claim,
including the settlement thereof on a basis stipulated by the indemnitor (with
the indemnitor being responsible for all costs and expenses of defending such
claim or making such settlement); provided, however, that (i) the indemnitor
shall not, without the
<PAGE>
6
indemnitee's consent, settle or compromise any claim or consent to any entry of
judgment which does not include the giving by the claimant or the plaintiff to
each member of the indemnified group of an unconditional release from all
liability with respect to such claim, (ii) the indemnitee shall be entitled to
participate at its sole expense in support of the indemnitor's action in the
defense of any such claim and to employ counsel at the indemnitee's own expense
to assist in the handling of such claim, and (iii) the indemnitee shall have the
right to pay, settle or compromise any such claim as to itself, provided that in
such event the indemnitor shall be relieved of any liability or obligation which
would otherwise then or thereafter have existed or arisen under this Article in
respect of such claim.
Article 5. No Warranty; Limitation of Liability
- -----------------------------------------------
No warranties, expressed, implied, or statutory, including any warranty of
merchantability or fitness for a particular purpose, apply to the Services or
the equipment and facilities used to provide the Services. As a material
condition of receiving the Services and/or equipment at the price specified
herein, and with regard to any cause arising out of or relating to this
Agreement, including but not limited to claims or negligence, breach of
<PAGE>
7
contract or warranty, failure of a remedy to accomplish its essential purpose or
otherwise, Customer agrees that GE Americom's entire liability for damages or
losses arising out of mistakes, omissions, interruptions, delays, or defects of
any kind with respect to its performance of this Agreement, regardless of
whether occasioned by GE Americom's negligence, shall be limited to a refund or
waiver of the applicable charges for service for any period during which the
Services are not provided. GE Americom and its suppliers and subcontractors
shall not be liable in connection with this Agreement for any indirect,
incidental, consequential, special, punitive or other similar damages (whether
in contract, tort, strict liability or under any other theory of liability)
including but not limited to cost of substitute services or facilities, loss of
actual or anticipated revenues or profits, loss of business, customers or good
will, or damages and expenses arising out of third party claims. The foregoing
exclusion shall apply even if GE Americom has been advised of the possibility of
such damages.
Article 6. Termination
- ----------------------
A. Either Party may terminate this Agreement within 30 days after it acquires
actual knowledge of an event described below
<PAGE>
8
and upon thirty (30) days prior written notice to the other Party:
1. If the FCC revokes or suspends any authorization, approval, license
or permit required to provide the Services to Customer on the terms and
conditions contained in this Agreement, and GE Americom is unable to obtain
relief from the FCC's action enabling performance of GE Americom's obligations
hereunder within ninety (90) days of the FCC action becoming administratively
final and not subject to further FCC review. In the event of a termination of
this Agreement pursuant to this Paragraph, GE Americom agrees to expend
reasonable efforts in assisting Customer in obtaining alternate services in lieu
of the Services provided hereunder
2. The other Party is unable to perform its obligations as a result of
its becoming insolvent or the subject of insolvencey proceedings, including,
without limitation, if the other Party shall be judicially declared bankrupt or
insolvent according to law, or if any assignment shall be made of the property
of the other Party for the benefit of creditors, or if a receiver, conservator,
trustee in bankruptcy or other similar officers shall be appointed to take
charge of all or any substantial part of the other Party's property by a court
of competent jurisdiction, or if a petition shall be filed for the
<PAGE>
9
reorganization of the other Party under any provisions of the Bankruptcy Code
now or hereafter enacted, and such proceeding is not dismissed within sixty (60)
days after it is begun, or if the other Party shall file a petition for such
reorganization or for an arrangement under any provisions of the Bankruptcy code
now or hereafter enacted and providing a plan for a debtor to settle, satisfy or
extend the time for the payment of debts.
B. GE Americom may terminate this Agreement within thirty (30) days after it
acquires actual knowledge of the event listed below and upon ten (10) days prior
written notice if:
The Customer defaults in making a required payment and does not cure
such default within ten (10) business days of the due date for such
payment.
C. If GE Americom terminates for reasons set forth in Paragraph A.2. or
Paragraph B above or if Customer terminates for reasons other than as set forth
in Paragraph A above, the Customer is obligated to pay the net present value of
the remaining unpaid monthly service charges payable hereunder through the
Projected Termination Date, using a discount rate of five percent (5%) per
annum, plus any late charges on such amount from the date of termination until
payment in full. If GE Americom uses the
<PAGE>
10
uplink antenna used to provide the Services to Customer hereunder to provide
service to a third party prior to the Projected Termination Date, GE Americom
will pay to Customer eighty-five percent (85%) of the gross proceeds received by
GE Americom from such third party up to the amount collected from Customer
pursuant to this Paragraph. GE Americom shall not be required to obtain any
particular customer for use of such uplink antenna or to set any particular
minimum price for such use.
D. Termination of this Agreement will not relieve either party from fulfilling
any outstanding financial obligation to the other party under this Agreement.
Article 7. Notices
- ------------------
All notices regarding technical or operational matters requiring
immediate attention should be given by telephone followed by written
notification. All other notices and requests, by one Party to the other shall be
in writing duly delivered to the addresses set forth below or to such other
address as the Party may designate.
If to be given to GE Americom:
GE American Communications, Inc.
Four Research Way
Princeton, NJ 08540-6684
<PAGE>
11
Attn.: Manager, Customer Contracts
Fax No. (609) 987-4440
Phone (609) 987-4325
with a copy to the attention of:
Director, Satellite Services
GE American Communications, Inc.
Four Research Way
Princeton, New Jersey 08540-6684
Fax No. (609) 987-4517
Phone (609) 987-4151
If to be given to Customer:
Global Shopping Network, Inc.
1740 Broadway. 17th Floor
New York, New York 10019
Attention: Reggina Jabbour
Fax No. (212) 246-4463
Phone (212) 246-9000
Article 8. Assignment
- ---------------------
Customer shall not assign or transfer its right's or obligations under this
Agreement without GE Americom's prior written consent, which will not be
unreasonably withheld.
<PAGE>
12
Article 9. Force Majeure
- ------------------------
GE Americom shall not be liable to Customer for any failure of or delay in
performance hereunder due to causes beyond its reasonable control. Customer
shall not be liable to GE Americom for any damage of equipment or failure or
delay in performance, other than the obligation to make timely payments under
Article 3, due to causes beyond its reasonable control. These causes include but
are not limited to: acts of God; fire, flood or other natural catastrophes; the
need to comply with any law or any rule, order, regulation or direction of the
United States Government, or of any other government, including state and local
governments having jurisdiction over either party, or of any department, agency,
commission, bureau, court or other instrumentality thereof, or of any civil or
military authority; national emergencies; insurrections; riots; acts of war;
quarantine restrictions; embargoes or strikes, lockouts, work stoppages or other
labor difficulties.
Article 10. Content of Transmitted Communications
- -------------------------------------------------
<PAGE>
13
A. Customer agrees that it will not itself use the Service, and will not
authorize or permit others, including without limitation its successors,
subcontractors or transferees, (hereinafter "Designees") to use the Service to
transmit unlawful programming of any nature. Customer and Customer's Designees
will not transmit programming containing "sexually explicit conduct" as defined
in 18 U.S.C. ss. 2256(2) unless the depiction or description of such conduct in
a communication is integrally related to and advances the thematic content of
the program and such content has serious literary, artistic, political or
scientific value.
B. GE Americom may terminate, prevent or restrict any communications using the
Service provided hereunder as a means of transmission if such actions (1) are
undertaken at the request or by direction of a governmental agency (including
the FCC) or (2) are taken subsequent to the institution against GE Americom,
Customer. or Customer's Designees, any legal entity affiliated with any of them,
or any of the directors, officers, agents or employees of the Parties,
Customer's Designees or their affiliates, of criminal, civil or administrative
proceedings or investigations based upon the content of such communications.
<PAGE>
14
C. GE Americom may terminate, prevent or restrict any programming using the
Service provided hereunder as a means of transmission if, in the judgment of GE
Americom's counsel, (1) such actions are reasonably appropriate to avoid
violation of applicable law; or (2) there is a reasonable risk that criminal,
civil or administrative proceedings or investigations based upon the content of
such communications will be instituted against GE Americom, any affiliated
company, or any of the directors, officers, agents or employees of GE Americom
or its affiliated companies; or (3) such communications will expose GE Americom
to costs, expenses, liability, damages, fines or other penalties from which GE
Americom is not adequately protected by arrangements for compensation, indemnity
and insurance provided by Customer. Under the circumstances set forth in the
preceding sentence, GE Americom shall provide two business days' advance notice
to Customer that it intends to take action to terminate, prevent or restrict
such communications, in which event Customer or Customer's Designees, as
appropriate, may, during the period of notice, either (a) suspend, and agree to
continue to suspend, use of the Service to transmit any communications which is
the subject of the notice, and any communications of a similar nature, until
such time as, in the opinion of GE Americom's counsel, the communications can be
resumed without risk, in which event GE Americom will not terminate,
<PAGE>
15
prevent or restrict such communications so long as Customer and Customer's
Designees, as appropriate, remain in compliance with the terms of said agreement
and this Article, or (b) obtain injunctive relief against actions by GE Americom
to terminate, prevent or restrict such communications.
D. A decision by GE Americom at any time that action to terminate, prevent or
restrict communications is or is not warranted shall not operate to, or be
deemed to, limit or waive GE Americom's right to take or not take action at
another time to terminate, prevent or restrict communications.
E. In the event any criminal, civil or administrative proceeding or
investigation is instituted against GE Americom, any affiliate thereof, or any
of the directors, officers, agents or employees of GE Americom or its affiliates
(the "Indemnified Parties"), based upon the content of any communications which
is transmitted using the Service provided hereunder, Customer shall indemnify
and save harmless the Indemnified Parties from all cost, expenses (including
reasonable attorney fees and disbursements and expert witness fees), liabilities
and damages of any nature, including without limitation, to the extent permitted
by law, any fines or other penalties resulting from or arising out of such
proceedings or
<PAGE>
16
investigations. GE Americom shall have the right, but not the obligation, to
require Customer to conduct the defense of GE Americom in any such proceedings
or investigations at the expense of Customer. If GE Americom elects to conduct
its own defense, Customer shall nevertheless remain liable for all costs,
expenses, liabilities and damages resulting from or arising out of such
proceedings or investigations.
Article 11. Choice of Law
- -------------------------
This Agreement shall be construed and enforced in accordance with the
substantive laws of the State of New Jersey, excluding its conflicts of law
rules. The Parties hereby consent to and submit to the jurisdiction of the state
and federal courts located in the State of New Jersey, and any action or suit
under this Agreement may be brought by the Parties in any federal or state court
established or sitting in New Jersey with appropriate jurisdiction over the
subject matter. The Parties shall not raise in connection therewith, and hereby
waive, any defenses based upon the venue, inconvenience of forum, the lack of
personal jurisdiction, or the sufficiency of service of process (as long as
notice of such action or suit is furnished in accordance with Article 10 hereof)
in any such action or suit brought in the State of New Jersey.
<PAGE>
17
Article 12. Interruption Credits
- --------------------------------
Customer shall receive a credit for such periods of time as described below
during which the Service fails in any material respect to meet the performance
specifications described in Attachment A. Interruptions to the Service which are
not due to the negligence of the Customer will be credited to Customer at the
proportionate part of the monthly service charge. For purposes of computing the
credit, a month is considered to have 30 days. No credit will be allowed for an
interruption caused by the negligence of Customer or by failure of services,
facilities or equipment not furnished by GE Americom. The length of an
interruption shall be measured from the time the interruption first occurs.
Credits will be computed as follows:
Interruptions of 24 hours or less
<TABLE>
<CAPTION>
Length of Interruption Credit
<S> <C>
Less than 30 minutes none
30 min up to but not including 3 hrs 1/10 day
3 hrs. up to but not including 6 hrs 1/5 day
6 hrs. up to but not including 9 hrs 2/5 day
9 hrs. up to but not including 12 hrs 3/5 day
</TABLE>
<PAGE>
18
<TABLE>
<CAPTION>
<S> <C>
12 hrs. up to but not including 15 hrs 4/5 day
15 hrs. to 24 hrs one day
</TABLE>
Interruptions over 24 Hours
Credit will be allowed in 1/5 day multiples for each 3 hour period of
interruption or fraction thereof. No more than one day's credit will be allowed
for any period of 24 hours or less.
Article 13. Proprietary Information
- -----------------------------------
To the extent that either Party discloses to the other any information
which it considers proprietary, said Party shall identify such information as
proprietary when disclosing it to the other Party by marking it clearly and
conspicuously as proprietary information. Any proprietary disclosure to either
Party, if made orally, shall be promptly confirmed in writing and identified as
proprietary information, if the disclosing Party wishes to keep such information
proprietary under this Agreement. Any proprietary information disclosed under
this Agreement shall be used by the recipient thereof only in its performance
under this Agreement. Neither Party shall be liable for disclosure or use of
such information marked as proprietary information as provided above which:
<PAGE>
19
1. is or becomes lawfully available to the public from a source other than
the receiving Party before or during the period of this Agreement;
2. is released in writing by the disclosing Party without restrictions;
3. is lawfully obtained by the receiving Party from a third party or
parties without obligation of confidentiality;
4. is lawfully known by the receiving Party prior to such disclosure; or
5. is at any time lawfully developed by the receiving Party completely
independently of any such disclosure from the disclosing Party.
Neither Party shall be liable for the inadvertent or accidental disclosure of
such information marked as proprietary, if such disclosures occurs despite the
exercising of the same degree of care as the receiving Party normally takes to
preserve and safeguard its own proprietary information.
Article 14. Alternative Service
- -------------------------------
Customer agrees that in the event Customer determines to transfer its
Global Shopping Network programming service (or any
<PAGE>
20
successor thereto) from GE Americom's C-4 satellite to another satellite,
Customer will so notify GE Americom in writing ("Customer's Notice"). Within
thirty days of GE Americom's receipt of Customer's Notice, GE Americom will
advise Customer in writing whether GE Americom can provide a transponder on a GE
Americom satellite (the "Other Satellite") to accommodate Customer's
requirements. If GE Americom advises Customer that GE Americom can accommodate
such requirements, Customer and GE Americom shall execute an agreement for
service on the Other Satellite upon terms and conditions substantially the same,
other than price, as are specified in the C-4 Satellite Preemptible Transponder
Service and Restoration Services Agreement, dated as of March 27, 1996, between
Customer and GE Americom. In the event Customer and GE Americom cannot, within
sixty days of the date of Customer's Notice, agree on a price for service on the
Other Satellite, this Article 14 will become null and void. Further, GE Americom
will notify Customer in writing within thirty days of GE Americom's receipt of
Customer's Notice, whether the Uplink Service can be used in connection with the
Other Satellite. If GE Americom notifies Customer that the Uplink Service can be
so used, this Agreement shall be amended to specify such use in lieu of use of
the Uplink Service to the C-4 satellite. All other terms and conditions of this
Agreement will remain the same. If GE Americom
<PAGE>
21
notifies Customer that the Uplink Service cannot be so used (the "Negative
Notice"), Customer may, by written notice to GE Americom given within thirty
days of Customer's receipt of the Negative Notice, terminate this Agreement,
effective on the later of May 1, 1997, or sixty days after Customer's receipt of
the Negative Notice.
Article 15. Entire Agreement
- ----------------------------
This Agreement, including all attachments, represents the entire
understanding and agreement between the parties with respect to the subject
matter hereof, supersedes all prior negotiations and agreements between the
parties concerning that subject matter, and can be amended, supplemented or
changed only by an agreement in writing which makes specific reference to this
Agreement and which is signed by both parties. Customer agrees that, unless GE
Americom specifically so consents in writing, any purchase order or change order
that Customer may issue for administrative purposes to cover this Agreement will
not in any way add to, subtract from, or modify the terms and conditions stated
herein and, if the terms of any such purchase order or change order are
inconsistent with the text of this Agreement, the text of the agreement shall
control.
<PAGE>
22
IN WITNESS WHEREOF, the parties hereto have executed this Agreement,
effective on the date first above written.
GLOBAL SHOPPING NETWORK, INC.
By: /s/ Rachamin Andatian
------------------------------------
(Signature)
Name: Rachamin Andatian
------------------------------------
(Typed or Printed Name)
Title: CEO
-----------------------------------
Date: 1/10/97
----------------------------------
GE AMERICAN COMMUNICATIONS, INC.
By: /s/ Andreas Geor[illegible]
------------------------------------
(Signature)
Name: VP, Andreas Geor[illegible]
-----------------------------------
(Typed or Printed Name)
Title: VP
---------------------------------
Date: 1/15/97
---------------------------------
<PAGE>
23
_ ATTACHMENT A
_ PERFORMANCE SPECIFICATIONS
<PAGE>
24
<PAGE>
25
<PAGE>
28
ATTACHMENT B
UPLINK REDUNDANCY
-----------------
<PAGE>
EXHIBIT 10.8
AGREEMENT OF LEASE, made as of the __________ between DINO AND SONS REALTY
CO., a New York Partnership having its principal place of business at 1590 Troy
Avenue, Brooklyn, New York 11234 (hereinafter called "Landlord") and GLOBAL
SHOPPING NETWORK, INC., a Domestic New York Corporation, having an office at 226
West 26th Street, New York, N.Y. (hereinafter called "Tenant")
W I T N E S S E T H:
The parties heretofor themselves, their heirs, distributees, executors,
administrators, legal representatives, successors and assigns, hereby covenant
as follows:
1. DEMISE, PREMISES, TERM, RENT.
-----------------------------
A. Landlord hereby leases to Tenant and Tenant hereby hires from Landlord
the second floor and the third floor and the fourth floor, as more particularly
shown on Exhibit 1, annexed hereto and made a part hereof (hereinafter called
"Premises") in the building known as 226 West 26th Street, in the Borough of
Manhattan, County City and State of New York (said building is hereinafter
called the "Building" and the Building , together with the plot of land upon
which it stands, is hereinafter called the "Real Property") for a term
(hereinafter called the "Term") to commence on the Commencement Date
(hereinafter defined) both dates inclusive unless the Term shall sooner end
pursuant to any of the terms, covenants or conditions of this lease or pursuant
to law at the Rent, (hereinafter defined which Rent shall also include any
additional rent payable hereunder), which Rent Tenant agrees to pay in lawful
money of the United States which shall be legal tender in payment of all debts
and dues, public and private, at the tine of payment' in equal monthly
installments, in advance, commencing on the Rent Commencement Date (hereinafter
defined) and on the first (1st) day of each calendar month thereafter during the
Term (except as hereinafter otherwise provided), at the office of Landlord or
such other place as Landlord may designate without any set-off, offset,
abatement or deduction whatsoever unless otherwise set forth herein, if the Rent
Commencement Date shall occur on a date other than the first (1st) day of any
calendar month, Tenant shall pay to Landlord, on the first (1st) day of the
month next succeeding the month during which the Rent Commencement Date shall
occur, an amount equal to such proportion of an equal monthly installment of
Rent as the number of days from and including the Rent Commencement Date bears
to the total number of days in said calendar month. Such payment, together with
the sum paid by Tenant upon execution of this Lease, shall constitute payment of
the Rent for the period from the Rent Commencement Date to and including the
last day of the next succeeding calendar month.
B. The following definitions contained in this subsection B of this Article
1 shall have the meanings hereinafter set forth used throughout this Lease,
Exhibits, Schedules, and Riders (if any).
1
<PAGE>
(i) "Commencement Date" shall mean as to the third and fourth floors on or
about November 1, 1996; and as to the second floor on or about January
1, 1997.
(ii) "Expiration Date" shall mean October 31, 2001.
(iii) "Rent" shall mean:
(a) For the period November 1, 1996 through and including December
31, 1996, no base rent shall be due;
(b) For the period January 1, 1997 through and including October 31,
1997 the rent shall be $382,795.00 payable in ten equal monthly
installments of $38,279.50 per month;
(c) For the period November 1, 1997 through and including December
31, 1997, no base rent shall be due;
(d) For the period January 1, 1998 through and including October 31,
1998 the rent shall be $410,137.50 payable in ten equal monthly
installments of $41,013.75 per month;
(e) For the period November 1, 1998 through and including November
30, 1998, no base rent shall be due;
(f) For the period December 1, 1998 through and including October 31,
1999 the rent shall be $481,228.00 payable in eleven equal
monthly installments of $43,748.00 per month;
(g) For the period November 1, 1999 through and including October 31,
2000 the rent shall be $524,976.00 payable in twelve equal
monthly installments of $43,748.00 per month;
(h) For the period November 1, 2000 through and including October 31,
2001 (Expiration Date) the rent shall be $590,598.00 payable in
twelve equal monthly installments of $49,216.50 per month.
Notwithstanding the above terms or anything to the contrary contained in this
Lease, Tenant shall have the right to cancel/terminate this Lease prior to the
Expiration Date ("Early Termination") at any time after the first year hereof
(i.e. after October 31, 1997 as to all of the Premises even though the
Commencement Date for the 2nd Floor space was not until January 1, 1997) by
complying with the following conditions:
1. The Tenant shall give the Landlord notice of Tenant's intention to
seek Early Termination; said notice to be given at least 120 days
prior to the intended Early Termination Date, and;
2. Simultaneously with the giving of notice to Landlord, Tenant shall pay
to Landlord an amount equal to six month's of the then (at the time of
notice) monthly base rent, and;
3. Tenant shall continue to pay any rent or additional rent or other
appropriate charges normally due between the notice date and the Early
Termination Date.
2
<PAGE>
(iv) "Rent Commencement Date" shall mean January 1, 1997.
(v) "Permitted Uses" shall mean as a television production studio,
editing, telemarketing, data entry, and general offices attendant
thereto.
(vi) Base Tax Year" shall mean collectively the Tax Year beginning
July 1, 1997.
(vii) Tenant's Proportionate Share shall mean 28.23 percent (28.23%).
(viii) "Security Deposit" shall mean the sum of $76,559.00.
(ix) "Broker" shall mean J. Gregory Kost.
Notwithstanding anything to the contrary contained in this subsection of
this Article 1, Articles 1 through 39 shall control the rights and obligations
of the parties hereto except that the provisions of any Riders shall supersede
any inconsistent provisions in Articles 1 through 39, as the case may be.
2. USE AND OCCUPANCY.
------------------
A. Tenant shall use and occupy the Premises for any lawful purpose subject
to the provisions of Article 2B, hereof.
B. Tenant hereby represents, warrants and agrees that Tenant's business is
not and shall not be photographic, or multilith or multigraph reproductions or
offset printing. Anything contained herein to the contrary notwithstanding,
Tenant shall not use the Premises or any part thereof, or permit the Premises or
any part thereof to be used, (i) for the business of photographic, multilith or
multigraph reproductions or offset printing, (ii) for banking, trust company,
depository, guarantee of safe deposit business, (iii) as a savings bank, a
savings and loan association, or as a loan company, (iv) for the sale of
travelers checks, money orders, drafts, foreign exchange or letters of credit or
for the receipt of money for transmission, (v) as a "retail" stock broker's or
dealer's office which shall be open to the general public (except pursuant to
prior appointment) , (vi) as a restaurant or bar or for the sale of
confectionery, soda, beverages, sandwiches, ice cream or baked goods or for the
preparation, dispensing or consumption of food or beverages in any matter
whatsoever except by Tenant's officers, employees and/or invitees in connection
with its business at the Premises, (vii) as a news or cigar stand, (viii) as an
employment agency, labor union office, physician's or dentist's office, dance or
music studio, school (except for the training of employees of Tenant), (ix) as a
barber shop or beauty salon, or (x) for the direct sale, at retail or otherwise,
of any goods or products which requires customers to be physically present at
the Premises. Nothing in subsection B shall preclude Tenant from using any part
of the Premises for photographic, multilith or multigraph
3
<PAGE>
reproductions in connection with, either directly or indirectly, its own
business and/or activities.
3. ALTERATIONS. Tenant shall not make or perform or permit the making or
------------
performance of, any alterations, installations, improvements, additions or other
physical changes in or about the Premises (hereinafter collectively called
"Alterations") without Landlord's prior consent. Landlord agrees not to withhold
unreasonably its consent to any Alterations which are nonstructural or which do
not affect the Buildings mechanical systems or services, proposed to be made by
Tenant to adapt the Premises for those business purposes permitted by subsection
A of Article 2 hereof, provided that such Alterations are performed only by
contractors or mechanics approved by Landlord which approval shall not be
unreasonably withheld or delayed, do not affect any part of the Building other
than the Premises, do not adversely affect any service required to be furnished
by Landlord to Tenant or to any other tenant or occupant of the Building and do
not reduce the value or utility of the Building. Anything to the contrary
notwithstanding, Landlord's consent shall not be required in connection with the
performance of ordinary decorations to the Premises. All Alterations shall be
done at Tenant's expense and at such times and in such manner as Landlord may
from time to time reasonably designate pursuant to the conditions for
Alterations prescribed by Landlord for the Premises. All furniture, furnishings,
and movable fixtures and partitions installed by Tenant and all Alterations in
and to the Premises which may be made by Tenant at its own cost and expense
prior to and during the Term, or any renewal thereof, shall remain the property
of Tenant and upon the Expiration Date or earlier end of the Term or any renewal
thereof, may be removed from the Premises by Tenant at Tenant's option,
provided, however, that Tenant shall repair and restore in good and workmanlike
manner to Building standard original condition (reasonable wear and tear
excepted) any damage to the Premises or the Building caused by such removal. Any
of such fixtures or installations not so removed by Tenant at or prior to the
Expiration Date or earlier termination of the Term shall become the property of
Landlord, and shall remain upon and be surrendered with the Premises as part
thereof at the end of the Term. Prior to making any Alterations, Tenant (i)
shall submit to Landlord detailed plans and specifications (including layout,
architectural, mechanical and structural drawings) for each proposed Alteration
and shall not commence any such Alteration without first obtaining Landlord's
approval of such plans and specifications, (ii) shall, at its expense, obtain
all permits, approvals, and certificates required by any governmental or
quasi-governmental bodies, and (iii) shall furnish to Landlord duplicate
original policies of worker's compensation insurance (covering all persons to be
employed by Tenant, and Tenant's contractors and subcontractors in connection
with such Alteration) and comprehensive public liability (including property
damage coverage) insurance in such form, with such companies, for such periods
and in such amounts as Landlord may reasonably require, naming Landlord and its
agents as additional insureds. Upon completion of such Alteration, Tenant, at
Tenant's expense, shall obtain certificates of final approval of such Alteration
required by any governmental or quasi-governmental bodies and shall furnish
Landlord with copies thereof. All Alterations
4
<PAGE>
shall be made and performed in accordance with the Rules and Regulations
(hereinafter defined); all materials and equipment to be incorporated in the
Premises as result of all Alterations shall be new and first quality; no such
materials or equipment shall be subject to any lien, encumbrance, chattel
mortgage or title retention or security agreement. In the event any Alterations
are performed by general partner of Landlord or any entity which is under the
common control of Landlord or and general partner of Landlord, the failure by
Tenant to pay the cost of such Alterations upon rendition of bill therefor shall
be deemed material default under this Lease. Any mechanic's lien filed against
the Premises, or the Real Property, for work claimed to have been done for, or
materials claimed to have been furnished to, Tenant shall be discharged by
Tenant within thirty (30) days thereafter, at Tenant's expense, by payment or
filing the bond required by law. Tenant shall not, at any time prior to or
during the Term, directly or indirectly employ, or permit the employment of, any
contractor, mechanic or laborer in the Premises, whether in connection with any
Alteration or otherwise, if, in the Landlord's sole discretion, such employment
will interfere or cause any conflict with other contractors, mechanics, or
labors engaged in the construction, maintenance or operation of the Building by
Landlord, Tenant or others. In the event of any such interference or conflict,
Tenant, upon demand of Landlord, shall cause all contractors, mechanics or
labors causing such interference or conflict to leave the Building immediately.
4. REPAIRS-FLOOR LOAD. Landlord shall maintain and repair the public portions of
-------------------
the Building, both exterior and interior. Landlord shall perform such
maintenance and repairs promptly, in good and workmanlike manner, and in manner
so as to minimize, to the extent reasonably practicable, any interference to
Tenant's use of the Premises, without requiring the use of overtime or premium
pay labor in connection therewith. Tenant shall, throughout the Term, take good
care of the Premises and the fixtures and appurtenances therein and at Tenant's
sole cost and expense, make all nonstructural repairs thereto as and when needed
to preserve them in good working order and condition, reasonable wear and tear
and damage for which Tenant is not responsible under the terms of this Lease
excepted. Tenant shall pay Landlord for all replacements to the lamps, tubes,
ballasts and starters in the lighting fixtures installed in the Premises.
Notwithstanding the foregoing, all damage or injury to the Premises or to any
other part of the Building, or to its fixtures, equipment and appurtenances,
whether requiring structural or nonstructural repairs, caused by or resulting
from carelessness, omission, neglect or improper conduct of or Alterations made
by Tenant, Tenant's servants, employees, invitees or licensees, shall be
repaired promptly by Tenant, at its sole cost and expense, to the satisfaction
of Landlord. Tenant also shall repair all damage to the Building and the
Premises caused by the moving of Tenant's fixtures, furniture or equipment. All
the aforesaid repairs shall be of quality or class equal to the original work or
construction and shall be made in accordance with the provisions of Article 3
hereof. If Tenant fails after ten (10) days' notice to proceed with due
diligence to make repairs required to be made by Tenant, the same may be made by
Landlord, at the expense of Tenant, and the expenses thereof incurred by
Landlord
5
<PAGE>
shall be collectible by Landlord as additional rent after rendition of bill or
statement therefor. Tenant shall give Landlord prompt notice of any defective
condition in any plumbing, electrical, air cooling or heating system located in,
servicing or passing through the Premises. Tenant shall not place load upon any
floor of the Premises exceeding the floor load per square foot area which such
floor was designed to carry and which is allowed by law. Landlord reserves the
right to reasonably prescribe the weight and position of all safes, business
machines and heavy equipment and installations. Business machines and mechanical
equipment shall be placed and maintained by Tenant at Tenant's expense in
settings sufficient in Landlord's reasonable judgment to absorb an prevent
vibration, noise and annoyance. Except as provided in Article 10 hereof, there
shall be no allowance to Tenant for diminution of rental value and no liability
on the part of Landlord by reason of inconvenience, annoyance or injury to
business arising from Landlord, Tenant or others making, or failing to make, any
repairs, alterations, additions or improvements in or to any portion of the
Building, or the Premises, or in or to fixtures, appurtenances, or equipment
thereof. If the Premises be or become infested with vermin, Tenant, at Tenant's
expense, shall cause the same to be exterminated from time to time to the
satisfaction of Landlord and shall employ such exterminators and such
extermination company or companies as shall be approved by Landlord. The water
and wash closets and other plumbing fixtures shall not be used for any purposes
other than those for which they were designed or constructed, and no sweepings,
rubbish, rags, acids or other substances shall be deposited therein.
5. WINDOW CLEANING. Tenant shall not clean, nor require, permit, suffer or allow
----------------
any window in the Premises to be cleaned, from the outside in violation of
Section 202 of the Labor Law, or any other applicable law, or of the rules of
the Board of Standards and Appeals, or of any other board or body having or
asserting jurisdiction.
6. REQUIREMENTS OF LAW. Tenant at its sole expense shall comply with all laws,
--------------------
orders and regulations of federal, state, county and municipal authorities and
with any direction of any public officer or officers, pursuant to law, and all
rules, orders regulations or requirements of the New York Board of Fire
Underwriters, or any other similar body which shall impose any violation order
or duty upon Landlord or Tenant with respect to the Premises as result of the
use or occupation thereof by Tenant for any purpose other than the Permitted
Uses or the conduct by Tenant of its business in the Premises in manner
different from the ordinary and proper conduct of such business. Tenant shall
not do or permit to be done any act or thing upon the Premises which will
invalidate or be in conflict with any insurance policies covering the Building
and fixtures and property therein; and shall not do, or permit anything to be
done in or upon the Premises, or bring or keep anything therein, except as now
or hereafter permitted by the New York City Fire Department, New York Board of
Fire Underwriters, New York Fire Insurance Rating Organization or other
authority having jurisdiction and then only in such quantity and manner of
storage as not to increase the rate for fire insurance applicable to the
Building, or use the Premises in manner which shall increase the rate of fire
insurance on the
6
<PAGE>
Building or on property located therein, over that in similar type buildings or
in effect prior to this Lease. Any work or installations made or performed by or
on behalf of Tenant or any person claiming through or under Tenant pursuant to
this Article shall be made in conformity with, and subject to the provisions of
Article 3 hereof. If by reason of failure of Tenant to comply with the
provisions of this Article, the fire insurance rate shall at the beginning of
this Lease or at any time thereafter be higher than it otherwise would be, then
Tenant shall reimburse Landlord, as additional rent hereunder, for that part of
all fire insurance premiums thereafter paid by Landlord which shall have been
charged because of such failure of use by Tenant, and shall make such
reimbursement upon the first day of the month following such outlay by Landlord.
In any action or proceeding wherein Landlord and Tenant are parties, schedule or
"make up" of rates for the Building or the Premises issued by the New York Fire
Insurance Rating Organization, or other body fixing such fire insurance rates,
shall be conclusive evidence of the facts therein stated and of the several
items and charges in the fire insurance rates then applicable to the Premises.
A. Anything to the contrary herein notwithstanding, Tenant shall not be
required to bear the cost of compliance with any laws, orders, regulations, or
requirements of any governmental authority which would require any structural or
non-structural alterations, unless the condition necessitating the work shall
arise as a result of Tenant's manner of use of the demised Premises. Landlord
agrees, at Landlord's sole cost and expense, to comply with all laws, orders,
and regulations of governmental authorities with respect to the demised Premises
and/or the Building other than those which are the responsibility of the Tenant
in accordance with the terms of this Lease.
7. SUBORDINATION.
--------------
A. This Lease is subject and subordinate to each and every ground or
underlying lease of the Real Property or the Building heretofore or hereafter
made by Landlord (collectively the "Superior Leases") and to each and every
trust indenture and mortgage (collectively the "Mortgages") which may now or
hereafter affect the Real Property, the Building or any such Superior Lease and
the leasehold interest created thereby, and to all renewals, extensions,
supplements, amendments, modifications, consolidations, and replacements thereof
or thereto, substitutions therefor, and advances made thereunder. This clause
shall be self-operative and no further instrument of subordination shall be
required to make the interest of any lessor under a Superior Lease, or trustee
or mortgagee of a Mortgage superior to the interest of Tenant hereunder. In
confirmation of such subordination however, Tenant shall execute promptly any
certificate that Landlord may reasonably request. If the date of expiration of
any Superior Lease shall be the same day as the Expiration Date, the Term shall
end and expire twelve (12) hours prior to the expiration of the Superior Lease.
Tenant covenants and agrees that, except as expressly provided herein, Tenant
shall not do anything that would constitute a default under any Superior Lease
or Mortgage, or omit to do anything that Tenant is obligated to do under the
terms of this Lease so as to cause Landlord to be in default under any of the
foregoing. If, in
7
<PAGE>
connection with the financing of the Real Property, the Building or the interest
of the lessee under any Superior Lease, any lending institution shall request
reasonable modifications of this Lease that do not increase the Rent or other
financial obligations of Tenant hereunder, decrease the size of the Premises,
modify the Term or otherwise materially increase the obligations or materially
and adversely affect the rights of Tenant under this Lease, Tenant covenants to
make such modifications.
B. If at any time prior to the expiration of the Term, any Mortgage shall
be foreclosed or any Superior Lease shall terminate or be terminated for any
reason, Tenant agrees, at the election and upon demand of any owner of the Real
Property or the Building, or the lessor under any such Superior Lease, or of any
mortgagee in possession of the Real Property or the Building to attorney, from
time to time, to any such owner, lessor or mortgagee, upon the then executory
terms and conditions of this Lease, for the remainder of the term originally
demised in this Lease, provided that such owner, lessor or mortgagee, as the
case may be, or receiver caused to be appointed by any of the foregoing, shall
not then be entitled to possession of the Premises. The provisions of this
subsection B shall inure to the benefit of any such owner, lessor or mortgagee,
shall apply notwithstanding that, as matter of law, this Lease may terminate
upon the termination of any such Superior Lease, and shall be self-operative
upon any such demand, and no further instrument shall be required to give effect
to said provisions, Tenant, however, upon demand of any such owner, lessor or
mortgagee, agrees to execute, from time to time, instruments in confirmation of
the foregoing provisions of this subsection B, satisfactory to any such owner,
lessor or mortgagee, acknowledging such attornment and setting forth the terms
and conditions of its tenancy. Nothing contained in this subsection B shall be
construed to impair any right otherwise exercisable by any such owner, lessor or
mortgagee.
C. Landlord hereby represents that there are currently no superior ground
or underlying leases covering the Building or the Premises, and that any
underlying mortgages which may exist are not in default at the time of execution
of this Lease.
8. RULES AND REGULATIONS. Tenant and Tenant's servants, employees, agents,
----------------------
visitors, and licensees shall observe faithfully, and comply strictly with, the
Rules and Regulations annexed hereto and made a part hereof as Schedule A (the
"Rules and Regulations"), and such other and further reasonable Rules and
Regulations as Landlord or Landlord's agents may from time to time adopt on such
notice to be given as Landlord may elect. In case Tenant disputes the
reasonableness of any additional Rule or Regulation hereafter made or adopted by
Landlord or Landlord's agents, the parties hereto agree to submit the question
of the reasonableness of such Rule or Regulation for decision to the Chairman of
the Board of Directors of the Management Division of the Real Estate Board of
New York, Inc., or to such impartial person or persons as he may designate,
whose determination shall be final and conclusive upon the parties hereto. The
right to dispute the reasonableness of any additional Rule or Regulation upon
Tenant's part shall be deemed waived unless the same shall be asserted by
service of notice in writing upon Landlord within twenty (20) days after receipt
by Tenant of written notice
8
<PAGE>
and the adoption of any such additional Rule or Regulation. Nothing in this
Lease contained shall be construed to impose upon Landlord any duty or
obligation to enforce the Rules and Regulations or terms, covenants or
conditions in any other lease, against any other tenant and Landlord shall not
be liable to Tenant for violation of the same by any other tenant, its servants,
employees, agents, visitors or licensees; provided that Landlord shall not
promulgate or enforce the Rules and Regulations against Tenant in a
discriminatory manner.
9. INSURANCE.
----------
A. Tenant's Insurance. Tenant shall obtain and keep in full force and
-------------------
effect during the Term a policy of comprehensive general public liability and
property damage insurance with broad form contractual liability endorsement
under which Tenant is named as the insured, and Landlord is named as an
additional insured, and under which the insurer agrees to indemnify and hold
Landlord harmless from and against all cost, expense and/or liability arising
out of or based upon any and all claims, accidents, injuries and damages
mentioned in Article 37 hereof. Such policy shall contain a provision that no
act or omission of Tenant shall affect or limit the obligation of the insurance
company to pay the amount of any loss sustained and shall be noncancelable with
respect to Landlord without thirty (30) days' written notice to Landlord by
certified mail, return receipt requested, which notice shall contain the policy
number and the names of the insured and certificate holder. A certificate
thereof shall be delivered to Landlord and shall have printed thereon Article 37
hereof in its entirety if required by Landlord. The minimum limits of liability
shall be a combined single limit with respect to each occurrence in an amount of
not less than $1,000,000 for injury (or death) and damage to property or such
greater amount as Landlord may, from time to time, require. All insurance
required to be carried by Tenant pursuant to the terms of this Lease shall be
effected under valid and enforceable policies issued by reputable and
independent insurers permitted to do business in the State of New York, and
rated in Best's Insurance Guide, or any successor thereto (or if there be none,
an organization having a national reputation) as having general policyholder
rating of "A" and a financial rating of at least "13".
B. Waiver of Subrogation. The parties hereto shall procure an appropriate
----------------------
clause in, or endorsement on, any fire or extended coverage insurance covering
the Premises and the Building, as well as personal property, fixtures and
equipment located thereon or therein, pursuant to which the insurance companies
waive subrogation or consent to a waiver of right of recovery, and each party
hereby agrees that it will not make any claim against or seek to recover from
the other for any loss or damage to its property or the property of others
resulting from fire or other hazards covered by such fire and extended coverage
insurance. If the payment of an additional premium is required for the inclusion
of such waiver of subrogation provision, each party shall advise the other of
the same. It is expressly understood and agreed the Landlord will not carry
insurance on Tenant's fixtures, furnishings, equipment or other property or
effects or insurance against interruption of Tenant's business.
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10. DESTRUCTION OF THE PREMISES: PROPERTY LOSS OR DAMAGE.
-----------------------------------------------------
A. If any portion of the Premises shall be damaged by fire or other
casualty, and if Tenant shall give prompt notice thereof to Landlord, the
damages shall be repaired by and at the expense of Landlord and the Rent until
such repairs shall be made shall be reduced in the proportion which the area of
the part of the Premises which is not usable by Tenant bears to the total area
of the Premises. Landlord shall have no obligation to repair any damage to, or
to replace, any fixtures, furniture, furnishings, equipment or other property or
effects of Tenant so long as the damage was not the result of the negligence,
gross negligence or willful misconduct of the Landlord.
B. Anything in subsection A of the Article 10 to the contrary
notwithstanding, if the Premises are totally damaged or are rendered wholly
untenanable, and if Landlord shall decide not to restore the Premises, or if the
Building shall be so damaged by fire or other casualty that, in Landlord's
opinion substantial alteration, demolition, or reconstruction of the Building
shall be required (whether or not the Premises shall have been damaged or
rendered untenantable), then in any of such events, Landlord at Landlord's
option, may , not later than sixty (60) days following the damage, give Tenant
notice in writing terminating this Lease. If Landlord elects to terminate this
Lease, the Term shall expire upon the tenth (10th) day after such notice is
given, and Tenant shall vacate the Premises and surrender the same to Landlord.
If Tenant shall not be in default under this Lease, then upon the termination of
this Lease under the conditions provided for in the next preceding and
succeeding sentences, Tenant's liability for Rent shall cease as of the day
following such damage. In the event the Premises are substantially damaged so
that Tenant cannot reasonably conduct its business from the Premises or are
rendered wholly untenantable, then upon receipt of a request from Tenant,
Landlord shall give Tenant written notice ("Landlord's Notice") within sixty
(60) days of Tenant's request of Landlord's reasonable estimate of the period
required to reconstruct the Premises, which shall be based upon the opinion of
Landlord's engineer or architect, and if such period of reconstruction is in
excess of twelve (12) months from the date of such fire or other casualty, then
Tenant shall have the right to terminate this Lease by notice to Landlord given
within ten (10) days of Landlord's Notice.
C. Landlord shall not be liable for reasonable delays which may arise by
reason of adjustment of fire insurance on the part of Landlord and/or Tenant,
and for reasonable delays on account of "labor troubles" or any other cause
beyond Landlord's control.
D. The parties agree that this Article 10 constitutes an express agreement
governing any case of damage or destruction of the Premises or the Building by
fire or other casualty, and that Section 227 of the Real Property Law of the
State of New York, which provides for such contingency in the absence of an
express agreement, and any other law of like import now or hereafter in force
shall have no application in any such case.
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E. Any Building employee to whom any property shall be entrusted by or on
behalf of Tenant shall be deemed to be acting as Tenant's agent with respect to
such property and neither Landlord nor its agents shall be liable for any damage
to property of Tenant or of others entrusted to employees of the Building, nor
for the loss of or damage to any property of Tenant by theft or otherwise.
Neither Landlord nor its agents shall be liable for any injury or damage to
persons or property or interruption of Tenant's business resulting from fire,
explosion, falling plaster, steam, gas, electricity, water, rain or snow or
leaks from any part of the Building or from the pipes, appliances or plumbing
works or from the roof, street or subsurface or from any other place or by
dampness or by any other cause or whatsoever nature other than as a result of
the negligence, gross negligence or willful misconduct of the Landlord, its
employees or agents; nor shall Landlord or its agents be liable for any such
damage caused by other tenants or persons in the Building or caused by
construction of any private, public or quasi-public work; nor shall Landlord be
liable for any latent defect in the Premises or in the Building. Anything in
this Article 10 to the contrary notwithstanding, nothing in this Lease shall be
construed to relieve Landlord from responsibility directly to Tenant for any
loss or damage caused directly to Tenant wholly or in part by the gross
negligence or willful misconduct of Landlord. Nothing in the foregoing sentence
shall affect any right of Landlord to the indemnity from Tenant to which
Landlord may be entitled under Article 37 hereof in order to recoup for payments
made to compensate for losses of third parties. If at any time any windows of
the Premises are temporarily closed, darkened or bricked-up for any reason
whatsoever including, but not limited to, Landlord's own acts, or any of such
windows are permanently closed, darkened or bricked-up if required by law or
related to any construction upon property adjacent to the Real Property by
Landlord or others, Landlord shall not be liable for any damage Tenant may
sustain thereby and Tenant shall not be entitled to any compensation therefor
nor abatement of Rent nor shall the same release Tenant form its obligations
hereunder nor constitute an eviction. Tenant shall reimburse and compensate
Landlord as additional rent within five (5) days after rendition of statement
for all expenditures made by , or damages or fines sustained or incurred by,
Landlord due to nonperformance or noncompliance with or breach or failure to
observe any term, covenant or condition of this Lease upon Tenant's part to be
kept, observed, performed or complied with. Tenant shall give immediate notice
to Landlord in case of fire or accident in the Premises or in the Building.
Tenant shall not move any safe, heavy machinery, heavy equipment, freight, bulky
matter or fixtures into or out of the Building without Landlord's prior consent
and payment to Landlord of Landlord's costs in connection therewith. If such
safe, machinery, equipment, freight, bulky matter or fixtures requires special
handling, Tenant agrees to employ only persons holding Master Rigger's License
to do said work, and that all work in connection therewith shall comply with the
Administrative Code of the City of New York and all other laws and regulations
applicable thereto, and shall be done during such hours as Landlord many
designate. Notwithstanding said consent of Landlord, Tenant shall indemnify
Landlord for, and hold Landlord harmless and free from, damages sustained by
persons or property and for any damages or monies paid out by Landlord in
settlement of any claims or
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judgments, as well as for all expenses and reasonable attorneys' fees incurred
in connection therewith an all costs incurred in repairing any damage to the
Building or appurtenances.
11. EMINENT DOMAIN.
--------------
A. If the whole of the Real Property, the Building or the Premises shall be
acquired or condemned for any public or quasi public use or purpose, this Lease
and the Term shall end as of the date of the vesting of title with the same
effect as if said date were the Expiration Date. If only part of the Real
Property shall be so acquired or condemned then, (a) except as hereinafter
provided in this subsection A, this Lease and the Term shall continue in force
and effect but, if part of the Premises is included in the part of the Real
Property so acquired or condemned, from and after the date of the vesting of
title, the Rent shall be reduced in the proportion which the area of the part of
the Premises so acquired or condemned bears to the total area of the Premises
immediately prior to such acquisition or condemnation; (b) whether or not the
Premises shall be affected thereby, Landlord, at Landlord's option, may give to
Tenant, within sixty (60) days next following the date upon which Landlord shall
have received notice of vesting of title, five (5) days' notice of termination
of this Lease; and if the part of the Real Property so acquired or condemned
shall contain more than thirty percent (30%) of the total area of the Premises
immediately prior to such acquisition or condemnation, or if, by reason of such
acquisition or condemnation, Tenant, at Tenant's option, may give to Landlord,
with sixty (60) days next following the date upon which Tenant shall have
received notice of vesting of title, a five (5) days' notice of termination of
this Lease. If any such five (5) days' notice of termination is given by
Landlord or Tenant this Lease and the Term shall come to an end and expire upon
the expiration of said five (5) days with the same effect as if the date of
expiration of said five (5) days were the Expiration Date. If a part of the
Premises shall be so acquired or condemned and this Lease and the Term shall not
be terminated pursuant to the foregoing provisions of this subsection A ,
Landlord, at Landlord's expense shall restore that part of the Premises not so
acquired or condemned to a self-contained rental unit. In the event of any
termination of this Lease and the Term pursuant to the provisions of this
subsection A, the Rent shall be apportioned as of the date of sooner termination
and any prepaid portion of Rent for any period after such date shall be refunded
by Landlord to Tenant.
B. In the event of any such acquisition or condemnation of all or any part
of the Real Property, Landlord shall be entitled to receive the entire award for
any such acquisition or condemnation, Tenant shall have no claim against
Landlord or the condemning authority for the value of any unexpired portion of
the Term and Tenant hereby expressly assigns to Landlord all of its right in and
to any such award. Nothing contained in this subsection B shall be deemed to
prevent Tenant from making claim in any condemnation proceedings for the then
value of any furniture, furnishings and fixtures installed by and at the sole
expense of Tenant and included in such taking, provided that such award shall
not reduce the amount of the award otherwise payable to Landlord.
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12. ASSIGNMENT AND SUBLETTING.
-------------------------
A. Tenant may-designate by sublease a third party to occupy and operate
within the demised premises so long as that third party shall operate within,
and otherwise conform to all of the terms and conditions of this Lease. The
consent of the Landlord, either express or implied by this paragraph, to a
designated operator or sublessee shall not in any way be construed to relieve
Tenant from the full and faithful performance of all of the terms and conditions
contained in this lease.
B. The listing of any name other than that of Tenant, whether on the doors
of the Premises or the Building directory, or otherwise, shall not operate to
vest any right or interest in this Lease or in the Premises, nor shall it be
deemed to be the consent of Landlord to any assignment or transfer of this Lease
or to any sublease of the Premises or to the use or occupancy thereof by others.
Any such listing shall constitute a privilege extended by Landlord, revocable at
Landlord's will by notice to Tenant.
13. CONDITION OF THE PREMISES. Tenant agrees to accept possession the Premises
--------------------------
in the condition which shall exist on the Commencement Date "as is", and further
agrees that Landlord shall have no obligation to perform any further work or
make any further installations in order to prepare the Premises for Tenant's
occupancy. The taking of possession of the Premises by Tenant shall be
conclusive evidence as against Tenant that, at the time such possession was so
taken, the Premises and the Building were in good and satisfactory condition.
14. ACCESS TO PREMISES. Except as otherwise circumscribed in this Lease, Tenant
------------------
shall be granted access to the Premises on a 24 hour, seven days a week, 365
days a year basis. Tenant shall permit Landlord, Landlord's agents and public
utilities servicing the Building to erect, use and maintain, concealed ducts,
pipes and conduits in and through the Premises. Landlord or Landlord's agents
shall have the right to enter the Premises at all reasonable times to examine
the same, to show them to prospective purchasers, mortgagees or lessees of the
Building or space therein, and to make such decorations, repairs, alterations,
improvements or additions as Landlord may deem necessary or desirable to the
Premises or to any other portion of the Building or which Landlord may elect to
perform following Tenant's failure to make repairs or perform any work which
Tenant is obligated to perform under this Lease, or for the purpose of complying
with laws, regulations or other requirements of government authorities and
Landlord shall be allowed to take all material into and upon the Premises that
may be required therefor without the same constituting an eviction or
constructive eviction of Tenant in whole or in part and the Rent shall in nowise
abate while said decorations, repairs, alterations, improvements, or additions
are being made, by reason of loss or interruption of business of Tenant, or
otherwise. During the one (1) year prior to the Expiration Date or the
expiration of any renewal or extended term, Landlord may exhibit the Premises to
prospective Tenants thereof. If, during the last twelve (12) months of the Term,
Tenant shall have removed all or substantially all of Tenant's property
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therefrom, Landlord may immediately enter and alter, renovate and redecorate the
Premises, without elimination or abatement of Rent, or incurring liability to
Tenant for any compensation, and such acts shall not be deemed an actual or
constructive eviction and shall have no effect upon this Lease. If Tenant shall
not be personally present to open and permit an entry into the Premises, in the
event of an emergency, Landlord or Landlord's agents may enter the same by a
master key, or may forcibly enter the same, without rendering Landlord or such
agents liable therefor (if during such entry Landlord or Landlord's agents shall
accord reasonable care to Tenant's property), and without in any manner
affecting the obligations and covenants of this Lease. Nothing herein contained,
however, shall be deemed or construed to impose upon Landlord any obligation,
responsibility or liability whatsoever, for the care, supervision or repair of
the Building or any part thereof, other than as herein provided. Landlord also
shall have the right at any time, without the same constituting an actual or
constructive eviction and without incurring any liability to Tenant therefor, to
change the arrangement and/or location of entrances or passageways, doors and
doorways, and corridors, elevators, stairs, toilets, or other public parts of
the Building and to change the name, number or designation by which the Building
is commonly known. In addition, Tenant understands and agrees that Landlord
intends to perform substantial renovation work in and to the public parts of the
Building and the mechanical systems serving the Building (which work may include
the replacement of the building exterior facade and window glass, requiring
access to the same from within the Premises), and that Landlord shall incur no
liability to Tenant, nor shall Tenant be entitled to any abatement of Rent on
account of any noise, vibration or other disturbance to Tenant's business at the
Premises (provided that Tenant is not denied access to said Premises) which
shall arise out of the performance by Landlord of the aforesaid renovations of
the Building. Tenant understands and agrees that all parts (except surfaces
facing the interior of the Premises) of all walls, windows and doors bounding
the Premises (including exterior Building walls, core corridor walls, core
corridor walls, doors and entrances), all balconies, terraces and roofs adjacent
to the Premises, all space in or adjacent to the Premises used for shafts,
stacks, stairways, chutes, pipes, conduits, ducts, fan rooms, heating, air
cooling, plumbing and other mechanical facilities, service closets and other
Building facilities are not part of the Premises, and Landlord shall have the
use thereof, as well as access thereto through the Premises for the purpose of
operation, maintenance, alteration and repair. Any entry upon the Premises by
Landlord or its agents and any work performed by Landlord or its agents therein
pursuant to this Article or any other provision of this Lease shall only be
effected after reasonable prior notice to Tenant (which may be telephonic)
except in the case of an emergency and shall be performed in such manner as to
cause as little disturbance as reasonably possible to Tenant without any
requirement that Landlord utilize overtime or premium pay labor.
15. CERTIFICATE OF OCCUPANCY. Tenant shall not at any time use or occupy the
-------------------------
Premises in violation of the certificate of occupancy issued for the Premises or
for the Building and in the event that
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any department of the City or State of New York shall hereafter at any time
contend and/or declare by notice, violation, order or in any other manner
whatsoever that the Premises are used for a purpose which is violation of such
certificate of occupancy whether or not such use shall be a Permitted Use,
Tenant shall, upon five (5) days' written notice from Landlord, immediately
discontinue such use of the Premises. Failure by Tenant to discontinue such use
after such notice shall be considered default in fulfillment of covenant of this
Lease and Landlord shall have the right to terminate this Lease immediately, and
in addition thereto shall have the right to exercise any and all rights and
privileges and remedies given to Landlord by and pursuant to the provisions of
Articles 17 and 18 hereof.
16. LANDLORD'S LIABILITY. The obligations of Landlord under this Lease shall not
---------------------
be binding upon Landlord named herein after the sale, conveyance, assignment or
transfer by such Landlord (or upon any subsequent landlord after the sale,
conveyance, assignment or transfer by such subsequent landlord) of its interest
in the Building or the Real Property, as the case may be, and in the event of
any such sale, conveyance, assignment or transfer, Landlord shall be and hereby
is entirely freed and relieved of all covenants and obligations of Landlord
hereunder, and it shall be deemed and construed without further agreement
between the parties or their successors in interest, or between the parties and
the purchaser, grantee, assignee or other transferee has assumed and agreed to
carry out any and all covenants and obligations of Landlord hereunder. Neither
the shareholders, directors or officers of Landlord, if Landlord is a
corporation, nor the partners comprising Landlord (nor any of the shareholders,
directors or officers of such partners), if Landlord is a partnership
(collectively, the "Parties"), shall be liable for the performance of Landlord's
obligations under this Lease. Tenant shall look solely to Landlord to enforce
Landlord's obligations hereunder and shall not seek any damages against any of
the Parties. The liability of Landlord for Landlord's obligations under this
Lease shall not exceed and shall be limited to Landlord's interest in the
Building and the Real Property and Tenant shall not look to any other property
or assets of Landlord or the property or assets of any of the Parties in seeking
either to enforce Landlord's obligations under this Lease or to satisfy a
judgement for Landlord's failure to perform such obligations.
17. DEFAULT.
--------
A. Upon the occurrence, at any time prior to or during the Term, of any one
or more of the following events (referred to as "Events of Default"):
(1) if Tenant shall default in payment when due of any installment of
Rent or in the payment when due of any additional rent, and such default
shall continue for a period of ten (10) days after notice by Landlord to
Tenant of such default; or
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(2) if Tenant shall default in the observance or performance of any
term, covenant or condition of this Lease on Tenant's part to be observed
or performed (other than the covenants for the payment of Rent and
additional rent) and Tenant shall fail to remedy such default within twenty
(20) days after notice by Landlord to Tenant of such default, or if such
default is of such a nature that it cannot be completely remedied within
said period of twenty (20) days and Tenant shall not commence within said
period of twenty (20) days, or shall not thereafter diligently prosecute to
completion all steps necessary to remedy such default; or
(3) if Tenant shall default in the observance or performance of any
term, covenant or condition on Tenant's part to be observed or performed
under any other lease with Landlord or Landlord's predecessor in interest
of space in the Building and such default shall continue beyond any grace
period set forth in such other lease for the remedying of such default; or
(4) if the Premises shall become vacant, deserted or abandoned; or
(5) if Tenant's interest in this Lease shall devolve upon or pass to
any person, whether by operation of law or otherwise, except as may be
expressly permitted under Article 12 hereof; or
(6) if Tenant shall file a voluntary petition in bankruptcy or
insolvency, or shall be adjudicated a bankrupt or insolvent, or shall file
any petition or answer seeking any reorganization, arrangement,
composition, readjustment, liquidation, dissolution or similar relief under
the present or any future federal bankruptcy act or any other present or
future applicable federal, state or other statute or law, or shall make an
assignment for the benefit of creditors or shall seek or consent to or
acquiesce in the appointment of any trustee, receiver or liquidator of
Tenant or of all or any part of Tenant's property ; or
(7) if, within thirty (30) days after the commencement of any
proceeding against Tenant, whether by the filing of petition or otherwise,
seeking any reorganization, arrangement, composition, readjustment,
liquidation, dissolution or similar relief under the present or any future
applicable federal, state or other statute or law, such proceeding shall
not have been dismissed, or if, within thirty (30) days after the
appointment of any trustee, receiver or liquidator of Tenant, or of all or
any part of Tenant's property, without the consent or acquiescence of
Tenant, such appointment shall not have been vacated or otherwise
discharged, or if any execution or attachment shall be issued against
Tenant or any of Tenant's property pursuant to which the Premises shall be
taken or occupied or attempted to be taken or occupied;
then, upon the occurrence, at any time prior to or during the Term, of any one
or more of such Events of Default, Landlord, at any time thereafter, at
Landlord's option, may give to Tenant a five (5) days' notice of termination of
this Lease and, in the event such notice is given, this Lease and the Term shall
come to an end and expire (whether or not the Term shall have commenced) upon
the
16
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expiration of said five (5) days with the same effect as if the date of
expiration of said five (5) days were the Expiration Date, but Tenant shall
remain liable for damages as provided in Article 18 hereof.
B. If, at any time, (i) Tenant shall be comprised of two (2) or more
persons, or (ii) Tenant's obligations under this Lease shall have been
guaranteed by any person other than Tenant, or (iii) Tenant's interest in this
Lease shall have been assigned, the word "Tenant", as used in clauses (6) and
(7) of subsection A of this Article 17, shall be deemed to mean any one or more
of the persons primarily or secondarily liable for Tenant's obligations under
this Lease. Any monies received by Landlord from or on behalf of Tenant during
the pendently of any proceeding of the types referred to in said clauses (6) and
(7) shall be deemed paid as compensation for the use and occupation of the
Premises and the acceptance of any such compensation by Landlord shall not be
deemed an acceptance of rent or waiver on the part of Landlord of any rights
under said subsection A.
18. REMEDIES AND DAMAGES.
---------------------
A. (1) If Tenant shall default in the payment when due of any installment
of Rent or in the payment when due of any additional rent, or if any execution
or attachment shall be issued against Tenant or any of Tenant's property
whereupon the Premises shall be taken or occupied or attempted to be taken or
occupied by someone other than Tenant, or if Tenant shall fail to move into or
take possession of the Premises within thirty (30) days after the Commencement
Date, or if this Lease and the Term shall expire and come to an end as provided
in Article 17:
(a) Landlord and its agents and servants may immediately, or at any
time after such default or after the date upon which this Lease and the
Term shall expire and come to an end, re-enter the Premises or any part
thereof, without notice, either by summary proceedings, or by any other
applicable action or proceeding, or by force or otherwise (without being
liable to indictment, prosecution or damages therefor), and may repossess
the Premises and dispossess Tenant and any other persons from the Premises
and remove any and all of their property and effects from the Premises; and
(b) Landlord, at Landlord's option, may relet the whole or any part or
parts of the Premises from time to time, either in the name of Landlord or
otherwise, to such tenant or tenants, for such term or terms ending before,
on or after the Expiration Date, at such rental or rentals and upon such
other conditions, which may include concessions and free rent periods, as
Landlord, in its sole discretion, may determine. Landlord shall have no
obligation to relet the Premises or any part thereof and shall in no event
be liable for refusal or failure to relet the Premises or any part thereof,
or, in the event of any such reletting, for refusal or failure to collect
any rent due upon any such reletting, and no such refusal or failure shall
operate to relieve Tenant of any liability under this Lease or otherwise to
affect any such liability;
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<PAGE>
Landlord, at Landlord's option, may make such repairs, replacements,
alterations, additions, improvements, decorations and other physical
changes in and to the Premises as Landlord, in its sole discretion,
considers advisable or necessary in connection with any such reletting or
proposed reletting, without relieving Tenant of any liability under this
Lease or otherwise affecting any such liability.
(2) Tenant hereby waives the service of any notice of intention to re-enter
or to institute legal proceedings to that end which may otherwise be required to
be given under any present or future law. Tenant, on its own behalf and on
behalf of all persons claiming through or under Tenant, including all creditors,
does further hereby waive any and all rights which Tenant and all such persons
might otherwise have under any present or future law to redeem the Premises, or
to re-enter repossess the Premises, or to restore the operation of this Lease,
after (i) Tenant shall have been dispossessed by judgment or by warrant of any
court or judge, or (ii) any re-entry by Landlord, or (iii) any expiration or
termination of this Lease and the Term, whether such dispossess, re-entry,
expiration or termination shall be by operation or law or pursuant to the
provisions of this Lease. The words "re-enter", "re-entry" and "re-entered" as
used in this Lease shall not be deemed to be restricted to their technical legal
meanings. In the event of a breach or threatened breach by Tenant, or any
persons claiming through or under Tenant, of any term, covenant or condition of
this Lease on Tenant's part to be observed or performed, Landlord shall have the
right to enjoin such breach and the right to invoke any other remedy allowed by
law in equity as if re-entry, summary proceedings and other special remedies
were not provided in this Lease for such breach. The right to invoke the
remedies hereinbefore set forth are cumulative and shall not preclude Landlord
from invoking any other remedy allowed at law or in equity.
B. (1) If this Lease and the Term shall expire and come to an end as
provided in Article 17, or by or under any summary proceeding or any other
action or proceeding, or if Landlord shall re-enter the Premises as provided in
subsection A of this Article 18, or by or under any summary proceeding or any
other action or proceeding, then, in any of said events:
(a) Tenant shall pay to Landlord all Rent, additional rent and other
charges payable under this Lease by Tenant to Landlord to the date upon
which this Lease and the Term shall have expired and come to an end or to
the date of re-entry upon the Premises by Landlord, as the case may be;
(b) Tenant also shall be liable for and shall pay to Landlord, as
damages, any deficiency (referred to as "Deficiency") between the Rent
reserved in this Lease for the period which otherwise would have
constituted the unexpired portion of the Term and the net amount, if any,
of rents collected under any reletting effected pursuant to the provisions
of subsection A(1) of this Article 18 for any part of such period (first
deducting from the rents collected under any such reletting all of
Landlord's expenses in connection with the termination of this Lease, or
Landlord's re-entry upon the Premises and with such reletting including,
but not
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<PAGE>
limited to, all repossession costs, brokerage commissions, legal expenses,
attorneys' fees and disbursements, alteration costs and other expenses of
preparing the Premises for such reletting); any such Deficiency shall be
paid in monthly installments by Tenant on the days specified in this Lease
for payment of installments of Rent, Landlord shall be entitled to recover
from Tenant each monthly Deficiency as the same shall arise, and no suit to
collect the amount of the Deficiency for any month shall prejudice
Landlord's right to collect the Deficiency for any subsequent month by
similar proceeding; and
(c) whether or not Landlord shall have collected any monthly
Deficiencies as aforesaid, Landlord shall be entitled to recover from
Tenant, and Tenant shall pay to Landlord, on demand, in lieu of any further
Deficiencies as and for liquidated and agreed final damages, a sum equal to
the amount by which the Rent reserved in this Lease for the period which
otherwise would have constituted the unexpired portion of the Term exceeds
the then fair and reasonable rental value of the Premises for the same
period, less the aggregate amount of Deficiencies theretofore collected by
Landlord pursuant to the provisions of subsection B(l)(b) of this Article
18 for the same period; if, before presentation of proof of such liquidated
damages to any court, commission or tribunal, the Premises, or any part
thereof, shall have been relet by Landlord for the period which otherwise
would have constituted the unexpired portion of the Term, or any part
thereof, the amount of rent reserved upon such reletting shall be deemed,
prima facie, to be the fair and reasonable rental value for the part or the
whole of the Premises so relet during the term of the reletting.
(2) If the Premises, or any part thereof, shall be relet together with
other space in the space in the Building, the rents collected or reserved under
any such reletting and the expenses of any such reletting shall be equitably
apportioned for the purposes of this subsection B. Tenant shall in no event be
entitled to any rents collected or payable under any reletting, whether or not
such rents shall exceed the Rent reserved in this Lease. Solely for the purpose
of this Article, the term "Rent" as used in subsection B(1) of this Article 18
shall mean the Rent in effect immediately prior to the date upon which this
Lease and the Term shall have expired and come to an end, or the date of
re-entry upon the Premises by Landlord, as the case may be, adjusted to reflect
any increase or decrease pursuant to the provisions of Article 28 hereof for the
Comparison Year (as defined in said Article 28) immediately preceding such
event. Nothing contained in Article 17 or this Article 18 shall be deemed to
limit or preclude the recovery by Landlord from Tenant of the maximum amount
allowed to be obtained as damages by any statute or rule of law, or of any sums
or damages to which Landlord may be entitled in addition to the damages set
forth in subsection B(1) of this Article 38.
19. FEES AND EXPENSES.
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A. Curing Tenant's Defaults. If Tenant shall default in the observance or
-------------------------
performance of any tern or covenant on Tenant's part to be observed or performed
under or by virtue of any of the terms or provisions in any Article of this
Lease, Landlord may immediately or at any time thereafter on five (5) days'
notice perform the same for the account of Tenant, and if Landlord makes any
expenditures or incurs any obligations for the payment of money in connection
therewith including, but not limited to reasonable attorney's fees and
disbursements in instituting, prosecuting or defending any action or proceeding,
such sums paid or obligations incurred with interest and costs shall be deemed
to be additional rent hereunder and shall be paid by Tenant to Landlord within
(5) days of rendition of any bill or statement to Tenant therefor.
B. Late Charges. If Tenant shall fail to make payment of any installment of
-------------
Rent or any additional rent within ten (10) days after the date when such
payment is due, Tenant shall pay to Landlord, in addition to such installment of
Rent or such additional rent, as the case may be, as a late charge and as
additional rent, a sum based on rate equal to the lesser of (i) two percent (2%)
per annum above the then current prime rate charged by Citibank, N.A. or its
successor and (ii) the maximum rate permitted by applicable law, of the amount
unpaid computed from the date such payment was due to and including the date of
payment.
20. NO REPRESENTATIONS BY LANDLORD. Landlord or Landlord's agents have made no
-------------------------------
representations or promises with respect to the Building, the Real Property, the
Premises, square footage of the Premises, or Taxes (as defined in Article 28
hereof) except as herein expressly set forth and no rights, easements or
licenses are acquired by Tenant by implication or otherwise except as expressly
set forth herein. All references in this Lease to the consent or approval of
Landlord shall be deemed to mean the written consent of Landlord or the written
approval of Landlord and no consent or approval of Landlord shall be effective
for any purpose unless such consent or approval is set forth in written
instrument executed by Landlord.
21. END OF TERM. Upon the expiration or other termination of the Term, Tenant
------------
shall quit and surrender to Landlord the Premises, broom clean, in good order
and condition, ordinary wear and tear and damage for which Tenant is not
responsible under the terms of this Lease excepted, and Tenant may remove all of
its property pursuant to Article 3 hereof. Tenant's obligation to observe or
perform this covenant shall survive the expiration or sooner termination of the
Term. If the last day of the Term or any renewal thereof falls on Saturday or
Sunday this Lease shall expire on the business day immediately preceding. Tenant
expressly waives, for itself and for any person claiming through or under
Tenant, any rights which Tenant or any such person may have under the provisions
of Section 2201 of the New York Civil Practice Law and Rules and of any
successor law of like import then in force in connection with any holdover
summary proceedings which Landlord may institute to enforce the foregoing
provisions of this Article 21. In addition, the parties recognize and agree that
the damage to Landlord resulting from any failure by Tenant to timely surrender
possession of the Premises as aforesaid will be substantial, will exceed the
amount of the monthly
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installments of the Rent theretofore payable hereunder, and will be impossible
to accurately measure. Tenant therefore agrees that if possession of the
Premises is not surrendered to Landlord within twenty-four (24) hours after the
Expiration Date or sooner termination of the Term, in addition to any other
rights or remedy Landlord may have hereunder or at law, Tenant shall pay to
Landlord for each month and for each portion of any month during which Tenant
holds over in the Premises after the Expiration Date or sooner termination of
this Lease, a sum equal to two (2) times the aggregate of that portion of the
Rent which was payable under this Lease during the last month of the Term.
Nothing herein contained shall be deemed to permit Tenant to retain possession
of the Premises after the Expiration Date or sooner termination of this Lease
and no acceptance by Landlord of payments from Tenant after the Expiration Date
or sooner termination of the Term shall be deemed to be other than on account of
the amount to be paid by Tenant in accordance with the provisions of this
Article 21, which provisions shall survive the Expiration Date or sooner
termination of this Lease.
22. QUIET ENJOYMENT. Landlord covenants and agrees with Tenant that upon Tenant
----------------
paying the Rent and additional rent and observing and performing all the terms,
covenants and conditions, on Tenant's part to be observed and performed, Tenant
may peaceably and quietly enjoy the Premises subject, nevertheless, to the terms
and conditions of this Lease including, but not limited to, Article 16 hereof
and to all Superior Leases and Mortgages.
23. FAILURE TO GIVE POSSESSION. Tenant waives any right to rescind this Lease
---------------------------
under Section 223-a of the New York Real Property Law or any successor statute
of similar import then in force and further waives the right to recover any
damages which may result from Landlord's failure to deliver possession of the
Premises on the date set forth in Article 1 hereof for the commencement of the
Term. If Landlord shall be unable to give possession of the Premises on such
date, and provided Tenant is not responsible for such inability to give
possession, the Rent reserved and covenanted to be paid herein shall not
commence until the possession of the Premises is given or the Premises are
available for occupancy by Tenant, and no such failure to give possession on
such date shall in anywise affect the validity of this Lease or the obligations
of Tenant hereunder or give rise to any claim for damages by Tenant or claim for
rescission of this Lease, nor shall same be construed in anywise to extend the
Term. If permission is given to Tenant to enter into the possession of the
Premises or to occupy premises other than the Premises prior to the Commencement
Date, Tenant covenants and agrees that such occupancy shall be deemed to be
under all the terms, covenants, conditions and provisions of this Lease,
including the covenant to pay Rent.
24. NO WAIVER. If there be any agreement between Landlord and Tenant providing
----------
for the cancellation of this Lease upon certain provisions or contingencies
and/or an agreement for the renewal hereof at the expiration of the Term, the
right to such renewal or the execution of renewal agreement between Landlord and
Tenant prior to the expiration of the Term shall not be considered an extension
thereof or vested right in Tenant to such further term,
21
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so as to prevent Landlord from cancelling this Lease and any such extension
thereof during the remainder of the original Term; such privilege, if and when
so exercised by Landlord, shall cancel and terminate this Lease and any such
renewal or extension previously entered into between Landlord and Tenant or the
right of Tenant to any such renewal or extension; any right herein contained on
the part of Landlord to cancel this Lease shall continue during any extension or
renewal hereof; any option on the part of Tenant herein contained for an
extension or renewal hereof shall not be deemed to give Tenant any option for
further extension beyond the first renewal or extended term. No act or thing
done by Landlord or Landlord's agents during the Term shall be deemed an
acceptance of a surrender of the Premises, and no agreement to accept such
surrender shall be valid unless in writing signed by Landlord. No employee of
Landlord or of Landlord's agents shall have any power to accept the keys of the
Premises prior to the termination of this Lease. The delivery of keys to any
employee of Landlord or of Landlord's agents shall not operate as termination of
this Lease or surrender of the Premises. In the event Tenant at any time desires
to have Landlord sublet the Premises for Tenant's account, Landlord or
Landlord's agents are authorized to receive said keys for such purpose without
releasing Tenant from any of the obligations under this Lease, and Tenant hereby
relieves Landlord of any liability for loss of or damage to any of Tenant's
effects in connection with such subletting. Except as otherwise expressly
provided in this Lease, the failure of either party to seek redress for
violation of, or to insist upon the strict performance of, any covenant or
condition of this Lease, or any of the Rules and Regulations set forth or
hereafter adopted by Landlord, shall not prevent a subsequent act, which would
have originally constituted a violation, from having all force and effect of an
original violation. The receipt by Landlord or the payment by Tenant of Rent
with knowledge of the breach of any covenant of this Lease shall not be deemed a
waiver of such breach. The failure of Landlord to enforce any of the Rules and
Regulations set forth, or hereafter adopted, against Tenant and/or any other
tenant in the Building shall not be deemed a waiver of any such Rules and
Regulations. Except as otherwise expressly provided in this Lease, no provision
of this Lease shall be deemed to have been waived by either party unless such
waiver be in writing signed by such party. No payment by Tenant or receipt by
Landlord of a lesser amount than the monthly Rent herein stipulated shall be
deemed to be other than on account of the earliest stipulated Rent, or as
Landlord may elect to apply same, nor shall any endorsement or statement on any
check or any letter accompanying any check or payment as Rent be deemed an
accord and satisfaction, and Landlord may accept such check or payment without
prejudice to Landlord's right to recover the balance of such Rent or pursue any
other remedy in this Lease provided. This Lease contains the entire agreement
between the parties and all prior negotiations and agreements are merged in this
Lease. Any executory agreement hereafter made shall be ineffective to change,
modify, discharge or effect an abandonment of it in whole or in part unless such
executory agreement is in writing and signed by the party against whom
enforcement of the change, modification, discharge or abandonment is sought.
25. WAIVER OF TRIAL BY JURY. It is mutually agreed by and between Landlord and
------------------------
Tenant that the respective parties hereto shall
22
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and they hereby do waive trial by jury in any action, proceeding or counterclaim
brought by either of the parties hereto against the other on any matters
whatsoever arising out of or in any way connected with this Lease, the
relationship of Landlord and Tenant, Tenant's use or occupancy of the Premises,
and/or any claim of injury or damage, or for the enforcement of any remedy under
any statute, emergency or otherwise. It is further mutually agreed that in the
event Landlord commences any summary proceeding for nonpayment of rent, Tenant
will not interpose any counterclaim (except for mandatory or compulsory
counterclaims) of whatever nature or description in any such proceeding unless
the failure to interpose such counterclaim would operate as waiver of Tenant's
right to assert such counterclaim in separate proceeding.
26. INABILITY TO PERFORM. This Lease and the obligation of Tenant to pay rent
--------------------
hereunder and perform all of the other covenants and agreements hereunder on the
part of Tenant to be performed shall in nowise be affected, impaired or excused
because Landlord is unable to fulfill any of its obligations under this Lease
expressly or implied to be performed by Landlord or because Landlord is unable
to make, or is delayed in making any repairs, additions, alterations,
improvements or decorations or is unable to supply or is delayed in supplying
any equipment or fixtures if Landlord is prevented or delayed from so doing by
reason of strikes or labor troubles or by accident or by any cause whatsoever
reasonably beyond Landlord's control, including but not limited to, laws,
governmental preemption in connection with a National Emergency or by reason of
any rule, order or regulation of any federal, state, county or municipal
authority or any department or subdivision thereof or any government agency or
by reason of the conditions of supply and demand which have been or are affected
by war or other emergency.
27. BILLS AND NOTICES. Except as otherwise expressly provided in this Lease, any
------------------
bills, statements, notices, demands, requests or other communications given or
required to be given under this Lease shall be deemed sufficiently given or
rendered if in writing, sent by registered or certified mail (return receipt
requested) addressed (a) to Tenant (i) at Tenant's address set forth in this
Lease if mailed prior to Tenant's taking possession of the Premises, or (ii) at
the Building if mailed subsequent to Tenant's taking possession of the Premises,
or (iii) Rosenberg & Estis, P.C., 733 Third Avenue, New York, New York,
Attention: Gary M. Rosenberg, Esq., or (iv) any place where Tenant or any agent
or employee of Tenant may be found if mailed subsequent to Tenant's vacating,
deserting, abandoning or surrendering the Premises, or (b) to Landlord at
Landlord's address set forth in this Lease, with copy to: Dino & Sons Realty
Corp., 220 Fifth Avenue, New York, New York 10001, Attn: J. Gregory Kost, Esq.,
or (c) to such other address as either Landlord or Tenant may designate as its
new address for such purpose by notice given to the others in accordance with
the provisions of this Article 27. Any such bill, statement, demand, notice,
request or other communication shall be deemed to have been rendered or given
two (2) days after the date when it shall have been mailed as provided in this
Article 27.
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28. ESCALATION.
-----------
A. In determination of any increase in the Rent under the provisions of
this Article 28, Landlord and Tenant agree as follows:
(1) "Taxes" shall mean the aggregate amount of real estate taxes and
any special assessments (exclusive of penalties and interest thereon)
imposed upon the Real Property (including, without limitation, (i)
assessments made upon or with respect to any "air rights", and (ii) any
assessments levied after the date of this Lease for public benefits to the
Real Property or the Building (excluding an amount equal to the assessments
payable in whole or in part during or for the Base Tax Year (as defined in
Article 1 of this Lease) which assessments, if payable in installments,
shall be deemed payable in the maximum number of permissible installments
(in the manner in which such taxes and assessments are imposed as of the
date hereof); provided, that if because of any change in the taxation of
real estate, any other tax or assessment (including, without limitation,
any occupancy, gross receipts or rental tax) is imposed upon Landlord or
the owner of the Real Property or the Building, or the occupancy, rents or
income therefrom, in substitution for or in addition to, any of the
foregoing Taxes, such other tax or assessment shall be deemed part of the
Taxes. In the event that the Real Property or the Building is subject to
transitional and target Assessed Valuation with respect to any Tax Year,
Taxes shall be calculated based upon the Assessed Valuation actually used
for such Tax Year and not any target Assessed Valuation. With respect to
any Comparison Year (hereinafter defined) all expenses, including
reasonable attorneys' fees and disbursements, experts' and other witnesses'
fees, incurred in contesting the validity or amount of any Taxes or in
obtaining refund of Taxes shall be considered as part of the Taxes for such
year.
(2) "Assessed Valuation " shall mean the amount for which the Real
Property is assessed pursuant to applicable provisions of the New York City
Charter and of the Administrative Code of the City of New York for the
purpose of imposition of Taxes.
(3) "Tax Year" shall mean the period July 1 through June 30 (or such
other period as hereinafter may be duly adopted by the City of New York as
its fiscal year for real estate tax purposes).
(4) "Base Taxes" shall mean the aggregate Taxes payable for the Base
Tax Year.
(5) "Comparison Year" shall mean with respect to Taxes, any Tax Year
subsequent to the Base Tax Year.
(6) "Landlord's Statement" shall mean an instrument or instruments
containing comparison of any increase or decrease in the Rent for the
preceding Comparison Year pursuant to the provisions of this Article 28.
B. If the Taxes payable for any comparison Year (any part or all of which
falls within the Term) shall represent an increase
24
<PAGE>
above the Base Taxes, then the Rent for such Comparison Year and continuing
thereafter until new Landlord's Statement is rendered to Tenant, shall be
increased by Tenant's Proportionate Share of such increase. The Taxes shall be
initially computed on the basis of the Assessed Valuation in effect at the time
Landlord's Statement is rendered (as the Taxes may have been settled or finally
adjudicated prior to such time) regardless of any then pending application,
proceeding or appeal respecting the reduction of any such Assessed Valuation,
but shall be subject to subsequent adjustment as provided in subsection D(1)(a)
of this Article 28.
C. (1) At any time prior to, during or after any Comparison Year Landlord
shall render to Tenant, either in accordance with the provisions of Article 27
hereof or by personal delivery at the Premises, a Landlord's Statement or
Statements showing separately or together a comparison of the Taxes payable for
the Comparison Year with the Base Taxes, and the amount of the increase in the
Rent resulting from each of such comparisons. Landlord's failure to render
landlord's Statement during or with respect to any Comparison Year shall not
prejudice a Landlord's right to render Landlord's Statement during or with
respect to any subsequent Comparison Year, and shall not eliminate or reduce
Tenant's obligation to pay increases in the Rent pursuant to this Article 28 for
such Comparison Year.
(2) (a) With respect to an increase in the Rent resulting from an
increase in the Taxes for any Comparison Year above the Base Taxes, Tenant
shall pay to Landlord a sum equal to one-half (1/2) of such increase on the
first day of June and a sum equal to one-half (1/2) of such increase on the
first day of December of each calendar year. If Landlord's Statement shall
be furnished to Tenant after the commencement of the Comparison Year to
which it relates, then (i) until Landlord's Statement is rendered for such
Comparison Year, Tenant shall pay Tenant's Proportionate Share of Taxes for
such Comparison Year in semi-annual installments, as described above, based
upon the last prior Landlord's Statement rendered to Tenant with respect to
Taxes, and (ii) Tenant shall, within ten (10) days after Landlord's
Statement is furnished to Tenant, pay to Landlord an amount equal to any
underpayment of the installments of Taxes theretofore paid by Tenant for
such Comparison Year and, in the event of an overpayment by Tenant,
Landlord shall permit Tenant to credit against Rent the amount of such
overpayment except that in the event the Term has expired, Landlord shall
promptly refund such overpayment to Tenant. If during the Term of this
Lease, Taxes are required to be paid (either to the appropriate taxing
authorities or as tax escrow payments to a mortgagee or ground lessor) in
full or in monthly, quarterly, or other installments, on any other date or
dates than as presently required, then, at Landlord's option, Tenant's
Proportionate Share with respect to Taxes shall be correspondingly
accelerated or revised so that Tenant's Proportionate Share is due at least
thirty (30) days prior to the date payments are due to the taxing
authorities or the superior mortgagee or ground lessor, as the case may be.
The benefit of any discount for any early payment or prepayment of Taxes
shall accrue solely to the benefit of Landlord, and such discount shall not
be subtracted from Tenant's Proportionate Share of such Taxes.
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(b) Following each Landlord's Statement, reconciliation shall be
made as follows: Tenant shall be debited with any increase in the Rent
shown on such Landlord's Statement and credited with the aggregate, if
any, paid by Tenant on account in accordance with the provisions of
subsection C(2)(a) or C(2)(b) for the Comparison Year in question;
Tenant shall pay any net debit balance to Landlord within fifteen (15)
days next following rendition by Landlord, either in accordance with
the provisions of Article 27 hereof or by personal delivery to the
Premises, of an invoice for such net debit balance; any net credit
balance shall be applied against the next accruing monthly
installments of Rent and additional rent, except that in the event the
Term has expired, Landlord shall promptly refund any overpayment to
Tenant.
D. (1) (a) In the event that, after Landlord's Statement has been sent to
Tenant, an Assessed Valuation which had been utilized in computing the Taxes for
Comparison Year is reduced (as a result of settlement, final determination of
legal proceedings or otherwise), and as a result thereof a refund of Taxes is
actually received by or on behalf of Landlord, then, promptly after receipt of
such refund, Landlord shall send Tenant a statement adjusting the Taxes for such
Comparison Year (taking into account the expenses mentioned in the last sentence
of subsection A (1) of this Article 28) and setting forth Tenant's Proportionate
Share of such refund and Tenant shall be entitled to receive such Share by way
of a credit against the Rent next becoming due after the sending of such
Statement; provided, however, that Tenant's Share of such refund shall be
limited to the amount, if any, which Tenant had theretofore paid to Landlord as
increased Rent for such Comparison Year on the basis of the Assessed Valuation
before it had been reduced.
(b) In the event that, after Landlord's Statement has been sent to
Tenant, the Assessed Valuation which had been utilized in computing the
Base Taxes is reduced (as a result of settlement, final determination of
legal proceedings or otherwise) then, and in such event: (i) the Base Taxes
shall be retroactively adjusted to reflect such reduction, (ii) the monthly
installment of Rent shall be increased accordingly and (iii) all
retroactive additional rent resulting from such retroactive adjustment
shall be forthwith payable when billed by Landlord. Landlord promptly shall
send to Tenant a statement setting forth the basis for such retroactive
adjustment and additional rent payments.
(2) Any Landlord's Statement sent to Tenant shall be conclusively
binding upon Tenant unless, within forty-five (45) days after such
statement is sent, Tenant shall (i) pay to Landlord the amount set forth in
such statement, without prejudice to Tenant's right to dispute the same,
and (ii) send a written notice to Landlord objecting to such statement and
specifying the respects in which such statement is claimed to be incorrect.
If such notice is sent, the parties recognize the unavailability of
Landlord's books and records because of the confidential nature thereof and
hence agree that either party may refer the decision of the issues raised
to a reputable independent firm of certified public accountants
26
<PAGE>
selected by Landlord and reasonably acceptable to tenant, and the decision
of such accountants shall be conclusively binding upon the parties. The
fees and expenses involved in such decision shall be borne by the
unsuccessful party (and if both parties are partially unsuccessful, the
accountants shall apportion the fees and expenses between the parties based
on the degree of success of each party).
(3) Anything in this Article 28 to the contrary notwithstanding, under
no circumstances shall the rent payable under this Lease be less than the
Rent set forth in Article 1 hereof.
(4) The expiration or termination of this Lease during any Comparison
Year for any part or all of which there is an increase in the Rent under
this Article shall not affect the rights or obligations of the parties
hereto respecting such increase and any Landlord's Statement relating to
such increase may, on pro rata basis, be sent to Tenant subsequent to, and
all such rights and obligations shall survive, any such expiration or
termination. Any payments due under such Landlord's Statement shall be
payable within twenty (20) days after such statement is sent to Tenant.
E. If any capital improvement is made to the Real Property during any
calendar year during the Term in compliance with requirements of any Federal,
state or local law or governmental regulation (other than Local Law 10 and Local
Law 5 outside the Premises as such local laws are currently enacted) whether or
not such law or regulation is valid or mandatory, then Tenant shall pay to
Landlord, immediately upon demand therefor, Tenant's Proportionate Share of the
reasonable annual amortization, with interest, of the cost of such improvement
in each calendar year during the Term during which such amortization occurs.
29. SERVICES.
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A. Elevator. Landlord shall provide passenger elevator facilities on
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business days from 8:00 A.M. to 6:00 P.M. and shall have one passenger elevator
in the bank of elevators servicing the Premises available at all other times 24
hours a day, seven days a week. Landlord shall provide freight elevator services
on an "as available" basis for incidental use by Tenant. Any extended use may be
arranged with Landlord's prior consent and Tenant shall pay as additional rent
all building standard charges therefor.
B. Heating. Landlord shall furnish heat to the Premises when and as
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required by law, on business days from 8:00 A.M. to 6:00 P.M. Landlord is not
responsible for the adequacy, design or capacity of the heat distribution system
serving the Building.
C. Cooling. Tenant shall have the privilege of using the air-cooling system
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presently serving the Premises which system Landlord agrees will be in good
working order as of the Commencement date. Tenant agrees to maintain and repair
the system within the Premises only, at its own cost and expense. Tenant shall
not alter, modify or replace such air-cooling system, or any part thereof,
without Landlord's consent, which shall not be unreasonably withheld. Anything
in this subsection C to the contrary
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notwithstanding, Landlord shall not be responsible if the normal operation of
the air-cooling system shall fail to provide cooled air at reasonable
temperatures, pressures or degrees of humidity or any reasonable volumes or
velocities in any parts of the Premises by reason of (i) human occupancy factors
and any machinery or equipment installed by or on behalf of Tenant or any person
claiming through or under Tenant, having an electrical load in excess of the
average electrical load for the air-cooling system as designed, (ii) any
rearrangement of partitioning or other Alterations made or performed by or on
behalf of Tenant or any person claiming through or under Tenant, or (iii) the
inadequate design or capacity of the existing cooling system. Tenant agrees to
keep and cause to be kept closed all of the windows in the Premises whenever the
air-cooling system is in operation and agrees to lower and close the blinds when
necessary because of the sun's position whenever the air-cooling system is in
operation. Tenant at all times agrees to cooperate fully with and abide by all
rules, regulations and requirements applicable to such air-cooling system.
Tenant shall pay for the costs of electrical energy consumed by the air-cooling
system in accordance with the provisions of Article 29, Subsection H, hereof.
Tenant shall have the right to install, at its own cost and expense, an
"air-cooled" air conditioning unit to service all or any part of the Premises,
and Landlord shall use best efforts to make available to Tenant that Building
common space (i.e. outside tier roof areas) as is practical for this purpose.
D. After Hours and Additional Services. The Rent does not include any
-----------------------------------
charge to Tenant for the furnishing of any additional passenger elevator
facilities, any freight elevator facilities (other than as contemplated in
Article 29 subsection A) or for the service of heat or mechanical ventilation to
the Premises during periods other than the hours and days set forth in sections
A and B of this Article 29 for the furnishing and distributing of such
facilities or services (referred to as "Overtime Periods"). Accordingly, if
Landlord shall furnish any (i) passenger elevator facilities to Tenant during
Overtime Periods or freight elevator facilities, except as provided in
subsection A of this Article 29, or (ii) heat to the Premises during Overtime
Periods, then Tenant shall pay Landlord additional rent for such facilities or
services at the standard rates then fixed by the Landlord for the Building or,
if no such rates are then fixed, at reasonable rates. Neither the facilities nor
the services referred to in this Article 29D shall be furnished to Tenant or the
Premises if Landlord has not received advance notice from Tenant specifying the
particular facilities or services requested by Tenant at least twenty-four (24)
hours prior to the date on which the facilities or services are to be furnished;
or if Tenant is in default under or in breach of any of the terms, covenants or
conditions of this Lease; or if Landlord shall determine, in its sole and
exclusive discretion, that such facilities or services are requested in
connection with, or the use thereof shall create or aid in default under or
breach of any term, covenant or condition of this Lease. All of the facilities
and services referred to in this Article 29D are conveniences an are not and
shall not be deemed to be appurtenances to the Premises, and the failure of
Landlord to furnish any or all of such facilities or services shall not
constitute or give rise to any claim of an actual or constructive eviction, in
whole or in part, or entitle Tenant to
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any abatement or diminution of Rent, or relieve Tenant from any of its
obligations under this Lease, or impose any liability upon Landlord or its
agents by reason of inconvenience or annoyance to Tenant, or injury to or
interruption of Tenant's business or otherwise. If more than one tenant
utilizing the same system as Tenant requests the same Overtime Periods for the
same services as Tenant, the charge to Tenant shall be adjusted pro rata. In the
event Tenant installs a supplemental air cooling system in the Premises, and if
condenser water for such system shall be supplied by Landlord, Tenant shall pay
to Landlord, annually upon demand, a sum equal to $500 per ton of air
conditioning capacity to compensate Landlord for the cost of supplying condenser
water for such supplemental system.
E. Cleaning. Landlord at Landlord's expense, shall cause the Building to be
---------
kept clean in building standard manner. The Premises are to be kept clean by
Tenant, it shall be done at Tenant's sole expense, in a manner satisfactory to
Landlord and no one other than persons approved by Landlord shall be permitted
to enter the Premises or the Building for such purpose. Tenant shall pay to
Landlord the cost of removal of any of Tenant's refuse and rubbish from the
Premises and the Building to the extent that the same exceeds the refuse and
rubbish usually attendant upon the use of such Premises as offices. Bills for
the same shall be rendered by Landlord to Tenant at such time as Landlord may
elect and shall be due and payable when rendered and the amount of such bills
shall be deemed to be, and be paid as additional rent. Tenant shall, however,
have the option of independently contracting for the removal of such refuse and
rubbish in the event that Tenant does not wish to have same done by employees of
Landlord. Under such circumstances, however, the removal of such refuse and
rubbish by others shall be subject to such rules and regulations, as in the
judgment of Landlord, are necessary for the proper operation of the Building.
F. Sprinkler System. If there now is or shall be installed in the Building
-----------------
a "sprinkler system", and such system or any of its appliances shall be damaged
or injured or not in proper working order by reason of any act or omission of
Tenant, Tenant's agents, servants, employees, licensees or visitors, Tenant
shall forthwith restore the same to good working condition at its own expense;
and if the New York Board of Fire Underwriters or the New York Insurance Rating
Organization or any bureau, department or official of the state of city
government, shall require or recommend that any changes, modifications,
alterations or additional sprinkler heads or other equipment be made or supplied
by reason of Tenant's business, or the location of the partitions, trade
fixtures, or other contents of the Premises, Tenant shall, at Tenant's expense,
promptly make and supply such changes, modifications, alterations, additional
sprinkler heads or other equipment.
G. Water. If Tenant requires, uses or consumes water for any purpose in
------
addition to ordinary drinking, cleaning or lavatory purposes, Landlord may
install a water meter and thereby measure Tenant's water consumption for all
purposes. In such an event (a) Tenant shall pay Landlord for the cost of the
meter and the cost of the installation thereof and through the duration of
Tenant's
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occupancy Tenant shall keep said meter and installation equipment in good
working order and repair at Tenant's own cost and expense in default of which
Landlord may cause such meter and equipment to be replaced or repaired and
collect the cost thereof from Tenant; (b) Tenant agrees to pay for water
consumed, as shown on said meter as when bills are rendered, and on default in
making such payment Landlord may pay such charges and collect the same from
Tenant; (c) and Tenant covenants and agrees to pay the sewer rent, charge or any
other tax, rent, levy or charge which now or hereafter is assessed, imposed or
shall become a lien upon the Premises or the realty of which they are part
pursuant to law, order or regulation made or issued in connection with any such
metered use, consumption, maintenance or supply of water, water system, or
sewage or sewage connection or system. The bill rendered by Landlord for the
above shall be based upon Tenant's consumption and shall be payable by Tenant as
additional rent within five (5) days of rendition. Any such costs or expenses
incurred or payments made by Landlord for any of the reasons or purposes
hereinabove stated shall be deemed to be additional rent payable by Tenant and
collectible by Landlord as such. Independently of and in addition to any of the
remedies reserved to Landlord hereinabove or elsewhere in this Lease. Landlord
any sue for and collect any monies to be paid by Tenant or paid by Landlord for
any of the reasons or purposes hereinabove set forth.
H. Electricity Service.
--------------------
1) Landlord at Landlord's expense, shall redistribute or furnish
electrical energy to or for the use of Tenant in the Premises for the
operation of the lighting fixtures and the electrical receptacles installed
in the Premises on the Commencement Date. Landlord, at Landlord's expense,
may install sub-meters to measure Tenant's consumption of electrical
energy. Tenant shall pay to Landlord, as additional rent, on demand, from
time to time, but no more frequently than monthly, for its consumption of
electrical energy at the then applicable rate for sub-metered electrical
energy, plus Landlord's reasonable charge for overhead and supervision.
Where more than one meter measures the electrical service to Tenant, the
electrical service rendered through each meter shall be computed and billed
separately in accordance with the provisions herein above set forth. Bills
for such amounts shall be rendered to Tenant at such time as Landlord may
elect. The rate to be paid by Tenant for sub-metered electrical energy
shall include any taxes or other charges in connection therewith. If any
tax shall be imposed upon Landlord's receipts from the sale or resale of
electrical energy to Tenant, the pro rata share of such tax allocable to
the electrical energy service received by Tenant shall be passed on to,
included in the bill of, and paid by Tenant if and to the extent permitted
by law.
2) If either the quantity or character of electrical service is
changed by the public utility or other company supplying electrical service
to the Building or is no longer available or suitable for Tenant's
requirements, no such change, unavailability or unsuitability shall
constitute an actual or constructive eviction, in whole or in part, or
entitle Tenant to any abatement or diminution of Rent, or relieve Tenant
from any of its obligations under this Lease, or impose any liability upon
Landlord, or its
30
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agents, by reason of inconvenience or annoyance to Tenant, or injury to or
interruption of Tenant's business, or otherwise.
3) Any additional feeders or risers to be installed to supply Tenant's
additional electrical requirements, and all other equipment proper and
necessary in connection with such feeders or risers, shall be installed by
Landlord upon Tenant's request, at the sole cost and expense of Tenant,
provided that, in Landlord's judgement, such additional feeders or risers
are necessary and are permissible under applicable laws and insurance
regulations and the installation of such feeders or risers will not cause
permanent damage or injury to the Building or Premises or cause or create
dangerous or hazardous condition or entail excessive or unreasonable
alterations or interfere with or disturb other tenant's or occupants of the
Building. Tenant covenants that at no time shall the use of electrical
energy in the Premises exceed the capacity of the existing feeders or
wiring installations then serving the Premises. Tenant shall not make or
perform, or permit the making or performance of, any Alterations to wiring
installations or other electrical facilities in or serving the Premises or
any additions to the business machines, office equipment or other
appliances in the Premises which utilize electrical energy without the
prior consent of Landlord in each -instance. Any such Alterations,
additions or consent by Landlord shall be subject to the provisions of this
subsection, as well as to other provisions of this Lease including, but not
limited to, the provisions of Article 3 hereof.
4) Landlord reserves the right to discontinue furnishing electricity
to Tenant in the Premises on not less than thirty (30) days notice to
Tenant. If Landlord exercises such right to discontinue, or is compelled to
discontinue furnishing electricity to Tenant, this Lease shall continue in
full force and effect and shall be unaffected thereby, except only that
from and after the effective date of such discontinuance, Landlord shall
not be obligated to furnish electricity to Tenant. If Landlord so
discontinues furnishing electricity to Tenant, Tenant shall arrange to
obtain electricity directly from the public utility or other company
servicing the Building. Such electricity shall be furnished to Tenant by
means of the then existing electrical facilities serving the Premises, to
the extent that the same are available, suitable and safe for such
purposes. All meters and all additional panel boards, feeders, risers,
wiring and other conductors and equipment which may be required to obtain
electricity, of substantially the same quantity, quality and character,
shall be installed by Landlord, at Tenant's reasonable cost and expense.
Landlord shall not voluntarily discontinue furnishing electricity to Tenant
unless it likewise discontinues furnishing electricity to all tenants of
office space above the second floor of the Building, or until Tenant is
able to receive electricity directly from the public utility or other
company servicing the Building.
5) Landlord shall not be liable to Tenant in any way for any
interruption, curtailment or failure, or defect in the supply or character
of electricity furnished to the Premises by reason of any requirement, act
or omission of any public utility or other company servicing the Building
with electricity or for any other reason except Landlord's gross negligence
or willful misconduct.
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I. Interruption of Services. Landlord reserves the right to stop service of
-------------------------
the heating system during any period of violation or breach by Tenant of the
provisions of this Article 29 and to stop the service of the heating system or
the elevator, electrical, plumbing or other mechanical systems or facilities in
the Building when necessary, by reason of accident or emergency, or for repairs,
additions, alterations, replacements, decorations or improvements in the
judgement of Landlord desirable or necessary to be made, until said repairs,
alterations, replacements or improvements shall have been completed. Landlord
shall have no responsibility or liability for interruption, curtailment or
failure to supply heat, elevator, plumbing or electricity when prevented by
exercising its right to stop service or by strides, labor troubles or accidents
or by any cause whatsoever reasonably beyond Landlord's control or by failure of
independent contractors to perform or by laws, orders, rules or regulations or
any federal, state, county or municipal authority, or failure of suitable fuel
supply, or inability by exercise of reasonable diligence to obtain suitable fuel
or by reason of government all preemption in connection with National Emergency
or by reason of the conditions of supply and demand which have been or are
affected by war or other emergency. The exercise of such right or such failure
by Landlord shall not constitute an actual or constructive eviction, in whole or
in part, or entitle Tenant to any compensation or to any abatement or diminution
of Rent, or relieve Tenant from any of its obligations under this Lease, or
impose any liability upon Landlord or its agents by reason of inconvenience or
annoyance to Tenant, or injury to or interruption of Tenant's business, or
otherwise, provided however that Landlord shall use best efforts to minimize any
interference with Tenant's business.
30. PARTNERSHIP TENANT. If Tenant is partnership (or comprised of two (2) or
-------------------
more persons, individually and as co-partners of partnership) or if Tenant's
interest in this Lease shall be assigned to partnership (or to two (2) or more
persons, individually and as co-partners of partnership) pursuant to Article 12
(any such partnership and such persons are referred to in this Article 30 as a
"Partnership Tenant"), the following provisions of this Article 30 shall apply
to such Partnership Tenant: (i) the liability of each of the parties comprising
a Partnership Tenant shall be joint and several, and (ii) each of the parties
comprising a Partnership Tenant hereby consents in advance to, and agrees to be
bound by, any written instrument which may hereafter be executed, changing,
modifying or discharging this Lease, in whole or in part, or surrendering all or
any part of the Premises to Landlord, and by any notices, demands, requests or
other communications which may hereafter be given by a Partnership Tenant or by
any of the parties comprising a Partnership Tenant, and (iii) any bills,
statements, notices, demands, requests, or other communications given or
rendered to a Partnership Tenant and all such parties, and (iv) if a Partnership
Tenant shall admit new partners, all of such new partners shall, by their
admission to a Partnership Tenant, be deemed to have assumed performance of all
of the terms, covenants and conditions of this Lease on Tenant's part to be
observed and performed, and (v) a Partnership Tenant shall give prompt notice to
Landlord of the admission of any such new partners, and upon demand of Landlord,
shall cause each such new partner to execute and
32
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deliver to Landlord an agreement in form satisfactory to Landlord, wherein each
such new partner shall assume performance of all the terms, covenants and
conditions of this Lease on Tenant's part to be observed and performed (but
neither Landlord's failure to request any such agreement nor the failure of nay
such new partner to execute or deliver any such agreement to Landlord shall
vitiate the provisions of subdivision (iv) of this Article 30).
31. VAULT SPACE. Any vaults, vault space or other space outside the boundaries
------------
of the Real Property, notwithstanding anything contained in this Lease or
indicated on any sketch, blueprint or plan are not included in the Premises.
Landlord makes no representation as to the location of the boundaries of the
Real Property. All vaults and vault space and all other space outside the
boundaries of the Real Property which Tenant may be permitted to use or occupy
is to be used or occupied under revocable license, and if any such license shall
be revoked, or if the amount of such space shall be diminished or required by
any Federal, State, or Municipal authority or by any public utility company,
such revocation, diminution or requisition shall not constitute an actual or
constructive eviction, in whole or in part, or entitle Tenant to any abatement
or diminution or rent, or relieved Tenant from any of its obligations under this
Lease, or impose any liability upon Landlord. Any fee, tax or charge imposed by
any governmental authority for any such vaults, vault space or other space shall
be paid by Tenant.
32. SECURITY DEPOSIT. Tenant shall deposit with Landlord on the signing of this
----------------
Lease the Security Deposit (as defined in Article 1 of this Lease) as security
for the faithful performance and observance by Tenant of the terms, conditions
and provisions of this Lease, including without limitation the surrender of
possession of the Premises to Landlord as herein provided. Landlord agrees to
deposit the Security Deposit in an interest bearing bank account located in New
York State. To the extent not prohibited by law, Landlord shall be entitled to
receive and retain as an administrative expense that portion of the interest
received on such account equal to one percent (1%) per annum of the Security
Deposit, which fee Landlord shall have the right to withdraw from time to time,
at Landlord's discretion. The balance of the interest shall be paid by Landlord
to Tenant from time to time, promptly after receipt of written request from
Tenant not more than once per Calendar year. Landlord shall not be required to
credit Tenant with any interest for any period during which Landlord does not
receive interest on the Security Deposit, nor shall Landlord have any liability
or obligation for loss of all or any portion of the Security Deposit by reason
of the insolvency or failure of the bank in which the Security Deposit is
deposited. It is agreed that in the event Tenant defaults in respect of any of
the terms, provisions and conditions of this Lease, including, but not limited
to, the payment of Rent and additional rent, Landlord may apply or retain the
whole or any part of the Security Deposit so deposited to the extent required
for the payment of any Rent and additional rent or any other sum as to which
Tenant is in default or for any sum which Landlord may expend or may be required
to expend by reason of Tenant's default in respect of any of the terms,
covenants and conditions of this Lease, including but not limited to, any
damages
33
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or deficiency in the reletting of the Premises, whether such damages or
deficiency accrue or accrues before or after summary proceedings or other
reentry by Landlord. If Landlord applies or retains any part of the Security
Deposit so deposited, Tenant, within three (3) days' after notice form Landlord,
shall deposit with Landlord the amount so applied or retained so that Landlord
shall have the full Security Deposit on hand at all times during their Term. The
failure by Tenant to deposit such additional amount within the foregoing time
period shall be deemed material default pursuant to Article 17 of this Lease. If
Tenant shall fully and faithfully comply with all of the terms, provisions,
covenants and conditions of this Lease, the security shall be returned to Tenant
after the Expiration Date and after delivery of the entire possession of the
Premises to Landlord. In the event of sale of the Real Property or the Building
or leasing of the Building. Landlord shall have the right to transfer the
Security Deposit to the vendee or lessee and Landlord shall thereupon be
released by Tenant from all liability for the return of the Security Deposit;
and Tenant agrees to look solely to the new Landlord for the return of the
Security Deposit; and it is agreed that the provisions hereof shall apply to
every transfer or assignment made of the Security Deposit to new Landlord.
Tenant further covenants that it will not assign or encumber or attempt to
assign or encumber or attempt to assign or encumber the Security Deposit and
that neither Landlord nor its successors or assigns shall be bound by any such
assignment, encumbrance, attempted assignment or attempted encumbrance.
33. CAPTIONS. The Captions are inserted only as matter of convenience and for
---------
reference and in no way define, limit or describe the scope of this Lease nor
the intent of any provision thereof.
34. ADDITIONAL DEFINITIONS.
-----------------------
A. The term "office" or "offices", wherever used in this Lease, shall not
be construed to mean premises used as store or stores, for the sale or display,
at any time, of goods, wares or merchandise, of any kind, or as restaurant,
shop, booth, bootblack or other stand, barber shop, or for other similar
purposes or for manufacturing.
B. The words "reenter" and "reentry" as used in this Lease are not
restricted to their technical legal meaning
C. The term "rent" as used in this Lease shall mean and be deemed to
include Rent, any increases in Rent, all additional rent and any other sums
payable hereunder.
D. The term "business days" as used in this Lease shall exclude Saturdays,
Sundays and all days observed by the State or Federal Government as legal
holidays and union holidays for those unions that materially affect the delivery
of services in the Building.
35. PARTIES BOUND. The covenants, conditions and agreements contained in this
--------------
Lease shall bind and inure to the benefit of Landlord and Tenant and their
respective heirs, distributees,
34
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executors, administrators, successors, and , except as otherwise provided in
this Lease, their assigns.
36. BROKER. Tenant represents and warrants that Tenant has dealt directly with
-------
(and only with), the Broker (as defined in Article 1 herein as broker in
connection with this Lease, and that insofar as Tenant knows no other broker
negotiated this Lease or is entitled to any commission in connection therewith,
and the execution and delivery of this Lease by Landlord shall be conclusive
evidence that Landlord has relied upon the foregoing representation and
warranty. Landlord represents that it has dealt directly with (and only with )
the Broker as broker in connection with this Lease. Landlord hereby agrees to
pay Broker and to indemnify Tenant as to Broker. /s/ R.T.
37. INDEMNITY. Neither Landlord nor Tenant shall not do or permit any act or
----------
thing to be done upon the Premises which may subject Landlord or Tenant to any
liability or responsibility for injury, damages to persons or property or to any
liability by reason of any violation of law or of any legal requirement of
public authority, but shall exercise such control over the Premises as to fully
protect Landlord or Tenant against any such liability. Tenant agrees to
indemnify and save harmless Landlord from and against (a) all claims of whatever
nature against Landlord arising from any act, omission or negligence of Tenant,
its contractors, licensees, agents, servants, employees, invitees or visitors,
including any claims arising from any act, omission or negligence of Landlord
and Tenant, (b) all claims against Landlord arising from any accident, injury or
damage whatsoever caused to any person or to the property of any person and
occurring during the Term in or about the Premises, (c) all claims against
Landlord arising from any accident, injury or damage occurring outside of the
Premises but anywhere within or about the Real Property, where such accident,
injury or damage results or is claimed to have resulted from an act or omission
of Tenant or Tenant's agents, employees, invitees or visitors, including any
claims arising from any act, omission or negligence of Landlord or Landlord and
Tenant, and (d) any breach, violation or nonperformance of any covenant,
condition or agreement in this Lease set forth and contained on the part of
Tenant to be fulfilled, kept, observed and performed. This indemnity and hold
harmless agreement shall include indemnity from and against any and all
liability, fines, suits, demands, costs and expenses of any kind or nature
incurred in or in connection with any such claim or proceeding brought thereon,
and the defense thereof. Landlord shall give Tenant immediate notice of any and
all occurrences which may be subject to this Paragraph 37.
38. ADJACENT EXCAVATION SHORING. If an excavation shall be made upon land
---------------------------
adjacent to the Premises, or shall be authorized to be made, Tenant shall afford
to the person causing or authorized to cause such excavation, license to enter
upon the Premises for the purpose of doing such work as said person shall deem
necessary to preserve the wall or the Building from injury or damage and to
support the same by proper foundations without any claim for damages or
indemnity against Landlord, or diminution or abatement of Rent.
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39. MISCELLANEOUS.
-------------
A. No Offer. This Lease is offered for signature by Tenant and it is
--------
understood that this Lease shall not be binding upon Landlord unless and until
Landlord shall have executed and delivered fully executed copy of this Lease to
Tenant.
B. Signatories. If more than one person or entity executes this Lease as
-----------
Tenant, each of then understands and hereby agrees that the obligations of each
of them under this Lease are and shall be joint and several, that the term
"Tenant" as used in this Lease shall mean and include each of them jointly and
severally and that the act of or notice from, or notice or refund to, or the
signature of, any one or more of them, with respect to the tenancy and/or this
Lease, including, but not limited to, any renewal, extension, expiration,
termination or modification of this Lease, shall be binding upon each and all of
the persons or entities executing this Lease as Tenant with the same force and
effect as if each and all of them had so acted or so given or received such
notice or refund or so signed.
C. Certificates. From time to time, within seven (7) days next following
------------
Landlord's request, Tenant shall deliver to Landlord written statement executed
and acknowledged by Tenant, in form satisfactory to Landlord, (i) stating that
this Lease is then in full force and effect and has not been modified (or if
modified, setting forth all modifications), (ii) setting forth the date to which
the Rent, additional rent and other charges hereunder have been paid, together
with the amount of fixed base monthly Rent then payable, (iii) stating whether
or not, to the best knowledge of Tenant, Landlord is in default under this
Lease, and, if Landlord is in default, setting forth the specific nature of all
such defaults, (iv) stating the amount of the security deposit under this Lease,
(v) stating whether there are any subleases affecting the Premises, (vi) stating
the address of Tenant to which all notices and communication under the Lease
shall be sent, the Commencement Date and the Expiration Date, and (vii) as to
any other matters requested by Landlord. Tenant acknowledges that any statement
delivered pursuant to this subsection C may be relied upon by any purchaser or
owner of the Real Property or the Building, or Landlord's interest in the Real
Property or the Building or any Superior Lease, or by any mortgagee of Mortgage,
or by any assignee of any mortgagee of Mortgage, or by any lessor under and
Superior Lease.
D. Directory Listings. Tenant shall receive three listings of Tenant's name
------------------
on the directory in the lobby of the Building.
E. Authority. If Tenant and/or Landlord is corporation or partnership, each
---------
individual executing this Lease on behalf of Tenant and/or Landlord hereby
represents and warrants that Tenant and/or Landlord is duly formed and validly
existing entity qualified to do business in the State of New York and that
Tenant and/or Landlord has full right and authority too executed and deliver
this Lease and that each person signing on behalf of Tenant and/or Landlord is
authorized to do so.
36
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F. Tenant shall not be permitted use of any roof areas of the premises and
the same are not included in this Lease.
IN WITNESS WHEREOF, Landlord and Tenant have respectively executed this
Lease as of the day and year first above written.
DINO & SONS REALTY CO., Landlord
By: /s/ ILLEGIBLE
------------------------------------
GLOBAL SHOPPING NETWORK, INC., Tenant
By: /s/ Barbara Lawrence
------------------------------------
Name: Barbara Lawrence
-----------------------------------
Title: President
---------------------------------
13-3840495
---------------------------------------
Tenant's Tax I.D. Number
37
<PAGE>
226 W. 26th St.
2nd Floor
[DRAWING OF FLOOR PLAN]
<PAGE>
226 W. 26th St.
3rd Floor
1/16" = 1'
[DRAWING OF FLOOR PLAN]
<PAGE>
226 W. 26th St.
4th Floor
1/16" = 1'
[DRAWING OF FLOOR PLAN]
<PAGE>
SCHEDULE A
RULES AND REGULATIONS
I. The rights of each tenant in the Building to the entrances, corridors
and elevators of the Building are limited to ingress to and egress from such
tenant's premises and no tenant shall use, or permit the use of the entrances,
corridors, or elevators for any other purpose. No tenant shall invite to its
premises, or permit the visit of persons in such numbers or under such
conditions as to interfere with the use and enjoyment of any of the plazas,
entrances, corridors, elevators and other facilities of the Building by other
tenants. No tenant shall encumber or obstruct, or permit the encumbrances or
obstruction of any of the sidewalks, plazas, entrances, corridors, elevators,
fire exits or stairways of the Building. Landlord reserves the right to control
and operate the public portions of the Building, the public facilities, as well
as facilities furnished for the common use of the tenants, in such manner as
Landlord deems best for the benefit of the tenants generally.
II. Landlord may refuse admission to the Building outside of ordinary
business hours to any person not known to the watchman in charge, or not having
a pass issued by Landlord or not properly identified, and may require all
persons admitted to or leaving the Building outside of ordinary business hours
to register. tenants' employees, agents and visitors shall be permitted to enter
and leave the Building whenever appropriate arrangements have been previously
made between Landlord and the tenant with respect thereto. Each tenant shall be
responsible for all persons for whom it requests such permission and shall be
liable to Landlord for all acts of such persons. Any person whose presence in
the Building at any time shall, in the judgment of Landlord, be prejudicial to
the safety, character, reputation or interests of the Building or its tenants
may be denied access to the Building or may be eJected therefrom. In case of
invasion, riot, public excitement or other commotion Landlord may prevent all
access to the Building during the continuance of the same, by closing the doors
or otherwise, for the safety of the tenants and protection of property in the
Building. Landlord may require any person, leaving the Building with any package
or other obJect to exhibit a pass from the tenant from whose premises the
package or object is being removed, but the establishment and enforcement of
such requirement shall not impose any responsibility on Landlord for the
protection of any tenant against the removal of property from the premises of
tenant. Landlord shall, in no way, be liable to any tenant for damages or loss
arising from the admission, exclusion or rejection of any person to or from a
tenant's premises or the Building under the provisions of this rule.
III. No tenant shall obtain or accept for use in its premises ice, drinking
water, towels , barbering, boot blacking, floor polishing , lighting
maintenance, cleaning or other similar services from any persons not authorized
by Landlord in writing to furnish such services. Such services shall be
furnished only at such hours, in such places within the tenant's premises and
under such regulation as may be fixed by Landlord.
IV. No window or other air-conditioning units shall be installed by any
tenant, and only such window coverings as are supplied or permitted by
Landlord shall be used in a tenant's premises.
V. There shall not be used in any space, nor in the public halls of the
Building, either by any tenant or by jobbers, or other in the deliver or receipt
of merchandise, any hand trucks, except those equipped with rubber tires and
side guards.
VI. All entrance door's in each tenant's premises shall be left locked when
the tenant's premises are not in use. Entrance doors shall not be left open at
any time. All windows in each tenant's premises shall be kept closed at all
times and all blinds therein above the ground floor shall be lowered when and as
reasonably required because of the position of the sun, during the operation of
the Building air-conditioning system to cool or ventilate the tenant's premises.
<PAGE>
VII. No noise, including the playing of any musical instruments, radio or
television, which, in the judgment of Landlord, might disturb other tenants in
the Building, shall be made or permitted by any tenant. No dangerous,
inflammable, combustible or explosive object, material or fluid shall be brought
into the Building by any tenant or with the permission of any tenant.
VIII. All damages resulting from any misuse of the plumbing fixtures shall
be borne by the tenant who, or whose servants, employees, agents, visitors, or
licensees, shall have caused the same.
IX. No signs, advertisement, notice or other lettering shall be exhibited,
inscribed, painted or affixed by any tenant on any part of the outside of the
premises or the Building without the prior written consent of Landlord. Signs
and lettering on doors shall be inscribed, painted, or affixed for each tenant
by Landlord at the expense of such tenant, and shall be of a size and color
acceptable to Landlord. Landlord may remove same without any liability and may
charge the expense incurred by such removal to the tenant or tenants violating
this rule. No tenant shall use any advertising which impairs the reputation of
the Building.
X. No additional locks or bolts of any kind shall be placed upon any of the
doors or windows in any tenant's premises and no lock on any door therein shall
be changed or altered in any respect. Duplicate keys for a tenant's premises and
toilet rooms shall be procured only from Landlord, which may make a reasonable
charge therefor. Upon the termination of a tenant's lease, all keys of the
tenant's premises and toilet rooms shall be delivered to Landlord.
XI. Each tenant, shall, at its expense, provide artificial light in the
premises for Landlord's agents, contractors and employees while performing
janitorial or other cleaning services and making repairs or alterations in said
premises.
XII. No tenant shall install or permit to be installed any vending
machines.
XIII. No animals or birds, bicycles, mopeds or vehicles of any kind shall
be kept in or about the Building or permitted therein.
XIV. No furniture, office equipment, packages or merchandise will be
received in the Building or carried up or down, in the elevator, except between
such hours as shall be designated by Landlord. Landlord shall prescribe the
charge for freight elevator use and the method and manner in which any
merchandise, heavy furniture, equipment or safes shall be brought in or taken
out of the Building, and also the hours at which such moving shall be done.
XV. All electrical fixtures hung in offices or spaces along the perimeter
of any tenant's premises must be fluorescent, of a quality, type, design and
bulb color approved by Landlord unless the prior consent of Landlord has been
obtained for other lamping.
XVI. The exterior windows and doors that reflect or admit light and air
into any premises or the halls, passageways or other public places in the
Building, shall not be covered or obstructed by any tenant, nor shall any
articles be placed on the windowsills.
XVII. Canvassing, soliciting and peddling in the Building is prohibited and
each tenant shall cooperate to prevent same.
XVIII. No tenant shall do any cooking, conduct any restaurant, luncheonette
or cafeteria for the sale or service of food or beverages to its employees or to
others, except as expressly approved in writing by Landlord. In addition, no
tenant shall cause or permit any odors of cooking or other processes or any
unusual or objectionable odors to emanate from the premises. The foregoing shall
not preclude tenant from having food or beverages delivered to the premises,
provided that no cooking or food preparation shall be carried out at the
premises.
<PAGE>
GSN
[LOGO]
October 30, 1996
Dino and Sons Realty Company
1590 Troy Avenue
Brooklyn, New York 11234
Corporate Offices
1740 Broadway (17th Floor)
New York, NY 10019
Tel: (212) 246-9000
Fax: (212) 246-4463
Studio
226 W. 26th St.
New York, NY 10001
Tel: (212) 463-8555
Fax: (212) 462-4160
Rachamim Anatian
Chief Executive Officer
Barbara Laurence
President
Moti Gal
Creative Director
Lucille Werlinich
Chief Financial Officer
Larry Muzzy
National Spokesperson
Kelly Dobbs
Director of Programming
Regina A Jabbour
Director of Legal Services
Harold Baker
Vice President of Merchandising
Stefanie Gross
Merchandise Manager
Shan Frank
Director of Public Relations
Re: Lease between Dino and Sons and
Global Shopoing Network
Gentlemen:
It is my understanding that you have agreed, (subject to your final approval
upon receipt of the specifications concerning items one through three below,
which approval shall not be unreasonably withheld) to the following matters
concerning the lease for the second, third and fourth Boors of 226 West 26th
Street, New York New York 10007 between the above mentioned parties. Please be
so land as to sign the line in the lower left hand corner of this letter to
indicate your written assent to the matters contained in this letter.
1 . That Global Shopping Network ("GSN") shall be permitted to erect or paint a
sign on the eastern face of the premises provided that the sign is removed by
GSN at the end of the lease term.
2. That GSN will be permitted to run pipes along the side of the premises
provided the pipes are removed at the end of the lease term.
3. That GSN will be permitted to erect a satellite receiving dish on top of the
building provided that it meets the load tolerance for the roof and good
operating, maintenance and engineering standards under the circumstances.
Additionally, GSN shall remove the dish at the end of the lease term. It IS also
understood that the tenant will indemnify the Landlord against any claims
pertaining to the use, operation and maintenance of the dish.
Thank you very much for your attention and cooperation in this matter.
Very truly yours,
/s/ Barbara Laurence
- ----------------------------
Barbara Laurence
President
Agreed and accepted:
/s/ Rosso Tinanett
- ---------------------------
lease.
<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 $ (10,832) $ (47,147) $ (824)
Income tax benefit 0 0 0
----------- ---------- -----------
Loss before income tax benefit (10,832) (47,147) (824)
Fixed charges 629 36,944 15
----------- ---------- -----------
Loss before income tax benefit and
fixed charges $ (10,203) $ (10,203) $ (809)
=========== ========== ===========
Fixed charges:
Interest 35,100
Amortization of deferred debt costs 1,215
Interest factor of rent expense (1) 629 629 15
----------- ---------- -----------
Total Fixed Charges $ 629 $ 36,944 $ 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
January 30, 1997
